NOTES

(PRINCIPLES OF MANAGEMENT)
MODULE-I: INTRODUCTION

Q: What is POSDCORB? Who coined the term?

P –Planning. O – Organising, S – Staffing, D – Directing, C – Coordinating, O –Organising, R
–Reporting and B – Budgeting. This term is coined by L. Gullick and L. Urwick

Q: Implementation of plan is the function of which level of management?

Middle Level Management/ Lower level mgt.

Q: At which level business policy is framed? Top Level

Q: Management is intangible and dynamic. (True or false) True

Q: Who authored “The Principles and Methods of Scientific Management”? Ans: F. W.

Taylor

Q: Who is called the father of administrative management theory of 14 principles of

management? Ans: Henry Fayol.

Q: What is meant by Management principles?

Ans: Principles of Management are the statements of fundamental truth which provide
guidelines which help management to take decisions and action. They are derived from
observation and experimental studies.

**Q: Define Management.

Management can be defined as the process of planning, organising, staffing, directing and
controlling such that the goals of the organisation are achieved successfully with minimum cost
and resources.
According to Harold Koontz, “Management is an art of getting things done through others and
with formally organised groups."

Q: Define Scientific management.

Scientific Management may be defined as the scientific study and analysis of work, scientific
selection and training of employees, standardization and scientific rate setting. It is an art of
knowing exactly what a manager wants his workers to do and seeing it that they do it in the
best and cheapest way.

Q: What is authority?
Authority can be defined as the power and right of a person to use and allocate the resources
efficiently, to take decisions and to give orders so as to achieve the organizational objectives.
Authority must be well- defined.
Q: What is Span of Control?
Span of control refers to the number of persons which a manager can effectively supervise.
According to this principle, the span of control must be limited because the physical and mental
capabilities of a manager are rather limited.

Q: What is controlling in management?

Control is a primary goal-oriented function of management in an organisation. It is a process
of comparing the actual performance with the set standards of the company to ensure that
activities are performed according to the plans and if not then taking corrective action
Q: What are the Characteristics of Management
1. Goal oriented Process It is a goal-oriented process, which is to achieve already specified
and desired objectives by proper utilization of available resources.
2. Pervasive: Management is universal in nature. It is used in all types of organizations whether
economic, social or political irrespective of its size, nature and location and at each and every
level.
3. Multidimensional: It is multidimensional as it involves management of work, people and
operations.
4. Continuous Process: It consists of a series of function and its functions are being performed
by all managers simultaneously. The process of management continues till an organization
exists for attaining its objectives.
5. Group Activity: It is a group activity since it involves managing and coordinating activities
of different people as a team to attain the desired objectives of the organization.

**Q: Discuss the objectives of Management

Objectives of management are divided into four main categories which are stated below:
i) Organisational Objectives: Organisational objectives refer to high priority or core
objectives which are essential for the existence of an organisation. These objectives aim at the
prosperity and growth of the organisation. Organizational Objectives can be divided into
Survival (Earning enough revenues to cover cost); Profit (To cover cost and risk); and Growth
(To improve its future prospects).
ii) Social Objectives: Management is not only a representative of the owners and employees
but is also responsible towards various groups outside the organisation such as consumer,
government, creditors etc. It is to provide quality products at reasonable rates and generating
employment opportunities for disadvantaged sections of society some other social objectives
are stated below:
a) Honest and regular payment of taxes to the government.
b) Using eco-friendly method of production.
c) Fair dealings with suppliers, dealers and competitors.
iii) Personal or individual objectives: These objectives are related to the employees of the
organisation. Employees are the most important resources of every company and satisfied and
motivated employees contribute maximum for the organisations. The main individual
objectives of management are:
a) Competitive salary, personal growth and development.
b) Good and healthy working conditions.
iv) General objectives: Besides the above-mentioned objectives, management tries to achieve
the following objectives:
a) Maximum prosperity for employer and employees.
b) Human betterment and social justice.
c) Economic development and growth.

