Nature and Significance of Management

Previous Years' CBSE Board Questions

1.1 Management-Concept, Objectives and Importance
MCQ
1. Statement I: Management is multi-dimensional.
Statement II: The activities involved in managing an enterprise are common to all
organisations whether economic, social or political.
Choose the correct option from the options given below:
(a) Statement I is true and II is false.
(b) Statement II is true and I is false.
(c) Both the statements are false.
(d) Both the statements are true.
(2023)
2. 'Alfanzo Ltd.' is achieving all its objectives in an effective and efficient manner.
It is earning enough revenue to cover costs and the risks of the business. Now the
company wants to increase the sales volume, the capital investment, the number
of employees and the number of products also.
By doing this, the management wants to achieve its following objective:
(a) Survival (b) Profit
(c) Personal (d) Growth
(2023)
3. The process of designing and maintaining an environment in which individuals
work together in groups, efficiently accomplishing selected aims, is known as
(a) Planning (b) Organising
(c) Management (d) Efficiency.
(Term-1, 2021-22)
4. At times, a business may concentrate on producing goods with fewer resources
but cannot achieve the targeted production. In such a case, the business is said to
be:
(a) Effective but not efficient
(b) Efficient but not effective
(c) Both effective and efficient
(d) Neither effective nor efficient
(Term-1, 2021-22)
5. 'The management gives a common direction to the individual effort in
achieving the overall goal of the organisation: Which point of importance of
management is highlighted in this statement?
(a) Helps in achieving personal objectives
(b) Helps in achieving group goals
(c) Helps to increase efficiency
(d) Helps to create a dynamic organisation
(Term-1, 2021-22)
6. 'SORT-IT Ltd. is a leading software development company. The company is
satisfying the diverse needs of it's employees. Its employees are given
competitive salaries and perks. They have been given chance for their personal
growth and development. Identify the objective of management being met by
'SORT-IT Ltd.'
(a) Social (b) Personnel
(c) Organisational (d) Both Social and Personnel
(Term-1, 2021-22)
7. JS Printing Solution Ltd. is a company manufacturing printers and scanners.
The management of this company is known for speedy and prompt delivery of
orders. As a result, the market share of this company is growing. The company
grabbed a new project to supply 1,500 printers to Uprise Bank Ltd. for its various
branches, within two weeks. The Production Manager, Ashok, made one of his
efficient subordinates, Deepak the incharge of the project and also gave him the
right to command workers in order to meet the target. Now, Ashok could use his
time on high priority areas. He felt that this will also give an opportunity to
Deepak to gain experience and develop himself for higher positions. On getting
the charge, Deepak was very happy, his confidence level increased and he was
encouraged to do his best to fulfil the responsibility. Considering his
responsibility, Ashok kept a track of the completion of work with Deepak and he
is providing him the needed guidance to reach the target on time.
The application of the concept used above allows Ashok to use his time on high
priority areas. This will lead to the organisation towards:
(a) Adaptation to change
(b) Effective Management
(c) Economies of Scale
(d) Reduction in conflicts among different divisions
(Term-1, 2021-22)
8. 'The main objective of any organisation should be to utilise human and
material resources to the maximum possible advantage! The above lines highlight
which of the following objectives of management?
(a) Organisational objectives (b) Social objectives
(c) Personal objectives (d) Both (b) and (c)
(2021 C)
9. 'In order to be successful, an organisation must change itself and its goals
according to the needs of the environment. Which characteristic of management
is being highlighted here?
(a) Management is all pervasive
(b) Management is multi-dimensional
(c) Management is a group activity
(d) Management is a dynamic function
(2021 C)
10. The objective of management which consistently creates economic value for
various constituents of society is:
(a) Organisational objective
(b) Social objective
(c) Personal objective
(d) Both Social and Personal objective.
(2020 C)
11. Arnav has recently started a business to sell computers. He hired a shop in
Nehru Place in New Delhi, where he assembles various components to make
computers and supplies them as per order. He performs a series of composite but
separate functions simultaneously and ensures that computers are delivered in
time as per orders. These functions are performed by all managers at all times.
The feature of management highlighted above is:
(a) Management is a continuous process.
(b) Management is pervasive.
(c) Management is dynamic.
(d) Management is a group activity.
(2020 C)
VSA (1 mark)
12. Various input resources are required by management to complete a task
effectively and efficiently. Name any two.
(AI 2019)
13. Management is the process of getting things done! State the meaning of the
term 'Process' used in this statement.
(Delhi 2016)
14. What is meant by 'Efficiency' in management? (Foreign
2016, Delhi 2015)
15. What is meant by 'effectiveness' in management?
(Delhi 2015)
16. Explain, how management helps in the development of society.
(Delhi 2015)
17. How does management help in achieving personal objectives? State.
(Delhi 2015)
18. What is meant by 'Management' of People?
(Delhi 2014)
19. What is meant by 'Management of Work?
(AI 2014)
20. Identify the basic characteristic of management involved in the statement-
'The activities involved in managing an organisation are common to all
organisations, whether economic, social or political'.
(Delhi 2014 C)
SA I (3 marks)
21. Identify the characteristic of management which states that the activities
involved in managing an enterprise are common to all organisations whether
economic, social or political. Also state two other characteristics of management.
(2021 C)
22. Mita has a successful ice cream business at Bikaner, namely 'Smart navours'
ice creams are utterly delicious. She makes ice creams from fresh milk and the
same are available in a wide range of flavours and packs. She sets viable business
objectives and works with the same in mind in order to ensure that the
customers will come back for purchasing. Having the first mover advantage, her
business was doing well. To earn higher profits, she started cutting costs. This
would sometimes lead to delay in delivery and the ice cream was not reaching the
market in time. Over a period of time, the demand for her ice cream declined and
because of it, the competitors entered the market. She lost some of her market
share to competitors. At the beginning of summer season, she got back to back
order for supply of 4,000 ice cream packs of different flavours for special
occasions. To ensure that the task was completed and orders delivered in time
she hired additional workers. She was, thus able to produce and deliver the ice
cream packs but at a high production cost. While completing activities and
finishing the given task for achieving goals, Mita realised that she was ignoring
one of the important aspects of management.
Identify the aspect of management that has been ignored by Mita. Also explain
the same with the help of an example.
(Delhi 2019)
SA II (4 marks)
23. Define 'Management. Explain how management is a multidimensional activity.
(AI 2019)
24. Explain any four points of importance of management.
(Delhi 2016, 2014 C)
25. Mega Ltd. was manufacturing water-heaters. In the first year of its operations,
the revenue earned by the company was just sufficient to meet it's costs. To
increase the revenue, the company analysed the reasons of less revenues. After
analysis, the company decided
(i) To reduce the labour cost by shifting the manufacturing unit to a backward
area where labour was available at a very low rate.
(ii) To start manufacturing solar water-heaters and reduce the production of
electric water-heater slowly. This will not only help in covering the risks, but also
help in meeting other objectives too.
(a) Identify and explain the objectives of management discussed above.
(b) State any two values which the company wanted to communicate to the
society. (Al 2014)
LA (5 marks)
26. Management seeks to achieve various objectives. Explain these objectives.
(Foreign 2019)
1.2 Management as Science, Art and Profession
MCQ
27. 'Management has its own vocabulary of terms and concepts. Managers need
to communicate with one another with the help of a common vocabulary for the
better understanding of their work situation’.
Which characteristic of 'Management as a Science' is highlighted in the above
statement?
(a) Principles based on experimentation
(b) Systematised body of knowledge
(c) Universal validity
(d) Personalised application
(2023)
28. Which of the following features of science is fully satisfied by management?
(a) Systematised body of knowledge
(b) Principles based on experimentation
(c) Universal validity
(d) Based on practice and creativity
(Term-1, 2021-22)
29. Ram Murty, a Professor of Management conducted a class on 'Management
principles' and explained to his students the significance of Management
Principles. In the next class, the Professor asked his students to play roles of
different managers. He gave them various situations and asked them to think like
managers and provide solutions to the problems given in these situations. Each
student applied the principles of management to the given situation in his own
personalised manner, depending upon his creativity.
The nature of management highlighted in the above case is:
(a) Management as a Science
(b) Management as an Art
(c) Management both as an Art and as a Science
(d) Management as a Profession
(Term-1, 2021-22)
30. Rani is working as a Chief Executive Officer (CEO) in 'Alpha Ltd. Vipul is
working as a Production Manager in the same organisation though he does not
possess any specific degree for this post. Pratap is also working in this
organisation and constantly interacts with the workers and explains to them the
plans drawn by middle level management and spends a lot of time correcting the
work of Divesh, who is a new worker, and motivating him.
In spite of not possessing any specific degree, Vipul is working as a Production
Manager in 'Alpha Ltd.' This reflects that management does not strictly meet one
of the following criteria of a profession.
Identify the criterion/feature:
(a) Well-defined body of knowledge (b) Restricted entry
(c) Service motive (d) Ethical code of conduct
(Term-1, 2021-22)
31. Which of the following features of a profession is fully satisfied by
Management?
(a) Service motive (b) Well defined body of
knowledge
(c) Restricted entry (d) Ethical code of conduct
(Term-1, 2021-22)
SA I (3 marks)
32. 'Science is a systematised body of knowledge that explains certain general
truths or the operation of general laws: In the light of this statement, describe
management as science.
(Delhi 2019)
33. Management is a complex activity that has three main dimensions. Explain
these dimensions.
(Delhi 2019)
SA II (4 marks)
34. Is management a profession? Explain.
(2020 C)
35. What is meant by 'Management? Explain its any three features that establish
it as an Art.
(NCERT, AI 2019)
36. Explain the features of management that do not establish it as a profession.
(AI 2016)
ET (6 marks)
37. Aman, Ahmad and Ally are partners in a firm engaged in the distribution of
dairy products in Maharashtra state. Aman is a holder of Senior Secondary School
Certificate from Central Board of Secondary Education with Business Studies as
one of his elective subjects. Ahmad had done his post-graduation in History and
Ally in dairy farming. One day, there was a serious discussion between Ahmad
and Ally regarding the nature of management, Ahmad argued that management
was a profession. Where as Ally argued against it saying that the legal and
medical profession are the only professions because they fulfill all the conditions
of profession. Aman on the basis of his knowledge of business studies explained
the nature of management as a profession to Ahmad and Ally. Explain, how Aman
would have satisfied both Ahmad and Ally?
(Delhi 2015)
1.3 Levels of Management
MCQ
38. Which level of management is responsible for coordinating the activities of
different departments according to overall objectives of the organisation?
(a) Top level (b) Middle level
(c) Supervisory level (d) Both middle and supervisory
levels
(Term-1, 2021-22)
Direction for Q. (39 to 43): Rani is working as a Chief Executive Officer (CEO) in
'Alpha Ltd.' Vipul is working as a Production Manager in the same organisation
though he does not possess any specific degree for this post. Pratap is also
working in this organisation and constantly interacts with the workers and
explains to them the plans drawn by middle level management and spends a lot
of time correcting the work of Divesh, who is a new worker, and motivating him.
(Term-1, 2021-22)
39. Identify the function that Rani would not have to perform as a Chief Executive
Officer:
(a) Integrating diverse elements and coordinating activities of different
departments to achieve overall objectives.
(b) Ensuring that wastage is minimised and safety standards are maintained.
(c) Analysing business environment and it's implication for survival of
organisation.
(d) Formulating overall organisational goals and strategies for their achievement.
40. Identify the level of management at which Vipul is working:
(a) Top level (c) Middle level
(b) Operational level (d) Supervisory level.
41. At which level of management is Pratap working?
(a) Top level
(b) Middle level
(c) Supervisory level
(d) At both top and middle level
42. As a Production Manager, identify the function that Vipul would not perform:
(a) Ensure that his department has the necessary number of personnel.
(b) Interpret the policies framed by the Chief Executive Officer, Rani.
(c) Motivate the employees of his department to achieve the desired objectives.
(d) Interacting with the actual workforce.
43. Identity the function that Pratap would have to perform in addition to those
mentioned in the above case.
(a) Maintaining quality of output and safety standards
(b) Implementing the plans and strategies developed by Rani
(c) Cooperate with other departments for smooth functioning of the organisation
(d) Ensuring that his department has the necessary number of personnel
VSA (1 mark)
44. Which level managers are responsible for coordination? State.
(AI 2015 C)
SA II (4 marks)
45. Ashutosh Goenka was working in 'Axe Ltd., a company manufacturing air
purifier. He found that the profits had started declining from the last six months.
Profit has an implication for the survival of the firm, so he analysed the business
environment to find out the reasons for this decline.
(a) Identify the level of management at which Ashutosh Goenka was working.
(b) State three other functions being performed by Ashutosh Goenka.
(Delhi 2017)
1.5 Coordination-Concept and Importance
MCQ
46. 'Coordination integrates the efforts of different departments and at different
levels!
Identify the characteristic of coordination highlighted in the above statement.
(a) Coordination ensures unity of action
(b) Coordination is an all pervasive function
(c) Coordination is a deliberate function
(d) Coordination is the responsibility of all managers
(2023)
47. 'It acts as the binding force between departments and ensures that all actions
are aimed at achieving the goals of the organisation: The statement highlights the
following characteristic of coordination:
(a) Coordination is an all pervasive function.
(b) Coordination is the responsibility of all managers.
(c) Coordination is a continuous process.
(d) Coordination ensures unity of action.
(Term-1, 2021-22)
48. 'Bubbly Bee' Enterprises recently launched its new range of balloons with
inbuilt lights on the occasion of Diwali and set a target of 10% return on
investment. The Managing Director, Sudhakar integrated the efforts of all the
three departments i.e. Purchase, Production and Sales departments at different
levels for achieving the target harmoniously. The product was an instant hit and
'Bubbly Bee' Enterprises was able to achieve its target. The characteristic of
coordination discussed in the above case is:
(a) Coordination is a continuous process
(b) Coordination is multi-dimensional
(c) Coordination requires ethical code of conduct
(d) Coordination is an all pervasive function
(Term-1, 2021-22)
49. The process of management which synchronises the activities of different
departments in an orderly manner is:
(a) Planning (c) Controlling
(b) Staffing (d) Coordination.
(2021 C)
VSA (1 mark)
50. What is meant by 'coordination' in management?
(Delhi 2015, Al 2015)
51. How does coordination integrates group efforts? State.
(Delhi 2015 C)
SA I (3 marks)
52. 'Coordination is needed at all levels of management and is the responsibility
of all managers. Explain.
(Delhi 2019)
53. Explain any three reasons, which clarify that management is gaining
importance day by day.
(Delhi 2019)
LA (5 marks)
54. Explain any five characteristics of coordination.
(2020 C)
OR
What is meant by coordination? State it's any four features.
(2018)
55. 'Co-ordination is the orderly arrangement of group efforts to provide unity of
action in the pursuit of common purpose. In the light of this statement, explain
any five points of importance of coordination.
(Foreign 2019)
 CBSE Sample Questions
1.1 Management-Concept, Objectives and Importance
MCQ
1. Identify the reason which makes management important in the light of the fact
that it is generally seen that individuals in an organisation resist change, as a
change often means moving from a familiar, secure environment into a newer and
a more challenging one.
(a) Management helps in achieving group goals
(b) Management creates a dynamic organisation
(c) Management increases efficiency
(d) Management helps in the development of society
(2022-23)
2. Alo a mobility platform is in the process of laying off 400-500 employees in a
move aimed at driving cost efficiency. Which objective of management will the
firm not be able to achieve by carrying out this process.
(a) Efficiency (b) Social
(c) Profit (d) Survival
(2022-23)
3. Identify the dimension of the characteristic of management-"it is
multidimensional", which specifies that the task of management is to make the
strengths of human resources effective and their weaknesses irrelevant towards
achieving the organisation's objectives.
(a) Management of work (b) Management of people
(c) Management of operations (d) Management of goals
(Term-1, 2021-22)
4. The Topper group is looking to make a foray into manufacturing of
semiconductors and it has set up a business to seize the business opportunity
and add to its prospects in the long run. The company has already pivoted into a
number of new projects like electronics, 5G network equipment, as well as
semiconductors. Which economic objective of management does the business
seek to fulfill?
(a) Survival (b) Growth
(c) Profit (d) Efficiency
(Term-1, 2021-22)
5. Ravi joined a marketing firm as a Sales manager. On his first day in the
company, during the orientation programme, the CEO of the company told Ravi
that he will have to simultaneously perform the functions of management
(planning, organising, staffing, directing, controlling) all the time. Which
characteristic of management was the CEO referring to?
(a) Management is a continuous process
(b) Management is all pervasive
(c) Management is multidimensional
(d) Management is goal oriented
(Term-1, 2021-22)
6. Name the process of working with and through others to effectively achieve
organisational objectives by efficiently using limited resources in a changing
environment.
(a) Management (b) Planning
(c) Organising (d) Controlling
(2020-21)
1.2 Management as Science, Art and Profession
MCQ
7. "What distinguishes a successful manager from a less successful one, is the
ability to put the principles into practice”. Which aspect of the nature of
management is highlighted in the above statement?
(a) Management as a science
(b) Management as an art
(c) Management as a profession
(d) Management is an intangible force
(Term-1, 2021-22)
8. Unlike professions such as medicine or law which require a practising doctor
or lawyer to possess valid degrees, nowhere in the world is it mandatory for a
manager to possess any such professional degree. Identify the characteristic of
the profession being discussed above which is not being strictly met by
management.
(a) Well defined body of knowledge
(b) Restricted Entry
(c) Professional Association
(d) Ethical code of conduct
(Term-1, 2021-22)
9. "Any one can be called a manager irrespective of the educational qualification
possessed."
Identify the characteristic of the profession that Management does not fulfil in
the statement being discussed above.
(a) Ethical code of Conduct (b) Professional Association
(c) Restricted Entry (d) Service Motive
(2020-21)
1.3 Levels of Management
MCQ
10. Which level of management is responsible for the welfare and survival of the
organisation?
(a) Top level of management
(b) Middle level of management
(c) Supervisory level
(d) Both (b) and (c)
(Term-1, 2021-22)
11. Silico Ltd. has appointed the former Consulting executive of Shri Shakti Ltd.
Rajan Bahl as it's Vice President. What will be his basic task?
(a) To integrate diverse elements and coordinate activities of different
departments.
(b) To carry out plans formulated by top managers.
(c) To oversee the efforts of the workforce.
(d) Help to maintain quality of output.
(Term-1, 2021-22)
SA I (3 marks)
12. Identify the level of management whose basic task is to integrate diverse
elements and coordinate the activities of different departments according to the
overall objectives of the organisation. State any two functions of the level of
management identified. (2020-21)
1.4 Management Functions - Planning, Organising, Staffing, Directing and
Controlling
MCQ
13. _______________ provides a rational approach for setting objectives and
developing appropriate courses of action for achieving predetermined objectives.
(a) Directing (b) Staffing
(c) Planning (d) Controlling
(Term-1, 2021-22)
14. "Grouping similar nature jobs into larger units called departments" is the step
in the process of one of the functions of management. Identify the function of
management.
(a) Planning (b) Organising
(c) Directing (d) Staffing
(Term-1, 2021-22)
1.5 Coordination-Concept and Importance
MCQ
15. "A manager in a conscious manner has to ensure that even where members of
a department willingly cooperate, coordination gives direction to the willing
spirit."
The characteristic of coordination being highlighted above is:
(a) Coordination is the responsibility of all managers.
(b) Coordination is a deliberate function.
(c) Coordination integrates group efforts.
(d) Coordination is a continuous process
(Term-1, 2021-22)
16. The production department at Karishma Ltd, a firm manufacturing
readymade garments for men has an objective to increase production by 10% but
the Sales department does not approve of the increase in production, till changes
are brought about in the product to incorporate latest fashion. These kinds of
conflicts bring to light the following importance of the force that can help to
accomplish the linking of activities of various departments:
(a) Growth in size (b) Functional differentiation
(c) Specialisation (d) Efficiency
(Term-I, 2021-22)
17. ‘Even where members of a department willingly cooperate and work, a
manager has to coordinate the efforts of different people in a conscious manner.’
Identify the characteristic of coordination discussed above.
(a) Coordination ensures unity of action
(b) Coordination is a deliberate function
(c) Coordination is a continuous process
(d) Coordination is an all pervasive function
(2020-21)
SA I (3 marks)
18. Top management plans for the entire organisation. According to these plans,
the organisational structure is developed and staffed. In order to ensure that
these plans are executed according to plans, directing is required. Any
discrepancies between actual and realised activities are then taken care of at the
stage of controlling. Name and explain the process highlighted above which
started at the planning stage itself and is implicit and inherent in all the functions
of management in an organisation.
(2022-23)
 ANSWERS
Previous Years' CBSE Board Questions

1. (d) : Both the statements are true.

2. (d): Growth
3. (c): “Management is the process of designing and maintaining an environment
in which individuals, working together in groups, efficiently accomplish selected
aims.
Definition given by Harold Koontz and Heinz Weihrich.
4. (b): Effectiveness means completing a given work in the required time with a
focus on the end results, whereas efficiency means completing a task with the
minimum possible cost and resources. As the business was able to produce goods
with fewer resources but could not achieve the target on time, so it was efficient
but not effective.
5. (b): The importance of management that is being discussed in the question is
that management helps in achieving the group goals of the organisation. This is
because management gives a common direction to all the efforts made by
different individuals and helps in combining them to achieve the group goals.
6. (b): The objective of management being met by ‘SORT-IT Ltd.’ is personnel
related.
7. (b): Delegation is a pre-requisite for efficient working of an organisation. Since,
Ashok will be able to concentrate on high priority areas, it will lead to effective
management.
8. (a): Organisational objectives
9. (d): Management is a dynamic function
10. (b): Social objective
11. (a): Management is a continuous process.
12. Money and persons are two input resources that are required by management
to complete a task effectively and efficiently.
13. The term ‘process’ here refers to the sequence of managerial activities such as
planning, organising, staffing, directing and controlling.
14. Efficiency is concerned with optimal use of resources and producing results at
reasonable cost and in stipulated time.
15. Effectiveness in management means selecting the right task, completing
activities and achieving goals, which is useful to the organisation.
16. Management helps in the development of society by providing good quality
products and services, rendering employment opportunities, providing fair
remuneration etc., that brings prosperity to the society.
17. Management helps employees in achieving personal objectives by motivating
and leading in such a way that the individual members are able to achieve
personal goals while contributing to the overall organisational objectives.
18. Management of people means dealing with employees as individuals with
diverse needs and behaviour as well as dealing with individuals as an important
member of a team which works for the organisation.
19. Management of work refers to translating work in terms of goals to be
achieved and providing the resources and motivation to achieve them.
20. The characteristics of management highlighted in the given statement is —
‘Management is all pervasive’. It indicates that all kinds of organisation benefit
from good management practices.
21. Management is all pervasive.
Other characteristics of management:
(i) It is a goal-oriented process as it strives to achieve organisational goals.
(ii) It is multidimensional as it involves management of work, people and
operations.
(iii) It is a continuous process as it involves an ongoing series of functions.
(iv) It is a group activity as it unites individual effort in a common direction.
(v) It is a dynamic function as it adapts itself to the changing environment.
(vi) It is an intangible force as it cannot be seen but its presence can be felt in the
way the organisation functions.
22. The aspect of management that is being ignored by Mita is 'efficiency. This is
because efficiency involves completing the task with the minimum possible cost
and resources. Here, as she was required to hire more workers to complete the
task on time, she ignored the aspect of efficiency and only focused on
effectiveness. For example, if more workers are hired ⇒ task gets completed on
time, then this is effective, but if more workers are hired then the cost increases
in the form of increased salary, then it is not efficient. Similarly, if a task is carried
out with the same number of workers ⇒ Less cost, then it is efficient, but if the
task is carried out with the same number of workers and there is a delay in
completion of work then it is not effective.
23. Management is a process of designing and maintaining an environment in
which individual working together in groups efficiently to accomplish selected
aim. Management is a broad concept. Also, management includes dimensions
such as management of work, management of people and management of
operation. Manager of any organisation needs to manage people working in the
organisation, work or task being performed in organisation and also, he / she
needs to manage the operation of the organisation so, management considered as
multidimensional activity.
24. Importance of management:
(a) Helps in achieving group goals: Management helps in achieving group goals
by providing a common direction to the individual efforts.
(b) Increased efficiency: Better utilisation of human and non-human resources
leads to improve productivity and less wastage. Better planning and it's
implementation with effective coordination and control leads to excellence in
performances.
(c) Helps in achieving personal objectives : Management helps individuals to
achieve their personal objectives, while contributing to the overall organisational
objectives.
(d) Creats a dynamic organisation Management establish a sound and dynamic
organisation, which adapts to the changing environment. It encourages the spirit
of cooperation, fellow-feeling and mutual understanding among the workers.
25. (a) The objectives of the management referred here are:
(i) Organisational objectives: This refers to reducing manpower cost by the top
management by shifting the manufacturing to a backward area where cost of
labour is very low. This would help to make the company profitable.
(ii) Social objectives: The management is able to meet its social objectives in two
ways :-
(I) It is able to provide employment in a backward area which will improve the
economic and social condition of the local population.
(II) The company's decision to phase out electric water heater with solar water
heater is very environment friendly as it would save a lot of electricity.
(b) Values The company has communicated with it's actions are inclusiveness
and partnership. With the shifting of manufacturing to backward area, there shall
be 'inclusive' economic and social growth in the area. Thus, the company is
forging a partnership with the society and sharing economic benefits.
26. The objectives of management are as follows:
(i) Organisational/Economic : Organisational activities involve optimal utilisation
of the material and human resources available. The following are the objectives
involved:
(a) Survival: The overall revenue must be adequate to cover the costs.
(b) Profit Profits must be earned such that the risks and costs are covered.
(c) Growth: To continue in the long run, an organisation should focus on growth
in terms of sales, production, number of employees, etc.
(ii) Social objectives: Social obligations such as adoption of environment-friendly
production methods, contribution to social causes such as imparting education to
children and providing employment to the unemployed, etc., should be
considered.
(iii) Personal objectives: The personal objectives of the individuals (financial
objectives as well as social objectives) must be accommodated.
27. (b): Systematised body of knowledge.
28. (a) The systematised body of knowledge is the feature of science which is
fully satisfied by the management.
29. (b) The nature of management that is being highlighted in the given case is
"Management is an Art",
30. (b) Management as a profession does not fulfill restricted entry criteria.
31. (b) The feature of profession that is fully satisfied by management is the
existence of well defined body of knowledge.
32. 'Science is a systematised body of knowledge that explains certain general
truths or the operations of general laws! The features which describe
management as science are:
(i) Systematic body of knowledge: Management has its own body of theories and
principles that were developed over the years. In addition, it has it's own
vocabulary.
(ii) Theories based on experimentation: The principles of management have
developed over the years based on repeated observations and experiments.
However, as management deals with human behavior, no exact cause- and-effect
relationship can be established.
(iii) Universal validity: Theories and principles of management are valid
universally to a great extent. They can be used to impart basic knowledge and
managerial skills to budding managers.
33. Management is a complex activity that has three main dimensions. The
following are the three main dimensions of management:
(i) Managing the work: With management, the work of an organisation is
interpreted in terms of the objectives and goals achieved owing to the work.
Management also
specifies the guidelines regarding how these objectives can be achieved.
(ii) Managing the people : Managing the people implies dealing with the
employees both as individuals and as a group such that their strengths are
utilised and their weaknesses are identified.
(iii) Managing the operations: The production process where the inputs are
transformed into a product or a service requires continuous management in
order to ensure the utilisation of the resources efficiently and effectively.
34. Any body of knowledge that qualifies to become a profession must fulfill the
following characteristics:
(i) Well defined body of knowledge
(ii) Restricted entry
(iii) Professional association
(iv) Ethical code of conduct
(v) Service motive
35. Management is a process that converts resources into results. It is a set of
practices that makes organisational goals a reality, effectively and efficiently.
The important features of management that establishes it as an art are:
(a) Existence of theoretical knowledge - Like art, faculty of management has
adequate theoretical knowledge. This is taught in business schools and practiced
by managers. This theoretical knowledge though based on observation and
experience needs constant updation.
(b) Individual Application A manager applies the theoretical knowledge
according to the given situation. He/she utilises creativity and initiative which
makes the project a success.
(c) The Managerial skills - They improve with practice. Like the practitioners of
different arts, managers improve their skills with experience and develop their
own style of management. They apply their insight to adapt to the dynamic
business environment. On comparing the features of art with management we
find all the features of art are present in management, so we can call
management as an art of getting the things done by others.
36. The important features that do not establish management as a profession are:
(a) Though management has a body of knowledge based on observation of
human behaviour, this knowledge is not universal and can only be applied with
fair amount of modification.
(b) Most profession have restricted entry such as doctors have to study medicine
and lawyers have to study law. However, any one can become a manager
irrespective of his/her education. Though, these days people study in business
schools and get a degree of MBA or a diploma, these are desirable but not
essential to becoming a manager.
(c) Professional Association: Most professions are affiliated to professional
association which regulate entry and issue certificate of practice. Even though
there are various management associations, it is not mandatory for managers to
join them. Also, there is no code of conduct that is binding on the practicing
managers.
37. Aman would have explained the following features of management as
profession:
(i) Well defined body of knowledge: Each professional as a lawyer or a doctor is
required to gain specialised knowledge of the profession. Similarly, practice of
management also requires specialised knowledge, which can be gained by
reading books or attending courses in various institutes.
(ii) Professional Association: All profession is affiliated to a professional
association which regulates entry, enforces a code of conduct. There are several
associations of practising managers in India (like All India Management
Association) and many managers are it's members.
(iii) Service Motive: The basic motive of a profession is to serve the client's
interests. Management helps the organisation in achieving it's goals, but the
products and services of an organisation are for the customers benefit. Thus,
management can be called a proper profession.
38. (a) Top level management is responsible for coordinating the activities of
different departments according to overall objectives of the organisation.
39. (b): Rani doesn't have to do this function as she is in Top level management.
40. (c) Vipul is working in the middle level management.
41. (c): Pratap is working at lower level management.
42. (d): Vipul as a production manager will not interact with the actual workforce
as it's the job of the supervisory level.
43. (a): Pratap as a lower level manager will ensure that quality is maximised and
safety standards are maintained.
44. Top level management consists of CEO, Directors, MD, etc. who undertake
overall decisions of the organisation are responsible for coordination.
45. (a) He has been working at the top level in the management hierarchy.
(b) The basic task of the top management is to:
(i) Integrate diverse elements and coordinate the activities of different
departments according to the overall objectives of the organisation.
(ii) They are responsible for the welfare and survival of the organisation.
(iii) They formulate overall organisational goals and strategies for their
achievement.
(iv) They are responsible for all the activities of the business and for it's impact
on the society.
46. (b) Coordination is an all pervasive.
47. (d) Coordination enables Unity of Action in the organisation.
48. (d): The characteristic of Coordination discussed above is 'Coordination is all
pervasive'.
49. (d): Coordination
50. Coordination is the process by which a manager synchronises the activities of
different departments towards the achievement of organisational goals.
51. Coordination integrates group efforts by giving a common focus to group
objectives. This ensures that the performance is as per plans of the organisation.
52. Yes, Coordination is indeed the essence of management. By Coordination, we
mean a path through which the group functions are linked up. It binds the people
of the organisation and their activities to ensure a smooth functioning of the
work. It is that force which unites the working and efforts of the people of the
organisation towards the common objective of the organisation. Coordination
links the interrelated management functions. It is found at every level of
management. It begins right from the stage of planning where goals and
objectives are set for the organisation. Coordination is then required between the
stage of planning and staffing so that right kind of people are hired for the
execution of the plan. Next, the functions of directing and controlling must also be
coordinated with each other so as to realise the achievement of desired goals.
Hence, we see that coordination is intrinsic and imperative for management. It is
the 'essence' of management.
53. The points which clarify that management is gaining importance day by day
are explained as follows:
(i) Achievement of goals: Management helps in the achievement of goals such
that the efforts of all the individuals are organised and directed towards the
common goals of the organisation.
(ii) Increases efficiency: An increase in efficiency implies minimising the costs
and increasing the productivity through the optimum utilisation of resources. As
management helps in optimum utilisation of resources, it helps in increasing
efficiency.
(iii) Creates dynamic organisation: Management helps an organisation to adapt
the changes in external factors such as political, social, environmental and
economical changes.
54. Co-ordination is the force that binds all the other functions of management. It
is the common thread that runs through all activities such as purchase,
production, sales and finance to ensure continuity in the working of the
organisation. Features of coordination are:
(i) Coordination integrates group efforts: It unifies unrelated interests in to
purposeful work activity.
(ii) Coordination ensures unity of action: The purpose of coordination is to
secure unity of action in the realisation of a common purpose.
(iii) Coordination is a continuous dynamic process: It is not a one time function
but a continuous process. It begins at planning stage and continues till
controlling.
(iv) Coordination is an all pervasive function: Coordination is required at all
levels of management due to the interdependent nature of activities of various
departments.
55. 'Co-ordination is the orderly arrangement of group efforts to provide unity of
action in the pursuit of common purpose. Its importance are:
(i) Harmonised goals: Coordination synchronises the personal goals of the
individuals and the overall goals of the organisation.
(ii) Allotted work: Coordination integrates the opinions and thoughts of various
specialists and departments of an organisation so as to avoid diversion and
conflict among them.
(iii) Interdependence of divisions: As an organisation has various independent
departments such as production, sales and finance, coordination is needed to
synchronise their activities for the achievement of the common goals.
(iv) Specialisation Division of main activities into various sub-activities and
allotment of tasks based upon the area of expertise to different individuals. Every
person performs the task to the best of his/her potential, without considering
total work to be done. Coordination ensures the accomplishment of the overall
goal and taking benefits of specialisation.
(v) Size of Organisation: Coordination ensures a proper environment is available
for all so as each one can fully contribute to his/her maximum towards the
achievement of organisational goals.

CBSE Sample Questions

1. (b): Management creates a dynamic environment.

2. (b): Social
3. (b): Management of people
4. (b): Growth
5. (a): Management is a continuous process.
6. (a): Management
7. (b): Management as an art
8. (b): Restricted entry
9. (c): Restricted entry
10. (a): Top level of management
11. (a): To integrate diverse elements and coordinate activities of different
departments.
12. Level of management - Top level management
Functions of top-level management are:
(i) The top-level managers are responsible for the welfare and survival of the
organisation.
(ii) They analyse the business environment and its implications for the survival
of the firm.
13. (c): Planning
14. (b): Organising
15. (b): Coordination is a deliberate function.
16. (b): Functional differentiation
17. (b): Coordination is a deliberate function
18. The process highlighted above is coordination. The process by which a
manager synchronises the activities of different departments is known as
coordination. Coordination is the force that binds all the other functions of
management. It is the common thread that runs through all activities. It is
implicit and inherent in all functions of an organisation.
 Meaning, Characteristics, Objectives &
Importance of Management

1 Mark Questions

1. What is meant by management of work? (All India 2014)

Ans. Every organisation exists to achieve certain goals. Management sets and plans
certain activities, which are to be performed, so that the goals can be achieved. This is
considered as management of work.

2. What is meant by management of people? (Delhi 2014)

Ans. Management of people is an art of getting things done through others. A manager
deals with individuals who have different needs and behaviour. He directs and
motivates them to work towards the organisational goals.

3. What is meant by management of operations? (Foreign 2014)

Ans. Every organisation provides some basic product or service, for the production of
which there is a process of flow of input material and technology for transforming this
input into output for consumption. Thus, management involves management of
operations for converting input into output.

4. Identify the basic characteristic of management involved in the statement.

‘The activities involved in managing an organisation are common to all
organisations, whether economic, social or political’. (Compartment2014)
or
The management principles can be applied to all types of activities. Which
characteristic of management is highlighted by this statement?
(Hots; Delhi 2008)
Ans. Management is all pervasive.

[Link] is meant by management?(Delhi 2011)

Ans. Management is the process of planning, organising, staffing, directing and
controlling the enterprise resources efficiently and effectively for achieving the goals of
the organisation.

6. What is meant by effectiveness in management?(Delhi 2011)

Ans. Effectiveness in management is concerned with doing the right task/completing
activities/achieving goals within the prescribed time. In other words, it is concerned with
end results.
7. List any two social objectives of management. (All India 2011,2010; Delhi 2010)
Ans. Two social objectives of management are as follows:
(i) Using environment friendly methods of production.
(ii) Giving employment opportunities to the disadvantaged sections of the society.

8. Explain in one sentence how management increase i efficiency?

(Delhi 2011c; 2009c)
Ans. Management increases efficiency by reducing cost and increasing productivity
through better planning, organising, directing, staffing and controlling the activities of the
organisation.

9. Explain in one sentence how management helps in achieving group goals? (All
India 2011)
Ans. Management helps in achieving the group goals by directing the individual efforts
in achieving the overall goal of the organisation.

10. List any two organisational objectives of management. (All India 2010; Delhi
2010)
Ans. Two organisational objectives of management are as follows:
(i) Survival (ii) Earning profit

11. List any two personal objectives of management.

(All India 2010; Delhi 2010)
Ans. Personal objectives of management are as follows:
(i) Competitive salaries and perks.
(ii) Personal growth and development of employees.

12. Hero Ltd.’s target is to produce 10,000 shirts per month at a cost of’ 150 per
shirt. The production manager could achieve this target at a cost of’ 160 per shirt.
Do you think the production manager is effective? Give reason in support of your
answer. (HOTS; All India 2010)
Ans. Yes, the manager is effective as he has been able to achieve the target by
producing 10,000 shirts but he is not efficient as he is producing the same at a higher
production cost.

13. Volvo Ltd.’s target is to produce 10,000 shirts per month at a cost of’ 100 per
shirt. The production manager achieved this target at a cost of’ 90 per shirt. Do
you think the production manager is effective? Give one reason in support of
your answer. (HOTS; Delhi 2010)

Ans. Yes, the production manager is both efficient and effective. He is effective
because he has achieved the target in time and is efficient because he produced the
shirts at a lower production cost.
NOTE (i) Effectiveness means completing the task within specified time.
(ii) Efficiency means doing the task correctly with minimum cost.

