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SMU(Sikkim Manipal University) Spring 2010 Second Semester Assignment Complete Set

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Page 1: SMU Spring 2010 Second Semester Assignment Complete Set

www.BeginWithDisbelief.com

MB0044-Productions and Operations Management-Assignment Set 1

MB0044 Production & operations Management Assignment Set- 1

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MB0044-Productions and Operations Management-Assignment Set 1

1. What are the components of systems productivity? Explain how CAD and

CIM help in improving productivity.

Production management encompasses all activities which go into conversion of a

sate of inputs into outputs which are useful to meet human needs. It involves the

identification of the perquisite materials, knowledge of the processes, and

installation of equipments necessary to convert or transform the materials to

products. System productivity is generally expressed as the ratio of outputs to

inputs. Productivity can be calculated for a single operation, a functional unit, a

department division or a plant. It is a measure of the efficiency of the system and

looks at the economies achieved during the processes. Every process will have

number of contributors-people machines, facilitating goods, ancillary

equipments, technology, etc. Which help in achieving maximum productivity -

each element attempting to enhance the contribution of other elements?

Enhancement of productivity is achieved by either reducing the inputs for the

same output or increasing the output by using the same input.

Opportunities exist at all stages of the workflow.

The entire system of introduce measures for increasing productivity. However in

actual manufacturing situations, the inefficiencies will have cascading effect in

hampering productivity.

Communication, effective review processes and innovative methods will ensure

optimization of resources. Capital productivity: Capital deployed in plant,

machinery, buildings and the distribution system as well as working capital are

components of the oust of manufacture and need to be productive. Demand

fluctuations, uncertainties of production owing to breakdowns and inventories

being crated drag the productivity down. Therefore, strategies are needed to

maximize the utilization of the funds allotted towards capital. Adapting to new

technologies, outsourcing and balancing of the workstations to reduce the

proportion of idle times on equipments are the focus of this section.

Computers in design and manufacturing applications make it possible to remove

much of the tedium and manual labor involved. For example, the many design

specifications, blueprints, material lists, and other documents needed to build

complex machines can require thousands of highly technical and accurate

drawings and charts. If the engineers decide structural components need to be

changed, all of these plans and drawings must be changed. Prior to CAD/CAM,

human designers and draftspersons had to change them manually, a time

consuming and error-prone process. When a CAD system is used, the computer

can automatically evaluate and change all corresponding documents instantly. In

addition, by using interactive graphics workstations, designers, engineers, and

architects can create models or drawings, increase or decrease sizes, rotate or

change them at will, and see results instantly on screen.

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CAD is particularly valuable in space programs, where many unknown design

variables are involved. Previously, engineers depended upon trial-and-error

testing and modification, a time consuming and possibly life-threatening process.

However, when aided by computer simulation and testing, a great deal of time,

money, and possibly lives can be saved. Besides its use in the military, CAD is also

used in civil aeronautics, automotive, and data processing industries.

CAM, commonly utilized in conjunction with CAD, uses computers to

communicate instructions to automated machinery. CAM techniques are

especially suited for manufacturing plants, where tasks are repetitive, tedious, or

dangerous for human workers.

Computer integrated manufacturing (CIM), a term popularized by Joseph

Harrington in 1975, is also known as Autofacturing. CIM is a programmable

manufacturing method designed to link CAD, CAM, industrial robotics, and

machine manufacturing using unattended processing workstations. CIM offers

uninterrupted operation from raw materials to finished product, with the added

benefits of quality assurance and automated assembly.

2. What do you understand by ‘industry best practice’? Briefly explain different types

of Benchmarking.

Industry best practice:

Each industry would have developed over years or decades. Materials would

have changed, processes would have changed. As all products or services are

meant to serve needs of the customers, they undergo continuous changes – both

in shapes and features. Because of research that is conducted, materials and

methods go on improve necessarily. The companies that were at the force

innovate to stay in business as new entrants would be adopting the latest

techniques that the pioneers had taken decades to establish. So the practices

adopted by various firms in any industry would end up adopting almost similar

methods of getting an output required. Such practices would get refined to great

extent giving rise what we call industry best practices. These tend to get

stabilized or changed owning to the development of new equipments which are

designed and manufacturers of those with an eye on growing markets which

demand higher quality and reduced prices. Competition benefits those who can

use all these to their advantage. Industry best practices open up the field for

benchmarking by companies which need to improve their performance.

Bench Marking:

It is a method of measuring a company’s processes, methods, procedures and in

a way all functions in great detail. Benchmarking is used to understand how

these got into the system and what circumstances brought them about. It is a

learning process with a few to find out whether some of the reasons have

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changed and bring in new processes for improvement.. The metrics that could be

used are – number of pieces per hour, cost per unit, number of breakdowns per

week, customer alienation during a week, return on investment, number of

returns from customers in a month, inventory turnover, and many others. As can

be seen the figures as found above determine the efficiency of the organization.

To keep focused, many organizations, especially the large ones, select a few

processes for purposes of benchmarking. This helps in ensuring constant and

deep attention to those aspects which are to be dealt with. The following are the

types of benchmarking firms consider.

Types of Benchmarking:

• Process benchmarking - the initiating firm focuses its observation and

investigation of business processes with a goal of identifying and observing the

best practices from one or more benchmark firms. Activity analysis will be

required where the objective is to benchmark cost and efficiency; increasingly

applied to back-office processes where outsourcing may be a consideration.

• Financial benchmarking - performing a financial analysis and comparing the

results in an effort to assess your overall competitiveness and productivity.

• Benchmarking from an investor perspective- extending the benchmarking

universe to also compare to peer companies that can be considered alternative

investment opportunities from the perspective of an investor.

• Performance benchmarking - allows the initiator firm to assess their

competitive position by comparing products and services with those of target

firms.

• Product benchmarking - the process of designing new products or upgrades to

current ones. This process can sometimes involve reverse engineering which is

taking apart competitors products to find strengths and weaknesses.

• Strategic benchmarking - involves observing how others compete. This type is

usually not industry specific, meaning it is best to look at other industries.

• Functional benchmarking - a company will focus its benchmarking on a single

function to improve the operation of that particular function. Complex functions

such as Human Resources, Finance and Accounting and Information and

Communication Technology are unlikely to be directly comparable in cost and

efficiency terms and may need to be disaggregated into processes to make valid

comparison.

• Best-in-class benchmarking - involves studying the leading competitor or the

company that best carries out a specific function.

• Operational benchmarking - embraces everything from staffing and

productivity to office flow and analysis of procedures performed.

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3. List out the various automated systems for transfer of materials in the production

plant. What do you understand by Line Balancing? Explain with an example.

About the automated flow lines we can say it is a machine which is linked by a

transfer system which moves the parts by using handling machines which are

also automated, we have an automated flow line.

Human intervention ma is needed to verify that the operations ate taking place

according to standards. When these can be achieved with the help of automation

and the processes are conducted with self regulation, we will have automated

flow lines established.

In fixed automation or hard automation, where one component is manufactured

using services operations and machines it is possible to achieve this condition.

We assume that product life cycles are sufficiently stable to interest heavily on

the automate flow lines to achieve reduces cast per unit. Product layouts ate

designed so that the assembly tasks are performed in the sequence they are

designed at each station continuously. The finished item came out at the end of

the line.

In automated assembly lines the moving pallets move the materials from station

to station and moving arms pick up parts, place them at specified place and

system them by perusing, riveting, & crewing or even welding. Sensors will keep

track of their activities and move the assembles to the next stage. The machines

are arranged in a sequence to perform operations according to the technical

requirements.

The tools are loaded, movements are effected, speeds controlled automatically

without the need for worker’s involvement. The flexibility leads to better

utilization of the equipments. It reduces the numbers of systems and rids in

reduction of investment as well as a space needed to install them. One of the

major cancers of modern manufacturing systems is to be able to respond to

market demands which have uncertainties.

Prototyping is a process by which a new product is developed in small number so

as to determine the suitability of the materials, study the various methods of

manufactured, type of machinery required and develop techniques to over come

problems that my be encountered when full scale manufacture is undertaken.

Prototypes do meet the specification of the component that enters a product

and performance can be measured on these. It helps in con be reforming the

design and any shortcomings can be rectified at low cost.

Flexibility has three dimensions in the manufacturing field. They are variety,

volume and time. There demands will have to be satisfied. In that sense they

become constraints which restrict the maximization of productivity. Every

business will have to meet the market demands of its various products in variety

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volumes of different time. Flexibility is also needed to be able to develop new

products or make improvements in the products fast enough to cater to shifting

marker needs. Manufacturing systems have flexibility built into them to enable

organization meet global demand. You have understood how the latest trends in

manufacturing when implemented help firms to stay a head in business.

4. Explain the different types of Quality Control Tools with examples? How do

Crosby’s absolutes of quality differ from Deming’s principles?

Quality Control (QC) is a system of routine technical activities, to measure and

control the quality of the inventory as it is being developed. The QC system is

designed to:

Provide routine and consistent checks to ensure data integrity,

correctness, and completeness;

Identify and address errors and omissions;

Document and archive inventory material and record all QC activities.

The following seven are considered basic tools for achieving quality.

I. Flow Chart

II. Check sheet

III. Histogram

IV. Pareto Analysis

V. Scatter Diagram

VI. Control Chart

VII. Cause and Effect Diagram

Flow Chart

It is a visual representation of process showing the various steps. It helps in

locating the points at which a problem exists or an improvement is possible.

Detailed data can be collected, analyzed and methods for correction can be

developed. A sample is shown below lists out the various steps or activities in a

particular job. It classifies them as a procedure or a decision. Each decision point

generates alternatives. Criteria and Consequences that go with decision are

amenable to evaluation for purposes of assessing quality. The flow chart helps in

pin-pointing the exact at which errors have crept in. A simple chart is shown

below.

Check Sheet

These are used to record the number of defects, types of defects, locations at

which they are occurring, times at which they are occurring, workmen by whom

they are occurring. It keeps a record of the frequencies of occurrence with

reference to possible defect causing parameter. It helps to implement a

corrective procedure at the point where the frequencies are more, so that the

benefit of correct will be maximum. A sample sheet is shown below.

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Histogram

Histograms are graphical representations of distribution of data. They are

generally used to record huge volumes of data about a process. They reveal

whether the pattern of distribution – whether there is a single peak, or many

peak and also the extent of variation around the peak value. This helps in

identifying whether the problem is serious. When used in conjunction with

comparable parameters, the visual patterns help us to identify the problem

which should be attended to.

Pareto Analysis

This is a tool for classifying problem areas according to the degree of importance

and attending to the most important. Pareto principle, also called 80-20 rule,

states that 80 percent of the problems that we encounter arise out of 20 percent

of items. If we find that, in a day, we have 184 assemblies have given problems

and there are 11 possible causes, it is observed that 80 per cent of them i.e. 147

of them have been caused by just 2 or 3 of them. It will be easy to focus on these

2 or three and reduce the number of defects to a great extent. When the cause

of these defects have been attended, we will observe that some other defect

Scatter Diagram

These are used when we have two variables and want to know the degree of

relationship between them. We can determine if there is cause and effect

relationship between and its extent over a range of values. Sometimes, we can

observe that there is no relationship, in which we can change one parameter

being sure that it has no effect on the other parameter.

Control Charts

These are used to verify whether a process is under control. Variables when they

remain within a range will render the product maintain the specifications. This is

the quality of conformance. The range of permitted deviations is determined by

design parameters. Samples are taken and the mean and range of the variable of

each sample (subgroup) is recorded. The mean of the means of the samples gives

the control lines. Assuming normal distribution, we expect 99.97 per cent of all

values to lie within the UCL when we take 3 standard deviations – Upper Control

Limit – and LCL – Lower Control Limit. The graphical representation of data helps

in changing settings to bring back the process closer to the target.

Cause and Effect Diagram

This is a diagram in which all possible causes are classified on quality

characteristics which lead to a defect. These are arranged in such a way that

different branches — the causes are – leading the stem in the direction of the

discovery of the problem. When each of them is investigated thoroughly we will

be able to pinpoint some factors which cause the problem. We will also observe

that a few of them will have cumulative effect or even a cascading effect.

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Deming Wheel

Deming’s approach is summarized in his 14 points.

Constancy of purpose for continuous improvement

Adopt the TQM philosophy for economic purposes

Do not depend on inspection to deliver quality

Do not award any business based on price alone

Improve the system of production and service constantly

Conduct meaningful training on the job

Adopt modern methods of supervision and leadership

Remove fear from the minds of everyone connected with the organisation

Remove barriers between departments and people

Do not exhort, repeat slogans and put up posters.

Do not set up numerical quotas and work standards

Give pride of workmanship to the workmen

Education and training to be given vigorously

State and exhibit top management’s commitment for quality and productivity

Using the above principles, Deming gave a four step approach to ensure a

purposeful journey of TQM. The slope is shown to indicate that if efforts are let

up the program will roll back

Plan – means that a problem is identified, processes are determined and relevant

theories are checked out.

Do – means that the plan is implemented on a trial basis. All inputs are correctly

measured and recorded.

Check/Study/Analyze – means that the trials taken according to the plan are in

accordance with the expected results.

Act – When all the above steps are satisfactory regular production is started so

that quality outcomes are assured

Crosby’s Absolutes of Quality

Like Deming, he also lays emphasis on top management commitment and

responsibility for designing the system so that defects are not inevitable. He

urged that there be no restriction on spending for achieving quality. In the long

run, maintaining quality is more economical rather than compromising on its

achievement.

His absolutes can be listed as under.

Quality is conformance to requirements – not ‘goodness’.

Prevention, not appraisal, is the path to quality.

Quality is measured as the price paid for non-conformance and as indexes.

Quality originates in all factions – not quality department. There are no quality

problems people, design, process create problems.

Crosby also has given 14 points similar to those of Deming. His approach

emphasizes on measurement of quality, increasing awareness, corrective action,

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error cause removal and continuously reinforcing the system, so that advantages

derived are not lost over time. He desires that the quality management regimen

should improve the overall health of the organization and prescribed a vaccine.

The ingredients are:

Integrity – honesty and commitment to produce everything right first time, every

time.

Communication – Flow of information between departments, suppliers,

customers – helps in identifying opportunities.

Systems and operations – These should bring in a quality environment – so that

nobody is comfortable with anything less than the best.

5. Define project cycle, project management, and scope of project. List the various

project management knowledge areas? What are the reasons for failure of a project?

Project Cycle – A project cycle basically consists of the various activities of

operations, resources and the limitations imposed on them.

Definition of “Project Management”:

It is the practice of controlling the use of resources, such as cost, time,

manpower, hardware and software involved in a project, that start with a

problem statement and end with delivery of a complete product. Project

management involves understanding its scope and various processes in the

project cycle.

Project Management Definition

As per PMBOK (Project Management — Body of Knowledge, defined by

PMI – Project Management Institute) :

“Project management is the application of knowledge, skills, tools and

techniques to project activities to meet project requirements.

As per DIN 69901 (German Organization for Standardization):

“Project management is the complete set of tasks, techniques, tools applied

during project execution”

Scope – It refers to the various parameters that affect the project in its planning,

formulation and executions,

Like:-

The range of one's perceptions, thoughts, or actions.

Breadth or opportunity to function. See Synonyms at room.

The area covered by a given activity or subject. See Synonyms at range.

The length or sweep of a mooring cable.

Informal A viewing instrument such as a periscope, microscope, or telescope.

Before knowing the reasons of failure we have to know about project.

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Project is a set of activities which are networked in order and aimed towards

achieving goal of a project.

Now, the reasons are project failure:

Incidence of Project failure

Projects being initiated of random at all levels

Project objective not in line with business objective

Project management not observed

Project manager with no prior experience in the related project

Non- dedicated team

Lack of complete support from clients

Factors contributing to project success not emphasized:

Project objective in alignment with business objective

Working within the framework of project management methodology

Effective scoping planning, estimation, execution, controls and reviews, project

bottlenecks

Communication and managing expectations effectively with clients, team merits

and stake holders

Prior expectance of PM in a similar project

Overview of information and communication Technologies (ICT) project:

Involve information and communication technologies such as the word wide

web, e-mail, fiber-optics satellites.

ii) Enable societies to produce, access, adapt and apply information in greater

amount, more rapidly and at reduce casts.

iii) Offer enormous opportunities for enhancing business and economic viability.

iv) Common problems encountered during projects.

v) No prioritization of project activity from an organizational position.

vi) One or more of the stages in the project mishandled.

vii) Less qualified non-dedicated manpower.

viii) Absence of smooth flow of communication between the involved parties.

These basic reasons lead a project to failures. In the project failures business

management and project management is directly involved. From the

management point of view it is basic things to care above topics to success of a

project. Project is the core business of a company.

6. Explain the various phases in project management life cycle. Explain the necessity

and objectives of SCM.

This is the initial phase of any project. In this phase information is collected from

the customer pertaining to the project and the requirements are analyzed. The

entire project has to be planned and it should be done in a strategic manner. The

project manager conducts the analysis of the problem and submits a detailed

report to the top project justification, details on what the problem is a method of

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solving the problem, list of the objectives to be achieved, project budget and the

success rate of completing the project.

The report must also contain information and the project feasibility, and the risks

involved in the project. Project management life cycle is the integrated part of

management. It is attach with project responsibility or failure of a project.

The important tasks of this phase are as follows:

o Specification Requirements Analysis (SRA): It has to be conducted to

determine the essential requirements of a project in order to achieve

the target.

o Feasibility study: To analyze whether the project is technically,

economically and practically feasible to be undertaken.

o Trade off analysis: To understand and examine the various

alternatives which could be considered.

o Estimation: To estimate the project cost, effort requires for the

project and functionality of various process in the project.

o System design: Choose a general design that can fusil the

requirements.

o Project evolution: Evaluate the project in terms of expected profit,

cost and risks involved marketing phase. A project proposal is

prepared by a group of people including the project manager. This

proposal has to contain the strategies adopted to market the product

to the customers.

o Design phase: This phase involves the study of inputs and outputs of

the various project stages.

o Execution phase: In this phase the project manager and the teams

members work on the project objectives as per the plan. At every

stage during the execution reports are prepared.

o Control: Inspecting, Testing and Delivery phase during this phase. The

project team works under the guidance of the project manager. The

project manager has to ensure that the team working under his,

implements the project designs accurately, the project manager has

to ensure ways of managing the customer, perform quality control

work.

Closure and post completion analysis phase upon satisfactory completion and

delivery of the intended product or service the staff performance has to be

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evaluated. Document the lessons from the project. Prepare the reports on

project feedback analysis followed by the project execution report.

The phase which involve in the above are:

The preparation stage involves the preparation and approval of project outline,

project plan and project budget.

The next stage involves selecting and briefing the project team about the

proposals followed by discussions on the roles and responsibility of the project

member and the organization.

The project management life cycle:

A Life cycle of a project consists of the following:

Understanding the scope of the project

Establishing objectives of the project

Formulating and planning various activities

Project execution and Monitor and control the project resources.

Risk Management:

Risk is defined in ISO 31000 as the effect of uncertainty on objectives (whether

positive or negative). Risk management can therefore be considered the

identification, assessment, and prioritization of risks followed by coordinated and

economical application of resources to minimize, monitor, and control the

probability and/or impact of unfortunate events or to maximize the realization of

opportunities. Risks can come from uncertainty in financial markets, project

failures, legal liabilities, credit risk, accidents, natural causes and disasters as well

as deliberate attacks from an adversary. Several risk management standards

have been developed including the Project Management Institute, the National

Institute of Science and Technology, actuarial societies, and ISO standards.

Methods, definitions and goals vary widely according to whether the risk

management method is in the context of project management, security,

engineering, industrial processes, financial portfolios, actuarial assessments, or

public health and safety.

The strategies to manage risk include transferring the risk to another party,

avoiding the risk, reducing the negative effect of the risk, and accepting some or

all of the consequences of a particular risk.

Certain aspects of many of the risk management standards have come under

criticism for having no measurable improvement on risk even though the

confidence in estimates and decisions increase.

Necessity and objectives of SCM:

SCM is the abbreviation of supply chain Management. It is considered by many

express worldwide as the ultimate solution towards efficient enterprise

management.

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SCM is required by and enterprise as a tow to enhance management

effectiveness with a following organizational objective:

Reduction of inventory:-Enactment in functional effectiveness of existing systems

like ERP, Accounting. Software and Documentation like financial reports

statements ISO 9000 Documents etc.

Enhancement of participation level and empowerment level:

Effective integration of multiple systems like ERP, communication systems,

documentation system and secure, Design R&D systems etc.

Better utilization of resources- men, material, equipment and money.

Optimization of money flow cycle within the organization as well as to and from

external agencies.

Enhancement of value of products, operations and services

and consequently, enhancements of profitability.

Enhancement of satisfaction level of customer and clients,

supporting institutions, statutory control agencies,

supporting institutions, statutory control agencies,

suppliers and vendors, employees and executives .

Enhancement of flexibility in the organization to help in

easy implementation of schemes involving modernization,

expansion and divestment, merges and acquisitions

Enhancement of coverage and accuracy of management

information systems. With the objectives of SCM its

implementation are required. Implementation is in the

form of various functional blocks of an organization

interpenetrated through which a smooth flow of the

product development is possible.

A relatively new SCM option involves web based software with a browser

interface. Several electronic marketplaces for buying and selling goods and

materials.

Steps involved in the implementation of SCM:

There is many steps which involved in SCM implementation are- Business

Process, sales and marketing. Logistics, costing, demand planning, trade- off

analysis, environmental requirement, process stability, integrated supply,

supplier management, product design, suppliers, customers, material

specifications, etc.

Some important aspect of SCM:

The level of competition existing in the market and the impact of competitive

forces on the product development. Designing and working on a strategic logic

for better growth through value invention. Working out new value curve in the

product development along with necessary break point. Using it to analyze

markets and the economies in product design. Time, customer, quality of

product and the concept of survival of fittest.

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Steps of SCM principals:

Group customer by need: Effective SCM groups, customer by tie tinct service

meets those particular segment.

Customize the logistics networks: In designing their logistics network, companies

need to focus on the service requirement and profit potential of the customer

segments identified. Listen to signals of market demand and plan accordingly-

sales and operations planners must monitor the entire supply chain to detect

early warning signals of changing customer demand and needs.

Differentiate the product closer to the customer: companies today no longer can

afford to stock pile inventory to compensate for possible forecasting errors,

instead, they need to postpone product differentiation in the manufacturing.

Process closer to actual customer demand.

Strategically manage the source of supply: by working closely with their key

suppliers to reduce the overall casts of owning materials and services; SCM

maximizes profit margins both for themselves, and their supplies.

Develop a supply chain wide technology strategy: as one of the cornerstones of

successful SCM information technology must be able to support multiple levels

of decision making.

Adopt channel spanning performance measures- Excellent supply performance

measurement systems do more than just monitor internal functions. They apply

performance criteria that embrace bathe service and financial metrics, including

as such as each accounts true profitability.

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MB0044 Production & operations Management Assignment Set- 2

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1. Take an example of any product or service industry and explain the factors

considered while taking the decision on plant location.

Facility Planning Process

Planning is the most important function of management. It is important especially,

when we have to deal with lands, buildings, and machineries.

Lands, buildings and machineries are costly and once fixed cannot be moved easily.

Planning, therefore, requires a lot of thought, data gathering, and estimates for the

future. These considerations are vital for the success of any firm. Now to deeply

understand the importance of planning in operations management, we consider the

planning into two parts.

1. Planning the location of the plant

2. Planning the manufacturing facility layouts

Planning the location of the plant

You will now study about planning for the location of a plant. You will also study the

various factors that affect the economics of competing locations and helps in

choosing the most optimal location.

Factors influencing Plant Location can be broadly divided into two types namely:

general factors and special factors (See Figure Factors influencing plant location).

Figure: Factors influencing plant location

Below are the factors influencing plant location:

General factors

The general factors that influence the plant location are listed below (See Figure 5.2

General factors influencing plant location).

1. Availability of land: Availability of land plays an important role in determining the

plant location. Many-a-time, our plans, calculations and forecasts suggest a

particular area as the best to start an organisation. However, availability of land may

be in question. In such cases, we will have to choose the second best location.

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2. Availability of inputs: While choosing a plant location, it is very important for the

organisation to get the labour at the right time and raw materials at good qualities.

The plant should be located:

· Near to the raw material source when there is no loss of weight

· At the market place when there is a loss of weight in the material

· Close to the market when universally available, so as to minimise the transportation

cost

Figure: General factors influencing plant location

3. Closeness to market places: Organisations can choose to locate the plant near to

the customers’ market or far from them, depending upon the product they produce.

It is advisable to locate the plant near to the market place, when:

• The projection life of the product is low

• The transportation cost is high

• The products are delicate and susceptible to spoilage

• After sales services are promptly required very often

The advantages of locating the plant near to the market place are:

• Consistent supply of goods to the customers

• Reduction of the cost of transportation

4. Communication facilities: Communication facility is also an important factor

which influences the location of a plant. Regions with good communication facilities

viz. Postal and Tele communication links should be given priority for the selection of

sites.

5. Infrastructure: Infrastructure plays a prominent role in deciding the location. The

basic infrastructure needed in any organisation are:

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a. Power: For example, industries which run day and night require continuous power

supply. So they should be located near to the power stations and should ensure

continuous power supply throughout the year.

b. Water: For example, process industries such as, paper, chemical, and cement,

requires continuous water supply in large amount. So, such process industries need

to be located near to the water.

c. Waste disposal: For example, for process industries such as, paper and sugarcane

industries facility for disposal of waste is the key factor.

6. Transport: Transport facility is a must for facility location and layout of location of

the plant. Timely supply of raw materials to the company and supply of finished

goods to the customers is an important factor. The basic modes of transportation are

by Air, Road, Rail, Water, and Pipeline. The choice of location should be made

depending on these basic modes. Cost of transportation is also an important

criterion for plant location.

7. Government support: The factors that demand additional attention for plant

location are the policies of the state governments and local bodies concerning labour

laws, building codes, and safety.

8. Housing and recreation: Housing and recreation factors also influence the plant

location. Locating a plant with the facilities of good schools, housing and recreation

for employees will have a greater impact on the organisation. These factor seems to

be unimportant, but have a difference as they motivate the employees and hence

the location decisions.

5.2.1.2 Special factors

The special factors that influence the plant location are:

1. Economic stability – outside investments 2. Cultural factors 3. Wages 4. Joint ventures – support of big time players

2. What is Business Process? Explain with an example as to why a business process

is to be modelled.

Business Process is a total response that a business undertakes utilizing resources

and delivering outputs that create value for the customer. The same can be listed as

under.

The Business Process

(i) has a goal;

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(ii) uses specific inputs;

(iii) delivers specific outputs;

(iv) collects resources;

(v) performs a number of activities in some order;

(vi) creates value for the customer.

Business Process Management refers to a set of activities undertaken to optimise

the business process for improving their performance, deliver better value for the

customer, maximize the earnings and keep its head above competition. The business

system contains a combination of people and the applications organised to meet

business objectives. The applications are automated to enable information and

reporting system to be accurate, timely and efficient. Designers and programmers

put together the data and processes to provide optimum benefits, and put in place

the architecture which is capable of addressing these needs. The architecture should

be flexible to adapt new methods, processes and even business plans. All the

elements activities, parts, products, data, people, processes, software tools, delivery

systems, performance measurement have to be structured and controlled the for

purposes of analysis, evaluation, modification, implementation and correction. This

is what we study under Business Process Modeling. Because of the extensive use of

various software programmes for all these activities, BPM is used synonymously

used for the software tools also.

BPM is not rigid in the path the activities or the way entities need to align, makes it

more flexible. Therefore it not any more necessary to define the total process

initially. The flow of the activities need not be fitted into a ‘model’ to be followed

continuously, but can be adapted to suit the situations the process is in. The user has

choices of subsequent activities and take advantage of the flexibility the process is

allowed to have.

Logical Process Modeling is the representation of putting together all the activities of

business process in detail and making a representation of them. The initial data

collected need to be arranged in a logical manner so that links are made between

nodes for making the workflow smooth.

The steps are as under:

(a) Capturing relevant data in detail to be acted upon;

(b) Establishing controls and limiting access to the data during process execution;

(c) Determining as which task in the process to be done and subsequent tasks in that

process;

(d) Making sure that all relevant data are available for all the tasks that need to be in

the order determined;

(e) Making available the relevant and appropriate data for that task;

(f) Establishing a mechanism to indicate acceptance of the results after every task or

process to have the assurance that flow is going ahead with accomplishments in the

desired path.

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Some of the activities may occur in sequential order whereas some of them may run

parallel. There may be circular paths, like rework loops. Complexities arise out of the

manner in which process activities are connected together. Logical Process Model

consists only of the business activities and shows the connectivity among them. The

process model is a representation of the business activities different from the

technology dependent ones. Thus we have a model that is singularly structured only

for business activities. Since computer programmes are also present in the total

system, to allow the business oriented executives to be in control of the inputs,

processes and outputs, this unique model is helpful. Logical Process Model –

improves control on the access to data and identifies who is in possession of data at

different nodes in the dataflow network that has been structured.

A few of the logical modeling formats are given below –

a) Process Descriptions with task sequences and data addresses

b) Flow Charts with various activities and relationships

c) Flow Diagrams

d) Function hierarchies

e) Function dependency diagrams.

Every business activity when considered as a logical process model and represented

by a diagram. It can be decomposed and meaningful names given to the details. Verb

and Noun combinations can be used to described at each level. Nouns give the name

of the activity uniquely and used for the entire model meaning the same activity.

3. What is Value Engineering? Explain briefly its origins and objectives.

Value Engineering (VE) or Value Analysis is a methodology by which we try to find

substitutes for a product or an operation.

The concept of value engineering originated during the Second World War. It was

developed by the General Electric Corporations (GEC). Value Engineering has gained

popularity due to its potential for gaining high Returns on Investment (ROI). This

methodology is widely used in business re-engineering, government projects,

automakers, transportation and distribution, industrial equipment, construction,

assembling and machining processes, health care and environmental engineering,

and many others. Value engineering process calls for a deep study of a product and

the purpose for which it is used, such as, the raw materials used; the processes of

transformation; the equipment needed, and many others. It also questions whether

what is being used is the most appropriate and economical. This applies to all

aspects of the product.

For the above example, studies can be conducted to verify whether any operation

can be eliminated. Simplification of processes reduces the cost of manufacturing.

Every piece of material and the process should add value to the product so as to

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render the best performance. Thus, there is an opportunity at every stage of the

manufacturing and delivery process to find alternatives which will increase the

functionality or reduce cost in terms of material, process, and time.

The different aspects of value engineering can be encapsulated into a sequence of

steps known as a ‘Job Plan’. Value Engineering in organisations helps to identify:

· The problem or situation that needs to be changed/improved

· All that is good about the existing situation

· The improvements required in the situation

· The functions to be performed

· The ways of performing each function

· The best ways among the selected functions

· The steps to be followed to implement the function

· The person who executes the function

It should be remembered that we are not seeking a cost reduction sacrificing quality.

It has been found that there will be an improvement in quality when systematic

value analysis principles are employed.

4. Discuss the difference between work study and motion study. Explain with an

example.

Work practices are ways of doing any work which has been in vogue and found to be

useful. These are determined by motion and time study conducted over years and

found to be efficient and practiced. Any method improvement that is conducted may

be adopted to change the practice, but only after trials they have shown that, they

increase the comfort of the worker and get the job done faster.

Work study

We say that work study is being conducted when analysis of work methods is

conducted during the period when a job is done on a machine or equipment. The

study helps in designing the optimum work method and standardization of the work

method. This study enables the methods engineer to search for better methods for

higher utilization of man and machine and accomplishment of higher productivity.

The study gives an opportunity to the workmen to learn the process of study thus

making them able to offer suggestions for improved methods. This encourages

workmen participation and they can be permitted to make changes and report the

advantages that can be derived from those. This course is in alignment with the

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principle of continuous improvement and helps the organization in the long run.

Reward systems may be implemented for recognizing contributions from the

workmen.

Work study comprises of work measurement and method study. Work measurement

focuses on the time element of work, while method study focuses on the methods

deployed and development of better methods.

Work measurement

Work measurement can be defined as a systematic application of various techniques

that are designed to establish the content of work involved in performing a specific

task.

The task is performed by a qualified worker. With this we arrive at the standard time

for a task. This will be used to fix performance rating of other workers. It forms the

basis of incentives, promotion, and training for workmen and assessment of capacity

for the plant. Hence, training the workers is very important. (See figure 15.3)

ILO defines a qualified worker as “one who is accepted as having the necessary

physical attributes, possessing the required intelligence and education, and having

acquired the necessary skill and knowledge to carry out the work in hand to

satisfactory standards of safety, quantity, and quality”.