***Q: Explain the importance of management.

Management is the dynamic life giving element in every organization. In its absence, an
organization is merely a collection of men, machines, money and material. The importance of
management is:
a) Optimum Use of Resources: Management always concentrates on optimum utilisation of
resources of the enterprise. The available resources for production put to use in effective way
so as to reduce wastages.
b) Effective leadership and Motivation: In the absence of management, the working of an
enterprise will become unorganised and unsystematic. Management creates teamwork and
motivates employees to work harder and better by providing guidance, counselling and
effective leadership.
c) Achievement of Goals: Objectives can be achieved only when the human and non-human
resources are combined in a proper way. Managers plan carefully, organize the resources
properly, hire efficient people and provide necessary guidance to achieve organisation
objectives.
d) Reduces Costs: In modern time, only those concerns can survive in the market which can
produce better quality product at a minimum cost. Management uses physical, human and
financial resources in such a manner which results in efficiency and effectiveness in the work.
This helps in reducing cost of production.
e) Effective and smooth running of business: Management ensures efficient and smooth
running of business through better planning, sound organisation and effective control of the
various factors of production.
f) Provide innovation: Management gives new ideas, imaginations and visions to the
enterprise.
g.Development of Society: Management helps in the enhancement of community by
manufacturing reliable quality commodities, establishing employment chances and fostering
innovative technologies.
h. Establishes equilibrium: Management helps the organisation survive in a changing
environment. The initial coordination of the organisation should keep changing with the change
in the external environment. Management helps the organisation adapt to changes in both
demands in the market and changes in the needs of society. Management establishes
equilibrium and is irresponsible for the growth and survival of the organisation.
Q: Explain the 14 Principles of Administrative Management
Henry Fayol, also known as the ‘father of modern management theory’ gave a new perception
of the concept of management. The fourteen principles of management created by Henri Fayol
are explained below.
1. Division of Work: The entire work of the organisation should be divided among individuals
and departments. This is because a division of work leads to specialisation, and specialisation
increases efficiency and efficiency leads to increased productivity and profitability of the
organisation.
2. Discipline: Discipline means a respect for the rules and regulation of the organisation.
Discipline may be Self-discipline, or it may be Enforced discipline. However, if there is no
self-discipline, then discipline should be enforced through penalties, fines, etc.
3. Parity between Authority and responsibility: According to Henry Fayol, there should be
a balance between Authority (Power) and Responsibility (Duties). Authority must be equal to
Responsibility. If the authority is more than responsibility then chances are that a manager may
misuse it. If responsibility is more than authority then he may feel frustrated.
4. Subordination of Individual Interest to General Interest: In an organisation, there are
two types of interest, viz., the individual interest of the employees, and the general interest of
the organisation.
5. Fair Remuneration to Workers: Remuneration is the price for services received. If an
organisation wants efficient employees and best performance, then it should have a good
remuneration policy.
6. Centralisation: Centralisation refers to concentration of power or authority in few hands
i.e., top level. Decentralisation is defined as systematic distribution of authority at every level
of management.
7. Order: There should be an Order for Things and People in the organisation. Order for things
is called Material Order. Order for people is called Social Order. Material Order refers to "a
place for everything and everything in its place." Social Order refers to the selection of the
"right man in the right place".
8. Equity: The managers should use the equity while dealing with the employees. Equity is a
combination of kindness and justice. Equity creates loyalty and devotion in the employees.
9. Initiative: Management should encourage initiative. That is, they should encourage the
employees to make their own plans and to execute these plans.
10. Esprit De Corps: Esprit de Corps means "Team Spirit". Therefore, the management should
create unity, co-operation and team-spirit among the employees. They should avoid the divide
and rule policy.
11. Stability of Tenure: An employee needs time to learn his job and to become efficient.
Therefore, he should be given time to become efficient. In other words, the employees should
have job security.
12. Unity of Direction: All activities which have the same objective must be directed by one
manager, and he must use one plan. This is called Unity of Direction.
13. Scalar Chain: Scalar Chain is a line of authority ranging from top to bottom level of
management. This line joins all the members (managers and employees) from top to bottom.
Scalar Chain is necessary for good communication. Scalar Chain must not be broken in norm
circumstances.
14. Unity of Command: According to this principle, a subordinate (employee) must have only
one superior (boss or manager). A subordinate must receive orders from only one superior. In
other words, a subordinate must report to only one superior.

*Q: Discuss the Functions of Management.

1.Planning: Planning is the process of selecting the objectives and determining the course of
action required to achieve these objectives. In other words, it is thinking in advance what to do,
when to do, and who is going to do it. It bridges the gap between where we are and where we
want to reach.
2.Organising: Organizing is the process of identifying and grouping of activities required to
attain objectives, delegating authority, creating the responsibility and establishing relationship
for the people to work effectively.
3. Staffing: Staffing is the part of the management process which is concerned with the
procurement utilization, maintenance and development of large satisfied work force on the
organization. It refers to recruitment, selection, training, development and appointment of the
employees.
4.Directing: Directing may be defined as the process of instructing, guiding and inspiring
human factors in the organization objectives. It is not only issuing orders and instructions by a
superior to his subordinates but also including process of guiding and inspiring them to work
effectively. It refers to guiding, instructing, inspiring and motivating the employees.
5.Controlling It is the measurement and correction of performance in order to make sure that
enterprise objectives and the plans devised to attain them are accomplished. Controlling is
monitoring the organizational performance towards the attainment of the organizational goals.