14. Why is it said that ‘management is a goal oriented processes?

(All India2009; Delhi 2009)
Ans. Management is said to be a goal oriented process because it helps in achieving
organisational goals by using the efforts of different individuals.

15. Man tement helps in development of society. How?

(Hots; All India 2009)
Ans. Management helps in development of society by producing quality goods at fair
and competitive prices, providing employment and adopting new technologies to raise
the living standard of the society.

16. Why is it said that management is all pervasive’? (All India 2009)
Ans. Management is pervasive because the activities involved in managing an
enterprise are common to all enterprises, whether it is profit making or non-profit
making, social or political.

17. Management is a group activity. Why? (Delhi 2009; All India 2008)
Ans. Management is a group activity because it coordinates the efforts of organisational
members to achieve the pre-determined goals.

18. Name the process of designing and maintaining an environment in which

individuals working together in groups efficiently to accomplish selected
aims. (HOTS; Delhi 2008)
Ans. Management is the process of designing and maintaining an environment in which
individuals working in groups efficiently accomplish selected aims.

19. ‘In an organisation employees are happy and satisfied. There is no chaos and
the effect of management is noticeable’. Which characteristic of management is
highlighted in this statement? (Hots; All India 2008)
Ans. Management is an intangible force.

20. Name the process of working with and through others to effectively
achieve organisational objectives by efficiently using its limited resources in the
changing environment. (Hots; All India 2008)
Ans. Management is the process of working with and through others to effectively
achieve organisational objectives by efficiently using its limited resources in the
changing environment.
21. ‘Management is an intangible force’. Why? (Delhi2008C)
Ans. Management is intangible as it does not have a physical existence, one can only
feel its presence by the way the organisation functions.

4/5 Marks Questions

22. Mega Ltd was manufacturing water-heaters. In the first year of its operations,
the revenue earned by the company was just sufficient to meet its costs. To
increase the revenue, the company analysed the reasons of less revenues. After
analysis the company decided
(All India 2014c; VBQ)

(i) To reduce the labour cost by shifting the manufacturing unit to a backward
area where labour was available at a very low rate.

(ii) To start manufacturing solar water-heaters and reduce the production of

electric water-heaters slowly.
This will not only help in covering the risks, but also help in meeting other
objectives too.
(a) Identify and explain the objectives of management discussed above.
(b) State any two values which the company wanted to communicate to the
society.

Ans. Mega Ltd is discussing about the achievement of ‘organisational objectives’ in part
(i) and ‘Social objectives’ in part (ii) of the question.
(i) (a) Organisational objectives Management is responsible for setting and achieving
the organisational objectives. It achieves the objectives in such a manner that the
human and financial resources are acquired, used and maintained in the most
economic and efficient manner.
Organisational objectives are survival, profit and growth.

 Survival The most important objective of every businessis to survive and in order
to survive, it should earn enough revenue to cover its costs.
 Profit It is the incentive or reward for the efforts put in by an entrepreneur,
moreover, it is the reason behind carrying out a business.
 Growth It is an extension of the objective of survival and profit.

Business organisations must grow and expand their activities. The success of every
business is measured by the growth rate and growth is measured in terms of sales
profits, number of products produced and sold, etc.
(b) Social objectives Since, organisations are social units, their objectives should be in
line with general needs of the society.
Some of the social objectives of an organisation are:

 Supply of quality products.

  Using environmental friendly methods of production.
 It should provide the employment opportunities to the disadvantaged sections of
the society.

(ii) Two values which the company wants to communicate to the society are:

 Giving employment opportunities to the people of backward area:

 Environment friendly by producing solar heaters and reduced production of
electric heaters.

23. XYZ Power Ltd set up a factory for manufacturing solar lanterns in a remote
village as there was no reliable supply of electricity in rural areas. The revenue
earned by the company was sufficient to cover the costs and the risks. The
demand of lanterns was increasing day-by-day, so the company decided to
increase production to generate higher sales. For this, they decided to employ
people from the nearby villages as very few job opportunities were available in
that area. The company also decided to open schools and creches for the
children of its employees.
(i) Identify and explain the objectives of management discussed above.
(ii) State any two values which the company wanted to communicate to the
society. (Delhi 2014; VBQ)

Ans. (i) It is related with the social objective of management. It deals with the
commitment of an organisation towards society. Such objectives may relate with
producing eco-friendly products, providing employment to the weaker sections of the
society, etc.
By covering the costs and risks, the company has also achieved the organisational
objectives. This objective is related with three aspects:
(a) Survival Ensure the continuity of business operations.
(b) Profit Earn a reasonable profit, which covers the costs and risks of the business.
(c) Growth It ensures the success of business in the long-run.
(ii)Firstly, by manufacturing solar lanterns, company gives due values to the rural
people, now they will be able to enjoy electricity in their respective areas. Secondly, by
giving employment, they will raise the standard of rural people.

24. Explain any five features of management. (Delhi 2013)

or
State any five characteristics of management.(All India 2013)

Ans. Features of management are as follows:

(i) Goal-oriented process Every organisation has a set of economic and social goals
and management is meant to achieve these goals. Management ensures efficiency and
economy in the utilisation of human, physical and financial resources.
(ii) Group activity An organisation is a group of different individuals withdifferent skills.
Management directs and uses all such skills and activities of different individuals
towards the achievement of common organisational goals.
(iii) Intangible force Management is an intangible force as it cannot be seen but its
presence can be felt, when targets are achieved as per the pre-determined plans.
(iv) All pervasive Management is all pervasive as it is applicable in all types of
organisation, in all activities and at all levels.
(v) Multi-dimensional Management is multi-dimensional as it comprises of three
dimensions, viz management of work, people and operations.

25. Describe any five reasons, which clarify that ‘management is gaining
importance day-by-day’. (All India 2013)
or
State five points, which highlight the importance of management.
(Delhi 2013)
or
‘Success of every organisation depends upon its management’. Explain any five
reasons to justify the above statement. (Delhi 2011c)
or
‘Lack of proper management results in wastage of time, money and efforts’. In the
fight of this statement, explain any four points of importance of management.
(Delhi 2010C)

Ans. According to Drucker, ‘Management is the dynamic life-giving element in every

organisation. Without it, the resources of production remain resources’. It is the
activating force that gets things done through people. ‘
The importance of management can be unt erstood from the following points:

(i) Management helps in achieving group goals An organisation sets certain goals.
Management aims at achieving such goals by directing the individual efforts.

(ii) Management creates a dynamic organisation With the ever changing needs and
demands of the environment, an organisation needs to adopt those changes.
Management helps people to adopt such changes easily, so that the organisation is
able to sustain successfully in the competitive market.

(iii) Management increases efficiency With proper planning, organising, staffing,

directing and controlling the activities of the organisation, management increases the
efficiency by producing ’. maximum output with minimum cost.

(iv) Management helps in achieving personal objectives A manager motivates its

subordinates in such a manner that it boosts their morale and able to achieve their
personal objectives such as competitive salary, peer recognition, etc while contributing
to the organisational objectives.

(v) Management helps in development of society Management in an organisation

helps the society by way of supplying quality products at reasonable price. It also
contributes towards society by providing basic amenities such as schools, hospitals,
dispensaries etc. Moreover, it also generates employment opportunities for the
disadvantaged sections of the society.

26. Give the meaning of management and explain how it creates a

dynamic organisation and helps in the development of society.
(Delhi 2012)

Ans. Management is the process of planning, organising, staffing, directing and

controlling the enterprises’ resources efficiently and effectively for achieving the goals of
the organisation. The traditional viewpoint of the management is concerned with the
opinion that ‘Management is the art of getting things done through others’. On the other
hand, as per the modern concept, ‘Management is a process of getting things done
through others with the aim of achieving goals effectively and efficiently’.

Management creates a dynamic organisation All organisations operate in a

constantly changing environment. However, individuals in an organisation usually resist
change. Management persuades people to adopt environmental changes so that the
organisation can maintain its competitive edge.

Management helps in the development of society Management helps to provide

good quality products and services, creates employment opportunities, adopts new
technology for the betterment of the people and leads the path towards growth and
development.

27. Explain how management increases efficiency and helps in the development
of society?(All India 2012)
Ans. Increases efficiency The aim of a manager is to reduce costs and increase
productivity through better planning, organising, staffing, directing, and controlling the
activities of the organisation.
Helps in the development of society Management helps in the development of
society by providing good quality products and services, creating employment
opportunities, providing fair remuneration, adopting new technology, etc for the
betterment of people.

28. ‘Management is the process of working with and through others to

effectively achieve organisational objectives by efficiently using limited
resources in the changing environment’. In the light of the above statement,
explain any four features of management. (Delhi 2010c)

Ans. The main features which highlight the nature of management are as follows:
(i) Management is a goal oriented process Management always aims at achieving
certain specified objectives. It seeks to achieve predetermined objectives through
efficient use of human and non-human resources. .
(ii) Management is a continuous process Management is an on-going process. The
management functions are simultaneously performed by all managers all the time. It
involves continuous handling of problems and issues. Managers identify problems and
try to solve them by taking appropriate actions on a regular basis.

(iii) Management is a group activity An organisation is a collection of diverse

individuals with different needs. Every member of the group has a different purpose for
joining the organisation but as members of the organisation, they work towards fulfilling
the common organisational goal. This requires teamwork and coordination of individual
efforts in a common direction.

(iv) Management is a dynamic function Every organisation interacts with

environment. In order to survive, it is necessary that an organisation must change itself
according to the needs of environment.

29. ‘Management seeks to achieve certain objectives which must be derived from
basic purpose of the businesses. In the light of the above statement, explain
organisational and social objectives of management. (All India 2010)

Ans. (i) Organisational objectives Management is responsible for setting and

achieving the organisational objectives. It helps to achieve the objectives in such a
manner that the human and financial resources are acquired, used and maintained in
the most economic and efficient manner. Organisational objectives are as follows:

(a) Survival The most important objective of any business is to survive and in order to
survive, it should earn enough revenue to cover costs.
(b)Profit It is the incentive or reward for the efforts put in by an entrepreneur. Moreover,
it is the reason behind carrying out a business.
(c) Growth A business needs to add to its prospects in the long-run and for this it needs
to grow and expand its activities. The success of every business is measured by the
growth rate and growth is measured in terms of sales, profits, number of products
produced and sold, etc.

(ii) Social objectives Since, organisations are social units, their objectives should be in
line with general needs of the society.
Some of the social objectives of an organisation are given below
(a) Supply of quality products at reasonable prices.
(b) Using environmental friendly methods of production.
Should provide the employment opportunities to the disadvantaged sections of the
society.
 Nature of Management: Management as an
Art, Science & Profession
1 Mark Questions

1. Identify the nature of management when it is said to be a systematised body of

knowledge that explains certain general truths.
(HOTS; Delhi 2012)
Ans. Management as a science.

2. Identify the nature of management when it is practised as personal application

of existing knowledge to achieve desired results.
(All India 2012)
Ans. Management as an art.

3 Mark Questions

3. What is meant by management as an art? Explain with the help of any three
features. (Delhi 2010c)
Ans. Art is the skillful and personal application of existing knowledge to achieve desired
goals. Management is said to be an art since, it satisfies the following features of an art:
(i) Manager practices the art of management in day-to-day job of managing and
enterprise on the basis of study, observation and experience.
(ii) Because of the availability of the theoretical knowledge of management, a manager
is able to apply it in a personalised manner.
(iii) Art requires creativity, similarly manager also requires creativity to apply the
acquired knowledge in a personalised and skillful manner in real situations.

4. What is meant by management as a science? Explain with the help of any three
features.
Ans. Management as a Science Science is the systematised body of knowledge
which establishes the relationship between causes and their effects.
Management is regarded as a science because of the following features of the
management:

(i) Existence of systematic body of knowledge Like science, management has its
own theory and principles that have developed over a period of time. Thus, we can say,
management has a systematised body of knowledge.
(ii) Scientific methods of observation Certain management principles are evolved
from scientific methods of observation. The cause and effect relationship is the art of
science but it is applicable in management also. Therefore, management principles are
accurate and reliable.
(iii) Universally accepted principles Certain management principles are universally
valid. The established principles of modern management have universal applicability.
Principle of division of labour and specialisation, unity of command, etc are accepted
everywhere

5. ‘Management is the systematised body of knowledge that explains certain

general truths.’ Explain. (Delhi 2009c)

Ans. Management as a science. It is a systematised body of knowledge which

explains certain general truths and it is based on logical observations, facts and events.

Management as a Science Science is the systematised body of knowledge which

establishes the relationship between causes and their effects.
Management is regarded as a science because of the following features of the
management:

(i) Existence of systematic body of knowledge Like science, management has its
own theory and principles that have developed over a period of time. Thus, we can say,
management has a systematised body of knowledge.

(ii) Scientific methods of observation Certain management principles are evolved

from scientific methods of observation. The cause and effect relationship is the art of
science but it is applicable in management also. Therefore, management principles are
accurate and reliable.

(iii) Universally accepted principles Certain management principles are universally

valid. The established principles of modern management have universal applicability.
Principle of division of labour and specialisation, unity of command, etc are accepted
everywhere.

6. Management is skillful and personal application of existing knowledge to

achieve desired results. Explain. (All India 2009c)

Ans. Management as an art. It is the skillful and personal application of existing

knowledge to achieve desired results. It can be acquired through study, observation and
experience. Art is the skillful and personal application of existing knowledge to achieve
desired goals. Management is said to be an art since, it satisfies the following features
of an art:

(i) Manager practices the art of management in day-to-day job of managing and
enterprise on the basis of study, observation and experience.

(ii) Because of the availability of the theoretical knowledge of management, a manager

is able to apply it in a personalised manner.

(iii) Art requires creativity, similarly manager also requires creativity to apply the
acquired knowledge in a personalised and skillful manner in real situations.
4/5 Mark Questions

7. Science is a systematised body of knowledge that explains certain general

truths or the operation of general laws? In the light of this statement, describe
whether management is a science.
(Compartment 2014)

Ans. Management is a science but not an exact science. The reasons are:

(i) Systematised body of knowledge Like science, management is a systematic body

of knowledge with its own theories and principles that have developed over a period of
time.
So, this feature is present in management.

(ii) Principles based on observation and experimentation Like science,

management principles are derived through observation and repeated experimentation.
So, this feature is present in management. However, since management deals with
human beings, the outcome of these experiments are not capable of being accurately
predicted.

(iii) Universal validity Principles of management like principles of pure science provide
managers with certain standardised techniques that can be used in different situations.
Since they have to be modified according to given situation, their application and use is
not universal.
So, this feature of science is not fully present in management.

8. ‘The skillful and personal application of existing knowledge to achieve

desired results is called art’. In the light of this statement, describe whether
management is an art or not. (Compartment 2014)
or
‘Art is concerned with personal application of knowledge’. In the light of this
statement, compare all the features of art with management and prove that it is an
art. (Delhi 2010c)

Ans. Basic features of art are as follows:

(i) Existence of theoretical knowledge.
(ii) Personalised application.
(iii) Based on practice and creativity.

Management can be said an art, since it satisfies the following criteria:

(a) A successful manager practices the art of management in the day-to-day job of
managing an enterprise which is based on study, observation and experience. There
are lot of literature available in various areas of management like marketing, finance
and human resource which the manager has to specialise in.
(b) There are various theories of management propounded by many management
thinkers, which prescribe certain universal principles. A manager applies these scientific
methods and body of knowledge to a given situation, issue or a problem in his own
unique manner.

(c) A manager applies his acquired knowledge in a personalised and skillful manner in
the light of the realities of a given situation. He is involved in the activities of the
organisation, studies critical situations and apply his own theories in a given situation.

(d) Like any other art, a manager, after studying various situations, formulate his own
theories for use in given situation. This gives rise to different styles of management.

9. ‘Management is regarded as an art by some, as science or as inexact science

by others. The truth seems to be somewhere in between.’
In the light of this statement, explain the true nature of management.
(All India 2011; Delhi 2011)

Ans. Management is an art as well as a science or an inexact science.

Management as an Art Management may be regarded as an art because of the

following reasons:

(i) Existence of theoretical knowledge A successful manager practices the art of

management in the day-to-day job of managing an enterprise based on study,
observation and experience.

(ii) Personalised application The use of basic knowledge varies from individual to
individual, therefore, it is a personalised concept, e.g. two dancers, two speakers will
always differ in demonstrating their art.

(iii) Based on practice and creativity A good manager works through a combination of
practice creativity, imagination, initiative and innovation. He uses tact and creativity to
develop his own style. Thus, management is an art because it satisfies all the
characteristics of an art.

Management as a Science Management may be regarded as a science because it

fulfils the following characteristics of science:

(i) Systematised body of knowledge As science, management has a systematised

body of knowledge. It has its own theories and principles that have developed over a
period of time. It also draws some principles from other disciplines such as economics,
sociology, psychology and mathematics.

(ii) Principles based on scientific observation and experiments Like science,

management principles are based on scientific enquiry and observations.
(iii) Universal validity and application Like science, principles of management are
universally applicable. Thus, we can say that management is also a science.
However, the principles of management are not as exact as the principles of Physics or
Chemistry. Management principles are flexible and can be modified to suit different
situations. Thus, management can be called as an inexact science also. In the light of
both the above statement, the true nature of management can be defined as,
management is both an art and a science. Principles of management constitute the
science of management and the practice of management principles is the art of
management.

10. Management is a profession like medical or legal profession. Do you agree

with this statement? Give any four reasons in support of your answer. (All India
2011)
or
Is management a full-fledged profession? Give any three reasons in support of
your answer. (Delhi 2010)

Ans. No, management is not a full-fledged profession like legal and medical profession
because of the following reasons:

(i) Restricted entry The entry to any profession is restricted through a prescribed
qualification. But there is no restriction on anyone being appointed as a manager in any
business enterprise.

(ii) Professional association Though AIMA, is an association for management

graduates, it is not obligatory for managers to get registered with any professional body
like the Medical Council or Bar Council of India, which regulates the professional
conduct of doctors and lawyers respectively.

(iii) Ethical code of conduct Legal and medical professions are bound by a code of
conduct, which guides the behaviour of its members. AIMA has devised a code of
conduct for Indian managers but there is no statutory backing for this code.

(iv) Service motive The motive of legal and medical profession is to serve their client’s
interests by rendering dedicated and committed service. The basic purpose of
management is to help the organisation to achieve its goals by providing good quality
products at reasonable prices. A manager is expected to adopt the service motive but
the basic motive remains profit maximisation.

11. Is management a science? Give any three reasons in support of your answer.
(Delhi 2010)

Ans. Yes, management is a science but not an exact science. Science is the
systematised body of knowledge which establishes the cause and effects relationship.
Management is regarded as a science, because the following characteristics of science
are applicable to management as well.
Management as a science Management may be regarded as a science because it
fulfils the following characteristics of science:

(i) Systematised body of knowledge As science, management has a systematised

body of knowledge. It has its own theories and principles that have developed over a
period of time. It also draws some principles from other disciplines such as economics,
sociology, psychology and mathematics.

(ii) Principles based on scientific observation and experiments Like science,

management principles are based on scientific enquiry and observations.

(iii) Universal validity and application Like science, principles of management are
universally applicable. Thus, we can say that management is also a science.
However, the principles of management are not as exact as the principles of Physics or
Chemistry. Management principles are flexible and can be modified to suit different
situations. Thus, management can be called as an inexact science also. In the light of
both the above statement, the true nature of management can be defined as,
management is both an art and a science. Principles of management constitute the
science of management and the practice of management principles is the art of
management.

12. Is management an art? Give any three reasons in support of your answer.
(Delhi 2010c)
Ans. Yes, management is an art, because practical applications of knowledge is an art
and management is also the application of skill and knowledge to achieve the desired
results.
Following features of art exist in management:

Management as an art Management may be regarded as an art because of the

following reasons:

(i) Existence of theoretical knowledge A successful manager practices the art of

management in the day-to-day job of managing an enterprise based on study,
observation and experience.

(ii) Personalised application The use of basic knowledge varies from individual to
individual, therefore, it is a personalised concept, e.g. two dancers, two speakers will
always differ in demonstrating their art.

(iii) Based on practice and creativity A good manager works through a combination of
practice creativity, imagination, initiative and innovation. He uses tact and creativity to
develop his own style. Thus, management is an art because it satisfies all the
characteristics of an art.
 Levels & Functions of Management
1 Mark Questions

1. At which level of management, the managers are responsible for the welfare
and survival of the organisation?
(Compartment 2014; Delhi 2012; HOTS)

Ans. At the top level of management, the managers are responsible for the welfare and
survival of the ■ organisation.

2. Name the level of management at which the managers are responsible for
implementing and controlling the plans and strategies of the
organisation. (HOTS; AH India 2012)

Ans. Middle level management.

3. Your grandfather has retired as the director of a manufacturing company. At

which level of management was he working? Different type of functions are
performed at this level. State any one function.
(Hots; Delhi 2011)

Ans. He was working at the top level of management.

Functions performed at the top level are: (any one)
(i) To set objectives for the organisation, e.g. in the following year, the sales of the
company will have to cross Rs. 1000 crore.
(ii) To analyse, evaluate and deal with the external forces.
(iii) To formulate the policies of business.
(iv) To create an organisational framework consisting of authority responsibility and
relationship.

4. Your grandfather has retired from an organisation in which he is responsible

for implementing the plans developed by the top management. At which level of
management was he working? State one more function performed at this
level. (HOTS; All India 2011)

Ans. He was working at the middle level of management.

Functions performed by the middle level managers are: (any one)
(i) To interpret the policies framed by the top level of management.
(ii) To ensure that their department has the necessary personnel.
(iii) To assign necessary duties and responsibilities to the employees of their respective
departments for implementation of the plans.
(iv) To motivate employees of their respective departments to achieve the desired
objectives.
5. List any two functions of top level management. (Delhi 2011c)

Ans. The two functions of top level management are:

(i) Laying down the overall objectives and framing policies of the enterprise.
(ii) Coordinating the activities of different departments and assembling all resources.

6. List any two functions of middle level management.

(All India 2011; 2008)

Ans. The two functions of middle level management are:

(i) Interpretation of policies framed by top management to lower management.
(ii) Responsible for implementation and controlling of plans and strategies.

7. Enumerate the levels of management. (Delhi 2008C).

Ans. There are three levels in the hierarchy of management which as follows:
(i) Top level management (ii) Middle level management (iii) Lower or supervisory level
management

4/5 Mark Questions

8. Raman is working as a plant superintendent in Tifco Ltd. Name the

managerial level at which he is working? State any four functions he will perform
as plant superintendent in this company. (Hots; Delhi 2008)

Ans. He is working at the middle level of management.

He will perform the following functions:
(a) Responsible for implementing and controlling plans and strategies developed by
top management.
(b) Responsible for all the activities of first line managers.
(c) Interpret the plans and policies. Framed by top management.
(d) Ensuring necessary personnel in their departments.

9. ‘Management is a series of continuous, inter-related functions with no

pre-determined sequence’. Explain. (HOTS,-Delhi2008C)

Ans. Management is considered as a series of continuous, inter-related functions with

no pre-determined sequence. The management process includes planning, organising,
staffing, directing and controlling functions.
These functions are inter-related. It is clear from the following facts:

(i) Planning is the primary function and basis for all other functions.
(ii) Organising is creation of the organisational structure to implement the
plans. .
(ii) Staffing involves filling jobs with right persons in an organisation.
(iv) Directing is concerned with instructing, guiding and inspiring people in the
organisation for achieving its planned objectives through the employees.
(v) The controlling function ensures that action leads to desired targets.

Planning provides the basis (i.e. the standards of performance for management
functions controlling and controlling helps in future planning). Similarly, directing initiates
action and controlling ensures monitoring of performance.
However, the various functions of a manager are discussed in order, i.e. planning,
organising, staffing directing and controlling, but in reality the managers are rarely able
to carry them in isolation. It is often difficult to pinpoint where one ended and the other
began. Thus, these management functions are inter-related with no pre-determined
sequence, while performing specific function.
 Features/Nature & Importance of Coordination
4/5 Marks Questions

1. What is meant by ‘coordination’? Explain why coordination is important in an

organisation. (Compartment 2014)

Ans. Coordination is the orderly arrangement of group efforts to provide unity of action
in pursuit of common purpose. It involves unifying, integrating and harmonising the
activities of different departments and individuals for the achievement of common goal.
Importance of coordination can be understood by following points:

(i) Growth in size As the organisations grow in size, the number of people in the
organisation also increase. Different individuals have different objectives. Coordination
is needed to integrate diverse individual objectives with organisational objectives.

(ii) Functional differentiation Different departments in the organisation have their own
set of objectives, policies, etc. This creates conflicting situations many a times.
Coordination seeks to intergrate the efforts and activities of various departments.

(iii) Specialisation In modern organisations, high level of specialised activities take

place, which are performed by specialists. Specialists often consider themselves to be
supreme and are not open to suggestions and advice. This brings conflicting situations,
which can be resolved by coordination.

2. Coordination in the essence of management. Explain how. (Compartment 2014)

or
Coordination is not a separate function of management. It is the essence of
management. Explain with the help of a suitable example.
(Ail India 2009, 2008; Delhi 2009)

Ans. Coordination is a function that is inherent and pervasive. Coordination is not a

separate function of management. It is the essence of
management. The coordination is needed to perform all the
functions of management. They are:

(i) Coordination in planning In planning, coordination is needed

 between overall plan of the organisation and the departmental plans.

 between objectives and available physical and human resources, e.g.,
coordination between production department and sales department targets.

(ii) Coordination in organising In organising, coordination is required

  between resources of an organisation and activities to be performed.
 among authority, responsibility and accountability, e.g. if a supervisor is
given responsibility to get the work done, he should also be given the
authority to divide the work among his subordinates.

(iii) Coordination in staffing In staffing, coordination is needed

 between the skills of the workers and the jobs assigned to them.
 between the efficiency of the workers and the compensation, etc, e.g. a Chartered
Accountant should be given work of financial nature.

(iv) Coordination in directing In directing, coordination is required

 among orders, instructions, guidelines and suggestions.

 between superiors and subordinates, e.g. a manager instructs the subordinates,
motivates them and also supervises their work.

(v) Coordination in controlling In controlling, coordination is required

 between the standard and the actual performance.

 between correction of deviations and achievement of objectives, e.g. If production
target for workers is set as 80 units per hour while they are able to produce only
60 units per hour, then there is a need to coordinate the plans with actual
performance.

Thus, coordination makes planning more purposeful, organisation well knit and control
more effective. It is the key to the success of management.
(vi) Coordination is the essence of management Management function revolves around
making, arranging things, moving things in an organisation in relation to overall
objective of the organisation. Thus, coordination can be considered as the core function
of management which ensures that all the factors in the business work together
smoothly.

3. Explain any five features of coordination. (All India 2013)

or
State any five features of ‘coordination’. (Delhi 2012)
or
Explain any four characteristics of coordination.

Ans. Coordination is a continuous process, by which a manager integrates the inter-

related activities of different departments in order to achieve the common organisational
goals.
Features of coordination are as follows:
(i) Integration of group efforts All business activities are interdependent. Therefore,
there should be coordination among them. Coordination enables the business to make
efficient use of its available resources.

(ii) Unity of action Coordination enables the manager to secure unity of action in the
direction of a common purpose.

(iii) Continuous process It is a continuous process and not a one-time task. A

manager has to continuously coordinate the activities of different departments in order
to meet the targets by using the available resources efficiently.

(iv) All pervasive function It is an all pervasive function, which runs through all
managerial functions from planning till controlling. It is not only needed among different
departments but also within the departments at all levels.

(v) Deliberate function A manager has to coordinate the efforts of different individuals
working in an organisation in a conscious and deliberate manner.

4. What is meant by coordination? How it integrates group efforts and ensures

unity of action. Explain. (Delhi 2012)

Ans. Coordination is the integration, synchronisation or orderly arrangement of group

efforts to provide unity of action, directed towards the accomplishment of common
objectives.

(i) Coordination integrates group efforts It integrates group efforts by unifying diverse
interests, thereby giving them a common focus to ensure that performance is in
accordance with pre-determined plans.

(ii) Coordination ensures unity of action The purpose of coordination is to ensure

unity of action for the realisation of a common purpose. It acts as the binding force
between departments and ensures that all actions are aimed at achieving the goals of
the organisation.

5. ‘Coordination is a synchronisation of group efforts to achieve

organisational objectives’. In the light of this statement, highlight any three
features of coordination. (All India 2011)
or
‘Coordination’s the orderly arrangement of group efforts to provide unity of
action in the pursuit of common purpose’. In the light of this statement, explain
the nature of coordination.
(All India 2011; Delhi 2011,2009)

Ans. Coordination is the process whereby an excecutive develops an orderly pattern of

group efforts among his subordinates and ensures unity of action in the pursuit of
common purpose.
Features/Nature of Coordination
The features or nature of coordination are as follows:

(i) Integration of group efforts All business activities are interdependent. Therefore,
there should be coordination among them. Coordination enables the business to make
efficient use of its available resources.
For example, supply of material should come, when production needs it. If there is a
mismatch in the time schedule, it is an instance of lack of coordination. It is the central
task of the manager to reconcile differences in approach, timing, efforts or interests to
harmonise individual goals with organisational goals. Coordination is the effort to ensure
a smooth interplay of the functions and forces of all the different components of an
organisation so that its purpose will be realised with minimum friction and maximum
collaborative effectiveness

(iii) Coordination is needed at all levels Coordination is an essential function which is

required at all levels of management. The content and scope of coordination will vary at
different levels. However, it is a part of duty which should be performed by every
managerial personnel right from operational level to the top management.

(iv) Coordination ensures unity of action The purpose of coordination is to unite the
efforts of every individual in the realisation of common purpose.

6. Coordination is needed at all levels of management and is the responsibility of

all managers. Explain how? (All India; Delhi 2009; HOTS)

Ans. Coordination is required in all group efforts, in every organisation at all levels of
management. It is not the responsibility of top management only. Managers at all levels
are responsible for achieving coordinated efforts in their respective departments or
units.
The need of coordination at various levels of management may be described as follows:

(i) At the top level management It has to take care that there is coordination between
organisational goals and the goals of the units and sub-units formed for achieving these
goals.

(ii) At the middle level management That is the departmental managers, who have to
coordinate their departmental plans with the plans of other departments. This level links
the top level management with the lower level management and coordinates between
them by transmission of orders downward and problems and feedback reports upward.

(iii) At the lower level management Coordination is required between the actual
operations with the plans made and reconcile the view of management and workers.
7. Justify how coordination is

 a continuous process
 an all pervasive function
 a deliberate function (Delhi 2009C; All India 2009)

Ans. Coordination as

(i) A continuous process ‘To coordinate is to harmonise all the activities of an

organisation so as to facilitate its success’. It is a continuous process because the goals
cannot be achieved with harmony and sustained efforts. It should start at the planning
stage and continued with the other functions of management. The continuity arises as a
result of being the essence of management rather than being a separate function.

(ii) An all pervasive function It is required at all levels of management due to the
interdependent nature of activities of different departments. It integrates the efforts of
different departments and different levels.

(iii) A deliberate function A manager has to coordinate the efforts of different people
in a conscious and deliberate manner even where the members of a department
willingly cooperate and work, coordination gives a direction to that willing spirit.
 Principles Of Management