Figure Training workers

Methods study

Method study focus is on studying the method currently being used and developing

a new method of performing the task in a better way. Operation Flow charts, Motion

Charts, Flow Process charts, which are the elements of the task, are studied to find

the purpose of each activity, the sequence in which they are done, and the effect of

these on the work. The study may help in changing some of them and even eliminate

some of them to effect improvements. The new method should result in saving of

time, reduced motions, and simpler activities.

Machine worker interaction

Machine worker interaction study consists of studying the amount of time an

operator spends on the machine before it is activated and the time he has nothing to

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do. In many modern manufacturing centres, where we have automated systems of

manufacturing, the role of the worker is limited to, observing various screens, dials,

indicator lamps to see that the process is going on smoothly. In some cases, his job

may be to load the jobs on the machines and check the settings. What is of concern

to us, is to see whether the operations permit for enabling an operator to look after

two or three machines, without affecting of the performance of the machine or man.

Ergonomics

Ergonomics is the study of physical human factors and their functioning. We study

the movements, the amount of energy that is required for certain activities, and the

coordination among them. In operations management, we use these factors at two

places.

The first is when we design the machines which are operated, the way the operator

does the tasks on the machine using different controls. Levers, wheels, switches,

pedals (See figure) have to be positioned so that the operators have maximum

comfort for long working hours.

Figure: Equipment positioned to enable maximum comfort

The other factor is the consideration given for the type of loads the body can take at

various positions. When doing jobs like lifting, clamping, moving, and holding, energy

is expended by different organs for which racks, tables, pallets, are positioned and

designed to suit workers’ physical features.

5. Time taken by three machines on five jobs in a factory is tabulated below in

table below. Find out the optimal sequence to be followed to minimise the idle

time taken by the jobs on the machines.

Job Machine

1 (M1)

Machine

2 (M2)

Machine

3 (M3)

A 6 8 7

B 4 5 3

C 5 5 7

D 3 4 6

E 4 3 4

Ans:

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Consider M1 and M3

Job Machine

1 (M1)

Machine

3 (M3)

A 6 7

B 4 3

C 5 7

D 3 6

E 4 4

JOB = D E C A B

6. List the seven principles of SCM. Discuss Bullwhip effect, its effects and

countermeasures.

Seven Principles of SCM:

1. Group customer by needs – Effective SCM groups customer by distinct

service needs, regardless of industry and then tailors services to those

particular segments.

2. Customize the logistics network – In designing their logistics network,

companies need to focus on the service requirement and profit potential of

the customer segments identified.

3. Listen to signals of market demand and plan accordingly – Sales and

operations planners must monitor the entire supply chain to detect early

warning signals of changing customer demand and needs. This demand

driven approach leads ot more consistent forecast and optimal resource

allocation.

4. Differentiate the product closer to the customer – Companies today no

longer can afford to stock pile inventory to compensate for possible

forecasting errors. Instead , they need to postpone product differentiation in

the manufacturing process closer to actual consumer demand. This strategy

allows the supply chain to respond quickly and cost effectively to changes in

customer needs.

5. Strategically manage the sources of supply by working closely with their key

suppliers to reduce the overall costs of owning materials and services, SCM

maximizes profit margins both for themselves and their suppliers.

6. Develop a supply chain wide technology strategy – as one of the cornerstones

of successful SCM information technology must be able to support multiple

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levels of decision making. It also should afford a clear view and ability to

measure the flow of products, services and information.

7. Adopt channel spanning performance measures – Excellent supply chain

performance measurement systems do more than just monitor internal

functions. They apply performance criteria to every link in the supply chain –

criteria that embrace both service and financial metrics, including as each

accounts true profitability.

Bullwhip Effect in SCM

An organization will always have ups and downs. It is necessary that the managers of

the organization keep track of the market conditions and analyze the changes. They

must take decisions on the resources and make necessary changes within the

organization to meet the market demands. Failing to do so may result in wild swings

in the orders. This may adversely affect the functioning of the organization resulting

in lack of coordination and trust among supply chain members. The changes may

affect the information and may lead to demand amplification in the supply chain.

The Bullwhip effect is the uncertainty caused from distorted information flowing up

and down the supply chain. This has its affect on almost all the industries, poses a

risk to firms that experience large variations in demand, and also those firms which

are dependent on suppliers, distributors and retailers.

A bullwhip effect may arise because of

increase in the lead time of the project due to increase in variability of

demand

increase in the stocks to accommodate the increasing demand arising out of

complicated demand models and forecasting techniques

reduced service levels in the organization

inefficient allocation of resources

increased transportation cost

How to prevent it?

Bullwhip effect may be avoided by one or more of the following measures:

Avoid multiple demand forecasting

Breaking the single orders into number of batches of orders

Stabilize the prices, avoid the risk involved in overstocking by maintaining a

proper stock.

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Reduce the variability and uncertainty in point of sale (POS) and sharing

information.

Reduce the lead time in the stages of the project.

Always keep analyzing the past figures and track current and future levels of

requirements

Enhance the operational efficiency and outsourcing logistics to a capable and

efficient agency.

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MB0045

Financial Management

Assignment Set- 1

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Q.1 Write short notes on

1. Financial management

2. Financial planning

3. Capital structure

4. Cost of capital

5. Trading on equity.

1. Financial Management

Financial Management is planning, directing, monitoring, organizing, and controlling

of the monetary resources of an organization. The management of the finances of a

business / organization in order to achieve financial objectives. Financial

Management is the efficient and effective planning and controlling of financial

resources so as to maximize profitability and ensuring liquidity for an

individual(called personal finance), government(called public finance) and for profit

and non-profit organization/firm (called corporate or managerial finance). Generally,

it involves balancing risks and profitability.

The decision function of financial management can be divided into the following 3

major areas:

INVESTMENT DECISION

1. Determine the total amount of assets needed by a firm hence closely tied to

the allocation of funds

2. Two type of investment decisions namely:

• Capital Investment decisions re: large sums, non routine, longer term, critical

to the business like purchase of plant and machinery or factory

• Working Capital Investment decisions re: more routine in nature, short term

but are also very critical decisions like how much and how long to invest in

inventories or receivables

FINANCING DECISION

1. After deciding on the amount and type of assets to buy, the financial

manager needs to decide on HOW TO FINANCE these assets with the sources

of fund

2. Financing decisions for example:

• Whether to use external borrowings/debts or share capital or retained

earnings

• Whether to borrow short, medium or long term

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• What sort of mix – all borrowings or part debts part share capital or 100%

share capital

• The needs to determine how much dividend to pay out as this will directly

affects the financial decision.

2. Financial Planning Financial Planning is an exercise aimed to ensure availability of right amount of

money at the right time to meet the individual’s financial goals

Concept of Financial Planning

Financial Goals refer to the dreams of the investor articulated in financial terms.

Each dream implies a purpose, and a schedule of funds requirements for realising

the purpose

Asset Allocation refers to the distribution of the investor’s wealth between different

asset classes (gold, property, equity, debt etc.)

Portfolio Re-balancing is the process of changing the investor’s asset allocation

Risk Tolerance / Risk Preference refers to the appetite of the investor for investment

risk viz. risk of loss

Financial Plan Is a road map, a blue print that lists the investors’ financial goals and

outlines a strategy for realising them

Quality of the Financial Plan is a function of how much information the prospect

shares, which in turn depends on comfort that the planner inspires

3. Capital Structure

Capital structure of a firm is a reflection of the overall investment and financing

strategy of the firm.

Capital structure can be of various kinds as described below:

- Horizontal capital structure: the firm has zero debt component in the

structure mix. Expansion of the firm takes through equity or retained

earnings only.

- Vertical capital structure: the base of the structure is formed by a small

amount of equity share capital. This base serves as the foundation on

which the super structure of preference share capital and debt is built.

- Pyramid shaped capital structure: this has a large proportion consisting of

equity capita; and retained earnings.

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- Inverted pyramid shaped capital structure: this has a small component of

equity capital, reasonable level of retained earnings but an ever-

increasing component of debt.

SIGNIFICANCE OF CAPITAL STRUCTURE:

- Reflects the firm’s strategy

- Indicator of the risk profile of the firm

- Acts as a tax management tool

- Helps to brighten the image of the firm.

FACTORS INFLUENCING CAPITAL STRUCTURE:

- Corporate strategy

- Nature of the industry

- Current and past capital structure

4. Cost of Capital

Cost of capital is the rate of return the firm requires from investment in order to

increase the value of the firm in the market place. In economic sense, it is the cost

of raising funds required to finance the proposed project, the borrowing rate of the

firm. Thus under economic terms, the cost of capital may be defined as the weighted

average cost of each type of capital.

There are three basic aspects about the concept of cost

1. It is not a cost as such: The cost of capital of a firm is the rate of return which it

requires on the projects. That is why; it is a ‘hurdle’ rate.

2. It is the minimum rate of return: A firm’s cost of capital represents the minimum

rate of return which is required to maintain at least the market value of equity

shares.

3. It consists of three components. A firm’s cost of capital includes three components

a. Return at Zero Risk Level: It relates to the expected rate of return when a project

involves no financial or business risks.

b. Business Risk Premium: Business risk relates to the variability in operating profit

(earnings before interest and taxes) by virtue of changes in sales. Business risk

premium is determined by the capital budgeting decisions for investment proposals.

c. Financial Risk Premium: Financial risk relates to the pattern of capital structure

(i.e., debt-equity mix) of the firm, In general, a firm which has higher debt content in

its capital structure should have more risk than a firm which has comparatively low

debt content. This is because the former should have a greater operating profit with

a view to covering the periodic interest payment and repayment of principal at the

time of maturity than the latter.

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5. Trading on Equity

When a co. uses fixed interest bearing capital along with owned capital in raising

finance, is said “Trading on Equity”.

(Owned Capital = Equity Share Capital + Free Reserves )

Trading on equity represents an arrangement under which a company uses funds

carrying fixed interest or dividend in such a way as to increase the rate of return on

equity shares.

It is possible to raise the rate of dividend on equity capital only when the rate of

interest on fixed – interest – bearing – security is less than the rate of return earned

in business.

•Two other terms:

•Trading on Thick Equity :- When borrowed capital is less than owned capital

•Trading on Thin Equity :- When borrowed capital is more than owned capital, it is

called Trading on thin Equity.

Q.2 a. Write the features of interim divined and also write the factors influencing

divined policy?

Interim Dividend and factors affecting it:

Usually, board of directors of company declares dividend in annual general meeting

after finding the real net profit position. If boards of directors give dividend for

current year before closing of that year, then it is called interim dividend. This

dividend is declared between two annual general meetings.

Before declaring interim dividend, board of directors should estimate the net profit

which will be in future. They should also estimate the amount of reserves which will

deduct from net profit in profit and loss appropriation account. If they think that it

is sufficient for operating of business after declaring such dividend. They can issue

but after completing the year, if profits are less than estimates, then they have to

pay the amount of declared dividend. For this, they will have to take loan. Therefore,

it is the duty of directors to deliberate with financial consultant before taking this

decision.

Accounting treatment of interim dividend in final accounts of company :-

First Case: Interim dividend is shown both in profit and loss appropriation account

and balance sheet , if it is outside the trial balance in given question.

(a) It will go to debit side of profit and loss appropriation account

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(b) It will also go to current liabilities head in liabilities side.

Second Case: Interim dividend is shown only in profit and loss appropriation

account, if it is shown in trial balance.

(a) It will go only to debit side of profit and loss appropriation account.

If in final declaration is given outside of trial balance and this will be proposed

dividend and interim dividend in trial balance will be deducted for writing proposed

dividend in profit and loss appropriation account and balance sheet of company,

because if we will not deducted interim dividend, then it will be double deducted

from net profit that is wrong and error shows when we will match balance sheets

assets with liabilities.

Factors affecting dividend policy:

The dividend decision is difficult decision because of conflicting objectives and also

because of lack of specific decision-making techniques. It is not easy to lay down an

optimum dividend policy which would maximize the long-run wealth of the

shareholders. The factors affecting dividend policy are grouped into two broad

categories.

1. Ownership considerations

2. Firm-oriented considerations

Ownership considerations: Where ownership is concentrated in few people, there

are no problems in identifying ownership interests. However, if ownership is

decentralized on a wide spectrum, the identification of their interests becomes

difficult.

Various groups of shareholders may have different desires and objectives. Investors

gravitate to those companies which combine the mix of growth and desired

dividends.

Firm-oriented considerations: Ownership interests alone may not determine the

dividend policy. A firm’s needs are also an important consideration, which include

the following:

• Contractual and legal restrictions

• Liquidity, credit-standing and working capital

• Needs of funds for immediate or future expansion

• Availability of external capital.

• Risk of losing control of organization

• Relative cost of external funds

• Business cycles

• Post dividend policies and stockholder relationships.

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The following factors affect the shaping of a dividend policy:

Nature of Business: Companies with unstable earnings adopt dividend policies which

are different from those which have steady earnings.

Composition of Shareholding: In the case of a closely held company, the personal

objectives of the directors and of a majority of shareholders may govern the

decision. To the contrary, widely held companies may take a dividend decision with a

greater sense of responsibility by adopting a more formal and scientific approach.

Investment Opportunities: Many companies retain earnings to facilitate planned

expansion. Companies with low credit ratings may feel that they may not be able to

sell their securities for raising necessary finance they would need for future

expansion. So, they may adopt a policy for retaining larger portion of earnings.

Similarly, is a company has lucrative opportunities for investing its funds and can

earn a rate which is higher than its cost of capital, it may adopt a conservative

dividend policy.

Liquidity: This is an important factor. There are companies, which are profitable but

cannot generate sufficient cash, since profits are to be reinvested in fixed assets and

working capital to boost sales.

Restrictions by Financial Institutions: Sometimes financial institutions which grant

long-term loans to a company put a clause restricting dividend payment till the loan

or a substantial part of it is repaid.

Inflation: In period of inflation, funds generated from depreciation may not be

adequate to replace worn out equipment. Under inflationary situation, the firm has

to depend upon retained earnings as a source of funds to make up for the shortfall.

Consequently, the dividend pay out ratio will tend to be low.

Other factors: Age of the company has some effect on the dividend decision.

The demand for capital expenditure, money supply, etc., undergoes great oscillations

during the different stages of a business cycle. As a result, dividend policies may

fluctuate from time to time.

b. What is reorder level?

Reorder Level

This is that level of materials at which a new order for supply of materials is to be

placed. In other words, at this level a purchase requisition is made out. This level is

fixed somewhere between maximum and minimum levels. Order points are based

on usage during time necessary to requisition order, and receive materials, plus an

allowance for protection against stock out.

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The order point is reached when inventory on hand and quantities due in are equal

to the lead time usage quantity plus the safety stock quantity.

Formula of Re-order Level or Ordering Point:

The following two formulas are used for the calculation of reorder level or point.

Ordering point or re-order level = Maximum daily or weekly or monthly usage ×

Lead time

The above formula is used when usage and lead time are known with certainty;

therefore, no safety stock is provided. When safety stock is provided then the

following formula will be applicable:

Ordering point or re-order level = Maximum daily or weekly or monthly usage ×

Lead time + Safety stock

Q.3 Sales Rs.400, 000 less returns Rs 10, 000, Cost of Goods Sold Rs 300,000,

Administration and selling expenses Rs.20, 000, Interest on loans Rs.5000,

Income tax Rs.10000, preference dividend Rs. 15,000, Equity Share Capital

Rs.100, 000 @Rs. 10 per share. Find EPS.

Ans 3.

Sales 400,000

Less Returns 10,000 390,000

Less

COGS 30,000

S&A 20,000

Int on

Loan 5,000

IT 10,000 325,000

Div 15,000

ESC 100,000 @ 10/-

NPAT - Pref Share

Div

No of Shares

NPAT 55,000

less Pref Share Div 15,000 40,000

EPS 40,000 = Rs.4/-

10,000

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Q.4 What are the techniques of evaluation of investment?

Techniques of Investment Evaluation

Three steps are involved in the evaluation of an investment:

•Estimation of cash flows

•Estimation of the required rate of return (the opportunity cost of capital)

•Application of a decision rule for making the choice.

The first two steps, discussed in the subsequent chapters, are assumed as given.

Thus, our discussion in this chapter is confined to the third step. Specifically, we

focus on the merits and demerits of various decision rules.

Investment decision rule

The investment decision rules may be referred to as capital budgeting techniques, or

investment criteria. A sound appraisal technique should be used to measure the

economic worth of an investment project. The essential property of a sound

technique is that it should maximize the shareholders’ wealth. The following other

characteristics should also be possessed by a sound investment evaluation criterion.

• It should consider all cash flows to determine the true profitability of the project.

• It should provide for an objective and unambiguous way of separating good

projects form bad projects.

• It should help ranking of projects according to their true profitability.

• It should recognize the fact that bigger cash flows true profitability.

• It should recognize the fact that bigger cash flows are preferable to smaller once

and early cash flows are preferable to later ones.

• It should help top choose among mutually exclusive projects that project which

maximizes the shareholders’ wealth.

• It should be a criterion which is applicable to any conceivable investment project

independent of other.

These conditions will be clarified as we discuss the features of various investment

criteria in the following pages.

Evaluation criteria

A number of investments criteria (or capital budgeting techniques) are in use in

proactive. They may be grouped in the following two categories:

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1. Discounted cash flow (DCF) criteria

• Net present value (NPV)

• Internal rate of return (IIR)

• Profitability index (PI)

2. Non-discounted cash flow criteria

• Payback period (PB)

• Discounted payback period

• Accounting rate of return (ARR).

Discounted payback is a variation of the payback method. It involves discounted cash

flows, but as we shall see later, it is not a true measure of investment profitability.

We will show in the following pages that the net present value criterion is the most

valid technique of maximizing the shareholders wealth.

Q.5 What are the problems associated with inadequate working capital?

Problems associated with inadequate working capital

Working capital may be regarded as the life blood of business. Working capital is of

major importance to internal and external analysis because of its close relationship

with the current day-to-day operations of a business. Every business needs funds for

two purposes.

• Long term funds are required to create production facilities through purchase

of fixed assets such as plants, machineries, lands, buildings & etc

• Short term funds are required for the purchase of raw materials, payment of

wages, and other day-to-day expenses. . It is other wise known as revolving

or circulating capital

It is nothing but the difference between current assets and current liabilities. i.e.

Working Capital = Current Asset – Current Liability.

Businesses use capital for construction, renovation, furniture, software, equipment,

or machinery. It is also commonly used to purchase inventory, or to make payroll.

Capital is also used often by businesses to put a down payment down on a piece of

commercial real estate. Working capital is essential for any business to succeed. It is

becoming increasingly important to have access to more working capital when we

need it.

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Importance of Adequate Working Capital

A business firm must maintain an adequate level of working capital in order to run its

business smoothly. It is worthy to note that both excessive and inadequate working

capital positions are harmful. Working capital is just like the heart of business. If it

becomes weak, the business can hardly prosper and survive. No business can run

successfully without an adequate amount of working capital.

Danger of inadequate working capital

When working capital is inadequate, a firm faces the following problems.

Fixed Assets cannot efficiently and effectively be utilized on account of lack of

sufficient working capital. Low liquidity position may lead to liquidation of firm.

When a firm is unable to meets its debts at maturity, there is an unsound position.

Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it

will lose its reputation. There by, a firm may not be able to get credit facilities. It may

not be able to take advantages of cash discount.

Disadvantages of Redundant or Excessive Working Capital

1. Excessive Working Capital means ideal funds which earn no profits for the

business and hence the business cannot earn a proper rate of return on its

investments.

2. When there is a redundant working capital, it may lead to unnecessary purchasing

and

Accumulation of inventories causing more chances of theft, waste and losses.

3. Excessive working capital implies excessive debtors and defective credit policy

which

May cause higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is excessive working capital, relations with banks and other financial

institutions may not be maintained.

6. Due to low rate of return on investments, the value of shares may also fall.

7. The redundant working capital gives rise to speculative transactions.

Disadvantages or Dangers of Inadequate Working Capital

1. A concern which has inadequate working capital cannot pay its short-term

liabilities

in time. Thus, it will lose its reputation and shall not be able to get good credit

facilities.

2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.

3. It becomes difficult for the firm to exploit favorable market conditions and

undertake profitable projects due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations and its creates

inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to non-availability

of liquid funds.

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6. The rate of return on investments also falls with the shortage of working capital.

Disadvantages or Dangers of Inadequate or Short Working Capital

• Can’t pay off its short-term liabilities in time.

• Economies of scale are not possible.

• Difficult for the firm to exploit favorable market situations

• Day-to-day liquidity worsens

• Improper utilization the fixed assets and ROA/ROI falls sharply

Q6. What is Leverage? Compare and contrast Financial and operating leverage.

‘Leverage’ is the action of a lever or the mechanical advantage gained by it; it also

means ‘effectiveness’ or ‘power’. The common interpretation of leverage is derived

from the use or manipulation of a tool or device termed as lever, which provides a

substantive clue to the meaning and nature of financial leverage.

When an organization is planning to raise its capital requirements (funds), these may

be raised either by issuing debentures and securing long term loan 0r by issuing

share-capital. Normally, a company is raising fund from both sources. When funds

are raised from debts, the Co. investors will pay interest, which is a definite liability

of the company. Whether the company is earning profits or not, it has to pay interest

on debts. But one benefit of raising funds from debt is that interest paid on debts is

allowed as deduction for income tax. ‘When funds are raised by issue of shares

(equity) , the investor are paid dividend on their investment. Dividends are paid only

when the Company is having sufficient amount of profit. In case of loss, dividends

are not paid. But dividend is not allowed as deduction while computing tax on the

income of the Company. In this way both way of raising funds are having some

advantages and disadvantages. A Company has to decide that what will be its mix of

Debt and Equity, considering the liability, cost of funds and expected rate of return

on investment of fund. A Company should take a proper decision about such mix,

otherwise it will face many financial problems. For the purpose of determination of

mix of debt and equity, leverages are calculated and analyzed.

Concept of Financial Leverage

Leverage may be defined as the employment of an asset or funds for which the firm

pays a fixed cost or fixed return. The fixed cost or return may, therefore be thought

of as the full annum of a lever. Financial leverage implies the use of funds carrying

fixed commitment charge with the objective of increasing returns to equity

shareholders. Financial leverage or leverage factor is defined, as the ratio of total

value of debt to total assets or the total value of the firm. For example, a firm having

a total value of Rs. 2,00,000 and a total debt of Rs. 1,00,000 would have a leverage

factor of 50 percent. There are difficult measures of leverage such as.

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i. The ratio of debt to total capital

ii. The ratio of debt to equity

iii. The ratio of net operating income (earning before interest and taxes) to fixed’

charges) The first two measures of leverage can be expressed either in book

v8lue or market value the debt of equity ratio as a measure of financial

leverage is more popular in practice. “

Risk & Financial Leverage:

Effects of financial Leverage: The use of leverage results in two obvious effects:

i. Increasing the shareholders earning under favorable economic conditions,

and

ii. Increasing the financial risk of the firm. Suppose there are two companies

each having a Rs. 1,00,000 capital structure. One company has borrowed half

of its investment while the other company has only equity capital: Both earn

Rs. 2,00,000 profit. The ratio of interest on the borrowed capital is 10%and

the rate of corporate tax 50%. Let us calculate the effect of financial leverage,

both in the shareholders earnings and the Company’s financial risk in these

two companies.

(a) Effect of Leverage on Shareholders Earnings:

Company

A

Rs.

Company

B

Rs.

Profit before Interest and

Taxes

2,00,000 2,00,000

Equity 10,00,000 5,00,000

Debt —- 5,00,000

Interest (10%) —- 50,000

Profit after interest but before

Tax

2,00,000 1,50,000

Taxes @ 50%

1,00,000

75,000

Rate of return on Equity of Company A Rs. 1,00,000/Rs. 10,00,000 = 10%

Rate of return on Equity of Company B Rs. 75,000/Rs. 5,00,000 = 15%

The above illustration points to the favorable effect of the leverage factor on

earnings of shareholders. The concept of leverage is 5 if one can earn more on the

borrowed money that it costs but detrimental to the man who fails to do so far there

is such a thing as a negative leverage i.e. borrowing money at 10% to find that, it can

earn 5%. The difference comes out of the shareholders equity so leverage can be a

double-edged sword.

(b) Effect of Leverage on the financial risk of the company: Financial risk broadly

defined includes both the risk of possible insolvency and the changes in the earnings

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available to equity shareholders. How the leverage factor leads to the risk possible

insolvency does is self-explanatory. As defined earlier the inclusion of more and

more debt in capital structure leads to increased fixed commitment charges on the

part of the firm as the firm continues to lever itself, the changes of cash insolvency

leading’ to legal bankruptcy increase because the financial ‘charges incurred, by the

firm exceed the expected earnings. Obviously this leads to fluctuations in earnings’

available to the equity shareholders.

Relationship: Financial and Operating leverage:

Relationship between financial and operating leverage: In business terminology,

leverage is used in two senses: Financial leverage & Operating Leverage

Financial leverage: The effect which the use of debt funds produces on returns is

called financial leverage.

Operating leverage: Operating leverage refers to the use of fixed costs in the

operation of the firm. A firm has a high degree of operating leverage if it employs a

greater amount of fixed costs. The degree of operating leverage may be defined as

the percentage change in profit resulting from a percentage change in sales. This can

be expressed as:

= Percent Change in Profit/Percent Change in Sales

The degree of financial leverage is defined as the percent change in earnings

available to common shareholders that is associated with a given percentage change

in EBIT. Thus, operating leverage affects EBIT while financial leverage affects

earnings after interest and taxes the earnings available to equity shareholders. For

this reason operating leverage is sometimes referred to as first stage leverage and

financial leverage as second stage leverage. Therefore, if a firm uses a considerable

amount of both operating leverage and financial leverage even small changes in the

level of sales will produce wide fluctuations in earnings per share (EPS). The

combined effect of both these types of leverages is after called total leverage which,

is closely tied to the firm’s total risk.

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MB0045

Financial Management

Assignment Set- 2

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Q. 1 Discuss the three broad areas of Financial Decision Making

Finance Decisions:

Finance decisions relate to the acquisition of funds at the least cost. Here cost has

two

dimensions viz explicit cost and implicit cost. Explicit cost refers to the cost in the

form of coupon rate, cost of floating and issuing the securities etc.

Implicit cost is not a visible cost but it may seriously affect the company’s operations

especially when it is exposed to business and financial risk. For example, implicit cost

is the failure of the organization to pay to its lenders or debenture holders loan

installments on due date on account of fluctuations in cash flow attributable to the

firms business risk. In India if the company is unable to pay its debts, creditors of the

company may use legal means to sue the company for winding up. This risk is

normally known as risk of insolvency. A company which employs debt as a means of

financing normally faces this risk especially when its operations are exposed to high

degree of business risk.

In all financing decisions a firm has to determine the proportion of equity and debt.

The

composition of debt and equity is called the capital structure of the firm. Debt is

cheap because interest payable on loan is allowed as deductions in computing

taxable income on which the company is liable to pay income tax to the Government

of India.

An investor in company’s shares has two objectives for investing:

1. Income from Capital appreciation (i.e. Capital gains on sale of shares at market

price)

2. Income from dividends.

It is the ability of the company to give both these incomes to its shareholders that

determines the market price of the company’s shares.

The most important goal of financial management is maximisation of net wealth of

the shareholders. Therefore, management of every company should strive hard to

ensure that its shareholders enjoy both dividend income and capital gains as per the

expectation of the market.

But, dividend is declared out of the profit earned by the company after paying

income tax to the Govt of India.

Investment Decisions:

To survive and grow, all organizations must be innovative. Innovation demands

managerial proactive actions. Proactive organization’s continuously search for

innovative ways of performing the activities of the organization. Innovation is wider

in nature. It could be expansion through entering into new markets, adding new

products to its product mix, performing value added activities to enhance the

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customer satisfaction, or adopting new technology that would drastically reduce the

cost of production or rendering services or mass production at low cost or

restructuring the organization to improve productivity. All these will change the

profile of an organization. These decisions are strategic because, they are risky but if

executed successfully with a clear plan of action, they generate super normal growth

to the organization. If the management errs in any phase of taking these decisions

and executing them, the firm may become bankrupt. Therefore, such decisions will

have to be taken after taking into account all facts affecting the decisions and their

execution.

Two critical issues to be considered in these decisions are:

1. Evaluation of expected profitability of the new investments.

2. Rate of return required on the project.

The rate of return required by investor is normally known by hurdle rate or cutoff

rate or opportunity cost of capital. After a firm takes a decision to enter into any

business or expand it’s existing business, plans to invest in buildings, machineries

etc. are conceived and executed. The process involved is called Capital Budgeting.

Capital Budgeting decisions demand considerable time, attention and energy of the

management. They are strategic in nature as the success or failure of an organization

is directly attributable to the execution of capital budgeting decisions taken.

Investment decisions are also known as Capital Budgeting Decisions. Capital

Budgeting decisions lead to investment in real assets Dividends are payouts to

shareholders. Dividends are paid to keep the shareholders happy. Dividend policy

formulation requires the decision of the management as to how much of the profits

earned will be paid as dividend. A growing firm may retain a large portion of profits

as retained earnings to meet its needs of financing capital projects. Here, the finance

manager has to strike a balance between the expectation of shareholders on

dividend payment and the need to provide for funds out of the profits to meet the

organization’s growth.

Dividend Decisions

Dividend yield is an important determinant of an investor’s attitude towards the

security (stock) in his portfolio management decisions. But dividend yield is the

result of dividend decision. Dividend decision is a major decision made by a finance

manager. It is the decision on formulation of dividend policy. Since the goal of

financial management is maximisation of wealth of shareholders, dividend policy

formulation demands the managerial attention on the impact of its policy on

dividend on the market value of the shares. Optimum dividend policy requires

decision on dividend payment rates so as to maximize the market value of shares.

The payout ratio means what portion of earnings per share is given to the

shareholders in the form of cash dividend. In the formulation of dividend policy,

management of a company must consider the relevance of its policy on bonus

shares. Dividend policy influences the dividend yield on shares. Since company’s

ratings in the Capitalmarket have a major impact on its ability to procure funds by

issuing securities in the capital markets, dividend policy, a determinant of dividend

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yield has to be formulated having regard to all the crucial elements in building up the

corporate image. The following need adequate consideration in deciding on dividend

policy:

1. Preferences of share holders Do they want cash dividend or Capital gains?

2. Current financial requirements of the company

3. Legal constraints on paying dividends.

4. Striking an optimum balance between desires of share holders and the company’s

funds requirements.

Liquidity Decision

Liquidity decisions are concerned with Working Capital Management. It is concerned

with the day to–day financial operations that involve current assets and current

liabilities.

The important element of liquidity decisions are:

1) Formulation of inventory policy

2) Policies on receivable management.

3) Formulation of cash management strategies

4) Policies on utilization of spontaneous finance effectively.

Q.2 What is the future value of an annuity and state the formulae for future value

of an annuity

The value of a group of payments at a specified date in the future. These payments

are known as an annuity, or set of cash flows. The future value of an

annuity measures how much you would have in the future given a specified rate of

return or discount rate. The future cash flows of the annuity grow at the discount

rate, and the higher the discount rate, the higher the future value of the annuity.

This calculation is useful for determining the actual cost of an annuity to the issuer:

C = Cash flow per period

i = Interest rate

n = Number of payments

This calculates the future value of an ordinary annuity. To calculate the future value

of an annuity due, multiply the result by (1+i). (Payments start immediately instead

of one period into the future.)

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Example: What amount will accumulate if we deposit $5,000 at the end of each year

for the next 5 years? Assume an interest of 6% compounded annually.

PV = 5,000

i = .06

n = 5

FVoa = 5,000 [ (1.3382255776 - 1) /.06 ] = 5,000 (5.637092) = 28,185.46

Year 1 2 3 4 5

Begin 0 5,000.00 10,300.00 15,918.00 21,873.08

Interest 0 300.00 618.00 955.08 1,312.38

Deposit 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00

End 5,000.00 10,300.00 15,918.00 21,873.08 28,185.46

Q.3 The equity stock of ABC Ltd is currently selling for Rs 30 per share. The

dividend expected next year is Rs 2.00. the investors required rate of return on this

stock is 15 per cent. If the constant growth model applies to ABC Ltd, What is the

expected growth rate?

Formula to be used to resolve this problem

P0=D1/Ke-g

In this case,

P0 = Price of One share = Rs. 30

Ke=Required rate of return on the equity share = 15% = 0.15

D1=Expected dividend after one year = Rs. 2

g = growth rate = ?

