Principles of Business Management Solved Question Paper - May' 2012 Semester Exam

2012 (May)
Commerce (General/Speciality)
1. (a) Write True or False: [1x5=5]
(i) The theory of scientific management was propounded by Taylor.                                        True
(ii) The book, General and Industrial Management was written by P.F. Drucker.     False, Henry fayol
(iii) Management by objectives is a continuous process.                                                True
(iv) Rationalisation is an element of scientific management.                         False
(v) Correction of deviation is the first step in the process of control.   False, Setting performance standard

(b) Fill in the blanks: [1x3=3]
(i) Zero-based budgeting technique was first introduced in America in the year 1962.
(ii) Management audit is a traditional control technique of control.
(iii) Planning is determination of future course of action.

2. Write short notes on (any four): [4x4=16]
(a) Autocratic leadership

(b) Strategic Planning
(c) Authority and Responsibility
(d) Positive leadership
(e) Functional organisation
(f) Process of decision-making

3. (a) “Management is concerned with ideas, things and people.” Comment.                                                      11
(b) Write in brief note on the development of management thoughts.                                                                  11
4. (a) Explain the meaning and process of management by objectives.                                                                  3+8=11
Ans: Introduction: Management by Objective (MBO)
The concept Management by Objectives was coined by Peter Drucker in 1954. As per this concept, the organisational goals are broken down to different level objectives and assigned to individuals at different level in order to have the organisational goal. It is a technique and philosophy of management based on converting an organisational objective into a personal   objective on the presumption that establishing personal objectives makes an employee committed, which leads to better performance.
Koontz defined MBO as follows: “MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner, consciously directed towards the effective and. Efficient achievement of organisational objectives.”
According to George Odiome,  “MBO is a process whereby superior and subordinate managers of an Organisation jointly define its common goals, define each individual's major areas of responsibility in terms Of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members."
According to John Humble, “MBO is a dynamic system which seeks to integrate the company's needs to clarify and achieve its profits and growth goals with the manager's need to contribute and develop himself. It is a demanding and rewarding style of managing a business."
Objectives of MBO
Objectives of MBO can be classified under the following heads:
1.       Primary Objectives: Primary objectives are related to the company and not to individuals. Earning of profits out of providing goods and services to the customers is the primary objective of a company.
2.       Secondary Objectives: These objectives help in achieving primary objectives. Secondary objectives, like primary objectives, are impersonal in nature. The goal of adding new products will be a secondary goal which will help in achieving the primary objective.
3.       Individual Objectives: These are the goals which individual members in an organization try to achieve no daily, weekly, monthly or yearly basis. These objectives are achievable as subordinate to primary and secondary goals.
4.       Social Objectives: These are the goals of an organization towards society. These include the obligations required by the community, government agencies etc. These also include goals intended to further social, physical and cultural improvement of the society.
(b) “Decision-making is problem solving in different situations.” Discuss.                                                                               11
5. (a) Discuss the factors which are to be considered in choosing a suitable form of Departmentation.                  11
Ans: Ans: Departmentation - Introduction
The process of dividing activities into units and subunits is referred to as departmentation. The term departmentation is used in a generic sense n is not only confined to the creation of such units as are called departments, but it includes divisions, sections and jobs also.
Dividing up work calls or identification of total activities and classification of such activities into units and subunits. There are three bases for primary grouping of activities at the second level of the organisation just below the top level. Units at the second level are commonly called departments when business functions are adopted as the pattern of grouping activities. Such units go by the name of divisions when either products manufactured or territories are adopted as the means of classifying activities.
There are, however, two approaches to departmentation- top down and bottom-up approaches. In the top-down approach, activities are divided step by step downward form the chief executive's job to the operating jobs. In the bottom-up approach, the division of activities is carried on in a reverse order. Starting form operating jobs, there arise sections form combining some correlated jobs, departments from combining some sections and finally the chief executive position form putting departments together. While the top-down approach gives emphasis on co-ordination and managerial action, the bottom-up approach gives emphasis on co-ordination and managerial action, the bottom-up approach focuses attention on employee performance. Although the top-down approach is easy for understanding the departmentation process, both the approaches are utilized in actual practice
Choice of bases for departmentation Or DETERMINANTS OF DEPARTMENTATION
The selection of bases for departmentation involves a consideration of the relative advantages of each base for the organisation. Ideally speaking, a suitable basis of departmentation is one which facilitates the performance of organisational functions efficiently and effectively so that its objective are achieved.
1.       Specialization: While assigning activities into departments, care must be taken to ensure that the benefits of specialization are achieved.
2.       Control: One of the primary aims of departmentation is to facilitate control. Departments should be so created as to fix clear responsibilities so as to enable effective control.
3.       Coordination: Coordination involves that all the related activities are performed in a way that their performance is synchronized so that each activity contributes to others.