1. ____________ refers to doing the task correctly and with minimum cost. (2024)
(A) Effectiveness
(B) Coordination
(C) Process
(D) Efficiency
Ans. (D) Efficiency
2. State any four characteristics of management. (2024)
Ans. Characteristics of management are: ( Any four)
(i) Management is a goal-oriented process as it unites the efforts of different
individuals in the organisation towards achieving these goals.
(ii) Management is all pervasive function as its activities are common to all
organisations whether economic, social or political.
(iii) Management is multidimensional/complex as it involves: Management of
work, Management of people and Management of operations.
(iv) The process of management is a series of continuous, composite but separate
functions that are simultaneously performed by all the managers all the time.
(v) Management is a group activity as it requires team work and coordination of
individual efforts in a common direction towards fulfilling the common
organisational goal.
(vi) Management is a dynamic function and has to adapt itself to the changing
environment.
(vii) Management is an intangible force that cannot be seen but its presence can
be felt in the way the organisation functions.
3. State any four functions performed by Top Level Management. (2024)
Ans. Functions performed by Top Level Management are: (Any four)
(i) Their basic task is to integrate diverse elements and coordinate the activities
of different departments according to the overall objectives of the organisation.
(ii) They are responsible for the welfare and survival of the organisation.
(iii) They analyse the business environment and its implications for the survival
of the firm.
(iv) They formulate overall organisational goals and strategies for their
achievement.
(v) They are responsible for all the activities of the business and for its impact on
society.
 Previous Years' CBSE Board Questions
2.1. Principles of Management - Concept and Significance
MCQ
1. The principles of management are guidelines to action but do not provide
readymade straitjacket solutions to managerial problems.
The feature of principles of management discussed above is:
(a) Universal applicability (b) General guidelines
(c) Flexible (d) Mainly behavioural.
(Term-1, 2021-22)
2. The application of principles of management is dependent upon the prevailing
situation at a particular point of time.
The characteristic of principles of management reflected in the above statement
is:
(a) Universal applicability (b) Cause and effect relationship
(c) Flexible (d) Contingent.
(Term-1, 2021-22)
3. 'Management principles help in thoughtful decision making. They emphasise
logic rather than blind faith. This statement describes the following point of
significance of Principles of Management:
(a) Fulfilling social responsibility
(b) Scientific decisions
(c) Meeting changing environment requirements
(d) Optimum utilisation of resources and effective administration.
(Term-1, 2021-22)
4. The principles of management are said to be flexible as:
(a) they aim at influencing behaviour of human beings.
(b) they are general guidelines to action, but do not provide ready made solutions
to management problems.
(c) they can be modified by the manager when the situation so demands.
(d) their application is dependent upon the prevailing situation at a particular
point of time. (2020 C)
VSA (1 mark)
5. Principles of management equip the managers to foresee the cause and effect
relationships of their decisions and actions so that the wastages associated with a
trial and error approach can be overcome.
Identify the point of significance of principles of management highlighted here.
(Foreign 2019)
SA II (4 marks)
6. Explain any four points of importance of principles of management.
(Delhi 2016)
7. An environmentally conscious multinational company "AXN Ltd." follows
certain well defined business principles that result to minimise the employee
turnover. Following are some of the important environmental factors followed by
'AXN Ltd:
I. Honour the law of every country in which it operates.
II. Respect the culture and customs of all nations.
III. Provides clean and safe products to enhance the quality of life throughout the
world.
IV. Develop a culture in the company that enhances individual creativity and
teamwork while honouring mutual trust and respect between management and
labour.
From the above,
(i) identify and state any one general principle of management and any one
dimension of business environment.
(ii) also identify any two values which the above guiding principles and
environmental factors are conveying to the society.
(Delhi 2015 C)
8. XYZ Power Ltd. set up a factory for manufacturing solar lanterns in a remote
village as there was no reliable supply of electricity in rural areas. The revenue
earned by the company was sufficient to cover the costs and the risks. The
demand of lanterns was increasing day by day, so the company decided to
increase production to generate higher sales. For this, they decided to employ
people from the nearby villages as very few job opportunities were available in
that area. The company also decided to open schools and creches for the children
of its employees.
(i) Identify and explain the objectives of management discussed above.
(ii) State any two values which the company wanted to communicate to the
society. (Delhi 2014)
LA (5 marks)
9. Explain any five points of significance of Principles of Management.
(NCERT, Delhi 2019)
10. Explain how principles of management help the managers:
(i) in taking scientific decisions and
(ii) in providing the managers with useful insights into real world situations.
(Delhi 2019)
ET (6 marks)
11. Explain 'Cause and effect of relationship' as a feature of principles of
management,
(i) Meeting changing environment requirements; and
(ii) Management training, education and research as significance of principles of
management.
(2023)
12. Explain any four characteristics of principles of management.
(Delhi 2016)
2.2 Fayol's Principles of Management
MCQ
13. Sangeeta visited 'Smile Dental Clinic' for treatment of toothache. She
observed that the receptionist was seated at the reception desk, the place fixed
for her. Dental instruments were laid neatly in dental instrument trays and the
used instruments were placed in the sterilisation area. There was a fixed place for
everything and it was present there. There was no hindrance in the work of the
dentist and she was working with her maximum efficiency.
The principle of management followed at the 'Smile Dental Clinic' was
(a) Equity (b) Discipline
(c) Order (d) Initiative.
(2023)
14. Each participant in a formal organisation should receive orders from one and
only one boss and be responsible to only one superior.
The principle of management discussed above is:
(a) Authority and Responsibility (b) Unity of command
(c) Esprit de corps (d) Unity of direction
(Term-1, 2021-22)
15. 'Good Health Care' ensures that no doctor provides less favourable treatment
to patients on account of gender, religion, occupation, language, caste, belief or
nationality. They do their utmost to ensure that all patients are treated as fairly as
possible. Identify the principle of management being followed by 'Good Health
Care!
(a) Stability of personnel (b) Initiative
(c) Order (d) Equity
(Term-1, 2021-22)
16. Identify the principle of management given by Fayol according to which 'The
intent of this principle is to produce more and better work with the same effort.'
(a) Division of work (b) Unity of direction
(c) Scalar chain (d) Equity
(Term-1, 2021-22)
17. 'This principle will give rise to a spirit of mutual trust and belonging ness
among team members. Which principle of management stated by Fayol is
highlighted by this statement?
(a) Initiative (b) Esprit de Corps
(c) Equity (d) Remuneration of Employees
(Term-1, 2021-22)
18. Pioneer Ltd. is dealing in fruit Juices and hair oils. To ensure unity of action
and coordination, it has made two separate divisions for each product. Each
division has its own incharge, plans and execution resources. Thus, both the
divisions are moving towards the same objectives through focused efforts.
Identify the Principle of management followed by Pioneer Ltd. in the above case.
(a) Esprit de corps (b) Equity
(c) Unity of Direction (d) Authority and Responsibility
(Term-1, 2021-22)
19. The Fayol's principle of ___________ emphasises on kindliness and justice in the
behaviour of managers towards workers.
(a) Equity (b) Discipline
(c) Esprit de Corps (d) Scalar Chain
(Term-1, 2021-22)
VSA (1 mark)
20. Appliances India Ltd. is engaged in manufacturing and distribution of home
appliances since 1987. It has a good name in the market as the company is
producing good quality appliances. It has separate departments for
manufacturing, finance, sales, maintenance services and technical services to
achieve specialisation.
Since the areas of operations of the company have increased and customers have
become more demanding, the company decided to modify the existing principle
of management to meet the changing requirements of the environment.
State the general principle of management which the company wants to modify
to meet the changing requirements.
(Delhi 2019)
SA I (3 marks)
21. Vibhu joined as a Chief Executive Officer (CEO) of 'Mega Marut Ltd., a firm
manufacturing cars. On the first day he addressed his subordinates saying that
organisations should have a chain of authority and communication that runs
from top to bottom and should be followed by managers and subordinates. He
also added that for routine matters a worker can not directly contact the CEO but
in an emergency he/she may contact directly.
Vibhu discussed an important principle of management. Identify and explain the
principle with the help of an example.
(2023)
22. Vaibhav Sharma was working as the Production Manager in Crescent
Pharmaceuticals Pvt. Ltd. To get his son admitted in school he wanted to take
leave from the office but on the same day, an important meeting with the Chief
Executive Officer (CEO) of the company was scheduled to discuss about some
new medicines to be manufactured. Considering the significance of the meeting,
he did not take leave. The CEO appreciated his exemplary behaviour as he gave
priority to the organisational interest over his personal interest.
Name and explain the principle of management being followed by Vaibhav
Sharma in the above case.
 (2020 C)
23. Explain 'order' and 'initiative' as principles of general management.
(Delhi 2017)
24. Voltech India Ltd. is manufacturing LED bulbs to save electricity and is
running under heavy losses. To revive from the losses, the management thought
of shifting the unit to a backward area where labour is available at a low cost. The
management also asked the workers to work overtime without any additional
payment and promised to increase the wages of the workers after achieving its
mission. Within a short period, the company started earning profits, because both
the management and the workers honoured their commitments.
(a) State the principle of management described in the above para.
(b) Identify any two values that the company wants to communicate to the
society. (Delhi 2014 C)
25. ABC Ltd. is engaged in producing electricity from domestic garbage. The
management even takes workers into confidence before taking important
decisions. All the workers are satisfied as the behaviour of the management is
very good.
(a) State the principle of management described in the above para.
(b) Identify any two values which the company wants to communicate to the
society.
(Delhi 2014 C, Delhi 2014)
26. Telco Ltd. is manufacturing files and folders from the old clothes to
discourage use of plastic files and folders. For this, they employ people from
nearby villages where very less job opportunities are available. An employee,
Harish, designed a plan for the cost reduction but it was not welcomed by the
production manager. Another employee gave some suggestion for improvement
in design, but it was also not appreciated by the production manager.
(a) State the principle of management described in the above para.
(b) Identify any two values that the company wants to communicate to the
society. (AI 2014 C)
SA II (4 marks)
27. 'Aapka Vidyalaya' believes in holistic development of students and encourages
team building through a mix of curricular, co-curricular and sports activities. On
its Founder’s Day, a stage performance had to be put up. A committee of ten
prefects was constituted to plan different aspects of the function. They all decided
to use recycled paper for decoration. There was a spirit of unity and harmony and
all members supported each other. With mutual trust and belonging ness the
programme was systematically planned and executed. Kartik, one of the prefects,
realised that unknowingly the group had applied one of the principles of
management while planning and executing the programme. He was so inspired
by the success of the function that he asked his father to apply the same principle
in his business. His father replied that he was already using this principle.
(a) Identify the principle of management applied for the success of the
programme.
(b) State any two features of management highlighted in the above para.
(c) Identify any two values which 'Aapka Vidyalaya' communicated to the society.
(Delhi 2015)
ET (6 marks)
28. Explain the following principles of management:
(i) Equity
(ii) Authority and Responsibility
(iii) Stability of Personnel
(2023)
29. Explain the following principles of management:
(a) Subordination of individual interest to general interest.
(b) Development of each and every person to his or her greatest efficiency.
(AI 2015)
2.3 Taylor's Scientific Management - Principles and Techniques
MCQ
30. Which principle of scientific management called for complete mental
revolution on the part of management and workers?
(a) Science, not rule of thumb
(b) Harmony, not discord
(c) Cooperation not individualism
(d) Development of each and every person to his/her greatest efficiency and
prosperity
(Term-1, 2021-22)
31. 'Heyday Productions' is a big factory having 3000 workers. Management of
this factory wants that workers should not go on strikes for their unreasonable
demands. There should be almost equal division of work and responsibility
between workers and management and both of them have to realise that they
need each other. To replace the competition by cooperation, management must
give importance to those constructive suggestions made by employees which
should result in reduction of cost. Identify the Taylor's principle of management
applied by 'Heyday Productions':
(a) Initiative
(b) Cooperation, not individualism
(c) Development of each and every person to his/her greatest efficiency and
prosperity
(d) Subordination of individual interest to general interest
(Term-1, 2021-22)
32. In the technique of Functional Foremanship advocated by Taylor, the four
personnel who work under Planning incharge are:
(a) Disciplinarian, Instruction Card Clerk, Time and Cost Clerk, Route Clerk
(b) Speed Boss, Gang Boss, Repair Boss, Inspector
(c) Route Clerk, Time and Cost Clerk, Inspector, Instruction Card Clerk
(d) Speed Boss, Gang Boss, Repair Boss, Disciplinarian
(Term-1, 2021-22)
33. Reema is working as a Production Manager' in a company manufacturing
different types of products of milk. Now she is planning to launch packaged Kheer
in packs of 250 grams for which she requires to reduce a few lines of products
which are not profitable. She knows that it will result in savings of cost of labour
and machines.
Identify the technique of management applied by Reema in the above situation:
(a) Motion study
(b) Time study
(c) Method study
(d) Standardisation and simplification of work
(Term-1, 2021-22)
34. The objective of which of the following techniques of scientific management is
to determine the number of workers to be employed in an organisation?
(a) Method study
(b) Motion study
(c) Time study
(d) Differential piece wage system
(Term-1, 2021-22)
35. 'Flavours of South' is a famous chain of South Indian restaurants. It believes in
complete co-operation between the labour and management. It's management
encourages the employees for their constructive suggestions. They take their
employees into confidence for all important decisions.
Which principle of scientific management has been followed by 'Flavours of
South?
(a) Science, not rule of Thumb
(b) Harmony, not Discord
(c) Co-operation, not individualism
(d) Development of each and every person to his or her greatest efficiency and
prosperity
(Term-1, 2021-22)
36. The _____________ technique proposed by Taylor aims at eliminating
unnecessary diversity of products.
(a) Motion study
(b) Standardisation and simplification of work
(c) Differential piece wage system
(d) Functional Foremanship
(Term-1, 2021-22)
37. Somesh works as a foreman in 'Lakshmi Automatives Ltd., a company
manufacturing cars. He is subordinate to Ramesh, who is the Production incharge
in the factory. Somesh is incharge of timely and accurate completion of job by
workers working in the Production Department. There are three other foremen
who work under the Production Incharge, while four other foremen work under
Naresh, the Planning Incharge in the factory.
Each of the eight foremen is a specialist in his area and gives orders to the
workers relating to it.
The technique of scientific management highlighted in the above case is:
(a) Method study
(b) Differential Piece Wage System
(c) Functional Foremanship
(d) Standardisation and simplification of work
(Term-1, 2021-22)
38. Vidhya Public School is a renowned school in Nagpur. The management
recently appointed a new Business Studies teacher, Shweta, to teach classes XI
and XII and gave her a monthly salary of ₹50,000. Shweta is not satisfied with it
and said, 'The salary is not just and equitable as per the amount of work required
to be done by a business studies teacher. Other schools in the city are paying
70,000 to their teachers teaching classes XI and XII!
Name the principle of management that has been violated by Vidhya Public
School in the above case:
(a) Discipline (b) Remuneration of Employees
(c) Equity (d) Esprit de corps
(Term-1, 2021-22)
VSA (1 mark)
39. State the role of 'gang boss' in functional foremanship.
(Delhi 2016, Al 2016)
40. State the role of 'speed boss' in functional foremanship.
(Delhi 2016)
41. State the role of 'inspector' in 'functional foremanship.
(Delhi 2016)
42. State the role of 'route clerk' in functional foremanship.
(AI 2016)
43. What is the use of 'Method Study' as a technique of scientific management?
(Delhi 2014)
44. What is determined by 'Time Study"?
(Al 2014)
SA I (3 marks)
45. Pawan is working as a 'Production Manager’ in CFL Ltd. engaged in
manufacturing of CFL bulbs. There is no class-conflict between the management
and workers. The working conditions are very good. The company is earning
huge profits. As a policy matter, management is sharing the gains with the
workers because they believe that prosperity of the company cannot exist for a
long time without the prosperity of the employees.
(a) State the principle of management described in the above para.
(b) Identify any two values which the company wants to communicate to the
society. (Al 2014 C)
SA II (4 marks)
46. Sanchit, after completing his entrepreneurship course from Sweden returned
to India and started a coffee shop 'Aroma Coffee Can' in a famous mall in New
Delhi. The speciality of the coffee shop was the special aroma of coffee and a wide
variety of flavours to choose from. Somehow, the business was neither profitable
nor popular. Sanchit was kept to find out the reason. He appointed Sandhya, an
MBA from a reputed college, as a manager to find out the causes for the same.
Sandhya took feedback from the clients and found out that though they loved the
special unique aroma of coffee but were not happy with the long waiting time
being taken to process the order. She analysed and found out that there were
many unnecessary obstructions in between which could be eliminated. She fixed
a standard time for processing the order.
She also realised that there were some flavours whose demand was not enough.
So, she also decided to stop the sale of such flavours. As a result, within a short
period Sandhya was able to attract the customers. Identify and explain any two
techniques of scientific management used by Sandhya to solve the problem.
(Delhi 2017)
LA (5 marks)
47. Explain the following techniques of Scientific Management:
(a) Fatigue Study and
(b) Differential Piece Wage System
(Delhi 2019)
48. Explain the following principles of scientific management:
(a) Harmony, not discord and
(b) Development of each and every person to his or her greatest efficiency and
prosperity.
(Delhi 2019)
49. Explain the following techniques of scientific management:
(a) Motion study and
(b) Time Study.
(Delhi 2019)
50. With the help of a diagram explain 'Functional Foremanship' as a technique of
scientific management.
(Delhi 2015)
51. Principles of Taylor and Fayol are mutually complementary. One believed that
management should not close its ears to constructive suggestions made by the
employees, while the other suggested that a good company should have an
employee suggestion system, whereby suggestions which result in substantial
time or cost reduction should be rewarded.
Identify and explain the principles of Taylor and Fayol referred in the above para.
(Delhi 2014)
52. Principles of Taylor and Fayol are mutually complementary. One believed that
management should share the gains with the workers, while the other suggested
that employee’s compensation should depend on the earning capacity of the
company and should give them a reasonable standard of living.
Identify and explain the principles of Fayol and Taylor referred to in the above
para. (AI 2014)
ET (6 marks)
53. Explain the following principles of Scientific Management:
(i) Harmony, not Discord
(ii) Science, not Rule of Thumb
(2023)
54. Explain the following techniques of scientific management:
(a) Method study
(b) Motion study
(c) Time study
(2021 C)
55. 'Scientific Management means knowing exactly what you want men to do and
seeing that they do it in the best and the cheapest way! Taylor developed various
techniques for application of Scientific Management principles and was able to
achieve a threefold increase in productivity in Bethlehem Steel Company, where
he worked. One of the techniques helps to determine the number of workers to
be employed; frame suitable incentive schemes and determine labour costs.
Another technique recognises those workers who are able to accomplish/exceed
the fair day's work and is based on the premise that efficiency is the result of the
joint efforts of the managers and the workers.
Quoting the lines from the above paragraph, identify and explain the two
techniques of Scientific Management.
(Al 2019)
56. Karan Nath took over 'D'north Motor Company' from his ailing father three
months ago. In the past, the company was not performing well. Karan was
determined to improve the company's performance.
He observed that the methods of production as well as selection of employees in
the company were not scientific. He believed that there was only one best method
to maximise efficiency.
He also felt that once the method is developed, the workers of the company
should be trained to learn that 'best method.
He asked the Production Manager to develop the best method and carry out the
necessary training. The Production Manager developed this method using several
parameters right from deciding the sequence of operations, place for men,
machines and raw materials till the delivery of the product to the customers. This
method was implemented throughout the organisation. It helped in increasing
the output, improving the quality and reducing the cost and wastage.
Identify and explain the principles and the technique of scientific management
followed by the production manager in the above case.
(AI 2018)
57. Explain the following techniques of scientific management:
(i) Differential piece wage system and
(ii) Motion Study.
(Delhi 2015)
58. Explain the following techniques of scientific management:
(i) Times study and
(ii) Simplification of work.
(Delhi 2015)
59. Explain the following principles of management
(a) Science, not rule of thumb
(b) Discipline
(AI 2015)
60. Explain the following principles of management:
(a) Scalar chain
(b) Harmony, not discord.
(NCERT, AI 2015)

CBSE Sample Questions

2.2 Fayol's Principles of Management
MCQ
1. Name the principle of management given by Fayol which when applied would
mean that the workers and management both honour their commitments
without any prejudice towards one another.
(a) Discipline (b) Mental Revolution
(c) Remuneration of employees (d) Scalar chain
(Term-1, 2021-22)
2. The principle of management given by Fayol which aims at preventing
overlapping of activities is:
(a) Division of work (b) Unity of Command
(c) Unity of Direction (d) Order
(Term-1, 2021-22)
3. The CEO of Radhe Cycles Pvt Ltd. Mr. Kumar wants to get maximum output
from the employees at a competitive cost. On the other hand, Ramakaant, an
employee of the company wants to get the maximum salary while working the
least. The principle of management given by Fayol being violated by Ramakaant is
_____________.
(a) Remuneration
(b) Equity
(c) Discipline
(d) Subordination of individual interest to general interest.
(Term-1, 2021-22)
4. In Shalleen Pvt Ltd. there is one head Shalleen who has two lines of authority
under her. One line consists of Sara-Rajat-Abhishek-Ismail-Chris. Another line of
authority under Shalleen is Lata-Rupa-Geet-Hussain-Preeti. According to a
Principle of Management given by Fayol, if Ismail has to communicate with
Hussain who is at the same level of authority, then illustrate the route he will
have to traverse.
(a) Ismail-Abhishek-Rajat-Sara-Shalleen-Lata-Rupa-Geet-Hussain
(b) Hussain-Geet-Rupa-Lata-Shalleen-Sara-Rajat-Abhishek-Ismail
(c) Ismail-Chris-Shalleen-Preeti-Hussain
(d) Ismail-Abhishek-Rajat-Sara-Lata-Rupa-Geet-Hussain
(Term-1, 2021-22)
ET (6 marks)
5. Briefly explain any three of the following principles of management given by
Henry Fayol:
(a) Unity of command (b) Equity
(c) Remuneration (d) Initiative
(2022-23)
2.3 Taylor's Scientific Management - Principles and Techniques
MCQ
6. Taylor believed that there was only one best method to maximise efficiency.
This method can be developed through study and analysis. Identify the principle
of Scientific management being discussed above:
(a) Harmony, not discord
(b) Science, not rule of thumb
(c) Development of each and every person to his or her greatest efficiency and
prosperity
(d) Cooperation not individualism
(Term-1, 2021-22)
7. The technique of Scientific Management given by Taylor, which aims to
establish interchangeability of manufactured parts and products is ____________
(a) Method Study (b) Motion study
(c) Standardisation (d) Differential Piece wage system.
(Term-1, 2021-22)
8. Taylor proposed eight specialists from whom each worker will have to take
orders from as part of the technique of Functional Foremanship specified by him.
Those with technical, mastery, intelligence and grit may be given ____________ work.
Those with energy and good health may be assigned ____________ work.
(a) Planning, Execution (b) Execution, Planning
(c) Production, Planning (d) Implementation, Production
(Term-I, 2021-22)
9. According to the technique of Scientific management “Differential Piece Wage
system” How much more will a worker making 60 units earn as compared to a
worker making 49 units? If the standard output per day is 50 units and those who
make standard output or more than standard get Rs. 75 per unit and those below
get Rs. 65 per unit.
(a) Rs. 4500 (b) Rs. 3185
(c) Rs. 1315 (d) Rs. 3250
(Term-I, 2021-22)
ET (6 marks)
10. Briefly explain any three of the following techniques of Scientific Management
as given by F.W. Taylor:
(a) Method study (b) Functional foremanship
(c) Standardisation (d) Differential piece wage system
(2022-23)
11. Explain ‘Science, not rule of thumb’, ‘Harmony, not discord’, and ‘Development
of each and every person to his or her greatest efficiency and prosperity’ as
principles of Scientific Management given by F.W. Taylor.
(2020-21)
ANSWERS
Previous Years' CBSE Board Questions

1. (b): Principles of management act as guidelines and are considered to be the

general premises for decision making but they do not provide straitjacket
solutions to problems.
2. (d): Contingent - The application of principles of management is dependent
upon the prevailing situation at a particular point of time.
3. (b): The significance of management principle that emphasises on logic rather
than blind faith is ‘scientific decisions’.
4. (c): They can be modified by the manager when the situation so demands.
5. The point of significance of principles of management highlighted here is that
‘Management principles help in optimum utilisation of resources and effective
administration’.
6. Importance of principles of management are:
(i) Providing managers with useful insights into problems by improving the
manager’s ability to locate problems and opportunities in business situations
leading to better managerial decision making.
(ii) Scientific decisions: Management principles help in thoughtful decision
making. They are based on logic and objective assessment of the situation.
(iii) Fulfilling the social responsibility: Management principles help the managers
to fulfill their social responsibility e.g, principles of remuneration recommend
payment of adequate salary to employees.
(iv) Meeting the needs of the changing business environment: Principles of
management are flexible, i.e., they can be modified according to the changes
taking place in the environment. Thus, they help the managers in meeting the
needs of changing business environment.
7. (i) Principle of management: Cooperation not individualism and the company
are open to employee’s suggestion and creativity is encourage.
Dimension of business environment: The Company follows legal environment of
every country.
(ii) Values followed: (a) Team spirit (b) Concern for the environment.
8. The objectives of management referred to are:
(i) Social Objectives: These objectives are intended to do socially useful things in
the areas of health, safety, environment, etc. such as:
(a) Generation of employment opportunities in rural areas.
(b) Providing jobs to physically disabled people, etc.
(ii) Two values which the company wanted to communicate to the society are:
(a) Community development by taking decision to open schools and creches for
the children of it’s employees.
(b) Increase in employment opportunities in rural/ backward areas.
9. The points of significance of Principles of Management are given as follows:
(i) Insights to reality: As management principles are based on years of
experimentation and experience, they guide the managers in facing real-world
problems in a more effective manner.
(ii) Suitability to dynamic environment: The application of management
principles depends on the situation and the manager’s creativity. These
principles can be moulded as per the requirements and are thus flexible.
(iii) Social responsibility: By taking care of customers’ values and business
dealings, management principles help the managers and the entire organisation
in fulfilling their social responsibilities.
(iv) Optimum utilisation of resources: Management principles provide an exact
cause-and-effect relationship of the manager’s decisions, thereby minimising the
risk of wastages of resources that may be associated with the trial-and-error
method.
(v) Logical decisions: Management decisions should be based on reason and
proof rather than beliefs and intuitions. As the principles of management were
developed from experiments on real-life problems, they stand the test of logic
and reasoning.
10. Principle of Management helps in:
(i) Scientific Decisions - Management decisions should be based on reason and
proof rather than beliefs and intuitions. As the principles of management were
developed from experiments on real-life problems, they stand the test of logic
and reasoning.
(ii) Insights to reality - As management principles are based on years of
experimentation and experience, they guide the managers in facing real-world
problems in a more effective manner.
11. Cause and effect relationships: The principles of management are intended to
establish relationship between cause and effect, so that they can be used in
similar situations in a large number of cases. As such, they tell us if a particular
principle was applied in a particular situation, what would be its likely effect.
The principles of management are less than perfect since they mainly apply to
human behaviour. In real life, situations are not identical. So, accurate cause and
effect relationships may be difficult to establish. However, principles of
management assist managers in establishing these relationships to some extent
and are therefore useful. Insituations of emergencies, it is desirable that someone
takes charge and others just follow. But in situations requiring cross-functional
expertise, such as setting up of a new factory, more participative approach to
decision-making would be advisable.
(i) Meeting changing environment requirements: Although the principles are in
the nature of general guidelines but they are modified and as such help managers
to meet changing requirements of the environment. Management principles are
flexible to adapt to dynamic business environment.
For example, management principles emphasise division of work and
specialisation. In modern times, this principle has been extended to the entire
business whereby companies are specialising in their core competency and
divesting non-core businesses.
In this context, one may cite the decision of Hindustan Lever Limited in divesting
non-core businesses of chemicals and seeds. Some companies are outsourcing
their non-core activities like share-transfer management and advertising to
outside agencies.
(ii) Management training, education and research: Principles of management are
at the core of management theory. As such these are used as a basis for
management training, education and research. These principles provide basic
groundwork for the development of management as a discipline. Professional
courses such as MBA (Master of Business Administration), BBA (Bachelor of
Business Administration) also teach these principles as part of their curriculum
at the beginner's level.
These principles enable refinement of management practices as well by
facilitating the development of new management techniques. Thus, we see those
techniques like Operations Research (OR), cost accounting, ‘Just in Time’,
‘Kanban’ and ‘Kaizen’ have developed due to further research on these principles.
12. Characteristics of ‘Principles of Management’

(i) Universal applicability: The principles of management are intended to apply to

all types of organisations, business as well as non-business; small as well as large,
public as well as private sector, manufacturing as well as services sector at all
levels and at all times.
(ii) General guidelines: The principle of management are general guidelines to
managerial functioning. They do not provide readymade solutions to managerial
problems because real business situations are very complex and dynamic and are
a result of many factors.
(iii) Management principles are formed by:
(a) Observation and experimentation.
(b) Personal experience of the managers.
(iv) Flexible: Management principles are not rigid prescriptions which have to be
followed absolutely. They are flexible and can be modified by the manager when
the situation so demands.
13. (c): Order
14. (b): Unity of command.
15. (d): The principle of management being followed by Good Health Care’ is
Equity.
16. (a): Division of work. According to Fayol, “The intent of division of work is to
produce more and better work for the same effort”.
17. (b): The principle of ‘Espirit De Corps’ gives rise to the spirit of mutual trust
and belonging ness among team members.
18. (c): The principle of management that is being followed by Pioneer Ltd. is
‘Unity of Direction’.
19. (a): The Fayol’s principle of ‘Equity’ emphasises on kindliness and justice in
the behavior of managers towards workers.
20. The principle of management that the company wants to modify is ‘division of
work’.
21. Vibhu discussed “Scalar Chain Principle of Management”.
Scalar Chain: An organisation consists of superiors and subordinates. The formal
lines of authority from highest to lowest ranks are known as scalar chain.

Let us consider a situation where there is one head 'A' who has two lines of
authority under her/him. One line consists of B-C-D-E-F. Another line of authority
under 'A' is L-M-N-O-P. If 'E' has to communicate with 'O' who is at the same level
of authority then she/he has to traverse the route E-D-C-B-A-L-M-N-O. This is due
to the principle of scalar chain being followed in this situation. According to
Fayol, this chain should not be violated in the normal course of formal
communication. However, if there is an emergency then 'E' can directly contact
'O' through 'Gang Plank' as shown in the diagram.
This is a shorter route and has been provided so that communication is not
delayed.
22. Subordination of individual interest to General Interest.
(i) This principle states that the interests of an organisation should take priority
over the interests of any one individual employee.
(ii) This is so because larger interests of the workers and stakeholders are more
important than the interest of any one person.
23. Order and Initiative are parts of Fayol's Principles of Management.
Order - According to Fayol, "People and materials must be in suitable places at
appropriate time for maximum efficiency." The principle of order states that 'A
place for everything (everyone) and everything (everyone) in its (her/his) place.
Essentially, it means orderliness. If there is a fixed place for everything and it is
present there, then there will be no hindrance in the activities of business/
factory. This will lead to increased productivity and efficiency.
Initiative - According to Fayol, workers should be encouraged to develop and
carry out their plans for improvements. Initiative means taking the first step with
self-motivation. It is thinking out and executing the plan. It is one of the traits of
an intelligent person. Initiative should be encouraged. But it does not mean going
against the established practices of the company for the sake of being different. A
good company should have an employee suggestion system whereby initiatives
suggestions which result in substantial cost/time reduction should be rewarded.
24. (a) Principle of cooperation.
(b) Values that the company wants to communicate to the society:
(i) Development of backward area,
(ii) Determination to revive profits commitment to promises.
25. (a) Cooperation not individualism by F.W. Taylor is the principle of
management described in the given paragraph.
(b) Values which the company wants to communicate to the society:
(i) Environment friendliness and optimum utilisation of resources.
(ii) Empathy towards workers and cooperation.
26. (a) Initiative: Initiative means eagerness to initiate action without being
asked to do so. According to Fayol, "employees should be allowed to think and
execute plans, to bring about improvements in work related matters".
(b) Two values that the company wants to communicate to the society.
(i) Conservation of resources by recycling.
(ii) Increase in employment opportunities in backward areas.
27. (a) Principle of management applied - Esprit de corps.
(b) Features of management - highlighted here are:
(i) Harmony, Not discord.
(ii) Cooperation, Not Individualism.
(c) Values being communicated to the society are:
(i) Concern for the environment.
(ii) Holistic development of children.
(iii) Teamwork.
28. (i) Equity: Good sense and experience are needed to ensure fairness to all
employees, who should be treated as fairly as possible,” according to Fayol. This
principle emphasises kindliness and justice in the behaviour of managers
towards workers. This will ensure loyalty and devotion. Fayol does not rule out
use of force sometimes. Rather he says that lazy personnel should be dealt with
sternly to send the message that everyone is equal in the eyes of the management
(ii) Authority and Responsibility: According to Fayol, “Authority is the right to
give orders and obtain obedience, and responsibility is the corollary of authority.
The two types of authority are official authority, which is the authority to
command, and personal authority which is the authority of the individual
manager.” Authority is both formal and informal. Managers require authority
commensurate with their responsibility.
(iii) Stability of Personnel: “Employee turnover should be minimised to maintain
organisational efficiency”, according to Fayol. Personnel should be selected and
appointed after due and rigorous procedure. But once selected they should be
kept at their post/position for a minimum fixed tenure.
They should have stability of tenure. They should be given reasonable time to
show results.
29. (a) Subordination of individual interest to general interest. Managers should
try to bring convergence between organisation's objectives and objectives of the
people working in the organisation. The objectives of the individuals should be in
the same direction as that of the organisation. Positive effects of this principle: (i)
achievement of organisational goals and (ii) Aspirations of individual workers
met.
Consequences of violation of this principle: (i) non achievement of organisational
goal and (ii) employees are de-motivated.
(b) Development of each and every person to his or her greatest efficiency:
Industrial efficiency depends upon the efficiency and competency of individual
workers. Employees should be scientifically selected. Then work should be
allotted to them on the basis of their physical, mental and intellectual capabilities.
They should be trained to learn the best methods to perform work. This will
ensure efficiency and prosperity for both company and workers.
30. (b) Harmony, not discord principle of scientific management is called for
complete mental revolution on the part of management and workers.
31. (b) Cooperation, not individualism, is applied by 'Heyday Productions!
32. (a) Under planning in charge as per functional foremanship, foremen are:
Disciplinarian, instruction card clerk, Time and Cost clerk, Route clerk.
33. (d): Standardisation and Simplification of work is the technique applied by
Reema.
34. (c): The objective of time study is to determine the number of workers to be
employed in an organisation.
35. (c): The principle of management that is being discussed here is cooperation,
not individualism".
36. (b) The standardisation and simplification of work technique proposed by
Taylor aims at eliminating unnecessary diversity of products.
37. (c) The technique of Scientific management discussed in the case here is
'Functional Foremanship'.
38. (b): The principle 'Remuneration of Employees' has been violated by Vidya
Public School.
39. Role of 'Gang Boss' in functional foremanship is to ensure that workers and
the machines are fit enough for production and the material required for their
use is available to them.
40. Speed Boss reports to production incharge and is responsible for timely and
accurate completion of the work. He rectifies the situation if schedules are not
met.
41. Inspector comes under production incharge and is responsible for checking
the quality of work.
42. Route clerk reports to planning incharge and is responsible for specifying the
sequence of doing the different tasks for the day.
43. The objective of method study is to find out one best way of doing the job.
44. Time Study is a technique, which is used to determine the standard time
taken by a workman of reasonable skills and ability to perform a well-defined job.
45. (a) Principle of Harmony not discord is described in the given paragraph.
(b) Values which the company wants to communicate to the society are:
(i) Concern for employees and society.
(ii) Social responsibility and prosperity of one and all.
46. The techniques of scientific management used by Sandhya to solve the
problem are:
(a) Standardisation and Simplification of Work Simplification aims at eliminating
superfluous varieties, sizes and dimensions while standardisation implies
devising new varieties instead of the existing ones. Simplification aims at
eliminating unnecessary diversity of products. It results in savings of cost of
labor, machines and tools. It implies reduced inventories, fuller utilisation of
equipment and increasing turnover.
(b) Time study: It determines the standard time taken to perform a well-defined
job. Time measuring devices are used for each element of task. The standard time
is fixed for the whole of the task by taking several readings. The objective of time
study is to determine the number of workers to be employed; frame suitable
incentive schemes and determine labour costs.
47. Techniques of Scientific Management:
(a) Fatigue Study: Fatigue study studies the requirement of rest or a break while
performing a task. The study identifies the intervals required while completing a
task and suggests standard break timings for improving the workers’
performance.
(b) Differential piece wage system: Under this technique, wages are decided
according to a set standard. The workers who perform better than the set
standards get higher wages than the workers who perform below the standards.
Taylor introduced this system to differentiate the efficient workers from the
inefficient ones and reward them accordingly.
48. The principles of scientific management are explained as follows:
(a) Harmony, not discord: According to this principle, the managers and the
workers should maintain a harmonious work environment. They should realise
that they are dependent on each other. Only if they work in amity, they will be
able to perform better. Taylor emphasised on complete mental revolution. That is,
the workers should change their attitude and each one should realise others
importance. Management should take care of the needs of the workers and
workers on the other hand, should work to their best efficiency. Both should
work in harmony towards the common goals of the organisation.
(b) Development of each and every person to his or her greatest efficiency and
prosperity: Personnel development aims at improving the capabilities of the
employees to the maximum. This will in turn enhance the overall efficiency of the
organisation as it depends on the individual competencies. Scientific
management aimed at improving the working capabilities of the employees to
their maximum level. It focused on the training and development of the labourers
to raise their productivity.
49. The techniques of scientific management are explained as follows:
(a) Motion Study - Motion study refers to the study of motion (or movements) of
a worker involved in a given task. The study aims at identifying the unwanted
actions or motions and eliminating them so that the work can be completed in
less time.
(b) Time Study - Time study emphasises setting a standard time limit for
completing a particular job. The time taken for completing the job is measured
for setting the standard time limit. This helps decide the number of workers to be
employed for a particular task, determine their wages, etc.
50. Functional foremanship: In order to apply specialisation at the supervisory
level, Taylor developed the concept of functional foremanship. He divided the
work of the factory into two sub-departments: Planning department and
production department. Further, to define the role of a foreman, he identified a
list of qualities. But he realised that, a single foreman/supervisor cannot be
expected to be an expert in all aspects of work and cannot have all qualities (like
education, intelligence, judgment, tact, conceptual clarity etc.) and therefore, he
suggested appointment of eight supervisors to give instructions to a worker. Out
of them, four would work under the planning incharge and would be responsible
for planning and the other four would work under the production incharge and
would be responsible for executions.
Specialists under the planning incharge:
(i) Route clerk: To lay down the sequence of operations.
(ii) Instruction card clerk: Would draft instructions for workers, in handling their
jobs.
(iii) Time and cost clerk: Would fix - (a) dates for starting and completing work;
and (b) cost sheet to determine expenses for material, labour and other
overheads.
(iv) Disciplinarian: Would ensure systematic performance of job by following
rules and regulations. Specialists under production incharge:
(i) Gang boss: Would do all preliminary work keeps material, machines, tools etc.
ready for workers.
(ii) Speed boss: Would ensure timely and accurate completion of jobs.
(iii) Inspector: Would check quality of work done by the workers.
(iv) Repairs boss: Would ensure that each worker keeps his machine in good
order.
51. Cooperation, not individualism of Taylor says: there should be cooperation
between workers and management. Cooperation is based on mutual faith;
managers should be opened to constructive suggestions by employees. They
should be rewarded when their suggestions result in economic benefits.
The principle of Fayol referred to as ‘initiative’; The principle of initiative implies
that the managers of an undertaking should encourage the subordinates to take
initiative in thinking out and executing plans. There should be employee
suggestion system whereby initiatives to suggest will result in substantial
cost/time reduction which should be rewarded.
52. Following principles of Fayol and Taylor are referred in the given para.
Remuneration of Employees-Fayol: According to this principle, the remuneration
payable to employees should be fair, reasonable and rewarding of effort. Wages
should be determined on the basis of work assigned, cost of living, financial
position of the enterprise and average wage rates for similar work in the industry.
It should ensure a reasonable standard of living to workers and at the same time
be within the paying capacity of the firms.
Harmony, not discord-Taylor: This principle of scientific management aims at
removing differences between the management and the workers. This would
contribute to the overall gain for the organisation. The management should share
the gains of the company with the workers.
53. (i) Harmony, Not Discord: Factory system of production implied that
managers served as a link between the owners and the workers. Since as
managers they had the mandate to ‘get work done’ from the workers, it should
not be difficult for you to appreciate that there always existed the possibility of a
kind of class-conflict, the mangers versus workers. Taylor recognised that this
conflict helped none, the workers, the managers or the factory owners. He
emphasised that there should be complete harmony between the management
and workers. Both should realise that each one is important. To achieve this
state, Taylor called for complete mental revolution on the part of both
management and workers.
(ii) Science, not Rule of Thumb: Taylor pioneered the introduction of the method
of scientific inquiry into the domain of management practice. We have already
referred to the limitations of the rule of thumb approach of management. As
different managers would follow their indigenous rules of thumb, it is but a
statement of the obvious that all would not be equally effective. Taylor believed
that there was only one best method to maximise efficiency. This method can be
developed through study and analysis. The method so developed should
substitute 'Rule of Thumb' throughout the organisation. Scientific method
involved investigation of traditional methods through work-study, unifying the
best practices and developing a standard method, which would be followed
throughout the organisation.
54. (a) Method Study: It is a study to find out one best way of doing the job and
includes all activities from procurement of raw materials till the final product is
delivered to the customer. It helps to minimize the cost of production and
maximize quality and satisfaction of the customer.
(b) Motion Study: It is a technique to study the movements that are necessary for
doing a well-defined job. It seeks to eliminate unnecessary and wasteful
movements so that it takes less time to complete a job efficiently.
(c) Time Study: It is a technique to determine the standard time taken by a
worker of reasonable skill and efficiency to perform a well-defined job. It helps in
deciding the number of workers to be employed, frame suitable incentive
schemes and determine labour costs.
55. The two scientific techniques of management discussed above are:
(a) Differential piece wage system : Under this technique, wages are decided
according to a set standard. The workers who perform better than the set
standards get higher wages than the workers who perform below the standards.
Taylor introduced this system to differentiate the efficient workers from the
inefficient ones and reward them accordingly.
Line: 'technique recognises those workers who are able to accomplish/exceed the
fair day's work and is based on the premise that efficiency is the result of the joint
efforts of the managers and the workers'.
(b) Time study: Time study emphasises setting a standard time limit for
completing a particular job. The time taken for completing the job is measured
for setting the standard time limit. This helps decide the number of workers to be
employed for a particular task, determine their wages, etc.
Line: One of the techniques helps to determine the number of workers to be
employed; frame suitable incentive schemes and determine labour costs.
56. In the above case, Principles of Scientific management followed by production
manager is:
(i) Science, not rule of thumb: Like Taylor, Karan Nath also believed that there
was only one best method to maximise efficiency. This method can be developed
through study and analysis. That’s why, production manager developed this
method using several parameters. Scientific method involves investigation of
traditional methods through work study, unifying the best practices and
developing a standard method, which would be followed throughout the
organisation. This can result in saving of human energy as well as wastage of time
and materials.
(ii) Development of each and every person to his or her greatest efficiency and
prosperity: Taylor was of view that each person should be scientifically selected.
Worker training was essential to learn ‘best method’ developed through scientific
approach. Some are followed in this case. Technique of scientific management
followed by production manager is “Method Study”. As the objective of Method
study is to find out one best way of doing the job from procurement of Raw
materials till the final product delivery, every activity is part of Method study.
Ultimate objective of this exercise is to minimise cost of production and maximise
the quality and satisfaction of customer.
57. (i) Differential piece wage system: Differential piece wage system is a
technique which differentiates between efficient and less efficient workers. It
rewards the efficient workers and motivates the less efficient ones to improve
their efficiency.
In this plan, there are two-piece rates - one for those workers who produce the
standard output or more and the other for those who produce less than the
standard output.
Example: Standard output (per worker per day) = 10 units.
Difference in units produced = 2
Difference in wages = ₹ 430
The glaring difference in wages motivates the inefficient worker to produce the
standard output.
(ii) Motion study: It is a technique to study the movements of a worker which are
undertaken by him while doing a well-defined job. The movements could be
productive, incidental and unproductive. It seeks to eliminate unnecessary and
wasteful movements so that it takes less time to complete a job efficiently.
It is useful in designing suitable equipment and tool and in increasing daily
productivity.
58. (i) Time study: Time study is a technique used to measure the time that may
be taken by an average worker of reasonable skill and efficiency
to perform a job. It helps to determine: (a) standard time
required to do a job; (b) to determine the number of employees
to be employed; and (c) to determine labour cost and to frame
suitable incentive schemes.
(ii) Simplification of work: It aims at eliminating superfluous varieties, sizes and
dimensions. It results in saving of cost of labour, machines and tools. It leads to
reduced inventories, fuller utilization of equipment and increased turnover
leading to economic gains.
59. (a) Science, not rule of thumb: This principle was advocated by Taylor. This
principle encourages ‘thinking before doing.’ It involves cross-checking
traditional methods through work study and unifying the best practices to
develop a standard method that can be followed throughout the organisation.
(b) Discipline: Discipline means obedience to the rules of the organisation on the
part of both superiors and subordinates. Every member must conduct himself
properly towards other members of the oganisation, irrespective of his level or
position in the organisation.
According to Fayol, discipline requires good superiors at all levels. No
organisation can operate without proper discipline.
60. (a) Scalar chain: Scalar chain is the chain of superiors and subordinates. The
chain also represents the line of authority and communication. This suggests that
there should be a clear line of authority from top to bottom linking managers at
all levels and this should not be violated.
The figure shows a scalar chain linking managers at lower levels with the top
management. If D has to communicate with G, the message should ordinarily
move up through C and B to A and then down from A to E, E to G.
In case of emergency or an urgent matter, direct communication can be
established between two people working at the same level with the help of gang
plank – shown by the dotted line Joining D and G.
(b) Harmony, not discord: “Harmony, not discord”. According to this principle,
there should be complete harmony and proper understanding between the
management and the workers. Management should share the gains of the
company and at the same time workers should work hard and be willing to
accept changes as they come. This requires a ‘Mental Revolution’ on the part of
both the management and the workers and develop a positive feeling for each
other for harmony.
Fatigue study: It refers to determine the duration and frequency of rest intervals
to complete a particular job. Rest between duty hours refreshes the workers and
are important for his/her to continue for the full day’s work.
 CBSE Sample Questions