***Q: Distinguish between management and administration.

Basis of Management Administration
Difference
i. Meaning Management is defined as an act The administration is a systematic process
of managing people and their of administering the management of a
work, for achieving a common business organization, an educational
goal by using the organization’s institution like school or college,
resources. It creates an government office or any non-profit
environment under which the organization. The main function of
manager and his subordinates can administration is the formation of plans,
work together for the attainment policies, and procedures, setting up of
of group objective. It is a group of goals and objectives, enforcing rules and
people who use their skills and regulations, etc.
talent in running the complete
system of the organization. It is an
activity, a function, a process, a
discipline and much more.
 ii. Nature Management is an executing Administration is a decision-making
function. function.

iii. Applicability It is applicable to business It is applicable to non-business concerns

concerns i.e. profit-making i.e. clubs, schools, hospitals etc.
organization.

iv. Influence The management decisions are The administration is influenced by public
influenced by the values, opinion, govt. policies, religious
opinions, beliefs & decisions of organizations, customs etc.
the managers.
v. Authority Management has middle level and Administration has top level authority
lower level authority
vi. Represents Management represents the The administration represents the owner,
employees, who work for who receives the return on capital
remuneration in an organization invested by him in an organization

vii. Decides Management decides who will do Administration decides what should be
the work? done?
And how will it be done? And When is should be done?

viii. Area of Management works under the Administration has full control over all
operation administration of an organization the activities of the organization

MODULE-II: FINANCIAL MANAGEMENT

*Q: What is financial plan or planning?
Financial planning is the process of assessing the current financial situation of a business to
identify future financial goals and how to achieve them. The financial plan itself is a document
that serves as a roadmap for a company’s financial growth. It reflects the current status of the
business, what progress they intend to make, and how they intend to make it. Financial plans
include budgets, but the terms are not interchangeable. Budgets are just one piece of a financial
business plan, which should also include other important information that contribute to a
complete picture of a business’ financial health, such as detailed, itemized breakdowns of
company assets; typical expenditures; and forecasts of income, cash flow, and revenue.

Q: What is financial management?

It is the application of planning and control functions of the finance function.

*Q: Define Fixed capital and working capital.

Every business needs funds for two purposes — for its establishment and to carry out its day-
to-day operations. Long term funds are required to create production, facilities through
purchase of fixed assets such as plant, machinery land, building, furniture etc. investment in
these assets- represent that part of firm's capital which is blocked on a permanent or fixed basis
and is called fixed- capital.
Funds are also needed for short term purposes for the purchase of raw materials, payment of
wages and other day to day expenses etc these funds are working capital funds. Hence it is also
known as "revolving .or circulating capital or short term capital."

Q. What do you mean by gross working capital?

Firm investment in current assets is called gross working capital.
Q. What is net working capital?
The difference between current assets and current liabilities are called as net working capital.
Q. What is fixed working capital / permanent Working Capital?
It is the minimum amount of working capital required to ensure are carry out normal business
operations.

**Q. What are the sources of working capital or sources of finance?

1. Internal Sources:
a. Retained Profits: Accumulated earnings retained within the business and reinvested to
support ongoing operations.
b. Accumulated Depreciation: The portion of asset value depreciated over time, which can
be leveraged as working capital.
2. External Sources:
a. Short-Term Sources:
i. Loans from Commercial Banks: Short-term loans extended by commercial banks to
finance immediate operational needs, often secured against collateral.
ii. Public Deposits: Funds raised from the public through deposits, typically offering higher
interest rates compared to traditional bank deposits.
iii. Trade Credit: Credit extended by suppliers or creditors to facilitate purchases of goods or
services on deferred payment terms.
iv. Bill Discounting: Discounting of accounts receivable or bills of exchange to secure
immediate cash flow by selling outstanding invoices to financial institutions at a discount.
v. Bank Overdraft: An agreement with a bank allowing businesses to withdraw funds
exceeding their account balance, providing flexibility in managing cash flow.
vi. Advances from Customers: Prepayments received from customers for goods or services,
serving as a source of short-term financing without incurring interest expenses.
vii Commercial Paper: Unsecured, short-term debt instruments issued by corporations to raise
funds for working capital needs.
b. Long-Term Sources:
i. Share Capital: Capital raised by issuing shares to investors, representing ownership stakes
in the company.
ii. Long-Term Loans: Loans with extended repayment periods, often used to finance large-
scale projects or capital investments.
iii. Debentures: Fixed-interest debt instruments issued by companies to investors, typically
secured against company assets.
iv. Equity Funds: Funds raised by issuing equity securities, such as common stock, to
investors in exchange for ownership interests.