Hence,

P0=D1/Ke-g

Ke-g = D1/P0

0.15-g = 2/30

0.15-g = 0.0666

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g=0.15-0.0666

g = 0.0834

Hence Growth Rate of ABC Ltd = 8.34%

Q.4 State the assumptions underlying the CAPM model and MM model

Capital asset pricing model (CAPM) is used to determine a theoretically appropriate

required rate of return of an asset, if that asset is to be added to an already well-

diversified portfolio, given that asset's non-diversifiable risk. The model takes into

account the asset's sensitivity to non-diversifiable risk (also known as systematic risk

or market risk), often represented by the quantity beta (ß) in the financial industry,

as well as the expected return of the market and the expected return of a theoretical

risk-free asset.

Assumptions made are as below -

1. Aim to maximize economic utilities.

2. Are rational and risk-averse.

3. Are broadly diversified across a range of investments.

4. Are price takers, i.e., they cannot influence prices.

5. Can lend and borrow unlimited amounts under the risk free rate of interest.

6. Trade without transaction or taxation costs.

7. Deal with securities that are all highly divisible into small parcels.

8. Assume all information is available at the same time to all investors.

The model assumes that either asset returns are (jointly) normally distributed

random variables or that investors employ a quadratic form of utility. It is however

frequently observed that returns in equity and other markets are not normally

distributed. As a result, large swings (3 to 6 standard deviations from the mean)

occur in the market more frequently than the normal distribution assumption would

expect

The model assumes that the variance of returns is an adequate measurement of risk.

This might be justified under the assumption of normally distributed returns, but for

general return distributions other risk measures (like coherent risk measures) will

likely reflect the investors' preferences more adequately. Indeed risk in financial

investments is not variance in itself, rather it is the probability of losing: it is

asymmetric in nature.

The model assumes that all investors have access to the same information and agree

about the risk and expected return of all assets (homogeneous expectations

assumption).[citation needed]

The model assumes that the probability beliefs of investors match the true

distribution of returns. A different possibility is that investors' expectations are

biased, causing market prices to be informationally inefficient. This possibility is

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studied in the field of behavioral finance, which uses psychological assumptions to

provide alternatives to the CAPM such as the overconfidence-based asset pricing

model of Kent Daniel, David Hirshleifer, and Avanidhar Subrahmanyam (2001)

The model does not appear to adequately explain the variation in stock returns.

Empirical studies show that low beta stocks may offer higher returns than the model

would predict. Some data to this effect was presented as early as a 1969 conference

in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes.

Either that fact is itself rational (which saves the efficient-market hypothesis but

makes CAPM wrong), or it is irrational (which saves CAPM, but makes the EMH

wrong – indeed, this possibility makes volatility arbitrage a strategy for reliably

beating the market).[citation needed]

The model assumes that given a certain expected return investors will prefer lower

risk (lower variance) to higher risk and conversely given a certain level of risk will

prefer higher returns to lower ones. It does not allow for investors who will accept

lower returns for higher risk. Casino gamblers clearly pay for risk, and it is possible

that some stock traders will pay for risk as well.[citation needed]

The model assumes that there are no taxes or transaction costs, although this

assumption may be relaxed with more complicated versions of the model.[citation

needed]

The market portfolio consists of all assets in all markets, where each asset is

weighted by its market capitalization. This assumes no preference between markets

and assets for individual investors, and that investors choose assets solely as a

function of their risk-return profile. It also assumes that all assets are infinitely

divisible as to the amount which may be held or transacted.[citation needed]

The market portfolio should in theory include all types of assets that are held by

anyone as an investment (including works of art, real estate, human capital...) In

practice, such a market portfolio is unobservable and people usually substitute a

stock index as a proxy for the true market portfolio. Unfortunately, it has been

shown that this substitution is not innocuous and can lead to false inferences as to

the validity of the CAPM, and it has been said that due to the inobservability of the

true market portfolio, the CAPM might not be empirically testable. This was

presented in greater depth in a paper by Richard Roll in 1977, and is generally

referred to as Roll's critique

The model assumes just two dates, so that there is no opportunity to consume and

rebalance portfolios repeatedly over time. The basic insights of the model are

extended and generalized in the intertemporal CAPM (ICAPM) of Robert Merton,

and the consumption CAPM (CCAPM) of Douglas Breeden and Mark

Rubinstein.[citation needed]

CAPM assumes that all investors will consider all of their assets and optimize one

portfolio. This is in sharp contradiction with portfolios that are held by individual

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investors: humans tend to have fragmented portfolios or, rather, multiple portfolios:

for each goal one portfolio — see behavioral portfolio theory and Maslowian

Portfolio Theory

MM's key assumptions and the role played by each are:

(1) Unlimited borrowing and lending is available to all market participants at

one rate of interest. Role: makes the cost of personal and corporate

borrowing and lending the same.

(2) Individual margin borrowing is secured by the shares purchased, the

borrower's liability is limited to the value of these shares, there are no costs

to bankruptcy. Role: makes the risk of personal and corporate borrowing and

lending the same.

(3) All companies can be grouped into equivalent risk classes. Role: enables

investors to identify companies with identical business risk.

(4) Capital markets are perfect. Role: permits investors to easily and

costlessly arbitrage between securities of companies which differ only in their

financing mix.

(5) There are no corporate income taxes. Role: prevents the tax code from

making debt financing more valuable by allowing interest and not dividends

as a tax deduction.

(6) Shareholders are indifferent to the form of their returns, all returns are

taxed at the same rate. Role: prevents investors from seeing any difference in

value between interest, dividends, and capital gains.

Q.5 Write the cash flow analysis?

(1) Estimate your annual gross income as the first step in preparing a cash

flow analysis. Allow for subtractions if your business is not operating at

full potential. For instance, if you own an apartment complex, you add

the amount of rent for each month, but subtract an estimated amount for

unforeseen vacancies. The longer you are in business, the easier it will be

to predict operating losses.

(2) Add any other income you receive and you will arrive at your "effective

gross income." This is a reliable business accounting figure that

represents your entire annual projected gross income. Write this number

down for future figuring.

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(3) Compile a list of the expenses you incur in order to operate your

business. Separate this by category. Think about the purchases of big

equipment you make. If you have a painting business, you would write

down the expenses you pay annually for paint sprayers, rollers, brushes

and drop cloths.

(4) Write down all your office expenses, utility charges, advertising expenses

and other fees you pay for equipment repairs and maintenance.

Everything you need to purchase in the operation of your business

counts.

(5) Remember to include professional fees and taxes in your cash flow

analysis. If you have an accountant, his fee goes here--so does insurance

policy expense, worker's compensation payments, unemployment

insurance fees and taxes charged on your equipment or building.

(6) Add your business accounting expense together and double check your

chart of accounts to make sure you got them all. This number represents

the total amount of expenses necessary to operate your business. Write it

down beneath the effective income figure.

(7) Figure out your debt service. Calculate the amount of payments you will

make to the bank for loans, mortgages or other financing. Add these

together and write the number down beneath the total expenses figure.

(8) Subtract the total expenses and the total debt service figures from the

effective annual income number. This is your cash flow analysis for the

year.

Q.6 The following two projects A and B requires an investment of Rs 2, 00,000

each. The income returns after tax for these projects are as follows:

Year Project A Project B

1 Rs. 80,000 Rs. 20,000

2 Rs. 80,000 Rs. 40,000

3 Rs. 40,000 Rs. 40,000

4 Rs. 20,000 Rs. 40,000

5 Rs. 60,000

6 Rs. 60,000

Using the following criteria determine which of the projects is preferable.

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Project A

year Income PVIF@10% PVCI

1 80000 0.909 72720

2 80000 0.826 66080

3 40000 0.751 30040

4 20000 0.683 13660

PVCI 182500

PVCI - NPV

182500 200000 = -17500

Project B

year Income PVIF@10% PVCI

1 20000 0.909 18180

2 40000 0.826 33040

3 40000 0.751 30040

4 40000 0.683 27320

5 60000 0.621 37260

6 60000 0.564 33840

PVCI 179680

PVCI - NPV

179680 200000 = -20320

As Project A is preferable option as it has minimal losses.

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MB0046

Marketing Management

Assignment Set- 1

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Q.1

a. Explain the different micro-environmental forces with examples.

Forces in the micro environment

1 The Company

Remember, in the previous unit we discussed about marketing mix and marketing

plan. Safe Express, a leader in the supply chain management solution wants to hold

its number one position in the US $ 90 billion Indian logistics market. The company

plans to expand its service areas in the coming months. To meet the targets of the

marketing plan, other departments of safe express also expanding their horizon. The

Company is coming out with logistics parks in different cities; plans to hold seven

million square feet of warehousing capacity in the next three years and invest Rs 10

billion in three years to meet those targets. The above example shows that the

company’s marketing plan should be supported by the other functional departments

also.

2 Intermediaries

Marketing intermediaries: These are firms which distribute and sell the goods of the

company to the consumer.

Marketing intermediaries play an important role in the distribution, selling and

promoting the goods and services. Stocking and delivering, bulk breaking, and selling

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the goods and services to customer are some of the major functions carried out by

the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward

agents are few of the intermediaries. Retailers are final link between the company

and the customers. Their role in the marketing of product is increasing every day.

3 Publics

These are microenvironment groups, which help a company to generate the financial

resources, creating the image, examining the companies’ policy and developing the

attitude towards the product.

We can identify six types of publics

1. Financial publics influence the company’s ability to obtain funds. For example,

Banks, investment houses and stockholders are the major financial publics.

2. Media publics carry news and features about the company e.g. Deccan Herald

3. Advertisement regulation agencies, telecom regulation agency( TRAI), and

insurance regulation agency(IRDA) of the government

4. Citizen action groups: Formed by the consumer or environmental groups. For

example, people for ethical treatment of animals (PETA) or Greenpeace.

5. General publics: a company should be concerned towards general publics’

attitude towards its products and services.

6. Internal publics: Employees who help in creating proper image for the company

through word of mouth.

4 Competitors

A company should monitor its immediate competitors as its sale will be affected by

the nature and intensity of the competitors. The sale of Coca cola will be affected by

Pepsi cola, or Britannia cheese by Amul cheese. Michael Porter, the author of

Competitive Advantage of Nations suggested that, in addition to direct competition,

companies should also consider competition from substitutes. In addition to existing

competitors, the potential competitors should also be anticipated. Competition may

arise from

a. Small firms with low overheads producing duplicates.

b. Firms which diversify into certain products by merely being in the particular

industry for e.g. Pepsi entered the snacks sector competing with pure snack

producers like Haldiram.

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c. Firms which expand in the same vertical for e.g. Godrej which manufactured office

furniture and steel cupboards went on to the entire range of home furniture thereby

giving competition to pure home furniture makers.

How do companies or enterprises survive and grow under the above circumstances.

While we shall study this in detail later, a simple step could be that the product

should be positioned differently and the company should be able to provide better

services.

5 Suppliers

There are many kinds of suppliers to an enterprise or an institution. There are

typically, raw material suppliers, energy and fuel suppliers, labour suppliers, office

item suppliers and so on.

Suppliers are the first link in the entire supply chain of the company. Hence any

problems or cost escalation in this stage will have direct effect on the company.

Many companies adopted supplier relation management system to manage them

well. Suppliers are a source of competition to firms today. For a large retail store like

Reliance Retail or Big Bazaar the suppliers play the most significant role in both cost

and time. Timely supplies reduce stocking of goods and blocking of space, at the

same time meet customer requirements.

In a globalised scenario suppliers are even more important as competition goes up

manifold! The Tamil Nadu State Electricity Board imports coal from New Zealand

despite huge coal reserves in India. For Volvo, India is a manufacturing hub.

6 Customers

A company may sell their products directly to the customer or use marketing

intermediaries to reach them. Direct or indirect marketing depends on what type of

markets Company serves. Generally we can divide the markets into five different

categories. They are

a. Consumer market.

b. Business market

c. Reseller market

d. Government market and

e. International market

You will come to know about these five different markets from the following

example.

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MRF, a tyre company sells its product directly to consumer (in case of urgency,

customer purchases directly from showroom) i.e. operates in consumer market. It

operates in business markets by selling tyres to companies like Maruti Udyog limited.

MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka

government. If MRF sells tyres in African or American countries then it is operating in

the international market. If MRF buys the old tyres, retreads it and sells it to the

consumer at a profit then company is operating in the reseller market.

b. Mention the different ad appeals with suitable examples. (4 marks)

The different ad appeals-

A)Emotional appeal:

Positive emotional appeal or negative emotional appeals are strong tools used to

intensify the purchasing activity of the customer. Positive emotions like love, pride,

joy and humor are used in the message. Following are the advertisement where such

attributes of positive emotions used.

e.g. BMW fastest saloon car in the world- pride

e.g. Fevicol – humor

e.g. Wheel- love.

The negative emotions like fear guilt and shame are also used in the advertisement

to attract the customer.

e.g. NIIT- if you are not studying at NIIT you are missing something- guilt

e.g. Rexona deodorant – shame

B)Rational appeals:

The rational appeals highlight on the desired benefits about the products. They

highlight quality, economy value or performance of the product.

e.g. Dabur Amla – value appeal ( long Hair)

e.g. Lakme brilliance- Quality products.

e.g. Reliance India mobile- performance( works even in flood situations)

e.g. Reliance Infocom- Like the first three, the mobile phone must come to me as a

necessity and not as a luxury- economy

C)Moral appeal:

These are concerned towards public health or environment or social responsibility.

e.g. Shell lubricants show its commitment towards environment in their

advertisements.

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Q.2 What are the different market entry strategies if a company wants

to enter international markets?

Organizations that plan to go for international marketing should know the answers

for some basic questions like – a. In how many countries would the company like to

operate? b. What are the types of countries it plans to enter?That’s why companies

evaluate each country against the market size, market growth, and cost of doing

business, competitive advantage and risk level.

Checklist for country evaluation

The Characteristics, weightages and score should be checked.

1. Political rights.

2. Civil liberties.

3. Control of corruption.

4. Government effectiveness.

5. Rule of law or legal issues.

6. Health expenditure.

7. Education expenditure.

8. Regulatory quality.

9. Cost of starting a business.

10. Days to start a business.

11. Trade policy.

12. Inflation.

13. Fiscal policy.

14. Consumption patterns.

15. Competition.

International Market Entry Strategies

Once the market is found to be attractive, companies should decide how to enter

this market. Companies can enter the international market by adoptingany one of

the following strategies. They are

a. Exporting

b. Licensing

c. Contract manufacturing

d. Management contract

e. Joint ownership

f. Direct investment

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Exporting is the technique of selling the goods produced in the domestic country in a

foreign country with some modifications. For example, Gokaldas textiles export the

cloth to different countries from India. Exporting may be indirect or direct. In case of

indirect exporting, company works with independent international marketing

intermediaries. This is cost effective and less risky too. Direct exporting is the

technique in which organization exports the goods on its own by taking all the risks.

Maruti Udyog Limited, India’s leading car manufacturer exports its cars on its own.

Company can also set up overseas branches to sell their products. Adani Exports,

another leading exporter from India has international office in Singapore.

Licensing: According to Philip Kotler, licensing is a method of entering a foreign

market in which the company enters into an agreement with a license in the foreign

market, offering the right to use a manufacturing process, trademark, patent, or

other item of value for a fee or royalty. For example, Torrent Pharmaceuticals has

license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may

cause some problems to the parent company. Licensee may violate the agreement

and can use the technology of the parent company.

Contract manufacturing: Company enters the international market with a tie up

between manufacturer to produce the product or the service. For example, Gigabyte

Technology has contract manufacturing agreement with D- link India to produce and

sell their mother boards. Another significant manufacturer is TVS Electronics; it

produces key boards in its own name as well as for other companies too.

Management contracting: In this case, a company enters the international market

by providing the know how of the product to the domestic manufacturer. The

capital, marketing and other activities are carried out by the local manufacturer,

hence it is less risky too.

Joint ownership: A form of joint venture in which an international company invests

equally with a domestic manufacturer. Therefore it also has equal right in the

controlling operations. For example, Barbara, a lingerie manufacturer has joint

venture with Gokaldas Images in India.

Direct Investment: In this method of international market entry, Company invests in

manufacturing or assembling. The company may enjoy the low cost advantages of

that country. Many manufacturing firms invested directly in the Chinese market to

get its low cost advantage. Some governments provide incentives and tax benefits to

the company which manufactures the product in their country. There is government

restriction in some countries to opt only for direct investment, as it produces the

jobs to the local people. This mode also depends on the country attractiveness. It

may become risky if the market matures or unstable government exists.

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Q.3.a. State the meaning of Product life cycle and explain the different

stages involved in it. (8 marks)

Meaning of Product Life Cycle: It means a product has to go through the various

stages since its inception and till it completely fades out from the market. The

following graph represents the PLC curve and the 5 stages that it has to undergo

The product which is introduced into the market will undergo some modifications

over the period. Its sales also fluctuate. Therefore a marketer will be interested in

finding out how sales changes over a period and what strategies are best suited at

that point. A product life cycle can be graphed by plotting aggregate sales volume for

a product category over time. Generally the curve resembles a bell shaped curve. We

can obtain style, fashion or fad style of product life cycles also.

Product life cycle (bell shaped curve)

According to PLC, a product passes through five stages which are as follows:

1. Product development stage: In this stage company identifies the viable idea and

develops it. Even if sales in this stage are nil it requires huge research and

development budget. Therefore company incurs losses at this stage. For example,

TATA Docomo before entering the cellular services market had done research and

found that calls were charged for minutes rather than seconds.

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2. Introduction stage: Company introduces the product into the market. As the

product is new to the market, consumer awareness is usually very low. Here

company adopts heavy sales promotion and product awareness programs. The cost

of product is very high and sales are very low. At this juncture the company charges

high price to the customers. For example, TATA Docomo has entered into cellular

services initially through the Billboards.

3. Growth stage: Company gets experience over the period and now tries to get the

maximum market share (takes ‘first mover’ advantage). Sales will grow rapidly,

resulting in lesser cost and better profit. Company reduces the price of the product

and offers varieties and values in it. It focuses on building better distribution network

and pushes the product through it. Therefore company needs less sales promotion.

There will be increase in Competition and the company is forced to keep a tab on its

competitors. For example, TATA Docomo has entered into the growth stage by

aggressively advertising on Television and other mediums and at the same time

giving competition to the existing players.

4. Maturity stage: In this stage, the product has already established itself in the

market. These are the characteristics of this stage – a. Peak sales.b. Low cost per

customer. c. High profits.d. Competition based pricinge. Communicating the

product differentiation (or USP) to consumers.f. Improving supply chain efficiency.g.

Defend the market share h. Industry experiences consolidation.

5. Decline stage: In this stage, product sales and profit decline. Company should

phase out weak items from their product mix and may even lower the prices of the

existing products. The advertisement budget of the company also comes down and

the company may struggle to meet its costs. For example, VCR’s have been replaced

with DVD players and so VCR entered into the decline stage and is almost out of the

market.

Other product life cycles:

1. Style: A style is a basic and distinctive mode of expression that appears in the

study of human behavior. For example, style is evident in homes, art, accessories and

clothing. Once the style is invented it will be there for a longer period.

2. Fashion: Currently accepted or popular style in a given field. For example, cargo

jeans are now the fashion with college going students. Fashion changes with time.

3. Fad: A fashion that enters quickly is adopted with great zeal, peaks early, and

declines very fast. For example, when pager was introduced, everybody wanted to

have the product. But when people found mobiles as alternative, the demand for

pager went down drastically.

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b. Define Customer Relationship Management. (2 marks)

Berry defines CRM as “attracting, maintaining and – in multi-service organizations –

enhancing customer relationships.”

Berry and Parasuraman define CRM as “attracting, developing and retaining

customer relationships.”

In Industrial Marketing, Jackson defines CRM as “marketing oriented toward strong,

lasting relationships with individual accounts.”

Doyle and Roth define CRMS as “the goal of relationship selling is to earn the

position of preferred supplier by developing trust in key accounts over a period of

time.”

The sequence of activities for performing relationship marketing would include

developing core services to build customer relationship, customization of

relationship, augmenting core services with extra benefits, and enhancing customer

loyalty and fine-tuning internal marketing to promote external marketing success.

Christopher considers relationship marketing as “a tool to turn current and new

customers into regularly purchasing clients and then progressively moving them

through being strong supporters of the company and its products to finally being

active and vocal advocates for the company.”

Relationship marketing is in essence “selling by using psychological rather than

economic inducements to attract and retain customers. It seeks to personalize and

appeal to the hearts, minds and purses of the mass consumers.”- James J. Lynch

From the above definitions, it could be concluded that Customer Relationship

Management refers to all marketing activities directed towards establishing,

developing, and sustaining long lasting, trusting, win-win, beneficial and successful

relational exchanges between the focal firm and all its supporting key stakeholders.

Q.4.

a. You are a sales manager in ABC firm. You have taken some

interviews and shortlisted a few candidates. How will you select the

right candidate for the sales job? (5 marks)

1. Create an Ideal Salesperson Profile. It has always surprised me how many

companies have fully documented profiles of their ideal client. Yet, few have a

profile of their ideal salesperson. How can you screen when you don't know what

you are screening for?

This profile should be fully detailed. Some of the areas to address in the profile are

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the experience you expect that candidate to already have, the skills that the

candidate should already possess and the skills you are NOT willing to teach.

The lack of a fully-defined profile of the ideal salesperson is the most common cause

of bad sales marriages. It is also the major point of frustration between sales

managers and recruiters. Recruiters often tell me that they feel they are throwing

darts while blindfolded because they have so little detail about the desired profile.

2. Always be recruiting. In sales, there is an old expression: "The toughest time to

make a sale is when you really need one." The same holds true for recruiting. When

a slot is open on the sales team, it becomes an "all hands on deck" exercise to fill it.

While the seat is open, revenue targets are in jeopardy. This leads many to forget the

profile of the ideal salesperson profile in the interest of filling a seat. Playing this

forward a bit, the seat becomes vacant again a short time later when either side

determines that it is not a good fit.

Sales recruiting is a year-round exercise. The best sales forces are always on the look

out for strong sales talent. Find a company that identifies a strong candidate that

meets their profile who wouldn't find a way to hire this individual. It is a rarity to say

the least. Sales teams have turnover either driven by the company or the employee.

It is best to have a candidate portfolio at the ready than to begin a process of

surfacing candidates when a seat is open. Poor hiring decisions are made out of

desperation to fill a seat. The open seat is a cost to the company every day it is

unfilled. Yet, the cost is more painful if the seat is filled by someone who doesn’t fit.

3. Practice Reverse Interviewing. Since the intent of the process is for both sides to

be able to determine if a marriage should be formulated, a wonderful technique is

reverse interviewing—an interview performed by a member of the sales team who

would be a peer if the candidate was hired. It is important that the individual(s)

selected to participate in this step are loyal to the company, knowledgeable and

make a favorable impression.

However, unlike traditional interviews, the "interviewer" does not ask any questions

of the candidate (as you know, it is very easy to get yourself in hot water if illegal

questions are asked). Thus, you don't want untrained people asking questions.

Rather, this "questionless" exercise has two different purposes. The first is to provide

the candidate with an opportunity to ask questions of someone who would be their

peer if they were to be hired. In essence, it is a way for them to get a picture of a day

in the life of this job. The second purpose is to measure how the candidate prepares

for a sales call.

Afterwards, conduct a debrief with the "reverse interviewer" to see what questions

were asked. Did the candidate take advantage of this opportunity, bring prepared

and insightful questions and write down answers? If they didn't, what kind of

preparation will the candidate do for a sales call? How interested are they really in

this job?

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5. Host a Mock Sales Call. What better way to see if someone fits into your

company's selling environment than to put them right in it? To do this effectively,

you need to create a scenario for the candidate. I've found it most beneficial to give

the candidate the scenario a day ahead of time so they can prepare. They should be

provided with the same amount of information a sales person in your company

normally has before making an initial sales call.

Those members of your company who participate in the exercise should be

somewhat scripted. I say "somewhat" because you don't want it to be so dry that it

is unrealistic, but without any scripting it can be hard to stay in character.

The last piece you need to do this well is a score sheet. Know what you are looking to

measure in the process and score accordingly. Can they conduct a thorough needs

analysis? Did they identify the challenges faced by this prospect? Would you buy

from them?

6. Use Online Assessment Testing Wisely. There are a myriad of tools that are very

helpful in the screening process for both personality and skill. However, few, if any,

of the online assessment companies suggest that their tool should be used to make a

hiring decision. The most appropriate application is to treat it as an additional data

point in the sales talent screening program.

Linda Moeller, product director of Employee Continuum, has seen companies use

this great tool incorrectly. "We have seen many organizations fail to take the context

of an organization into account when deciding the most appropriate assessment to

use. For example, many organizations assume that implementing a sales assessment

will guarantee them improved sales performers. This is not necessarily the case. For

example, the personality characteristics required for a sales person selling office

supplies to purchasing agents are very different than those required for a

salesperson selling everything needed for a dentist office. In order to be successful,

an organization needs to consider the type of relationship they have with their

clientele and the competencies that will make these relationships successful," she

says.

b. As a consumer, what are the steps you will undertake before you

decide to buy a car? (5 marks)

The steps undertaken before deciding to buy a car-

1. Need recognition: customer posses two type of stimuli’ at this juncture. One is

driven by the internal stimuli and another is external stimuli. The examples of

internal stimuli are customer’s desire, attitude or perception and external stimuli are

advertising etc. From both stimuli customers understand the need for the product.

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Here marketer should understand what customers needs have that drew customers

towards the product and should highlight those in the communication strategy.

2. Information search: In this stage customer wants to find out the information

about the product, place, price and point of purchase. Customer collects the

information from different sources like

a. Personal sources: Family, friends and neighbors

b. Commercial sources: Advertising, sales people, dealers, packaging and displays.

c. Public sources: mass media and consumer rating agencies.

d. Experiential sources: Demonstration, examining the product.

In this stage marketer should give detailed information about the product. The

communication should highlight the attributes and advantages of the product in this

stage so that he created the positive image about the product.

3. Evaluation of alternatives: After collecting the information, consumers arrive at

some conclusion about the product. In this stage he will compare different brands on

set parameters which he or she thinks required in the product. The evaluation

process varies from person to person. In general Indian consumer evaluate on the

following parameters

a. Price

b. Features

c. Availability

d. Quality

e. Durability

At this stage marketer should provide comparative advertisements to evaluate the

different brands. The advertisement should be different for different segments and

highlight the attribute according to the segment.

4. Purchase decision

In this stage consumer buy the most preferred brand. In India affordability plays an

important role at this stage. Organizations’ bring many varieties of the products to

cater to the needs of customers.

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5. Post purchase behavior

After purchasing the product the consumer will experience some level of satisfaction

and dissatisfaction. The consumer will also engage in post purchase actions and

product uses of interest to the marketer. The marketer’s job does not end when the

product is bought but continues into the post purchase period. Customer would like

to see the performance of the product as he perceived before purchase. If the

performance of the product is not as he expected then he develops dissatisfactions.

Marketer should keep an eye on how consumer uses and disposes the product. In

some durable goods Indian consumer want resale value also. Many automobile

brands that were not able to get resale value lost their market positions.

Q. 5

a. What are the features of Business markets? How is it different from

consumer markets? (5 marks)

Features or Characteristics of Business Markets

Following are some of the unique features of business markets where large

establishments purchase the required goods and services from other businesses.

Such B2B operations determine the organizations as buyers and those organizations

who supply the various requirements will be the sellers or suppliers or service

providers.

1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For

example, major airlines buy the necessary equipments from the aircraft

manufacturers

2. Geographical concentration of buyers: Buyers are geographically concentrated.

For example, shipping industries are located on the east and west coasts of India

than in any other places.

3. Variable demand: The nature of demand is fluctuating because the demand is

basically a derived one. Based on the requirements of the consumer markets,

organizations buy the goods and make the finished goods available in the market for

final consumption. Larger the consumer demand, larger will be the organizational

buying. For example, mobiles are being used by a large population and so cellular

companies have to meet this rising demand.

4. Inelastic demand: The demand is also inelastic because organizations cannot

make rapid changes in the production structure and so prices remain constant in the

short-term. For example, Shoe manufacturers will not buy much leather if the price

of leather is less neither will they buy less leather if the price increases.

5. Systematic purchasing: The purchasing activity is directly between the buyer and

supplier organization which means there are no or very few middlemen involved.

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Purchasing activity is usually undertaken by purchase departments based on a

proper structure and through various mechanisms like having purchase requisitions

from other sections, inviting tenders and sending invoices from the suppliers,

purchasing agreements or contracts with the key suppliers, renewing agreements

etc. For example, Reliance Fresh has regular contracts with the agricultural

producers for smooth supply of fresh fruits and vegetables.

6. Multiple buying influences: there will be several parties involved in deciding

about the purchases because organizations will have several departments and units

functioning under it with different requirements. So, unless they have the proper

resources to work with there will be problems in the departments. For example,

purchase department in a Hospital must be aware about the specific requirements in

the clinical wards, operation theaters, labs, etc.

7. Reciprocation: This means that when an organization buys goods from another

organization then the supplier organization also might need certain other goods that

are produced by the buyer organization. For example, a stationery supplier will

supply the necessary stationeries to the paper manufacturer who in turn provides

papers to the supplier.

8. Lease agreements: Most organizations take on lease the expensive equipments

required by them rather than buy it. So, in this way, they reduce cost, get better

service and the lessor or one who provides the equipments will also profit from the

rent or lease charges. For example, TATA provides the transport trucks to other

organizations on lease.

b. List out the 5 important requisites of an effective segmentation by

giving suitable examples. (5 marks)

Requisites of Effective Segmentation

1. Measurable and Obtainable: The size, profile and other relevant characteristics of

the segment must be measurable and obtainable in terms of data. If the information

is not obtainable, no segmentation can be carried out. For example, Census of India

provides the data on migration and education level, but does not specify how many

of the migrated employees are educated and if educated how many are in white

collared jobs. If a company wants to target white color collared employees who are

migrated to particular city, it will not able to measure the same. .

2. Substantial: The segment should be large enough to be profitable. For consumer

markets, the small segment might disproportionably increase the cost and hence

products are priced too high. For example, when the cellular services started in India

cost of the incoming calls and outgoing calls were charged at Rs 12/minute. As the

number of subscribers grew, incoming calls became free. Further growth of

subscribers resulted in lowering tariffs for outgoing calls to the lowest level in the

world.

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3. Accessible: The segment should be accessible through existing network of people

at an affordable cost. For example, Majority of the rural population is still not able to

access the internet due to the high cost and non-availability of connections and

bandwidth.

4. Differentiable: The segments should be different from each other and may

require different 4Ps and programs. For example, Life Insurance Corporation of India

needs separate marketing programs to sell their insurance plans, unit plans, pension

plans and group schemes

5. Actionable: The segments which a company wishes to pursue must be actionable

in the sense that there should be sufficient finance, personnel, and capability to take

them all.

Q. 6. Explain briefly what are the several processes involved in new

product development. (10 marks)

New Product Development

New products are essential for existing firms to keep the momentum and for new

firms they provide the differentiation. New product doesn’t mean that it is

absolutely new to the world. It may be a modification, or offered in a new market, or

differentiated from existing products. Therefore it is necessary to understand the

concept of new products.

Meaning of New Products:

a. They are really innovative. For example, Google’s Orkut, a networking site which

revolutionized social networking. In this site people can meet like minded people;

they can form their own groups, share photos, comments and many more.

b. They are very different from the others: Haier launches path-breaking 4-Door

Refrigerators first time in India

c. They are imitative; these products are not new to the market but new to the

company. For example, Cavin Kare launched Ruchi pickles. This product is new to

Cavin Kare but not to the market.

New product development process:

Stage 1 – Idea generation: New product idea can be generated either from the

internal sources or external sources. The internal sources include employees of the

organization and data collected from the market. The external source includes

customers, competitors and supply chain members. For example, Ingersoll Rand

welcomes new ideas from the General public

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Stage 2-Idea screening: Organization may have various ideas but it should find out

which of these ideas can be translated into concepts. In an interview to Times of

India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many

changes from the basic version. He told that he wanted to develop car with scooter

engine, plastic doors etc… But when he unveiled the car, there were many changes

in the product. This shows that initial idea will be changed on the basis of market

requirements.

Stage 3 – Concept development: the main feature or the specific desire that it caters

to or the basic appeal of the product is created or designed in the concept

development.

Concepts used for Tata Nano car are: Concept I: Low-end ‘rural car,’ probably without doors or windows and with plastic

curtains that rolled down, a four-wheel version of the auto-rickshaw

Concept II: A car made by engineering plastics and new materials, and using new

technology like aerospace adhesives instead of welding.

