Use # 1.

Safety Margin:

The break-even chart helps the management to know at a glance the profits generated at the various levels
of sales. The safety margin refers to the extent to which the firm can afford a decline before it starts incurring
losses.

The formula to determine the sales safety margin is:

Safety Margin = (Sales – BEP)/Sales x 100

From the numerical example at the level of250 units of output and sales, the firm is earning profit, the safety
margin can be found out by applying the formula

Safety Margin = 250 – 150/250 x 100 = 40%

This means that the firm which is now selling 250 units of the product can afford to decline sales upto 40 per
cent. The margin of safety may be negative as well, if the firm is incurring any loss. In that case, the
percentage tells the extent of sales that should be increased in order to reach the point where there will be
no loss.

Use # 2. Target Profit:

The break-even analysis can be utilised for the purpose of calculating the volume of sales necessary to
achieve a target profit.

When a firm has some target profit, this analysis will help in finding out the extent of increase in sales by
using the following formula:

Target Sales Volume = Fixed Cost + Target Profit/Contribution Margin Per Unit.

By way of illustration, we can take Table 1 given above. Suppose the firm fixes the profit as Rs. 100, then
the volume of output and sales should be 250 units. Only at this level, it gets a profit of Rs. 100. By using the
formula, the same result will be obtained.

Use # 3. Change in Price:

The management is often faced with a problem of whether to reduce prices or not. Before taking a decision
on this question, the management will have to consider a profit. A reduction in price leads to a reduction in
the contribution margin.

This means that the volume of sales will have to be increased even to maintain the previous level of profit.
The higher the reduction in the contribution margin, the higher is the increase in sales needed to ensure the
previous profit.

The formula for determining the new volume of sales to maintain the same profit, given a reduction in price,
will be

New Sales Volume = Total Fixed Cost + Total Profit/New Selling Price – Average Variable Cost

For example, suppose a firm has a fixed cost of Rs. 8,000 and the profit target is Rs.20,000. If the sales price
is Rs.8 and the average variable cost is Rs. 4, then the total volume of sales should be 7,000 units on the
basis of the formula given under target price.

Suppose the firm decides to reduce the selling price from Rs.8 to Rs. 7, then the new sales volume should
be on the basis of the above formula:

New Sales Volume = 8,000 + 20,000/7-4.

= Rs. 9,330

From this, we can infer that by reducing the price from Rs. 8 to Rs. 7, the firm has to increase the sales from
Rs. 7,000 to Rs 9,330 if it wants to maintain the target profit of Rs. 20,000. In the same way, the sales
executive can calculate the new volume of sales if it increases the price.

Use # 4. Change in Costs:

When costs undergo change, the selling price and the quantity produced and sold also undergo changes.

Changes in cost can be in two ways:

(i) Change in variable cost, and

(ii) Change in fixed cost.

(i) Variable Cost Change:

An increase in variable costs leads to a reduction in the contribution margin. This reduction in the contribution
margin will shift the break-even point downward. Con-versely, with the fall in the proportion of variable costs,
contribution margins increase and break-even point moves upwards.

Under conditions of changing variable costs, the formula to determine the new quantity or the new selling
price are:

(a) New Quantity or Sales Volume = Contribution to Margin/Present Selling Price – New Variable Cost Per
Unit

(b) New Selling Price = Present Sale Price + New Variable Cost-Present Variable Cost

Example:

The contribution margin is Rs. 64,000, the present sale price is Rs.10 and the present variable cost is Rs.6.
If the variable cost per unit goes up from Rs.6 to Rs. 7, what will be the new sales volume and price?

New Sales Volume = 64,000 /10-7 = 64,000 /3 = 21,300 units

New Sales Price = (10+7-6) = Rs.11.

(ii) Fixed Cost Change:

An increase in fixed cost of a firm may be caused either due to a tax on assets or due to an increase in
remuneration of management, etc. It will increase the contribution margin and thus push the break-even
point upwards. Again to maintain the earlier level of profits, a new level of sales volume or new price has to
be found out.

New Sales Volume = Present Sale Volume + (New Fixed Cost + Present Fixed Costs)/(Present Selling Price-
Present Variable Cost)

New Sale Price = Present Sale Price + (New Fixed Costs – Present Fixed Costs)/Present Sale Volume

Example:

The fixed cost of a firm increases from Rs. 5,000 to Rs. 6,000. The variable cost is Rs. 5 and the sale price
is Rs. 10 and the firm sells 1,000 units of the product

New Sales Volume = 1,000 + 6,000 – 5,000/10-5=1,000+1,000/5 = 1,000+200 = 1,200 units

New Sale Price =10 + 6,000-5,000/1,000 = 10 + 1,000/1,000 = Rs.10 + Re 1

= Rs. 11

Use # 5. Decision on Choice of Technique of Production:

A firm has to decide about the most economical production process both at the planning and expansion
stages. There are many techniques available to produce a product. These techniques will differ in terms of
capacity and costs.

The break-even analysis is the most simple and helpful in the case of decision on a choice of technique of
produc-tion. For example, for low levels of output, some conventional methods may be most probable as
they require minimum fixed cost.

For high levels of output, only automatic machines may be most profitable. By showing the cost of different
alternative techniques at different levels of output, the break-even analysis helps the decision of the choice
among these techniques.

