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IGNOU Solved Question Papers: ECO - 03 (June' 2013) | IGNOU B.Com Solved Question Paper


IGNOU B.Com Solved Question Paper

Term-End Examination (June, 2013)



Time: 2 hours (Maximum Marks: 50)

(Weightage: 70%)

Note: Attempt any five questions.

All questions carry equal marks.

1. (a) Distinguish between 'management' and 'administration'.     5+5

Ans: Difference between management and administration




1. Nature

It is a doing function i.e. implementation of plans.

It is thinking functions i.e., determination of objectives and policies.

2. Scope

Management works within framework of administration.

Administration is a wider term than management.

3. Status

Managers may be employees.

It consists of owners of an enterprise.

4. Level of authority

It is a lower level management function.

It is a top management functions.

5. Skills

Technical and human skills are required.

Conceptual and human skills required.

(b) Explain briefly the modern (systems) approach to management.

Ans: SYSTEMS APPROACH: The systems approach focuses on understanding the organisation as an open system that transforms inputs into outputs. The systems approach began to have a strong impact on management thought in the 1960s as a way of thinking about managing techniques that would allow managers to relate different specialties and parts of the company to one another, as well as to external environmental factors. The systems approach focuses on the organisation as a whole, its interaction with the environment, and its need to achieve equilibrium.

In simple words, a system may be defined as a set a interrelated and interdependent parts forming an organized unit or entity. These parts are known as sub-systems which interact with each other and are subject to change. They are interrelated as well as interdependent. Hence, changes in any sub-system lead to changes in others. Any working organisation may be said to have three sub-systems as follows:

1. Technical Sub-System It represents the formal relationships among the members of an organisation.

2. Social Sub-System: It provides social satisfaction to members through informal group relations.

3. Power Sub-System: It reflects the exercise of power or influence by individuals and groups.

Critical Evaluation of system approach of management

Systems theory has made the following advantages

1. It provides a manager a way of thinking about the job he has to managed and finds an opportunity to him for looking it the organization as a whole and for achieving overall effectiveness.

2. It provides main focus to organizational efforts towards a direction which people should move.

3. It draws attention of managers to an important factor and that is the environment in which an organization works. The interaction with the environment is dynamic.

4. It includes within it focus both micro and macro aspects of the organizations. Hence it serves a multi-level and multi-dimensional approach.

5. It implies that the modern manager should have analytical orientation should be expert in motivating to achieve goals and open mandate to receive and respect new ideas, i.e. creativity and innovation.

6. It also implies that management education must seek to develop the ability to work with and motivate others.

7. The feed back mechanism provides and opportunity to rearrange organizations part according to the change in the environment.

The system theories have been criticized on the following grounds.

1. Systems theory is not a complete explanation of the whole organizational system. It does not explain how the sub-system of the specific organization is uniquely related in a given environment.

2. The conceptional framework for understanding organization provided by system theory is too abstract.

3. It does not really offer any new thing. Managers do understand interrelationship between different parts and the influence of environment on organization and it sub-systems.

2. Why is planning considered important for an organization? What are its limitations?        5+5

Ans: Importance and Advantages of Planning

Planning is of vital importance in the managerial process. No enterprise can achieve its objectives without systematic planning. “Planning is the heart of management” The following points highlight the importance of planning function of management:

a.      Planning provides directions: By stating i n advance how work is to be done, planning provide direction for action. If goals are well defined, employees are aware of what the organisation has to do and what they must do to achieve those goals. Departments and individuals in the organisation are able to work in coordination. Planning keeps the organisation on the right path.  If there was no planning, employees would be working in different directions and the organisation would not be able to achieve its goals efficiently.

b.      Planning reduces the risks of uncertainty: Business enterprises operate in an uncertain environment and face several types of risks. Planning enables these enterprises to predict future events and prepare to face the unexpected events. With the help of planning, managers can identify potential dangers and take steps to overcome them. Thus, planning helps risk and uncertainty.