Concept III: Indigenous, in-house car which meets all the environment standards Stage 4 – Concept testing: At this stage concept is tested with the group of target

customers. If any changes are required in the concept or the message it will be done

during this stage. Also the effectiveness is tested on a minor scale. If the concept

meets the specific requirements, then it will be accepted.

Stage 5 Marketing strategy development: The marketing strategy development

involves three parts. The first part focuses on target market, sales, market share and

profit goals. TATA’s initial business plan consisted sales of 2 lakhs cars per annum.

The second part involves product price, distribution and marketing budget

strategies. TATA’s fixed Rs 1 lakhs as the car price, and finding self employed persons

who work like agent to distribute the cars. The final part contains marketing mix

strategy and profit goals.

Stage 6 – Business analysis: it is the analysis of sales, costs and profits estimated for

a new product and to find out whether these align with the company mission and

objectives.

Stage 7 – Product development: during this stage, product is made to undergo

further improvements, new features or improvised versions are added to the

product. There is also scope for innovation and using the latest technology into the

product.

Stage 8 – Test marketing: is the most crucial stage for the testing product’s

performance and its future in the market. There are certain cases where product has

failed in the test marketing and had to be withdrawn.

– The product is introduced into the realistic market

– The 4P’s of marketing are tested.

– The cost of test marketing varies with the type of product.

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Stage 9 – Commercialization: In this stage product is completely placed in the open

market and aggressive communication program accompanied with promotion

activities is carried out to support it.

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MB0046

Marketing Management

Assignment Set- 2

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Q1. Highlight the importance of Distribution channel and marketing intermediaries

in carrying out the marketing function.

The delivery of goods and services from producers to their ultimate consumers or

users includes many different activities. These different activities are known as

marketing functions. Different thinkers have described these functions in different

ways. Some of the most important functions of marketing are briefly discussed

below:

1. Marketing Research and Information Management

Marketers need to take decisions scientifically. Marketing research function is

concerned with gathering, analyzing and interpreting data in a systematic and

scientific manner. The types of market information could be analysis of market size

and characteristics, consumer tastes and preferences and changes in them from time

to time, channels of distribution and communication and their effectiveness,

economic, social, political and technological environment and changes therein. A

company can procure such information from specialized market research agencies,

government or can decide to collect themselves.

2. Advertising and Sales Promotion – Advertising is a mass media tool used to

inform, persuade or remind customers about products or services. It is an

impersonal form of communication targeted at a chosen group through paid space

or time.

Sales Promotion is a short-term incentive given to customers or intermediaries to

promote sales. It supplements advertising and personal selling and can be used at

the time of launching a new product or even during its maturity period.

3. Product Planning and Management – A Marketer should identify the needs and

wants of consumers, develop suitable products / services and make them available.

Marketer is also required to maintain the product and its variations in size, weight,

package and price range according to the changing needs and requirements of his

customers. Information available through Market Research helps product

management in taking appropriate decisions while planning the marketing efforts.

4. Selling – This function of marketing is concerned with transferring of products to

the customer. An important part of this function is organizing sales force and

managing their activities. Sales force management includes recruitment, training,

supervision, compensation and evaluation of salesmen. They need to be assigned

targets and territories where they can operate. The salesmen interact with

prospective purchasers face-to-face in order to sell the goods. The purchaser may be

end customer or an intermediary, such as a retailer or a dealer.

5. Physical Distribution – Moving and handling of products from factory to

consumers come under this function. Order processing, inventory, management,

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warehousing and transportation are the key activities in the physical distribution

system.

6. Pricing – This is perhaps the most important decision taken by marketer, as it is

the only revenue fetching function and success and failure of the product may

depend upon this decision. Therefore, the decision regarding how much to charge

should be taken such that the price is acceptable to the prospective buyers and at

the same time fetches profits for the company. While deciding on the price, the

factors to be considered are competition, competitive prices, company’s marketing

policy, government policy, and the buying capacity of target market etc.

Importance of marketing intermediaries

These are firms which distribute and sell the goods of the company to the consumer.

Marketing intermediaries play an important role in the distribution, selling and

promoting the goods and services. Stocking and delivering, bulk breaking, and selling

the goods and services to customer are some of the major functions carried out by

the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward

agents are few of the intermediaries. Retailers are final link between the company

and the customers. Their role in the marketing of product is increasing every day.

Q.2 a. Explain the different product mix pricing strategies. (6 marks)

Product Mix Pricing Strategies

1. Product Line pricing: Strategy of setting the price for entire product line. Marketer

differentiates the price according to the range of products, i.e. suppose the company

is having three products in low, middle and high end segment and prices the three

products say at Rs 10 Rs 20 and Rs 30 respectively.

Figure

In the above example of Nokia mobile phones Nokia 1110 is priced @ Rs 1349, Nokia

7610 priced @ Rs 6249 and Nokia E90 priced @ Rs 34599. All the three products

cater to the different segments – low, middle and high income group respectively.

The three levels of differentiation create three price points in the mind of consumer.

The task of marketer is to establish the perceived quality among the three segments.

If the customers do not find much difference between the three brands, he/she may

opt for low end products.

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2. Optional Product pricing: this strategy is used to set the price of optional or

accessory products along with a main product.

Figure 10.2

Body cover

Rs 1521

Slide Molding

Rs 1123

Rear underbody

Rs 8883

Roof End

Rs 6396

Maruti Suzuki will not add above accessories to its product Swift but all these are

optional. Customer has to pay different prices as mentioned in the picture for

different products. Organizations separate these products from main product so that

customer should not perceive products are costly. Once the customer comes to the

show room, organization explains the advantages of buying these accessory

products.

3. Captive product pricing: Setting a price for a product that must be used along with

a main product. For example, Gillette sells low priced razors but make money on the

replacement cartridges.

4. By-product pricing: It is determining the price for by-products in order to make

the main product’s price more attractive. For example, L.T. Overseas, manufacturers

of Dawaat basmati rice, found that processing of rice results in two by-products i.e.

rice husk and rice brain oil. If the company sells husk and brain oil to other

consumers, then company is adopting by-product pricing.

5. Product bundle pricing: It is offering companies several products together as a

bundle at the reduced price. This strategy helps companies to generate more

volume, get rid of the unused products and attract the price conscious consumer.

This also helps in locking the customer from purchasing the competitors’ products.

For example, Anchor toothpaste and brush are offered together at lower prices.

Q2 b. Give a note on marketing concepts.

The Marketing Concept – The Marketing Concept proposes that a company’s task is

to create, communicate and deliver a better value proposition through its marketing

offer, in comparison to its competitors; to its target segment and that this customer

oriented approach only can lead to success in the market place.

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Today, marketing function is seen as one of the most important functions in the

organization. Many marketers put the customers at the centre of the company and

argue in favor of such a customer orientation, where all functions work together to

respond, serve and satisfy the customer.

Many successful and well known multinational companies have adopted marketing

concept as their business and marketing philosophies. Many Indian companies in the

banking and other service sectors follow customer orientation and service as their

motto. According to this concept, a company’s marketing effort must start right from

identifying, through Market Research, exact needs and wants of the target market.

Q.3 a. What are the features of business markets?

Features or Characteristics of Business Markets

Following are some of the unique features of business markets where large

establishments purchase the required goods and services from other businesses.

Such B2B operations determine the organizations as buyers and those organizations

who supply the various requirements will be the sellers or suppliers or service

providers.

1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For

example, major airlines buy the necessary equipments from the aircraft

manufacturers

2. Geographical concentration of buyers: Buyers are geographically concentrated.

For example, shipping industries are located on the east and west coasts of India

than in any other places.

3. Variable demand: The nature of demand is fluctuating because the demand is

basically a derived one. Based on the requirements of the consumer markets,

organizations buy the goods and make the finished goods available in the market for

final consumption. Larger the consumer demand, larger will be the organizational

buying. For example, mobiles are being used by a large population and so cellular

companies have to meet this rising demand.

4. Inelastic demand: The demand is also inelastic because organizations cannot

make rapid changes in the production structure and so prices remain constant in the

short-term. For example, Shoe manufacturers will not buy much leather if the price

of leather is less neither will they buy less leather if the price increases.

5. Systematic purchasing: The purchasing activity is directly between the buyer and

supplier organization which means there are no or very few middlemen involved.

Purchasing activity is usually undertaken by purchase departments based on a

proper structure and through various mechanisms like having purchase requisitions

from other sections, inviting tenders and sending invoices from the suppliers,

purchasing agreements or contracts with the key suppliers, renewing agreements

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etc. For example, Reliance Fresh has regular contracts with the agricultural

producers for smooth supply of fresh fruits and vegetables.

6. Multiple buying influences: there will be several parties involved in deciding

about the purchases because organizations will have several departments and units

functioning under it with different requirements. So, unless they have the proper

resources to work with there will be problems in the departments. For example,

purchase department in a Hospital must be aware about the specific requirements in

the clinical wards, operation theaters, labs, etc.

7. Reciprocation: This means that when an organization buys goods from another

organization then the supplier organization also might need certain other goods that

are produced by the buyer organization. For example, a stationery supplier will

supply the necessary stationeries to the paper manufacturer who in turn provides

papers to the supplier.

8. Lease agreements: Most organizations take on lease the expensive equipments

required by them rather than buy it. So, in this way, they reduce cost, get better

service and the lessor or one who provides the equipments will also profit from the

rent or lease charges. For example, TATA provides the transport trucks to other

organizations on lease.

Q.3 b. Write a short note on product line and product mix.

Product line: The group of related products which uses same marketing efforts to

reach the consumer.

The product line identifies profitable and unprofitable products and helps in

allocation of resources according to that. The product line understanding helps the

marketer to take line extension, line pruning and line filling strategies of the

company.

Pidilite Industries, the adhesives and chemical company, have the following group of

related products (or product lines) in consumer and business markets.

Consumer market.

1. Adhesives and sealants. 2. Art materials and stationeries. 3. Construction chemicals. 4. Automotive chemicals 5. Fabric care Business market

1. Industrial adhesives. 2. Textile chemicals. 3. Organic pigment powders. 4. Industrial resins and 5. Leather chemicals. Product Line Decisions:

The major product line decisions are a. Product line length b. Product line stretching c. Product line filling d. Product line pruning a. Product line length: The number of items in the product line is called the product

line length. Company should decide whether it requires longer chain or shorter

length. The decision depends upon the objective of the company, competitive

environment and profitability. If the chain is short company can add new products

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and if it is lengthy company can reduce the number of products. For example,

Pidilite’s adhesives and sealants line has following 11 items in the product line.

Hence the length of product line is 11

1. White Glue 2. Paper Glue

3. Glue Stick 4. Instant Adhesive

5. Epoxy Putty 6. Epoxy Adhesive

7. PVC Insulation Tape 8. Silicone Sealants

9. Contact Glue 10. All Purpose Glue

11. Maintenance Spray

b. Product line stretching: Company lengthens its product line either by stretching

upwards or downwards or both ways. Line stretching decision depends on three

situations -

i. Company which operates in high end market may come up with mid class or low

class targeted products.

ii. The company which operates in lower end of market may come up with high end

market products.

iii. If the company operates in mid segment and comes out with low end product as

well as high end product then it is stretching both ways.

For example, Maruti Suzuki Limited launched its first product, Maruti 800 in the year

1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than Maruti

800 and targeted for higher segment. This shows that the company extended its

product line upwards or in short, upward stretch.

Tata Motors launched their Rs 1 lakh car NANO in the year 2008. The company which

was targeting upper class and middle class with their products SUMO and Indica

respectively, has stretched downwards to reach the lower level segment. This

illustrates the downward stretch.

Toyota Kirloskar Limited which extended their line from Qualis and Corolla to Innova

and Camry is planning to come out with small car in India. This clearly illustrates the

two way stretch of the product line.

c. Product line filling: Adding more items in the present product line. For example, in

the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800

and Maruti Zen. Here company was trying to fill the gap existing in the segment by

introducing ALTO, i.e. line filling.

d. Product line pruning: Removing the unprofitable products form the product line.

Toyota Kirloskar phased out their well known brand Qualis when they thought the

brand was not adding value to the product line.

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Product Mix

Product mix: The number of product lines and items offered by marketer to the

consumers

A company’s product mix has four different dimensions. They are product mix width,

product mix length, product mix depth and product mix consistency.

The following shows the product mix of Jyothy Laboratories:

Fabric care House hold

insecticide

Utensil

cleaners

Fragrances Personal

care

Allied

business

Ujala supreme

(9ml, 30ml,

75ml,

125ml,250ml)

Maxo

cyclothrin coil

(8hr, 10hr,

12hr)

Exo dish

wash bar

(100g, 200g

380g)

Maya

(8, 15, 20, 40

and 100

sticks.)

Jeeva Natural

(Coconut

Milk with

Milk Protein,

Coconut Milk

with Jasmine

and Coconut

Milk with

Kasturi

Manjal, and

is presented

in 75gm

packs. )

Continental

special

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Ujala washing

powder

(25g, 500g,

1Kg)

Max vaporizer

(30ml, 45ml)

Exo dish

wash liquid

(500ml,

125ml)

Marketing of

godrej Tea

Stiff & shine

(20gm sachets,

100ml and

200ml bottles)

Max aerosol

(150ml,300ml)

Marketing of

Ekta dhoop

Product mix width: The total number of product lines that company offers to the

consumers.

For example, Jyothy Laboratories’ product mix has six lines. Hence the width is 6

Product mix length: The total number of items that company carries within its

product line.

For example, Jyothy Laboratories fabric care division has three items

Product line depth: The number of versions offered of each product in the line.

For example, Jyothy Laboratories’ Jeeva Natural is offered in three versions i.e.

Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with

Kasturi Manjal, and is presented in 75gm packs.

Product mix consistency: If company’s product lines usage, production and

marketing are related, then product mix is consistent, else it is unrelated.

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In the case of Jyothy Laboratories, all six product lines are FMCGs. Hence it is having

consistent product mix. But ITC Company’s cigarette and cloth product lines are

totally unrelated.

Q.4. a. Select any deodorant brand and evaluate its positioning strengths or

weakness in terms of attributes, benefits, values, brand name and brand equity.

Brand Name

A name, term, design, symbol, or any other feature that identifies one seller’s good

or service as distinct from those of other sellers’.

The legal term for brand is trademark. A brand may identify one item, a family of

items, or all items of that seller. If used for the firm as a whole, the preferred term is

trade name

Brand name: Axe

Axe was launched in France in 1983 by Unilever. It was inspired by another of

Unilever's brands, Impulse.

Unilever were keen to capitalize on Axe's French success and the rest of Europe from

1985 onwards, later introducing the other products in the range. Unilever were

unable to use the name Axe in the United Kingdom and Ireland due to trademark

problems so it was launched as Lynx

Although Axe's lead product is the fragranced aerosol deodorant body spray, other

formats of the brand exist. Within underarm care the following are available:

deodorant aerosol body spray, deodorant stick, deodorant roll-on, anti-perspirant

aerosol spray (called Axe Dry), and anti-perspirant stick (also called Axe Dry).

The attribute of the brand that customer associates with his/ her belief. A person

may associate the brand for power, strength or protectiveness. For example, a

customer may associate Axe brand not just for perfumes but also any accessory

associated with perfumes such as Shampoos etc. So, for him, Axe represents

perfume.

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Brand Equity

Brand equity is set of assets linked to a brand‘s name and symbol that adds value to

the product or service and/or that firm’s customer.

Components of brand equity:

1. Brand loyalty: From its launch (Axe), the yearly fragrance variant has played a key

part in the success of the brand by offering something new each year.

2. Brand awareness: The type of fragrance (Axe) variants have evolved over time.

From 1983 until about 1989, the variant names were descriptions of the fragrances

and included Musk, Spice, Amber, Marine, and Oriental.

3. Perceived quality

4. Brand associations: Axe also launches limited edition variants from time to time

that may be on sale for a few months or over a year

4.b. You are a research expert in the field of marketing footwear products. What

are the various research approaches you would consider before making a

consumer survey regarding footwear? (4 marks)

Below are the various research approaches that need to be considered before

making a consumer survey regarding footwear products:

1. Observational Research – Fresh data can be collected by observing the

situation and the people in the situation.

2. Focus Group Research is a method of discussion in which a team of eight to

twelve persons invited for a group discussion in presence of a skilled

moderator to discuss a product, service, a firm or any marketing related

activity. The proceedings are observed and recorded on videotape and

subsequently analyzed to understand consumer attitudes, beliefs and

behavior.

3. Survey Research – This is the most common of the approaches wherein

surveys are undertaken with the help of a questionnaire to learn about

people’s knowledge, beliefs and preferences.

4. Behavioral Research – Customer’s actual behavior in terms of actual

purchases reflect their preferences and are more reliable than responses

provided in surveys which are memory based.

5. Experimental Research – The most scientific method of research is

experimental research which tries to capture cause and affect relationships.

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Q. 5 a. What advice would you give a company that has facing bad publicity? What steps would you tell the company to improve its reputation?

Publicity can be said as a simple act of making a suggestion to the concerned parties

– TV or radio channel, news reporter or journalist, film makers, etc. that leads to the

inclusion of a company/products in an already existing story or a newly developed

one. Publicity may also include any such information that attracts attention to a

company, its products, its people or any event, usually generated by a third party

such as media. Publicity maybe a part of PR or it may be independent of it in certain

situations.

Publicity may have positive or negative impacts. For example, it became a negative

publicity for Coca-Cola when people in India, started to throw or break the bottles on

the roads because of the belief that it contained pesticides or toxic substances. News

channels covered the same giving negative publicity to the company and the

products.

Ways in which organizations can use publicity as a communication tool are as

follows:

· Organizing events, contests, exhibitions, public displays, tours, etc.

· Sponsoring awards, scholarships or giving charity for any noble cause.

· Issuing reports, conducting survey or polls, taking stand on any debatable or

environmental issues, etc.

· Any other way that is appropriate like for example displaying the products in a

movie and asking the lead actors to use the products in that movie.

Ways in which organizations can avoid or minimize the effects of bad publicity:

· Providing people with the accurate information and giving clarifications if needed

either through press release, media interviews, websites, public messages,

advertising etc.

· Company’s top management or spokesperson can give a public statement or

comment in the various media.

· Improvising Public Relations and designing good publicity message to erase the

effects of bad publicity.

· Continuing to provide quality products and services to the consumers.

· Involving in community work or environmental protection campaigns or any such

activity for a good cause.

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b. As a brand manager, what are the ways in which you will select a brand name for

your product- watches and how will you position it in the market?

Brand provides the image to the product. Brand manager should be careful in

selecting a proper name for the brand for watches.

Brand Name: Titan

There are six suggestions from Philip Kotler to create a successful brand name. They

are

1. It should suggest something about the product benefits and qualities; e.g. Titan

2. It should be easy to pronounce, recognize, and remember

3. The brand name should be distinctive

4. It should be extendable

5. The name should be easily translated into a foreign language

6. It should be capable of registration and legal protection e.g. Titan is a registered

brand and other brands cannot compete with it using any similar sounding name.

Brand managers have four options of sponsoring the brand. They are

1. Manufacturer brand

2. Private brand

3. Licensing

4. Co- branding

Q. 6 a. What is MIS? What are its benefits?

MIS (Marketing Information System):

MIS is a set of procedures to collect, analyze and distribute accurate, prompt and

appropriate information to different levels of marketing decision makers.

Benefits of MIS

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Various benefits of having a MIS and resultant flow of marketing information are

given below:

1. It allows marketing managers to carry out their analysis, planning implementation

and control responsibilities more effectively.

2. It ensures effective tapping of marketing opportunities and enables the company

to develop effective safeguard against emerging marketing threats.

3. It provides marketing intelligence to the firm and helps in early spotting of

changing trends.

4. It helps the firm adapt its products and services to the needs and tastes of the

customers.

5. By providing quality marketing information to the decision maker, MIS helps in

improving the quality of decision making.

6.b. How is rural marketing different from urban markets?

Rural Marketing

In a rapidly changing scenario, marketers have to continuously explore new markets

and ways of serving them. In India, enterprises are discovering the potential of a

huge rural population to drive business. Prof C K Prahlad, had aptly summed up the

potential as ‘fortune at the bottom of the pyramid’ in a pathbraking book of the

same name. Rural marketing is not something akin to glocalisation. It is not the

modification of urban marketing strategies to suit the rural market. On the other

hand it is developing products to meet the needs of the rural sector and reaching it

across as per the specific characteristics of the rural environment. In case of a

detergent, it is producing one which will suit the rural environment (considering that

the dirt and grime is different, clothing alternatives are different, availability of water

and number of times of washing is different and so on); packaging and pricing which

will be akin to their requirement and alternative ways for which the detergent may

be put to use. For example Hindustan Lever found that its detergent was being used

for washing the cattle.

Importance of Rural marketing: The following table will give you some idea about the

emergence of the rural market which marketers may ignore at their own peril.

Rural Markets different from Urban Markets

This has to be understood in the light of the 4Ps or 7Ps of marketing. Imagine that

you are trying to establish a Coffee Café Day Outlet in a remote village in

Maharashtra. Will that be viable proposition? Yet there may be consumers for coffee

in the rural sector too. The offering has to suit the sector. Similarly an ice cream

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parlor may not be a workable idea in a village or a cluster of villages if there is no

electricity connection there. The ice cream cart vendor is a better idea. Keeping

these situations in perspective, one can draw some inferences why rural marketing is

different.

1. Accessibility and mobility: This applies both for the supplier and the consumer.

The movement of the people is restricted by the lack of surface roads and the mode

of transport. There are restrictions by way of visibility during night.

2. Average income level of consumers: The average wage earners are characterized

by lower per capita income and disposable income in comparison to the urban.

3. Geographical distances: The living quarters are separated more than they are in

the urban areas. The cluster of villages is also segregated by distances.

4. Literacy level: On an average the literacy level in the rural sector is lower in

comparison to the urban sector.

There could be several other issues which are specific to the rural sector. These may

force marketers to take a different approach for the entire marketing process or at

least some of them as against the urban sector.

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MB0047 Management Information System

Assignment Set- 1

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Q1. What is MIS? Define the characteristics of MIS? What are the basic Functions

of MIS? Give some Disadvantage of MIS?

Answer:-

MIS systems are extensively used in generating statistical report of any organization

which can be used to study management by behavior. They set objectives to their

employees using ratio analysis. Management also uses MIS for decision making from

the low level management to top level management. In order to perform task using

Information systems use of technical support is required. So it is the combination of

3 components i.e. organization, technology and management.

MIS characteristics

It supports transaction handling and record keeping.

It is also called as integrated database Management System which supports

in major functional areas.

It provides operational, tactical, and strategic level managers with east access

to timely but, for the most, structured information.

It supports decision –making function which is a vital role of MIS.

It is flexible which is needed to adapt to the changing needs of the

organization.

It promotes security system by providing only access to authorized users.

MIS not only provides statistical and data analysis but also works on the basis

on MBO (management by objectives). MIS is successfully used for measuring

performance and making necessary change in the organizational plans and

procedures. It helps to build relevant and measurable objectives, monitor

results, and send alerts.

Basic Function of MIS

The main functions of MIS are:

Data Processing: Gathering, storage, transmission, processing and getting

output of the data. Making the data into information is a major task.

Prediction: Prediction is based on the historical data by applying the prior

knowledge methodology by using modern mathematics, statistics or

simulation. Prior knowledge varies on the application and with different

departments.

Planning: Planning reports are produced based on the enterprise restriction

on the companies and helps in planning each functional department to work

reasonably.

Control: MIS helps in monitoring the operations and inspects the plans. It

consists of differences between operation and plan with respect to data

belonging to different functional department. It controls the timely action of

the plans and analyzes the reasons for the differences between the

operations and plan. Thereby helps managers to accomplish their decision

making task successfully.

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Assistance: It stores the related problems and frequently used information to

apply them for relative economic benefits. Through this it can derive instant

answers of the related problem.

Disadvantages of MIS

The following are some of the disadvantages of MIS:

MIS is highly sensitive: MIS is very helpful in maintaining logging information

of an authorized user. This needs to monitor constantly.

Quality of outputs is governed by quality of inputs.

MIS budgeting: There is difficulty in maintaining indirect cost and overheads.

Capturing the actual cost needs to have an accrual system having true costs

of outputs which is extremely difficult. It has been difficult to establish

definite findings.

MIS is not flexible to update itself for the changes.

The changes in the decision of top level management decrease its

effectiveness.

Information accountability is based on the qualitative factors and the factors

like morality, confidence or attitude will not have any base.

2. Explain Knowledge based system? Explain DSS and OLAP with example?

Answer:

Knowledge Based System (KBS)

KBS are the systems based on knowledge base. Knowledge base is the database

maintained for knowledge management which provides the means of data

collections, organization and retrieval of knowledge. The knowledge management

manages the domain where it creates and enables organization for adoption of

insights and experiences.

There are two types of knowledge bases.

a. Machine readable knowledge bases: The knowledge base helps the computer to

process through. It makes the data in the computer readable code which makes the

operator to perform easier. Such information sare used by semantic web. Semantic

web is a web that will make a description of the system that a system can

understand.

b. Human readable knowledge bases: They are designed to help people to retrieve

knowledge. The information need to be processed by the reader. The reader can

access the information and synthesize their own.

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KBS refers to a system of data and information used for decision making. The system

is automated to work on the knowledge based data and information required in a

particular domain of management activity. The processing is done based on the past

decisions taken under suitable conditions. Decision making is based on the fact that

the condition is similar to the past situation hence the decision is also is similar.

Examples of KBS are intelligent systems, robotics, neural networks etc.

Online Analytical Processing (OLAP)

OLAP refers to a system in which there are predefined multiple instances of various

modules used in business applications. Any input to such a system results in

verification of the facts with respect to the available instances.

A nearest match is found analytically and the results displayed form the database.

The output is sent only after thorough verification of the input facts fed to the

system. The system goes through a series of multiple checks of the various

parameters used in business decision making. OLAP is also referred to as a multi

dimensional analytical model. Many big companies use OLAP to get good returns in

business.

The querying process of the OLAP is very strong. It helps the management take

decisions like which month would be appropriate to launch a product in the market,

what should be the production quantity to maximize the returns, what should be the

stocking policy in order to minimize the wastage etc.

A model of OLAP may be well represented in the form of a 3D box. There are six

faces of the box. Each adjoining faces with common vertex may be considered to

represent the various parameter of the business situation under consideration.

E.g.: Region, Sales & demand, Product etc.

Model of OLAP

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Decision Support Systems (DSS)

DSS is an interactive computer based system designed to help the decision makers to

use all l the resources available and make use in the decision making. In

management many a time problems arise out of situations for which simple solution

may not be possible. To solve such problems you may have to use complex theories.

The models that would be required to solve such problems may have to be

identified. DSS requires a lot of managerial abilities and managers judgment.

You may gather and present the following information by using decision support

application:

· Accessing all of your current information assets, including legacy and relational data

sources, cubes, data warehouses, and data marts

· Comparative sales figures between one week and the next

· Projected revenue figures based on new product sales assumptions

· The consequences of different decision alternatives, given past experience in a

context that is described.

Manager may sometimes find it difficult to solve such problems. E.g. – In a sales

problem if there is multiple decision variables modeled as a simple linear problem

but having multiple optima, it becomes difficult to take a decision. Since any of the

multiple optima would give optimum results. But the strategy to select the one most

suitable under conditions prevailing in the market, requires skills beyond the model.

It would take some trials to select a best strategy. Under such circumstances it would

be easy to take decision if a ready system of databases of various market conditions

and corresponding appropriate decision is available. A system which consists of

database pertaining to decision making based on certain rules is known as decision

support system. It is a flexible system which can be customized to suit the

organization needs. It can work in the interactive mode in order to enable managers

to take quick decisions. You can consider decision support systems as the best when

it includes high-level summary reports or charts and allow the user to drill down for

more detailed information.

A DSS has the capability to update its decision database. Whenever manager feels

that a particular decision is unique and not available in the system, the manager can

chose to update the database with such decisions. This will strengthen the DSS to

take decisions in future.

There is no scope for errors in decision making when such systems are used as aid to

decision making. DSS is a consistent decision making system. It can be used to

generate reports of various lever management activities. It is capable of performing

mathematical calculations and logical calculation depending upon the model

adopted to solve the problem. You can summarize the benefits of DSS into following:

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· Improves personal efficiency

· Expedites problem solving

· Facilitates interpersonal communication

· Promotes learning or training

· Increases organizational control

· Generates new evidence in support of a decision

· Creates a competitive advantage over competition

· Encourages exploration and discovery on the part of the decision maker

· Reveals new approaches to thinking about the problem space

3. What are Value Chain Analysis & describe its significance in MIS? Explain what is

meant by BPR? What is its significance? How Data warehousing & Data Mining is

useful in terms of MIS?

Answer:

Value Chain Analysis:

The activities performed by a particular enterprise can be analyzed into primary

activities, which directly adds value to the enterprise’s factors of production, which

are together referred to as the ‘value chain’, and supporting activities.

Figure: Product Differentiation and Value Chain representation

Porter’s Enterprise Value-Chain

Value-addition activities like production, marketing delivery, and servicing of the

product. These activities are connected in a chain. Support activities include those

providing purchased inputs, technology, human resources, or overall infrastructure

functions to support the primary activities.

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It is possible to reduce the transaction cost by proper coordination of all the

activities. It should be possible to gather better information for various controls and

also replace the same by less costlier activities. It will also be possible to reduce the

overall time required to complete an activity.

Therefore coordination is very important to achieve competitive advantage. For this

it is necessary to manage the value chain as a system rather than as separate parts.

An enterprise’s value chain for competing in a particular industry is embedded in a

larger stream of activities. What Porter termed as ‘value system’, may be referred to

as the ‘industry value-chain’. This chain consists of mainly the suppliers and

distribution channels. Any activity of an organization is subjected to one or more of

the following –

· New technologies – Newer technologies changes the direction of the value chain.

· Shifting buyer needs – The buyers have been increasing their demands to satisfy

their needs in the form convenience and better price and features. This demand

influences a change in the related market segments;

· Variation in industry segmentation – The value system undergoes a change

depending upon the existence of old and new systems and its components in the

value chain. Organizations, which fail to adjust will have to close down their

business.

· Changes in the costs – It is possible to gain competitive advantage by optimizing

the activities based on present conditions. Enterprises which continue to work on

the older approaches in outdated modes of operation suffer.

· Changes in government regulations – If there is a change in the standards of the

product of the enterprise, with respect to the environmental controls, restrictions on

entry to the market, and trade barriers then it affect the performance of the

enterprise.

BPR

The existing system in the organization is totally reexamined and radically modified

for incorporating the latest technology. This process of change for the betterment of

the organization is called as Business process re-engineering. This process is mainly

used to modernize and make the organizations efficient. BPR directly affects the

performance. It is used to gain an understanding the process of business and to

understand the process to make it better and re-designing and thereby improving

the system.

BPR is mainly used for change in the work process. Latest software is used and

accordingly the business procedures are modified, so that documents are worked

upon more easily and efficiently. This is known as workflow management.

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Signification of BPR

Business process are a group of activities performed by various departments, various

organizations or between individuals that is mainly used for transactions in business.

There may be people who do this transaction or tools. We all do them at one point

or another either as a supplier or customer. You will really appreciate the need of

process improvement or change in the organizations conduct with business if you

have ever waited in the queue for a longer time to purchase 1 kilo of rice from a

Public Distribution Shop (PDS-ration shop). The process is called the check-out

process. It is called process because uniform standard system has been maintained

to undertake such a task. The system starts with forming a queue, receiving the

needed item form the shop, getting it billed, payment which involves billing, paying

amount and receiving the receipt of purchase and the process ends up with the exit

from the store. It is the transaction between customer and supplier.

Data Warehousing – Data Warehouse is defined as collection of database which is

referred as relational database for the purpose of querying and analysis rather than

just transaction processing. Data warehouse is usually maintained to store heuristic

data for future use. Data warehousing is usually used to generate reports.

Integration and separation of data are the two basic features need to be kept in

mind while creating a data warehousing. The main output from data warehouse

systems are; either tabular listings (queries) with minimal formatting or highly

formatted "formal" reports on business activities. This becomes a convenient way to

handle the information being generated by various processes. Data warehouse is an

archive of information collected from wide multiple sources, stored under a unified

scheme, at a single site. This data is stored for a long time permitting the user an

access to archived data for years. The data stored and the subsequent report

generated out of a querying process enables decision making quickly. This concept is

useful for big companies having plenty of data on their business processes. Big

companies have bigger problems and complex problems. Decision makers require

access to information from all sources. Setting up queries on individual processes

may be tedious and inefficient.