Use # 6. Make or Buy Decision:

Firms often have the option of making certain components or for purchasing them from outside the concern.
Break-even analysis can enable the firm to decide whether to make or buy.
Example:

A manufacturer of car buys a certain components at Rs. 20 each. In case he makes it himself, his fixed and
variable cost would be Rs. 24,000 and Rs.8 per component respectively.

BEP = Fixed Cost/Purchase Price – Variable Cost

=24,000/20-8 = 24,000/12 = 2,000 units

From this, we can infer that the manufacturer can produce the parts himself if he needs more than 2,000
units per year.

However, certain considerations need to be taken account of in a buying decision, such as:

(i) Is the required quality of the product available?

(ii) Is the supply from the market certain and timely?

(iii) Do the supplies of the components try to take any monopoly advantage?

Use # 7. Plant Expansion Decisions:

The break-even analysis may be adopted to reveal the effect of an actual or proposed change in operation
condition. This may be illustrated by showing the impact of a proposed plant on expansion on costs, volume
and profits. Through the break-even analysis, it would be possible to examine the various implications of this
proposal.

Example:

A company has the capacity to produce goods worth of Rs. 40 crores a year. For this, it has incurred a fixed
cost of Rs. 20 crores, the variable costs being 60% of the sales revenue.

Now the company is planning to incur an additional Rs. 6 crores in fixed costs to expand its production
capacity from Rs. 40 crores to Rs.60 crores. The survey shows that the firm’s sales can be increased from
Rs. 40 crores to Rs. 50 crores. Should the firm go in for expansion?

BEP at present capacity = Fixed Cost/Margin Contribution %

= Rs. 10 crores/40% = Rs. 25 Crores

BEP at the proposed capacity = Rs. 16 crores/40% = Rs. 40 Crores

Increase in break-even point = Rs 40 crores-Rs. 25 crores

= Rs. 15 crores.

Thus we can infer that the firm should go in for expansion only if its sales expand by more than Rs. 15 crores
from its earlier level of Rs. 40 crores.

Use # 8. Plant Shut Down Decisions:

In the shut-down decisions, a distinction should be made between out of pocket and sunk costs. Out of
pocket costs include all the variable costs plus the fixed cost which do not vary with output. Sunk fixed costs
are the expenditures previously made but from which benefits still remain to be obtained e.g., depreciation.

Use # 9. Advertising and Promotion Mix Decisions:

The main objective of advertisement is to stimulate or increase sales to all customers—former, present and
future. If there is keen competition, the firm has to undertake vigorous campaign of advertisement. The
management has to examine those marketing activities that stimulate consumer purchasing and dealer
effectiveness.

The break-even point concept helps the management to know about the circumstances. It enables him not
only to take appropriate decision but by showing how these additional fixed cost would influence BEPs. The
advertisement cost pushes up the total cost curve by the amount of advertisement expenditure.

Use # 10. Decision Regarding Addition or Deletion of Product Line:

If a product has outlived its utility in the market immediately, the production must be abandoned by the
management and examined what would be its consequent effect on revenue and cost. Alternatively, the
management may like to add a product to its existing product line because it expects the product as a
potential profit spinner. The break-even analysis helps in such a decision.

Example:

A fan manufacturer possesses the following data regarding his firm:

Total Fixed Cost = Rs. 1,50,000

Volume of Sales = 5,00,000 units

The manufacturer is considering whether or not to drop heaters from its product line and replace it with a
fancy kind of fan.

He knows that if he takes the decision of dropping heaters and replaces it with fancy fans his output and cost
data would be:

To find out the impact of proposed change, we need to compare profits in the two situations. Firstly, we have
to find out the contribution ratio of each product.

Thus the contribution ratio of the entire product line = 0.167 + 0.08 + 0.141 = 0.388.

Total Contribution = Rs. 5,00,000 x 0.388 = Rs. 1,94,000

Profit = Rs. 1,94,000 – Rs.1,50,000 = Rs 44,000

From the above analysis, we can infer that the manufacturer should drop heaters from his product line and
add fancy fans to his product line so as to earn more profit.

In break-even analysis; the costs of an organization are compared with the level of sales volume to find out
the point at which the business likes non-profit no loss situation. It is a useful tool for management to make
various business decisions and deal with uncertainty.

The uses of break-even analysis are as follows:

i. Helps in determining the sales volume

ii. Forecasts profits if estimates of revenue and cost are available

iii. Helps in appraising the effects of change on volume of sales and cost of production

iv. Assists in making choice of products and determining product mix

v. Highlights the impact of increase or decrease in the fixed and variable costs

vi. Studies the effect of high-fixed costs and low variable costs

vii. Makes intra-firms profitability comparisons

viii. Helps planning of cash requirements for organizations effectively

In spite of its uses, the limitations of break-even analysis are as follows:

i. Fails to be applied effectively in the multiple products situation

ii. Fails to be implemented in the situation where cost and price cannot be ascertained and where historical
data is not available

iii. Assumes fixed costs to be constant

iv. Assumes that quantity of goods produced is equal to the quantity of goods sold, which may not be always
true

v. Ignores changes in selling prices

vi. Ignores market conditions

Breakeven analysis is the relationship between cost volume and profits at various levels of activity, with
emphasis being placed on the breakeven point. The breakeven point is where the business neither recieve
a profit nor a loss, this is when total money recieved from sales is equal to total money spent to produce the
items for sale.

Uses of a breakeven analysis

Breakeven analysis enables a business organization to:

1. Measure profit and loses at different levels of production and sales.

2. To predict the effect of changes in price of sales.
3. To analysis the relationship between fixed cost and variable cost.
4. To predict the effect on profitablilty if changes in cost and efficiency.