c.       Planning facilitates decision-making: Decision-making involves searching for various alternative courses of action, evaluating them and selecting the best course of action. Under planning, targets are laid down. With the help of these targets, managers can better evaluate alternative courses of action and select the best alternative. Plans lay down in advance what is to be done and how it is to be done. Therefore, decisions can be taken with greater confidence.

d.      Planning reduces overlapping and wasteful activities: Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions. There is no confusion and misunderstanding. Useless and redundant activities are minimized or eliminated. It is easier to detect inefficiencies and take corrective measures to deal with them.

e.       Planning promotes innovative ideas: Planning is thinking in advance and, therefore, there is scope of finding better ideas and better methods and procedures to reach the objectives/goals of the enterprise. This forces managers to think differently about the future of the organisations from the present. Thus, planning makes the managers innovative and creative.

f.        Planning establishes standards for controlling: Planning provides the goals or standards against which the actual performance can be measured and evaluated. A comparison of actual performance with the standards helps to identify the deviations and to take corrective action. Planning makes control meaningful and effective. ‘Control is blind without planning.” Thus, planning provides the basis of control.

Limitations of Planning

Planning is essential for a business organisation. It is difficult to manage operations without formal planning. It is important for the organisation to move towards achieving goals. But often things to not always go according to plan. Unforeseen events and changes, rise in costs and prices, environmental changes, government interventions, legal regulations, all affect our business plans. Plans then need to be modified. Therefore, planning might fail due to the following limitations:

a.      Planning does not work in dynamic environment: The business environment is dynamic, nothing is constant. The environment consists of a number of dimensions— economic, political, technological, legal and social dimensions. The organisation has to constantly adapt itself to the changes in business environment. However, it is not always possible to accurately assess future trends in the environment.

                                             i.      Competition in the market can upset financial plans.

                                           ii.      Sales targets have to be revised and according is cash budgets also need to be modified since then are based on sales figures.

Thus, planning cannot foresee everything and thus these are obstacles to effective planning.

b.      Planning is a time consuming process: Planning is a time consuming process. It requires collection of information, its analysis and interpretation. These activities may take considerable time. Sometimes plans to be drawn up take so much of time that there is not much time left for implementation of plans.

c.       Planning involves huge costs: Planning is an expensive process in terms of money. When plans are drawn up, huge costs are involved in the formulation of plans. If the costs are not justified by the benefits derived from the plan, it may have adverse effect on the enterprise. There are a number of incidental costs as well, like expenses on Board’s meetings, discussions with professional experts and preliminary investigations to find out the Viability of the plan.

d.      Planning creates rigidity: Planning leads to rigid mode of functioning for managers. This has adverse effect on the initiative to be taken by them.

e.       Planning does not guarantee success: The success of an enterprise is possible only when plans are Properly drawn up implemental. Managers have a tendency to rely on previously tried and tested successful plans. But it is not always true that a plan which has worked before, will work effectively again.

f.        Planning reduces creativity: Planning is an activity which is done by top management. Usually the rest of the organisation just implements these plans. As a consequence, middle management and other decision makers are neither allowed to deviate from plans nor are they permitted to act on their own. They only carry out orders.

3. Why are policies regarded as standing plans? Outline uses of policies to an organisation.     4+6

Ans: Policies: Policy can be defined as organisation’s general response to a particular problem. In simple words, it is the organisation’s own way of handling the problems. Example: Different business firms may follow different sales policies as stated below: “We don’t sell on credit”; “It is our policy to deal with wholesalers only.

A policy is a standing plan which provides answers to recurring problems of similar nature. It provides answers/guidelines to the members of an organisation for deciding the future course of action. A policy provides and explains what a member should do rather than what he is doing. Polices are models of thought and principles underlying the activities of an organisation.

Uses of Policies in an organisation:

1.       A policy provides guidelines to employee for taking decisions in the framework of a policy. There will be no need of consultation when decisions are taken as per the guidelines of policy.

2.       Delegation of powers to subordinates will be easy if policies are properly framed.  Supervisors will be sure that the subordinates will do anything beyond the power so delegated.

3.       Proper policy formation helps in management in well balanced co-ordination amongst various departments of the organisation. It gives guidelines for taking decisions.