Data Mining – Data mining is primarily used as a part of information system today,

by companies with a strong consumer focus - retail, financial, communication, and

marketing organizations. It enables these companies to determine relationships

among "internal" factors such as price, product positioning, or staff skills, and

"external" factors such as economic indicators, competition, and customer

demographics. And, it enables them to determine the impact on sales, customer

satisfaction, and corporate profits. Finally, it enables them to "drill down" into

summary information to view detail transactional data. With data mining, a retailer

could use point-of-sale records of customer purchases to send targeted promotions

based on an individual's purchase history. By mining demographic data from

comment or warranty cards, the retailer could develop products and promotions to

appeal to specific customer segments.

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4. Explain DFD & Data Dictionary? Explain in detail how the information

requirement is determined for an organization?

DFD

Data flow diagrams represent the logical flow of data within the system. DFD do not

explain how the processes convert the input data into output. They do not explain

how the processing takes place.

DFD uses few symbols like circles and rectangles connected by arrows to represent

data flows. DFD can easily illustrate relationships among data, flows, external

entities stores. DFD can also be drawn in increasing levels of detail, starting with a

summary high level view and proceeding o more detailed lower level views.

Rounded rectangles represent processes that transform flow of data or work to be

done.

Rectangle represents external agents- the boundary of the system. It is source or

destination of data.

The open-ended boxes represent data stores, sometimes called files or databases.

These data stores correspond to all instances of a single entity in a data model.

Arrow represents data flows, inputs and outputs to end from the processes.

A number of guideline should be used in DFD

Choose meaningful names for the symbols on the diagram.

Number the processes consistently. The numbers do not imply the sequence.

Avoid over complex DFD.

Make sure the diagrams are balanced

Data Dictionary

The data dictionary is used to create and store definitions of data, location, format

for storage and other characteristics. The data dictionary can be used to retrieve the

definition of data that has already been used in an application. The data dictionary

also stores some of the description of data structures, such as entities, attributes and

relationships. It can also have software to update itself and to produce reports on its

contents and to answer some of the queries.

Determining the Information Requirement

The sole purpose of the MIS is to produce such information which will reduce

uncertainty risk in a given situation.

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The difficulty to determine a correct and complete set of information is on account

of the factors given below:

1. The capability constraint of the human being as an information processor, a

problem solver and a decision-maker.

2. The nature and the variety of information in precise terms.

3. Reluctance of decision-makers to spell out the information for the political and the

behavioural reasons.

4. The ability of the decision-makers to specify the information.

In spite of these difficulties, methods are evolved based on the uncertainty scale,

starting from the low to the high level of uncertainty. If the uncertainty is low,

seeking information requirement or needs is easy as against a very high level of

uncertainty.

There are four methods of determining the information requirements. They are:

1. Asking or interviewing

2. Determining from the existing system

3. Analysing the critical success factors

4. Experimentation and modelling.

Asking or Interviewing

In this method a designer of the MIS puts questions or converses with the user of the

information and determines the information requirements. Putting the questions is

an art and it should be used properly to seek information.

When the user has to select one answer from a finite set of answers a closed

question should be asked. For example, "Which are the raw materials used for

making a product?" But an open question is put, when the user has no precise

knowledge but has an ability to determine all answers to select one out of them? For

example, "Which are the raw materials which can be used in a product?" In open

questions, the answers may not be immediate but can be obtained by surveying the

domain knowledge of the user.

When multiple users or several decision-makers in similar functions or positions are

involved, a brain storming session is performed to cover all possible answers to the

questions. When several users are involved, group consensus can be sought to get

the most feasible set of answers.

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The experts or experienced users are asked to give their best answers—this

approach is called the Delphi method. In all these methods, the system designer has

to test the validity of all the answers independently. An experienced designer is able

to analyse critically the answers given to the questions and determine the correct

information requirement.

Determining from the Existing System

In a number of cases the existing system, which has been evolved after a number of

years, and has been designed out of experience gives straightaway the requirement

of information. In any situations, systems from other companies can give additional

information requirements.

The fund of knowledge is available from the textbooks, handbooks, research studies

which can determine the information requirement. For example, systems such as the

accounts receivables, the accounts payables, the pay roll, the inventory control, the

financial accounting, etc., have a well determined, information requirement.

Irrespective of the type of organisation and business, ninety per cent of the

information requirement is common and the balance ten per cent may be typical to

the organisation or the business, which needs to be determined separately. The

managers in the operations and the middle management use the existing systems as

a reference for determining the information requirements.

This method is adopted when the rules and decision methods are outside the

purview of the decision-maker. They are determined or imposed by external sources

such as the Government, the Authority, the principles, etc. For example, the

information required to manage shares of the company are determined through the

rules and regulations laid down by the Company Law Board. The manager of the

shares department has very little additional information need.

In all such functions, the manager determines the information needs and the

designer of the MIS can always fall back on the prescribed law books, manuals,

theory and textbooks, hand books, etc to confirm the information needs.

Analysing the Critical Success Factors

Every business organisation performs successfully on efficient management of

certain critical success factors. Other factors are important and play a support role in

the functioning of the organisation. Many times a function is singularly critical to the

successful functioning of a business organisation.

For example, in a high technology business, the management of the technology

becomes the critical function. Or in a service organisation, the management of

service becomes a critical factor. In a consumer industry, marketing and service

becomes the critical function. The information requirements of such organisations

largely relate to these critical factors. The analysis of these functions or factors will

determine the information requirements.

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Experimentation and Modelling

When there is total uncertainty, the designer and the user of the information resort

to this method for determining the information requirement. The experimentation

would decide the methodology for handling the complex situation. If the method is

finalised, the information needs are determined as they have been evolved through

the experimentation. Test marketing of a product is an approach of the

experimentation to decide the correct marketing strategy.

Sometimes models are used for deciding the initial information needs and they are

modified during the implementation stage. The information requirements

determined through such methods undergo a qualitative change as the users get the

benefit of learning and experience and the needs may undergo a change or get

replaced completely.

5. What is ERP? Explain its existence before and its future after? What are the

advantages & Disadvantages of ERP? What is Artificial Intelligence? How is it

different from Neural Networks?

Answer:

ERP

Manufacturing management systems have evolved in stages over the few decades

from a simple means of calculating materials requirements to the automation of an

entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing

continual readjustments in production, as well as the unsuitability of the parameters

fixed by the system, led MRP (Material Requirement Planning) to evolve into a new

concept : Manufacturing Resource Planning (or MRP2) and finally the generic

concept Enterprise Resource Planning (ERP)

The initials ERP originated as an extension of MRP (material requirements planning

then manufacturing resource planning). ERP systems now attempt to cover all basic

functions of an enterprise, regardless of the organization’s business or charter. Non-

manufacturing businesses, non-profit organizations and governments now all utilize

ERP systems.

To be considered an ERP system, a software package must provide the function of at

least two systems. For example, a software package that provides both payroll and

accounting functions could technically be considered an ERP software package.

However, the term is typically reserved for larger, more broadly based applications.

The introduction of an ERP system to replace two or more independent applications

eliminates the need for external interfaces previously required between systems,

and provides additional benefits that range from standardization and lower

maintenance to easier and/or greater reporting capabilities.

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Examples of modules in an ERP which formerly would have been stand-alone

applications include: Manufacturing, Supply Chain, Financials, Customer Relationship

Management (CRM), Human Resources, Warehouse Management and Decision

Support System.

ERP Before and After

Before

Prior to the concept of ERP systems, departments within an organization (for

example, the human resources (HR)) department, the payroll department, and the

financial department) would have their own computer systems. The HR computer

system (often called HRMS or HRIS) would typically contain information on the

department, reporting structure, and personal details of employees. The payroll

department would typically calculate and store paycheck information. The financial

department would typically store financial transactions for the organization. Each

system would have to rely on a set of common data to communicate with each

other. For the HRIS to send salary information to the payroll system, an employee

number would need to be assigned and remain static between the two systems to

accurately identify an employee. The financial system was not interested in the

employee-level data, but only in the payouts made by the payroll systems, such as

the tax payments to various authorities, payments for employee benefits to

providers, and so on. This provided complications. For instance, a person could not

be paid in the payroll system without an employee number.

After

ERP software, among other things, combined the data of formerly separate

applications. This made the worry of keeping numbers in synchronization across

multiple systems disappears. It standardized and reduced the number of software

specialties required within larger organizations.

Advantages and Disadvantages of ERP

Advantages – In the absence of an ERP system, a large manufacturer may find itself

with many software applications that do not talk to each other and do not effectively

interface. Tasks that need to interface with one another may involve:

A totally integrated system

The ability to streamline different processes and workflows

The ability to easily share data across various departments in an organization

Improved efficiency and productivity levels

Better tracking and forecasting

Lower costs

Improved customer service

Disadvantages – Many problems organizations have with ERP systems are due to

inadequate investment in ongoing training for involved personnel, including those

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implementing and testing changes, as well as a lack of corporate policy protecting

the integrity of the data in the ERP systems and how it is used.

While advantages usually outweigh disadvantages for most organizations

implementing an ERP system, here are some of the most common obstacles

experienced:

Usually many obstacles can be prevented if adequate investment is made and

adequate training is involved, however, success does depend on skills and the

experience of the workforce to quickly adapt to the new system.

Customization in many situations is limited

The need to reengineer business processes

ERP systems can be cost prohibitive to install and run

Technical support can be shoddy

ERP's may be too rigid for specific organizations that are either new or want

to move in a new direction in the near future.

Artificial Intelligence

Artificial Intelligence is the science and technology based on various functions to

develop a system that can think and work like a human being. It can reason, analyze,

learn, conclude and solve problems. The systems which use this type of intelligence

are known as artificial intelligent systems and their intelligence is referred to as

artificial intelligence. It was said that the computer don’t have common sense. Here

in AI, the main idea is to make the computer think like human beings, so that it can

be then said that computers also have common sense. More precisely the aim is to

obtain a knowledge based computer system that will help managers to take quick

decisions in business.

Artificial Intelligence and Neural Networks

Artificial intelligence is a field of science and technology based on disciplines such as

computer science, biology, psychology, linguistics, mathematics and engineering.

The goal of AI is to develop computers that can simulate the ability to think, see,

hear, walk, talk and feel. In other words, simulation of computer functions normally

associated with human intelligence, such as reasoning, learning and problem solving.

AI can be grouped under three major areas: cognitive science, robotics and natural

interfaces.

Cognitive science focuses on researching on how the human brain works and how

humans think and learn. Applications in the cognitive science area of AI include the

development of expert systems and other knowledge-based systems that add a

knowledge base and some reasoning capability to information systems. Also

included are adaptive learning systems that can modify their behavior based on

information they acquire as they operate. Chess-playing systems are some examples

of such systems.

Fussy logic systems can process data that are incomplete or ambiguous. Thus, they

can solve semi-structured problems with incomplete knowledge by developing

approximate inferences and answers, as humans do.

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Neural network software can learn by processing sample problems and their

solutions. As neural nets start to recognize patterns, they can begin to program

themselves to solve such problems on their own.

Neural networks are computing systems modeled after the human brain’s mesh like

network of interconnected processing elements, called neurons. The human brain is

estimated to have over 100 billion neuron brain cells. The neural networks are lot

simpler in architecture. Like the brain, the interconnected processors in a neural

network operate in parallel and interact dynamically with each other.

This enables the network to operate and learn from the data it processes, similar to

the human brain. That is, it learns to recognize patterns and relationships in the

data. The more data examples it receives as input, the better it can learn to duplicate

the results of the examples it processes. Thus, the neural networks will change the

strengths of the interconnections between the processing elements in response to

changing patterns in the data it receives and results that occur

6. Distinguish between closed decision making system & open decision making

system? What is ‘what – if‘analysis? Why is more time spend in problem analysis &

problem definition as compared to the time spends on decision analysis?

Answer:-

Closed decision making system & Open decision making system

The decision-making systems can be classified in a number of ways. There are two

types of systems based on the manager’s knowledge about the environment. If the

manager operates in a known environment then it is a closed decision-making

system. The conditions of the closed decision-making system are:

a) The manager has a known set of decision alternatives and knows their outcomes

fully in terms of value, if implemented.

b) The manager has a model, a method or a rule whereby the decision alternatives

can be generated, tested, and ranked for selection.

c) The manager can choose one of them, based on some goal or objective criterion.

Few examples are a product mix problem, an examination system to declare pass or

fail, or an acceptance of the fixed deposits.

If the manager operates in an environment not known to him, then the decision-

making system is termed as an open decision-making system. The conditions of this

system in contrast closed decision-making system are:

a) The manager does not know all the decision alternatives.

b) The outcome of the decision is also not known fully. The knowledge of the

outcome may be a probabilistic one.

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c) No method, rule or model is available to study and finalise one decision among the

set of decision alternatives.

d) It is difficult to decide an objective or a goal and, therefore, the manager resorts

to that decision, where his aspirations or desires are met best.

Deciding on the possible product diversification lines, the pricing of a new product,

and the plant location, are some decision-making situations which fall in the

category of the open decision-making systems.

The MIS tries to convert every open system to a closed decision-making system by

providing information support for the best decision. The MIS gives the information

support, whereby the manager knows more and more about environment and the

outcomes, he is able to generate the decision alternatives, test them and select one

of them. A good MIS achieves this.

What if analysis

Decisions are made using a model of the problem for developing various solution

alternatives and testing them for best choice. The model is built with some variables

and relationship between variables considered values of variables or relationship in

the model may not hold good and therefore solution needs to be tested for an

outcome, if the considered values of variables or relationship change. This method of

analysis is called 'what if analysis.'

For example, in decision-making problem about determining inventory control

parameters (EOQ, Safety Stock, Maximum Stock, Minimum Stock, Reorder level) lead

time is assumed fairly constant and stable for a planning period. Based on this, the

inventory parameters are calculated. Inventory manager wants to know how the

cost of holding inventory will be affected if lead time is reduced by one week or

increased by one week. The model with changed lead time would compute the cost

of holding inventory under new conditions. Such type of analysis can be done for

purchase price change, demand forecast variations and so on. Such analysis helps a

manager to take more learned decisions. ‘What if analysis’ creates confidence in

decision-making model by painting a picture of outcomes under different

conditions?

Why is more time spend in problem analysis & problem definition as compared to

the time spends on decision analysis?

The manager, being a human being, behaves in a peculiar way in a given situation.

The response of one manager may not be the same as that of the two other

managers, as they differ on the behavioural platform. Even though tools, methods

and procedures are evolved, the decision is many a times influenced by personal

factors such as behaviour.

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The managers differ in their approach towards decision-making in the organisation,

and, therefore, they can be classified into two categories, viz., the achievement-

oriented, i.e., looking for excellence and the task-oriented, i.e., looking for the

completion of the task somehow. The achievement-oriented manager will always

opt for the best and, therefore, will be enterprising in every aspect of the decision-

making. He will endeavour to develop all the possible alternatives. He would be

scientific, and therefore, more rational. He would weigh all the pros and cons

properly and then conclude.

The manager’s personal values will definitely influence ultimately. Some of the

managers show a nature of risk avoidance. Their behaviour shows a distinct pattern

indicating a conservative approach to decision-making – a path of low risk or no risk.

Further, even though decision-making tools are available, the choice of the tools may

differ depending on the motives of the manager. The motives are not apparent, and

hence, are difficult to understand. A rational decision in the normal course may turn

out to be different on account of the motives of the manager.

The behaviour of the manager is also influenced by the position he holds in the

organisation. The behaviour is influenced by a fear and an anxiety that the personal

image may be tarnished and the career prospects in the organisation may be spoiled

due to a defeat or a failure. The managerial behaviour, therefore, is a complex mix of

the personal values, the atmosphere in the organisation, the motives and the

motivation, and the resistance to change. Such behaviour sometimes overrides

normal decisions based on business and economic principles.

The interplay of different decision-making of all the managers in the organisation

shapes up the organisational decision-making. The rationale of the business decision

will largely depend upon the individuals, their positions in the organisation and their

inter-relationship with other managers.

If two managers are placed in two decision-making situations, and if their objectives

are in conflict, the managers will arrive at a decision objectively, satisfying individual

goals. Many a times, they may make a conscious decision, disregarding

organisation’s objective to meet their personal goals and to satisfy their personal

values. If the manager is enterprising, he will make objectively rational decisions. But

if the manager is averse to taking risk, he will make a decision which will be

subjectively rational as he would act with limited knowledge and also be influenced

by the risk averseness. Thus, it is clear that if the attitudes and the motives are not

consistent across the organisation, the decision-making process slows down in the

organisation.

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MB0047 Management Information System

Assignment Set- 2

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1. How hardware & software support in various MIS activities of the organization?

Explain the transaction stages from manual system to automated systems?

Hardware support for MIS

Generally hardware in the form of personal computers and peripherals like printers,

fax machines, copier, scanners etc are used in organization to support various MIS

activities of the organization.

Advantages of a PC : Advantages a personal computer offers are –

a) Speed – A PC can process data at a very high speed. It can process millions of

instructions within fraction of seconds.

b) Storage – A PC can store large quantity of data in a small space. It eliminates the

need of storing the conventional office flat files and box files which requires lots of

space. The storage system in a PC is such that the information can be transferred from

place to another place in electronic form.

c) Communication – A PC on the network can offer great support as a communicator

in communicating information in the forms of text and images. Today a PC with

internet is used as a powerful tool of communication for every business activity.

d) Accuracy – A PC is highly reliable in the sense that it could be used to perform

calculations continuously for hours with a great degree of accuracy. It is possible to

obtain mathematical results correct up to a great degree of accuracy.

e) Conferencing – A PC with internet offers facility of video conferencing worldwide.

Business people across the globe travel a lot to meet their business partner,

colleagues, and customers etc to discuss about business activities. By video

conferencing inconvenience of traveling can be avoided.

A block diagram of a computer may be represented as

Input unit is used to give input to the processor. Examples of input unit –Keyboard,

scanner, mouse, bar code reader etc.

A processor refers to unit which processes the input received the way it has been

instructed. In a computer the processor is the CPU – Central Processing Unit. It does all

mathematical calculations, logical tasks, storing details in the memory etc. Output unit

is used to give output s from the computer. Examples of output unit – Monitor,

printer, speakers etc.

Organization of Business in an E enterprise – Software Applications in MIS

Internet technology is creating a universal bench or platform for buying and selling of

goods, commodities and services. Essentially Internet and networks enable integration

of information, facilitate communication, and provide access to everybody from

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anywhere. And software solutions make them faster and self-reliant as they can

analyze data information, interpret and use rules and guidelines for decision-making.

These enabling capabilities of technology have given rise to four business models that

together work in an E enterprise organization. They are:

• E business

• E communication

• E commerce

• E collaboration

These models work successfully because Internet technology provides the

infrastructure for running the entire business process of any length. It also provides

email and other communication capabilities to plan, track, monitor and control the

business operations through the workers located anywhere. It is capable of linking to

disparate systems such as logistics, data acquisition and radio frequency used systems

and so on. Low cost connectivity physical, virtual and universal standards of Internet

technology make it a driving force to change conventional business model to E

business enterprise model.

Internet has enabled organizations to change their business process and practices. It

has dramatically reduced cost of data and information processing, its sending and

storing. Information and information products are available in electronic media, and is

a resident on the network. Once everyone is connected electronically, information can

flow seamlessly from any location to any other location. For example, product

information is available on an organization website which also has a feature of order

placement. An order placed is processed at the backend and status of acceptance,

rejection is communicated instantaneously to the customer. Such order is then placed

directly on the order board for scheduling and execution. These basic capabilities of

Internet have given rise to number of business models. Some of them are given in

Table

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The Internet and networks provide platform and various capabilities whereby

communication, collaboration, and conversion has become significantly faster,

transparent and cheaper. These technologies help to save time, resource and enable

faster decision making. The technology adds speed and intelligence in the business

process improving quality of service to the customer. The business process of serving

the customer to offer goods, products or services is made up of the following

components.

· Enquiry processing

· Order preparation

· Order placement

· Order confirmation

· Order planning

· Order scheduling

· Order manufacturing

· Order status monitoring

· Order dispatching

· Order billing

· Order receivable accounting

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· Order payment processing

The entire process in parts or full can be handled through these technologies and

software solutions. It provides important strategic, competitive advantage. Further,

the technology is flexible and capable of handling any business models such as:

• Retailing, Trading, Auctioning

• Manufacturing, Distribution & Selling

• Outsourcing, Subcontracting

• Servicing, Training, Learning, Consulting

The resultant effect is the reduction in cost of business operations, improved customer

loyalty and retention and better quality offer to the customer. Four major applications

mentioned earlier make this achievement possible. We go into details of each one of

them.

Transformation stage manual systems to automated systems

The manual system which was prevalent in the organizations before industrial

revolution was slowly transformed into digital form by means of computer and related

electronic instruments. A transformation had to necessarily go through the following

stages

a) Appraisal of the procedures

b) Types of documents

c) Storage systems

d) Formulations and coding

e) Verification and validation

f) Review

g) Documentation

2. Explain the various behavioral factors of management organization? As per Porter, how can performance of individual corporations be determined? Management organizations:

An organization is a structure that uses the resources from the environment like

manpower, raw materials, capital and returns the output like products and services to

the environment. It constitutes the rules, policies, responsibilities and procedures that

are adopted by the organization.

Behavioral factors

The implementation of computer based information systems in general and MSS in

particular is affected by the way people perceive these systems and by how they

behave in accepting them. User resistance is a major behavioral factor associated with

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the adoption of new systems. The following are compiled by Jiang et al. (2000) ;

Reasons that employees resist new systems:

1. Change in job content

2. Loss of status

3. Change in interpersonal relationships

4. Loss of power

5. Change in decision making approach

6. Uncertainty or unfamiliarity or misinformation

7. Job security

The major behavioral factors are

a) Decision styles symbolic processing of AI is heuristic; DSS and ANN are analytic

b) Need for explanation – ES provides explanation, ANN does not, DSS may provide partial explanation. Explanation can reduce resistance to change

c) Organizational climate some organizations lead and support innovations and new technologies whereas other wait and lag behind in making changes

d) Organizational expectations – over expectation can result in disappointments and termination of innovation. Over expectation was observed in most early intelligent systems.

e) Resistance to change – can be strong in MSS because the impacts may be

significant.

Performance of individual corporations:

Out of many possible interpretations of a strategy an organization adopts in business,

it is found that a majority is concerned with competition between corporations.

Competition means cultivating unique strengths and capabilities, and defending them

against imitation by other firms. Another alternative sees competition as a process

linked to innovation in product, market, or technology. Strategic information systems

theory is concerned with the use of information technology to support or sharpen an

enterprise's competitive strategy. Competitive strategy is an enterprise's plan for

achieving sustainable competitive advantage over, or reducing the edge of, its

adversaries. The performance of individual corporations is determined by the extent to

which they manage the following (as given by Porter) –

a) The bargaining power of suppliers;

b) The bargaining power of buyer;

c) The threat of new entrants;

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d) The threat of substitute products; And

e) Rivalry among existing firms.

Porter's classic diagram representing these forces is indicated below.

There are two basic factors which may be considered to be adopted by organization in

their strategies:

a) low cost

b) product differentiation

Enterprise can succeed relative to their competitors if they possess sustainable

competitive advantage in either of these two. Another important consideration in

positioning is 'competitive scope', or the breadth of the enterprise's target markets

within its industry, i.e. the range of product varieties it offers, the distribution channels

it employs, the types of buyers it serves, the geographic areas in which it sells, and the

array of related industries in which it competes. Under Porter's framework, enterprises

have four generic strategies available to them whereby they can attain above average

performance.

They are:

a) Cost leadership;

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b) Differentiation;

c) Cost focus; And

d) Focused differentiation.

Porter's representation of them is indicated below

According to Porter, competitive advantage grows out of the way an enterprise

organizes and performs discrete activities. The operations of any enterprise can be

divided into a series of activities such as salespeople making sales calls, service

technicians performing repairs, scientists in the laboratory designing products or

processes, and treasurers raising capital. By performing these activities, enterprises

create value for their customers.

The ultimate value an enterprise creates is measured by the amount customers are

willing to pay for its product or services. A firm is profitable if this value exceeds the

collective cost of performing all of the required activities. To gain competitive

advantage over its rivals, a firm must either provide comparable value to the

customer, but perform activities more efficiently than its competitors (lower cost), or

perform activities in a unique way that creates greater buyer value and commands a

premium price (differentiation). As per Borden 1964, quoted in Wiseman 1988many

differentiation bases can be classified as 4 P’s as given below:

1. Product (quality, features, options, style, brand name, packaging, sizes, services,

warranties, returns) ;

2. Price (list, discounts, allowances, payment period, credit terms) ;

3. Place (channels, coverage, locations, inventory, transport) ; And

4. Promotion (advertising, personal selling, sales promotion, publicity).

The various attributes listed above can be sharpened the firms product by the support

of a suitable information technology.

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3. Compare various types of development aspect of Information System? Explain the various stages of SDLC? Development of Information Systems

a) Development and Implementation of the MIS Once the plan of MIS is made, the development of the MIS calls for determining the

strategy of development. As discussed earlier, the plan consists of various systems and

subsystems. The development strategy determines where to begin and in what

sequence the development can take place with the sole objective of assuring the

information support. The choice of the system or the subsystem depends on its

position in the total MIS plan, the size of the system, the user's understanding of the

systems and the complexity and its interface with other systems. The designer first

develops systems independently and starts integrating them with other systems,

enlarging the system scope and meeting the varying information needs. Determining

the position of the system in the MIS is easy. The real problem is the degree of

structure, and formalization in the system and procedures which determine the timing

and duration of development of the system. Higher the degree of structuredness and

formalization, greater is the stabilization of the rules, the procedures, decision making

and the understanding of the overall business activity. Here, it is observed that the

user's and the designer's interaction is smooth, and their needs are clearly understood

and respected mutually. The development becomes a method of approach with

certainty in input process and outputs.

b) Prototype Approach

When the system is complex, the development strategy is Prototyping of the System.

Prototyping is a process of progressively ascertaining the information needs,

developing methodology, trying it out on a smaller scale with respect to the data and

the complexity, ensuring that it satisfies the needs of the users, and assess the

problems of development and implementation. This process, therefore, identifies the

problem areas, inadequacies in the prototype visàvis Fulfillment of the information

needs. The designer then takes steps to remove the inadequacies. This may call upon

changing the prototype of the system, questioning the information needs, streamlining

the operational systems and procedures and move user interaction. In the prototyping

approach, the designer's task becomes difficult, when there are multiple users of the

same system and the inputs they use are used by some other users as well. For

example, a lot of input data comes from the purchase department, which is used in

accounts and inventory management. The attitudes of various users and their role as

the originators of the data need to be developed with a high degree of positivism. It

requires, of all personnel, to appreciate that the information is a corporate resource,

and all have to contribute as per the designated role by the designer to fulfill the

corporate information needs. When it comes to information the functional, the

departmental, the personal boundaries do not exist. This calls upon each individual to

comply with the design needs and provide without fail the necessary data inputs

whenever required as per the specification discussed and finalised by the designer.

Bringing the multiple users on the same platform and changing their attitudes toward

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information, as a corporate resource, is the managerial task of the system designer.

The qualification, experience, knowledge, of the state of art, and an understanding of

the corporate business, helps considerably, in overcoming the problem of changing the

attitudes of the multiple users and the originators of the data.

c) Life Cycle Approach

There are many systems or subsystems in the MIS which have a life cycle, that is, they

have birth and death. Their emergence may be sudden or may be a part of the

business need, and they are very much structured and rule based. They have 100%

clarity of inputs and their sources, a definite set of outputs in terms of the contents

and formats. These details more or less remain static from the day the system emerges

and remains in that static mode for a long time. Minor modifications or changes do

occur but they are not significant in terms of handling either by the designer or the

user of the system. Such systems, therefore, have a life and they can be developed in a

systematic manner, and can be reviewed after a year or two, for significant

modification, if any.

Examples of such systems are pay roll, share accounting, basic financial accounting,

finished goods accounting and dispatching, order processing, and so on. These systems

have a fairly long duration of survival and they contribute in a big way as sources of

data to the Corporate MIS. Therefore, their role is important and needs to be designed

from the view point as an interface to the Corporate MIS.

Table below shows the difference between the two approaches helping the designer

select an approach.

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d) Implementation of the Management Information System

The implementation of the system is a management process. It brings about

organizational change; it affects people and changes their work style. The process

evokes a behavior response which could be either favorable or unfavorable depending

upon the strategy of system implementation. In the process of implementation, the

system designer acts as a change agent or a catalyst.

For a successful implementation he has to handle the human factors carefully. The

user of the system has a certain fear complex when a certain cultural work change is

occurring. The first and the foremost fear is about the security to the person if the

changeover from the old to new is not a smooth one. Care has to be taken to assure

the user that such fears are baseless and the responsibility, therefore, rests with the

designer. The second fear is about the role played by the person in the organization

and how the change affects him. On many occasions, the new role may reduce his

importance in the organization, the work design may make the new job impersonal,

and a fear complex may get reinforced that the career prospects may be affected.

There are certain guidelines for the systems designer for successful implementation of

the system. The system designer should not question beyond a limit the information

need of the user.

1. Not to forget that his role is to offer a service and not to demand terms.

2. Remember that the system design is for the use of the user and it is not the

designer's prerogative to dictate the design features. In short, the designer should

respect the demands of the user.

3. Not to mix up technical needs with the information needs. He should try to develop

suitable design with appropriate technology to meet the information needs. The

designer should not recommend modifications of the needs, unless technically

infeasible.

4. Impress upon the user the global nature of the system design which is required to

meet the current and prospective information need.

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5. Not to challenge the application of the information in decision making. It is the sole

right of the user to use the information the way he thinks proper.

6. Impress upon the user that the quality of information depends on the quality of

input.

7. Impress upon the user that you are one of the users in the organization and that the

information is a corporate resource and he is expected to contribute to the

development of the MIS.

8. Ensure that the user makes commitment to all the requirements of the system

design specifications. Ensure that he appreciates that his commitments contribute

largely to the quality of the information and successful implementation of the system.

9. Ensure that the overall system effort has the management's acceptance.

10. Enlist the user's participation from time to time, so that he is emotionally involved

in the process of development.

11. Realize that through serving the user, he is his best guide on the complex path of

development.

12. Not to expect perfect understanding and knowledge from the user as he may be

the user of a Non computerized system. Hence, the designer should be prepared to

change the system specifications or even the design during the course of

development.

13. Impress upon the user that the change, which is easily possible in manual system,

is not as easy in the computer system as it calls for changes in the programs at cost.

14. Impress upon the user that perfect information is nonexistent; His role therefore

still has an importance in the organization.

15. Ensure that the other organization problems are resolved first before the MIS is

taken for development. 16. Conduct periodical user meetings on systems where you

get the opportunity to know the ongoing difficulties of the users.

16. Train the user in computer appreciation and systems analysis as his perception of

the computerized information system will fall short of the designer's expectation.

Implementation of the MIS in an organization is a process where organizational

transformation takes place. This change can occur in a number of ways.

The Lewin's model suggests three steps in this process. The first step is unfreezing the

organization to make the people more receptive and interested in the change. The

second step is choosing a Course of action where the process begins and reaches the

desired level of stability, and the third step is Refreezing, where the change is

consolidated and equilibrium is reinforced. Many a times,

This process is implemented through an external change agent, such as a consultant

playing the role of a catalyst. The significant problem in this task is the resistance to

change. The resistance can occur due to three reasons, viz., the factors internal to the

users of information, the factors inherent in the design of the system and the factors

arising out of the interaction between the system and its users. The problem of

resistance can be handled through education, persuasion, and participation. This itself

can be achieved by improving the human factors, and providing incentives to the

users, and eliminating the organizational problems before implementing the system.

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SDLC

System development cycle stages are sometimes known as system study. System

concepts which are important in developing business information systems expedite

problem solving and improve the quality of decision making.

The system analyst has to do a lot in this connection. They are confronted with the

challenging task of creating new systems and planning major changes in the

organization. The system analyst gives a system development project, meaning and

direction. The typical breakdown of an information systems life cycle includes a

feasibility study, requirements, collection and analysis, design, prototyping,

implementation, validation, testing and operation. It may be represented in the form

of a block diagram as shown below:

A) Feasibility study It is concerned with determining the cost effectiveness of various alternatives in the designs of the information system and the priorities among the various system components. b) Requirements, collection and analysis It is concerned with understanding the

mission of the information systems, that is, the application areas of the system within

the enterprise and the problems that the system should solve.

c) Design It is concerned with the specification of the information systems structure.

There are two types of design: database design and application design. The database

design is the design of the database design and the application design is the design of

the application programs.

d) Prototyping A prototype is a simplified implementation that is produced in order to

verify in practice that the previous phases of the design were well conducted.