Even though breakeven has these advantages or uses, there are also several demerits of break even
analysis.

Types of Control Techniques in Management

Management theorists and experts have devised several techniques over the years. They often divide these
techniques into two categories: traditional and modern. Traditional types of techniques generally focus on non-
scientific methods. On the other hand, modern techniques find their sources in scientific methods which can be
more accurate.

Traditional Types of Control Techniques in Management

 Budgetary Control

 Standard Costing

 Financial Ratio Analysis

 Internal Audit

 Break-Even Analysis

 Statistical Control

Despite the emergence of modern techniques, traditional practices are still widely in use these days. Let us
discuss them one by one.
Budgetary Control
Budgeting simply means showcasing plans and expected results using numerical information. As a corollary to
this, budgetary control means controlling regular operations of an organization for executing budgets.
A budget basically helps in understanding and expressing expected results of projects and tasks in numerical
form. For example, the amounts of sales, production output, machine hours, etc. can be seen in budgets.
There can be several types of budgets depending on the kind of data they aim to project. For example, a sale
budget explains selling and distribution targets. Similarly, there can also be budgets for purchase, production,
capital expenditure, cash, etc.
The main aim of budgetary control is to regulate the activity of an organization using budgeting. This process
firstly requires managers to determine what objectives they wish to achieve from a particular activity. After that,
they have to lay down the exact course of action that they will follow for weeks and months.
Next, they will translate these expected results into monetary and numerical terms, i.e. under a budget. Finally,
managers will compare actual performances with their budgets and take corrective measures if necessary. This
is exactly how the process of budgetary control works.
Standard Costing
Standard costing is similar to budgeting in the way that it relies on numerical figures. The difference between the
two, however, is that standard costing relies on standard and regular/recurring costs.
Under this technique, managers record their costs and expenses for every activity and compare them with
standard costs. This controlling technique basically helps in realizing which activity is profitable and which one
is not.
Financial Ratio Analysis
Every business organization has to depict its financial performances using reports like balance sheets and profit
& loss statements. Financial ratio analysis basically compares these financial reports to show the financial
performance of a business in numerical terms.
Comparative studies of financial statements showcase standards like changes in assets, liabilities, capital,
profits, etc. Financial ratio analysis also helps in understanding the liquidity and solvency status of a business.
Internal Audit
Another popular traditional type of control technique is internal auditing. This process requires internal auditors
to appraise themselves of the operations of an organization.
Generally, the scope of an internal audit is narrow and it relates to financial and accounting activities. In modern
times, however, managers use it to regulate several other tasks.
For example, it can also cover policies, procedures, methods, and management of an organization. Results of
such audits can, consequently, help managers take corrective action for controlling.
Break-Even Analysis
Break-even analysis shows the point at which a business neither earns profits nor incurs losses. This can be in
the form of sale output, production volume, the price of products, etc.
Managers often use break-even analysis to determine the minimum level of results they must achieve for an
activity. Any number that goes below the break-even point triggers corrective measures for control.
Statistical Control
The use of statistical tools is a great way to understand an organization’s tasks effectively and efficiently. They
help in showing averages, percentages, and ratios using comprehensible graphs and charts.
Managers often use pie charts and graphs to depict their sales, production, profits, productivity, etc. Such tools
have always been popular traditional control techniques.
Explain various types of the Controls?

Types of the Controls

1. Direct controls
a. Called as the direct controls as the people here get so well tuned to the job that there are very less
chances for the deviations to take place.
b. Also called as the preventive controls.
c. Aims at the saving on the cost of the control.
d. Also aims at the zero defects from the initiation.
e. Great emphasis is given on the prevention of the need of the controls; to build the systems, the
procedures, the culture, the discipline etc.
f. But with time these types of the controls also get older and outdated.
g. For the proper functioning of the direct controls, assistance of the indirect controls is very much
needed.

2. Feed forward controls

a. Whenever a process is performed, two factors are very critical namely the inputs and the outputs.
b. Here we take into account the various deficiencies of a process well in advance, so that these can
be cured or controlled at the initial stages.
c. The shape of the feedback controls is taken by almost all the controls.
d. It is advised by the various experts to have the both feed forward and the feed backward controls on
the process.
e. Helps in the establishment of a right direction and control right from the beginning.

3. Feed backward controls

a. Here the controls are put at the output end as the deviations that occur are not known to us till the
moment of the output.
b. Very heavy cost is involved.
c. Results into the customer dissatisfaction.

4. Real time controls

a. Involve the instantaneous feedback almost in the real time, (real time can defined as the time when
both the creation of a report and its transmission is done almost with no gap that one can almost read it at
the time it is being sent) for e.g. the fax or the telephone.

5. Automation in the controls

a. Here, mainly for the development of the control systems involving very less human power, building
of the instrumentation takes place.
b. Computers are used for the feedback systems and for the automatic corrections.