***Q: Explain the characteristics or principles of Sound Financial Plan.

(1) Simplicity: A sound financial structure should provide simple financial structure which
could be managed easily and understandable even to a layman. “Simplicity’ is an essential sine
qua non which helps the promoters and the management in acquiring the required amount of
capital. It is also easy to work out a simple financial plan.
(2) Foresight: Foresight must be used in planning the scope of operation in order that the needs
for capital may be estimated as accurately as possible. A plan visualised without foresight spells
disaster for the company, if it fails to meet the needs for both fixed and working capital. In
simple words, the canon of foresight means that besides the needs of ‘today’ the requirements
of ‘tomorrow’ should also be kept in view.
(3) Flexibility: Financial readjustments become necessary often. The financial plan must be
easily adaptable to them. There should be a degree of flexibility so that financial plan can be
adopted with a minimum of delay to meet changing conditions in the future.
(4) Optimum use of funds: Capital should not only be adequate but should also be
productively employed. Financial plan should prevent wasteful use of capital, avoid idle
capacity and ensure proper utilisation of funds to build up earning capacity of the enterprise.
There should be optimum utilisation of available financial resources. If this is not done, the
profitability will decline. There should be a proper balance between the fixed capital and the
working capital.
(5) Liquidity: It means that a reasonable percentage of the current assets must be kept in the
form of liquid cash. Cash is required to finance purchases, to pay salaries, wages and other
incidental expenses. The degree of liquidity to be maintained is determined by the size of the
company, its age, its credit status, the nature of its operations, the rate of turnover etc.
(6) Anticipation of contingencies: The planners should visualise contingencies or emergency
situations in designing their financial plan. This may lead to keeping of some surplus capital
for meeting the unforeseen events. It would be better if these contingencies are anticipated in
advance.
(7) Economy: The financial open be made in such a manner that the cost of capital procurement
should be minimum. The capital mobilised should not impose disproportionate burden on the
company. The fixed dividend on preference shares, the interest on loans and debentures should
be related to the earning capacity. The fixed interest payments should not reduce the profits of
the company and hamper its sustained growth.

Q: Explain the importance of Sound Financial Plan.

An organization that engages in sound financial planning can experience a wide range of
benefits that contribute to its long-term success and stability. Here are some key advantages or
importance:
1. Financial Stability: Sound financial planning helps an organization maintain stable
financial health. It ensures that the organization has enough funds to cover its operational
expenses, pay off debts, and invest in growth opportunities, reducing the risk of financial crises.
2. Risk Management: Financial planning involves assessing and mitigating financial risks. By
identifying potential risks and developing strategies to manage them, an organization can avoid
or minimize the impact of adverse events, such as economic downturns or unexpected
expenses.
3. Resource Allocation: Effective financial planning helps an organization allocate its
resources efficiently. It ensures that funds are allocated to projects, departments, or investments
that are likely to yield the highest return on investment (ROI) or align with strategic goals.
4. Cash Flow Management: Sound financial planning helps an organization manage its cash
flow effectively. It ensures that there is enough liquidity to cover day-to-day expenses and
obligations, reducing the risk of cash shortages.
5. Investment and Growth: Financial planning helps organizations identify opportunities for
growth and expansion. It provides a framework for allocating resources to new projects,
acquisitions, or market expansion, which can lead to increased revenue and market share.
6. Debt Management: If an organization has debt, financial planning can help manage and
reduce it strategically. This includes planning for debt repayment and refinancing when
favourable terms are available.
7. Cost Control: Through financial planning, organizations can identify areas where cost
savings are possible. By optimizing operations and reducing unnecessary expenditures, they
can improve profitability.
Q: What is Fund Flow Statement? Five sources and application of funds.
Fund Flow Statement is a statement which lists all the sources of funds and then all the
applications of funds that have taken place in a business enterprise during a particular period
of time for which the statement has been prepared. This statement is also called Statement of
sources and application of funds.

Some sources of funds include:

Issue of Shares, Issue of Debentures, Raising of long term loans and investment, Profit on sale
of assets etc.

Some application of funds include:

Purchase of Fixed Assets, Purchase of investment, Redemption of preference shares,
Redemption of debentures, Payment of dividend, tax etc.

MODULE-III: MARGINAL COSTING

Q: Define marginal cost and marginal costing.
Marginal cost is defined as cost of producing one additional unit. Thus, marginal cost is the
amount by which total cost changes when there is a change in output by one unit. Marginal
Cost means Variable Cost. Marginal cost per unit remains unchanged irrespective of the level
of activity or output. Marginal cost is the sum total of direct material cost, direct labour cost,
variable direct expenses and all variable overheads. Under Marginal Costing technique, only
variable costs are charged to cost units, the fixed costs attributable to a relevant period are
written off in Costing Profit & Loss Account against the contribution for that period.
Q: What are the advantages of marginal costing?
• Simplified Pricing Policy: Since marginal (variable) cost per unit remains constant from
period to period over a short span of time, firm’s decisions on pricing policy can be taken.
• Proper recovery of overheads: Overheads are recovered in costing on the basis of pre-
determined rates. Under marginal costing technique, fixed overheads are excluded and hence
there will be no problem of under or over recovery of overheads.
• Shows Realistic Profit Under Marginal costing technique, the stock of finished goods and
work-in-progress are carried on variable cost basis and the fixed expenses are written off to
profit and loss account. This shows the true profit of the period.
• How much to produce Marginal costing helps in the preparation of break-even analysis
which shows the effect of increasing or decreasing production activity on the profitability of
the company.
• Helps in decision making Marginal costing helps the management in taking a number of
business decisions like make or buy, discontinuance of a particular product, replacement of
machines etc.