4.       Economy: A balance should be maintained between the cost of creating a department and its contribution. The existence of a department is desirable only when it contributes more than its cost.
5.       Focus on Result: Those activities which contribute to the achievement to these results should be given proper attention.
6.       Human Considerations: Departments should be created on the basis of availability of personnel, their aspirations and value systems, informal work groups and attitudes of people towards various forms of organisation structure.
7.       Emphasis on Local Conditions: while assigning activities proper emphasis should be given to local conditions at the places concerned, viz. the personality of the individuals who may be given the responsibilities, the nature of informal relationship among the people, the attitude of the people, etc.
8.       Economy: Another important factor to be considered while creating separate departments is the expense involved and economy in its operations.
9.       Key Activities: there are certain activities which are very crucial. Such activities should be placed in separate divisions.
(b) What do you mean by “Span of management”? Explain the factors which affect an effective span of management.                                3+8=11
In the words of Spriegal, "Span of control means the number of people reporting directly to an authority. The principle of span of control implies that no single executive should have more people looking to him for guidance and leadership than he can reasonably be expected to serve. The span of supervision is also known as span of control, span of management, span of responsibility, span of authority and span of direction.
Factors influencing the span of Management
                There are number of factors that influence or determine the span of Management in a particular organisation, the most important of these are as follows:
1)      The capacity and ability of the executive: The characteristics and abilities such as leadership, administrative capabilities; ability to communicate, to judge, to listen, to guide and inspire, physical vigour, etc. differ from person to person. A person having better abilities can manage effectively a large number of subordinates as compared to the one who has lesser capabilities.
2)      Competence and training of subordinates: Subordinates who are skilled, efficient, knowledgeable, trained and competent require less supervision, and therefore, the supervisor may have a wider span in such cases as compared to inexperienced and untrained subordinates who requires greater supervision.
3)      Nature of Work: Nature and importance of work to be supervised is another factor that influences the span of supervision. The work involving routine, repetitive, unskilled and standardized operations will not call much attention and time on the part of the supervisor.
4)      Time available for supervision: The capacity of a person to supervise and control a large number of persons is also limited on account of time available at his disposal to supervise them. The span of control would be generally narrow at the higher level of management because top manager have to spend their major time on planning, organising, directing and controlling and the time available at their disposal for supervision will be less.
5)      Degree of Decentralization and Extent of Delegation: If a manager clearly delegates authority to undertake a well-defined task, a well trained subordinate can do it with a minimum of supervisor's time and attention.
6)      Effectiveness of communication system: Faulty communication puts a heavy burden on manager's time and reduces the span of control.
7)      Quality of Planning: Effective planning helps to reduce frequent calls on the superior for explanation, instructions and guidance and thereby saves in time available at the disposal of the superior enabling him to have a wider span.
8)      Degree of Physical Dispersion: If all persons to be supervised are located at the same place and within the direct supervision of the manager, he can supervise relatively more people as compared to the one who has to supervise people located at different places.
9)      Assistance of Experts: the span of supervision may be wide where the services of experts are available to the subordinate on various aspects of work. In case such services are not provided in the organisation, the supervisor has to spend a lot of time in providing assistance to the workers himself and a such the span of control would be narrow.
6. (a) Compare and contrast Maslow’s theory and Herzberg’s theory of Motivation.                                       11
Ans: Difference between Maslow’s Need Hierarchy theory and Herzberg’s motivation Hygiene Theory
1. Meaning:
Maslow's theory is based on the concept of human needs and their satisfaction.
Hertzberg's theory is based on the use of motivators which include achievement, recognition and opportunity for growth.
2. Basis of Theory:
Maslow's theory is based on the hierarchy of human needs. He identified five sets of human needs (on priority basis) and their satisfaction in motivating employees.
Hertzberg refers to hygiene factors and motivating factors in his theory. Hygiene factors are dissatisfies while motivating factors motivate subordinates. Hierarchical arrangement of needs is not given.
3. Nature of Theory:
Maslow's theory is rather simple and descriptive. The theory is based long experience about human needs.
Hertzberg's theory is more prescriptive. It suggests the motivating factors which can be used effectively. This theory is based on actual information collected by Hertzberg by interviewing 200 engineers and accountants.
4. Applicability of Theory:
Maslow's theory is most popular and widely cited theory of motivation and has wide applicability. It is mostly applicable to poor and developing countries where money is still a big motivating factor.
Herzberg's theory is an extension of Maslow's theory of motivation. Its applicability is narrow. It is applicable to rich and developed countries where money is less important motivating factor.
5. Descriptive or Prescriptive
Maslow's theory or model is descriptive in nature.
Herzberg's theory or model is prescriptive in nature.
6. Motivators
According to Maslow's model, any need can act as motivator provided it is not satisfied or relatively less satisfied.
In the dual factor model of Hertzberg, hygiene factors (lower level needs) do not act as motivators. Only the higher order needs (achievement, recognition, challenging work) act as motivators.