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e) Implementation It is concerned with the programming of the final operational

version of the information system. Implementation alternatives are carefully verifies

and compared.

f) Validation and testing It is the process of assuring that each phase of the

development process is of acceptable quality and is an accurate transformation from

the previous phase.

4. Compare & Contrast E-enterprise business model with traditional business organization model? Explain how in E-enterprise manager role & responsibilities are changed? Explain how manager is a knowledge worker in E-enterprise? Managing the E enterprise

Due to Internet capabilities and web technology, traditional business organization

definition has undergone a change where scope of the enterprise now includes other

company locations, business partners, customers and vendors. It has no geographic

boundaries as it can extend its operations where Internet works. All this is possible due

to Internet and web moving traditional paper driven organization to information

driven Internet enabled E business enterprise. E business enterprise is open twenty

four hours, and being independent, managers, vendors; customers transact business

anytime from anywhere. Internet capabilities have given E business enterprise a

cutting edge capability advantage to increase the business value. It has opened new

channels of business as buying and selling can be done on Internet. It enables to reach

new markets across the world anywhere due to communication capabilities. It has

empowered customers and vendors / suppliers through secured access to information

to act, wherever necessary. The cost of business operations has come down

significantly due to the elimination of paper driven processes, faster communication

and effective collaborative working. The effect of these radical changes is the

reduction in administrative and management overheads, reduction in inventory, faster

delivery of goods and services to the customers.

In E business enterprise traditional people organization based on 'Command Control'

principle is absent. It is replaced by people organization that is empowered by

information and knowledge to perform their role. They are supported by information

systems, application packages, and decision support systems. It is no longer functional,

product, and project or matrix organization of people but E organization where people

work in network environment as a team or work group in virtual mode. E business

enterprise is more process driven; Technology enabled and uses its own information

and knowledge to perform. It is lean in number, flat in structure, broad in scope and a

learning organization.

In E business enterprise, most of the things are electronic, use digital technologies and

work on databases, knowledge bases, directories and document repositories. The

business processes are conducted through enterprise software like ERP, SCM, and

CRM supported by data warehouse, decision support, and knowledge management

systems. Today most of the business organizations are using Internet technology,

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network, and wireless technology for improving the business performance measured

in terms of cost, efficiency, competitiveness and profitability. They are using E

business,

Ecommerce

Solutions to reach faraway locations to deliver product and services. The enterprise

solutions like ERP, SCM, and CRM run on Internet (Internet / Extranet) & Wide Area

Network (WAN). The business processes across the organization and outside run on E

technology platform using digital technology. Hence today's business firm is also called

E enterprise or Digital firm. The paradigm shift to E enterprise

Has brought four transformations, namely:

· Domestic business to global business.

· Industrial manufacturing economy to knowledge based service economy.

· Enterprise Resource Management to Enterprise Network Management.

· Manual document driven business process to paperless, automated, electronically

transacted business process.

These transformations have made conventional organization design obsolete. The

basis of conventional organization design is command & control which is now

collaborates & control. This Change has affected the organization structure, scope of

operations, reporting mechanisms, work practices, workflows, and business processes

at large. The comparison between conventional Organization design and E enterprise

is summarized in Table

Comparison between Conventional Design and E Organization

In E enterprise, business is conducted electronically. Buyers and sellers through

Internet drive the market and Internet based web systems. Buying and selling is

possible on Internet. Books, CDs, computer, white goods and many such goods are

bought and sold on Internet. The new channel of business is well known

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as Ecommerce. On the same lines, banking, insurance, healthcare are being managed

through Internet E banking, E billing, E audit, & use of Credit cards, Smart card, ATM, E

money are the examples of the Ecommerce application. The digital firm, which uses

Internet and web technology and uses E business And Ecommerce solutions, is a

reality and is going to increase in number. MIS for E business is different compared to

conventional MIS design of an organization. The role of MIS in E business organization

is to deal with changes in global market and enterprises. MIS produces more

knowledge based products.

Knowledge management system is formally recognized as a part of MIS. It is effectively

used for strategic planning for survival and growth, increase in profit and productivity

and so on. To achieve the said benefits of E business organization, it is necessary to

redesign the organization to realize the benefits of digital firm. The organization

structure should be lean and flat. Get rid of rigid established infrastructure such as

branch office or zonal office. Allow people to work from anywhere. Automate

processes after reengineering the process to cut down process cycle time. Make use of

groupware technology on Internet platform for faster response processing. Another

challenge is to convert domestic process design to work for international process,

where integration of multinational information systems using different communication

standards, country specific accounting practices, and laws of security are to be

adhered strictly. Internet and networking technology has thrown another challenge to

enlarge the scope of Organization where customers and vendors become part of the

organization. This technology offers a solution to communicate, coordinate, and

collaborate with customers, vendors and business partners. This is just not a technical

change in business operations but a cultural change in the mindset of managers and

workers to look beyond the conventional organization. It means changing the

organization behavior to take competitive advantage of the E business technology.

The last but not the least important is the challenge to organize and implement

information architecture and information technology platforms, considering multiple

locations and multiple information needs arising due to global operations of the

business into a comprehensive MIS.

5. What do you understand by service level Agreements (SLAs)? Why are they needed? What is the role of CIO in drafting these? Explain the various security hazards faced by an IS? A service level agreement (frequently abbreviated as SLA) is a part of a service

contract where the level of service is formally defined. In practice, the term SLA is

sometimes used to refer to the contracted delivery time (of the service) or

performance. As an example, internet service providers will commonly include service

level agreements within the terms of their contracts with customers to define the

level(s) of service being sold in plain language terms (typically the (SLA) will in this case

have a technical definition in terms of MTTF, MTTR, various data rates, etc.)

A service level agreement (SLA) is a negotiated agreement between two parties where

one is the customer and the other is the service provider. This can be a legally binding

formal or informal "contract" (see internal department relationships). Contracts

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between the service provider and other third parties are often (incorrectly) called SLAs

— as the level of service has been set by the (principal) customer, there can be no

"agreement" between third parties (these agreements are simply a "contract").

Operating Level Agreements or OLA(s), however, may be used by internal groups to

support SLA(s).

The SLA records a common understanding about services, priorities, responsibilities,

guarantees, and warranties. Each area of service scope should have the "level of

service" defined. The SLA may specify the levels of availability, serviceability,

performance, operation, or other attributes of the service, such as billing. The "level of

service" can also be specified as "target" and "minimum," which allows customers to

be informed what to expect (the minimum), whilst providing a measurable (average)

target value that shows the level of organization performance. In some contracts,

penalties may be agreed upon in the case of non-compliance of the SLA (but see

"internal" customers below). It is important to note that the "agreement" relates to

the services the customer receives, and not how the service provider delivers that

service.

SLAs have been used since late 1980s by fixed line telecom operators as part of their

contracts with their corporate customers. This practice has spread such that now it is

common for a customer to engage a service provider by including a service-level

agreement in a wide range of service contracts in practically all industries and markets.

Internal departments (such as IT, HR, and Real Estate) in larger organization have

adopted the idea of using service-level agreements with their "internal" customers —

users in other departments within the same organization. One benefit of this can be to

enable the quality of service to be benchmarked with that agreed to across multiple

locations or between different business units. This internal benchmarking can also be

used to market test and provide a value comparison between an in-house department

and an external service provider.

Service-level agreements are, by their nature, "output" based — the result of the

service as received by the customer is the subject of the "agreement." The (expert)

service provider can demonstrate their value by organizing themselves with ingenuity,

capability, and knowledge to deliver the service required, perhaps in an innovative

way. Organizations can also specify the way the service is to be delivered, through a

specification (a service-level specification) and using subordinate "objectives" other

than those related to the level of service. This type of agreement is known as an

"input" SLA. This latter type of requirement is becoming obsolete as organizations

become more demanding and shift the delivery methodology risk on to the service

provider.

Role of CIO in drafting SLA’S

One of the major responsibilities of the CIO is to establish the credibility of the systems

organization. The systems department should not only focus on providing better

service to the various lines of business but also help businesses operate better. If the

CIO wants to be taken seriously, he needs to do what other executives do and have his

own business metrics and performance measurements, so that he can effectively

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measure his internal business performance. Other business departments have them,

but CIOs generally do not because IT has always been viewed as a cost center.

Measurements in IT tend to be vague and lacking in context. For example, 'I had 14

projects last year, and I did them well.' But there is no real business measurement

there. How many projects should the manager have had? Did he really have the

capacity to handle 14 projects? A CIO should explore running their area more like a

service operation rather than a cost center, and develop metrics that track the

performance of the information systems staff, as well as the equipment comprising

the applications, infrastructure, and networks under the CIO's control. The first step,

they say, is to implement service level agreements (SLAs) with business units. It sets

the expectation on the technical areas of the CIO's operations. At a minimum, they

should set up what is expected and what levels of service the equipment will provide.

The underlying SLAs should be some sort of a chargeback system with business units,

particularly when it comes to apportioning staff time. If information systems are now

providing a service, the staff needs to understand where the service is being used to

be properly remunerated or to demonstrate where the value is.

The second part of the IT operations equation is computer equipment, and CIOs must

have a firm handle on how that equipment is being used. There are software’s to help

with the people picture, and there are other products that can monitor hardware

performance, such as network and server uptime. One of the major roles of the CIO is

to make the organization information systems savvy and increase the technological

maturity of the information systems organization. A major part of the CIO's job is to

make the users aware of the opportunities arising as a result of technical innovations,

how this can help them perform better, and familiarizing them with computers and

information systems applications. The information systems management also has the

job of helping the end users adapt to the changes caused by information systems, and

to encourage their use. Finally, CIOs need to institute life cycle management with their

applications and computer equipment. Most IT organizations do not have any idea of

the life cycle of an application – how long they want it to last, and when it needs to be

refurbished, replaced, or disposed of. Lacking this knowledge, it is easy for applications

to linger long after they should be gone, and for companies to spend far too much

money on maintaining ailing applications.

Security Hazards faced by an Information system:

Security of the information system can be broken because of the following reasons:

i) Malfunctions: In this type of security hazard, all the components of a system are

involved. People, software and hardware errors course the biggest problem. More

dangerous are the problems which are created by human beings due to the omission,

neglect and incompetence.

ii) Fraud and unauthorized access: This hazard is due to dishonesty, cheating or deceit.

This can be done through –

a) Infiltration and industrial espionage

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b) Tapping data from communication lines

c) Unauthorized browsing through lines by online terminals, etc.

iii) Power and communication failure: In some locations they are the most frequent

hazards than any other else because availability of both of them depends upon the

location. Sometimes communication channel are busy or noisy. There are power cuts

and sometimes high voltage serge destroys a sensitive component of the computer.

iv) Fire hazard: it can happen because of electrical short circuits, flammable liquids etc.

v) Sabotage and riots: sometimes the employees destroy the computer centre in case

of strike, lockout or there may be chances of riots in the area.

vi) Natural Disasters: Natural disasters are not controllable. They are not frequent

hazards but if they happen they destroy the things or ruin them. Examples are

earthquake, floods, tornadoes and lightening.

vii) General hazards: this category covers many more hazards which are not covered

anywhere and difficult to define and come spontaneously.

6. Case Study: Information system in a restaurant.

Case Summary:

A waiter takes an order at a table, and then enters it online via one of the six terminals

located in the restaurant dining room. The order is routed to a printer in the

appropriate preparation area: the cold item printer if it is a salad, the hot-item printer

if it is a hot sandwich or the bar printer if it is a drink. A customer’s meal check-listing

(bill) the items ordered and the respective prices are automatically generated. This

ordering system eliminates the old three-carbon-copy guest check system as well as

any problems caused by a waiter’s handwriting. When the kitchen runs out of a food

item, the cooks send out an ‘out of stock’ message, which will be displayed on the

dining room terminals when waiters try to order that item. This gives the waiters

faster feedback, enabling them to give better service to the customers. Other system

features aid management in the planning and control of their restaurant business. The

system provides up-to-the-minute information on the food items ordered and breaks

out percentages showing sales of each item versus total sales. This helps management

plan menus according to customers’ tastes. The system also compares the weekly

sales totals versus food costs, allowing planning for tighter cost controls. In addition,

whenever an order is voided, the reasons for the void are keyed in. This may help later

in management decisions, especially if the voids consistently related to food or service.

Acceptance of the system by the users is exceptionally high since the waiters and

waitresses were involved in the selection and design process. All potential users were

asked to give their impressions and ideas about the various systems available before

one was chosen.

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Questions to be analysed:

1. In the light of the system, describe the decisions to be made in the area of

strategic planning, managerial control and operational control? What information

would you require to make such decisions?

2. What would make the system a more complete MIS rather than just doing

transaction processing?

3. Explain the probable effects that making the system more formal would have on

the customers and the management.

Solution:

1. A management information system (MIS) is an organized combination of people,

hardware, communication networks and data sources that collects, transforms and

distributes information in an organization. An MIS helps decision making by providing

timely, relevant and accurate information to managers. The physical components of an

MIS include hardware, software, database, personnel and procedures.

Management information is an important input for efficient performance of various

managerial functions at different organization levels. The information system

facilitates decision making. Management functions include planning, controlling and

decision making. Decision making is the core of management and aims at selecting the

best alternative to achieve an objective. The decisions may be strategic, tactical or

technical. Strategic decisions are characterized by uncertainty. They are future

oriented and relate directly to planning activity. Tactical decisions cover both planning

and controlling. Technical decisions pertain to implementation of specific tasks

through appropriate technology. Sales region analysis, cost analysis, annual budgeting,

and relocation analysis are examples of decision-support systems and management

information systems.

There are 3 areas in the organization. They are strategic, managerial and operational

control.

Strategic decisions are characterized by uncertainty. The decisions to be made in the

area of strategic planning are future oriented and relate directly to planning activity.

Here basically planning for future that is budgets, target markets, policies, objectives

etc. is done. This is basically a top level where up-to-the minute information on the

food items ordered and breaks out percentages showing sales of each item versus

total sales is provided. The top level where strategic planning is done compares the

weekly sales totals versus food costs, allowing planning for tighter cost controls.

Executive support systems function at the strategic level, support unstructured

decision making, and use advanced graphics and communications. Examples of

executive support systems include sales trend forecasting, budget forecasting,

operating plan development, budget forecasting, profit planning, and manpower

planning.

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The decisions to be made in the area of managerial control are largely dependent

upon the information available to the decision makers. It is basically a middle level

where planning of menus is done and whenever an order is voided, the reasons for the

void are keyed in which later helps in management decisions, especially if the voids are

related to food or service. The managerial control that is middle level also gets

customer feedback and is responsible for customer satisfaction.

The decisions to be made in the area of operational control pertain to implementation

of specific tasks through appropriate technology. This is basically a lower level where

the waiter takes the order and enters it online via one of the six terminals located in

the restaurant dining room and the order is routed to a printer in the appropriate

preparation area. The item’s ordered list and the respective prices are automatically

generated. The cooks send ‘out of stock’ message when the kitchen runs out of a food

item, which is basically displayed on the dining room terminals when waiter tries to

order that item. This basically gives the waiters faster feedback, enabling them to give

better service to the customers. Transaction processing systems function at the

operational level of the organization. Examples of transaction processing systems

include order tracking, order processing, machine control, plant scheduling,

compensation, and securities trading.

The information required to make such decision must be such that it highlights the

trouble spots and shows the interconnections with the other functions. It must

summarize all information relating to the span of control of the manager. The

information required to make these decisions can be strategic, tactical or operational

information.

Advantages of an online computer system:

1. Eliminates carbon copies

2. Waiters’ handwriting issues

3. Out-of-stock message

4. Faster feedback helps waiters to service the customers

Advantages to management:

1. Sales figures and percentages item-wise

2. Helps in planning the menu

3. Cost accounting details

2. If the management provides sufficient incentive for efficiency and results to their

customers, it would make the system a more complete MIS and so the MIS should

support this culture by providing such information which will aid the promotion of

efficiency in the management services and operational system. It is also necessary to

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study the keys to successful Executive Information System (EIS) development and

operation. Decision support systems would also make the system a complete MIS as it

constitutes a class of computer-based information systems including knowledge-based

systems that support decision-making activities. DSSs serve the management level of

the organization and help to take decisions, which may be rapidly changing and not

easily specified in advance.

Improving personal efficiency, expediting problem solving (speed up the progress of

problems solving in an organization), facilitating interpersonal communication,

promoting learning and training, increasing organizational control, generating new

evidence in support of a decision, creating a competitive advantage over competition,

encouraging exploration and discovery on the part of the decision maker, revealing

new approaches to thinking about the problem space and helping automate the

managerial processes would make the system a complete MIS rather than just doing

transaction processing.

3. The management system should be an open system and MIS should be so designed

that it highlights the critical business, operational, technological and environmental

changes to the concerned level in the management, so that the action can be taken to

correct the situation. To make the system a success, knowledge will have to be

formalized so that machines worldwide have a shared and common understanding of

the information provided. The systems developed will have to be able to handle

enormous amounts of information very fast.

An organization operates in an ever-increasing competitive, global environment.

Operating in a global environment requires an organization to focus on the efficient

execution of its processes, customer service, and speed to market. To accomplish

these goals, the organization must exchange valuable information across different

functions, levels, and business units. By making the system more formal, the

organization can more efficiently exchange information among its functional areas,

business units, suppliers, and customers.

As the transactions are taking place every day, the system stores all the data which can

be used later on when the hotel is in need of some financial help from financial

institutes or banks. As the inventory is always entered into the system, any frauds can

be easily taken care of and if anything goes missing then it can be detected through

the system.

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MB0048

Operations Research Assignment Set- 1

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Q.1

a) “Operation Techniques is a bunch of mathematical techniques.” Comment.

Ans:

Operations Research is an interdisciplinary branch of applied mathematics

and formal science that uses methods such as mathematical modelling, statistics,

and algorithms to arrive at optimal or near optimal solutions to complex problems. It

is typically concerned with optimizing the maxima (profit, assembly line

performance, crop yield, bandwidth, etc) or minima (loss, risk, etc.) of some

objective function. Operations research helps management achieve its goals using

scientific methods. The terms operations research and management science are

often used synonymously. When a distinction is drawn, management science

generally implies a closer relationship to the problems of business management. The

field of operations research is closely related to Industrial engineering. Industrial

engineers typically consider Operations Research (OR) techniques to be a major part

of their toolset. Some of the primary tools used by operations researchers are

statistics, optimization, probability theory, queuing theory, game theory, graph

theory, decision analysis, and simulation. Because of the computational nature of

these fields, OR also has ties to computer science, and operations researchers use

custom-written and off-the-shelf software. Operations research is distinguished by

its frequent use to examine an entire management information system, rather than

concentrating only on specific elements (though this is often done as well). An

operations researcher faced with a new problem is expected to determine which

techniques are most appropriate given the nature of the system, the goals for

improvement, and constraints on time and computing power. For this and other

reasons, the human element of OR is vital. Like any other tools, OR techniques

cannot solve problems by themselves.

Scope of operation Research:

Examples of applications in which operations research is currently used include:

1. Critical path analysis or project planning: identifying those processes in a

complex project which affect the overall duration of the project.

2. Designing the layout of a factory for efficient flow of materials.

3. Constructing a telecommunications network at low cost while still

guaranteeing QoS (quality of service) or QoS (Quality of Experience) if

particular connections become very busy or get damaged.

4. Road traffic management and 'one way' street allocations i.e. allocation

problems.

5. Determining the routes of school buses (or city buses) so that as few

buses are needed as possible.

6. Designing the layout of a computer chip to reduce manufacturing time

(therefore reducing cost) Managing the flow of raw materials and

products in a supply chain based on uncertain demand for the finished

products.

7. Efficient messaging and customer response tactics.

8. Robotizing or automating human-driven operations processes.

9. Globalizing operations processes in order to take advantage of cheaper

materials, labour, land or other productivity inputs Managing freight

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transportation and delivery systems (Examples: LTL Shipping, intermodal

freight transport).

10. Scheduling.

11. Personnel staffing.

12. Manufacturing steps.

13. Project tasks.

14. Network data traffic: these are known as queuing models or queueing

systems.

15. Sports events and their television coverage blending of raw materials in

oil.

16. Refineries determining optimal prices, in many retail and B2B settings,

within the disciplines of pricing science.

Operations research is also used extensively in government where

evidence-based policy is used.

Q.1- b) “Operation Research is an aid for the executive in making his decisions

based on scientific methods analysis”. Discuss the above statement in brief.

Operation Research is a scientific method of providing executive departments with a

quantitative basis for decisions regarding the operations under their control. Morse

& Kimball Operations research is a scientific approach to problem solving for

executive management. – H.M. Wagner Operations research is an aid for the

executive in making these decisions by providing him with the needed quantitative

information based on the scientific method of analysis. The mission of Operations

Research is to serve the entire Operations Research (OR) community, including

practitioners, researchers, educators, and students. Operations Research, as the

flagship journal of our profession, strives to publish results that are truly insightful.

Each issue of Operations Research attempts to provide a balance of well-written

articles that span the wide array of creative activities in OR. Thus, the major criteria

for acceptance of a paper in Operations Research are that the paper is important to

more than a small subset of the OR community, contains important insights, and

makes a substantial contribution to the field that will stand the test of time.

Operational research, also known as operations research, is an interdisciplinary

branch of applied mathematics and formal science that uses advanced analytical

methods such as mathematical modelling, statistical analysis, and mathematical

optimization to arrive at optimal or near-optimal solutions to complex decision-

making problems. It is often concerned with determining the maximum (of profit,

performance, or yield) or minimum (of loss, risk, or cost) of some real-world

objective. Originating in military efforts before World War II, its techniques have

grown to concern problems in a variety of industries. Operational research, also

known as OR, is an interdisciplinary branch of applied mathematics and formal

science that uses advanced analytical methods such as mathematical modelling,

statistical analysis, and mathematical optimization to arrive at optimal or near-

optimal solutions to complex decision-making problems. It is often concerned with

determining the maximum (of profit, performance, or yield) or minimum (of loss,

risk, or cost) of some real world objective. Originating in military efforts before

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World War II, its techniques have grown to concern problems in a variety of

industries.

Operational research encompasses a wide range of problem-solving techniques and

methods applied in the pursuit of improved decision-making and efficiency. Some of

the tools used by operational researchers are statistics, optimization, probability

theory, queuing theory, game theory, graph theory, decision analysis, mathematical

modelling and simulation.

Because of the computational nature of these fields, OR also has strong ties to

computer science. Operational researchers faced with a new problem must

determine which of these techniques are most appropriate given the nature of the

system, the goals for improvement, and constraints on time and computing power.

Work in operational research and management science may be characterized as one

of three categories:

Fundamental or foundational work takes place in three mathematical disciplines:

probability, optimization, and dynamical systems theory.

Modelling work is concerned with the construction of models, analyzing them

mathematically, implementing them on computers, solving them using software

tools, and assessing their effectiveness with data. This level is mainly instrumental,

and driven mainly by statistics and econometrics. Application work in operational

research, like other engineering and economics' disciplines, attempts to use models

to make a practical impact on real-world problems.

• The major sub disciplines in modern operational research, as identified by the

journal Operations Research, are:

• Computing and information technologies

• Decision analysis

• Environment, energy, and natural resources

• Financial engineering

• Manufacturing, service sciences, and supply chain management

• Policy modelling and public sector work

• Revenue management

• Simulation

• Stochastic models

• Transportation

Q. 2 Comment on the following statements:

a) Operation Research advocates a system approach and is concerned with

optimization.

1. Systems approach:

The term system approach implies that each problem should be examined in its

entirely to the extent possible and economically feasible from the point of view of

the overall system of which the problem under consideration is one part. Under

those approaches a manager makes conscious attempt to understand the

relationships among various parts of the organisation and their role in supporting

the overall performance of the organisation. Operations objective of operations

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research is to provide managers of the organisation with a scientific basis for solving

problems involving the interaction of components of the organisation as a whole.

The decision which is best for the organisation as a whole is called an optimal

decision. Operations research tries to find the best decision relative to a large

portion of the total organisation. Hence in operations research every problem is

considered in its totality, i.e. O.R. adopts systems approach for solving the problem.

In other words, “Operations Research is the scientific study of large systems with a

view to identify problem areas and provide the mangers with a quantitative basis for

decisions which will enhance their effectiveness in achieving the specified

objectives.”

2. Inter-disciplinary Team Approach:

It is an important characteristic of O.R. According to this characteristic, no single

individual can be an expert on all aspects of a problem under consideration. Thus,

O.R. utilizes the inter disciplinary team approach. Under this approach, a team

comprising experts from different disciplines such as mathematics, statistics,

economics, management, computer science, engineering and psychology, etc. is

constituted. Such a team when confronted with a problem determines its solution by

utilizing the diverse background and skills of the teammates. Every expert of the

team, while solving the problem, tries to abstract the essence of the problem and

then determines whether a similar type of problem has been dealt by his team or

not. If the answer is yes, then it is solution of the current problem. In this way, each

member of the team, by utilizing his experience and expertise, may be in a position

to suggest an approach to overcome a problem that otherwise may not be possible

for an individual to tackle.

3. Methodological Approach:

O.R. utilizes scientific methods for solving a problem. Specifically, the process begins

with the careful observation and formulation of the problem. The next step is to

construct a scientific model (typically a mathematical model) that attempts to

abstract the essence of the real problem. From this model, conclusions or solutions

are obtained which are also valid for the real problem. In an interactive fashion, the

model is then verified through appropriate experiments to determine the best or

optional solution to the problem under consideration.

4. Operations economy:

O.R. is a problem solving and a decision making science. Whenever we have conflicts,

uncertainty and complexity in any situation, O.R. can help in the end to reduce costs

and improve profits and effects substantial “Operations Economy”. Once the old

approach of management by intuit is buried, a scientific approach to decision making

is bound to help. Often the conflicts are so tangled that they defy any intuitive

solution, viz., the marketing function frequently caught up in recoiling the following

conflicting objectives: i) product innovation, ii) high scale volume, iii) increasing

market share, iv) flexibility in the market place, and v)entry into new markets and

revenue markets. It is here that O.R. is likely to convincingly optimize the total

effectiveness.

From all above areas of applications, one may conclude that operations

research can be widely advocate a systems approach for making timely management

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decisions and also used as a corrective measure. O.R. encourages systems approach

which concerned with the cost optimization, and hence we can say: Operation

Research advocates a system approach and is concerned with optimization.

Q.2- b). Operation Research replaces management by personality. Comment.

Operations research is today recognised as an applied science concerned with large

number of diverse human activities. To be precise an operation uses some valuable

resources like men, money, machines, time, effort, etc. The outcome of the

operation has also some value. An operations research worker is required: i) to

minimize the input value for a specific output, or /and ii) to maximize the output

value for a specific input, or /and iii) maximize some function of these values, e. g.

the profit function (difference between output & input values) or return-on-

investment function (ratio of output and input values), etc.

Some of the areas of management where techniques of operations research are

applied are listed below:

1. Finance, Budgeting and Investments:

a) cash flow analysis, long range capital requirements, investment

portfolios, dividend policies, etc.

b) Credit policies, credit risks and delinquent account procedures.

c) Claim and complaint procedures.

d) Dividend policies, investment and portfolio management, balance

sheet and cash flow analysis.

2. Purchasing, procurement and Exploration:

a) Determining the quality and timing of purchase of raw materials,

machinery, etc.

b) Rules for buying and supplies under varying prices.

c) Bidding policies.

d) Equipment replacement policies.

e) Determination of quantities and timings of purchases.

f) Strategies for exploration and exploitation of new material source.

3. Production Management:

a) Product planning:

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i) Location and size of warehouses, distribution centres, retail outlets,

etc.

ii) Distribution policy

b) Manufacturing & facility planning:

i) Production scheduling and sequencing

ii) Product scheduling and allocation of resources

iii) Selection & location of factories, warehouses and their sizes

iv) Determining the optimal production mix.

v) Maintenance policies & preventive maintenance.

vi) Scheduling & sequencing the production run by proper allocation

of machines.

4. Marketing Management:

a) Product selection, timing, competitive actions.

b) Advertising strategy & choice of different media of advertising.

c) Number of salesman, frequency of calling of accounts, etc.

d) Effectiveness of market research.

e) Size of the stock to meet the future demand.

5. Personnel Management:

a) Recruitment policies & assignment of jobs.

b) Selection of suitable personnel with due consideration for age and

skills, etc.

c) Establishing equitable bonus systems.

6. Research & Development:

a) Determination of areas of concentration of research and

development.

b) Reliability & evaluation of alternative designs.

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c) Control of development projects.

d) Coordination of multiple research projects.

e) Determination of time & cost requirements.

From all above areas of applications, one may conclude that operations

research can be widely used in taking timely management decisions and also used as

a corrective measure. The application of this tool involves certain data and not

merely a personality of decision maker, and hence we can say: Operations Research

has replaced management by personality.

Q.3. Explain how the profit maximization transportation problem can be

converted to an equivalent cost minimization transportation problem.

How to convert profit maximization transportation problem to an equivalent cost

minimization transportation problem can be understood by following Illustration as:

A firm has three factories located in city A, B & C and supplies goods to four dealers,

dealer 1, 2, 3 & 4, spread all over the country. The production capacities of these

factories are 1000, 700 & 900 units per month respectively. The monthly orders from

the dealers are 900, 800, 500 & 400 units respectively. Per unit return (excluding

transportation costs) are Rs. 8, 7 & 9 at the three factories. Unit transportation costs

from the dealers are given below:

Dealers Factory

1 2 3 4

City - A 2 2 2 4

City - B 3 5 3 2

City - C 4 3 2 1

Optimal distribution system to maximize the total r eturn to be determined.

From the given data, we compute a matrix of net returns as done in table below;

(Transportation matrix (Net return) for the Maximization problem)

Dealers Factory

1 2 3 4

Factory

capacity

City - A 6 6 6 4 1000

City - B 4 2 4 5 700

City - C 5 6 7 8 900

To convert the given maximization problem to an equivalent minimization problem,

we identify the cell (element) which has the highest contribution per unit (in this

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problem C-4 has highest per unit contribution, Rs.8), and subtract all elements from

this highest element. The resultant matrix is a transportation problem with

minimizing objective function. This has been given in the following table.

(Transportation matrix for the Minimization problem)

Dealers Factory

1 2 3 4

Factory

capacity

City - A 2 2 2 4 1000

City - B 4 6 4 3 700

City - C 3 2 1 0 900

Dealer requirement 900 800 500 400 2600

The minimization problem is solved as a usual transportation problem. The

resulting optimal solution is also the optimal solution to the original (maximization)

problem. The value of the objective function is computed by referring the matrix of

the maximization problem. It should be noted that the converted minimization

problem will have at least one element with zero value.

4. Write the difference in the simplex solution procedure for a maximization

problem and a minimization problem of linear programming.

The difference in the simplex solution procedure for a maximization problem and a

minimization problem of linear programming can be explained by the steps followed

to solve the minimization/ minimization problem as follows ;

1. Introduce stack variables (Si’s) for “£” type of constraint.

2. Introduce surplus variables (Si’s) and artificial variables (Ai) for “³” type of

constraint.

3. Introduce only Artificial variable for “=” type of constraint.

4. Cost (Cj) of slack and surplus variables will be zero and that of artificial

variable will be “M”

5. Find Zj – Cj for each variable.

6. Slack and artificial variables will form basic variable for the first simplex table.

Surplus variable will never become basic variable for the first simplex table.

7. Zj = sum of [cost of variable x its coefficients in the constraints – Profit or cost

coefficient of the variable].

8. Select the most negative value of Zj – Cj. That column is called key column.

The variable corresponding to the column will become basic variable for the

next table.

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9. Divide the quantities by the corresponding values of the key column to get

ratios; select the minimum ratio. This becomes the key row. The basic

variable corresponding to this row will be replaced by the variable found in

step 6.

10. The element that lies both on key column and key row is called Pivotal

element.

11. Ratios with negative and “a” value are not considered for determining key

row.

12. Once an artificial variable is removed as basic variable, its column will be

deleted from next iteration.

13. For maximisation problems, decision variables coefficient will be same as in

the objective function. For minimisation problems, decision variables

coefficients will have opposite signs as compared to objective function.

14. Values of artificial variables will always is – M for both maximisation and

minimisation problems.

15. The process is continued till all Zj – Cj ³ 0.

Q.5 What do you mean by the two-phase method for solving a given LPP? Why

is it used?

Every linear programming problem (LPP) is associated with another linear

programming problem involving the same data and optimal solutions. Such two

problems are said to be duals of each other. One problem is called the primal, while

the other problem is called the dual. The dual formulation is derived from the same

data and solved in a manner similar to the original 'primal' formulation. In other

words, you can say that dual is the 'inverse' of the primal formulation because of the

following reasons.