Q: Define Contribution.
Contribution is the difference between sales and variable cost or marginal cost of sales. It may
also be defined as the excess of selling price over variable cost per unit. Contribution is also
known as Contribution Margin or Gross Margin. Contribution being the excess of sales over
variable cost is the amount that is contributed towards fixed expenses and profit. Contribution
can be represented as : Contribution = Sales - Variable (Marginal) Cost
(or) Contribution (per unit) = Selling Price-Variable (or Marginal) cost per unit
(or) Contribution = Fixed Costs + Profit (- Loss)

Q: What is Cost-Volume-Profit Analysis?

Cost-Volume-Profit analysis is a technique for studying the relationship between cost, volume
and profit. Profits of an undertaking depend upon a large number of factors. But the most
important of these factors are the cost of manufacture, volume of sales and the selling prices of
the products. It is a technique that may used by the management to evaluate how costs and
profits are affected by changes in the volume of business activities.
Cost Volume Profit analysis is the analysis of three variables i.e. cost, volume and profit. Such
an analysis explores the relationship between costs, revenue, activity levels and the resulting
profit. It aims at measuring variation in cost and volume.

Q: What is PV ratio?
The Profit volume (PV Ratio) is the relationship between contribution and sales. It is also
termed as contribution to sales ratio. Significance of PV Ratio
• PV Ratio is considered to be the basic indicator of the profitability of the business.
• The higher the PV Ratio, the better it is for a business. In the case of a firm enjoying steady
business conditions over a period of years, the PV Ratio will also remain stable and steady.
• If PV Ratio is improved, it will result in better profits.
Q: What is Break-even Analysis?
The study of cost-volume-profit analysis is often referred to as “break-even analysis’ and the
two terms are used interchangeably by many. This is so, because break-even analysis is the
most widely known form of cost-volume-profit analysis. The term “break-even analysis’ is
used in two senses—narrow sense and broad sense. In its broad sense, break-even analysis
refers to the study of relationship between costs, volume and profit at different levels of sales
or production, In its narrow sense, it refers to a technique of determining that level of operations
where total revenue equal total expenses, i.e., the point of no profit, no loss.

Q: What is Margin of Safety?

The excess of actual or budgeted sales over the break-even sales is known as the margin of
safety. It is the difference between actual sales minus the sales at break-even point. It represents
the amount by which sales revenue can fall before a loss is incurred. As at breakeven point
there is no profit no loss, sales beyond the break-even point represent margin of safety because
any ‘sales above the break-even point will give’ some profit. Thus, Margin of Safety = Total
Sales — Sales at Break-even Point.

MODULE-IV: COST ACCOUNTING

Already Given

MODULE-V: CAPITALISATION
*Q: Define Capitalisation.
Capitalization refers to the process of determining the quantum of funds that a firm needs to
run its business. Capitalization is only the par value of share capital and debenture and it does
not include reserve and surplus. According to Guthman and Dougall, “capitalization is the sum
of the par value of stocks and bonds outstanding”.

***Q: What is over capitalisation? What are its causes and effect or consequences?
Overcapitalization occurs when a company has issued more debt and equity than its assets are
worth. The market value of the company is less than the total capitalized value of the company.
An overcapitalized company might be paying more in interest and dividend payments than it
has the ability to sustain long-term. The heavy debt burden and associated interest payments
might be a strain on profits and reduce the amount of retained funds the company has to invest
in research and development or other projects. To escape the situation, the company may need
to reduce its debt load or buy back shares to reduce the company's dividend payments.
Restructuring the company's capital is a solution to this problem.