Management has been described as a social process involving responsibility for economical and effective
planning & regulation of operation of an enterprise in the fulfillment of given purposes. It is a dynamic process
consisting of various elements and activities. These activities are different from operative functions like
marketing, finance, purchase etc. Rather these activities are common to each and every manger irrespective
of his level or status.
Different experts have classified functions of management. According to George & Jerry, “There are four
fundamental functions of management i.e. planning, organizing, actuating and controlling”.
According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to control”.
Whereas Luther Gullick has given a keyword ’POSDCORB’ where P stands for Planning, O for Organizing,
S for Staffing, D for Directing, Co for Co-ordination, R for reporting & B for Budgeting. But the most widely
accepted are functions of management given by KOONTZ and O’DONNEL
i.e. Planning, Organizing, Staffing, Directing and Controlling.
For theoretical purposes, it may be convenient to separate the function of management but practically these
functions are overlapping in nature i.e. they are highly inseparable. Each function blends into the other &
each affects the performance of others.

1. Planning

It is the basic function of management. It deals with chalking out a future course of action & deciding
in advance the most appropriate course of actions for achievement of pre-determined goals.
According to KOONTZ, “Planning is deciding in advance - what to do, when to do & how to do. It
bridges the gap from where we are & where we want to be”. A plan is a future course of actions. It
is an exercise in problem solving & decision making. Planning is determination of courses of action
to achieve desired goals. Thus, planning is a systematic thinking about ways & means for
accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of
 human & non-human resources. It is all pervasive, it is an intellectual activity and it also helps in
avoiding confusion, uncertainties, risks, wastages etc.

2. Organizing

It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals. According to Henry
Fayol, “To organize a business is to provide it with everything useful or its functioning i.e. raw
material, tools, capital and personnel’s”. To organize a business involves determining & providing
human and non-human resources to the organizational structure. Organizing as a process involves:

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
3. Staffing

It is the function of manning the organization structure and keeping it manned. Staffing has assumed
greater importance in the recent years due to advancement of technology, increase in size of
business, complexity of human behavior etc. The main purpose o staffing is to put right man on right
job i.e. square pegs in square holes and round pegs in round holes. According to Kootz & O’Donell,
“Managerial function of staffing involves manning the organization structure through proper and
effective selection, appraisal & development of personnel to fill the roles designed un the structure”.
Staffing involves:

 Manpower Planning (estimating man power in terms of searching, choose the person and
giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
4. Directing

It is that part of managerial function which actuates the organizational methods to work efficiently for
achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in
motion the action of people because planning, organizing and staffing are the mere preparations for
doing the work. Direction is that inert-personnel aspect of management which deals directly with
influencing, guiding, supervising, motivating sub-ordinate for the achievement of organizational
goals. Direction has following elements:

 Supervision
 Motivation
 Leadership
 Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching
& directing work & workers.

Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.

Leadership- may be defined as a process by which manager guides and influences the work of
subordinates in desired direction.

Communications- is the process of passing information, experience, opinion etc from one person
to another. It is a bridge of understanding.

5. Controlling

It implies measurement of accomplishment against the standards and correction of deviation if any
to ensure achievement of organizational goals. The purpose of controlling is to ensure that
 everything occurs in conformities with the standards. An efficient system of control helps to predict
deviations before they actually occur. According to Theo Haimann, “Controlling is the process of
checking whether or not proper progress is being made towards the objectives and goals and acting
if necessary, to correct any deviation”. According to Koontz & O’Donell “Controlling is the
measurement & correction of performance activities of subordinates in order to make sure that the
enterprise objectives and plans desired to obtain them as being accomplished”. Therefore controlling
has following steps:

a. Establishment of standard performance.

b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out deviation if any.
d. Corrective action.

Functions of Management

Management in some form or another is an integral part of living and is essential wherever human
efforts are to be undertaken to achieve desired objectives. The basic ingredients of management are
always at play, whether we manage our lives or business. Management is a set of principles relating
to the functions of planning, organizing, directing, and controlling, and the applications of these
principles in harnessing physical, financial, human and informational resources efficiently and
effectively to achieve organizational goals.

Management is essential for organized life and necessary to run all types of organizations. Managing
life means getting things done to achieve life’s objectives and managing an organization means
getting tings done with and through other people to achieve its objectives.

There are basically five primary functions of management. These are:

1. Planning

2. Organizing

3. Staffing

4. Directing

5. Controlling

The controlling function comprises co-ordination, reporting and budgeting, and hence the
controlling function can be broken into these three separate functions. Based upon these seven
functions, Luther Guelick coined the word POSDCORB, which generally represents the initials of
these seven functions i.e. P stands for Planning, O for Organizing, S for Staffing, D for Directing, Co
for Co-ordination, R for reporting & B for Budgeting.

But, Planning, Organizing, Staffing, Directing and Controlling are widely recognized functions of
management.

management_functions

Planning

Planning is future oriented and determines an organization’s direction. It is a rational and systematic
way of making decisions today that will affect the future of the company. It is a kind of organized
foresight as well as corrective hindsight. It involves the predicting of the future as well as attempting
to control the events. It involves the ability to foresee the effects of current actions in the long run in
the future.

Peter Drucker has defined planning as follows:

“Planning is the continuous process of making present entrepreneurial decisions systematically and
with best possible knowledge of their futurity, organizing systematically the efforts needed to carry
out these decisions and measuring the results of these decisions against the expectations through
organized and systematic feedback”.
An effective planning program incorporates the effect of both external as well as internal factors. The
external factors are shortages of resources; both capital and material, general economic trend as far
as interest rates and inflation are concerned, dynamic technological advancements, increased
governmental regulation regarding community interests, unstable international political
environments, etc.