4.       The decision taken by different person in similar situation will have the same impact. All decision makers know the limits of their decisions and they will not go beyond the policy framework.

4. What do you understand by 'Delegation of Authority'? Discuss the principles of delegation.   3+7

Ans: In every organisation managers are assigned lot of work and manager alone cannot perform all the work. So, he divides the work among different individuals working under his according to their qualification and gets the work done from them. After passing the responsibilities the manager also shares some of his authority with his subordinates. To make sure that his subordinates perform all works effectively and efficiently the manager creates accountability and this whole process is known as delegation of authority.

Principles of Delegation of Authority:

a)      Principle of Balance between Authority and responsibility: One of the most principle of delegation of authority is the equality between assigned task and power to do the work. If it is not done, there can be improper use of authority and mismanagement of task by the subordinates.

b)      Principle of absoluteness of accountability: According to this principle, accountability is absolute. It can never be passed or delegated. After creating accountability on subordinates, the superiors also remain accountable.

c)       Principles of absoluteness of responsibility: Authority can be delegated but responsibility cannot be delegated. The superiors who delegates authority himself responsible for his seniors.

d)      Principle of unity of command: According to this principle, subordinates must get instructions from one superior only. Subordinates should take task from one superior and should be accountable towards the superior level of operation.

e)      Principle of scalar chain: Authority flows from top to bottom. So that the scalar chain is the basis on which the relation between superiors and subordinates are based.

5. Explain the McGregor's theory of motivation and state its assumptions.          5+5

Ans: McGregor’s Theory X and Y

Doughlas McGregor introduced these two theories i.e., Theory X and Theory Y, based on two distinct views of human beings. He proposed, at opposite extremes, two pairs of assumptions about human beings which he thought were implied by the actions of the mangers. Theory X deals with one extreme, based on one set of assumptions and Theory y deals with another extreme based on another set of assumptions. These theories are not based on any research, but according to McGregor, these are intuitive deduction.

Theory X: -This theory is based on the traditional approach to human behavior. The assumptions generally, held by the managers in their theory are: -

a)      The average human beings inherently dislike work and will try to avoid it, whenever possible

b)      A the employee are lazy, they must be controlled, coerced, threatened with punishment to achieve goals, to which they are indifferent

c)       Average employee will try to avoid responsibility and seek formal directions whenever possible, because they have relatively little ambition.

Theory y: -This approach assumes that management by direction and control is questionable method for motivating such people whose physiological and social needs have been satisfied and whose social; esteem and self actualization needs are becoming more important. For such people, Theory Y seems to be applicable, which is the contrast of Theory X. This theory makes the following assumptions about people:

a)      The average human being does not inherently dislike work. He can view work as natural or enjoyable as rest or play

b)      Employees will exercise self direction and self control in the attainment of the objectives to which they are committed

c)       Given proper working conditions, average person can learn to accept and even to seek responsibility

d)      Commitment to objectives is a function of the rewards associated with their achievement

e)      All the people are capable of making innovative and creative decision and the decision making is not the sole province of the people in management position.

6. Explain clearly the meaning of the term ‘Morale’. Discuss the factors that influence the morale of employees in an organization.      3+7 (Out of Syllabus)

7. (a) How shall you make the ‘communication effective in your organization ?        5+5

Ans: Meaning of Effective Communication

Communication becomes effective when the receiver understands the meaning of the message as the sender intends. All communication attempts may not be effective. Certain barriers and problems may cause communication failure. When information is received timely, exact meaning of the message is understood and proper feedback is given, communication becomes effective. Consequently, to make an effective communication, the following qualities of communication are needed:

1. Timely receiving.

2. Understanding exact meaning of the message.

3. Proper feedback is given by the receiver to the sender.

R.W. Griffin mentioned about Effective Communication, "Effective communication is the process of sending a message in such a way that the message received is as close in meaning as possible to the message intended."

How Communication is made effective?

Communication becomes effective when the receiver understands the meaning of the message as the sender intends. To make communication effective, the following rules should be involved:

1. Specific Purpose: The sender must be clear about the specific purpose that he wants to communicate to the receiver.

2. Study the Listener: The sender must study the interest and attitude of the receiver to make communication effective more.