Causes of Over-Capitalization There are various factors responsible for over-capitalized state
of a company; important among them being as under:
(1) Promotion of a Company with Inflated Assets: A company right from its incorporation
falls prey to overcapitalization if it has been established with assets acquired at higher prices
which do not bear any relation to their earning capacity.
(2) Company Promoted with High Promotion Expenses: Over-capitalisation may
sometimes result because high expenses were incurred in promoting an enterprise and
promoters were fabulously paid high price for their promotional services, particularly when the
earnings of the company do not subsequently justify the capital employed.
(3) Over-estimating Earnings at the Time of Promotion: A mistake in initial estimate of
earnings may subsequently land a corporation into overcapitalisation since capitalisation based
on such an estimate is not justified by income which the firm actually earns
(4) Applying High Capitalisation Rate to Capitalize Earnings: Despite correct estimate of
earnings a company may plunge in state of over-capitalisation if higher capitalisation rate was
applied to determine its total capitalisation. For example, a company’s earning was estimated
at Rs. 10,000 and the industry average rate of return was fixed at 8 percent.
(5) Company Formed or Expanded During Inflationary Period: Generally, companies
started in the days of inflationary conditions turn into over-capitalized concerns afterward when
the inflationary conditions subside because assets were acquired at inflated prices which do not
bear any relation with their earning capacity.
(6) Shortage of Capital: Sometimes, over-capitalisation may be the result of shortage of
capital. Because of underestimation of financial requirements a firm may be capitalized at low
level. This may cause serious problem to the firm subsequently when it experiences shortage
of funds to meet emergent requirements compelling the firm to procure necessary funds at
unreasonably high rate of interest.

The effects of over-capitalisation on the company itself are disastrous in many ways:
(i) Loss of goodwill. In an over-capitalised company, there is a reduced earning
capacity resulting in the fall of market price of its shares and thereby shaking up the
investor’s confidence. A company whose shares sell below the face value may find
it difficult to improve its goodwill in the market.
(ii) (Poor creditworthiness. Reduced earnings of an over-capitalised concern affect its
creditworthiness and as a result, it becomes difficult for it to get loans or credit at
cheaper rates of interest.
(iii) Difficulties in obtaining capital. For a company faced with a situation of over-
capitalisation, it is very difficult to obtain further capital for its growth and
expansion programmes. It is so because the investors have already lost confidence
in the company.

Q: What is under capitalization?

Undercapitalization occurs when a company does not have sufficient capital to conduct normal
business operations and pay creditors. This can occur when the company is not generating
enough cash flow or is unable to access forms of financing such as debt or equity.
Undercapitalized companies also tend to choose high-cost sources of capital, such as short-
term credit, over lower-cost forms such as equity or long-term debt. Investors want to proceed
with caution if a company is undercapitalized because the chance of bankruptcy increases when
a company loses the ability to service its debts. The phrase ‘Under-capitalisation’ should never
be misconstrued with inadequacy of capital. Truly speaking, this term is used to denote the
state of affairs just converse of over-capitalisation.
Causes of Under-Capitalisation The causes of under-capitalisation in a company are as
follows:
(1) Under-Estimation of Initial Earnings If earnings of new venture were under-estimated
and the enterprise was capitalized accordingly, it may find itself in condition of under-
capitalisation afterwards when it’s actual earning was much more than what was anticipated.
(2) Using Low Capitalisation Rate: If low capitalisation rate was employed to determine
capitalisation of a company, it might plunge in state of under-capitalisation subsequently when
it would be found that actual capitalisation rate was much higher than the employed one.
(3) Deflationary Condition: Companies set up in recessionary condition generally become
under-capitalized after recession is over. There are two factors contributing to this tendency.
In the first instance, during recession assets are purchased at exceptionally low prices which
bear no relation with their income producing capacity. As period of recession abates, earning
position of the companies tends to improve.
(4) Conservative Dividend Policy: Company following conservative dividend policy builds
up substantially large funds available for replacement and renovation of obsolete assets and for
financing developmental and expansion purposes. This thus goes a long way in improving
earning position of the company.
(5) Maintaining High Standards of Efficiency: By employing new techniques of production
and rationalization of production activities, operating efficiency of a company can be
improved.

MODULE-VI: MOTIVATION

Q: Define motivation.
Motivation may be defined as a person’s willingness to use his maximum capabilities for the
achievement of certain objectives. Motivation is something that motivates a person into action
and induces him to continue in the course of action enthusiastically. It determines the behaviour
of a person at work.
According to Dalton E. McFarland “Motivation refers to the way in which urges, drives,
desires, aspirations, striving, or needs, direct control or explain the behaviour of human being.”