The internal factors that affect planning are limited growth opportunities due to saturation requiring
diversification, changing patterns of work force, more complex organizational structures,
decentralization etc

Organizing

Organizing requires a formal structure of authority and the direction and flow of such authority
through which work subdivisions are defined, arranged and co-ordinated so that each part

relates to the other part in a united and coherent manner so as to attain the prescribed objectives.

According to Henry Fayol, “To organize a business is to provide it with everything useful or its
functioning i.e. raw material, tools, capital and personnel’s”.

Thus the function of organizing involves the determination of activities that need to be done in order
to reach the company goals, assigning these activities to the proper personnel, and delegating the
necessary authority to carry out these activities in a co-ordinated and cohesive manner. It follows,
therefore, that the function of organizing is concerned with:

Identifying the tasks that must be performed and grouping them whenever necessary

Assigning these tasks to the personnel while defining their authority and responsibility.

Delegating this authority to these employees

Establishing a relationship between authority and responsibility

Coordinating these activities

Staffing

Staffing is the function of hiring and retaining a suitable work-force for the enterprise both at
managerial as well as non-managerial levels. It involves the process of recruiting, training,
developing, compensating and evaluating employees, and maintaining this workforce with proper
incentives and motivations. Since the human element is the most vital factor in the process of
management, it is important to recruit the right personnel.

According to Kootz & O’Donell, “Managerial function of staffing involves manning the organization
structure through proper and effective selection, appraisal & development of personnel to fill the
roles designed in the structure”.

This function is even more critically important since people differ in their intelligence, knowledge,
skills, experience, physical condition, age and attitudes, and this complicates the function. Hence,
management must understand, in addition to the technical and operational competence, the
sociological and psychological structure of the workforce.

Directing

The directing function is concerned with leadership, communication, motivation and supervision so
that the employees perform their activities in the most efficient manner possible, in order to achieve
the desired goals.

The leadership element involves issuing of instructions and guiding the subordinates about
procedures and methods.

The communication must be open both ways so that the information can be passed on to the
subordinates and the feedback received from them.
Motivation is very important, since highly motivated people show excellent performance with less
direction from superiors.

Supervising subordinates would lead to continuous progress reports as well as assure the superiors
that the directions are being properly carried out.

Controlling

The function of control consists of those activities that are undertaken to ensure that the events do
not deviate from the per-arranged plans. The activities consist of establishing standards for work
performance, measuring performance and comparing it to these set standards and taking corrective
actions as and when needed, to correct any deviations.

According to Koontz & O’Donell, “Controlling is the measurement & correction of performance
activities of subordinates in order to make sure that the enterprise objectives and plans desired to
obtain them as being accomplished”.

The controlling function involves:

a. Establishment of standard performance.

b. Measurement of actual performance.

c. Measuring actual performance with the pre-determined standard and finding out the deviations.

d. Taking corrective action.

All these five functions of management are closely interrelated. However, these functions are highly
indistinguishable and virtually unrecognizable on the job. It is necessary, though, to put each
function separately into focus and deal with it.

Activities of HRM
Major HR Management Activities

1. Strategic HR Planning and Analysis

a) HR Planning : Human resource planning is the continuous process of systematic planning to achieve
optimum use of an organization’s most valuable asset — its human resources. The objective of HRP is to
ensure the best fit between employees and jobs while avoiding manpower shortages or surpluses. The four
key steps of the HRP process are analyzing present labor supply, forecasting labor demand, balancing
projected labor demand with supply and supporting organizational goals.
b) Job Analysis : Information is the basic material used by an industry for many kinds of job related planning.
Nature of job information varies from industry to industry, from department to department and from purpose
to purpose. Information used for job analysis must be accurate, timely and tailor made. According to N.R
Chatterjee, job analysis is the process of determining by observation and study and reporting pertinent
information related to the nature of a specific job. Dale Yoder defined as the method used to determine what
types of manpower are needed to perform the jobs of the organization.
c) HRIS

2. Equal Employment Opportunity (EEO)

a) Compliance

b) Diversity

c) Affirmative Action
3. Selecting and Hiring Employees

a) Job Analysis : Job analysis is a family of procedures to identify the content of a job in terms of activities
involved and attributes or job requirements needed to perform the activities. Job analysis provides
information of organizations which helps to determine which employees are best fit for specific jobs. Through
job analysis, the analyst needs to understand what the important tasks of the job are, how they are carried
out, and the necessary human qualities needed to complete the job successfully.
The process of job analysis involves the analyst describing the duties of the incumbent, then the nature and
conditions of work, and finally some basic qualifications. After this, the job analyst has completed a form
called a job psychograph, which displays the mental requirements of the job. The measure of a sound job
analysis is a valid task list. This list contains the functional or duty areas of a position, the related tasks, and
the basic training recommendations. Subject matter experts (incumbents) and supervisors for the position
being analyzed need to validate this final list in order to validate the job analysis.
b) Recruiting : Recruiting is a ‘linking function’ joining together those with jobs to fill and those seeking jobs.
It is a joining process in that it tries to bring together job seekers and employer with a view to encourages
the former to apply for a job with the latter. The objective of recruitment is to develop a group of potentially
qualified people. To this end, the organization must project the position in such a way that job seekers
respond. To be cost effective, the recruitment process should attract qualified applicants and provide enough
information for non qualified persons to self select themselves out.
c) Selection : To select is to choose. Selection is a screening process. It is the process of picking individuals
who have relevant qualifications to fill jobs in an organization. The basic purpose is to choose the individuals
who can most successfully perform the job from the pool of qualified candidates. Selection starts after the
recruitment process is over and job application has been received.
4. Paperwork and Orientation
5. Training and Development

a) Orientation

b) Training : Training involves the change of skills, knowledge, attitudes, or behavior of employees. Although
training is similar to development in the methods used to affect learning, they differ in time frames. Training
is more present-day oriented, its focus is on individual’ current jobs, enhancing hose specific skills and
abilities to immediately perform their jobs. Training is job specific and is designed to make employees more
effective in their current job. Employee development, on the other hand, generally focuses on future jobs in
the organization.