If the primal objective function is 'maximisation' function, then the dual

objective function is 'minimisation' function and vice-versa.

The column co-efficient in the primal constraint is the row co-efficient in the

dual constraint.

The co-efficients in the primal objective function are the RHS constraint in the

dual constraint.

The RHS column of constants of the primal constraints becomes the row of

co-efficient of the dual objective function.

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The concept of duality is useful to obtain additional information about the variation

in the optimal solution. These changes could be effected in the constraint co-

efficient, in resource availabilities and/or objective function co-efficient. This effect is

termed as post optimality or sensitivity analysis.

Characteristics of dual solutions

If the primal problem possesses a unique non-degenerate, optimal solution, then the

optimal solution to the dual is unique. However, dual solutions arise under a number

of other conditions. Several of the cases which can arise are:

When the primal problem has a degenerate optimal solution, the dual has

multiple optimal solutions.

When the primal problem has multiple optimal solutions, the optimal dual

solution is degenerate.

When the primal problem is unbounded, the dual is infeasible.

When the primal problem is infeasible, the dual is unbounded or infeasible.

Formulation of Dual Concepts

Consider the following LPP

Maximise Z = c1x1 +c2x2 + . . .+ cnxn

Subject to the constraints

a11 x1 + a12 x2 + . . . + a1n xn ≤ b1

a21 x1 + a22 x2 + . . . + a2n xn ≤ b2

am1 x1 + am2 x2 + . . . + amn xn ≤ bm

x1, x2, . . ., xn ≥ 0

To construct a dual problem, you must adopt the following guidelines:

i. The maximisation problem in the primal becomes a minimisation problem in the

dual and vice versa

ii. (≤) type of constraints in the primal become (≥) type of constraints in the dual and

vice versa.

iii. The coefficients c1, c2, . . .,cn in the objective function of the primal become b1,

b2,…,bm in the objective function of the dual.

iv. The constants b1, b2,…,bm in the constraints of the primal become c1, c2, . . .,cn

in the constraints of the dual

v. If the primal has n variables and m constraints the dual will have m variables and n

constraints

vi. The variables in both the primal and dual are non-negative

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Thus the dual problem will be

Minimise W = b1 y1 + b2 y2 + . . . +bm ym

Subject to the constraints

a11 y1 + a21 y2 + . . . + am1 ym ≥ c1

a12 y1 + a22 y2 + . . . + am2 ym ≥ c2

a1n y1 + a2n y2 + . . . + amn ym ≥ cn

y1, y2, . . ., ym ≥ 0

Formation of dual LPP is easier when the standard form of LPP for maximisation

problem must contain “≤” type of constraints, while for minimisation problem, it

must contain “≥” type of constraints.

Two Phase Method:

Two-phase method for solving a given LPP can be divided in the two phses as

mentioned below:

Phase I: Formulate the new problem. Start by eliminating the original objective

function by the sum of the artificial variables for a minimisation problem and the

negative of the sum of the artificial variables for a maximisation problem. The

Simplex method optimizes the ensuing objective with the constraints of the original

problem. If a feasible solution is arrived, the optimal value of the new objective

function is zero (suggestive of all artificial variables being zero). Subsequently

proceed to phase -II. If the optimal value of the new objective function is non-zero, it

means there is no solution to the problem and the method terminates.

Phase II: Start phase II using the optimum solution of phase I as the base. Then take

the objective function without the artificial variables and solve the problem using the

Simplex method.

Why is it used?

The drawback of the penalty cost method is the possible computational error

resulting from assigning a very large value to the constant M. To overcome this

difficulty, Two - Phase Simplex method is considered where the use of M is

eliminated by solving the problem in two phases.

Q. 6Q. 6Q. 6Q. 6 Indicate any four shortcomings of taking a simulation approach to solve an

O.R. problem.

Shortcomings of taking a simulation approach to solve an O.R. problem

The range of application of simulation in business is extremely wide. Unlike other

mathematical models, simulation can be easily understood by the users and thereby

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facilitates their active involvement. This makes the results more reliable and also

ensures easy acceptance for implementation. The degree to which a simulation

model can be made close to reality is dependent upon the ingenuity of the OR team

who identifies the relevant variables as well as their behavior.

In case of other OR models, simulation helps the manager to strike a balance

between opposing costs of providing facilities (usually meaning long term

commitment of funds) and the opportunity and costs of not providing them.

The simulation approach is recognised as a powerful tool for management decision-

making. Shortcoming of taking a simulation approach to solve an O. R. problems are

as follows;

1. It does not produce optimal results. Solutions are approximate, and it is some

less than formal but ‘satisfactory’ approach to problem-solving only.

2. To be able to simulate systems, a fairly good knowledge of the parts or

components of the system and their characteristics is required. The desire is

to understand, explain and predict the dynamic behavior of the system or the

sum total of these parts. Adequate knowledge of the system behavior.

3. Each simulation run like a single experiment conducted under a given set of

conditions as defined by a set of values for the input solution. A number of

simulation runs will be necessary and thus can be time consuming. As the

number of variables increases in terms of input, the difficulty in finding the

optimum values increases considerably.

4. Since simulation involves repetitions of the experiment, it is a time

consuming task when manually done.

5. As a number of parameters, increase, the difficulty in finding the optimum

values increases to a considerable extent.

6. Because of the simplicity in adoption of simulation process, one may develop

to rely on this technique too often, although mathematical model is more

suitable to the situation.

7. One should not ignore the cost associated with a simulation study for data

collection, formation of the model. A good simulation model may be very

expensive. Often it takes years to develop a usable corporate planning model.

8. The computer time as it is fairly significant.

9. A simulation application is based on the premise that the behaviour pattern

of relevant variables is known, and this very premise sometimes becomes

questionable.

10. Not always can the probabilities be estimated with ease or desired reliability.

The results of simulation should always be compared with solutions obtained

by other methods wherever possible, and “tempered” with managerial

judgment

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MB0048

Operations Research Assignment Set- 2

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1. Explain how to transform an unbalanced transportation problem into a

balanced transportation problem where the demand of warehouses is

satisfied by the supply of factories.

Ans :

2. Explain how the profit maximization transportation problem into a

balanced transportation problem where the demand of warehouses is

satisfied by the supply of factories.

Ans : A fictive corporation A has a contract to supply motors for all tractors produced by a fictive corporation B. Corporation B manufactures the tractors at four locations around Central Europe: Prague, Warsaw, Budapest and Vienna. Plans call for the following numbers of tractors to be produced at each location: Prague 9 000 Warsaw 12 000 Budapest 9 000

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Corporation A has three plants that can produce the motors. The plants and production capacities are Hamburg 8 000 Munich 7 000 Leipzig 10 000 Dresden 5 000 Due to varying production and transportation costs, the profit earns on each motor depends on where they were produced and where they were shipped. The following transportation table (Table 7.9) gives the accounting department estimates of the euro profit per unit (motor).

Table 7.9 "The Euro Profit Per One Shipped Motor" Table 7.10 shows a highest - profit assignment (Least Cost method modification). In contrast to the Least – Cost method it allocates as much as possible to the highest-cost cell. (Cell Hamburg - Budapest was assigned first, Munich - Warsaw second, Leipzig - Warsaw third, Leipzig – Budapest fourth, Dresden – Prague fifth and Leipzig – Prague sixth.) Total profit : 3 335 000 euro.

Table 7.10 "Highest - Profit Assignment" Applying the Stepping Stone method (modified for maximization purposes) to the initial solution we can see that no other transportation schedule can increase the profit and so the Highest – Profit initial allocation is also an optimal solution of this transportation problem. Stepping Stone Method Step 1: Pick any empty cell and identify the closed path leading to that cell. A closed path consists of horizontal and vertical lines leading from an empty cell

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back to itself (If assignments have been made correctly, the matrix has only one closed path for each empty cell.) In the closed path there can only be one empty cell that we are examining. The 90-degree turns must therefore occur at those places that meet this requirement. Two closed paths are identified. Closed path a is required to evaluate empty cell A-E; closed path b is required to evaluate empty cell A-F.

Closed path "a"

Closed path "b" Step 2: Move one unit into the empty cell from a filled cell at a corner of the closed path and modify the remaining filled cells at the other comers of the closed path to reflect this move. (More than one unit could be used to test the desirability of a shift. However, since the problem is linear, if it is desirable to shift one unit, it is desirable to shift more than one, and vice versa.) Modifying entails adding to and subtracting from filled cells in such a way that supply and demand constraints are not violated. This requires that one unit always be subtracted in a given row or column for each unit added to that row or column. Thus, the following additions and subtractions would be required : For the path a: • Add one unit to A-E (the empty cell).

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• Subtract one unit from A-H.

• Add one unit to C-H.

• Subtract one unit from C-E.

For the path b, • Add one unit to A-F (the empty cell).

• Subtract one unit from A-H.

• Add one unit to C-H.

• Subtract one unit from C-G.

• Add one unit to D-G.

• Subtract one unit from D-F.

Step 3: Determine desirability of the move. This is easily done by (1) summing the cost values for the cell to which a unit has been added, (2) summing the cost values of the cells from which a unit has been subtracted, and (3) taking the difference between the two sums to determine if there is a cost reduction. If the cost is reduced by making the move, as many units as possible should be shifted out of the evaluated filled cells into the empty cell. If the cost is increased, no move should be made and the empty cell should be crossed. For cell A-E, the pluses and minuses are

For cell A-H, the pluses and minuses are

Thus in both cases it is apparent that no move into either empty cell should be made. Step 4: Repeat Steps 1 through 3 until all empty cells have been evaluated. To illustrate the mechanics of carrying out a move, consider cell X-F and the closed path leading to it, which is a short one: X-G, D-G, and D-F. The pluses and minuses are

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Since there is a savings of $5 per unit from shipping via X-F, as many units as possible should be moved into this cell. In this case, however, the maximum amount that can be shifted is one unit—because the maximum amount added to any cell may not exceed the quantity found in the lowest-amount cell from which a subtraction is to be made. To do otherwise would violate the supply and demand constraints of the problem. Here we see that the limiting cell is X-G since it contains only one unit.

Applying the stepping stone method to this new solution (next table) indicates, that making this shift we obtained an optimal solution – there is no unfilled cell.

The table above indicates one marked cell B-H. This cell has closed path C-H, C-G, D-G, D-F and B-F. The pluses and minuses are

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Since there is a savings of $0 (70 - 70) per unit from shipping via B-H, we obtain a different – "alternate optimal solution" with the same transportation cost (next table).

3. Illustrate graphically the following special cases of Linear programming

problems:

i) Multiple optimal solutions, ii) No feasible solution, iii) Unbounded problem

Ans -:

4. How would you deal with the Assignment problems, where a) the objective

function is to be maximized?

b) Some Assignments are prohibited?

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5. “Simulation is an especially valuable tool in a situation where the

mathematics

needed to describe a system realistically is too complex to yield analytical

solutions”.

Elucidate.

Ans: “Simulation is an especially valuable tool in a situation where the mathematics needed to describe a system realistically is too complex to yield analytical solutions”. Elucidate. Simulation is the imitation of some real thing, state of affairs, or process. The act of simulating something generally entails representing certain key characteristics or behaviours of a selected physical or abstract system. Simulation is used in many contexts, such as simulation of technology for performance optimization, safety engineering, testing, training,education, and video games. Training simulators include flight simulators for training aircraft pilots. Simulation is also used for scientific modeling of natural systems or human systems in order to gain insight into their functioning. Simulation can be used to show the eventual real effects of alternative conditions and courses of action. Simulation is also used when the real system cannot be engaged, because it may not be accessible, or it may be dangerous or unacceptable to engage, or it is being designed but not yet built, or it may simply not exist. Simulation can be used when the problem is too complex for analytical solution and too dangerous for actual experimentation. Key issues in simulation include acquisition of valid source information about the relevant selection of key characteristics and behaviours, the use of simplifying approximations and assumptions within the simulation, and fidelity and validity of the simulation outcomes. 6. Describe Gomory’s method of solving an all-integer programming

problem.

Ans :

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MB0049

Project Management Assignment Set- 1

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Q.1 Comment on the following

a. Importance of DMAIS in project management cycle

The projectised mantras of production management can be broadly identified as -

Define Measure, Analyze, Improve, Standardize (DMAIS). These projectised mantras

help in identifying, evaluating, and selecting the right improvement solutions for

managing a project. The mantras also help in identifying the critical issues thus

assisting the organization to adapt to the changes introduced through the

implementation of different solutions.

The phases associated with each projectised mantra of production management are:

1. Define: benchmark, customer requirement, process flow map, quality function

deployment, project management plan

2. Measure: data collection, defect metrics, sampling

3. Analysis: cause and effect, failure modes and effect analysis, decision and risk

analysis,root cause analysis, reliability analysis

4. Improve: design of experiments, modeling, and robust design

5. Standardize: control charts, time series, procedural adherence, performance

management, preventive activities displays the various phases of DMIAS.

b. Knowledge areas of project management

There are nine knowledge areas in Project Management:

1. Project Integration Management

2. Project Scope Management

3. Project Time Management

4. Project Cost Management

5. Project Quality Management

6. Project Human Resource Management

7. Project Communications Management

8. Project Risk Management

9. Project Procurement Management

Each of the nine knowledge areas contains the processes that need to be

accomplished within its discipline in order to achieve an effective project

management program. Each of these processes also falls into one of the five basic

process groups, creating a matrix structure such that every process can be related to

one knowledge area and one process group.

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Q.2 Write few words on:

a. Project Characteristics

The word PROJECT comes from the Latin word PROJECTUM from the Latin verb

PROICERE; which means “to throw something forwards” which in turn comes from

PRO-, which denotes something that precedes the action of the next part of the

word in time and ICERE, “to throw”. The word PROJECT thus actually originally meant

“something that comes before anything else happens”.

A project in business and science is a temporary endeavor undertaken to create a

unique product, service, or result. Basically, it is planned to achieve a particular aim.

The aim of a project is to attain its objective and then terminate. Some of the

reasons to start a project can be:

• A customer request or market demand

• An organizational need

• A customer request

• A technological advance

• A legal requirement

Projects and operations differ primarily in that operations are ongoing and

repetitive, while projects are temporary and unique. Generally, a project is a means

of organizing some activities that cannot be addressed within the normal operational

limits.

Project characteristics:

• It is temporary – temporary means that every project has a definite beginning

and a definite end. Project always has a definitive time frame.

• A project creates unique deliverables, which are products, services, or results.

• A project creates a capability to perform a service.

• Project is always developed in steps and continuing by increments –

Progressive Elaboration.

b. WBS

A work breakdown structure (WBS) in project management and systems

engineering, is a tool used to define and group a project's discrete work elements in

a way that helps organize and define the total work scope of the project..

A work breakdown structure element may be a product, data, a service, or any

combination. A WBS also provides the necessary framework for detailed cost

estimating and control along with providing guidance for schedule development and

control. Additionally the WBS is a dynamic tool and can be revised and updated as

needed by the project manager

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The Work Breakdown Structure is a tree structure, which shows a subdivision of

effort required to achieve an objective; for example aprogram, project,

and contract. In a project or contract, the WBS is developed by starting with the end

objective and successively subdividing it into manageable components in terms of

size, duration, and responsibility (e.g., systems, subsystems, components, tasks,

subtasks, and work packages) which include all steps necessary to achieve the

objective.

The Work Breakdown Structure provides a common framework for the natural

development of the overall planning and control of a contract and is the basis for

dividing work into definable increments from which the statement of work can be

developed and technical, schedule, cost, and labor hour reporting can be

established.

A work breakdown structure permits summing of subordinate costs for tasks,

materials, etc., into their successively higher level “parent” tasks, materials, etc. For

each element of the work breakdown structure, a description of the task to be

performed is generated. [3]

This technique (sometimes called a System Breakdown

Structure ) is used to define and organize the total scope of a project.

The WBS is organised around the primary products of the project (or planned

outcomes) instead of the work needed to produce the products (planned actions).

Since the planned outcomes are the desired ends of the project, they form a

relatively stable set of categories in which the costs of the planned actions needed to

achieve them can be collected. A well-designed WBS makes it easy to assign each

project activity to one and only one terminal element of the WBS. In addition to its

function in cost accounting, the WBS also helps map requirements from one level of

system specification to another, for example a requirements cross reference matrix

mapping functional requirements to high level or low level design documents.

c. PMIS

Project Management Information System (PMIS) are system tools and techniques

used in project management to deliver information. Project managers use the

techniques and tools to collect, combine and distribute information through

electronic and manual means. Project Management Information System (PMIS) is

used by upper and lower management to communicate with each other.

Project Management Information System (PMIS) help plan, execute and close

project management goals. During the planning process, project managers use PMIS

for budget framework such as estimating costs. The Project Management

Information System is also used to create a specific schedule and define the scope

baseline. At the execution of the project management goals, the project

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management team collects information into one database. The PMIS is used to

compare the baseline with the actual accomplishment of each activity, manage

materials, collect financial data, and keep a record for reporting purposes. During the

close of the project, the Project Management Information System is used to review

the goals to check if the tasks were accomplished. Then, it is used to create a final

report of the project close. To conclude, the project management information

system (PMIS) is used to plan schedules, budget and execute work to be

accomplished in project management.

d. Project Management strategies-Internal & external

Effective Internal Project Management Strategies

Projects fail for many internal reasons, some of them technical, some of them

managerial. However, even the technical failures can often be traced back to a

failure on the part of the project's executive management to recognize and deal with

these inherent managerial risks. On the other hand, probably the majority of

apparently successful projects do not reflect their optimum potential either.

As a matter of project experience, a number of prerequisites have been identified

with the successful project. While these prerequisites do not necessarily guarantee

success of future projects, their absence may well lead to sub-optimal success, if not

outright failure. The Project's Executive has a vital role to play in achieving project

success and should therefore insist on the following:

Executive Support - The Executive must clearly demonstrate support for the project

management concept by active sponsorship and control.

External Authority - The project manager must be seen as the authoritative agent in

dealing with all parties, and be the responsible and single formal contact with them.

Internal Authority - The project manager must have the necessary managerial

authority within his organization to ensure response to his requirements.

Commitment Authority - The project manager must have the responsibility and

authority to control the commitment of resources, including funds, within prescribed

limits. The results of these decisions must be both accountable and visible.

Project Manager Involved in All Major Decisions - No major technical, cost, schedule,

or performance decisions should be made without the project manager's

participation.

Competence - The project manager and his team members must be competent.

Other functional personnel assigned to the project must also be competent.

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Project Team - The project manager should have a say in the assembly of his project

team, which will help him to obtain their personal commitment, support and

required quality of service.

Management Information Systems - Effective project management information and

control systems must be in place.

Effective External Project Management Strategies

Prerequisites for avoiding internal project failure, or at least sub-optimal results,

were discussed earlier. However, it has also been noted earlier that external

conditions and events also represent uncertainty and risk to the successful

accomplishment of the project. These conditions have been linked to the external

stakeholders of the project. Therefore, it is essential to develop a sound stakeholder

environment.

Developing a Sound Stakeholder Environment

Just as the means of influencing the project's cultural environment, as described

above, was one of developing the right attitude, so it is with developing a sound

stakeholder environment. Perhaps this attitude is best reflected by adopting a mind

set that reverses the traditional organization chart hierarchy. In other words, place

the project stakeholders at the top of the chart, followed by the front-line project

team members, and on down to the project manager at the bottom. Perhaps the

project team will then be better visualized as a truly service organization, designed

to serve the best interests of a successful project outcome, both perceived and in

reality.

Some suggested steps in this process include:

• Learn how to understand the role of the various stakeholders, and how this

information may be used as an opportunity to improve both the perception

and reception of the project

• Identify the real nature of each stakeholder group's business and their

consequent interest in the project

• Understand their behavior and motivation

• Assess how they may react to various approaches

• Pinpoint the characteristics of the stakeholders' environment and develop

appropriate responses to facilitate a good relationship

• Learn project management's role in responding to the stakeholders drive

behind the project

• Determine the key areas which will have the most impact on the successful

reception of the project

• Remember always that even a minor stakeholder group may discover the

"fatal flaw" in the project and which could bring the project to a standstill!

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Q.3 What are the various SCMo soft wares available in project management?

Explain each in brief.

The process documentation system is intranet based to provide immediate access to

current, up-to-date process documentation. The system allows users to navigate

through graphical structures to relevant documentation and processes which were

created with the ARIS-Toolset.

The content of the process documentation system includes the area supply chain

management from the Odette Supply Chain Management Group. The system

includes graphical process documentation, in the form of process chains, as well as

the entire range of documentation related to the processes. The Process

Documentation System gives, according to its objectives, an overview and a detailed

view of the relevant processes for SCMo.

The entry point in the documentations system is the model “Process Overview

SCMo”. This model is the starting point for the navigation to other models. The

navigation between models is done via the assignment symbol. The assignment

symbol of a function / process Interface indicates that there is a link to another

model. The linked / assigned models can be opened by double-clicking on the

assignment symbol.

This can be classified into two different navigations as shown in figure.

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a) Vertical Navigation: The vertical navigation is the navigation on different levels.

Starting on the work package level and going downwards into more detail, the first

models of processes are found on the sub-process level.

In the model “Process Overview SCMo” those processes are assigned to the

functions on Level 2. In the models there can be assignments for some functions, e.g.

for a Function Allocation Diagram or a sub-process that describes that function.

These two examples are currently the models on the lowest level.

b) Horizontal Navigation: The horizontal navigation is on the same level. Some

processes have a link to other processes, which can be at the start or end or even in

the process itself, when another process is imbedded in the process. Those links are

represented by Process Interfaces.

Microsoft has a team project management solution that enables project managers

and their teams to collaborate on projects. The Microsoft Project 2002 products in

these solutions are:

1. Microsoft Project Standard 2002

2. Microsoft Project Server 2002

3. Microsoft Project Server Client Access License (CAL) 2002.

Support Software

Having learnt the basics of application software, you would have a fair idea of how

and to what extent project management processes could be automated. However,

the challenge of “making things work” remains unchanged. While software vendors

are confident of “making it work”, two yawning gaps still remain:

1. Business processes which are not covered in such software

2. Integration of multi vendor supported software applications

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The enterprise is normally in a dilemma – whether to look at the same vendors to

support such customisation or not. This normally works out too expensive for their

comfort or within their tight budgets.

Several software vendors have seized the opportunity with offerings that

substantially fill these gaps effectively at a fraction of the costs quoted by the major

vendors. The other carrot which these vendors offer is a unilateral transfer of the

facility to customise themselves which is seen as a huge advantage. The various

support software that may be used for managing projects are:

1. ARROW

2. FEDORA

3. VITAL

4. PILIN

5. MS EXCHANGE SERVER 2003

The ARROW Project

It is a consortia of institutional repository solution, combining open source and

proprietary Software .Arrow is preferred support software because it:

· Provides a platform for promoting research output in the ARROW context

· Safeguards digital information

· Gathers an institution’s research output into one place

· Provides consistent ways of finding similar objects

· Allows information to be preserved over the long term

· Allows information from many repositories to be gathered and searched in one step

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· Enables resources to be shared, while respecting access constraints

· Enables effective communication and collaboration between researchers

The vision of project ARROW: “The ARROW project will identify and test software or

solutions to support best practice institutional digital repositories comprising e-

prints, digital theses and electronic publishing.” ARROW project wanted to be a

solution for storing any digital output. Their initial focus was on print equivalents

such as thesis and journal articles among others. It provided solution that could offer

on-going technical support and development past the end of the funding period of

the project.

Fedora

ARROW wanted a robust, well architected underlying platform and a flexible object-

oriented data model to be able to have persistent identifiers down to the level of

individual data streams. It accommodates the content model to be able to be version

independent.

Since the beginning of the project ARROW has worked actively and closely with

Fedora and the Fedora Community. The ARROW project’s Technical Architect is a

member of Fedora Advisory Board and sits on Fedora Development Group.

This association is reinforced by VTLS Inc. VTLS President is a member of Fedora

Advisory Board and VITAL Lead Developer sits on Fedora Development Group

VITAL

VITAL refers to ARROW specified software created and fully supported by VTLS Inc.

built on top of Fedora. It currently provides:

1. VITAL Manager

2. VITAL Portal

3. VITAL Access Portal

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4. VALET – Web Self-Submission Tool

5. Batch Loader Tool

6. Handles Server (CNRI)

7. Google Indexing and Exposure

8. SRU / SRW Support

9. VITAL architecture overview

VITAL is part of creative development of ARROW institutional repositories. VITAL has

the following features:

1. Inclusion of multimedia and creative works produced in Australian universities

2. Limited exposure nationally or internationally

3. Addition of annotation capability

4. Inclusion of datasets and other research output not easily provided in any other

publishing channel

5. Being developed in conjunction with the DART (ARCHER) Project

6. Exploration of the research-teaching nexus tools that will allow value added

services for repositories

7. Integration with or development of new tools that will allow value added services

for repositories (for instance the creation of e-portfolios or CVs of research output of

individual academics)

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PILIN – Persistent Identifiers and Linking Infrastructure

There has been a growing realisation that sustainable identifier infrastructure is

required to deal with the vast amount of digital assets being produced and stored

within universities.

PILIN is a particular challenge for e-research communities where massive amounts of

data are being generated without any means of managing this data over any length

of time. The broad objectives are to:

1. Support adoption and use of persistent identifiers and shared persistent identifier

management services by the project stakeholders

2. Plan for a sustainable, shared identifier management infrastructure that enables

persistence of identifiers and associated services over archival lengths of time

3. Deploy a Worldwide Site Consolidation Solution for Exchange Server 2003 at

Microsoft

4. Add Picture

5. Use Microsoft Exchange Server 2003 to consolidate more than 70 messaging sites

worldwide into seven physical locations

In this context, let us look at Microsoft Model Enterprises (MME).

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Microsoft Model Enterprises (MME)

Objectives

· Maximising the number of management tasks performed centrally

· Decreasing the number of sites through the consolidation of the smaller locations

into a smaller number of RDCs

· Reducing the total number of infrastructure and application servers

· Standardising infrastructure and devices worldwide

Solution

· Consolidation of 75 tail sites into 6 regional data centers (RDCs) using local storage

area networks (SANs)

· Key Focus Areas

· Proactive, detailed monitoring and analysis of WAN bandwidth utilisation and

latency

· Effective but flexible approach to project planning, scheduling, and cross-group

coordination

· Coordination and control of deployment of successive pre-release versions of Office

System 2003 (including Outlook 2003)

Business Benefits

· Four percent overall direct cost savings

· Key enabler of the Microsoft ME initiative which through fiscal year 2003 has

produced millions in overall consolidation savings including USE

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IT Benefits

· Improved server utilisation

· Improved server management

· Strengthened security

· Increased reliability

Q.4 List the various steps for Risk management. Also explain GDM and its key

features.

Risk management may be classified and categorized as:

1. Risk assessment and identification The assessment and identification focuses on

numerating possible risks to the project. Methods that can aid risk identification

include checklists of possible risks, surveys, meetings and brainstorming and reviews

of plans, process and work products. The project manager can also use the process

database to get information about risks and risk management on similar projects.

2. Risk prioritization – focus on the highest risk. Prioritization requires analyzing the

possible effects of the risk event in case it actually occurs. This approach requires a

quantitative assessment of the risk probability and the risk consequences. For each

risk rate the probability of its happening as low, medium or high. If necessary, assign

probability values in the ranges given for each rating. For each risk, assess its impact

on the project as low, medium, high or very high. Rank the risk based on the

probability. Select the top few risk items for mitigation and tracking.

3. Risk Control: The main task is to identify the actions needed to minimize the risk

consequences, generally called risk mitigation steps. Refer to a list of commonly used

risk mitigation steps for various risks from the previous risk logs maintained by the

PM and select a suitable risk mitigation step. The risk mitigation step must be

properly executed by incorporating them into the project schedule. In addition to

monitoring the progress of the planned risk mitigation steps periodically revisit

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project. The results of this review are reported in each milestone analysis report. To

prepare this report, make fresh risk analysis to determine whether the priorities

have

Risk Analysis

The first step in risk analysis is to make each risk item more specific. Risks such as,

“Lack of Management buy in,” and “people might leave,” are a little ambiguous. In

these cases the group might decide to split the risk into smaller specific risks, such

as, “manager Jane decides that the project is not beneficial,” “Database expert might

leave,” and “Webmaster might get pulled off the project.” The next step is to set

priorities and determine where to focus risk mitigation efforts. Some of the

identified risks are unlikely to occur, and others might not be serious enough to

worry about. During the analysis, discuss with the team members, each risk item to

understand how devastating it would be if it did occur, and how likely it is to occur.

For example, if you had a

risk of a key person leaving, you might decide that it would have a large impact on

the project, but that it is not very likely. In the process below, we have the group

agree on how likely it thinks each risk item is to occur,using a simple scale from 1 to

10 (where 1 is very unlikely and 10 is very likely). The group then rates how serious

the impact would be if the risk did occur, using a simple scale from 1 to 10 (where 1is

little impact and 10 is very large). To use this numbering scheme, first pick out the

items that rate 1 and 10, respectively. Then rate the other items relative to these

boundaries. To determine the priority of each risk item, calculate the product of the

two values, likelihood and impact. This priority scheme helps push the big risks to

the top of the

list, and the small risks to the bottom. It is a usual practice to analyze risk either by

sensitivity analysis or by probabilistic analysis. In sensitivity analysis a study is done

to analyse the changes in the variable values because of a change in one or more of

the decision criteria. In the probability analysis, the frequency of a particular event

occurring is determined, based on which it average weighted average value is

calculated.

Each outcome of an event resulting in a risk situation in a risk analysis process is

expressed as a probability. Risk analysis can be performed by calculating the

expected value of each alternative and selecting the best alternative.

Ex: Now that the group has assigned a priority to each risk, it is ready to select the

items to mange. Some projects select a subset to take action upon, while others

choose to work on all of Project the items. To get started, you might select the top 3

risks, or the top 20%, based on the priority calculation.

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GDM –

The Global Delivery Model (GDM) is adopted by an Industry or Business such that it

has a capability to plan design, deliver and serve to any Customers or Clients

Worldwide with Speed, Accuracy, Economy and Reliability. The key Features of GDM

are ·

Standardization

Modularization

Minimum Customization

Maximum Micro structure

Adoption of a Combination of the Greatest Common Multiple and the Least Common

Factor of a Large Mass of Microbial Components-

a) Standardization - Ingenious Design and Development of Components and

Features which are like to be accepted by 90% of Worldwide Customers.

Global Standards of Design focusing on highly standardized Methods and

Processes of manufacture or Development. Adopt Plug and socket Concepts

with minimum adaptable joints or Connections.

b) Modularization - Product or Solution split up into smallest possible individual

Identifiable Entities, with limited Individual Functioning Capability but

powerful and robust in Combination with other Modules.

c) Minimum Customization - Minimum Changes or Modifications to suit

Individual Customers.

d) Maximum micro structuring - Splitting of the Product Modules further into

much smaller entity identifiable more through characteristics rather than

application Features. Approach through Standardization of these Microbial

Entities even across Multiple Modules. Application of these Microbial Entities

to rest within multiple Projects or Products or even as add-ons suit belated

Customer Needs.

Special Features of GDM

Some of the special features of GDM are ·

• Cuts across Geographical and Time Zone Barriers

• Unimaginable Speeds of Response and Introduction.

• Common Pool of Microbial Components

• Largely Independent of Skill Sets required at Delivery Stages

• Highly automated Processes

• Quality Assurance as a Concurrent rather than a Control Process

• Near Shore Development, Manufacture and Delivery for better Logistics

• Mapping of Economical Zones rather than Geographic Zones

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• Continuous Floating virtual Inventory to save Time and Efforts.

Q.5 Answer the two parts:

a. Importance of data management in project management-Comment.

The Role of Effective Data Management in the Success of Project Management

Data management consists of conducting activities which facilitate acquiring data,

processing it and distributing it. Acquisition of data is the primary function.

To be useful, data should have three important characteristics – timeliness,

sufficiency and relevancy. Management of acquisition lies in ensuring that these are

satisfied before they are stored for processing and decisions taken on the analysis.

There should be data about customers, suppliers, market conditions, new

technology, opportunities, human resources, economic activities, government

regulations, political upheavals, all of which affect the way you function. Most of the

data go on changing because the aforesaid sources have uncertainty inherent in

them. So updating data is a very important aspect of their management. Storing

what is relevant in a form that is available to concerned persons is also important.

When a project is underway dataflow from all members of the team will be flowing

with the progress of activities. The data may be about some shortfalls for which the

member is seeking instructions. A project manager will have to analyse them,

discover further data from other sources and see how he can use them and take

decisions. Many times he will have to inform and seek sanction from top

management.