Q: Write the types Of Motivation

There are two types of motivation.
1. Intrinsic Motivation : It is internal. It occurs when people are compelled to do something
out of pleasure, importance or desire. Motivation is always intrinsic when the force comes from
within oneself.
2. Extrinsic Motivation : It is external. It occurs when external factors compel the person to
do something. Motivation is extrinsic, when external forces, positive or negative produce a
behavioural change. Reward, punishment, prize, blame, etc are examples of extrinsic
motivation.
***Q: Explain the types or methods or techniques of Motivation.
There are a range of motivational techniques that can be used to improve productivity, reduce
workplace stress and increase self-confidence. Five positive and five negative techniques of
motivation or Types of Motivation Techniques.
i. Positive Motivation: This form of motivation is based on rewards and recognition.
Employees are offered incentives and promotions in recognition of their work. A few
techniques of positive motivation are:
a. Appreciation: Appreciation of the work done by an individual is a big motivator. People
being praised at work, in school or university or at home works as a big morale booster and is
an effective non-financial incentive.
b. Healthy Competition: Healthy competition in the workforce inspires them to put in their
best efforts to achieve their personal or group goals. Hence, competition acts as an important
non-financial incentive for employees.
c. Group Incentive: Group incentive helps to boost and steer the team to perform better. It is
more effective than individual incentives to motivate employees. It helps to improve team spirit
among employees and makes the group work together as a team.
d. Participation of Workers: Participation refers to involvement of employee in planning and
decision-making. It helps the employees feel that they are an asset of the organization which
helps in developing ideas to solve the problems Workers feel important that they are being
heard by the management which is a good motivating tool.
e. Growth Opportunity: Individuals like to move ahead in their careers since people are
ambitious and want to grow in their careers. When employees are given growth opportunities
for their career advancement, they feel satisfied and become more committed to their work and
goals.
f. Delegation of authority: Delegation of authority is concerned with the granting of authority
to the subordinates which helps in developing a feeling of dedication to work in an organization
because it provides the employees high morale to perform any task.
g. Quality of work life: It is the relationship between employees’ and the total working
environment of organization. It integrates employee needs and well-being with improves
productivity, higher job satisfaction and great employee involvement. It ensures higher level
of satisfaction.
ii. Negative Motivation
This motivation takes place in the form of punishments. It creates a sense of fear and insecurity
among employees when they are punished, demoted or have to go through layoffs. This makes
employees uncooperative and unwilling to put in their best efforts. Some of the examples are:
Pay-cut, Demotion, Termination, Transfer and Reduced Bonus

Q: Explain the features of sound motivational system.

A sound system of motivation should have the following essential features.
1. A sound motivation system should satisfy the needs and objectives of both
organization and employees.
2. Motivational system should change with the changes in the situation.
3. Jobs should be designed in such a way as to provide challenge and variety.
4. Managers should recruit the active co-operation of subordinates in improving the
organization's output. Subordinates should be made to realize that they are
stakeholders in the organization.
 5. The motivational system should satisfy the different needs of employees. It should be
directly related to the efforts of the employers.
6. The motivational system should be simple so that it is easily understood by the
workers.

Write some importance of motivation.

(i) Best attainment of common objectives: Motivated employees put in their best efforts
towards the attainment of common objectives of the enterprise. As such, motivation not only
facilitates the attainment of objectives; it also leads to their best realization – in terms of time
spent and efforts involved.
(ii) Best utilization of resources: Human factor being the only active factor of production – is
responsible for the best or the worst utilization of resources of the organisation. Motivated
employees make the best utilization of all resources materials, machines, technology and other
physical work facilities; leading to cost minimisation and profit maximization.
(iii) Stability of work force: Motivation, directly and indirectly, results in the stability of work
force; necessitating only the minimum inevitable labour-turnover. In a way, it is only frustrated
employees who are dissatisfied with management; and who think in terms of leaving the
organisation seeking better employment avenues outside.
(iv) Morale and job-satisfaction: A persistent state of high motivation goes a long way in
building up the morale (i.e. a favourable altitude towards work) of employees. Employees with
high morale become dedicated to the organisation and benefit the organisation substantially.
(v) Reduced need for supervision: Motivated employees, in a way, are ‘somewhat’ self-
starters. There is a reduced need for supervision over them; in so far their speed of performance
is concerned. This reduced need for supervision requires a lesser number of managers leading
to a reduction in the managerial cost.
(vi) Easy to Adapt Changes: Motivation helps the managers to introduce changes. The
motivated employees show less resistance in accepting the changes according to changes in the
business environment because they know if the changes are not implements in the organization,
not only the organization will lose by this but the employees also will find it difficult to get
their needs fulfilled. Motivated employees are always supportive and co-operative in accepting
changes in the organization.

MODULE 7: LEADERSHIP

Q: What is Direction?
Direction may be defined as the function of management which is related with instructing,
guiding and inspiring human factor in the organisation to achieve organisational objectives.
The direction is not merely issuing orders and instructions by a superior to his subordinates but
it includes the process of guiding and inspiring them.

Q: Define Leadership.
Leadership is the process of influencing the activities of an individual or a group for goal
achievement in a given situation. It is a process by which a person influences others to
accomplish an objective and directs the organization in a way that makes it more effective and
efficient. Leadership is the ability to influence a group to achieve goals in a given situation.
Thus, the leader is a person in a group who is capable of influencing the group to work
willingly. He guides and directs other people and provides purpose and direction to their
efforts.

Q: What are the different styles of leadership?