c) Employee Development

d) Career Planning

c) Performance Management
6. Compensation and Benefits

a) Wages /Salary /Administration : Wages and salaries are the remuneration paid or payable to employees
for work performed on behalf of an employer or services provided. Normally, an employer is not permitted to
withhold the wages or any part thereof, except as permitted or required by law. Employers are required by
law to deduct from wages, commonly termed “withhold”, income taxes, social contributions and for other
purposes, which are then paid directly to tax authorities, social security authority, etc., on behalf of the
employee. Garnishment is a court ordered withholding from wages to pay a debt.
Wages and salaries are typically paid directly to an employee in the form of cash or in a cash equivalent,
such as by cheque or by direct deposit into the employee’s bank account or an account directed by the
employee. Alternatively, all or a part may be paid in various other ways, such as payment in kind in the form
of goods or services provided to the employee, such as food and board.

b) Incentives : An incentive is something that motivates an individual to perform an action. The study of
incentive structures is central to the study of all economic activities (both in terms of individual decision-
making and in terms of co-operation and competition within a larger institutional structure). Therefore,
economic analysis of the differences between societies (and between organizations within a society)
amounts to characterizing the differences in incentive structures faced by individuals involved in these
collective efforts. Incentives aim to provide value for money and contribute to organizational success.
c) Benefits : Employee benefits and benefits in kind (also called fringe benefits, perquisites, or perks) include
various types of non-wage compensation provided to employees in addition to their normal wages or salaries.
Instances where an employee exchanges (cash) wages for some other form of benefit is generally referred
to as a “salary packaging” or “salary exchange” arrangement. In most countries, most kinds of employee
benefits are taxable to at least some degree. Examples of these benefits include: housing (employer-
provided or employer-paid) furnished or not, with or without free utilities; group insurance (health, dental, life
etc.); disability income protection; retirement benefits; daycare; tuition reimbursement; sick leave; vacation
(paid and non-paid); social security; profit sharing; employer student loan contributions; conveyancing;
domestic help (servants); and other specialized benefits.
7. Performance Appraisal : After an employee has worked on a job for a period of time, his performance
should be evaluated. Performance evaluation is the process of deciding how an employee does his job.
Performance here refers to the degree of accomplishment of the tasks that make up an employee’s job. It
indicates how well an individual is fulfilling the job requirements.
8. Health, Safety, & Security

a) Health

b) Safety

c) Security

9. Managing Legal Issues

a) HR Policies

b) Employee rights and Privacy : Increasingly, employers are discovering that they need to know facts
about their employees which may not be immediately apparent in the workplace – facts about their
employees or prospective employees’ credit and prior histories, facts about their employees’ conduct in the
workplace during “personal” or “break” time, facts about their employees’ use of e-mail or Internet, facts
about their employees’ off-duty conduct, and facts about their employees’ medical conditions. Inquiry into
these facts too often gives rise to claims of invasion of privacy by the employee.
Depending on the context of the inquiry, employers may need to balance the legitimacy of their need to know
against the employees’ rights of privacy.

c) Union/ Management Relation

d) Company policies and legal issues

Human Resource Development Methods and Activities:- An organized learning experience, which is given
in a limited time period, so that the job performance & growth can be improved, is referred as human
resource development (HRD). Training is a component of human resource development in which special
programs are designed to provide specified employees knowledge & skills that are helpful in performing
various functions of the job. Here below are discussed the activities and methods of the human resource
development along with its importance for HRM.

Human Resource Development Activities

Following are some of the activities that are include in the area of human resource development.

01- Training & Development

02- Organizational Development

03- Career Development

1. Training & Development

Training is related with the provision of certain skills & knowledge that is helpful for the trainees to overcome
their deficiencies of job performance. On the other hand development is related with the provision of certain
skills to the employees so that the organization would use them in the future.

2. Organizational Development

It is the application of knowledge of behavioral science in the organization so that strategies, processes &
structures are improved through proper development & reinforcement.

3. Career Development

Career development is defined as the assistance of the organization for the acquisition of the required
knowledge & skills by the employees to perform current job as well as some future job effectively. The
organization develops certain policies for its employees like promotion, opportunity to perform excellent in
future & counseling the employees etc, so that the employees can develop their career. It includes
knowledge, skills, experiences, reinforcement & behavior modification techniques that make employees to
perform better and add value.

Human Resource Programs

Human resource programs are classified into the following three kinds.

01- Training

02- Education

03- Development

1. Training

The employees receive the training so that they can be potential enough to perform the duties of current job
effectively.

2. Education

The employees that are considered as potential & efficient enough to be promoted are given the training
called education. Education is provided to the promoting employees so that they can perform well for a
different job either in the upward level of hierarchy or in the lateral one.

3. Development

In order to provide new viewpoint, technology or horizons, training is given to employees to make them
proactive by fulfilling the expected performances by the organization.