(b) “None of the leadership style is fault proof.” Do you agree? Comment and explain.                                               11
Ans: Leadership Styles or Types of Leaders
1)      Autocratic or Authoritarian Style leader: An autocratic also known as authoritarian style of leadership implies wielding absolute power. Under this style, the leader expects complete obedience from his subordinates and all decision-making power is centralized in the leader. No suggestions or initiative from subordinates is entertained. The leader forces the subordinates to obey him without questioning. An autocratic leader is, in fact, no leader. He is merely the formal head of the organisation and is generally disliked by the subordinates who feel comfortable to depend completely on the leader.
(a)   Reduced stress due to increased control
(b)   A more productive group ‘while the leader is watching’
(c)    Improved logistics of operations
(d)   Faster decision making
(a)    Short-termistic approach to management.
(b)   Manager perceived as having poor leadership skills
(c)    Increased workload for the manager
(d)   People dislike being ordered around
(e)   Teams become dependent upon their leader
2)      Laissez-faire or Free-rein Style Leader: Under this type of leadership, maximum freedom is allowed to subordinates. They are given free hand in deciding their own policies and methods and to make independent decisions. The leader provides help only when required by his subordinates otherwise he does not interfere in their work. The style of leadership creates self-confidence in the workers and provides them an opportunity to develop their talents. But it may not work under all situations with all the workers, may bring problems of indiscipline. Such leadership can be employed with success where workers are competent, sincere and self-disciplined.
(a)   No work for the leader
(b)   Frustration may force others into leadership roles
(c)    Allows the visionary worker the opportunity to do what they want, free from interference
(d)   Empowers the group
(a)    It makes employees feel insecure at the unavailability of a manager.
(b)   The manager cannot provide regular feedback to let employees know how well they are doing.
(c)    Managers are unable to thank employees for their good work.
(d)   The manager doesn’t understand his or her responsibilities and is hoping the employees can cover for him or her.
3)      Democratic or Participative Style leader: The democratic or participative style of leadership implies compromise between the two extremes of autocratic and laissez-fair style of leadership. Under this style, the supervisor acts according to the mutual consent and the decisions reached after consulting the subordinates. Subordinates are encouraged to make suggestions and take initiative. It provides necessary motivation to the workers by ensuring their participation and acceptance of work methods. Mutual trust and confidence is also created resulting in job satisfaction and improved morale of workers. It reduces the number of complaints, employee's grievances, industrial unrest and strikes. But this style of leadership may sometimes cause delay in decisions and lead to indiscipline in workers.
(a)    Positive work environment
(b)   Successful initiatives
(c)    Creative thinking
(d)   Reduction of friction and office politics
(e)   Reduced employee turnover
(a)    Takes long time to take decisions
(b)   Danger of pseudo participation
(c)    Like the other styles, the democratic style is not always appropriate. It is most successful
(d)   when used with highly skilled or experienced employees or when implementing operational changes or resolving individual or group problems.
4)      Paternalistic Style leader: This style of leadership is based upon sentiments and emotions of people. A paternalistic leader is like a father to these subordinates. He looks after the subordinates like a father looks after his family. He helps guides and protects all of his subordinates but under him no one grows. The subordinates become dependent upon the leader.
7. (a) Briefly explain the traditional and modern techniques of control.                                                                                12
Ans: Techniques of Control or Methods of Establishing Control
A number of techniques or tools are used for the purpose of managerial control. Some of the techniques are used for the control of the overall performance of the organisation, and some are used for controlling specific areas or aspects like costs, sales, etc. The various techniques of control can be classified into categories, viz.,
(1) Traditional or Conventional techniques and
(2) Modern or Contemporary techniques.
Traditional Techniques
(a)   Budgetary Control: According to J.A. Scott, “Budgetary control is the system of management control and accounting in which all operations are forecasted and so far as possible planned ahead, and the actual results compared with the forecasted and planned ones”.
(b)   Standard Costing: According to the ICMA, England, “Standard cost is a pre-determined cost which is calculated from management’s standards of efficient operation and the relevant necessary expenditure”.
(c)    Break-even Analysis or Cost-Volume-Profit Analysis: Cost-Volume-Profit Analysis or Break-even Analysis is the study of the interrelationship between the cost (i.e., cost of production), volume (i.e., the volume of production and sales), the prices and the sales value, and the profits. In other words, it is the study of the inter-relationship between the cost (i.e., cost of production), volume (i.e., volume of production and sales), prices (i.e., selling prices) and profits.
(d)   Inventory Control: Inventory is the stock of raw materials, work-in-progress, finished goods, consumable stores and spare parts and components at any given point to time. So, inventory control means control over different items of inventory or stock. “It is defined as physical control of stock items and implementing the principles and policies relating thereto”.