The dominant behaviour pattern of a leader-manager in relation to his subordinates is known
as leadership style. There are three basic styles of leadership as follows:
1) Autocratic or Authoritative Style
2) Democratic or Participative Style and
3) Laissez-faire or Free-rein Style.

Q: What is autocratic leadership?

Autocratic leadership is a management style wherein one person controls all the decisions and
takes very little inputs from other group members. Autocratic leaders make choices or decisions
based on their own beliefs and do not involve others for their suggestion or advice.

Q: What is Democratic or Participative Style of leadership?

The democratic style is also known as participative style. In this style, decisions are taken by
the leader in consultation with the subordinates and with their participation in the decision-
making process. The participative leader encourages subordinates to make suggestions and take
initiative in setting goals and implementing decisions.

Q: What is Laissez Faire Leadership Style of leadership?

Laissez faire leadership style is just the opposite of autocratic style. A manager, who adopts
this style, completely gives up his leadership role. The subordinate group is allowed to make
decisions and it is left to the members of the group to Leadership do as they like. The role of
any leader is absent. The group members enjoy full freedom as regards goal-setting and acting
on it.

***Q: What are the qualities of a good leader?

Following are some qualities of a good leader:
A leader cannot be effective unless he possesses certain qualities of head and heart. Irrespective
of the nature of the manager-leader’s own responsibilities of the job and the style adopted by
him, a number of qualities are generally found to be possessed by the effective leader. The
more important of these qualities are listed below :
1) Mental and physical health : To be able to bear the pulls and pressures of leadership,
it is essential for the leader to have sound health both mental and physical. Along with
a balanced temperament and optimistic outlook, he must possess stamina and sound
health.
2) Empathy : A leader must have the capacity to appreciate others and look at things from
his subordinates’ angle. This attitude of the leader motivates his subordinates.
 3) Self-confidence : Confidence about one’s leadership ability makes it possible for a
leader to analyse and face different situations and adopt a style. Lack of self- confidence
often prevents managers to adopt participative style and repose trust in his subordinates.
4) Awareness of others’ opinion about himself : A leader having self-confidence should
not ignore how others perceive him as a leader. He must be aware of his strength and
weakness in relation to his subordinates.
5) Objectivity : A leader who is effective does not get carried away by emotions. He is
fair and objective in his dealings with subordinates.
6) Knowledge and intelligence : A leader to be effective must have knowledge of group
behaviour, human nature, and activities involving technical and professional
competence. He must have intelligent perception of human psychology and ability to
think clearly and argue cogently on points of dispute.
7) Ability to communicate: The skill of effective communication of goals and procedure
of work is extremely important in leadership. To achieve desired results and
coordination of efforts in a group, oral communication is of great significance.
8) Sense of purpose and responsibility: A leader must have clarity of purpose and
responsibility to be able to inspire his subordinates to achieve specific goals.
9) Decisiveness: Decision-making is a necessary but difficult task for every leader. A
leader often has to take initiative and exercise mature judgement while taking decisions.
Besides, he has to have foresight, imagination and creative ideas for effective decision
making. Open minded is yet another essential quality for that purpose.
10) Other qualities: Enthusiasm, courage, sense of direction, judgement, tact, courtesy and
integrity are also regarded as necessary qualities for a leader to be effective.

**What are the different functions of leadership?

A leadership functions of a manager are closely related with his managerial functions. But they
are somewhat different as well as overlapping. Essentially, the leader as a manager has to set
the group goal, make plans, motivate and inspire subordinates and supervise performance. But
he has to perform several other functions as leader. The more important of these functions are
given below:
1) To develop team work: One of the primary functions of the leader is to develop his work-
group as a team. It is his responsibility to create a congenial work-environment keeping in view
the subordinate’s competence, needs and potential abilities.
2) To act as a representative of the work-group : The leader of a workgroup is expected to
act as a link between the group and top management. When necessary, the leader has to
communicate the problems and grievances of his subordinates to the top management.
3) To act as a counsellor of the people at work : Where the subordinates face problems in
connection with their performance at work, the leader has to guide and advise the subordinates
concerned. The problems may be technical or emotional in nature.
4) Time management : The leader’s functions include not only ensuring the quality and
efficiency of work performed by the group, but also checking on the timeliness of completing
different stages of work.
5) Proper use of power : While exercising power or authority in relation to his subordinates,
the leader must be careful about using his power in different ways according to the situation. It
may be necessary to use reward power, coercive power, or expert power, formal or informal
power, depending on what will stimulate positive response from the subordinates.
6) Secure effectiveness of group-effort : To get the maximum contribution towards the
achievement of objectives, the leader must provide for a reward system to improve the
efficiency of capable workmen, delegate authority, and invite participation of employees in
decision-making, ensure the availability of adequate resources, and communicate necessary
information to the employees.

Q: Write some importance of leadership in management.