1. (a): Discipline
2. (c): Unity of direction
3. (d): Subordination of individual interest to general interest.
4. (a): Ismail-Abhishek-Rajat-Sara-Shalleen-Lata-Rupa-Geet-Hussain
5. Principles of Management given by Henry Fayol:
(a) Unity of Command: According to Fayol there should be one and only one boss
for every individual employee. If an employee gets orders from two superiors at
the same time the principle of unity of command is violated. The principle of
unity of command states that each participant in a formal organisation should
receive orders from and be responsible to only one superior. Fayol gave a lot of
importance to this principle. He felt that if this principle is violated “authority is
undermined; discipline is in jeopardy, order disturbed and stability threatened”.
The principle resembles military organisation. Dual subordination should be
avoided. This is to prevent confusion regarding tasks to be done. Suppose a sales
person is asked to clinch a deal with a buyer and is allowed to give a 10%
discount by the marketing manager. But the finance department tells her/ him
not to offer more than a 5% discount. Now there is no unity of command. This
can be avoided if there is coordination between various departments.
(b) Equity: Good sense and experience are needed to ensure fairness to all
employees, who should be treated as fairly as possible,” according to Fayol. This
principle emphasises kindliness and justice in the behavior of managers towards
workers. This will ensure loyalty and devotion. Fayol does not rule out use of
force sometimes. Rather he says that lazy personnel should be dealt with sternly
to send the message that everyone is equal in the eyes of the management. There
should be no discrimination against anyone on account of sex, religion, language,
caste, belief or nationality etc. In practice, we can observe that now a days in
multinational corporations people of various nationalities work together in a
discrimination free environment. Equal opportunities are available for everyone
in such companies to rise.
(c) Remuneration of Employees: The overall pay and compensation should be fair
to both employees and the organisation. The employees should be paid fair
wages, which should give them at least a reasonable standard of living. At the
same time, it should be within the paying capacity of the company. In other
words, remuneration should be just and equitable. This will ensure a congenial
atmosphere and good relations between workers and management.
Consequently, the working of the company would be smooth.
(d) Initiative: Workers should be encouraged to develop and carry out their plans
for improvements according to Fayol. Initiative means taking the first step with
self-motivation. It is thinking out and executing the plan. It is one of the traits of
an intelligent person. Initiative should be encouraged. But it does not mean going
against the established practices of the company for the sake of being different. A
good company should have an employee suggestion system whereby
initiative/suggestions which result in substantial cost/time reduction. (Any three
points to be explain)
6. (b): Science, not rule of thumb
7. (c): Standardisation
8. (a): Planning, Execution
9. (c): Rs. 1315
10. Techniques of Scientific Management given by F. W. Taylor:
(a) Method Study: The objective of method study is to find out one best way of
doing the job. There are various methods of doing the job. To determine the best
way there are several parameters. Right from procurement of raw materials till
the final product is delivered to the customer every activity is part of method
study. Taylor devised the concept of assembly line by using method study. Ford
Motor Company used this concept very successfully. Even now auto companies
are using it. The objective of the whole exercise is to minimise the cost of
production and maximise the quality and satisfaction of the customer. For this
purpose, many techniques like process charts and operations research etc. are
used. For designing a car, the assembly line production would entail deciding the
sequence of operations, place for men, machines and raw materials etc. All this is
part of method study.
(b) Functional foremanship is an extension of the principle of division of work
and specialisation to the shop floor. Each worker will have to take orders from
these eight foremen in the related process or function of production. Foremen
should have intelligence, education, tact, grit, judgment, special knowledge,
manual dexterity, and energy, honesty and good health. Since all these qualities
could not be found in a single person, Taylor proposed eight specialists. Each
specialist is to be assigned work according to her/his qualities. For example,
those with technical mastery, intelligence and grit may be given planning work.
Those with energy and good health may be assigned execution work.
(c) Standardisation refers to the process of setting standards for every business
activity; it can be standardisation of process, raw material, time, product,
machinery, methods or working conditions. These standards are the benchmarks,
which must be adhered to during production. The objectives of standardisation
are:
(i) To reduce a given line or product to fixed types, sizes and characteristics.
(ii) To establish interchangeability of manufactured parts and products.
(iii) To establish standards of excellence and quality in materials.
(iv) To establish standards of performance of men and machines.
(d) Taylor was a strong advocate of a piece wage system. He wanted to
differentiate between efficient and inefficient workers. The standard time and
other parameters should be determined on the basis of the work-study discussed
above. The workers can then be classified as efficient or inefficient on the basis of
these standards. He wanted to reward efficient workers. So, he introduced
different rates of wage payment for those who performed above standard and for
those who performed below standard. (Any three points to be explain)
11. Science, not rule of thumb: Taylor pioneered the introduction of the method
of scientific inquiry into the domain of scientific inquiry into the domain of
management practice. We have already referred to the limitations of the rule of
thumb approach of management. As different managers would follow their
indigenous rules of thumb. But it is a statement of the obvious that all would not
be equally effective. Taylor believed that there was only one best method to
maximise efficiency. This method can be developed through study and analysis.
The method so developed through study and analysis. The method so developed
should substitute ‘Rule of Thumb’ throughout the organisation. Scientific method
involved investigation of traditional methods through work-study, unifying the
best practices and developing a standard method.
Harmony, not discord: Factory system of production implied that managers
served as a link between the owners and the workers. Since as managers they
had the mandate to ‘get work done’ from the workers. Taylor recognised that this
conflict helped none, the workers, the managers or the factory owners. He
emphasised that there should be complete harmony between the management
and workers. Both should realise that each one is important. To achieve this state,
Taylor called for a complete Mental Revolution on part of both management and
workers. It means that management and workers should transform their
thinking. Management should share the gains of the company with the workers.
At the same time, workers should work hard and be willing to embrace change
for the good of the company.
Development of each and every person to his or her greatest efficiency and
prosperity: As such, scientific management also stood for worker development.
Worker training was essential also to learn the ‘best method’ developed as a
consequence of the scientific approach. Taylor was of the view that the concern
for efficiency could be built in right from the process of employee selection. Each
person should be scientifically selected. Then work assigned should suit her/his
physical, mental and intellectual capabilities. To increase efficiency, they should
be given required training. Efficient employees would produce more and earn
more. This will ensure their greatest efficiency and prosperity for both company
and workers.
 Meaning, Nature & Importance of
Management Principles
1 Mark Questions

1. What is meant by’ Principles of management’?

(All India 2013 2009; Delhi 2011)

Ans. Principles of management are general guidelines, which can be used for conduct
in work places under certain situations. It also helps manager to take and implement
thoughtful decisions.

2. What is meant by ‘Universal applicability of principles of management’? (Delhi

2011; All India 2008C)

Ans. ‘Universal applicability of principles of management’ means that the principles of

management are intended to apply to all types of organisations at all places.

3. State any one reason why principles of management are important? (All India
2011)

Ans. Principles of management are important as they help managers in taking

thoughtful and scientific decisions.

4. What is meant by the statement ‘principles of management are flexible’? (Delhi

2011)
Give any one reason why principles of management are not rigid
prescriptions? (All India 2010; Delhi 2010)
or
Why are the principles of management called flexible? (Delhi 2009)
State how the management principles are flexible. (Delhi 2008)

Ans. Principles of management are flexible, which means that they are not rigid, and
can be modified by the manager as per the situation.

5. What is meant by the statement ‘principles of management are

contingent’? (All India 2011)
Ans. The application of principles of management is contingent as it depends upon the
prevailing situation at a particular point of time.

6. Give any one reason why principles of management do not provide

readymade solution to all managerial problems. (All India 2010; Delhi 2010)
Ans. Principles of management do not provide readymade solution to all managerial
problems because principles provide general guidelines to managers whereas real
business situations are extremly complex and not based on theoretical knowledge.

7. Why are the principles of management called universally applicable?

(All India 2009)

Ans. The management principles are universal because these are applicable in all
conditions and in all organisations whether it is a profit making or non-profit making.

8. The principles of management are different from those of pure sciences. State
any one difference. (All India 2008; Delhi 2008)

Ans. Management principles are flexible, whereas principles of pure science are rigid.

9. How the management principles have been derived? (All India 2008)

Ans. The management principles have been derived through observation, analysis,
experimental studies and personal experiences of the managers.

10. Why is it said that management principles are universal in application? (Delhi
2008)

Ans. The management principles are said to be universal in application because these
are applicable to all types of organisations, irrespective of the size or nature.

11. State any two points which highlight the nature of principles of management.
(Delhi 2008C)

Ans. Following points highlight the nature of principles of management:

(i) They are universal.
(ii) They are flexible.

3 Marks Questions

12. Explain how principles of management

 provide useful insight into reality and

 help in thoughtful decision-making (Delhi 2012)

Ans. (i) Provide useful insight into reality The principles of management provide
useful insight into real world situations. Managers may apply these principles to fulfil
their tasks and responsibilities. These principles guide the managers in taking and
implementing thoughtful decisions,
(ii) Thoughtful decision-making These principles help in enhancing knowledge, ability
and understanding of managerial situations and circumstances. They must be timely,
realistic and subject to measurement and evaluation. They emphasise logic rather than
blind faith and are free from bias and prejudice.

13. Explain how principles of management

 help in optimum utilisation of resources and effective administration and

 help the managers in meeting changing environment requirements. (All
India 2012)

Ans. (i) Principles of management help in optimum utilisation of resources by equipping

managers to foresee the cause and effect relationship of their decisions and actions, as
such the wastage associated with a trial and error approach can be overcome.
Principles of management help in effective administration by limiting the boundaries of
management discretion so that their decisions may be free from personal prejudice and
bias.
(ii) Principles of management help the managers in meeting changing environment
requirements because they can be modified according to the changes taking place in
the environment, e.g. the principle of division of work has now been extended to the
entire business. Therefore, companies are focusing on their competency and divesting
non-core business.

4/5 Marks Questions

14. Explain any five characteristics which reflect the nature of principles of
management.(Delhi 2010c)

Ans. Management principles are broad and general guidelines for decision-making and
behaviour.
Following features highlight the characteristics of management principles:

(i) Universal application Management principles are applied in every situation where
the objectives are attained through group efforts. All social, economic, political or
religious organisations apply management principles for their successful operations.
Every organisation must make the best possible use of its available resources by the
application of management principles along with managerial functions such as planning,
organising, staffing, directing and controlling.

(ii) Flexibility The principles of management are not rigid prescriptions, which have to
be followed absolutely. They are flexible and can be modified by the manager when the
situation so demands. They give the manager enough discretion to do so.

(iii) General statements Management principles are concerned with human behaviour
which cannot be tested under laboratory conditions. Human behaviour cannot be
predicted accurately. Therefore, management principles are not as exact as the
principles of physical science.

(iv) Influencing human behaviour Human element is an essential factor of production.

It activates and extracts work from other factors also. Each person is different from
other as regards to his ability, knowledge, skills, social status, attitudes and ideologies.
Management is concerned with the integration of individual efforts.

(v) Cause and effect relationship Management principles also form a cause and effect
relationship. It indicates the consequences of certain actions or inactions in the
business, eg. if wages are paid on piece rate system, the quantity of work will increase
but the quality will suffer. The principles of unity of command, will avoid confusion,
duplication and overlapping of work.

15. Explain by giving any five reasons why principles of management are
needed? (All India 2010)
or
Explain by giving any five reasons why proper understanding of management
principles is necessary? (Delhi 2009)

Ans. Management principles are essential for the successful running of business
organisation. These principles are guidelines to management. They highlight the areas
where the management should pay immediate attention. These principles simplify the
process of management, increase the overall efficiency of management and help in the
achievement of objectives.
The significance of management principles can be summarised as follows:

(i) Provide the manager with useful insight into reality Management principles act
as guidelines for the managers. These principles improve knowledge, ability and
understanding of managers under various managerial situations. The effects of these
principles help the managers to learn from their mistakes.

(ii) Optimum utilisation of resources Several principles of management aim at

optimum utilisation of all types of resources for the attainment of organisational goals,
e.g. principles of division of work, discipline, unity of direction, order, etc facilitate better
utilisation of human efforts and physical resources.

(iii) Scientific decisions The knowledge of management principles enables managers

to learn the cause and effect relationship between variables operating in the
organisation. They are able to develop a scientific and objective approach towards
problem solving and decision-making.

(iv) Meeting changing environment requirements Every businessman has to cope

up with the changes that are taking place in the business environment. Management
principles train the managers to implement the changes in right direction and at right
level in the organisation.
(v) Fulfilling social responsibility A manager is able to achieve efficiency and
economy in the activities of his enterprise by applying management principles. These
principles are aimed at maximising profits without loss of social value. In other words,
management principles seek to ensure that the resources of the society are utilised fully
and good quality products at fair prices are made available to society.

16. Explain how principles of management help in

 meeting changing environment requirement and

 making scientific decisions. (All India 2009)

Ans. Management principles are essential for the successful running of business
organisation. These principles are guidelines to management. They highlight the areas
where the management should pay immediate attention. These principles simplify the
process of management, increase the overall efficiency of management and help in the
achievement of objectives.

 Meeting changing environment requirements Every businessman has to cope

up with the changes that are taking place in the business environment.
Management principles train the managers to implement the changes in right
direction and at right level in the organisation.
 Scientific decisions The knowledge of management principles enables
managers to learn the cause and effect relationship between variables operating
in the organisation. They are able to develop a scientific and objective approach
towards problem solving and decision-making.
 Fayol’s Principles of Management
1 Mark Questions

1. What is meant by Fayol’s principle of ’esprit de corps’? (Delhi 2011)

Ans. Fayol’s principle of ‘esprit de corps’ suggests that management should promote a
team spirit of unity and harmony among the employees.

2. Which principle of management implies that there should be ‘one head and
one plan’ for a group of activities having the same objective?
(All India 2010)
Ans. Principle of unity of direction implies that there should be ‘one head and one plan’
for a group of activities having the same objective.

3. Which principle of management states that an employee should receive

orders from one superior only? (Delhi 2010c)
Ans. Unity of command states that an employee should receive orders from one
superior only.

4. What does the principle of initiative indicate? (Delhi 2009)

Ans. Principle of initiative indicates that the management should encourage workers to
think, make and execute plans within prescribed limits of authority.

5. Why did Fayol introduce the concept of ‘gang plank’ in the principle of
‘scalar Chain’? (All India 2009)
Ans. Fayol introduced the concept of ‘gang plank’ in the principle of ‘scalar chain’ to
overcome the problem of communication delay in urgent matters.

6. Which principle of management is violated, if a subordinate is asked to

receive orders from two or more superiors? (HOTS; Delhi 2008C)

Ans. Principle of ‘unity of command’ is violated.

3 Marks Questions

7. Telco Ltd is manufacturing files and folders from the old clothes to discourage
use of plastic files and folders. For this, they employ people from nearby villages
where very less job opportunities are available. An employee, Harish, designed a
plan for the cost reduction but it was not welcomed by the production manager.
Another employee gave some suggestion for improvement in design, but it was
also not appreciated by the production manager.
  State the principle of management described in the above para.
 Identify any two values that the company wants to communicate to the
society. (Compartment 2014)

Ans. (i) Initiative Henry Fayol suggested that work should be encouraged to develop
and carry out their plans for improvements. Initiative means taking the first step with
self-motivation.
(ii) Values which the company wants to communicate to the society are:

 Creation of job opportunities.

 Concern for environment.

8. Voltech India Lid is manufacturing LED bulbs to save electricity and running
under heavy losses. To revive from the losses, the management thought of
shifting the unit to a backward area where labour is available at a low cost. The
management also asked the workers to work overtime without any additional
payment and promised to increase the wages of the workers after achieving its
mission. Within a short period the company started earning profits because both
the management and the workers honoured their commitments. (Compartment
2014)

State the principle of management described in the above para.

Identify any two values that the company wants to communicate to the society.

Ans. (i) Discipline As suggested by Henry Fayol, discipline is the obedience to

organisational rules and employment agreement which are necessary for the working of
the organisation. He also suggested that there should be clear and fair agreements and
judicious application of penalties.
(ii) Values communicated by the company towards the society are:

 Concern for environment (by manufacturing LED bulbs).

 Development of backward areas.

9. Name and explain the principle of management according to which a manager

should replace ‘I’ with ‘We’ in all his conversation with workers? (HOTS; Delhi
2013)

Ans. Esprit de corps It is the principle of management, according to which a manager

should replace ‘I’ with ‘We’ in all his conversation with workers.
Literally speaking, the phrase ‘esprit de corps’ means the spirit of loyalty and devotion
which unites the members of the group.
According to Fayol, management should promote a team spirit of unity and harmony
among employees. A manager should replace ‘I’ with ‘We’ in all his conversation with
workers to foster team spirit. This will give rise to a spirit of mutual trust and
belongingness among team members.
10. Name and explain the principle of management which requires
judicious application of penalties by the management.
(HOTS; All India 2010; Delhi 2010)

Ans. Discipline According to Fayol, discipline is obedience, application and outward

mark of respect. It is the obedience to organisational rules and employment agreement
which are necessary for the working of the organisation. According to Fayol, discipline
requires good superiors at all levels, clear and fair agreements and judicious application
of penalties.

11. Name and explain the principle of management in which workers should
be encouraged to develop and carry out their plans for improvement in the
organisation. (HOTS; Delhi 2010c)

Ans. Initiative According to Fayol, ‘Initiative means taking the first step with self
motivation, it is thinking out and executing the plan’. It is one of the traits of an intelligent
person. Initiative should be encouraged because employees get satisfaction when they
are allowed to take initiative. But it does not mean going against the established
practices of the company for the sake of being different.

4/5 Marks Questions

12. Nikita and Salman completed their MBA and started working in a multi-
national company at the same level. Both are working hard and are happy with
their employers. Salman had the habit of backbiting and wrong reporting about
his colleagues to impress his boss. All the employees in the organisation knew
about it. At the time of performance appraisal, the performance of Nikita was
judged better than Salman.

Even then their boss, Mohammad Sharif decided to promote Salman stating that
being a female, Nikita will not be able to handle the complications of a higher
post.

(i) Identify and explain the principle of management, which was not followed by
this multi-national company.
(ii) Identify the values, which are being ignored quoting the lines from the above
para. (VBQ; All India 2013)

Ans. (i) Multi-national company was not following the principle of equity as the manager
promoted Salman on the grounds that a female will not be able to handle the
complications of a higher post. Fayol in his principle clearly stated that the managers
should be fair and impartial while dealing with their subordinates. There should be no
discrimination on the basis of caste, sex, religion, etc. The principle of equity implies
that similar treatment should be assured to employees working at similar positions.
(ii) Values such as gender equality, emotional equity and fair treatment are violated in
the lines ‘Mohammad Sharif decided to promote Salman stating that being a female,
Nikita will not be able to handle the complications of a higher post’.
NOTE Principle of equity states that the employees should be treated with kindness and
equity if devotion and loyalty is expected of them

13. Explain Fayol’s principles of ‘equity’ and ‘order’ with examples.

(All India 2011)

Ans. (i) Equity The principle of equity implies a sense of fairness and justice to all
workers working in an organisation. Observance of equity alone would make workers
loyal and devoted to the organisation. Equity does not mean equal salary to a peon and
supervisor. But equity means application of same disciplinary rules, leave rules, etc
irrespective of their grade, position and gender, language, religion or nationality, etc.
For example, the rules for granting medical leave to an employee should be same
irrespective of their position grade or gender.

(ii) Order According to Fayol, ‘People and material must be in suitable place at
appropriate time for maximum efficiency’. This principle states that there should be a
place for everything and everyone in an organisation and that thing or person should be
found at its alloted place. This will lead to increased productivity and efficiency.
For example, raw material should be available at the place prescribed for it.

14. Explain the following principles of Fayol with the help of one example for each
(i) Discipline
(ii) Unity of command (Delhi 2011c)

Ans. (i) Discipline Discipline is obedience, application, and outward mark of respect. It
means obedience to the rules of the organisation on the part of both superiors and
subordinates. Discipline is necessary for the smooth running of the organisation.
According to Fayol, ‘Discipline requires good superiors at all levels, clear and fair
agreement and judicious application of penalties’. Discipline does not mean only rules
and regulations but it also means development of commitment on the part of employees
towards organisation as well as towards each other.
For example, in XYZ Ltd management and labour union have entered into an
agreement whereby workers have agreed to revive the business out of loss. In return,
management would raise the wages of workers. Here ‘discipline’ means the workers
and management both will honour their commitments.

(ii) Unity of command A subordinate should receive orders from one superior only at a
given point of time. According to this principle, one subordinate should receive orders
from one superior only at a given point of time. The principle is necessary to avoid
confusion and conflict.
For example, if a subordinate receives orders from more than one superior in an
organisation he will not be able to carry out multiple orders in a proper manner and thus,
would be unable to satisfy his superiors. The subordinate would be in a confused state,
as to whose orders should be
The principle of unity of command has been shown in the following diagram:

15. Explain the following principles of Fayol with the help of one example of each.

 Division of work
 Unity of direction (All India 2011; Delhi 2011c)

Ans. (i) Division of work Every employee should be assigned only one type of work. It
means that total work is divided into smail tasks/jobs and a trained specialist performs
each job. The objective of division of labour derive the benefits from the principle of
specialisation which can be applied to all work.
For example, publishing of a book involves several operations like computer typing of
text material, proof reading, printing, binding, etc. All the operations are performed by
different people who are experts in their respective field.
(ii) Unity of direction ‘One unit and one plan’ for the group of activities having the
same objective. This principle implies that there should be one head and one plan for a
group of activities having the same objective. It means that the efforts of members of
the organisation should be directed towards the achievement of a common goal.
For example, the mission of a company is to provide quality products at an affordable
prices to the customers. This should serve as a direction for all the departments,
namely, purchasing, financing, quality control and marketing.

16. Explain the tallowing principles of Fayol with the help of one example for
each:

 Scalar chain
 Stability of tenure of personnel (All India 2011)

Ans. (i) Scalar chain It is the chain of superiors ranking from the top to the lowest
ranks. The principle of scalar chain suggests that there should be a clear line of
authority from top to bottom linking managers at all levels. The scalar chain serves as
the chain of command and also as the chain of communication. Under the chain of
command, orders and instructions, issued at higher levels, flow through intermediate
managers before reaching the lower levels. The chain should not be violated in normal
course of formal communication.
However, in emergency, communication can take place between two people working at
the same level but in different departments, through gang plank.
For example, if in XYZ Ltd, E wants to communicate with R. He will have to follow the
path in chain like first he delivers information to D, than D to C, B, A, M, N, O and at last
E transfers the message to R. But in case of emergency, E can directly contact with R
according to the concept of gang plank.

(ii) Stability of tenure of personnel According to this principle, there should be a

reasonable security of jobs. Labour turnover should be minimised to maintain
organisational efficiency. Personnel should be selected and appointed after due and
rigorous procedure. But once selected, they should be kept at their post/position for a
minimum fixed tenure. They should be given reasonable time to show results. Any
adhocism in this regard will create unstability/unsecurity among employees. They would
tend to leave the organisation. Under this situation, recruitment, selection and training
cost will be high.
For example, if Arnav is hired for the post of executive in a company than, according to
this principle he should be kept on the same position for a fixed tenure say for 1 year, so
that he can show results.

17. Explain any two of the following Fayol’s principles of management with
examples
(i) Unity of direction (ii) Equity
(iii) Esprit de corps (iv) Initiative(All India 2008; Delhi 2008C)

Ans. (i) Unity of direction ‘One unit and one plan’ for the group of activities having the
same objective. This principle implies that there should be one head and one plan for a
group of activities having the same objective. It means that the efforts of members of
the organisation should be directed towards the achievement of a common goal.
For example, the mission of a company is to provide quality products at an affordable
prices to the customers. This should serve as a direction for all the departments,
namely, purchasing, financing, quality control and marketing.
(ii) Equity The principle of equity implies a sense of fairness and justice to all workers
working in an organisation. Observance of equity alone would make workers loyal and
devoted to the organisation. Equity does not mean equal salary to a peon and
supervisor. But equity means application of same disciplinary rules, leave rules, etc
irrespective of their grade, position and gender, language, religion or nationality, etc.
For example, the rules for granting medical leave to an employee should be same
irrespective of their position grade or gender.

(iii) Esprit de corps This principle states that union is strength. It refers to team spirit,
i.e. harmony in the work group and mutual understanding among the workers. A group
of workers holding hands and standing in union, leads to the achievement of goals
efficiently. Unity among the personnel can be accomplished through proper
communication and coordination, e.g. in a circket team, we need allrounder players,
they are good in batting, bowling, fielding, etc as the competition is tough and inooler for
a team to perform such kinds of players are required.

(iv) Initiative It means freedom to think out and execute a plan. The principle of
initiative implies that the managers of an undertaking should encourage its subordinates
to take some initiative in thinking out and executing plans. By encouraging initiative, the
management can motivate employees to work better and harder, e.g. a manager of XYZ
Ltd is being encouraged by his superior to take decisions openly [Link] the plans
accordingly for the betterment of the organisation.

18. Explain the following principles of management:

 Scalar chain
 Science, not rule of thumb. (Delhi 2008)

Ans. (i) Scalar chain It is the chain of superiors ranking from the top to the lowest
ranks. The principle of scalar chain suggests that there should be a clear line of
authority from top to bottom linking managers at all levels. The scalar chain serves as
the chain of command and also as the chain of communication. Under the chain of
command, orders and instructions, issued at higher levels, flow through intermediate
managers before reaching the lower levels. The chain should not be violated in normal
course of formal communication.

However, in emergency, communication can take place between two people working at
the same level but in different departments, through gang plank.
For example, if in XYZ Ltd, E wants to communicate with R. He will have to follow the
path in chain like first he delivers information to D, than D to C, B, A, M, N, O and at last
E transfers the message to R. But in case of emergency, E can directly contact with R
according to the concept of gang plank.
(ii) Science, not rule of thumb According to this principle, decisions should be based on
facts rather than rule of thumb. Rule of thumb is based on intuition, experience,
personal opinion and/or prejudice. This principle requires development and application
of scientific method. Taylor advocated that the traditional rule of thumb method should
be replaced by scientific methods. Scientific methods should be used for the following
purposes:

 Determine standard time required to do a job.

 Determine a fair day’s work for the workers.
 Determine the best way of doing the work.
 Select standard tools and equipments, etc.

19. Explain the following principles:

 Discipline
 Harmony, not discord (All India 2008)

Ans. (a) Discipline Discipline is obedience, application, and outward mark of respect. It
means obedience to the rules of the organisation on the part of both superiors and
subordinates. Discipline is necessary for the smooth running of the organisation.
According to Fayol, ‘Discipline requires good superiors at all levels, clear and fair
agreement and judicious application of penalties’. Discipline does not mean only rules
and regulations but it also means development of commitment on the part of employees
towards organisation as well as towards each other.
For example, in XYZ Ltd management and labour union have entered into an
agreement whereby workers have agreed to revive the business out of loss. In return,
management would raise the wages of workers. Here ‘discipline’ means the workers
and management both will honour their commitments.
(b) Harmony, not discord Scientific management aims at removing differences between
the management and the workers. This requires change of mental attitudes of the
workers and the management towards each other. They do not quarrel about the
distribution of profits. Harmony between management and workers would contribute to
the overall gains of the organisation.
 FW Tayolr’s Scientific Management Its
Principles & Its Techniques
1 Mark Questions

1. State the objective of time (All India 2014, 2010; Delhi 2010, 2008)
Ans. The main objective of time study is to determine the standard time required to
perform a job.

2. What is determined by fatigue study? (Foreign 2014)

or
State the objective of fatigue study. (All India 2010; Delhi 2008)
Ans. The objective of fatigue study is to maintain the efficiency level of workers by
determining the amount and frequency of rest intervals in completing a task.

3. What is the objective of ‘method study’ as a technique of scientific

management? (Delhi 2014)
or
What is the main objetive of ‘method study’? (All India 2008)
Ans. The main objective of method study is to find out the best way of doing the job.

4. State any one principle of scientific management. (Delhi 2011)

Ans. Science, not rule of thumb It advocates that there is only one best method to
maximise efficiency and this method should substitute rule of thumb throughout the
organisation.

5. Name the principle of scientific management which emphasises on study

and analysis of methods rather than estimation.
(HOTS; Delhi 2011c)
or
Name the principle of scientific management which suggests the introduction of
scientific investigation and analysis.
(HOTS; All India 2011)

Ans. Science, not rule of thumb.

6. State the objective of motion study. (All India 2010,2008; Delhi 2008)
Ans. The objective of motion study is to eliminate unnecessary and wasteful motions so
that it takes less time to complete the job efficiently.
7. Which technique of Taylor differentiates between an efficient worker and
an inefficient worker? (HOTS; All India 2010)
Ans. Differential piece wage system differentiates between an efficient worker and an
inefficient worker

8. Which revolution involves a change in the attitude of workers and

management towards one another, from competition to cooperation?(HOTS;
Delhi 2010c)
or
What did Taylor want to communicate through mental revolution?
(All India 2009; Delhi 2009C)
Ans. Mental revolution involves a change in the attitude of workers and management
towards one another, from competition to cooperation.

9. Which technique of Taylor acts as the strongest motivator for a worker to

reach standard performance?( HOTS; Delhi 2009c)
Ans. Differential piece wage system.

10. Which technique of Taylor separates planning and execution

functions? (HOTS; All India 2009; Delhi 2009C)
Ans. Functional foremanship.

11. Why did Taylor developed the technique of differential piece wage
system? (All India 2009; Delhi 2009C)
Ans. Taylor developed the technique to differentiate efficient and inefficient workers and
to suitably reward the effecient workers.

12. Which technique of Taylor is the extension of the principle of ‘division of

work’ and ‘specialisation’? (HOTS; All India 2009C)
Ans. Functional foremanship.

13. What is the main objective of simplification in scientific management? (Delhi

2008)
Ans. The main objective of simplification is to eliminate unnecessary variety of products
or forms.

14. Why do Taylor’s techniques of scientific management not applicable to all

types of organisations? (All India 2008)
Ans. Taylor’s techniques of scientific management are not applicable to all types of
organisations because they are more specific in nature and should be applied only in
specific conditions.
3 Marks Questions

15. Pawan is working as a Production Manager in CFL Ltd engaged in

manufacturing of CFL bulbs. There is no class-conflict between the management
and workers. The working conditions are very good. The company is earning
huge profits. As a policy matter, management is sharing the gains with the
workers because they believe that prosperity of the company cannot exist for a
long time without the prosperity of the employees.

 State the principle of management described in the above para.

 Identify any two values which the company wants to communicate to the
society. (Compartment 2014)

Ans. (i) Harmony, not discord The principle advocated by FW Tay or, suggests that
there should be no class conflict but there should be complete harmony between the
management and the workers. For achieving this, Taylor suggested ‘mental revolution’.
He also emphasised that management should share the gains with the workers, if any.

(ii) The values which the company wants to communicate to the society are:

 Concern for environment (producing CFL bulbs).

 Concern for human welfare (by providing good working conditions).

16. ABC Ltd is engaged in producing electricity from domestic garbage. There is
almost equal division of work and responsibility between workers and
management. The management even takes workers into confidence before taking
important decisions. All the workers are satisfied as the behaviour of the
management is very good.

 State the principle of management described in the above para.

 Identify any two values which the company wants to communicate to the
society. (All India 2013)

Ans. (i) Cooperation, not individualism The principle given by FW Taylor suggests that
any form of competition should be replaced by cooperation. He also suggested that
there should be an almost equal division of work and responsibility between workers
and management.

(ii) The values, which the company wants to communicate to the society are: ‘

 Concern for environment (producing electricity from domestic garbage).

 Cooperation and team work.
17. Explain ‘harmony, not discord’ as a principle of scientific management? (Delhi
2013)

Ans. According to this principle, there should be a complete harmony between the
management and the workers working in an organisation. To support this, Taylor
advocated a complete ‘mental revolution’, i.e. change in the attitude of both workers and
management towards one another, from competition to cooperation. Both should realise
the importance of each other.

18. Explain ‘Cooperation, not individualism’ as a principle of scientific

management? (Delhi 2013)

Ans. ‘Cooperation, not individualism’ is a principle of scientific management which

states that there should be complete cooperation between the workers and
management in an oganisation instead of individualism and competition. In the absence
of constant and willing cooperation between the two sides, maximum prosperity for both
the parties cannot be achieved.

19. Name and explain the technique of scientific management which helps in
establishing interchangeability of manufactured parts and products.
(HOTS; All India 2010; Delhi 2010)

Ans. Stan idisation is the process of setting standards for every business activity
process, raw materials, time, product and machinery. Taylor advocated the
standardisation of tools, and equipment, cost system and several other items.
The objectives of standardisation are:
(i) To reduce a given line or product to fixed types.
(ii) To establish interchangeability of manufactured parts and products.
(iii) To establish quality standards.
(iv) To establish performance standards of men and machines.

20. Name and explain the technique of scientific management which helps in
eliminating unnecessary diversity of products and thus results in saving
cost. (HOTS; All India 2010)

Ans. Simplification helps in eliminating unnecessary diversity of products and thus,

results in saving cost.
(i) It aims at eliminating superfluous varieties, sizes and dimensions.
(ii) It leads to reduction in wastage of inventories, fuller utilisation of equipment and
increased turnover.

4/5 Marks Questions

21. Explain the technique of scientific management, i.e. the extension of principle
of division of work and specialisation. (HOTS; Delhi 2012,2009)
Ans. Functional foremanship It is an extension of the principles of division of work and
specialisation. The term, functional foremanship means separation of planning from
execution. Each worker is supervised by various specialists. For this, Taylor suggested
that under the factory manager, there is a planning incharge and a production

Under planning incharge, following four personnel are appointed:

(i) Route clerk (ii) Instruction card clerk
(iii) Time and cost clerk (iv) Disciplinarian
Under production incharge, following four personnel are appointed who are concerned
with the execution of the plans:
(i) Gang boss (ii) Speed boss (iii) Repair boss (iv) Inspector

22. Explain that technique of scientific management which is the strongest

motivator for a worker to reach standard performance.
(HOTS; All India 2012; Delhi 2009)

Ans. Differential piece wage system is the strongest motivator for a worker to reach
standard perforhnance. It is a method of wage payment in which efficient and inefficient
workers are paid at different rates. In this method, increase in efficiency is co-related
with an increase in the wage rate. That is why, an efficient worker gets more wages
whereas, an inefficient worker gets less. Workers are paid on the basis of number of
units produced. If a worker produces more than a • certain number of units (standard
output), he gets higher wage per piece/units on his total output. If he produces below
the standard number, he gets lower rate per piece. Because of different rates of wage
for different sets of workers, this is known as differential piece rate plan.
23. Explain any two techniques of Taylor’s scientific management. (All India 2011;
Delhi 2011)

Ans. Two techniques of Taylor’s scientific management are as follows :

(i) Functional foremanship
Functional foremanship It is an extension of the principles of division of work and
specialisation. The term, functional foremanship means separation of planning from
execution. Each worker is supervised by various specialists. For this, Taylor suggested
that under the factory manager, there is a planning incharge and a production

Under planning incharge, following four personnel are appointed:

(i) Route clerk (ii) Instruction card clerk
(iii) Time and cost clerk (iv) Disciplinarian
Under production incharge, following four personnel are appointed who are concerned
with the execution of the plans:
(i) Gang boss (ii) Speed boss (iii) Repair boss (iv) Inspector

(ii) Standardisation and simplification Standardisation refers to the process of setting

standards for every business activity. It can be standardisation of process, raw material,
time, product, machinery, methods or working conditions. These standards are the
benchmarks which must be adhered during production.
Simplification aims at eliminating unnecessary varieties, sizes and dimensions of
products. It results in saving of cost of labour, machines and tools.