(e)    Internal Audit: Internal audit is a continuous and systematic review of the accounting, financial and other operations of a concern by the staff specially appointed by the management for the purpose. In other words, it is the auditing for the management conducted by the staff specially appointed for the purpose to ensure that the work of the concern is going on smoothly, efficiently and economically.
(f)     Statistical Data Analysis: It is a technique under which statistical data of the past and the present relating to the important aspects of the business are used for managerial control. The statistical data are collected from books and registers of the concern and presented to the management in a systematic manner in the form of tables, charts, graphs, etc.,
(g)   Personal Observation: Under the technique of personal observation, the managers keep a close personal observation of the employees. In other words, the manager observes whether the workers are doing what they are expected to do.
(h)   Production Planning and Control: According to S. Elon, “Production planning and control may be defined as the direction and co-ordination of the firm’s material and physical facilities towards the attainment of pre-specified production goals in the most efficient and valuable way”.
Modern Techniques
(a)    Financial Statement Analysis: Financial statements are a means of managerial control. They can be used by the management for measuring and controlling the profitability, liquidity and the financial position of the business. By comparing the financial statement of the current year with those of the previous years and also by comparing the financial statement of their concern with those of other concerns engaged in the same industry.
(b)   Return on Investment Control: Profits are the measure of overall efficiency of business. Profit earned in relation to the capital employed in a business is an important control device. ROI is used to measure the overall efficiency of a concern. It reveals how well the resources of a concern are used, higher the return better are the results.
(c)    Management Information System (MIS): Management Information System (MIS) is an approach of providing timely, adequate and accurate information to the right person in the organisation which helps in taking right decisions.
(d)   Management Audit: Management audit is an investigation by an independent organisation to find out whether the management is carried out most effectively or not. In case there are drawbacks at any level then recommendations should be given to improve managerial efficiency.
(e)   Zero-Base Budgeting (ZBB): In the words of Peter A Pyher, “Zero-base budgeting is a planning and budgeting process which requires each manager to justify his entire budget request in detail from scratch and shifts the burden of proof to each manager to justify why he should spend money at all. The approach requires that all activities be analysed in ‘decision packages’ which are evaluated by systematic analysis and ranked in order of importance”. From his definition, it is clear that Zero-base budgeting is a technique of preparing the budget in which the previous year is not taken as the base, and every year is taken as a new year for preparing the current year’s budget.
(f)     Human Resources Accounting: The American Accounting Association has defined human resources accounting as “the process of identifying and measuring data about human resources and communicating this information to interested parties”.
(g)    Responsibility Accounting: Responsibility Accounting is defined as “a system designed to accumulate and report costs by individual levels of responsibility. Each supervisory area is charged only with the cost for which it is responsible and over which it has control.”
(b) “Trying to control everything may end up in controlling nothing.” Discuss.                                                  12
Ans: ‘Management by Exception’: Trying to control everything may end up in controlling nothing”. Managers cannot control every organisational activity. This is neither desirable nor possible within the frame of time, money and resource constraints.
If actual performance conforms to planned performance, the matter need not be brought to the notice of top managers. Even when the deviation is not significant (when it is within the range of control), the matter may not be reported to top managers.
However, if deviations are significant (beyond the acceptable range of errors), they should be reported up the hierarchy for managerial action. These deviations may be exceptionally good or bad situations. The principle of ‘management by exception’ states that managers should concentrate only on significant deviations rather than each and every organisational activity.
“The more the managers concentrate control efforts on significant exceptions, the more efficient will be the results of their control.”
Merits of ‘Management by Exception’: The principle of ‘management by exception’ has the following merits:
1. It saves time, effort and money as superiors deal with only exceptional deviations.
2. It leads to development of lower-level managers as they learn to deal with simple and routine problems.
3. It leads to optimum attainment of organisational goals by categorizing the deviations between significant (those that significantly affect organisational objectives) and insignificant (those that do not require top managerial attention).
4. It leads to optimum utilisation of resources as they are concentrated in areas that need managerial attention.
Principles of ‘Management by Exception’: The principle of ‘management by exception’ is closely related to the principle of ‘critical point control’. While critical points determine the areas or elements where control should be exercised, the ‘exception principle’ determines the deviations occurring at the critical points.

It, thus, serves as a performance appraisal technique which identifies significant deviations in the ‘critical points’ and reduces their chances of recurrence.