3.  Organization of Idea or Thought: The communicator must make up a plan about how he is going to communicate. He must organize his thoughts and ideas in advance.

4. Proper Transmission of Message: The message must be transmitted in such a way that it is accepted by the listener or reader with interest.

5. Personal Touch: The personal element is the keynote of communication. Sender's sincerity & sympathy influence the listener a lot. 

6. Mutual Understanding: A mutual understanding should be established between the sender and receiver of the message.

7. Awareness of the Need for Effective Communication: The sender and receiver of communication must be aware to make communication meaningful.

8. Provision for Feedback: When message is sent to the receiver, there must be a feedback to the sender. Two way communications creates the best possible feedback.

9. Selection of a Good Channel: The sender of message must select an effective and formal channel to communicate with the receiver.

10. Active Listening: This provides proper feedback to the sender to complete the communication process.

(b) State the barriers you, as a manager of a large organization, may face in making the communication effective.

Ans: Types of Barriers in communication: The barriers to communication in an organization may be broadly categorized into following groups:

1. Physical barriers (RECEIVER’S ORIENTED)

2. Socio- psychological or personal barriers (RECEIVER’S ORIENTED)

3. Organizational barriers (SENDER’S ORIENTED)

4. Semantic barriers (SENDER’S ORIENTED)

5. Mechanical barriers (SENDER’S ORIENTED)

However, such a classification does not suggest that these are mutually exclusive. Rather, it is helpful in understanding the nature of communication barriers.

1. Physical Barriers: There are the environmental factors that also obstruct or reduces the sending and receiving of communication, such as physical distance distracting noises and other interferences difficulty arises in communicating a message, when the physical distance increases:-

Noise: Noise is first and foremost barrier to effective communication. Noise may be caused by machines, equipment, communication device, disturbances in the time of transmission etc. noise also encompasses many other factors such as the sender may use ambiguous or confusing signal. The receiver may misinterpret the message. Thus communication is likely to be spoilt due to noise.

Time and distance: Time and distance also acts as a barrier in smooth flow of communication. Distance between the sender and receiver acts as a hurdle. Although this barrier can be overcome by technology but still in case of breakdown, this exists. Different timing of shifts at workplace also act as barriers in imparting on vital information.

2. Socio-psychological or personal Barriers: There are certain socio psychological factors which restrict the free flow of communication. They are the attitude and opinions, status consciousness, ones relations with fellow workers, seniors, and junior’s etc. family background. These restrict participative communication:

I. Motives, attitudes, judgments, emotions, and social values of people from the part of the personal barriers. Psychological distance is also developed with this.

II. Individual Differences: There are differences in the motives, attitudes and sentiments of the people. So this causes problems in encoding and decoding other’s sentiments, attitudes and motives.

III. Differences in interest: The interest of people also differs. A problem may be important for one person but may not carry weight for another. The ideas, question, attitudes, feelings etc of other party may represent an obstacle to one’s own personal goal.

IV. Division of People: Communication is ideas and viewpoint also gets affected by the division of people into classes, castes and communities.

V. Difference of viewpoints: Communication suffers when there are differences in view point of the different people.

VI. Lack of planning: Good communication never happens but has to be planned. When people take it lightly and communicate without planning it turns into miscommunication or mal communication.

VII. Cultural barriers: Due to difference in the cultural background the same word, phrases, symbols, actions etc. may mean different to different group of people. Mis understanding may take place due to this.

3. Organizational Barriers: Organisational barriers arise due to defects in the organization structure and the communication system of an organization:

I. Hierarchical distance: Downward communication promotes hierarchical distance. The chances of information being filtered are more at this structure, because there are several layers. Information received from the top may not reach at bottom in the same shape. The information gets coloured which brings hierarchical distance.

II. Diversion: Diversion of information is also one of the causes which brings barrier to communication process. For example sometimes a manager diverts the information meant for one person or group to another.