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The management will have to study the impact on the overall organisational goals

and strategies and convey their decisions to the manager for implementation. For

example, Bill of Materials is a very important document in Project Management. It

contains details about all materials that go into the project at various stages and has

to be continuously updated as all members of the project depend upon it for

providing materials for their apportioned areas of execution. Since information is

shared by all members, there is an opportunity for utilising some of them when

others do not need them. To ascertain availability at some future point of time,

information about orders placed, backlogs, lead times are important for all the

members. A proper MIS will take care of all these aspects. ERP packages too help in

integrating data from all sources and present them to individual members in the way

they require. When all these are done efficiently the project will have no hold ups an

assure success.

b. What is the significance of reviewing ROI?

ROI - Return on Investment (ROI) is the calculated benefit that an organization is

projected to receive in return for investing money (resources) in a project. Within

the context of the Review Process, the investment would be in an information

system development or enhancement project. ROI information is used to assess the

status of the business viability of the project at key checkpoints throughout the

project’s lifecycle.

ROI may include the benefits associated with improved mission performance,

reduced cost, increased quality, speed, or flexibility, and increased customer and

employee satisfaction. ROI should reflect such risk factors as the project’s technical

complexity, the agency’s management capacity, the likelihood of cost overruns, and

the consequences of under or nonperformance. Where appropriate, ROI should

reflect actual returns observed through pilot projects and prototypes.

ROI should be quantified in terms of dollars and should include a calculation of the

breakeven point (BEP), which is the date when the investment begins to generate a

positive return. ROI should be recalculated at every major checkpoint of a project to

se if the BEP is still on schedule, based on project spending and accomplishments to

date. If the project is behind schedule or over budget, the BEP may move out in time;

if the project is ahead of schedule or under budget the BEP may occur earlier. In

either case, the information is important for decision making based on the value of

the investment throughout the project lifecycle. Any project that has developed a

business case is expected to refresh the ROI at each key project decision point (i.e.,

stage exit) or at least yearly.

Exclusions

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If the detailed data collection, calculation of benefits and costs, and capitalization

data from which Return on Investment (ROI) is derived was not required for a

particular project, then it may not be realistic or practical to require the retrofit

calculation of ROI once the project is added to the Review portfolio. In such a case, it

is recommended that a memorandum of record be developed as a substitute for

ROI. The memorandum should provide a brief history of the program, a description

of the major benefits realized to date with as much quantitative data as possible,

and a summary of the process used to identify and select system enhancements.

Some of the major benefits experienced by sites that installed the information

system that would be important to include in the memorandum are:

a) Decommissioning of mainframe computers

b) Reduction/redirection of labour

c) Elimination of redundant systems

d) Ability to more cost effectively upgrade all sites with one standard upgrade

package.

In each case above, identify the specific site, systems, and labour involved in

determining the cited benefit. Identify any costs or dollar savings that are known or

have been estimated. The memorandum will be used as tool for responding to any

future audit inquiries on project ROI.

For the Project Management Review, it is recommended that the project leader

replace the text on the ROI document through -

1) a note stating which stage of its cycle the project is in;

(2) A bulleted list of the most important points from the memorandum of record;

and

(3) a copy of the memorandum of record for the Review repository.

In subsequent Reviews of the information system, the ROI slide can be eliminated

form the package. There is one notable exception to this guidance. Any internal use

software project in the maintenance phase of its lifecycle that adds a new site or

undertakes an enhancement or technology refresh that reaches the cost threshold

established by Standard will need to satisfy capitalization requirements. It requires

all agencies to capitalize items acquired or developed for internal use if the expected

service life is two or more years and its cost meets or exceeds the agency’s threshold

for internal use software. The standard requires capitalization of direct and indirect

costs, including employee salaries and benefits for both Federal and Contractor

employees who materially participate in the Software project. Program managers

are considered to be the source of cost information for internal use software

projects. If capitalization data is collected for the project in the future, the project

would be expected to calculate and track its ROI.

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Q.6 XYZ Company implements CMMI level-03. To make further changes it decides

on starting a new division in the organization. It decides to advance the existing

project management. What are the steps to be followed by the organization to

drive project management to a new horizon?

Capability Maturity Model Integration (CMMI) is a process improvement approach

that helps organizations improves their performance. CMMI can be used to guide

process improvement across a project, a division, or an entire organization.

CMMI in software engineering and organizational development is a process

improvement approach that provides organizations with the essential elements for

effective process improvement. CMMI is a trademark owned by Software

Engineering Institute of Carnegie Mellon University.

According to the Software Engineering Institute (SEI, 2008), CMMI helps "integrate

traditionally separate organizational functions, set process improvement goals and

priorities, provide guidance for quality processes, and provide a point of reference

for appraising current processes."[2]

CMMI currently addresses three areas of interest:

1. Product and service development — CMMI for Development (CMMI-DEV),

2. Service establishment, management, and delivery — CMMI for Services

(CMMI-SVC), and

3. Product and service acquisition — CMMI for Acquisition (CMMI-ACQ).

CMMI was developed by a group of experts from industry, government, and the

Software Engineering Institute (SEI) at Carnegie Mellon University. CMMI models

provide guidance for developing or improving processes that meet the business

goals of an organization. A CMMI model may also be used as a framework for

appraising the process maturity of the organization.[1]

CMMI originated in software engineering but has been highly generalised over the

years to embrace other areas of interest, such as the development of hardware

products, the delivery of all kinds of services, and the acquisition of products and

services. The word "software" does not appear in definitions of CMMI. This

generalization of improvement concepts makes CMMI extremely abstract. It is not as

specific to software engineering as its predecessor, the Software CMM.

CMMI was developed by the CMMI project, which aimed to improve the usability of

maturity models by integrating many different models into one framework. The

project consisted of members of industry, government and the Carnegie Mellon

Software Engineering Institute (SEI). The main sponsors included the Office of the

Secretary of Defense (OSD) and the National Defense Industrial Association.

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CMMI is the successor of the capability maturity model (CMM) or software CMM.

The CMM was developed from 1987 until 1997. In 2002, CMMI Version 1.1 was

released. Version 1.2 followed in August 2006.

CMMI representation

CMMI exists in two representations: continuous and staged. The continuous

representation is designed to allow the user to focus on the specific processes that

are considered important for the organization's immediate business objectives, or

those to which the organization assigns a high degree of risk. The staged

representation is designed to provide a standard sequence of improvements, and

can serve as a basis for comparing the maturity of different projects and

organizations. The staged representation also provides for an easy migration from

the SW-CMM to CMMI.

CMMI model framework

Depending on the CMMI constellation (acquisition, services, development) used, the

process areas it contains will vary. Key process areas are the areas that will be

covered by the organization's processes. The table below lists the process areas that

are present in all CMMI constellations. This collection of eight process areas is called

the CMMI Model Framework, or CMF.

Capability Maturity Model Integration (CMMI) Model Framework (CMF)

Abbreviation Name Area Maturity

Level

REQM Requirements Management Engineering 2

PMC Project Monitoring and Control Project

Management 2

PP Project Planning Project

Management 2

CM Configuration Management Support 2

MA Measurement and Analysis Support 2

PPQA Process and Product Quality

Assurance Support 2

OPD Organizational Process Definition Process

Management 3

CAR Causal Analysis Support 5

Maturity Levels

There are Five maturity levels. However, maturity level ratings are awarded for levels

2 through 5.

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Maturity Level 2 - Managed

• CM - Configuration Management

• MA - Measurement and Analysis

• PMC - Project Monitoring and Control

• PP - Project Planning

• PPQA - Process and Product Quality Assurance

• REQM - Requirements Management

• SAM - Supplier Agreement Management

Maturity Level 3 - Defined

• DAR - Decision Analysis and Resolution

• IPM - Integrated Project Management +IPPD

• OPD - Organizational Process Definition +IPPD

• OPF - Organizational Process Focus

• OT - Organizational Training

• PI - Product Integration

• RD - Requirements Development

• RSKM - Risk Management

• TS - Technical Solution

• VAL - Validation

• VER - Verification

Maturity Level 4 - Quantitatively Managed

• QPM - Quantitative Project Management

• OPP - Organizational Process Performance

Maturity Level 5 - Optimizing

• CAR - Causal Analysis and Resolution

• OID - Organizational Innovation and Deployment

CMMI models

CMMI best practices are published in documents called models, each of which

addresses a different area of interest. The current release of CMMI, version 1.2,

provides models for three areas of interest: development, acquisition, and services.

• CMMI for Development (CMMI-DEV), v1.2 was released in August 2006. It

addresses product and service development processes.

• CMMI for Acquisition (CMMI-ACQ), v1.2 was released in November 2007. It

addresses supply chain management, acquisition, and outsourcing processes

in government and industry.

• CMMI for Services (CMMI-SVC), v1.2 was released in February 2009. It

addresses guidance for delivering services within an organization and to

external customers.

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• CMMI Product Suite (includes Development, Acquisition, and Services), v1.3

is expected to be released in 2010. CMMI Version 1.3—Plans for the Next

Version

Regardless of which model an organization chooses, CMMI best practices should be

adapted by an organization according to its business objectives.

Appraisal

An organization cannot be certified in CMMI; instead, an organization is appraised.

Depending on the type of appraisal, the organization can be awarded a maturity

level rating (1-5) or a capability level achievement profile.

Many organizations find value in measuring their progress by conducting an

appraisal. Appraisals are typically conducted for one or more of the following

reasons:

1. To determine how well the organization’s processes compare to CMMI best

practices, and to identify areas where improvement can be made

2. To inform external customers and suppliers of how well the organization’s

processes compare to CMMI best practices

3. To meet the contractual requirements of one or more customers

Appraisals of organizations using a CMMI model must conform to the requirements

defined in the Appraisal Requirements for CMMI (ARC) document. There are three

classes of appraisals, A, B and C, which focus on identifying improvement

opportunities and comparing the organization’s processes to CMMI best practices.

Appraisal teams use a CMMI model and ARC-conformant appraisal method to guide

their evaluation of the organization and their reporting of conclusions. The appraisal

results can then be used (e.g., by a process group) to plan improvements for the

organization.

The Standard CMMI Appraisal Method for Process Improvement (SCAMPI) is an

appraisal method that meets all of the ARC requirements.

A class A appraisal is more formal and is the only one that can result in a level rating.

Results of an appraisal may be published (if the appraised organization approves) on

the CMMI Web site of the SEI: Published SCAMPI Appraisal Results. SCAMPI also

supports the conduct of ISO/IEC 15504, also known as SPICE (Software Process

Improvement and Capability Determination), assessments etc.

Achieving CMMI compliance

The traditional approach that organizations often adopt to achieve compliance with

the CMMI involves the establishment of an Engineering Process Group (EPG) and

Process Action Teams (PATs).This approach requires that members of the EPG and

PATs be trained in the CMMI, that an informal (SCAMPI C) appraisal be performed,

and that process areas be prioritized for improvement. More modern approaches

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that involve the deployment of commercially available, CMMI-compliant processes,

can significantly reduce the time to achieve compliance. SEI has maintained statistics

on the "time to move up" for organizations adopting the earlier Software CMM and

primarily using the traditional approach.[6]

These statistics indicate that, since 1987,

the median times to move from Level 1 to Level 2 is 23 months, and from Level 2 to

Level 3 is an additional 20 months. These statistics have not been updated for the

CMMI.

The Software Engineering Institute’s (SEI) Team Software Process methodology and

the Capability Maturity Modeling framework can be used to raise the maturity level.

Applications

The SEI published that 60 organizations measured increases of performance in the

categories of cost, schedule, productivity, quality and customer satisfaction.[7]

The

median increase in performance varied between 14% (customer satisfaction) and

62% (productivity). However, the CMMI model mostly deals with what processes

should be implemented, and not so much with how they can be implemented. These

results do not guarantee that applying CMMI will increase performance in every

organization. A small company with few resources may be less likely to benefit from

CMMI; this view is supported by the process maturity profile (page 10). Of the small

organizations (<25 employees), 70.5% are assessed at level 2: Managed, while 52.8%

of the organizations with 1001–2000 employees are rated at the highest level (5:

Optimizing).

Interestingly, Turner & Jain (2002) argue that although it is obvious there are large

differences between CMMI and agile methods, both approaches have much in

common. They believe neither way is the 'right' way to develop software, but that

there are phases in a project where one of the two is better suited. They suggest one

should combine the different fragments of the methods into a new hybrid method.

Sutherland et al. (2007) assert that a combination of Scrum and CMMI brings more

adaptability and predictability than either one alone. David J. Anderson (2005) gives

hints on how to interpret CMMI in an agile manner. Other viewpoints about using

CMMI and Agile development are available on the SEI Web site.

The combination of the project management technique earned value management

(EVM) with CMMI has been described (Solomon, 2002). To conclude with a similar

use of CMMI, Extreme Programming (XP), a software engineering method, has been

evaluated with CMM/CMMI (Nawrocki et al., 2002). For example, the XP

requirements management approach, which relies on oral communication, was

evaluated as not compliant with CMMI.

CMMI can be appraised using two different approaches: staged and continuous. The

staged approach yields appraisal results as one of five maturity levels. The

continuous approach yields one of six capability levels. The differences in these

approaches are felt only in the appraisal; the best practices are equivalent and result

in equivalent process improvement results

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MB0049

Project Management Assignment Set- 2

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Q.1 Providing adequate resource is key to productivity-Comment.

Concept of PMO is gaining ground in Project Management because enterprises need

to optimize resources – especially knowledge and people – across many projects.

Economies are achieved and customer satisfaction gained resulting in more profits

and repeat contracts. The review of projects – their methodology and the important

of interpersonal relations will help in achieving the productivity of the personnel.

Productivity at the junior level can be assumed and controlled only if all other

supporting elements of business are well balanced. Higher productivity cannot be

expected if they are not motivated. Through one of the mail point is

Adequate availability of resources; otherwise frustration sets in and commitment is

lost;

Key elements of a Productivity Improvement Program:

Obtain Upper Management Support. Without top management support, experience

shows a PIP likely will fail. The Chief Executive Officer should issue a clear,

comprehensive policy statement. The statement should be communicated to

everyone in the company. Top management also must be willing to allocate

adequate resources to permit success.

2. Create New Organizational Components. A Steering Committee to oversee the

PIP and Productivity Managers to implement it are essential. The Committee should

be staffed by top departmental executives with the responsibilities of goal setting,

guidance, advice, and general control. The Productivity Managers are responsible for

the day-to-day activities of measurement and analysis. The responsibilities of all

organizational components must be clear and well established.

3. Plan Systematically. Success doesn't just happen. Goals and objectives should be

set, problems targeted and rank ordered, reporting and monitoring requirements

developed, and feedback channels established.

4. Open Communications. Increasing productivity means changing the way things

are done. Desired changes must be communicated. Communication should flow up

and down the business organization. Through publications, meetings, and films,

employees must be told what is going on and how they will benefit.

5. Involve Employees. This is a very broad element encompassing the quality of work

life, worker motivation, training, worker attitudes, job enrichment, quality circles,

incentive systems and much more. Studies show a characteristic of successful,

growing businesses is that they develop a "corporate culture" where employees

strongly identify with and are an important part of company life. This sense of

belonging is not easy to engender. Through basic fairness, employee involvement,

and equitable incentives, the corporate culture and productivity both can grow.

6. Measure and Analyze. This is the technical key to success for a PIP. Productivity

must be defined, formulas and worksheets developed, sources of data identified,

benchmark studies performed, and personnel assigned. Measuring productivity can

be a highly complex task. The goal, however, is to keep it as simple as possible

without distorting and depreciating the data. Measurement is so critical to success, a

more detailed analysis is helpful.

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Q.2 Compare the following:

a. Traditional Vs. Projectised Organization.

b. Bottom-up Vs. Top-down estimation

A. Traditional Vs. Projectised Organization.

Traditional organizations: These have the formal organisation structure, with

departments, functions, sections having an hierarchy of managers and their

assistant. All of them function on a continuous basis catering to a series of

requirements issued by the planning department. An assembly of various units of

their production forms a products and a variety of such products make up the

business of the company. No one particular member or a department or a team is

responsible for the completion of any particular product. Their creativity and

innovation is particular respect of jobs. Most of them do not get exposed to other

areas of operations in the organisation. They will become specialists and be insular.

Projectised organizations: These have teams comprising members who are

responsible for completing one completely deliverable product. They will have all the

resources required to do all jobs or operations to complete it. Most importantly,

they have a time schedule within which all the elements of the projects have to be

completed. It has been found that a sense of ‘ownership’ of the project motivates

them for being creative, cooperate among themselves to achieve high productivity.

Traditional Organisations Projectised Organisations

They have the formal organisation structure,

with departments, functions, sections having a

hierarchy of managers and their assistants.

They have teams comprising members

who are responsible for completing one

entire deliverable product.

All of the managers function on a continuous

basis catering to a series of requirements

issued by the planning department.

The teams will have all the resources

required to finish the jobs.

An assembly of various units of their

production forms a products and a variety of

such products make up the business of the

company.

They have a time schedule within which

all the elements of the projects have to

be completed.

No particular member or a department or a

team is responsible for the completion of any

particular product. Their creativity and

innovation is in particular respect of their jobs.

There is greater accountability among

team members and everyone is

responsible for the delivery.

Most of the members do not get exposed to

other areas of operations in the organisation.

They become specialists and insular.

It is found that a sense of ‘ownership’

of the project motivates team members

to be creative, cooperative among

them to achieve high productivity.

B. Bottom-up Vs. Top-down estimation

Estimation Approaches There are two types of estimation approaches:

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Bottom up approach

The bottom up approach consists of the following

Project manager first divides the product under development into major

modules

Each module is subdivided into smaller units

Project manager defines a standard for manufacturing and self-testing as

o Identify modules in the system and classify them as simple, medium

or complex.

o As much as possible, use either the provided standard definitions or

definitions from past projects

o If a project specific baseline exists, get the average build effort for

simple/medium/complex (S/M/C) programs from the baseline.

o If a project specific baseline does not exist, use project type,

technology, language and other attributes to look for similar projects

in process database. Use data from these projects to define the build

effort of S/M/C program.

o If no similar project exist in the process database and no project

specific baseline exist refine the estimates based on project specific

factors.

Top-Down Approach

The top down approach consists of the following

Get the estimate of the total size of the product in function points

Using the productivity data from the project specific capability baseline from

the general process capability baseline, or from similar projects, fix the

productivity level for the project

Obtain the overall effort estimate from the productivity and size estimates.

Use effort distribution data from the process capability baselines or similar

projects to estimate the effort for the various phases. Refine the estimates

taking project specific factors into consideration.

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Q.3 List out the macro issues in project management and explain each.

Macro issues in project management

Evolving Key Success Factors (KSF) Upfront: In order to provide complete stability to

fulfillment of goals, one needs to constantly evaluate from time to time , the

consideration of what will constitute the success of completing a project and

assessing its success before completion. The KSF should be evolved based on a basic

consensus document (BCD). KSF will also provide an input to effective exit strategy

(EES). Exit here does not mean exit from the project but from any of the drilled down

elemental activities which may prove to be hurdles rather than contributors. Broad

level of KSF should be available at the conceptual stage and should be firmed up and

detailed out during the planning stage. The easiest way would be for the team to

evaluate each step for chances of success on a scale of ten. KSF should be available

to the management duly approved by the project manager before execution and

control stages. KSF rides above normal consideration of time and cost – at the levels

encompassing client

expectation and management perception – time and cost come into play as

subservient to these major goals.

Empowerment Title (ET): ET reflects the relative importance of members of the

organization at three levels:

Team members empowered to work within limits of their respective

allocated responsibilities – the major change from bureaucratic systems is an

expectation from these members to innovate and contribute to time and

cost.

Group leaders are empowered additionally to actindependently towards

client expectation and are also vested with some limited financial powers.

Managers are empowered further to act independently but to maintain a

scientific balance among time, cost, expectation and perception, apart from

being a virtual advisor to the top management.

Partnering Decision Making (PDM): PDM is a substitute to monitoring and control. A

senior with a better decision making process will work closely with the project

managers as well as members to plan what best can be done to manage the future

better from past experience. The key here is the active participation of members in

the decision making process. The ownership is distributed among all irrespective of

levels – the term equally should be a\voided here since ownership is not

quantifiable. The right feeling of ownership is important. This step is most difficult

since junior members have to respond and resist to being pushed through sheer

innovation and performance – this is how future leaders would emerge. The PDM

process is made scientific through:

i. Earned value management system (EVMS)

ii. Budgeted cost of work scheduled (BCWS)

iii. Budgeted cost of work performed (BCWP)

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iv. Actual cost of work performed (ACWP)

Management By Exception (MBE): “No news is good news” . If a member wants help

he or she locates a source and proposed to the manager only if such help is not

accessible for free. Similarly, a member should believe that a team leaders silence is

a sign of approval and should not provoke comments through excessive seeking of

opinions. In short leave people alone and let situation perform the demanding act.

The bend limit of MBE can be evolved depending on the sensitivity of the nature and

size of the project. MBE provides and facilitates better implementation of

effectiveness of empowerment titles .MBE is more important since organizations are

moving toward multi skilled functioning even at junior most levels.

Q.4 Describe the traits of a professional manager in details?

Traits of the professional manager:

The following traits enable a manager to be effective in his functioning. Endowed

with these it will be easy to be effective. The top management will look for these in a

person who they want to employ for project management.

Leadership – These managers lead by exhibiting the characteristics of

leadership. They know what they should do, know why they are doing it,

know how to do it and have the courage and will to do it.They have the

power of taking along with them others.

People Relationships - Any leader without followers cannot be successful.

They have excellent human relationship skills. The manager builds up his

team based on the core values of sincerity, objectivity and dedication. He

ensures that his subordinates get opportunities for growth based on

performance. He makes them a part of the decision making process, thus

ensuring cooperation and commitment during implementation. He delegates

freely and supports them.

Integrity - Highest levels of trust, fairness and honesty are expected while

dealing with people both within an outside the organisation. This includes the

customers, shareholders, dealers, employees, the government and society at

large. They ensure that functioning is clean. Their transactions will be

transparent. Ethics is something they practice diligently.

Quality – The quality philosophy should not cover only the product quality,

but every process that has gone into making it. Economy of words when

instructions are given, acknowledging compliance, arriving on time,

remembering the promises and above all a keen eye for details and patience

tomake others know what they want are components of quality

Customer Orientation - It is now recognized that every organized two sets of

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customers. Internal customers are people in the organisation – employees,

directors, team members – any person who needs your services, whose

needs of demands you satisfy. External customers – clients and all members

of society we come in contact in connection with our business. They need our

solutions for their problems. So, the manager’s thinking about any problem is

– what can I do for him and all actions will be in that direction.

Innovation and creativity - Professional managers think beyond the obvious.

They exhibit a keenness to go behind a problem and attempt to find the root

cause of the problem. They will draw from their experience from diverse

fields, seek further information and consider all possible alternatives and

come out with some new and unique solution. This happens when they have

open minds. A saying goes the human mind is like a parachute, it is useful

only when it is open. Such a work culture is very conducive for problem

solving – which is the aim of all creativity. Their persistence will reward them.

Such actions observed by their team members enthuse them and a spirit of

adventure will bring about better solutions faster.

Performance Management The professional manager not only ensures that

his performance is at peak all times, but motivates his entire team to do it.

This comes by appreciation and encouragement. If there any shortfalls he

arranges for training them so that their performance improves. Thus the

team members know that they are expected to perform, that they get help to

do so and their effort is recognized. This is the simple path of performance

management. The following seven step model will be useful:

• Objectives/Performance standards are set.

• These are communicated to the employees.

• Review/monitor the above.

• Check actual performance Vs. Standards set.

• Identify gaps.

• Jointly decide on corrective action, if needed.

• Reset objectives for next period

Objectives/Performance standards are set.

To mange any criterion, it is necessary to measure the factors that were

responsible for ‘what is’. The quality of the input, their quantity and their

intended usage. Then measures of the utilizationthe processes used, their

suitability, and the difficulties faced in utilization and how they were

resolved.

Then the outcomes – are they as they were expected. Performance closer or

beyond expectation is the degree of quality. For every employee the level of

achievement is set in terms of quantities and extent to which the

performance approached the standard. This is the basis for evaluating

performance.

These are communicated to the employees

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This procedure ensures that they know what is expected of them and help

them to adjust their activities in such a way as to meet them. This enables

them to seek help, consult their colleagues or bosses, learn– so that they will

meet the expectations. It is possible that some objectives cannot be met at

all. The communication to his boss, may help in reallocating the job, so that

there will be no hiccups at the end of the period

Review/monitor the above

Review helps in resetting the goals when they cannot be achieved for various

reasons – shortage of resources, time etc. By monitoring, the shortfalls can

be made up with the allocation of extra resources, or even diverting the

operation.

Check actual performance Vs. Standards set

This is the evaluation phase. Comparison on every detail is made. Differences

are recorded. Particular areas are chosen for improvement.

Identify gaps

Gaps mean the shortfall in performance standards. The immediate supervisor

is also involved. The extent to which they affect the functions of the job itself

are identified

Jointly decide on corrective action, if needed

There is a possibility that the performance has exceeded the set standards.

But if performance is not good the reasons and extent having been identified,

the course of action for effecting corrections are decided. Giving extra

responsibilities, training, relocation is considered.

Reset objectives for next period

The targets are revised either upward or downward depending on the

conclusion of the appraisal process.

Identification with the organisation A sense of pride and belonging goes with

the “ownership” of the job, the project, team members and organisation.

This is brought about by the culture and communication system in the

organisation. Information sharing brings in trust and promotes

belongingness. The tendency seen is that most managers strongly identify

with their own departments, units or divisions and they lack a sense of

organisation.

In the light of increased competition and ever changing strategies to develop

business orientation, which in effect means every manager should be aware

of the company’s plans, products and policies. An obvious corollary to this is

that the organization’s communication policy too should be conducive to

such information sharing. Today, many organizations are using interventions

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such as team building, survey feedback, and other activities, to ensure that

employees build up a strong sense of identity and pride in the organisation

they work for.

Empowering employees: The professional manager should possess the ability

to empower his employees down the line. Many managers are not even

ready to delegate their authority to subordinates and end up only delegating

responsibility. Empowerment is the process by which employees are

encouraged to take decisions pertaining to their area of work. Empowerment

ensures execution of his duties. This leads employees developing a sense of

pride in their jobs. But managers often hesitate to empower their

subordinates as they feel insecure and show a sense of uncertainty. The

professional manager practices empowerment and encourages employees to

grow and develop in their positions.

Coping with changes: It is often said – ‘The only constant in this world is

change’. A professional manager has the ability and capacity to cope with

change. He accepts the fact that change is inevitable and is ready to

implement change at the workplace. To implement change successfully, it is

essential that employees are involved in the implementation of change.

Further the positive and negative consequences of change need to be

discussed and understood before implementation. Thus a professional

manager has the attitude to accept change as a way of life and takes it in his

stride

Q.5 List the major participants of project review process. Also highlight roles and

responsibilities of each.

The following is a list of key participants and their responsibilities in the Project

Management Review Process.

Chief Information Officer (CIO) – conduct project senior management

reviews, monitor project progress, facilitate resolution of related project

issues.

Chief Financial Officer – Approve investments in corporate / major

information systems projects.

Systems Owners – develop or approve project deliverable, present project

status, facilitate resolution of project issues.

Program Managers – develop or approve project deliverables, approve

changes to project scope, ensure project reporting, present project status,

conduct project management reviews, manage project funding and authorize

work activities.

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Project Managers - performs day to day project management, develop

project deliverables, prepare project management review and senior

management review presentations, present project status, manage

resolution of project issues.

Corporate management Investment process Program staff – Evaluate major

information systems which receive CMIP funding and prepare report to the

top.

Program Manager – review and comment on project deliverables and work

products, schedule and support the review meetings, provide support to

systems owners and project managers, advise the CIO and associate CIO’s.

Key project stake holders and other invited participants – attend the review

meeting, participate in discussion, provide input as appropriate.

Q.6 ABC organization has been in software business since last 20 years. The senior

management feels that although they are making profits, but the profit on an

average is the same each year. They decide that they would make some additions

to the business and decided to go ahead with development of some high

technology for better profits. Can you suggest some guidelines, which the

management should follow in this venture?

Ans. Every business aims to commence its activities in the foreign market. The

foreign market provides with both opportunities and risks. Therefore some prefer

to enter in to strategic relationships and one such is the Joint Ventures.

A Joint Venture is an entity formed between two or more parties to undertake

economic activity together. The JV parties agree to create, for a finite time, a new

entity and new assets by contributing equity. They then share in the revenues,

expenses, and assets and the control of the enterprise. Therefore the basic

characteristics of joint venture can be summed up as:

1) Based on a Contractual Agreement.

2) Specific limited purpose and duration.

3) Joint Property Interest

4) Common Financial and Intangible goals and objectives.

5) Shared profits, losses, management and control.

Reasons for setting Joint Ventures abroad

The reasons for setting up joint ventures can be contributed to three main factors

and they are:

1. Internal Reasons.

2. Competitive Goals.

3. Strategic Goals.

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1. The Internal reasons are as follows:

• Building on company’s strength.

• Spreading on costs and risks.

• Improving access to financial resources.

• Economies of scale and advantages of size.

• Access to new technologies and customers.

• Access to innovative managerial practices.

2. The Competitive Goals are as follows:

• Influencing structural evolution of the industry.

• Defensive response to blurring industry boundaries.

• Creation of stronger competitive units.

• Speed to market.

• Improved Agility.

3. The Strategic Goals are as follows:

• Diversification

• Synergies.

• Transfer of technology/skill

Indian Joint Ventures Abroad

India started opening its economy a decade ago to integrate with global economy.

The business ventures abroad are not a new phenomenon in the independent

India. The initiatives were taken way back in the 1960s with the first ventures of

Birlas in Ethopia in the year 1964. However, it has assumed specific significance

after the Indian government started economic reforms in the year 1991, making

globalization of Indian business an integral part of economic reforms.

Significance of Indian Joint Ventures Abroad

International trade is considered to be imperative for economic development.

Economic borders of various countries have been opened on this premise under the

aegis of world trade organization. In countries, whose economy has moved from

the level of necessity to comforts and luxuries levels, there are increasing

pressures for newer, better and superior products with consistent quality, high

reliability and attractive finish etc. Further, with the labour becoming increasingly

costly, the firms have to go for development of capital intensive technologies. The

huge investments in new product and technology development demands higher

levels of production to ensure operations of the firms above the breakeven point.

The scale of operations required over a period of time reaches a level that is well

above the entire domestic demand in most of the developed countries, which

generally have small population.

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The firms thus face the problem of searching new markets and cheaper

sources of raw material, labour and other resources. Their growth and

development, thus, depends upon internationalization of the business.

Advantages and Disadvantages

A business while deciding upon whether to go for a joint venture should make a

thorough analysis on its business goals.

Advantages

• Financial resources can be shared.

• Allows for Investor diversification.

• Reduces local Friction.

• Reduce Fixed costs per product.

• Direct management of business activities.

• Competitive strengths of two parties can be combined.

• A local JV partner knows the market.

• Economic incentives add value to JVs.

Disadvantages

• JV profits are shared.

• Shared technologies can be used beyond JV.

• Local Management of a JV can be unknown

Broadly there are two schemes under which an Indian Party can set up a JV

abroad, namely the Automatic Route and the Normal Route/Approval Route.

Automatic Route

Under the Automatic Route, an Indian Party does not require any prior approval

from the Reserve Bank for setting up a JV abroad (in case of investment in the

financial sector, however, prior approval is required from the concerned regulatory

authority both in India and abroad).

The criteria for direct investment under the Automatic Route are as under:

• The total µfinancial commitment of the Indian Party in JVs in any

country other than Nepal, Bhutan and Pakistan is up to 100% of its net worth and

the investment is in a lawful activity permitted by the host country

• The Indian Party is not on the Reserve Banks exporters caution list /

list of defaulters to the banking system published/ circulated by the Credit

Information Bureau of India Ltd. (CIBIL)/RBI or under investigation by the

Enforcement Directorate or any investigative agency or regulatory authority;

• The Indian Party routes all the transactions relating to the

investment in a JV through only one branch of an authorized dealer to be

designated by it.

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N ormal Route

Proposals not covered by the conditions under the automatic route require

the prior clearance of the Reserve Bank for which a specific application in form ODI

with the documents prescribed therein is required to be made to RBI.

Requests under the normal route are considered by taking into account

inter alias the prima facie viability of the proposal, business track record of the

promoters, experience and expertise of the promoters, benefits to the country, etc