24. Explain the concept of ‘functional foremanship’ and ‘mental revolution’

in scientific management as enunciated by ‘Taylor’.
(Delhi 201 ic, 2008C)
or
Explain ‘differential piece rate’ and ‘functional foremanship’ as techniques of
scientific management. (Delhi 2009)

Ans. Functional foremanship

Functional foremanship It is an extension of the principles of division of work and
specialisation. The term, functional foremanship means separation of planning from
execution. Each worker is supervised by various specialists. For this, Taylor suggested
that under the factory manager, there is a planning incharge and a production
Under planning incharge, following four personnel are appointed:
(i) Route clerk (ii) Instruction card clerk
(iii) Time and cost clerk (iv) Disciplinarian
Under production incharge, following four personnel are appointed who are concerned
with the execution of the plans:
(i) Gang boss (ii) Speed boss (iii) Repair boss (iv) Inspector

Mental revolution Mental refers to mind and revolution refers to radical change,
therefore, mental revolution refers to a change of mind. According to Taylor, a scientific
management, in its essence, involves a complete mental revolution on the part of both
sides to industry, viz workers and management.
No scheme of scientific management could be a success, unless and until both these
groups fully cooperate with each other through developing and maintaining best friendly
relations. This requires a mental revolution on the part of management and workers by
giving up an attitude of hostility and enmity towards each other.

Differential piece rate Differential piece wage system is the strongest motivator for a
worker to reach standard perforhnance. It is a method of wage payment in which
efficient and inefficient workers are paid at different rates. In this method, increase in
efficiency is co-related with an increase in the wage rate. That is why, an efficient
worker gets more wages whereas, an inefficient worker gets less. Workers are paid on
the basis of number of units produced. If a worker produces more than a • certain
number of units (standard output), he gets higher wage per piece/units on his total
output. If he produces below the standard number, he gets lower rate per piece.
Because of different rates of wage for different sets of workers, this is known as
differential piece rate plan.

25. Explain any five principles of scientific management.

(All India 2009; Delhi 2009)

Ans. Five principles of scientific management are as follows:

(i) Science, not rule of thumb Taylor has emphasised that in scientific management,
organised knowledge should be applied, which will replace the rule of thumb. Scientific
investigations should be used for taking managerial decisions instead of making the
decisions on opinions, intuitions, estimates, prejudices, likes and dislikes, etc. Under
scientific management, decisions are made on the basis of facts developed by the
application of scientific methods.

(ii) Harmony, not discord (Conflict) There should be harmony between the
management and the workers. This requires change of mental attitudes of the workers
and the management towards each other. Taylor called it mental revolution.
Management should share gains of the company with workers.
They should create suitable working conditions and resolve all problems scientifically.
Mental revolution on the part of workers requires that they should be disciplined, loyal
and sincere in fulfilling the tasks assigned to them. Instead of fighting for dividing
surplus or profit, the management and workers should cooperate to increase it.

(iii) Cooperation, not individualism There should be cooperation between workers

and management. It is only through cooperation with workmen, the managers can
ensure that work is carried out according to plans. Cooperation is based on mutual faith
so managers should develop understanding with workers to secure the cooperation.

(iv) Development of each and every person to his/her greatest efficiency and
prosperity Industrial efficiency depends upon the efficiency of workers and worker’s
efficiency depends upon proper training and their proper selection. Taylor suggested
that due care should be taken while selecting the employees and after selecting, they
must be given job according to their physical, mental and intellectual capabilities.
Employees must sent for training from time to time to update their knowledge. This will
ensure greatest efficiency and prosperity for both workers and management.

(v) Maximum output in place of restricted output The aim of both management and
the workers should be to maximise output. This should be done by both parties in their
own/self interest. For management, increased production means more profits and lower
cost of production. For workers, increased output may offer attractive wages.
In this way, self interest that implies both management and the workers to achieve
maximum output. Maximum output will also be in the interest of the society.

26. Explain any five techniques of scientific management.

(All India 2009)

Ans. The ultimate aim of scientific management is to maximise production at the

minimum cost. Scientific management is introduced through the techniques of work
study, standardisation, simplification, functional foremanship, etc.
Following are the five techniques of scientific management:

(i) Time study It refers to determine the standard time required to complete a particular
activity. The standard time is determined on the basis of average time taken to complete
the work. This study is conducted with the help of a stop watch. The main objective of
this study is to get the estimated figure of labour cost to determine the number of
required workers and to decide the suitable incentive plan.

(ii) Motion study This is the analysis of physical movements in doing a work. Every
work involves various forms of human movements such as lifting, holding, turning, etc.
Under motion study, the movement will be analysed to find out easier ways of doing the
work and eliminate useless motions.
Following steps are involved in motion study:

 Selection of efficient workers.

 Analysis of the motions involved in a work.
 Finding the minimum time involved in doing a work.
 Keeping record of the best moves and unnecessary/unproductive actions.

(iii) Method study It refers to identifying the most suitable way to do a particular
activity. To conduct this study, process chart and operation restarch techniques
are used. The main objective of this study is to minimise the cost of production
and maximise the quality and level of consumer satisfaction.

(iv) Fatigue study Fatigue in work is natural. When the worker is given
continuous work, he will get tired and loose speed and efficiency. He needs rest
after working for a few hours. Scientific management studies the nature of work to
determine the standard time for finishing the job and to find out when the workers
need rest. The nature, time and period of rest are pre-determined. Necessary
changes should also be made in the working methods and conditions to reduce
fatigue.

(v) Functional foremanship Taylor suggested functional foremanship for better

supervision of workers. Under functional foremanship, there are specialist foremen
for each job. He classified specialist foremen into two departments, namely
planning and production departments. Both the departments have four foremen.
The names and functions of these foremen are as follows:

(a) Planning Department

Route clerk Determining the process of production and the route through which
the raw materials will pass.

Instruction card clerk Laying down instructions according to which the workers
are required to perform work.

Time and cost clerk Setting the tjme table for doing a job as per the pre-
determined route and time schedule. He specifies the material and labour cost
with respect to each operation.

Shop disciplinarian Maintaining proper discipline in the factory.

(b) Production Department
Gang boss Arranging machines, materials, tools, workers, etc for the job.

Speed boss Maintaining the planned speed of production, investigating the

causes for delay and remove them.

Repair boss Maintenance of the machines and equipments, proper arrangements

for their oiling, greasing, cleaning and repair, preventing misuse of machines, etc.
Inspectors Seeing that the work confirms to the standard of quality laid down by
the planning department.27. D and D Ltd Co is a large manufacturing unit.

Recently, the company had conducted the time and motion studies and
concluded that on an average, a worker could produce 120 units per day.
However, it has been noticed that average daily production of a worker is in
the range of 80-90 units.
What steps will you suggest to ensure that the actual performance is in
accordance with the performance as per time and motion studies? (HOTS;
All India 2008)

Ans. Following steps should be taken to ensure the actual performance is in

accordance with the performance as per time and motion studies:
(i) Deciding how much time is normally required to perform a certain job.
(ii) Determining a fair day’s work.
(iii) Determining the number of workers to be employed according to the amount of
work.
(iv) Study the movements of an operator of a machine involved’ in a task with a
view to eliminate useless/superfluous movements.
 Fayol Vs Taylor
5 Marks Questions

1. Principles of Taylor and Fayol are mutually complementary. One believed that
management should not close its ears to constructive suggestions made by the
employees while the other suggested that a good company should have an
employee suggestion system, whereby suggestions which result in substantial
time or cost reduction should be rewarded. Identify and explain the principles of
Taylor and Fayol referred in the above para. (Delhi 2014)

Ans. Cooperation and individualism Management should not close its ears to
constructive suggestions made by the employees, is related with the principle of Taylor,
i.e. ‘cooperation not individualism’. This principle is an extension of principle of
harmony. Competition should be replaced by cooperation. Management and workers
both should realise that they need each other. For this management should entertain
the constructive suggestions of employees and at the same time, workers should also
cooperate with management.

Initiative The another principle is related with Fayol was ‘initiative’ in which he
suggested that employees at all levels should take initiatives or actions without any
force or boundations. This will help to motivate them and they will work hard for the
betterment of the organisation. He stressed that a good company should have an
employee suggestion system where by initiatives/suggestions which result in substantial
cost/time reduction should be awarded.

2. Principles of Taylor and Fayol are mutually complementary. One believed that
the management should share the gains with the workers, while the other
suggested that employees compensation should depend on the earning capacity
of the company and should give them a reasonable standard of living. Identify
and explain the principles of Fayol and Taylor referred to in the above para. (All
India 2014)

Ans. Taylor believed ‘management should share the gains with workers’. This has been
emphasised by the principle of ‘harmony, not discord’, which also emphasised on
mental revolution.

Harmony, not discord The interests of the employers and employees should be fully
harmonised so as to create a good relationship. Taylor emphasised that there should be
complete harmony between the management and workers. This requires a
transformation in the thinking of both, which can be achieved through mental revolution.
Management should share the gains of the company with the workers. At the same
time, workers should work and embrace changes. Taylor believed in that prosperity for
the employer cannot exist for a long time unless it is accompanied by prosperity for the
employees and vice-versa.
In the same way, Fayol’s principle of ‘remuneration of employees’ suggested that the
employees compensation should depend on the earning capacity of the company and
should give them a reasonable standard of living.

Remuneration of employees According to Fayol, the quantum and methods of

remuneration payable to employees should be fair and reasonable. It should be
satisfactory to both employers and employees.
Thus, we can say that Taylor’s and Fayol’s principles are mutually complementary.

3. Principles of Taylor and Fayol are mutually complementary. One believed that
the management should scientifically select the person and the work assigned
should suit his/her physical and intellectual capabilities, while the other
suggested that the work can be performed more efficiently if divided into
specialised tasks. Identify and explain the principles of Fayol and Taylor referred
to in the above para.
(Foreign 2014)

Ans. The principle of Fayol referred to in the above para is ‘remuneration‘.

It states that overall pay and compensation should be fair to both the employees and
the organisation. The employees should be paid fair wages which should give them a
reasonable standard of living.
The principle of Taylor referred to in the above para is ‘harmony, not discord‘.
It suggests that there should be complete harmony between management and the
workers. Taylor suggested complete ‘mental revolution’ on the part of both the
management and the workers
 Business Environment

1. Which of the following is an element of ‘Social Environment’ ? (2024)

(A) Rates of saving and investment
(B) Expectations from the workforce
(C) The nature of relationship of our country with foreign countries
(D) Planned outlay in public and private sectors
Ans. (B) Expectations from the workforce
2. ‘SK Builders’ became the market leader in the designer house segment as it
was the first to recognize the need of using Artificial Intelligence in designing
houses in the changing environment of technological advancement. This
highlights the following point of importance of business environment : (2024)
(A) It helps to identify threats and early warning signals.
(B) It enables the firm to identify opportunities and getting the first mover
advantage.
(C) It helps in tapping useful resources.
(D) It helps in improving performance.
Ans. (B) It enables the firm to identify opportunities and getting the first mover
advantage.
3. State any three features of business environment. (2024)
Ans. Features of business environment are: (Any three)
(i) Business environment is the sum total of all factors/things external to
business firms and, as such, is aggregative in nature.
(ii) Business environment includes both specific such as customers, investors, etc
and general forces such as political, social, etc.
(iii) Different elements or parts of business environment are closely inter-related.
(iv) Dynamic nature: Business environment is dynamic and keeps on changing
whether in terms of technological improvement, shifts in consumer preferences,
etc
(v) Business environment is uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too
frequently
(vi) Business environment is complex as it consists of numerous interrelated and
dynamic conditions or forces that are relatively easier to understand in parts but
difficult to grasp in its totality.
(vii) Business environment is a relative concept since it differs from country to
country and even region to region.
4. State any three features of ‘Demonetization’. (2024)
Ans. Features of demonetization are: (Any three)
(i) Demonetisation is viewed as a tax administration measure and people with
black money had to declare their unaccounted wealth and pay taxes at a penalty
rate.
(ii) Demonetisation is also interpreted as a shift on the part of the government
indicating that tax evasion will no longer be tolerated or accepted.
(iii) Demonetisation led to tax administration channelizing savings into the
formal financial system, to enable banks with deposits to provide a base loans, at
lower interest rates.
(iv) It creates a less-cash or cash-lite economy, i.e., channelising more savings
through the formal financial system and improving tax compliance.
5. Differentiate between ‘Delegation’ and ‘Decentralisation’ on any four bases.
(2024)
Ans. Differences between Delegation and Decentralisaton: (Any four)
Basis Delegation Decentralisation
Nature Delegation is a compulsory Decentralisation is an
act because no individual optional policy decision.
can perform all tasks on his It is done at the discretion
own. of the top management.
Freedom of action There is more control by There is less control over
superiors hence less executives, hence greater
freedom to take own freedom of action.
decisions.
Status It is a process followed to It is the result of the
share tasks. policy decision of the top
management.
Scope It has narrow scope as it is It has wide scope as it
limited to superior and his implies extension of
immediate subordinate. delegation to the lowest
level of management.
Purpose The purpose is to lessen The purpose is to
the burden of the manager. increase the role of the
subordinates in the
organisation by giving
them more autonomy.
 Previous Years' CBSE Board Questions
3.1 Business Environment-Concept and Importance
MCQ
1. 'Cartoony Planet' is a well-known indoor playground for organising parties for
children in Noida. It has many play-stations and it organises various activities for
the kids to enjoy. Looking at the increasing number of children visiting 'Cartoony
Planet', a new indoor playground in the name of 'Tiny-Tots House' came up with
advanced swings, play stations and entertainment activities near 'Cartoony
Planet!
To compete with the newly opened indoor playground, 'Cartoony Planet' also
added some advanced swings and entertainment activities to attract more
children.
The above information highlights one of the features of 'Business Environment.
Identify the feature from the following:
(a) Uncertainty
(b) Dynamic Nature
(c) Relativity
(d) Interrelatedness (2023)
2. 'Dolma' and 'Una' were gardeners with decades of hands-on experience. They
were the first ones to recognise the need of indoor gardens specially for plant-
lovers living in apartments. They took advantage of this opportunity and decided
to offer beautiful designing ideas for indoor gardening through their innovative
venture 'My Space'.
'My Space' offered creative ideas like 'Garden wall', 'Hanging Garden, 'Window
Garden', 'Book-shelf Garden' and many more. Since there were no competitors,
they soon became the market leaders in the field.
From the following points, identify the importance of Business environment
highlighted above:
(a) Business environment helps the firm to identify threats and early warning
signals.
(b) Business environment helps in tapping useful resources.

(c) Business environment enables the firm to identify opportunities and getting
the first mover advantage.
(d) Business environment helps in assisting in planning and policy formulation.
(2023)
3. Match the various characteristics of Business environment given in Column I
with their respective explanations in Column II.

(a) A-(iii), B-(ii), C-(i) (b) A-(ii), B-(iii), C-(i)

(c) A-(iii), B-(i), C-(ii) (d) A-(i), B-(ii), C-(iii)
(2023)

4. Indian ethnic wear like sarees are in great demand in India but Italy does not
have such a high demand for the same. Which feature of business environment is
reflected from this statement?
(a) Inter-relatedness (b) Uncertainty
(c) Complexity (d) Relativity

(Term-I, 2021-22)

5. Sarvodaya Palace is a 40-year-old established hotel in Udaipur. However,

recently the travellers started looking for free Wifi, early check in and pet care
facilities. The manager sensing the shifts in consumers preferences upgraded the
hotel and its policies to accommodate all of these. Which feature of business
environment is highlighted in the above case?

(a) Complexity (b) Dynamic nature

(c) Uncertainty (d) Relativity

(Term-I, 2021-22)
6. Business environment is said to be uncertain as:
(a) Different element or parts of business environment are closely inter related.
(b) It differs from country to country.
(c) It is difficult to predict future happenings especially when environment
changes are taking place too frequently.
(d) It consists of numerous interrelated forces which arise from different sources.
(Term-I, 2021-22)
7. ‘Business environment consists of numerous interrelated and dynamic
conditions or forces which arise from different sources. Identify the characteristic
of business environment being highlighted here.
(a) Inter-relatedness (b) Dynamic nature
(c) Complexity (d) Relativity
(2021 C)
8. Which of the following headings does not highlight the importance of business
environment?
(a) Tapping useful resources
(b) Coping with rapid changes
(c) Improving performance
(d) Promoting innovative ideas
(2021 C)
VSA (1 mark)
9. What is meant by 'Business Environment"?
(Delhi 2015)
10. Why is it said that Business Environment is uncertain?
(Al 2015 C)
11. Why is business environment called dynamic?
(Delhi 2014 C)
SA I (3 marks)
12. What is meant by business environment? State any three points of its
importance. (Delhi 2015)
13. Explain how does the understanding of business environment help the
management in the following:
(a) Tapping useful resources; and
(b) Coping with rapid changes.
(Delhi 2015 C)
SA II (4 marks)
14. In an environment of rising petroleum prices and a large middle-class
population in India, KV Motors Ltd. recognised the need for small cars in India. It
created a product far superior than their competitors not only in terms of quality
but also in terms of overall driving experience. It soon became the leader in the
small car market. As the Indian government was encouraging foreign investment,
MNCs having a big name in car manufacturing entered the Indian market.
KV Motors further expanded its service network and quality creating an entry
barrier for the competitors. It depicted its strengths through various brand-
building activities. As a result, the market share of KV Motors is refusing to go
down in spite of all major automakers as its competitors.
(a) Identify the economic reforms highlighted in the above case.
(b) Quoting the lines, explain any two points of importance of Business
Environment being highlighted in the above case
(Foreign 2019)
15. How does the understanding of Business Environment help the management
in the following:
(a) Identification of threats and early warning signals
(b) Improving performance.
(AI 2015 C)
16. Why is the understanding of Business Environment important for managers?
Explain with the help of any four points.
(Delhi 2014)
17. Explain the concept of 'Business Environment' and any three features of it.
(AI 2014)
LA (5 marks)
18. 'Konark Ltd. is an electronic goods manufacturing enterprise situated in
shivpuri, Madhya Pradesh. It is earning a very low revenue in comparison to a
competing electronic goods manufacturing enterprise, 'Nova Ltd. situated in
Mumbai. Both Konark's and Nova's operations are affected directly by the
investors, customers, competitors and suppliers, which are unique to their
respective locations. In addition to this, individual firms of this field are affected
indirectly by the factors like the money supply in the economy, composition of the
families, the technological changes, etc.
(a) Identify and state the feature of the concept discussed in the above paragraph.
(b) Also, state any four points of importance of this concept.
(AI 2018)
3.2 Dimensions of Business Environment-Economic, Social, Technological,
Political and Legal, and Concept of Demonetisation
MCQ
19. Which of the following are the examples of Legal Environment?
(i) Advertisement of alcoholic beverages is prohibited
(ii) Decrease in interest rate on loans
(ii) Increase in demand for organic foods
(iv) Digilockers for storing documents
(v) In 1993, the Supreme Court passed an order to close the iron foundries
around "Taj Mahal' at Agra
(a) (i) and (iv) only (c) (ii) and (ii) only
(b) (i) and (ii) only (d) (i) and (v) only
(2023)
20. 'Digilocker' is a flagship initiative of 'Ministry of Electronics and IT,
Government of India. It aims at digital empowerment of the citizens by providing
access to authentic digital documents such as academic certificates issued by
different Examination Boards, Driving Licenses, Vehicle registrations etc. in a
digital format.
The above para discusses a few dimensions of Business Environment. Identify the
correct dimensions from the following.
(a) Economic Environment and Technological Environment
(b) Social Environment and Economic Environment
(c) Social Environment and Political Environment
(d) Political Environment and Technological Environment
(2023)
21. A leading vacuum cleaner company recently introduced a robotic vacuum
cleaner that sweeps, mops and disinfects surfaces within no time. Due to this
there is a shift in demand from ordinary vacuum cleaners to robotic vacuum
cleaners.
The dimension of business environment discussed is:
(a) Technological (b) Political
(c) Economic (d) Legal
(Term-1, 2021-22)
22. The Indian sweet industry has been through many changes over the years.
Identifying the growing trend towards healthier options, Ajay Verma started
'Guilt-free Sweets, offering variety of sugar-free sweets to the customers.
The dimension of business environment highlighted above is:
(a) Social (b) Economic
(c) Political (d) Technological
(Term-1, 2021-22)
23. A leading pizza chain recently introduced 'Momo Mia pizza' - a combination of
pan pizza with momos in its crust. Their market research had revealed that
momos are the second most loved street food of India right after golgappas. They
wanted to be the first company to take advantage of this opportunity rather than
losing out to competitors.
The point of importance of understanding of business environment discussed
above is:
(a) Tapping useful resources
(b) Identifying opportunities and getting the first mover advantage
(c) Improvement in performance
(d) Coping with rapid changes
(Term-1, 2021-22)
24. Several initiative have been undertaken by the Government of India to
encourage domestic manufacturing and export the defence equipment’s. 'Make in
India' in Defence, was one such scheme launched by the Government to
encourage companies across the world to manufacture defence products in India.
To which dimension of business environment does the above case relates to?
(a) Economic Environment (b) Legal Environment
(c) Political Environment (d) Social Environment
(Term-1, 2021-22)
25. __________ environment of business includes forces relating to scientific
improvements and innovations which provide new ways of producing goods and
services and new methods and techniques of operating a business.
(a) Social (b) Political
(c) Technological (d) Economic
(2021 C)
26. Reserve Bank of India has reduced the REPO rate for providing cheaper loans
to the industries during COVID-19 pandemic. Which dimension of business
environment is being discussed here?
(a) Political (b) Economic
(c) Technological (d) Social
(2021 C)
27. Which of the following is a component of economic environment?
(a) Concern with quality of life
(b) Rates of saving and investment
(c) Extent of government intervention in business
(d) Birth and death rates
(2020 C)
VSA (1 mark)
28. What is included in 'Political Environment' of business?
(AI 2014)
29. What is included in 'Legal Environment' of Business?
(AI 2014)
SA II (4 marks)
30. The Government of India, in an effort to eliminate plastic waste, imposed a
nationwide ban on single-use plastic. The ban would most likely target plastic
cutlery, straws, cups and glasses. As a result of this ban, the businesses have been
forced to change their practices. 'Viman Airlines' decided to stop giving small
water bottles on its flights. Various firms have come up in the country that are
making biodegradable plastic out of starch, wheat hay or petrochemicals. Thus,
competition in this upcoming industry is immense. Businesses are also focusing
on developing techniques to produce alternatives for plastic bags. 'Carlos
Technologies Ltd., a leading engineering company, has planned to design and
deliver hi-tech machines that can scale up production of bags made from
newspaper to replace plastic bags. Many companies are placing orders for such
machines. This has added challenges before smaller firms making paper bags. In
various enterprises, employees are being trained to operate such hi-tech
machines. This will provide human resource with higher competence. Customers
have also become more demanding due to increased awareness and are forcing
sellers to adopt bags which are not made of plastic.
Identify and explain the impact of the above Government policy on Business and
Industry. (2020 C)
31. Mahinder Agro Ltd. started a new venture for distribution of harmful and
chemical fertilizers free vegetables. They conducted a survey to find out
consumer preferences for such vegetables. They found that most of the
consumers were concerned about the harmful chemicals being used in growing
the vegetables. They found that 90% of the households were searching for its
alternatives. The company contacted a group of agriculture experts to lay down
the procedure for growing the vegetables by the farmers. They decided to train
the farmers in new technology to grow chemical free vegetables according to new
innovative methods. The experts also suggested soil management techniques
through which farmers would be able to create an abundant and lasting harvest.
Identify and explain the two dimensions of business environment highlighted in
the above para.
(Delhi 2019)
32. With change in the consumption habits of people, Neelesh, who was running a
sweets shop shifted to chocolate business. On the evening of Diwali, he offered
chocolates in attractive packages at reasonable prices. He anticipated huge
demand and created a website [Link] for taking orders online. He got lot
of orders online and earned huge profit by selling chocolates. Identify and
explain the dimensions of Business environment discussed in the above case.
(AI 2016)
33. Beni, after completing her MBA, took up a job with a multinational company
named ‘Fortio’. The company was paying good salary and perks to its employees.
The wages were within the paying capacity of the company that provided the
employees a reasonable standard of living. The company also had a good work-
culture and the behaviour of superiors was very good towards their
subordinates. Beni was very happy in this organisation, but due to long working
hours she did not have time to cook her meal. She had to depend upon outside
food. Which was deteriorating her health.
She observed that this problem was faced by many of her colleagues, not only in
her company but also in many other companies. This was because of increase in
the number of working women and non-availability of hygienic home-cooked
food. She identified this as a great opportunity and decided to give up her job to
supply packaged home-cooked food to office going people at a reasonable price.
At the end of the day, she was also distributing the left-over food in the nearby
night-shelters.
(a) State the dimension of business environment being discussed above.
(b) State the principle of management being followed by ‘Fortio’.
(c) Identify any two values being communicated by the company to the society in
the above case.
(AI 2015)
LA (5 marks)
34. Metlapp Networks and Technologies Ltd. is a leader in technology innovation
in the United States, creating products and solutions for connecting the world. It
has a large research and development team which invented the first smart watch,
named as W-7. The watch besides showing the time also monitors few health
parameters like heartbeat, blood pressure etc.
While in search of markets abroad, the company found that in India, the reform
process was underway with the aim of accelerating the pace of economic growth.
The company decided to take advantage of simplified export procedure and
removal of quantitative as well as tariff restrictions in India.
It set up its office in Jamnagar with a view to capture the Indian market. In a short
span of time, the company emerged as a market leader. Success of the company
attracted many other players to enter the market. Competition resulted in
reduction in prices, thereby benefiting the customers.
(a) In the above paragraph, two major concepts related to government policy
have been discussed. Identify and explain these concepts.
(b) Also, explain briefly any three impacts of these concepts on Indian business
and industry.
(Delhi 2017)
 CBSE Sample Questions
3.1 Business Environment-Concept and Importance
MCQ
1. Which characteristic of the business environment is highlighted when changes
are taking place too frequently and it becomes difficult to predict the future?
(a) Uncertainty
(b) Complexity
(c) Inter-relatedness
(d) Relativity
(2022-23)
2. Airlines will be able to offer the benefit of lower pricing to customers on
sectors/routes due to the decision of the civil aviation ministry to remove price
caps from August 31, 2022. This can help an airline to do better performance if
they take early decisions regarding future courses of action after understanding
and doing analysis. Which importance of business environment and its
understanding by managers is not highlighted above:
(a) It helps in improving performance.
(b) It helps in assisting in planning and policy formulation.
(c) It helps in tapping useful resources.
(d) It enables a firm to identify opportunities and get first mover advantage.
(2022-23)
3. Even though the political conditions vary from country to country, they impact
the sentiment of an investor in the business, if the instability of the political
conditions cause uncertainty and make it difficult for him to predict the future.
Which feature of the business environment is being highlighted in the above
statement?
(a) Specific and general forces
(b) Dynamic nature
(c) Relativity
(d) All the above.
(2020-21)
4. “The increase in the demand for many Ayurvedic medicines, Health products
and services in the past few months, is related to the need for building immunity
and an increased awareness for health care due to the spread of Corona virus.”
Identify the feature of business environment being described above.
(a) Specific and general forces
(b) Interrelatedness
(c) Relativity
(d) None of the above
(2020-21)
3.2 Dimensions of Business Environment-Economic, Social, Technological,
Political and Legal, Concept of Demonetisation
MCQ
5.

Identify the dimensions of the business environment illustrated by the picture

given above in which Sapna who has joined the workforce recently is working on
an accounting software.
(a) Technological and social (b) Technological and political
(c) Political and economic (d) Social and legal
(2022-23)
6. The government of India made an announcement regarding Demonetisation of
the Indian economy on November 8, 2016 with profound implications for it. The
process which put restrictions on convertibility of domestic money and bank
deposits was meant to create a less-cash economy. One argument against the
cash-lite economy is that:
(a) Internet connectivity is a prerequisite.
(b) More people will be introduced into the formal economy.
(c) Financial saving will increase.
(d) Tax evasion will be reduced.
(2022-23)
7. “The nature of the relationship of our country with foreign countries”, is a
major element of which of the following components of the Business
Environment?
(a) Social Environment (b) Legal Environment
(c) Political Environment (d) Economic Environment
(Term-I, 2021-22)
8. As part of regulations to be followed by advertisers, the advertisement for a
new brand of baby food for infants provides important information for potential
buyers that it is “Not recommended for infants under the age of four months”.
Which dimension of the business environment is highlighted in the above
statement?
(a) Social Environment
(b) Legal Environment
(c) Political Environment
(d) Economic Environment
(Term-I, 2021-22)
9. The sum total of all individuals, institutions and other forces that are outside
the control of a business enterprise but that may affect its performance is known
as ________________.
(a) Business environment (b) Social environment
(c) Political environment (d) Economic environment.
(Term-I, 2021-22)
10. India has launched its most advanced Geo-imaging satellite which will allow
better monitoring of the subcontinent, including its borders with neighbouring
countries, by imaging the country 4-5 times a day. The satellite is capable of near
real time monitoring of floods and cyclones. The factor constituting the Business
Environment being discussed above is:
(a) Social environment (b) Economic environment
(c) Technological environment (d) Political environment
(Term-I, 2021-22)
11. Aiming to revive Jammu and Kashmir’s attraction as a top location for film
shooting the J&K film policy, 2021 offers a host of incentives to the filmmakers,
such as subsidies and low long term interest rates, for films with patriotic and
certain other themes shot in J&K, for giving work opportunities to local artists,
etc. This will have an impact on business enterprises in the state. Which
component of business environment is highlighted above:
(a) Specific and general forces (b) Technological environment
(c) Economic environment (d) Totality of external forces
(Term-I, 2021-22)
12. Mohammad Kanjiwal, a beekeeper since April 2021 is now part of the
growing tribe of at least 50 urban dwellers across Maharashtra raising bees and
harvesting honey in their balconies, rooftops and back gardens. As he had been
focused on eating right the thought of domesticating honey bees to promote
healthy consumption habits and seeing honey being cultivated right before his
eyes was mesmerising for him. Identify the factor constituting the general
environment being discussed above.
(a) Economic environment (b) Social environment
(c) Technological environment (d) Political environment
(Term-I, 2021-22)
13. “Even after opening up of the Indian economy in 1991 foreign companies
found it extremely difficult to cut through the bureaucratic red tape to get
permits for doing business in India, which created a negative impact on business.”
Identify the dimension of the business environment which led to creation of the
negative impact on business.
(a) Social Environment (b) Technological Environment
(c) Political Environment (d) Legal Environment
(2020-21)
14. Which of the following is not an element of social environment?
(a) Birth and Death rate (b) Constitution of the country
(c) Population Shifts (d) Life expectancy
(2020-21)
 ANSWERS
Previous Years' CBSE Board Questions

1. (b): Dynamic Nature

2. (c): Business environment enables the firm to identify opportunities and
getting the first mover advantage.
3. (c): A – (iii), B – (i), C – (ii)
4. (d): Relativity feature of the business environment is reflected in this
statement.
5. (b): Consumer tastes and preferences keep on changing in the dynamic
business environment.
6. (c): Business environment is said to be uncertain as it is difficult to predict
future happenings especially when environment changes are taking place too
frequently.
7. (a): Inter-relatedness
8. (d): Promoting innovative ideas
9. Business environment is the sum total of all individuals, institutions and other
forces that are outside the control of a business enterprise but they may affect its
performance.
10. Business environment is largely uncertain as it is very difficult to predict
future happenings especially when environment changes are taking place too
frequently as in the business of information technology.
11. Business environment is dynamic since it keeps on changing it could be in
terms of technological improvement, shift in consumer preference or entry of
new competition in the market.
12. Business environment means the sum total of all individuals, institutions and
other forces that are outside the control of a business enterprise but they may
affect its performance. Importance of business environment:
(i) It enables the organisation to identify opportunities and getting the first
mover advantage instead of losing them to the competitors.
(ii) It helps the organisation to identify threats which serves as an early warning
signal.
(iii) It helps the organisation in tapping useful resources such as finance,
technology, raw materials.
(iv) It helps the organisation in coping with rapid changes in a dynamic
environment.
(v) It helps the organisation in planning and policy formulation.
(vi) It helps the organisation in improving performance by continuously
monitoring the environment and adapting appropriate practices.
(Any three)
13. (a) Tapping useful resources: By understanding what the environment offers,
as resources such as finance, technology, raw materials, power etc., one can
design policies so that it can convert them into output that the market wants.
Since the activities of business are highly dependent on the environment, it is
important that business prepares its policies, strategies with a clear
understanding of what external environment has to offer and what it expect from
the business.
(b) Coping with rapid changes: Environmental factors such as market condition
competition etc., are changing very rapidly and more importantly at a very fast
pace. In order to effectively cope with these changes, managers must understand
the environment and develop suitable courses of action.
14. (a) The economic reform highlighted in the above case is ‘Globalisation’. It
refers to opening up and integrating the economy with the world economy.
(b) The importance of Business Environment being highlighted above are:
(i) Identification of opportunities: An analysis of a business environment enables
an enterprise to identify various positive opportunities and thereby take the first
advantage in its competition with other companies. Line: ‘KV Motors ltd.
recognised the need for small cars in India. It created a product far superior than
their competitors not only in terms of quality but also in terms of overall driving
experience. It soon became the leader in the small car market’.
(ii) Identification of threats: A study of a business environment can help a
company analyse positive opportunities, but this study can also help in
identifying various threats or negative signals and take preventive measures
timely and appropriately. Line:’ KV Motors further expanded its service network
and quality creating an entry barrier for the competitors’.
15. (a) Identification of threats and early warning signals: Adverse change in the
external forces act as threats to the business which hinders its performance.
Early identification of threats act as warning signal and helps managers to
prepare strategies to convert threats into opportunities.
(b) Improving performance: The business enterprises that continuously monitor
the environment and adjust business practices suitably are the ones which not
only improve their present performance but also continue to flourish in the
market for longer period.
16. Understanding of business environment is important for managers because:
(a) First mover advantage: Awareness of business environment helps an
organisation to come up with new ideas, a concepts or products, which helps it to
capture the unexploited venues in a market and thus reap the benefit of being a
pioneer.
(b) Warning signals: The knowledge about the environment helps the firms to
perceive the possible threats in the future – be it from new entrants in the market
or existing suppliers or change in government policies at national or
international level.
(c) Public image: A business firm can improve its image by being sensitive to its
environment and responsive to the aspirations of the public.
(d) Coping with rapid changes: To effectively cope with rapid changes, managers
must understand and examine the environment and suitable courses of action.
(e) Planning and policy formulation: Understanding and analysis of environment
serves as the basis for deciding the future course of action (planning) and in
framing guidelines for decision making (policy).
17. Business environment can be defined as the forces, factors and institutions
with which the businessmen have to deal with, to achieve the objectives. We can
say that business environment is the surroundings in which business exists.
Features of Business Environment:
(a) Dynamic: Business environment keeps changing. It is not static that is why it’s
essential to monitor and scan the business environment continuously.
(b) Complex: It is very difficult to understand the impact of business
environment on the companies. Though it may be easy to see the changes but it is
very difficult to anticipate how these changes will influence business decisions.
(c) Uncertain: It is very difficult to predict the changes in Business Environment.
As environment is changing very fast as in IT and fashion industry.
18. (a) Concept discussed in above case is of Business environment of electronic
goods manufacturing enterprise. Feature of Business environment discussed
here is: Specific and general forces: Their operations are directly affected by
specific forces e.g. investors, customers, competitors and suppliers. Besides this
general forces e.g. money supply in the economy, technological changes indirectly
affect their business.
(b) Importance of Business Environment:
(i) It enables the firm to identify opportunities and getting the first mover
advantage: Early identification of opportunities helps an enterprise to be the first
to exploit them instead of losing them to competitors.
(ii) It helps the firm to identify threats and early warning signals. Environmental
awareness can help managers to identify various threats on time and serves as an
early warning signal.
(iii) It helps tapping useful resources: An enterprise depends on environment as
a source of input and as an outlet for output. So, enterprise designs policies that
allow it to get the resources and convert them to output that the environment
desires.
(iv) It helps in coping with rapid changes: All sizes and types of enterprises are
facing increasingly dynamic environment. To cope up with these significant
changes, managers must examine and understand the environment and develop
suitable course of action.
19. (d): (i) and (v) only
20. (d): Political Environment and Technological Environment
21. (a): The shift in demand from ordinary vacuum cleaners to robotic vacuum
cleaners, is an example of the technological dimension of the business
environment.
22. (a): Social dimension of the business environment has been highlighted here.
23. (b): The Pizza chain is taking the benefit of first mover advantage by
conducting market research. The marketer must appropriately analyse the
market so as to identify the best opportunities.
24. (c): The launch of ‘Make in India’ scheme by the Government of India relates
to the political environment dimension of the business environment.
25. (c): Technological
26. (b): Economic
27. (b): Rates of saving and investment
28. Political environment includes political conditions such as general stability
and peace in the country and specific attitudes that elected government
representatives hold towards business.
29. Legal environment of business refers to the framework of law and various
legislations within which business activities have to take place.
30. The impact of the above Government policy on Business and Industry in the
above case are:
(i) Necessity for change: Frequent changes in the market, forces the enterprises
to continuously modify their operations.
(ii) Increasing competition: Changes in the rules of industrial licensing and entry
of foreign firms, has increased the competition for Indian firms especially in
service industries such as banking, communication, health, etc.
(iii) Need for developing human resource: The new market conditions need
people with required skills and greater commitment. So, the need for developing
human resources is increasing.
(iv) Rapidly changing technological environment: The increased competition in
the market forces the firms to develop new ways to survive and grow in the
market. And due to this the small firms’ faces face tough challenges for
transformations in processes, technology, machines and products.
31. The two dimensions of business environment that is being highlighted in the
given case are as follows:
(a) Technological environment - The technological environment comprises the
technological improvements that provide new business opportunities for
enterprises. In the given situation, the new technique to grow chemical fertilisers
relates to the technological dimension of the business environment.
(b) Social environment - The social environment comprises of factors such as
beliefs, traditions, social trends, etc. that affect the demand for goods in the
society. Here in the question since, consumers were concerned about the harmful
chemicals being used and were looking for other alternatives, so this relates to
the social environment of the business.
32. Dimensions of business environment discussed are:
(i) Social Environment: With the change in consumption habits of people on the
eve of Diwali he offered chocolates in attractive packages at reasonable prices
instead of sweets.
(ii) Technological Environment: He anticipated huge demand and created a
website chocolove. com for taking orders.
Technological environment includes forces relating to scientific improvement and
innovation which provides new ways of communication. In the above situation
we find that changes in technology provided an opportunity for selling chocolate
through the internet. A change of taste was observed and anticipated so Neelesh
changed to sell chocolate from sweets.
33. (a) Social environment includes social forces like customs and traditions,
values, social trends etc. This was because of increase in the number of working
women and non-availability of hygienic ‘home-cooked food.’
(b) Remuneration to employees. The overall pay and compensation should be fair
to both employees and the organisation.
The company was paying good salary and perks to its employees. The wages were
within the paying capacity standard of living.
(c) Values being communicated by the company to the society are:
(Any two)
(i) Good work culture.
(ii) Good behaviour and human interaction.
(iii) Concern for the employees.
(iv) Equal opportunity for women.
34. (a) The concepts discussed are:
(i) Globalisation - Simplification of import and export procedure such as removal
of quantitative and tariff restrictions.
(ii) Liberalisation - Easy licensing attracting more players leading to competitive
pricing that benefit the customer.
(b) These concepts have had the following positive effect on Indian industry:
(i) Increasing competition: As a result of changes in the rules of industrial
licensing and entry of foreign firms, competition for Indian firms has increased
especially in services industries like telecommunications, airlines, banking,
insurance, etc. which were earlier in the public sector.
(ii) More demanding customers: Customers today have become more demanding
because they are well-informed. Increased competition in the market gives the
customers wider choice in purchasing better quality of goods and services.
(iii) Rapidly changing technological environment: Increased competition forces
the firms to develop new ways to survive and grow in the market. New
technologies make it possible to improve machines, process, products and
services. The rapidly changing technological environment creates tough
challenges for smaller firms.
 CBSE Sample Questions

1. (a): Uncertainty
2. (c): It helps in tapping useful resources
3. (d): All of the above
4. (b): Interrelatedness
5. (a): Technological and Social
6. (a): Internet connectivity is a prerequisite
7. (c): Political Environment
8. (b): Legal Environment
9. (a): Business environment
10. (c): Technological environment
11. (c): Economic environment
12. (b): Social environment
13. (c): Political Environment
14. (b): Constitution of the country
 Meaning, Features Importance & Dimensions of
Business Environment
1 Mark Questions

1. Why is it said that business environment is uncertain?

(Compartment 2014)
Ans. Business environment is uncertain as it is difficult to predict future happenings
when environment changes are taking place frequently.