Human Resource Development Methods

The ability of the employee can be developed though both on the job methods & off the job methods.
Following are the detailed about these methods of human resource development.

1. Job Rotation

In this method effort is made to increase the knowledge, skills & abilities of employees by moving them on
different positions. Employees can be rotated both vertically & horizontally. Vertical rotation is also called
promotion.
2. Assistant to Position

Sometimes an efficient employee is moved under the supervision of a successful manager of the
organization. In this way the abilities & skills of employees is groomed under the direction of successful
manager so that the learning employees can be prepared for higher level duties.

3. Committee Assignment

An employees can avail the opportunity of development through committee assignment by sharing
thedecision making process, by ascertain certain problem of organization and by watching others.

4. Lectures & Seminars

It is the old method in which the lectures & seminars are arranged through which employees can get
knowledge & develop their analytical & conceptual abilities.

5. Simulations

Simulators are complex devices that can create artificial situation similar to real one. By creating duplicate
of real situation, training is provided to employees by performing some tasks in the situation.

6. Outdoor Training

Outdoor training is considered as one of effective methods of human resource development. Trainees are
trained to work together in the form of team. In such case the main aim is to understand the response of
employees when they face natural difficulties.

Preparation of Succession Plan Program

Succession plans includes the details of the job posts that are currently opened in the organization and the
jobs that will post in near future. If the decision of management is to fill the positions from inside the
organization, then training & development is required to make employees efficient enough for the promotion.
If the management decides to fill the position from outside environment, then there is a need for careful
analysis of the labor market so that qualified & potential replacement can be made.
Role of Line Managers in Human Resource Development
The line manager performs the following roles with respect to the human resource development.
 He gives the employee orientation training to the new employees.
 The training needs are assessed & resulting developmental strategies are planned by line manager.
 He is responsible for on the job training
 He ensures that proper training is transferred to the trainees.
The role HR department in human Resource Development
The HR department is directly involved in the human resource development in the organization by performing
the following Functions.
 The employee orientation training is provided by the department.
 The preparation of management development programs are supported by the department.
 Proper training & development is proved to the needy employees by the department.
 The training is evaluated to ascertain the effectiveness of the training programs.
No doubt, Human Resource Development is an important area of an organization, which is held and
managed by the HRM department of the organization. It is useless to say a lot of success of HRM depends
on the HRD.
Factors Affecting Decision-Making
Some of the factors and personal characteristics that have on impact on the decision makers are described
below. Some factors are more important at higher levels of management and others are more important at
lower levels.
Programmed versus Non-programmed Decisions
Programmed decisions are made in predictable circumstances and managers have clear parameters and
criteria. Problems are well structured and alternatives are well defined. The problems are solved and
decisions are implemented through established policy directives, rules and procedures.
Non-programmed decisions are mode in unique circumstances and the results of such decisions are often
unpredictable. Managers face ill-structured problems. These problems require a custom-mode response and
are usually handled by the top management. To start a new business, to merge with another business or to
close a plant are all examples of non-programmed decisions. For example, when Steven Jobs and Stephen
Wozniak introduced the first Apple microcomputer in 1978, they were not certain about the market for it.
Today, Apple Macintosh computer is a major competitor to IBM computers.
Information Inputs
It is very important to have adequate and accurate information about the situation for decision making,
otherwise the quality of the decision will suffer. It must be recognized, however, that on individual has certain
mental constraints, which limit the amount of information that he can adequately handle. Less information is
as dangerous as too much information. Some highly authoritative individuals do make decisions on the basis
of comparatively less information when compared to more conservative decision makers.
Prejudice
Prejudice and bias is introduced in our decisions by our perceptual processes and may cause us to make
ineffective decisions. First, perception is highly selective, which means that we only accept what we want to
accept and hence only such type of information filters down to our senses.
Second, perception is highly subjective, meaning that information gets distorted in order to be consistent with
our pre-established beliefs, attitudes and values.
For example, a preconceived idea that a given person or an organization is honest or deceptive, good or
poor source of information, late or prompt on delivery, and so on, can have a considerable effect on the
objective ability of the decision maker and the quality of the decision.
Cognitive Constraints
A human brain, which is the source of thinking, creativity and decision making, is limited in capacity in a
number of ways. For example, except for some unique circumstances, our memory is short term, having the
capacity of only a few ideas, words and symbols. Also, we cannot perform more than a limited number of
calculations in our heads and it is tough to compare all the possible alternatives and make a choice.
Finally, psychologically, we are always uncomfortable with making decisions. We are never really sure if our
choice of the alternative was correct and optimal until the impact of the implication of the decision has been
felt. This makes us feel insecure.
Attitudes About Risk and Uncertainty
These attitudes are developed in a person, partly due to certain personal characteristics and partly due to
organizational characteristics. If the organizational policy is such that it penalizes losses more than it rewards
gains, then the decision maker would tend to avoid the alternatives that have some chances of failure.
Thus a manager may avoid a potentially good opportunity if there is a slight chance of a loss. The personal
characteristics of a decision maker regarding his attitudes towards risk taking affect the success of the
decision. The risk-taking attitude is influenced by the following variables:
A. Intelligence of the decision-maker: Higher intelligence generally results in highly conservative attitudes
and highly conservative decision makers take low risks. There are others who are more willing to take
calculated risks if the potential rewards are larger and there is some chance of success.
B. Expectation of the decision-maker: People with high expectations are generally highly optimistic in
nature and are willing to make decisions even with less information. The decision makers with low
expectations of success will require more and more information to decide upon a course of action.
C. Time constraints: As the complexity of the personal habits of the decision maker and the complexity of
the decision variables increase, so does the time required to make a rational decision. Even though there
are certain individuals who work best under time pressures and may outperform others under severe time
constraints, most people, require lime to gather all the available information for evaluation purposes.
However, most people under time pressure rely on ‘heuristic approach’, which relies on satisfactory rather
than optimal decisions, thus limiting the search for additional information, considering few alternatives and
few characteristics of alternatives, and focusing on reasons to reject some alternatives. This approach may
also be in use when the cost of gathering information and evaluating all such information is too high.
Personal Habits
Personal habits of the decision-maker, formed through social environmental influences and personal
perceptual processes must be studied in order to predict his decision-making style. Some people stick to
their decisions even when these decisions are not optimal. For example, Hitler found himself bound by his
own decisions. Once he decided to attack Russia, there was no going back even when he realized that the
decision was not the right one.
Some people cannot admit that they were wrong and they continue with their decisions even ignoring
evidence which indicates that a change is necessary. Some decision-makers shift the blame for failure on
outside factors rather than their own mistakes. These personal habits have great impact on organizational
operations and effectiveness.
Social and Cultural Influences
The social and group norms exert considerable influence on the style of the decision-maker. Ebert and
Mitchell define a social norm to be an evaluating scale designating on acceptable latitude and an
objectionable latitude for behavior activity, events, beliefs or any object of concern to members of a social
unit. In other words social norm is the standard and accepted way of making judgements.’
Similarly, cultural upbringing and various cultural dimensions have a profound impact on the decision-making
style of an individual. For example, in the Japanese organizational system, a decision maker arrives at a
decision in consensus with others. This style is culturally oriented and makes implementation of the decision
much easier since everybody participates in the decision-making process. In America, on the contrary, the
decision-making style is generally individualistic with the help of decision models and quantitative techniques.
Decisions are typically made under one of three conditions −