III. Colouring: Information are also coloured by the manager intentionally with a view to twist the situation in their favour. For example, an office may quote his subordinate wrongly, to spoil his career or his chance of promotion or his image in the eyes of the boss.

IV. Status barriers: Status is a barrier of communication in a formal organization. Organizational interaction and communication are influenced by the status and the expectations.

V. Goal conflicts: Goal conflict acts as communication reducers. Different goal lead to bifurcation of interest. Due to this communication suffers.

4. Semantic Barriers: Semantic means the relationships of signs of their reference. Semantic barrier arises from the disadvantages of the symbolic system. Symbols have got number of meaning and one has to choose any one of them according to the requirement of communication. Symbol or the language is the most important tool of communication which has to be used very carefully:-

I. Words with different meaning: Some words convey more than one meaning. When the receiver assigns a different meaning to a word than what the sender intended, there occurs miscommunication.

II. Denotation and connotation: Words have two types of meaning = Denotation and connotation. Denotation is the literal meaning of the words connotation are the suggestive meaning of the words. Connotation is the suggestive meanings of the words. Connotation may be positive or negative.

III. Offensive style of communication: Badly expressed messages lose their impact. Offensive style of communication leads to communication breakdown causing loss of time and money.

IV. Wrong assumptions: Communication should not be based on assumption as it may lead to wrong interpretation. All possible efforts should be made to clarify assumptions.

V. Selective perception: many a time the message is decoded by the receiver in a way which may be selective. In other words most of the receivers protect their own interest and expectations leading to a particular type of feedback which becomes a communication problem.

5. Mechanical Barriers: Mechanical barriers include inadequate arrangement for transmission of news, facts and figures. Example poor office layout and defective procedure and the use of wrong media led to poor communication.

I. Information overload: Excess of communication is called information overload. Brevity is the soul of communication. The receiver cannot comprehend and absorb beyond his mental capacity. His mind will remain closed for the excess part of the communication. Therefore one should be brief and to the point.

II. Loss of transmission: When messages are transmitted from person to person they are filtered. In other words they are diluted and distorted on the way. In oral communication about 30% of the information is lost in each transmission.

8. Explain clearly the meaning of the term 'Budgetary Control'. Describe the characteristics of 'Budgetary Control'.      5+5

Ans: Budgetary control is the process of preparation of budgets for various activities and comparing the budgeted figures for arriving at deviations if any, which are to be eliminated in future. Thus budget is a means and budgetary control is the end result. Budgetary control is a continuous process which helps in planning and coordination. It also provides a method of control.

According to Brown and Howard “Budgetary control is a system of coordinating costs which includes the preparation of budgets, coordinating the work of departments and establishing responsibilities, comparing the actual performance with the budgeted and acting upon results to achieve maximum profitability”.

Features of Budgetary Control:

A budgetary control system can be defined as the establishment of budgets relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision.

The salient features of such a system are the following:

(a)    Objectives: Determining the objectives to be achieved, over the budget period, and the policy or policies that might be adopted for the achievement of these ends.

(b)    Activities: Determining the variety of activities that should be undertaken for the achievement of the objectives.

(c)     Plans: Drawing up a plan or a scheme of operation in respect of each class of activity in physical as well as monetary terms for the full budget period and its part.

(d)    Performance evaluation: Laying out a system of comparison of actual performance by each person, section or department with the relevant budget arid determination of causes for the discrepancies, if any.

(e)    Control Action: Ensuring that corrective action will be taken where the plan is not being      achieved and, if that is not possible, for the revision of the plan.


9. Write short notes on any two of the following: 5+5

(a) Relationship between Authority and Responsibility

Ans: Difference Between Authority and Responsibility




1. Meaning


2. Origin


3. Flow

4. Delegation


5. Period


6. Nature

7. Termination

a)         It is a legal right to command and control subordinates.

b)         It arises either from a formal contract or legal provision.

c)          Authority always flows downward.

d)         Authority can be delegated and shared.


e)         It may continue. It has longer period than responsibility.

f)          It is power.

g)         Authority can be terminated by giving a notice.

a)      It is the obligation of a sub-ordinate to perform the work assigned by his superior.

b)      It arises from a superior-subordinate relationship.

c)       Responsibility always flows upward.

d)      Responsibility can be assigned but not delegated.

e)      It comes to an end o the completion of the task.

f)       It is duty.

g)      It cannot be terminated so easily.