2. What is included in ‘Political Environment’ of business? State.

(Delhi 2014)
Ans. The following components are included in political environment of business:
(i) Constitutional framework
(ii)Political system
(iii)Political structure
(iv) Government interventions in business
(v) Foreign policy and defence policy of the country

3. What is included in ‘Legal Environment’ of business? State.

(All India 2014)
Ans. Legal environment includes:
(i) Several acts passed by government.
(ii) Court judgements. . . .”
(iii) Statutory warnings prescribed under law.
(iv) Legislations passed by the government, e.g. essential commodities, etc

4. Why is business environment called dynamic? State

(Compartment 2014)
Ans. Business environment is dynamic as it keeps on changing. It is not static and its
components are highly flexible, e.g. technological improvements, increase in
competition, etc.

5. What is included in the ‘Technological Environment’ of business? State

(Compartment 2014)
Ans. Technological environment includes scientific improvements and innovations,
which provide new ways of producing goods and services. It also includes news
methods and techniques of operating a business.

6. Business environment includes both specific and general forces. List any
four specific forces. (Delhi 2011)
Ans. Specific forces of business environment are:
(i) Suppliers (ii) Investors
(iii) Customers (iv) Competitors

7. Business environment includes both specific and general forces. List any
four general forces. (All India 2011)
Ans. Genera! forces of business environment are:
(i) Social (ii) Political
(iii) Technological (iv) Legal

8. The understanding of business environment helps the managers to

identify threats. What is meant by ‘threats’ here? (HOTS; Delhi 2011)
Ans. Threats refer to the external environment trends and changes that will hinder a
firm’s performance.

9. The understanding of business environment enables the firm to identify

the opportunities. What is meant by ‘opportunities’ here?
(HOTS; All India 2011)
Ans. Opportunities refer to the positive external trends or changes that will help a firm to
improve its performance.

3 Marks Question

10. What is meant by business environment? Explain dynamic nature and

uncertainty as features of business environment. (Delhi 2011)
Ans. Business environment is the sum total of all individuals, institutions and other
forces like customers, competitors, suppliers, distributors, industry trends, substitutes,
regulations government activities, social and cultural factors that are outside the control
of the business enterprise but may affect its performance.
Features of business environment are:

Dynamic nature Business environment is dynamic as it keeps on changing. It is not

static and its components are highly flexible, e.g. technological improvements, increase
in competition, etc.

Uncertainty Business environment is uncertain as it is difficult to predict future

happenings when environment changes are taking place frequently

4/5 Marks Questions

11. Why is the understanding of business environment important for Explain with
the help of any four points. (Delhi 2014)
or
Understanding of environment by business managers enables them not only to
identify and evaluate, but also to react to the forces external to their firms? In the
light of the statement, explain any four points of importance, of business
environment. (Compartment 2014)
or
Explain any four points of importance of business environment.
(Compartment 2014, All India 2011, Delhi 2011)
or
State any five points which clarify how understanding of business environment
helps the managers? (All India 2012)
or
Explain by giving any five reasons why understanding of business environment
is important for managers ? (All India 2010; Delhi 2010c)
or
Explain by giving any four points, why ‘in the present day competitive market, it
is essential for a business to remain alert and aware of its environment’? (All
India 2010; Delhi 2010C)

Ans. In the present day of competitive market, it is essential for a business to remain
alert and aware of its
environment, because of the following points:

(i) Identify opportunities and getting the first mover advantage Awareness of
environment helps an enterprise to identify the opportunities prevailing in the market
and they can make strategies to capitalise such opportunities at the earliest, e.g. Maruti
Udyog became the leader in the small car market because it was the first, who
recognised the need for small cars in the environment.

(ii) Identify threats and early warning signals Environmental awareness helps an
enterprise in identifying possible threats in future, so that the enterpirse can take timely
measures to minimise the threats and its adverse effects, if any, e.g. when the new
firms entered in the mid segment cars (threat), Maruti Udyog increased the production
of its Esteem car. Increase in production enabled the company to make faster delivery.
As a result, the company captured a substantial share of the market and became a
leader in this segment.

(iii) Assist in planning and policy formulation Environment awareness helps a

business unit to identify opportunities and threats in the market. These serve as a basis
for planning future course of action and making policies for the same.

(iv) Tapping useful resources A business environment is an open system which gets
resources such as capital, labour, machines, materials, etc from the environment,
converts them into goods and services desired by the customers and then supplies its
output to the environment. Thus, a business firm depends on its external environment
for tapping various resources and for the sale of its output.
12. What is meant by ‘business environment’? Explain any three features of
business environment. (All India 2014; Foreign 2014)
or
Explain any four characteristics of business environment.
(Compartment 2014)
or
State any five features of business environment. (Delhi 2012,2012c)

Ans. Business environment is the sum total of all individuals, institutions and other
forces like customers, competitors, suppliers, distributors, industry trends, substitutes,
regulations, government activities, social and cultural factors that are outside the control
of the business enterprise but may affect its performance.
The main features of business environment are:

(i) Totality of external forces Business environment is the sum total of all external
forces outside the control of a business.

(ii) Consists of specific and general forces Specific forces are those, which affects
the individual enterprises, viz competitors, customers, investors, and suppliers.
Whereas general forces have an impact on all business enterprises. The general forces
comprise of social, political, legal, economic and technological forces.

(iii) Complexity Business environment is complex, as to understand it in totality, e.g. it

becomes difficult to know the extent of relative impact of social, economic, political,
legal and technological, factors on change in demand of a product.

(iv) Uncertainty Business environment is largely uncertain as it is very difficult to

predict future happenings, especially when changes take place at a fast pace.

(v) Relativity Business environment is relative as it differs from place to place and
region to region.

13. The court passed an order that all schools must have water purifiers for the
school children as

 Society in general is more concerned about quality of life.

 Innovative techniques are being developed to manufacture water purifiers at
competitive rates.
 Incomes are rising and children at home are also drinking purified water.
 The government is also showing positive attitude towards the water purifier
business.

Identify the different dimensions of business environment by quoting from the

above details. (HOTS;VBQ; Delhi 2013)

Ans. The court passed an order that all schools must have water purifier’.
The quoted line is depicting legal environment. Business has to function within the
framework of laws and regulations of the country. Legal environment exercises
significant influence on business activities.

(i) ‘Society in general is more concerned about quality of life’.

The quoted line is depicting the social environment as this environment consists of all
the social and cultural forces within which business firms operate

(ii) ‘Innovative techniques are being developed to manufacture water purifiers at

competitive rates’.
The quoted line is depicting the technological environment. It includes forces relating to
scientific improvements and innovations which provide new ways of producing goods
and services.

(iii) ‘Incomes are rising and children at home are also drinking purified water’.
The quoted line is depicting the economic environment. It consists of the factors and
forces concerning means of production and distribution of wealth. It includes all such
forces of economic development which influence the product’s market scope of
business.

(iv) ‘The government is also showing positive attitude towards the water purifier
business’.
The quoted line is depicting the political environment. It is concerned with the forces
related with political stability, and political conditions that have strong impact on
business.

14. The court passed an order to ban polythene bags as

 These bags are creating many environmental problems which affect the life
of people in general.
 Society in general is more concerned about quality of life.
 The government decided to give subsidy to jute industry to promote this
business.
 Innovative techniques are being developed to manufacture jute bags at low
rates.
 Incomes are rising and people can afford to buy these bags.

Identify the different dimensions of business environment by quoting the lines

from the above particulars. (HOTS;VBQ; All india2013)

Ans. ‘The court passed an order to ban polythene bags’.

The quoted line is depicting the legal environment. Business has to function within the
framework of laws and regulations of the country. Legal environment exercises
significant influence on business activities.
‘Polythene bags are creating many environmental problems which affect the life
of people in general’ and ‘society in general is more concerned about quality of
life’.
These quoted lines are depicting the social environment, which consists of all the social
and cultural forces within which business firms operate.

‘Government decided to give subsidy to jute industry to promote this business’.

The quoted line is depicting the political environment, which is concerned with the
forces related with political stability and political conditions that have strong impact on
business.

‘Innovative techniques are being developed to manufacture jute bags at low

rates’.
The quoted line is depicting the technological environment. It includes forces relating to
scientific improvements and innovations which provide new ways of producing goods
and services.

‘Incomes are rising and people can afford to buy these bags’.
The quoted line is depicting the economic environment. It consists of the factors and
forces concerning means of production and distribution of wealth. It includes all such
forces of economic development which influence the product’s market scope of
business.

15. Management of every enterprise can be benefited from being aware of

different dimensions of business environment. Explain any four such
dimensions (All India 2010]
Ans. Dimensions of business environment are as follows :
(i) Economic environment It consists of economic factors that influence the business
in a country. These factors include Gross National Product, corporate profits, inflation
rate, employment, Balance of Payments, interest rates, consumer income, etc.
Economic environment in a country has strong influence on the business in that country.
(ii) Social environment It describes the characteristics of the society in which the
organisation exists. Literacy rate, customs, value beliefs, life style, demographic
features and mobility of population are the part of the social environment. The trend of
change can be predicted well in advance. It is important for managers to notice the
direction in which the society is moving and formulate progressive policies according to
the changing social scenario.
(iii) Political environment It is the outcome of a combination of various ideologies
advocated by different political parties. Every political party has a different attitude
towards business community. A live example of this, can be seen during elections when
there is a fluctuation in the share market.
(iv) Legal environment It consists of legislation that is passed by the Parliament and
state legislatures. This component sets the framework of law within which the business
is free to operate. Example of such legislation specifically aims at business operations
which include the Trade Marks Act, 1969, Essential Commodities Act, 1955, Standards
of Weights and Measures Act, 1969 and Consumer Protection Act, 1986.
 Impact of Changes in Government Policy on
Business & Industry
1 Mark Questions

1. Define privatisation as a process of economic reforms in one sentence.

(Delhi 2011C; All India 2010)

Ans. Privatisation refers to giving greater role to private sector and reducing the role of
public sector in the nation-building process.

2. Define liberalisation as a process of economic reforms.

(All India 2011; Delhi 2010c)

Ans. Liberalisation refers to an end of licence, quotas and many more restrictions and
controls which were put on industries before 1991.

3 Marks Question

3. Explain any two impacts of government policy changes on business and

industry. (All India 2011; Delhi 2011)

Ans. Impacts of government policy in India are:

 Increasing competition As a result of changes in the rules of industrial licensing,

entry of foreign firms creates competition for Indian firms, especially in service
industries like telecommunication, airlines, banking, insurance, etc which were
earlier placed in the public sector.
 More demanding customers Customers today have become more demanding
because they are well informed. Cut-throat competition in the market gives the
customers wider choice in purchasing better quality of products and services.

4/5 Marks Questions

4. Giving any four points, explain the impact of government policy changes
of business and industry (Foreign 2014)
or
The Indian corporate sector has come face-to-face with several challenges due to
government policy changes in business and industry. Explain any four such
changes. (Compartment 2014)
or
The Indian corporate sector has come face-to-face with several challenges due to
government policy change. Explain any four such challenges.
(Delhi 2010c)
Ans. Following challenges were faced by the business enterprises:
(i) Technological environment Increased competition force the firms to develop new
ways to survive and grow in the market. Thus, there is a need to adopt the new
technologies in order to survive in the long run.
(ii) Need for developing human resources The new market conditions require people
with higher competence and greater commitment. Hence, there is a need of developing
human resources.
(iii) Market-orientation The business enterprises start focusing on market-oriented
techniques rather than production-oriented techniques.
(iv) Necessity for change After 1991, the market forces have become turbulent. As a
result, business enterprises have to continuously modify their operations.

5. When government policy changed, it laid some positive and negative impact
on the business. Discuss some of them.
(Delhi 2012,2010; All India 2011)

Ans. Positive impacts of government policy changes are:

(i) Market orientation Earlier, production was done and whatever was produced was
sold. But with the New Industrial Policy leading to increased competition, there is a shift
towards customer orientation, where study and analysis of market is done before
anything is produced, so that the products are according to the needs and demands of
customers.

(ii) Development of human resource The new market conditions require people with
higher competence and greater committment. This has necessitated development of
human resource.
Negative impacts of government policy changes are:

(i) Rapidly changing technological environment Due to increased competition,

technological advancement are taking very fast. This is specifically a disadvantage to
small firms who are not able to cope up with these changes and sometimes are even
forced to shut down their business.

(ii) Increasing competition With the opening of the economy, globalisation, entry of
foreign firms in the country, it has increased competition for domestic players, as they
have to compete with them. MNCs are at an advantage due to large financial resources,
technological advancement and branded goods, thus posing a serious challenge and
threat to domestic players.
 Planning

1. Plans are prepared for a specific period of time, may be for a month, a quarter
or a year. At the end of that period, there is a need for a new plan to be drawn on
the basis of new requirements and future conditions. The feature of planning
reflected in the above lines is : (2024)
(A) Planning is futuristic
(B) Planning is continuous
(C) Planning is pervasive
(D) Planning is a mental exercise
Ans. (B) Planning is continuous
2. ‘Best Electronics’ is led by its visionary Chief Executive Officer, Nikhil. It has a
reputation for good quality products and customer service. Nikhil recognised the
need to continually innovate and provide customers with the latest products. He
wanted the company to be the market leader in electronics.
Nikhil knew that to realise his ambitious vision, he needed a clear and well-
defined plan that would provide broad contours of the company’s business. His
team conducted extensive market research to uncover emerging trends, customer
preferences, and potential competitors. On its basis, a plan was prepared defining
the company’s direction and scope in the long run. On the implementation of the
plan ‘Best Electronics’ became the market leader in two years. The type of plan
which helped ‘Best Electronics’ to become the market leader was : (2024)
(A) Policy
(B) Rule
(C) Strategy
(D) Procedure
Ans. (C) Strategy
3. Anuj, after a lot of research, paid ‘SS Developers’ an advance of < 2 crore to
build a lavish house for him. They promised to deliver the property within 18
months. At the end of 18 months, Anuj asked for the delivery of the property
many times but the developer did not respond. Anuj realized that ‘SS Developers’
was not in a position to hand over the property to him. Anuj asked for a refund of
the money with interest, which ‘SS Developers’ refused. Anuj approached the
consumer court with his complaint. (2024)
(i) Which grievance redressal agency had Anuj approached ?
(ii) State any three reliefs Anuj is likely to get, if the consumer court is satisfied
with the complaint.
Ans. (i) State Commission
(ii) Reliefs Anuj is likely to get, if the consumer court is satisfied with the
complaint are: (Any three)
(a) To refund the price paid for the product, or the charges paid for the service.
(b) To pay a reasonable amount of compensation for any loss or injury suffered
by the consumer due to the negligence of the opposite party.
(c) To pay punitive damages in appropriate circumstances.
(d) To discontinue the unfair/ restrictive trade practice and not to repeat it in the
future.
(e) Compensate for any loss or injury suffered by consumer under product
liability action and withdraw hazardous products from being offered for sale etc.
(f) To pay any amount (not less than 5% of the value of defective goods or
deficient services provided) to be credited to the Consumer Welfare fund or any
other organisation/person, to be utilised in the prescribed
manner.
(g) To pay adequate costs to the appropriate party.
 Previous Years' CBSE Board Questions
4.1 Planning: Concept, Importance and Limitations
MCQ
1. "The purpose of planning is to meet future events effectively to the best
advantage of an organisation".
This statement highlights which of the following features of planning?
(a) Planning focuses on achieving objectives
(b) Planning involves decision-making
(c) Planning is the primary function of management
(d) Planning is futuristic
(2023)
2. ____________ provides the standards against which actual performance is
measured.
(a) Controlling (b) Planning
(c) Directing (d) Staffing
(Term-1, 2021-22)
3. Planning ensures that the goals are clearly stated, so that they act as a guide for
deciding what action should be taken and in which direction. If goals are well-
defined, employees are aware of what the organisation has to do to achieve those
goals.
The above para highlights the following point of importance of planning:
(a) Planning promotes innovating ideas.
(b) Planning establishes standards for controlling.
(c) Planning provides direction.
(d) Planning is pervasive.
(Term-1, 2021-22)
4. The owner of 'Sweet Moments' wedding hall spent a great deal of time, money
and effort in renovation expecting a bumper wedding season in 2020 but due to
the pandemic, weddings became intimate home affairs and not many bookings
happened.
The limitation of planning highlighted in the above case is:
(a) It reduces creativity
(b) It may not work in a dynamic environment
(c) It leads to rigidity
(d) It is time consuming.
(Term-1, 2021-22)
5. Prem Lal, the Managing Director of Awasthi Ltd., retired after 33 years of
service. The responsibility was given to Raj. Raj realised that there was lot of
rivalry, confusion and misunderstanding among the departmental heads. He
detected inefficiencies, took corrective measures and developed a master plan for
the organisation to follow. This served as a basis for coordinating the activities of
all the departments, led to clarity of thought and action and work got off to a
smooth start.
(a) Planning reduces overlapping and wasteful activities.
(b) Planning establishes standards for controlling.
(c) Planning reduces the risks of uncertainty.
(d) Planning promotes innovative ideas.
(Term-1, 2021-22)
6. 'Esya Cars' was founded by engineers who wanted to prove that people don't
need to compromise to drive electric vehicles. They took it as a challenge and
new ideas took the shape of concrete plans. In July, 2021, they launched their first
set of all electric cars, proving to the world that electric vehicles can be better,
quicker and more fun to drive than gasoline cars.
The point of importance of planning discussed in the above case is:
(a) Planning reduces the risk of uncertainty
(b) Planning reduces overlapping and wasteful activities
(c) Planning promotes innovative ideas
(d) Planning establishes standards for controlling
(Term-1, 2021-22)
7. 'Surya Fashion Ltd., hired Suresh Malhotra, an ace fashion designer to develop
a new product line. He charged 50 lakh for consultation. The company spent
another 15 crores in formulating the marketing campaign for launching their new
product line. Their products were not liked by the consumers and the company
could generate a revenue of 15 lakh only from this product line. Thus, the cost
incurred is not justifying the benefits derived from the plans.
Which limitation of planning; is reflected in the above para?
(a) Planning is time consuming (b) Planning involves huge costs
(c) Planning leads to rigidity (d) Planning reduces creativity
(Term-1, 2021-22)
8. Which of the following statements correctly explains the limitation of planning
'Planning does not guarantee success?
(a) Planning is required at all levels of management and in all the departments of
the organization.
(b) Planning involves through examination and evaluation of available
alternatives.
(c) Relying on a previously tried and tested successful plan just because it had
worked before and will work again.
(d) By deciding in advance, the tasks to be performed, planning shows the way to
deal with changes and uncertain events.
(Term-1, 2021-22)
9. 'Planning is an intellectual activity of thinking rather than doing. Which feature
of planning is highlighted in this statement?
(a) Planning focuses on achieving objectives.
(b) Planning is futuristic.
(c) Planning involves decision making.
(d) Planning is a mental exercise.
(Term-1, 2021-22)
10. 'Uttam Ayurvedic Ltd. is an established Indian company manufacturing
organic consumer goods like toothpastes and shampoos. It has planned to
increase its market share from 30% to 40% in the current financial year.
With the expanding market of organic products, other companies in the
consumer goods industry have also launched these products with organic
components. The competition in the market has increased and it was found that
the sales of Uttam Ayurvedic Ltd. came down and its market share was reduced to
23%.
Identify the limitation of planning highlighted in the above case:
(a) Planning may not work in dynamic environment
(b) Planning is time consuming
(c) Planning involves huge costs
(d) Planning reduces overlapping and wasteful activities.
(Term-1, 2021-22)
VSA (1 mark)
11. Varsha Jain after completing her fashion designing course form Indian
Institute of Fashion Technology planned to enter into designer clothing venture.
She had to address issues like her target customers, channel of distribution to be
used, pricing policy etc. Identify the type of plan that Varsha Jain needs to develop
to provide direction and scope to her organisation in the long run.
(Delhi 2019)
12. All business firms would like to increase their sales and earn profits to be
successful. All managers dream of these. To turn their dreams into reality,
managers need to work hard in thinking about the future, in making business
predictions and achieving targets. The above lines describe one of the functions
of management. Identify and define this function.
(AI 2019)
13. Define 'Planning premises'.
(Delhi 2015)
14. Define 'Planning'. (Delhi
2015, Al 2015 C)
15. 'Dreams can be turned into reality only when a manager thinks in advance,
what to do and how to do it? Name the function of management indicated by the
statement. (Delhi 2014 C)
16. State the type of plan that does not allow any flexibility.
(Delhi 2014 C)
17. 'Deciding in advance what to do and how to do is one of the basic
management functions: Give the meaning of this function.
(AI 2014 C)
SA I (3 marks)
18. Explain any three points of importance of 'Planning.
(AI 2019)
19. Does planning guarantee success? Explain.
(Foreign 2019)
SA II (4 marks)
20. Mega Ltd. holds an Annual Management Programme every year in the month
of March in which the top managerial personnel formulate plans for the next year
by analysing and predicting the future to meet future events effectively.
As they are responsible for providing direction to the organisation, facts are
thoroughly checked using scientific calculations.
Detailed plans are prepared after discussion with professional experts.
Preliminary investigations are also undertaken to find out the viability of the
plan. Since it is an intellectual activity requiring intelligent imagination and
sound judgement so it is mainly done by the top management. Usually rest of the
members just implement the plans. Middle level managers are neither allowed to
deviate from the plans nor are they permitted to act on their own. The top
management ensures that the expenses incurred in formulating the plans justify
the benefits derived from them.
State any two limitations and any two features of planning discussed above.
(Delhi 2019)
21. In 2015, Naveen left his luxurious life in Mumbai, where he worked as a
manager for Blue Birds Ltd. He shifted to Begampur, Chhattisgarh to fulfil his
grandmother's dream of converting their 25-acre ancestral land into a fertile
farm. For this he set out specific goals along with the activities to be performed to
achieve the goals.
Every activity was a challenge since he was clueless about farming. He learnt
every activity from filling the land to sowing the seeds. To acid farmers he
launched his own company 'Innovative Agriculture Solutions Pvt. Ltd.
It was difficult initially as no one trusted an urban youth telling farmers about
farming. But when everything was discussed in detail the farmers started taking
interest. He wanted to ensure that the future events meet effectively the best
interests of the company. Through sales forecasting, he prepared an annual plan
for production and sales.
He also found that the farmers grew only paddy, which was an activity of 3 - 4
months and the land remained idle for the rest 8 - 9 months of the year. He not
only identified but evaluated various alternatives through which the farms could
be utilised for the remaining months of the year. Through correct foresight and
logical and systematic thinking based on analysis of all facts, all alternatives were
examined and evaluated. He presented a plan to the farmers, where after
harvesting paddy, vegetables could be grown. The above case highlights the
features of one of the functions of management. By quoting lines from the above,
identify and explain these features. (Al 2018)
22. It is deciding in advance what to do and how to do. It is one of the basic
managerial functions. It requires that before doing something, the manager must
formulate an idea of how to work on a particular task. This function is closely
connected with creativity and innovation. It seeks to bridge the gap between
where we are and where we want to go and is performed at all levels of
management.
Inspite of this, the function of management referred above has a number of
limitations. Explain any two such limitations.
(Delhi 2015 C)
LA (5 marks)
23. State any five features of 'Planning’.
(Delhi 2015)
24. Explain any five limitations of planning.
(NCERT, Delhi 2015)
ET (6 marks)
25. 'It involves setting objectives and developing appropriate course of action
from amongst the different alternative courses of action to achieve these
objectives’.
(a) Identify the function of management referred above.
(b) State any five features of the function of management identified in (a) above.
(2023)
26. Explain the following limitations of planning:
(i) Planning reduces creativity
(ii) Planning involves huge costs.
(2023)
27. Planning 'provides direction', 'reduces the risk of uncertainty' and 'promotes
innovative ideas: Explain.
(2021 C)
4.2 Planning Process
MCQ
28. In one of the steps in the process of planning, the manager is required to
make certain assumptions about the future which are the base material upon
which plans are to be drawn. Identify the step:
(a) Setting objectives
(b) Developing premises
(c) Identifying alternative courses of action
(d) Selecting an alternative
(Term-1, 2021-22)
29. Amulya wants to start her own cafe. Her long-term goal is to get 40% of the
market share. For this she gathered information and made forecasts about the
potential demand, purchasing power of the consumers as well as preferences of
the consumers and government policy towards this business, etc. By doing this,
Amulya had completed some steps in the process of planning.
Choose the step in the planning process that Amulya has to follow next:
(a) Setting objectives
(b) Developing premises
(c) Identifying alternative courses of action
(d) Evaluating alternative courses
(Term-1, 2021-22)
30. Which step in the process of 'Planning' function of management involves
weighing pros and cons of each alternative?
(a) Developing Premises
(b) Identifying alternative courses of action
(c) Evaluation alternative courses
(d) Selecting an alternative
(Term-1, 2021-22)
31. The step in the process of 'planning' which is concerned with putting the plan
into action i.e. doing what is required is called:
(a) Implementing the plan
(b) Follow-up action
(c) Developing premises
(d) Selecting an alternative.
(Term-1, 2021-22)
32. Ritu Kapoor has set up a bakery, 'Bakes and Cakes' in Pune. She receives
online orders for cakes from within the city and supplies them on the same day.
She set a target that she would earn a revenue of ₹5,00,000 in the first year. She
informed her employees about the target and asked them to contribute ideas to
achieve the same:
Ritu Kapoor has performed the first step in the process of one of the functions of
management. The next step to be performed is:
(a) Identifying alternative courses of action.
(b) Setting objective
(c) Developing premises
(d) Follow-up action
(Term-1, 2021-22)
33. Which of the following is not a step in the process of planning?
(a) Making assumptions about the future
(b) Evaluating different proposals in light of the objectives to be achieved
(c) Allocation of jobs to members of each department
(d) Seeing whether activities are performed as per schedule or not
(2020 C)
VSA (1 mark)
34. Saurabh decided to start a chocolate manufacturing business. He set the
target of earning 10% profit on sale in the first year. As a good businessman, he
was concerned about the future of the business, which was uncertain. He
gathered information that the demand for chocolates is increasing day-by-day. He
used this information as the base for future planning and shared it with his team.
On the basis of the gathered information, he scheduled a meeting in the following
week to find innovative ways to achieve the objectives.
List the first two steps, which have been followed by Saurabh that are related to
the process of one of the functions of management.
(2018)
SA I (3 marks)
35. Define 'Planning: Explain the first two steps in the process of planning.
(AI 2016)
SA II (4 marks)
36. After the following logical steps in the process of planning, explain the steps
required to complete the following process:
(a) Setting objectives
(b) Developing premises; and
(c) Identifying alternative courses of action.
(Delhi 2014C)
37. How does planning 'Lead to rigidity' and 'Reduce creativity'? Explain.
(AI 2014 C)
38. 'Process of planning involves certain logical steps. Explain the first four steps
of this process.
(NCERT, AI 2014 C)
LA (5 marks)
39. 'All the available alternatives are evaluated in the light of their feasibility and
consequences. This is one of the steps in the process of 'planning: Explain the
steps followed by this. (2021 C)
4.3 Single Use and Standing Plans.
Objectives, Strategy, Policy,
Procedure, Method, Rule, Budget and Programme
VSA (1 mark)
40. State, giving reason, whether the following statement is true or false:
"A rule is the prescribed way or manner in which a task has to be performed
considering the objective."
(2020 C)
41. How are 'Policies' and 'Procedures' interlinked?
OR
What is meant by 'Developing Premises' in the process of planning?
(Foreign 2019)
42. Give the meaning of 'Method' as a type of plan. (AI 2019,
Delhi 2015, 2018)
43. Give the meaning of 'Objectives' as a type of plan.
(AI 2015)
44. Give the meaning of 'Policy' as a type of plan. (AI
2015, Delhi 2014)
45. Give the meaning of 'Programme' as a type of plan.
(AI 2015)
46. Name the type of plan which is in the form of general statement, that guides
thinking towards a particular direction and helps in solving routine problems.
(AI 2014 C)
SA I (3 marks)
47. Explain the following as limitations of planning:
(a) Planning leads to rigidity
(b) Planning involves huge costs
(c) Planning does not guarantee success.
(2020 C)
SA II (4 marks)
48. Give the meaning of 'policy' and 'strategy' as types of plans.
(Delhi 2017)
LA (5 marks)
49. Matta Auto Ltd. is manufacturing different types of commercial vehicles. Their
sales were rupees two hundred crore in the previous year. The company decided
to increase sales by 20% during the current year. It conducted internal as well as
external audits for the same. Through internal audit, they analysed the strengths
and weaknesses of the business across all departments. External audit focused on
the opportunities and the threats in the constantly changing business
environment. Thus, a comprehensive plan was prepared taking into
consideration the business environment and the necessary resources were
allocated to achieve the target. The company directed its offices throughout the
country to follow the plan. The company's commitment to develop effective plans
to achieve a consistent increase in sales has ensured its continual growth over the
past one decade.
Identify and explain the two types of plans discussed above.
(Al 2019)
50. Two years ago, Madhu completed her degree in food technology. She worked
for sometime in a company manufacturing chutney, pickles, murabbas. She was
not happy in the company and decided to have her own organic food processing
unit. She set the objectives and the targets and formulated action plan to achieve
the same.
One of her objectives was to earn 10% profit on the amount invested in the first
year. It was decided that raw materials like fruits, vegetables, spices etc., will be
purchased on three months credit from farmers cultivating organic crops only.
She also decided to follow the steps required for marketing of the products
through her own outlets. She appointed Mohan as a production manager who
decided the exact manner in which the production activities are to be carried out.
Mohan also prepared a statement showing the number of workers that will be
required in the factory throughout the year. Madhu informed Mohan about her
sales target for different products, area wise for the forthcoming quarter. While
working on the production table a penalty of ₹ 100 per day for not wearing the
caps, gloves and apron was announced.
Quoting lines from the above para identify and explain the different types of
plans discussed.
(Delhi 2016)
ET (6 marks)
51. Explain ‘Policy’ and ‘Method’ as type of plans.
(2023)

CBSE Sample Questions

4.1 Concept, Importance and Limitation
MCQ
1. "Changes or events cannot be eliminated but they can be anticipated and
managerial responses to them can be developed." is suggested by the following
importance of planning:
(a) Planning facilitates decision making
(b) Planning promotes innovative ideas
(c) Planning provides direction
(d) Planning reduces the risks of uncertainty.
(Term-1, 2021-22)
2. The Statement "Planning is a primary function", suggests that.......
(a) Planning precedes other functions
(b) Planning requires logical and systematic thinking
(c) Plan is framed, it is implemented, and is followed by another plan, and so on
(d) Planning is required at all levels of management as well as in all departments
of the organisation.
(Term-1, 2021-22)
3. Planning is closely connected with ______________ and ______________.
(a) Responsibility and accountability
(b) Delegation and decentralisation
(c) Stability and security
(d) Creativity and innovation
(Term-1, 2021-22)
4. Planning requires logical and systematic thinking rather than guess work. The
feature of planning being referred to in the above statement is:
(a) Planning is a continuous process (b) Planning is futuristic
(c) Planning is pervasive (d) Planning is a mental exercise.
(Term-1, 2021-22)
5. "Following a pre-decided plan, when circumstances have changed, may not
turn out to be in the organisation's interest." The limitation of planning being
referred to in the above statement is ______________.
(a) Planning does not guarantee success
(b) Planning may not work in a dynamic environment
(c) Planning leads to rigidity
(d) Planning is a time consuming process.
(Term-1, 2021-22)
6. Two statements are given below as Assertion (A) and Reason (R). On the basis
of these statements, choose the correct option.
Assertion (A): Planning is futuristic.
Reason (R): Planning is concerned with the future which is certain and does not
require forecast.
(a) Both A and R are correct.
(b) A is correct R is incorrect.
(c) Both A and R are correct and R is the correct explanation of A.
(d) Both A and R are correct and R is not the correct explanation of A.
(Term-1, 2021-22)
ET (6 marks)
7. "Planning is worth the huge costs involved?" Do you agree? Explain any four
reasons in support of your answer.
(2020-21)
4.2 Planning Process
MCQ
8. Which step in the process of planning will precede the step in which the
manager is required to make certain assumptions about the future, which are the
base material upon which the plans are drawn.
(a) Implementing the plan
(b) Identifying alternative courses of action
(c) Setting objectives
(d) Selecting an alternative.
(Term-1, 2021-22)
9. If there is a plan to increase production then more labour, more machinery will
be required. This step in the process of planning will involve organising for
labour and purchase of machinery. Identify the step in the planning process being
discussed above.
(a) Identifying alternative courses of action
(b) Setting objectives
(c) Selecting an alternative
(d) Implementing the plan
(Term-I, 2021-22)
10. A sanitizer manufacturing company wants to become a market leader. For this
purpose, the manager follows an activity with certain logical steps. The first step
suggested by him is to increase profits by at least 30% in the next quarter. What
will be the last step of the activity being followed by the manager?
(a) Follow-up action (b) Identifying alternative courses of
action
(c) Setting objectives (d) Evaluating alternative courses of
action
(Term-I, 2021-22)
ET (6 marks)
11. ‘The pros and cons of each alternative need to be weighed.’ Name and briefly
explain the logical steps in the process of planning which are followed by a
manager before performing the step highlighted in the above statement.
(2022-23)
12. Briefly explain the next three steps in the process of planning which the
manager will have to have to follow after using conjecture about what might
happen in the future. (2022-23)
13. “If the project is important then more alternatives should be generated and
thoroughly discussed amongst the members of the organisation.” Identify and
explain the step in the process of planning being discussed above. Also explain
the remaining steps which will have to be carried out to complete the process.
(2020-21)