Certainty
Risk and
Uncertainty
These conditions are based on the amount of knowledge the decision maker has regarding the final
outcome of the decision. The manager's decision depends on a number of factors, like the manager's
knowledge, experience, understanding and intuition.

Certainty
Decisions are made under conditions of certainty when the manager has enough information to know
the outcome of the decision before it is made.

The manager knows the available alternatives as well as the conditions and consequences of those
actions.

There is little ambiguity and hence relatively low possibility of making a bad decision.

Risk
Most managerial decisions are made under conditions of risk.

Decisions are taken in risk when the manager has some information leading to the decision but does
not know everything and is unsure or unaware of the consequences.

Under conditions of risk, the manager may find it helpful to use probability estimates. This is where
the manager’s experience and/or intelligence is of great help.

Uncertainty
Decisions are made under uncertainty when the probabilities of the results are unknown.

There is no awareness of all the alternatives and also the outcomes, even for the known alternatives.

Under such conditions managers need to make certain assumptions about the situation in order to
provide a reasonable framework for decision making. Intuition, judgment, and experience always
play a major role in the decision making process under conditions of uncertainty.

The decision-making process involves the following steps −

Define the problem

Identify limiting factors
Develop potential alternatives
Analyze and select the best alternatives
Implement the decision
Decision Making Process
Define the Problem
The first step in the process of decision making is the recognition or identification of the problem,
and recognizing that a decision needs to be taken.

It is important to accurately define the problem. Managers can do this by identifying the problem
separately from its symptoms. Studying the symptoms helps getting closer to the root cause of the
problem.

Identify Limiting Factors

In order to choose the best alternative and make a decision every manager needs to have the ideal
resources − information, time, personnel, equipment, and supplies. But this is an ideal situation and
may not always be possible.

A limiting factor is something that stands in the way of accomplishing a desired objective.

Develop Potential Alternatives

Recognizing the limiting factor in a given situation makes it possible to narrow down the search for
alternatives and make the best decision possible with the information, resources, and time available.

Some methods for developing alternatives are −

Brainstorming, where a group works together to generate ideas and alternative solutions.

Nominal group technique is a method that involves the use of a highly structured meeting, complete
with an agenda, and restricts discussion or interpersonal communication during the decision-
making process.

Delphi technique where the participants do not meet, but a group leader uses written questionnaires
to conduct the decision making.

Analyze the Alternatives

This is an important stage in the decision-making process and perhaps the toughest. Managers must
identify the merits and demerits of each alternative and weigh them in light of various situations
before making a final decision.

Evaluating the alternatives can be done in numerous ways. Here are a few possibilities −

Qualitative and quantitative measurements

Perform a cost‐effectiveness analysis for each alternative
Marginal analysis
Selecting Alternatives
Once the alternatives are analyzed and evaluated, the manager has to choose the best one. The
manager needs to choose the alternative that gives the most advantage while meeting all the required
criteria. Sometimes the choice is simple with obvious benefits, at times the optimal solution is a
combination of several alternatives. At times when the best alternative may not be obvious, the
manager uses probability estimates, research and analysis aided by his experience and judgment.

Evaluating Decision Effectiveness

The job of the managers does not end with making decisions. They are also responsible to get
favorable results from the decision taken and implemented.
The effectiveness of a decision can be understood through a systematic and scientific evaluation
system that provides feedback on how well the decision is being implemented, what the results have
been, and what amendments and adjustments have been made to get the intended results.