(b) Qualities of a successful leader

Ans: Qualities of a Good Leader

1.       Patience: Patience is the capacity to face difficult situations, hardships or inconvenience without making a single complaint. A good leader must show patience while waiting for expected results, facing difficult situations and taking important decisions. He must avoid taking hasty decisions and actions.

2.       Good Personality: A good personality is a combination of physical, mental and social qualities. Good personality helps a leader to influence his followers. Attractive physique and good manners add an advantage to the leader's personality.

3.       Self-confidence: A good leader must have self confidence. This quality is necessary for facing challenging situations and for solving problems easily and effectively.

4.       Human Skills: A good leader must have essential social and human skills. That is, he must understand people. This quality is necessary for dealing with different types of persons and social groups.

5.       Judgment skills: A good leader should be able to examine problems in right perspective. His judgment and decision making abilities should be superior to others. He should be able to form opinions and judge based on facts and not be prejudiced

6.       Communication skills: A good leader should be able to communicate the goals and procedures of the organisation clearly, precisely and effectively to the subordinates. Only then will it be possible for him to convince, persuade and stimulate subordinates to action.

7.       Listening skills: People tend to avoid a leader who does not listen. Hence a good leader in one who can listen to other peoples problems. He should be able to create a culture whereby people can be frank with him and give him information and also give him feedback about himself, which can help him to improve himself.

(c) Managerial functions

Ans: Functions/Elements of Management

According to Henry Fayol, in every organisation manager perform certain functions to achieve results. These functions are broadly classified under five categories:-

a)      Planning: Planning is a process of making decision about future. It provides direction to enterprise activities. Its work is to decide in advance what is to be done, when and where it is to be done, how it is to be done and by whom. The main functions of planning are Set up goals, Forecasting, Search for alternatives source of action and Budgeting.

b)      Organising: It is concerned with the arrangement of an organisation’s resources – people, material, technology and finances in order to achieve enterprise objective. The main functions of organising are Job design, Job specification and Authority and responsibility.

c)       Staffing: Staffing is the function of employing suitable personas for the enterprise. It may be defined as an activity where people are recruited, selected, trained, developed, motivated and compensated for manning various positions.

d)      Directing: According to Dale, direction is telling people what to do and seeing that they do it to the best of their ability. Directing is a function of guiding and supervising the activities of sub ordinates. The four main elements of directing are:-

1. Leadership: It is a process of influencing the action of a person or a group to attain desired objectives. The success of an organisation depends upon the quality of leadership shown by its managers.

2. Motivation: It is the process of stimulating people to take desired courses of action. It is to inspire, encourage and impel people to take required action.

3. Communication: It is a way of reaching other with ideas, facts, and thoughts. Effective communication is important in organisation because managers Can achieve very little without it.

e)      Controlling: It is the management function concerned with monitoring employee’s activities, keeping the organisation on track towards its goals, and making corrections as required. It include four things:

Ø  setting standard of performance;

Ø  measuring actual performance;

Ø  comparing actual performance against the standard ;

Ø  taking corrective actions to ensure goal accomplishment.

(d) Job description and job specification

Ans: Job description: Job description is an organized, factual statement of the duties and responsibilities of a specific job. It should tell what is to be done, how it is done, and why. It is a standard of function. It defines the authorized content of the job. It contains : job title, location, job summary, duties, machine, tools and equipments, materials used, supervision given or received, working conditions, hazards etc.

Job specification: A statement of the minimum acceptable human qualities necessary to perform a job properly. It is a standard of personnel and designates the qualities required for acceptable performance. A statement of human qualifications necessary to do the job. Usually contains such items: education, experience, training, judgement, initiative, physical effort, physical skills, communication skills, emotional characteristics, sensory demands such as sight, smell, hearing and many others depends upon the nature of job.

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