ANSWERS
Previous Years' CBSE Board Questions

1. (d): Planning is futuristic

2. (b): Planning provides the standards against which actual performance is
measured.
3. (c): This states that planning provides direction.
4. (b): The limitation of planning which can be seen here is that planning may not
work in a dynamic environment.
5. (a): Planning serves as a basis for coordinating the activities of various
departments. It reduces overlapping and wasteful activities.
6. (c): The formulation of plans and policies is an intellectual process and it
promotes innovative ideas.
7. (b) : Planning involves high costs.
8. (c): Relying on a previously tried and tested successful plan just because it had
worked before and will work again.
9. (d): Planning is a mental exercise.
10. (a): The limitation of planning that is being discussed here in the case study is
that planning may not work in a dynamic environment.
11. The type of plan that Varsha Jain should use is the strategy.
12. ‘Planning function’ of management is defined by the lines given in the
question. Planning is the process of setting goals and objectives, formulating
alternative courses of action and, finally, deciding an appropriate action from the
various available alternatives. All this is done for a specific period of time.
13. Planning premises are the assumptions made about the future on the basis of
which the plans are drawn.
14. Planning is deciding in advance what to do, how to do it and who is to do it.
Planning bridges the gap from where we are to where we want to go. It makes it
possible for things to occur which would not otherwise happen.
15. Planning is the function of management that turns dreams into reality.
16. Rule is the type of plan that does not allow any flexibility.
17. The planning function of management decides in advance what is to be done
and involves selection of objectives, policies, procedures and programmes from
available alternatives.
18. The importance of the ‘Planning’ function of management are:
(i) Renders direction: Planning clearly states the goals and objectives to be
achieved and guides the managers about what tasks are to be done and how they
are to be done.
(ii) Subdued risk: Planning helps foresee the future. Various plans are
formulated keeping in consideration the expected future events. Thus, planning
reduces the uncertainty of unforeseen events.
(iii) Minimised overlapping: As the managers are familiar with the policies and
plans, they coordinate the activities together to achieve the set objectives. This
helps in reducing the overlapping of work.
19. Planning is the process of setting goals and objectives, formulating alternative
courses of action and, finally, deciding an appropriate action from the various
available alternatives. It involves ‘thinking and deciding in advance’ about ‘what is
to be done’ and ‘how it is to be done’. Now, although planning is futuristic in
nature and tells us in advance what is to be done, however, it still does not
guarantee success. This is because managers tend to rely on pretested plans.
However, there is no guarantee that a plan that have worked well in the past will
be successful in the future as well. This is because business environment is
dynamic in nature and keeps on changing. Thus, it is not necessary that the plans
always work as planned. The plan may fail because of unforeseen changes or
uncertainties.
20. The features of planning which are discussed in the given situation are:
(i) Planning is a mental exercise - ‘Since it is an intellectual activity requiring
intelligent imagination and sound judgement so it is mainly done by top
management”. It requires application of mind and sound judgement. Since
planning defines what is to be done in future, it requires sound thinking rather
than doing.
(ii) Planning is futuristic - “The top management formulate plans for the next
year by analysing and predicting the future to meet future events effectively”.
Planning is futuristic in the sense that it foresees the future, thereby helping to
prepare for uncertain future events.
Limitations of planning are:
(i) Planning reduces creativity - “Middle level managers are neither allowed to
deviate from the plans nor are they permitted to act on their own”. Plans are
made by only the top management, and the lower levels of management are not
allowed to deviate from the pre-defined course. Thus, in the process, lower level
managers tend to lose their creativity.
(ii) Planning involves huge costs - “The top management ensures that the
expenses incurred in formulating the plans justify the benefits derived from
them’. As planning is based on future predictions, it requires much thought,
analysis, scientific calculations, etc., which are to be used for formulating a course
of action. This involves high costs.
21. The above case highlights the features of planning function of management.
Features of planning are:
“He set out specific goals” along with the activities to be performed to achieve the
goals’
(i) Planning focuses on achieving objectives: Specific goals are set out for
achievement of predetermined organisational goals.
“He wanted to ensure that the future events meet effectively the best interest of
company. Through sales forecasting, he prepared an annual plan for production
and sales”,
(ii) Planning is futuristic: Planning essentially involves looking ahead and
preparing for future.
“He not only identified but evaluated various alternatives through which the
farms could be utilised for the remaining months of the year”.
(iii) Planning is continuous: Continuity of planning is related with the planning
cycle. A plan is framed, implemented and is followed by another plan.
“Through correct foresight and logical and systematic thinking based on analysis
of all facts, all alternatives were examined and evaluated”.
(iv) Planning is a mental exercise: Planning requires application of mind
involving foresight, intelligent imagination and sound judgement.
22. Planning function of management has been referred here.
Limitations of planning are:
(a) Planning leads to Rigidity: In an organisation, a well-defined plan has specific
goals to achieve. These plans decide the future course of action by the workers
and managers may not be in a position to change it. This leads to rigidity and may
create difficulty. Thus, managers must have some flexibility to make changes in
the plan, depending on the business environment.
(b) Planning may not work in a dynamic environment : Dynamic business
environment needs an organisation to quickly adapt itself to changes. It becomes
difficult to accurately assess future trends in the business environment. Planning
cannot foresee everything and thus, may not be useful.
23. Features of planning:
(a) Planning is a primary function of management: Planning precedes all the
other functions of management. It provides the basis and direction to managerial
efforts. Planning serves as a guide for organisation, staffing, directing and
controlling.
(b) Planning is pervasive: Planning is required at all levels of management as well
as in all departments of the organisation. However, the nature and scope of
planning activities carried out varies according to the level of management.
(c) Planning is an intellectual process: A good plan is based upon collection, study
and analysis of facts, evaluating the alternatives, combination of factor and
deciding the most appropriate line of action. It involves thinking before doing.
(d) Planning is goal oriented: Planning is made to achieve the desired objectives
of the business. All the action in the organisation gets coordinated to achieving
that goal.
(e) Planning is forward looking: Planning essentially involves looking ahead and
preparing for the future. It tries to anticipate opportunities and threats from the
environment so as the take advantage of them or to deal with them effectively.
24. Limitations of Planning:
(i) Planning reduces creativity - “Middle level managers are neither allowed to
deviate from the plans nor are they permitted to act on their own”. Plans are
made by only the top management, and the lower levels of management are not
allowed to deviate from the pre-defined course. Thus, in the process, lower-level
managers tend to lose their creativity.
(ii) Planning involves huge costs - “The top management ensures that the
expenses incurred in formulating the plans justify the benefits derived from
them’. As planning is based on future predictions, it requires much thought,
analysis, scientific calculations, etc., which are to be used for formulating a course
of action. This involves high costs.
(iii) Planning does not guarantee success: It can also create a false sense of
security, particularly when a previous successful plan is tried out yet again
without taking into account the dynamics of the environment. These risk can be
reduced by constantly reviewing the plans and being open to modifications.
(iv) Rigidity: Once a plan is formulated, the manager may not be able to change it.
This rigidity creates hurdles when unforeseen changes come about.
(v) Lack of flexibility to deal with a dynamic environment: Planning cannot help
foresee the changes in the business environment and fails in times of changes and
uncertainties.
25. (a) Planing function is mentioned above.
(b) (i) Planning focuses on achieving objectives: Organisations are set up with a
general purpose in view. Specific goals are set out in the plans along with the
activities to be undertaken to achieve the goals. Thus, planning is purposeful.
Planning has no meaning unless it contributes to the achievement of
predetermined organisational goals.
(ii) Planning is a primary function of management: Planning lays down the base
for other functions of management. All other managerial functions are performed
within the framework of the plans drawn. Thus, planning precedes other
functions. This is also referred to as the primacy of planning. The various
functions of management are interrelated and equally important. However,
planning provides the basis of all other functions.
(iii) Planning is pervasive: Planning is required at all levels of management as
well as in all departments of the organisation. It is not an exclusive function of top
management nor of any particular department. But the scope of planning differs
at different levels and among different departments. For example, the top
management undertakes planning for the organisation as a whole. Middle
management does the departmental planning. At the lowest level, day-to-day
operational planning is done by supervisors.
(iv) Planning is continuous: Plans are prepared for a specific period of time, may
be for a month, a quarter, or a year. At the end of that period there is need for a
new plan to be drawn on the basis of new requirements and future conditions.
Hence, planning is a continuous process.
Continuity of planning is related with the planning cycle. It means that a plan is
framed, it is implemented, and is followed by another plan, and so on.
(v) Planning is futuristic: Planning essentially involves looking ahead and
preparing for the future. The purpose of planning is to meet future events
effectively to the best advantage of an organisation. It implies peeping into the
future, analysing it and predicting it. Planning is, therefore, regarded as a
forward-looking function based on forecasting. Through forecasting, future
events and conditions are anticipated and plans are drawn accordingly. Thus, for
example, sales forecasting is the basis on which a business firm prepares its
annual plan for production and sales.
(vi) Planning involves decision making: Planning essentially involves choice from
among various alternatives and activities. If there is only one possible goal or a
possible course of action, there is no need for planning because there is no
choice. The need for planning arises only when alternatives are available. In
actual practice, planning presupposes the existence of alternatives. Planning,
thus, involves thorough examination and evaluation of each alternative and
choosing the most appropriate one.
26. (a): (i) Planning reduces creativity: Planning is an activity which is done by
the top management. Usually, the rest of the members just implements these
plans. As a consequence, middle management and other decision makers are
neither allowed to deviate from plans nor are they permitted to act on their own.
Thus, much of the initiative or creativity inherent in them also gets lost or
reduced. Most of the time, employees do not even attempt to formulate plans.
They only carry out orders. Thus, planning in a way reduces creativity since
people tend to think along the same lines as others. There is nothing new or
innovative.
(ii) Planning involves huge costs: When plans are drawn up huge costs are
involved in their formulation. These may be in terms of time and money for
example, checking accuracy of facts may involve lot of time. Detailed plans
require scientific calculations to ascertain facts and figures. The costs incurred
sometimes may not justify the benefits derived from the plans. There are a
number of incidental costs as well, like expenses on boardroom meetings,
discussions with professional experts and preliminary investigations to find out
the viability of the plan.
27. (b): Planning provides direction, reduces the risk of uncertainty and
promotes innovative ideas.
(i) Planning provides direction: By stating in advance how work is to be done,
planning provides direction for action. Planning ensures that the goals or
objectives are clearly stated so that they act as a guide for deciding what action
should be taken and in which direction.
(ii) Planning reduces the risk of uncertainty: By deciding in advance, the tasks to
be performed, planning shows the way to deal with changes and uncertain
events. Changes or events cannot be eliminated but they can be anticipated and
managerial responses to them can be developed.
(iii) Planning promotes innovative ideas: Since planning is the first function of
management, new ideas can take the shape of concrete plans. It guides all future
actions leading to growth and prosperity of the business.
28. (b): Developing premises is one of the steps in the process of planning, where
the manager is required to make certain assumptions about the future, upon
which plans are to be drawn.
29. (c): The next step in the process of planning will be “Identifying alternative
courses of action”.
30. (c): Under the process of planning, ‘evaluating the alternatives courses’ is the
step that involves examining the pros and cons of each alternative.
31. (a): The step of planning which is concerned with putting the plan into action
is ‘Implementing the Plan’.
32. (c): The next step of Ritu Kapoor would be ‘Developing Premises’.
33. (c): Allocation of jobs to members of each department.
34. Two steps followed by Saurabh that are related to the planning process are:
(i) Setting objectives: Target of earning 10% profit on sales in the first year.
(ii) Developing Premises: On the basis of gathered information, assuming that
demand for chocolates was increasing day by day.
35. Planning is deciding in advance what to do, how to do it and who is to do it.
Planning bridges the gap from where we are to where we want to go. It makes it
possible for things to occur which would not otherwise happen.
The first two steps in the process of planning are -
(i) Setting organisational objectives and goals: Every organisation must have
certain objectives and each department and teams must be made aware of their
share of contribution in it. Objectives must be stated clearly for all departments,
units and employees.
(ii) Developing premises upon which each alternatives are based. So, planning is
always for the future which is uncertain we have to take great care of this
function. Planning means setting objectives and targets and formulating an
action plan to achieve them.
36. After the given three steps of planning the steps that should be followed are –
(i) Evaluating alternative courses: After identifying alternative courses of action,
the next step is to evaluate the pros and cons of each alternative.
(ii) Selecting an alternative: In this step the most suitable, feasible and profitable
alternative is selected which has the least number of negative aspects.
Managements select the best alternative through careful analysis.
(iii) Implementing the plan: In this step plan is put into action. This step also
involves the arrangement of the resources like men, machines and materials.
(iv) Follow up action: This is the last step in the process of planning in which it is
seen whether the plans are being implemented as per the schedule. It involves
monitoring of the plans in order to achieve the desired objectives.
37. Planning leads to rigidity: Once the plans are decided managers may not be in
a position to change it so they cannot get the benefit of favourable situation.
Managers need to be given some flexibility to be able to cope with the changed
circumstances.
Planning reduces creativity: Planning involves establishing policies, procedures
and programmes in advance. Employees have to strictly follow them without
deviations.
For example - The Russia–Ukraine war came upon us quite abruptly. It raised the
petroleum prices, led to shortage of wheat and accentuated chip shortage. In such
cases plans need to be modified.
So, planning suppresses the spirit to take initiative among the employees and
makes them to work in a rigid manner, leaving no scope for creativity.
38. The first four steps involved in the process of planning are:
(a) Setting objectives: The first step of planning process is to set objectives.
Objectives specify what the organisation wants to achieve. Objectives should be
clear to all the departments as well as the workers in the organisation.
(b) Developing premises: The assumptions regarding the future which a manager
makes are called premises, like market demand for goods, cost of raw materials,
state of technology, competition, government policies, etc. On the basis of these
assumptions’ plans are drawn.
(c) Identifying alternatives: The next step in the planning process is to identify
various alternatives to achieve the pre-determined objectives.
(d) Evaluating alternative courses: In this step the negative as well as positive
aspects of various alternatives are evaluated. The pros and cons of each
alternative, its risks and rewards are studied.
39. All the available alternatives are evaluated in the light of their feasibility and
consequences. This is one of the steps in the process of planning. The steps
followed by this are:
(i) Selecting an alternative: This is the real point of decision making. The best
plan must be adopted and implemented. Sometimes, a combination of plans may
be selected instead of one best course. The manager will have to apply
permutations and combinations and select the best possible course of action.
(ii) Implementing the plan: This is the step where other managerial functions
also come into the picture. The step is concerned with putting the plan into
action, i.e., doing what is required.
(iii) Follow-up action: To see whether plans are being implemented and activities
are performed according to schedule is also part of the planning process.
Monitoring the plans is equally important to ensure that objectives are achieved.
40. The statement is false. Reason: A method is the prescribed way or manner in
which a task has to be performed considering the objective.
OR
A rule is a specific statement that specifies clearly what is to be done or not to be
done.
41. A policy is a general statement that aims at channelling the efforts of the
organisation in a particular direction. It forms the general response or a course of
action to be followed in a particular situation while a procedure is a set of routine
steps defined in a chronological order that are to be followed for the enforcement
of a policy. Hence, procedure helps in the enforcement of a policy.
OR
Developing the premises: Premises means assumptions regarding the future. For
successful planning, the correct premises should be developed and proposed.
42. Method provides prescribed ways in which a task has to be performed
considering the objective. The method may vary from task to task. e.g. For higher
level management, orientation programmes, seminars can be organised whereas
at the supervisory level, on the job training methods are more appropriate.
43. Objectives are the end result, towards which all managerial efforts and
organisational activities are directed.
44. Policy is a general statement providing guidelines which brings uniformity in
decision making for achievement of pre-determined objectives.
45. A programme is a detailed statement about a project that outlines the
objectives, policies, procedures, rules and resources required and the budget to
implement it.
46. Policy.
47. (a) Planning leads to rigidity: Once a well-defined plan is drawn, the
managers may not be in a position to change it. These kind of rigidity in plans
may create difficulty.
(b) Planning involves huge costs: Planning involves huge costs in terms of time
and money e.g. checking accuracy of facts may require a lot of time. The costs
incurred sometimes may not justify the benefits derived from the plans.
(c) Planning does not guarantee success: The success of an organisation is
possible only when plans are properly drawn up, implemented and translated
into action. Managers have a tendency to rely on previously tried and tested
successful plans. Following a pre decided plan when the circumstances have
changed may not turn to be in organisation’s interest.
48. Policy and strategy are two different kinds of plans.
Strategy: A strategy provides the broad contours an organisation follows for its
business. It also refers to future decisions defining the organisations direction
and scope in the long run. Thus, it can be said that a strategy is a comprehensive
plan for accomplishing organisational objectives. While formulating a strategy
the business environment must be taken into consideration. The changes in the
economic, political, social, legal and technological environment affects an
organisation’s strategy.
Major strategic decisions will include decisions like whether the organisation will
continue to be in the same line of business, or combine new lines of activity with
the existing business or seek to acquire a dominant position in the same market.
Policy: Policies are general statements that guide thinking and channelise
corporate energies towards a particular direction. Policies provide a basis for
interpreting strategy which is usually stated in general terms. They are guides to
managerial action and decisions in the implementation of strategy.
For example, the company may have a recruitment policy, pricing policy within
which objectives are set and decisions are made. If there is an established policy,
it becomes easier to resolve problems or issues.
As such, a policy is the general response to a particular problem or situation.
There are policies for all levels and departments in the organisation ranging from
major company policies to minor policies.
49. The two types of plans discussed above are:
(a) Objectives - An objective is a goal that management desires to achieve. By
stating the objective, the management broadly defines what is to be done. The
objective Matta Auto Ltd. is to increase its sales by 20% during the current year.
(b) Strategy -A strategy is a comprehensive plan that includes determining the
long-term objectives, adopting the required course of action and allocating the
necessary resources.
Matta Auto Ltd. prepared a comprehensive plan by taking into consideration the
business environment and the necessary resources which were allocated to
achieve the target.
50. Different types of plans discussed in the para are:
(a) Objectives: “One of his objective was to earn 10% profit on the amount
invested in the first year.” Objectives are the desired future positions that the
management would like to reach.
Objective are very basic to the organisation and are defined as ends which the
management seeks to achieve by its operations. They are usually set-up by top
level management of the organisation and focus on broad, general issues for
example increasing sales by 20%.
(b) Policies: “It was decided that raw materials like fruits, vegetable, spices etc.,
will be purchased on three month credit period from farmers cultivating organic
crops.
Policies are general statements that guide the thinking or channelise energies
towards a particular direction.
Policies provides a basis for implementing and interpreting strategy which is
stated in general terms. They guide managerial actions and decisions.
(c) Procedures: “She also decided to follow the steps required for marketing of
the product through her own outlets”.
Procedures are specified in chronological order for example, there may be a
procedure for requisition of supplies before production.
(d) Methods: “She appointed Mohan as a Production Manager who decided the
way in which the production activities were to be carried out”.
Methods provide the prescribed ways in which a task has to be performed
considering the objective.
It deals with a task comprising of one step of a procedure and specifies how this
step is to be performed. Selection of proper method saves time and money.
(e) Rules: “While working on the production a penalty of ₹ 100 day for not
working in caps, gloves and apron was announced”.
Rules are specific statement that informs what is to be done. They do not allow
any flexibility or discretion.
It reflects a managerial decision. Non-adherence to rules attract penalties or
fines.
51. Policy: Policies are general statements that guide thinking or channelise
energies towards a particular direction. Policies provide a basis for interpreting
strategy which is usually stated in general terms. They are guides to managerial
action and decisions in the implementation of strategy. For example, the company
may have a recruitment policy, pricing policy within which objectives are set and
decisions are made. If there is an established policy, it becomes easier to resolve
problems or issues.
As such, a policy is the general response to a particular problem or situation.
There are policies for all levels and departments in the organisation ranging from
major company policies to minor policies. Major company policies are for all to
know i.e., customers, clients, competitors etc., whereas minor polices are
applicable to insiders and contain minute details of information vital to the
employees of an organisation. But there has to be some basis for divulging
information to others.
Method: Methods provide the prescribed ways or manner in which a task has to
be performed considering the objective. It deals with a task comprising one step
of a procedure and specifies how this step is to be performed. The method may
vary from task to task. Selection of proper method saves time, money and effort
and increases efficiency. For imparting training to employees at various level
from top management to supervisory, different methods can be adopted.
For example, for higher level management orientation programmes, lectures and
seminars can be organised whereas at the supervisory level, on the job training
methods and work-oriented methods are appropriate.
 CBSE Sample Questions

1. (d): Planning reduces the risks of uncertainty.

2. (a): Planning precedes other functions
3. (d): Creativity and innovation
4. (d): Planning is a mental exercise
5. (c): Planning leads to rigidity
6. (b): A is correct R is incorrect.
7. Yes, importance of Planning:
(i) Planning provides direction: Planning ensures that the goals or objectives are
clearly stated so that they act as a guide for deciding what action should be taken
and in which direction. If goals are well defined, employees are aware of what the
organisation has to do and what they must do to achieve those goals.
(ii) Planning reduces the risks of uncertainty: Planning is an activity which
enables a manager to look ahead and anticipate changes. By deciding in advance,
the tasks to be performed, planning shows the way to deal with changes and
uncertain events. Changes or events cannot be eliminated but they can be
anticipated and managerial responses to them can be developed.
(iii) Planning reduces overlapping and wasteful activities: Planning serves as the
basis of coordinating the activities and efforts of different divisions, departments
and individuals. It helps in avoiding confusion and misunderstanding. Since
planning ensures clarity in thought and action, work is carried on smoothly
without interruptions. Useless and redundant activities are minimised or
eliminated.
(iv) Planning promotes innovative ideas: Since planning is the first function of
management, new ideas can take the shape of concrete plans. It is the most
challenging activity for the management as it guides all future actions leading to
growth and prosperity of the business.
(v) Planning facilitates decision making: Planning helps the manager to look into
the future and make a choice from amongst various alternative courses of action.
The manager has to evaluate each alternative and select the most viable
proposition. Planning involves setting targets and predicting future conditions
thus helping in taking rational decisions.
(vi) Planning establishes standards for controlling: Planning provides the goals
or standards against which actual performance is measured. By comparing actual
performance with some standard, managers can know whether they have
actually been able to attain the goals. If there is any deviation it can be corrected.
Therefore, we can say that planning is a pre-requisite for controlling.
(Any four)
8. (c): Setting objectives
9. (d): Implementing the plan
10. (a): Follow-up action
11. Steps in the process of planning to be followed by a manager before
performing the step of evaluation of alternatives:
(i) Setting Objectives: The first and foremost step is setting objectives. Every
organisation must have certain objectives. Objectives may be set for the entire
organisation and each department or unit within the organisation. Objectives or
goals specify what the organisation wants to achieve. It could mean an increase in
sales by 20% which could be the objective of the entire organisation. How all
departments would contribute to the organisational goals is the plan that is to be
drawn up. Objectives should be stated clearly for all departments, units and
employees. They give direction to all departments.
(ii) Developing Premises: Planning is concerned with the future which is
uncertain and every planner is using conjecture about what might happen in
future. Therefore, the manager is required to make certain assumptions about the
future. These assumptions are called premises. Assumptions are the base
material upon which plans are to be drawn. The base material may be in the form
of forecasts, existing plans or any past information about policies. The premises
or assumptions must be the same for all and there should be total agreement on
them. All managers involved in planning should be familiar with and use the
same assumptions. For example, forecasting is important in developing premises
as it is a technique of gathering information. Forecasts can be made about the
demand for a particular product, policy change, interest rates, prices of capital
goods, tax rates etc. Accurate forecasts therefore become essential for successful
plans.
(iii) Identifying alternative courses of action: Once objectives are set,
assumptions are made. Then the next step would be to act upon them. There may
be many ways to act and achieve objectives. All the alternative courses of action
should be identified. The course of action which may be taken could be either
routine or innovative. An innovative course may be adopted by involving more
people and sharing their ideas. If the project is important, then more alternatives
should be generated and thoroughly discussed amongst the members of the
organisation.
12. The next three steps are:
(i) Identifying alternative courses of action: Once objectives are set, assumptions
are made. Then the next step would be to act upon them. There may be many
ways to act and achieve objectives. All the alternative courses of action should be
identified. The course of action which may be taken could be either routine or
innovative. An innovative course may be adopted by involving more people and
sharing their ideas. If the project is important, then more alternatives should be
generated and thoroughly discussed amongst the members of the organisation.
(ii) Evaluating alternative courses: The next step is to weigh the pros and cons of
each alternative. Each course will have many variables which have to be weighed
against each other. The positive and negative aspects of each proposal need to be
evaluated in the light of the objective to be achieved. In financial plans, for
example, the risk-return trade-off is very common. The riskier the investment,
the higher the returns it is likely to give. To evaluate such proposals detailed
calculations of earnings, earnings per share, interest, taxes, dividends are made
and decisions taken. Accurate forecasts in conditions of certainty/uncertainty
then become vital assumptions for these proposals. Alternatives are evaluated in
the light of their feasibility and consequences.
(iii) Selecting an alternative: This is the real point of decision making. The best
plan has to be adopted and implemented. The ideal plan, of course, would be the
most feasible, profitable and with least negative consequences. Most plans may
not always be subjected to a mathematical analysis. In such cases, subjectivity
and the manager’s experience, judgment and at times, intuition play an important
part in selecting the most viable alternative. Sometimes, a combination of plans
may be selected instead of one best course. The manager will have to apply
permutations and combinations and select the best possible course of action.
13. Identifying alternative courses of action: Once objectives are set assumptions
are made. Then the next step would be to act upon them. There may be many
ways to act and achieve objectives. All the alternative courses of action should be
identified. The course of action which may be taken could be either routine or
innovative. An innovative course may be adopted by involving more people and
sharing their ideas.
Remaining steps to carried out to complete the process are as follows:
(i) Evaluating alternative courses: The next step is to weigh pros and cons of each
alternative. Each course will have many variables which have to be weighed
against each other. The positive and negative aspects of each proposal need to be
evaluated in the light of the objective to be achieved.
(ii) Selecting an alternative: This is the real point of decision making. The best
plan has to be adopted and implemented. The ideal plan, of course, would be the
most feasible, profitable and with least negative consequences. Most plans may
not always be subjected to a mathematical analysis.
(iii) Implementing the plan: This is the step where other managerial functions
also come into the picture. The step is concerned with putting the plan into
action.
(iv) Follow up action: To see whether plans are being implemented and activities
are performed according to schedule is also part of the planning process.
Monitoring the plans is equally important to ensure that objectives are achieved.
 Meaning Definition, Features & Importance of Planning

1 Mark Questions

1.’Dreams can be turned into reality only when managers think in advance what
to do and how to do it’. Name the function of management indicated by the
Statement. (Compartment 2014)
or
‘Deciding in advance what to do and how to do is one of the basic management
functions’, Give the meaning of this function (Compartment 2014)

Ans. Planning seeks to bridge the gap between where we are and where we want to
go. It involves setting objectives and targets and formulating an action plan to achieve
them.

2. ‘Planning is done for achieving the organisational goals’. Do you agree? Give
one reason in support of your answer.(Delhi 2012)

Ans. Yes, planning ensures that goals or objectives are clearly stated so that they act
as a guide for deciding what action should be taken and in which direction.

3. Why is it said that ‘planning is pre-requisite for controlling’?

(Delhi 2009c)

Ans. Under the system of controlling, actual work performance is compared with
standards. Hence, if the standards are not determined, there is no justification left for
control. Therefore, planning is pre-requisite for controlling.

4. Define planning. (Delhi 2009c)

Ans. According to Koontz and O’ Donnell, ‘Planning is deciding in advance what to do,
how to do it, when to do it and who is to do it’.

5. List any two characteristics of (Delhi 2009c)

Ans. Two characteristics of planning are as follows:

(i) Planning is an intellectual process.
(ii) Planning is a goal-oriented process.

6. ‘Planning is doing the work for achievement of goals’. Do you agree? Give
reasons in support of your answer. (All India 2009)
or
‘Planning is goal oriented’. How? (Delhi2008C)
Ans. Yes, planning is doing the work for achievement of goals because planning is
purposeful. Planning has no meaning unless it contributes to the achievement of pre-
determined organisational goals.

7. Mention any two features of planning. (All India 2009c)

Ans. Two features of planning are as follows:

(i) Planning is a continuous process. (ii) Planning is all pervasive.

3 Marks Questions

8. Explain the following as features of planning

 Planning is continuous
 Planning is futuristic. (Delhi 2013)

Ans. (i) Planning is continuous Plans are prepared for a specific period of time, may
be for a month, a quarter or a year. At the end of that period, there is need for a new
plan to be drawn on the basis of new requirements and future conditions. Management
can’t afford to follow rigid plans in the era of fast changes in technology, market, etc.
Thus, a manager must develop or modify the plans from time to time as per the need.
Hence, planning is a continuous process.

(ii) Planning is futuristic Planning is essentially looking ahead and preparing for the
future. It is based on the proverb, ‘look before you leap’. In other words, it is carried out
to achieve some objectives in future. It, therefore, becomes essential to anticipate or
predict the future.
For example, A manufacturer prepares next year’s production plan after forecasting the
demand. Therefore, it is said that planning is futuristic and involves thinking before
doing.

9. Explain the following features of planning

 Planning involves decision-making; and

 Planning is pervasive. (Delhi 2013)

Ans. (i) Planning involves decision-making The need of planning arises because of
the availability of various alternatives to achieve specified objectives. It considers or
evaluates the best alternative. Decision-making is an integral part of planning. A
manager is surrounded by number of alternatives. He has to pick the best depending
upon requirements and resources of the enterprises.

(ii) Planning is pervasive Planning is required at all levels of management as well as

in all departments of the organisation. It is not only for top management but it differs at
different levels and among different departments. The top level may be more concerned
about planning for the organisation as a whole whereas, the middle level may be more
specific in departmental plans and the lower level is concerned for the implementation
of the same.

10. State any three advantages of planning. (Delhi 2012)

Ans. Advantages of planning are as follows:

(i) Planning provides direction By stating in advance how work is to be done,

planning provides direction for action. It reduces aimless activity and makes action more
meaningful.

(ii) Planning reduces the risk of uncertainty Planning is always done for future and
future is uncertain. With the help of planning, possible changes in future are anticipated
and various activities are planned in the best possible way.

(iii) Planning facilitates decision-making Planning is an intellectual activity. It helps

the manager to look into the future and make a choice from amongst various alternative
courses of action. The manager has to evaluate each alternative and select the most
viable option. Thus, decision-making is inherent in planning.

11. What is meant by planning? List any two features of planning.

(Delhi 2010)

Ans. Planning is the process of thinking before doing. It is the process of determining a
course of action to achieve the desired results. Planning bridges the gap between
‘where we are’ and ‘where we want to go’.
Two features of planning are as follows:
(i) Planning is a goal-oriented function of management.
(ii) Planning is a continuous process.

12. Explain how planning provides direction to action? (Delhi 2008)

Ans. Planning provides direction to action by ,

(i) Clearly defining objectives/goals to be achieved by an organisation.
(ii) Stating the action to be taken for the achievement of the objectives.
(iii) Making the employees aware of how they will have to work, by giving them
necessary directions for achieving objectives.

13. Explain how planning is’futuristic’? (Delhi 2008)

Ans. Planning is futuristic Planning is essentially looking ahead and preparing for the
future. It is based on the proverb, ‘look before you leap’. In other words, it is carried out
to achieve some objectives in future. It, therefore, becomes essential to anticipate or
predict the future.
For example, A manufacturer prepares next year’s production plan after forecasting the
demand. Therefore, it is said that planning is futuristic and involves thinking before
doing.

14. Explain how planning reduces the risk of uncertainty?

(All India 2008)

Ans. Planning reduces the risk of uncertainty because

(i) It enables a manager to look ahead and anticipate changes.
(ii) It shows the way to deal with changes and uncertain events.
(iii) Changes or events can not be eliminated, as they can only be anticipated and
managerial responses to them can be developed.

15. Explain how planning is a ‘mental exercise’? (Delhi 2008)

Ans. Planning is a ‘mental exercise’ because

(i) It requires application of the mind involving foresight, intelligent imagination and
sound judgement.
(ii) It is basically an intellectual activity of thinking rather than doing because planning
determines the actions to be taken.
(iii) It requires logical and systematic thinking rather than guesswork or intuitional
thinking. In other words, thinking for planning must be orderly, based on the analysis of
facts and forecasts.

16. Explain how planning facilitates decision-making? (All India 2008)

Ans. Planning facilitates decision-making because

(i) Decision-making involves choice among various alternatives and activities. Planning
provides the framework to make the best choice.
(ii) Planning lays down the criterion for evaluating alternative courses of action and
selecting the most appropriate alternative.
(iii) Planning involves setting targets and predicting future conditions and thereby
making rational decisions.
(iv) It is planning that provides the guidelines for decision-making, by listing the goals of
an organisation.

17. Explain how planning is a ‘continuous process’? (All India 2008)

Ans. Planning is continuous Plans are prepared for a specific period of time, may be
for a month, a quarter or a year. At the end of that period, there is need for a new plan
to be drawn on the basis of new requirements and future conditions. Management can’t
afford to follow rigid plans in the era of fast changes in technology, market, etc. Thus, a
manager must develop or modify the plans from time to time as per the need. Hence,
planning is a continuous process.
4/5 Marks Questions

18. Explain any five features of ‘planning’.

(All India 2014. Delhi 2014,2011; Foreign 2014)
or
State any five features of planning.
(All India 2013; 2012; Delhi 2012; 2009)
or
Explain any two features of planning. (Delhi 2011c)

Ans. (i) Planning is continuous Plans are prepared for a specific period of time, may
be for a month, a quarter or a year. At the end of that period, there is need for a new
plan to be drawn on the basis of new requirements and future conditions. Management
can’t afford to follow rigid plans in the era of fast changes in technology, market, etc.
Thus, a manager must develop or modify the plans from time to time as per the need.
Hence, planning is a continuous process.

(ii) Planning is futuristic Planning is essentially looking ahead and preparing for the
future. It is based on the proverb, ‘look before you leap’. In other words, it is carried out
to achieve some objectives in future. It, therefore, becomes essential to anticipate or
predict the future.
For example, A manufacturer prepares next year’s production plan after forecasting the
demand. Therefore, it is said that planning is futuristic and involves thinking before
doing.

(iii) Planning involves decision-making The need of planning arises because of the
availability of various alternatives to achieve specified objectives. It considers or
evaluates the best alternative. Decision-making is an integral part of planning. A
manager is surrounded by number of alternatives. He has to pick the best depending
upon requirements and resources of the enterprises.

(iv) Planning is pervasive Planning is required at all levels of management as well as

in all departments of the organisation. It is not only for top management but it differs at
different levels and among different departments. The top level may be more concerned
about planning for the organisation as a whole whereas, the middle level may be more
specific in departmental plans and the lower level is concerned for the implementation
of the same.

19. In addition to providing directions and reducing the risk of uncertainty,

planning helps managers in the many other ways. Explain any four such
ways. (All India 2014)

Ans. Planning is deciding in advance what to do, how to do and for whom to do it.
Features of Planning are as follows:
(i) Planning is goal-oriented Planning seeks to achieve certain objectives and all plans
are linked with the goals of the organisation. Planning identifies the action that would
lead to the desired results quickly and economically.
(ii) Planning is a primary function Planning serves as the basis for all other functions
of management. It precedes organising, staffing, directing and controlling. All these
functions are performed within the framework of plans.
(iii) Planning is pervasive Planning is required at all levels of management as well as
in all departments of the organisation. It is not only for top management but it differs at
different levels and among different departments.
(iv) Planning involves decision-making The need of planning arises because of the
availability of various alternatives to achieve specified objectives. It considers or
evaluates the best choice which serves the purpose. Thus, planning involves decision-
making.
(v) Planning is a mental exercise Planning requires application of mind involving
foresight, intelligent imagination and sound judgement. It is basically an intellectual
activity of thinking rather than doing.

20. Define ‘Planning, state any four points of importance of planning.

(All India 2014; Delhi 2014)
or
‘Planning is an important function of management’. State any four reasons in
favour of the statement. (All India 2011; Delhi 2011)
or
Describe any two points of importance of planning. (All India 2011)
or
Explain any five points of importance of planning for a large business enterprise.
(All India 2009; Delhi 2009)

Ans. Planning It is deciding in advance what is to be done. When a manager plans, he

projects a course of action for the future, attempting to achieve a consistent and
coordinated structure of operations aimed at the desired results.
Importance of planning are as follows:

(i) Planning provides directions By stating in advance how work is to be done,

planning provides direction for action. It reduces aimless activity and makes action more
meaningful. It makes the employees aware of how they will have to work, by giving
them necessary directions for achieving the objectives.

(ii) Planning reduces the risk of uncertainty Planning is always done for future and
future is uncertain. With the help of planning, possible changes in future are anticipated
and various activities are planned in the best possible way.

(iii) Planning facilitates decision-making Planning helps the manager to look into the
future and make a choice from amongst various alternative courses of action. The
manager has to evaluate each alternative and select the most viable option.

(iv) Planning promotes innovative ideas Planning is the first function of management,
where new ideas can take the shape of concrete plans. It is the most challenging job or
an activity of the management as’it guides all future actions, leading to growth and
prosperity of the business.

(v) Planning reduces overlapping and wasteful activities Planning serves as the
basis of coordinating the activities and efforts of different divisions, departments and
individuals. It helps in avoiding confusion and misunderstanding. Since, planning
ensures clarity in thought and action, hence the work is carried on smoothly without any
interruptions. 21.
Planning provides directions and reduces the risks of uncertainty. Explain
how? (All India 2010)

Ans. (i) Planning provides directions By stating in advance how work is to be done,
planning provides direction for action. It reduces aimless activity and makes action more
meaningful. It makes the employees aware of how they will have to work, by giving
them necessary directions for achieving the objectives.)

(ii) Planning reduces the risk of uncertainty Planning is always done for future and
future is uncertain. With the help of planning, possible changes in future are anticipated
and various activities are planned in the best possible way.
 Limitations of Planning
1 Mark Questions

1. State how planning ‘leads to rigidity’? (All India 2010)

Ans. The existence of plan puts managerial activities in a rigid framework. Programmes
are carried out according to plans. Managers become more concerned with observing
the rules and procedures as laid down in the plan rather than achieving the goals.

2. State how planning reduces creativity? (Delhi 2010c)

Ans. Planning makes managers and workers a puppet. They are expected to follow the
guidelines laid down in plans. Everything is pre-determined. This discourages the
creative thinking and initiative on the part of people working at various levels in the
organisation.

3. ‘Planning always leads to success’. Do you agree? Give reasons in support of

your answer. (HOTS; Delhi 2009C)
Ans. No, sometimes planning fails because of:
(i) Rigidity (ii) Time consuming

4. List any two limitations of planning. (Ail India 2009)

or
State any one limitation of planning. (Delhi 2008C)
Ans. Limitations of planning are as follows:
(i) Planning does not work in dynamic environment.
(ii) It involves huge costs.

5. Inspire of many advantages, state how planning can be detrimental?

(HOTS; All India 2008)
Ans. Business environment is dynamic in nature, i.e. nothing is constant. Sometimes
planning fails to foresee the changes and there are obstacles in effective planning.
Hence, planning can be detrimental.

3 Mark Questions

7. How does planning lead to rigidity and reduce creativity?

Explain.(Compartment 2014)
or
State any two limitations of planning. (Delhi 2012)

Ans. Two limitations of planning are as follows:

(i) Planning leads to rigidity In an organisation, a well-defined plan is drawn up with
specific goals to be achieved within a specific time frame. These plans then decide the
future course of action and managers may not be in a position to change it. This kind of
rigidity in plans may create difficulty.
(ii) Planning reduces creativity Plans are usually formulated at the top level. Middle
and lower level managers are expected to follow them. Therefore, much of initiative and
creativity inherent in them gets lost. They do not take any initiative to make changes in
the plans according to the changes prevailing in the business environment.

8. How does planning not work in a dynamic environment and does not guarantee
success. Explain. (Compartment 2014)

Ans. (i) Planning does not work in dynamic environment The environment is not
static. It keeps on changing. The organisation has to constantly adapt itself to such
changes. It becomes difficult to access future trends in the environment. Hence,
planning cannot foresee everything and fail to work in dynamic environment.
(ii) Planning does not guarantee success When plans are drawn, they need to be
properly implemented. Mere drawing plans does not lead to success. Also, a plan which
had been successful earlier may not work out next time, since there are many factors
which may change for the next planning period and make the plans ineffective.

9. Rahul, a worker, is given a target of assembling two computers per day. Due to
his habit of doing things differently, an idea struck him which would not only
reduce the assembling time of computers but would also reduce the cost of
production of the computers. Rahul’s supervisor instead of appreciating him,
ordered him to complete the work as per the methods and techniques decided
earlier as nothing could be changed at that stage.
The above para describes one of the limitation of planning function of
management. Name and explain that limitation.
(HOTS; All India 2011; Delhi 2011c)

Ans. The para given in the question expresses the limitation of planning which is
explained as unde(1)
Planning reduces creativity Plans are usually formulated at the top level. Middle and
lower level managers are expected to follow them. Therefore, much of initiative and
creativity inherent in them gets lost. They do not take any initiative to make changes in
the plans according to the changes prevailing in the business environment.

10. Define planning. List any two limitations of planning. (All India 2010)

Ans. Planning is the process of thinking before doing. It is the process of determination
of a course of action to achieve the desired results.

(i) Planning leads to rigidity In an organisation, a well-defined plan is drawn up with

specific goals to be achieved within a specific time frame. These plans then decide the
future course of action and managers may not be in a position to change it. This kind of
rigidity in plans may create difficulty.
(ii) Planning reduces creativity Plans are usually formulated at the top level. Middle
and lower level managers are expected to follow them. Therefore, much of initiative and
creativity inherent in them gets lost. They do not take any initiative to make changes in
the plans according to the changes prevailing in the business environment.

4/5 Mark Questions

11. Explain any five limitations of planning. (All India 2014; Delhi 2014, 2013;
2012; 2011; 2009)
or
State any four limitations of planning. (All India 2012, 2011, 2009; Delhi 2009)

Ans. Limitations of planning are as follows:

(i) Planning leads to rigidity In an organisation, a well-defined plan is drawn up with

specific goals to be achieved within a specific time frame. These plans then decide the
future course of action and managers may not be in a position to change it. This kind of
rigidity in plans may create difficulty. (ii)

Planning may not work in dynamic environment The environment is not static, it
keeps on changing. The organisation has to constantly adapt itself to such changes. It
becomes difficult to access future trends in the environment. Hence, planning cannot
foresee everything and fail to work in dynamic environment.

(iii)Planning reduces creativity Plans are usually formulated at the top level. Middle
and lower level managers are expected to follow them. Therefore, much of initiative and
creativity inherent in them gets lost. They do not take any initiative to make changes in
the plans according to the changes prevailing in the business environment.

(iv) Planning involves huge costs When plans are drawn up, huge costs are involved
in their formulation. These may be in terms of time and money. According to Koontz
and O’ Donnell,
‘Expenses on planning should never exceed the estimated benefits from planning’.

(v) Planning is a time consuming process Planning is a lengthy process. It consumes

a lot of time in defining objectives, collection of data, analysis of data and choice of
alternatives. Sometimes plans to be drawn up take so much of time that there is not
much time left for their implementation.
 Steps in Planning Process
1 Mark Questions

1. ‘To see whether plans are being implemented and activities are being
performed according to schedule’, is a step of planning process. Identify the
step. (HOTS; All India 2013)

Ans. Follow-up action This step is concerned with carefully monitoring whether the
plans are being implemented and activities are performed according to schedule or not.
The managers need to carefully check that the premises are holding true in the existing
conditions.

2. State first two steps in the process of planning. (Delhi 2009)

Ans. The first two steps in the process of planning are as follows:
(i) Setting objectives.
(ii) Developing planning premises.

3. What is meant by selecting an alternative as a step in the planning

process? (All India 2009)

Ans. Selecting an alternative means the best plan has to be adopted and implemented.

4/5 Marks Questions

4. After the following logical steps in the process of planning, explain the steps
required to complete the process:

(i) Setting objective

(ii) Developing premises, and
(iii) Identifying alternative courses of action (Compartment 2014)

Ans. The first step in the process of planning is setting objectives. After that
development of premises is done. Then various alternatives are identified. After this, the
following steps are followed to complete the process of planning:

(i) Evaluating alternative courses After making the list of various alternatives along
with the assumptions supporting them, the manager starts evaluating each and every
alternative and note down the positive and negative aspects of each alternative. After
this ,the manager starts eliminating the negative aspects and the one with maximum
positive aspects is selected as the best alternative.

(ii) Selecting an alternative This is the real point of decision-making. The best plan
has to be adopted and implemented. The ideal plan, of course, would be the most
feasible, profitable and with least negative consequences. After preparing the main
plan, the organisation has to make a number of small plans to support the main plan.

(iii) Implementing the plan This is the step where other managerial functions also
come into the picture. This step is concerned with putting the plan into action, i.e. doing
what is required, e.g.. if there is a plan to increase production then more labour and
more machinery will be required. This step would involve organising labour and
purchase of machinery.

(iv) Follow-up action To see whether plans are being implemented and activities are
performed according to schedule, is also a part of the planning process. Monitoring the
plans is equally important to ensure that objectives are achieved properly.

5. A company is manufacturing garments. The manager wants to increase the

profits by purchasing new high speed machines or increasing the sale price or
using waste material in manufacturing stuffed toys.
He decided that using waste material to increase the profit is the best solution for
him.

 Identify the concept of management involved.

 Mention the steps involved in the above process by quoting the
lines from the question,
 To complete the process of the concept identified. What further
steps does the manager have to take? (HOTS; All India 2009;
Delhi 2009C)

Ans. (i) The concept of management involved is planning.

(ii) The steps involved are:

 Setting objectives Quoted in the line- The manager wants to increase

the profits’.
 Developing planning premises Making certain assumptions about
future.
 Identifying alternative courses of action By purchasing new high
speed machines, or increasing sale price, or using waste material in
manufacturing stuffed toys.
 Evaluating alternatives and selecting an alternative Using waste
material in manufacturing stuffed toys.

(iv) Further steps required to complete the process are:

 Implementing the plan

 Follow-up action
6. Kanu is appointed as factory manager in a gel pen manufacturing company. He
was given a target of producing one lakh gel pens per month. He knew that ‘the
essence of management is to achieve desired results’ but he does not know ‘how
to ensure that the work goes on according to plans’.
Guide him by explaining the process so that he will be able to achieve the desired
results. (All India 2010)
or
Explain the steps involved in the process of planning. (HOTS, Delhi 2009c, 2008
C)

Ans. Kanu will be able to achieve the desired results by following steps involved in the
process of planning.
Steps involved in the process of planning are as follows:

(i) Setting objectives The first and foremost step is setting objective. Every
organisation must have certain objectives. Objectives may be set for the entire
organisation or for each department or unit with in the organisation. Objectives or goals
specify what the organisation wants to achieve. It could mean an increase in sales by
20% which could be an objective of the entire organisation.

(ii) Developing premises Premises refers to making assumptions regarding future.

Premises are the base on which plans are made. It is a kind of forecast, made keeping
in view existing plans and any past information about various policies. There should be
total agreement on all these assumptions.

(iii) Identifying alternative courses of action After the setting up of objectives, the
managers make a list of alternatives through which the organisation can achieve its
objectives as there can be many ways to achieve the objectives and managers must
know all those ways to reach these objectives.
(iv) Evaluating alternative courses After making the list of various alternatives along
with the assumptions supporting them, the manager starts evaluating each and every
alternative and note down the positive and negative aspects of each alternative. After
this ,the manager starts eliminating the negative aspects and the one with maximum
positive aspects is selected as best alternative.
(v) Selecting an alternative This is the real point of decision-making. The best plan
has to be adopted and implemented. The ideal plan, of course, would be the most
feasible, profitable and with least negative consequences. After preparing the main
plan, the organisation has to make number of small plans to support the main plan.
(vi) Implementing the plan This is the step where other managerial functions also
come into the picture. This step is concerned with putting the plan into action, i.e. doing
what is required, e.g. if there is a plan to increase production then more labour and
more machinery will be required. This step would also involve organising labour and
purchase of machinery.
(vii) Follow-up action To see whether plans are being implemented and activities are
performed according to schedule, is also part of the planning process. Monitoring the
plans is equally important to ensure that objectives are achieved properly.
 Different Types of Plan
1 Mark Questions

1. Given the meaning of method as a type of plan. (All India 2014; Delhi 2014)
Ans. Method provides the prescribed ways in which work is to be performed
considering the objective.

2. Give the meaning of policy as type of plan. (Delhi 2014)

or
What is meant by policy as a type of plan? (Delhi 2014; All India 2009)
Ans. A policy is a general statement which guides the action and decision of the
subordinates in various departments. It provides the basis for interpreting strategy,
which is usually stated in general terms.

3. Which type of plan has the least flexibility and why? (HOTS; All India 2014C,
2008)
Ans. Rules are enforced rigidly. No exception or deviations are allowed in rules. With
regard to rule, the managers have no scope for discretion.

4. Name the type of plan which is in the form of general statements and
channelise energies towards a particular direction. (HOTS; Delhi 2014c, 2010c)

Ans. Policies are general statements that guide thinking or channelise energies towards
a particular direction.

5. Name the type of plan which is time bound and linked with measurable
outcome. (HOTS; Delhi 2012)
Ans. Objective/Budget.

6. Name the type of plan which provides the broad contours of an

organisation’s business. (HOTS; All India 2012)
Ans. Strategy.

7. Name the type of plan which specifies the steps to carry out different activities
in a chronological order.(HOTS; ah India 2010)
Ans. Procedure lays down the routine steps on how to carry out activities. They are
specified in a chronological order.

8. Give the difference between policy and procedure. (Delhi 2009)

Ans. Policy is a general statement that is guide to decision-making while procedure
specifies the steps on how to carry out activities in a chronological order.
3 Marks Questions

[Link] ‘objectives’ as one of the types of plan. (Delhi 2013)

Ans. It is the most important type of plan. These are defined as ends which the
management seeks to. achieve by its operations. The objectives are usually set by top
management of the organisation and focus on broad and general issues. They define
the future state of affairs which the organisation strives to realise.
For example, An organisation may have an objective of increasing sales by 10% or
earning a reasonable rate of return.

10. Explain ‘strategy’ as one of the types of plans. (Delhi 2013)

Ans. It refers to future decisions defining the organisation’s direction and scope
comprehensive plan for accomplishing the organisation’s objectives.
The comprehensive plan includes three dimensions:
(i) Determining the long-term objectives.
(ii) Adopting a particular course of action, and
(iii) Allocating resources necessary to achieve the objectives.

11. Differentiate between policy and rule as types of plan.

Ans. Difference between policy and rule

12. Differentiate between method and budget as types of plan. (Delhi 2011)

Ans. Difference between method and budget

13. Differentiate between objective and strategy as types of plan.(All India 2011)

Ans. Difference between objective and strategy

4/5 Marks Questions

14. Explain policy and procedure as types of plan. (All India 2011,2010; Delhi
2010)

Ans. Policy These are the general guidelines which facilitate uniformity in decision-
making for the attainment of objectives of the organisation. It can be defined as
organisation’s general response to a particular problem or situation. Policies are made
at every level because the managers at every level need to decide or predetermine the
way of handling a situation and policy acts as a guide to take decisions in an
unexpected situation.
For example, a school may have a policy of issuing admission to the students who have
secured more than 60% marks.

Procedure It is a stipulated sequence of a course of action for handling activities. They

are specified in chronological order, e.g. there may be a procedure for requesting
supplies for production. Procedures are designed to execute policies and achieve
objectives.
For example, procedure may be for purchase of raw material, selection of employees,
redressal of grievances, etc.

15. Explain methods and rules as types of plan. (All India 2010; Delhi 2010,2008)

Ans. Methods These provide the- prescribed ways or manner in which a task has to be
performed considering the objective. It deals with a task comprising one step of a
procedure and specifies how this step is to be performed. The method may vary from
task to task. Selection of proper method saves time, money and effort and therefore,
increases efficiency.
For example, for the valuation of stock, the organisation must decide in advance which
method has to be adopted (LIFO or FIFO), so that everyone must follow the same.
Rules These are specific statements that inform what is to be done. They do not allow
any flexibility or discretion. It reflects a managerial decision that a certain action must or
must not be taken. Rules generally refer to the administrative area of the procedure.
They serve as guides and do not leave any scope for discretion.
For example, no smoking in the organisation.

16. Explain objectives and strategy as types of plan.

(All India 2010; Delhi 2010c)

Ans. (i) Objectives These are defined as end results which the management seeks to
achieve by its operations.
The main features of objectives are:

 They are set by the top management of the organisation.

 Different departments and units may have their own objectives.
 They are measurable.
 There must be a time limit for achievement of objectives.
 They must be achievable or feasible.

For example, increase in sales by 10% or decrease in rejections by 2%.

(ii) Strategy A strategy is a comprehensive plan to achieve the organisational

objectives.
The dimensions of strategy are:
(a) Determining long-term objective.
(b) Adopting a particular course of action.
(c) Allocating resources for achieving the objectives.
(d) Strategy is formulated after scanning the business environment.

17. Explain objective and policy as types of plan using suitable examples.
(All India 2008; Delhi 2008)

Ans. (i) Objectives These are defined as end results which the management seeks to
achieve by its operations.
The main features of objectives are:

 They are set by the top management of the organisation.

 Different departments and units may have their own objectives.
 They are measurable.
 There must be a time limit for achievement of objectives.
 They must be achievable or feasible.

For example, increase in sales by 10% or decrease in rejections by 2%.

(ii) Policy These are the general guidelines which facilitate uniformity in decision-
making for the attainment of objectives of the organisation. It can be defined as
organisation’s general response to a particular problem or situation. Policies are made
at every level because the managers at every level need to decide or predetermine the
way of handling a situation and policy acts as a guide to take decisions in an
unexpected situation.
For example, a school may have a policy of issuing admission to the students who have
secured more than 60% marks.

18. Explain procedure and Programme as types of plan.(All India 2008; Delhi
2008)
or
Mention any two types of plans and explain each with an example.
(All India 2008; Delhi 2008C)

Ans. (i) Procedure It is a stipulated sequence of a course of action for handling

activities. They are specified in chronological order, e.g. there may be a procedure for
requesting supplies for production. Procedures are designed to execute policies and
achieve objectives.
For example, procedure may be for purchase of raw material, selection of employees,
redressal of grievances, etc.
(d) Give the file to admission incharge.

(ii) Programme These are the combination of goals, policies, procedures and rules.
The programmes are made to achieve specific objectives. For example, there might be
a project of constructing a shopping mall. To execute the project there will be a need of
determining the objective, policies procedures, methods and budgets for completing the
task. Thus, the comprehensive plan including all other plans is called a Programme.
 Organising

1. Statement I : Delegation is the entrustment of responsibility and authority to

another, and the creation of accountability for performance.
Statement II : Irrespective of the extent of delegated authority, the manager shall
still be accountable to the same extent as before delegation. (2024)
Choose the correct option from the following :
(A) Statement I is true and Statement II is false.
(B) Statement II is true and Statement I is false.
(C) Both the Statements are true.
(D) Both the Statements are false.
Ans. (C) Both the Statements are true.
2. Online retailer ‘Bizen’ has grown to be the biggest provider worldwide in the
field of e-commerce. Its revenues are growing steadily year after year. It owes its
success to the rapid rate of digitisation and its organisational structure. ‘Bizen’s
Managing Director, Mohit makes strategic decisions and has control over the
entire organisation. In ‘Bizen’, jobs of similar nature are grouped together into
Human Resource Department, Marketing Department, Purchase Department and
Research and Development Department. These departments are further divided
into sections and all departmental heads report to Mohit who is the co-ordinating
head. This ensures efficiency in the utilization of manpower and minimizes
duplication of efforts. The type of organizational structure of ‘Bizen’ is : (2024)
(A) Informal organisational structure
(B) Divisional organisational structure
(C) Functional organisational structure
(D) Both (B) and (C)
Ans. (C) Functional organisational structure
3. Explain how the following factors affect the working capital requirement of a
business : (2024)
(i) Operating efficiency
(ii) Credit availed
Ans. Factors affecting working capital requirement of a business:
(i) Operational efficiency:
• Firms manage their operations with varied degrees of efficiency.
• Such efficiencies may reduce level of raw material, finished goods and debtors,
resulting in lower working capital.
(ii) Credit availed:
• A firm allows credit to its customers and also gets credit from its suppliers.
• To the extent the firm avails credit on purchases, the working capital
requirement is reduced.
4. Explain how the following factors affect the choice of capital structure of a
company : (2024)
(i) Flexibility
(ii) Cost of equity
Ans. Factors affecting choice of capital structure:
(i) Flexibility:
• If a firm uses its debt potential to the full, it loses flexibility to issue further
debt.
• It must maintain some borrowing power to take care of unforeseen
circumstances.
(ii) Cost of equity:
• When a company increases debt, the financial risk faced by the equity holders,
increases. Consequently, their desired rate of return may increase.
• If debt is used beyond a level, cost of equity may go up and share price may
decrease sharply inspite of increased earning per share(EPS).
 Previous Years' CBSE Board Questions
5.1 Concept and Importance
MCQ
1. The process of defining and grouping the activities of the enterprise and
establishing authority relationship among them is:
(a) Directing (b) Staffing
(c) Management (d) Organising
(2023)
2. 'Rainbow World School' planned its annual alumni meet to get in touch with
old students. Task groups like invitation committee, decoration committee and
food committee were formed and placed under the overall supervision of the
official in-charge of the event. Reporting relationships were established among
various groups to enable smooth interaction and clarity about each group's
contribution towards the event.
(a) Planning (b) Directing
(c) Organising (d) Staffing
(Term-1, 2021-22)
3. The process that initiates implementation of plans by clarifying jobs, working
relationships and effectively deploying resources for attainment of identified and
desired results is called:
(a) Coordination (b) Management
(c) Organising (d) Delegation
(Term-1, 2021-22)
VSA (1 mark)
4. Define 'Organising.
(NCERT, AI 2019)
OR
Define 'organising' as a function of management.
(Delhi 2014 C, AI 2014)
5. Differentiate between 'formal' and 'informal' organisation on the basis of
'origin. (Delhi 2017)
6. Alliance Ltd. is engaged in manufacturing plastic buckets. The objective of the
company is to manufacture 100 buckets a day. To achieve this, the efforts of all
departments are co-ordinated and interlinked and authority-responsibility
relationship is established among various job positions. There is clarity on who is
to report to whom.
Name the function of management discussed above.
(Delhi 2015)
7. To make the sports day of the school successful, the headmaster of the school
divided all the activities into task group, each dealing with a specific area like
holding of events, arrangement of medals, refreshments etc. Each group was
placed under the overall supervision of a senior teacher. The physical education
teacher was made responsible for holding different events, the home science
teacher for refreshment and the maths teacher for medals.
Identify the function of management performed by the headmaster in doing so.
(AI 2015 C)
SA II (4 marks)
8. Explain any four points of importance of 'Organising.
(Delhi 2019)
5.2 Organising Process
MCQ
9. Which one of the following is not a step in the process of 'organising"?
(a) Identification and division of work
(b) Departmentalisation
(c) Span of management
(d) Assignment of duties (Delhi,
Term-1, 2021-22)
10. 'While performing the organising function, jobs are allocated to the members
of each department in accordance with their skills and competencies’.
Identify the step in the organising function being discussed above:
(a) Identification and division of work.
(b) Departmentalisation.
(c) Assignment of duties.
(d) Establishment of reporting relationship.
(Term 1, 2021-22)
11. The step of 'organising' process in which each individual comes to know from
whom he has to take orders and to whom he is accountable is called:
(a) Identification and division of work
(b) Departmentalisation
(c) Assignment of duties
(d) Establishing reporting relationships.
(2021 C)
VSA (1 mark)
12. Give the meaning of 'organising as a process'.
(AI 2016)
SA II (4 marks)
13. Organising involves a series of steps that need to be taken in order to achieve
the desired goal. Explain these steps.
(Delhi 2019)
5.3 Structure of Organisation-Functional and Divisional-Concept. Formal and
Informal Organisation-Concept
MCQ
14. Which type of organisation structure has a likely disadvantage of pursuing
departmental interests at the cost of organisational interests leading to creation
of functional empires wherein importance of a particular function may be over-
emphasised?
(a) Formal organisational structure
(b) Functional organisational structure
(c) Divisional organisational structure
(d) Informal organisational structure
(Term-1, 2021-22)
15. The framework within which managerial and operating tasks are performed,
which specifies the relationship between people, work and resources and allows
coordination among different resources to accomplish desired goals is known as
(a) Organisation chart (b) Levels of management
(c) Span of management (d) Organisation structure
(Term-1, 2021-22)
16. The type of organisational structure in which jobs of similar nature are
grouped together on the basis of functions to form departments is called:
(a) Functional structure (b) Divisional structure
(c) Informal structure (d) Grouped structure
(Term-1, 2021-22)
17. Which organisational structure is suitable for business having a large variety
of products?
(a) Functional (b) Divisional
(c) Informal (d) Vertical
(Term-1, 2021-22)
18. Sunshine Industries which started off as a single product company has over
the years diversified into varied product categories and the need for a more
evolved structural design was felt to cope with emerging complexity. Suggest the
organisation structure that would be suitable for Sunshine Industries now:
(a) Functional structure (b) Divisional structure
(c) Operational structure (d) Occupational structure
(Term-1, 2021-22)
19. Agile Pvt. Ltd. manufactures athletic footwear. Owing to its popularity among
sports teams across the country, it recently decided to enter into manufacturing
of sports clothing and accessories.
The type of organisational structure which is suitable for the company is:
(a) Functional structure (b) Divisional structure
(c) Horizontal structure (d) Informal structure
(Term-1, 2021-22)
20. Which statement is not correct, with respect to 'Organisation Structure"?
(a) Ensures coordination among human and physical resources
(b) Ensures smooth flow of communication
(c) Specifies relationship between people, work and resources
(d) Establishes standards for controlling
(2020 C)
VSA (1 mark)
21. Ravi Jain was the Chief Executive Officer of Nath Traders. He was worried
about the heavy expenditure on advertising. He asked his Finance Manager, Mohit
Verma to know the views of the Sales Manager and his team regarding this
expenditure.
Mohit Verma was thinking of calling a meeting of the Sales Manager and his team
after tea-break. But by chance at the time of tea break, Mohit Verma met with the
Sales Manager and his team in the canteen. They all discussed about this
expenditure and finalised to give suggestion to reduce this expenditure.
Identify the type of organisation which helped the Finance Manager Mohit Verma,
the Sales Manager and his team in finalising the suggestion.
(Foreign 2019)
22. Name the type of organisational structure' which promotes efficiency in
utilisation of manpower.
(Delhi 2016)
23. Name the type of organisational structure which promotes flexibility and
initiative. (AI 2016)
24. What is meant by 'functional structure' of an organisation? State it’s any two
advantages.
(Al 2015)
25. Define 'Formal organisation.
(Delhi 2015)
26. State any one advantage of 'Formal Organisation'.
(Delhi 2014)
27. State the suitability of functional structure of organising.
(Delhi 2014 C)
SA I (3 marks)
28. State any three limitations of 'divisional structure' of an organisation.
(Delhi 2015)
29. State any three advantages of informal organisation. (AI
2015 C, Delhi 2015 C)
30. State any three limitations of informal organisation.
(Delhi 2015, AI 2015 C)
31. State any three advantages of formal organisation.
(AI 2015 C)
SA II (4 marks)
32. Give the meaning of 'Informal Organisation: State it’s any three advantages.
(Delhi 2019)
33. Give the meaning of 'Formal Organisation. State it's any three advantages.
(Delhi 2019)
34. Aradhana and Gandharv are heads of two different departments in 'Yumco
Ltd. They are efficient managers and are able to motivate the employees of their
respective departments to improve performance. However, their drive to excel in
their own sphere of activity instead of giving emphasis on objectives of the
enterprise has hindered the interaction between the departments that Aradhana
and Gandharv are heading. Often there are inter-departmental conflicts and they
have become incompatible. This has proved to be harmful in the fulfilment of the
organisational objectives. The situation has deteriorated to such an extent that
the CEO of 'Yumco Ltd. has hired a consultant, Rashmi, to resolve the problem.
After studying the situation closely, Rashmi found that the problem has arisen
due to inflexibility and a narrow perspective on the part of both Aradhana and
Gandharv. She is of the view that this situation is a result of the type of
organisational structure 'Yumco Ltd. has adopted.
From the above information, identify the organisational structure adopted by
'Yumco Ltd. and state any three advantages of the structure so identified.
(Al 2018)
35. 'Steelo Ltd' decided to set-up its steel manufacturing factory in the backward
area of Orissa where very less job opportunities were available. People of that
area welcomed this effort of 'Steelo Ltd: To attract people to work in its factory it
also decided to provide many other facilities like school, hospital, market etc., in
the factory premises. 'Steelo Ltd. started earning huge profits. Another competing
company asked its production manager 'Aslam' to investigate the reasons of
earning huge profits by 'Steelo Ltd.
Aslam found that in both the companies there was systematic co-ordination
among the various activities to achieve organisational goals. Every employee
knew who was responsible and accountable to whom. The only difference was
that in his organisation communication took place only through the scalar chain
whereas 'Steelo Ltd. was allowing flow of communication in all the direction as
per the requirement which led to faster spread of information as well as quick
feedback.
(a) Identify the type of organisation which permits 'Steelo Ltd.' the flow of
communication in all the directions.
(b) State another advantage of the type of organisation identified in (a) above.
(c) State any two values which 'Steelo Ltd. wants to communicate to the society.
(Delhi 2016, Al 2016)
LA (5 marks)
36. Voltage fluctuations have been common and quite high in India. They harm
our electrical appliances like televisions, refrigerators and air conditioners, often
leaving them in a permanently damaged condition. N-Guard Company decided to
manufacture stabilisers for North India where the voltage fluctuation ranges from
220 V to 230 V. Once the demand for North India was taken care of, they decided
to launch stabilisers of varying voltages from 90 V-260 V for meeting the
requirements of voltage fluctuations in other regions of India also. Three
engineers were appointed for South, West and East regions of India, as the
voltage was different in all the three regions. Though all the engineers were
appointed to manufacture stabilisers but the product differed from region to
region.
(a) Identify the organisational structure of N-Guard Company.
(b) State any two advantages and two limitations of the structure identified in the
above para.
(Delhi 2019)
37. Give the meaning of 'divisional structure' of organising. State it’s any four
advantages.
(NCERT, AI 2015)
38. A company has been registered under the Companies Act with an authorized
share capital of 20,000 crores. Its registered office is situated in Delhi and
manufacturing unit in a backward district of Rajasthan. Its marketing department
is situated in Bhopal. The company is manufacturing Fast Moving Consumer
Goods (FMCG).
(i) Suggest with the help of a diagram a suitable organisation structure for the
company.
(ii) State any three advantages of this organisation structure.
(Delhi 2015 C)
39. A company has been registered under the Companies Act with an authorised
share capital of 400 crore. Its registered office is situated in Mumbai and
manufacturing unit in a backward district of Karnataka. Its marketing
department is situated in Hyderabad. The Company is manufacturing consumer
goods.
(i) With the help of a diagram suggest a suitable organisation structure for the
company.
(ii) State any three limitations of this organisation structure.
(Al 2015 C)
ET (6 marks)
40. 'Sweets and More' is one of the India's most popular brands for snacks and
sweets. It offers a wide range of sweets, namkeens, cookies and frozen foods. Its
organisational structure comprises of separate business units in each of the
above categories. Each of these units have a manager responsible for
performance, having authority over the unit. Moreover, each of these units is
multi-functional as within each unit, different functions like production,
marketing, finance, etc. are performed. Though this kind of organisational
structure leads to increased cost because of duplication of activities across
products, but it provides a proper basis for performance measurement as
revenues and costs related to each of these business units can be easily identified.
(a) Identify the organisational structure of 'Sweets and More'.
(b) State three advantages and two disadvantages of the organisational structure
identified in (a) above which are not discussed in the above case.
(2023)
41. InfoMed Ltd. is a growing IT firm with rapidly increasing market share. It has
recently been awarded 'The Best Organisation to Work in India - 2019' and is the
most sought after by job-seekers. In this company, rules and procedures to be
followed by employees have been clearly laid down by the top management.
There is no ambiguity in the role that each member has to play, as the duties are
specified. During lunch time, all employees of the organisation get together in the
canteen. This time is much awaited by every employee as it allows them to share
their feelings with others. This leads to the success of the organisation.
(a) Identify and explain the types of organisation being discussed in the above
case.
(b) State two advantages of each type of the organisation identified in (a) above
which have not been discussed in the above para.
(2020 C)
42. Differentiate between formal and informal organisation on the basis of the
following:
(i) Meaning
(ii) Origin
(iii) Authority
(iv) Behaviour
(v) Flow of communication
(vi) Nature.
(AI 2014)
5.4 Delegation: Concept, Elements and Importance
MCQ
43. _____________ refers to the downward transfer of authority from a superior to a
subordinate.
(a) Organising (b) Decentralisation
(c) Accountability (d) Delegation
(2023)
44. The obligation of a subordinate to properly perform the assigned duty is
called:
(a) Authority (b) Responsibility
(c) Accountability (d) Decentralisation.
(2023)
45. Grouping activities of similar nature together to facilitate specialisation is
called
(a) Delegation (b) Departmentalisation
(c) Decentralisation (d) Division of work
(Term-1, 2021-22)
46. Which of the following concepts of organising provides more control by
superiors leading to less freedom to subordinates to take their own decisions. It
is a compulsory act.
(a) Departmentalisation (b) Decentralisation
(c) Delegation (d) Accountability
(Term-1, 2021-22)
47. ____________ is the right to command and ____________ is the obligation of a
subordinate to properly perform the assigned duty.
(a) Authority, responsibility (b) Accountability, authority
(c) Authority, accountability (d) Responsibility, accountability
(Term-1, 2021-22)
48. The element of delegation which relates to the obligation of a subordinate to
properly perform the assigned duty is known as:
(a) Authority (b) Responsibility
(c) Accountability (d) Centralisation
(Term-1, 2021-22)
49. The purpose of 'Departmentalisation' in the process of 'organising' is:
(a) to adapt changes in the business environment.
(b) to facilitate specialisation.
(c) to facilitate expansion and growth of the organisation without pages
interrupting the existing operations.
(d) to help in increasing managerial efficiency.
(Term-1, 2021-22)
Read the following test and answer the no. 50 to 55 on the basis of the same: JS
Printing Solution Ltd. is a company manufacturing printers and scanners. The
management of this company is known for speedy and prompt delivery of orders.
As a result, the market share of this company is growing. The company grabbed a
new project to supply 1,500 printers to Uprise Bank Ltd. for its various branches,
within two weeks. The Production Manager, Ashok, made one of his efficient
subordinates, Deepak the incharge of the project and also gave him the right to
command workers in order to meet the target. Now Ashok could use his time on
high priority areas. He felt that this will also give an opportunity to Deepak to
gain experience and develop himself for higher positions. On getting the charge,
Deepak was very happy, his confidence level increased and he was encouraged to
do his best to fulfill the responsibility. Considering his responsibility, Ashok kept
a track of the completion of work with Deepak and he is providing him the
needed guidance to reach the target on time.
(Term-1, 2021-22)
50. Identify the concept of management used by Ashok to ensure
accomplishment of the new project.
(a) Functional structure (b) Divisional structure
(c) Delegation (d) Decentralisation
51. The application of the concept used above allows Ashok to use his time on
high priority areas.
This will lead to the organisation towards:
(a) Adaptation to change
(b) Effective Management
(c) Economics of Scale
(d) Reduction in conflicts among different divisions
52. 'On getting the charge, Deepak was very happy his confidence level increased
and he was encouraged to do his best to fulfill the responsibility given to him'.
The concept discussed above helps in:
(a) Departmentalisation.
(b) Reduction in conflicts among different divisions.
(c) Motivating the employees.
(d) Promoting control and co-ordination within a department.
53. The concept discussed above provides benefits to:
(a) Superior only
(b) Subordinate only
(c) Both superior and subordinate
(d) Neither superior nor subordinate
54. The concept discussed above helps in facilitation of growth of an organisation
as:
(a) the subordinate gets freedom from routine work.
(b) duplication of effort is avoided.
(c) the subordinate gains experience and he is in a position to take up leading
positions in new ventures.
(d) It makes training of employees easier.
55. Which of the following statement is not true about the concept discussed
above?
(a) It is a process followed to share tasks.
(b) It is necessary in all organisations.
(c) It helps to lessen the burden of a manager.
(d) It is a philosophy that implies selective disposal of authority.
56. 'Delegation' is the process of sharing the 'authority' and 'responsibility':
(a) At two levels
(b) At three levels
(c) At multiple levels
(d) Authority and responsibility cannot be shared.
(2021 C)
VSA (1 mark)
57. For delegation to be effective, it is necessary that authority granted must be
commensurate with assigned ______________.
(2020 C)
58. What is meant by 'Delegation'?
(AI 2019)
59. Give the meaning of authority as an element of delegation.
(Delhi 2016, 2014)
60. Give the meaning of 'responsibility' as an element of delegation.
(Delhi 2016, Al 2014)
61. Give the meaning of accountability as an element of delegation.
(Delhi 2016, Al 2016)
SA I (3 marks)
62. Explain the following points as importance of delegation of authority:
(a) Motivation of employees
(b) Employee development
(c) Basis of management hierarchy
(2020 C)
SA II (4 marks)
63. It helps a manager to extend his area of operations as without it, his activities
would be restricted to only what he himself can do.
Identify the activity referred to, in the above statement and state its elements.
(AI 2015 C)
LA (5 marks)
64. State any five points which highlight the importance of delegation of
authority. (Delhi 2015)
ET (6 marks)
65. Kartik opens a bakery shop in the local market. With the increasing demand
of his bakery products, he feels it will be impossible for him to handle all the
work himself. So, he appoints Bhavana to perform tasks on his behalf, thereby
reducing his workload. It enables Kartik to use his time on high priority activities.
(a) Identify and explain the concept of 'organising' discussed in the above case.
(b) Explain the two essential elements of the concept identified in (a) above.
(2021 C)
66. Aman Chadha started 'Bulls Eye' a company for providing cyber security
solutions to businesses. Its objective is to prevent, detect and respond to cyber-
attacks and protect critical data. He was a hardworking software engineer and an
expert in cyber security. His reputation grew by leaps and bounds as he was not
only a person of integrity but also did his work with utmost honesty and
sincerity. The business started growing day by day.
He was delighted when he was offered a big project by the Ministry of Defence.
While working on the project, he found that the volume of work made it
impractical for him to handle all the work by himself. He decided to expand the
team. The company maintained a close liaison with a local engineering college.
During a campus placement, Ishan and Vrinda were appointed to work for the
new project.
He found the new employees capable, enthusiastic and trustworthy. Aman
Chadha was thus, able to focus on objectives and with the help of Ishan and
Vrinda, the project was completed on time. Not only this Aman Chadha was also
able to extend his area of operations. On the other hand, Ishan and Vrinda also
got opportunities to develop and exercise initiative.
(i) Identify and briefly explain the concept used by Aman Chadha in the above
case which helped him in focusing on objectives.
(ii) Also, state any four points of importance of the concept identified in (i)
above. (Delhi 2017)
5.5 Decentralisation: Concept and Importance
MCQ
67. Vijay was founder of a leading chain of Automobile shops dealing in high end
cars. He believed in retaining all decision-making authority with him. He wanted
tight control over the entire business. Getting overburdened with work, he
decided to focus only on crucial decision. He asked the vice president of his
company to help him with routine matters. This case study reflects a shift from
one concept of organisation to another which is:
(a) Delegation to decentralisation
(b) Centralisation to decentralisation
(c) Decentralisation to delegation
(d) Centralisation to delegation
(Term-1, 2021-22)
68. An organisation can never be completely centralised or decentralised. As it
grows in size and complexity there is a tendency to move towards ____________
making decision.
(a) centralised
(b) concentric
(c) decentralised
(d) innovative
(Term-1, 2021-22)
69. Name the concept which explains the manner in which decision-making
responsibilities are divided among hierarchical levels:
(a) Organisational structure
(b) Span of management
(c) Delegation
(d) Decentralisation
(Term-1, 2021-22)
70. In'Delight Ice Creams Ltd: decision making authority is concentrated at the
top level and no authority has been delegated among the subordinates.
On the other hand, in 'Tasty Ice Creams Ltd'. a big organisation as compared to
'Delight Ice Creams Ltd'. decision making authority is always delegated among
more than one person.
Identify the principle of management discussed above.
(a) stability of Personnel
(b) Centralisation and Decentralisation
(c) Authority and Responsibility
(d) Scalar Chain
(Term-1, 2021-22)
VSA (1 mark)
71. Define 'Decentralisation.
OR
Give the meaning of 'Decentralisation.
(Foreign 2016, 2015)
SA II (4 marks)
72. What is meant by 'Decentralisation? State any three points that highlight the
importance of decentralisation in an organisation.
(Delhi 2019)
73. One of the questions that needs to be answered in the organising function is
'At what level are decisions made? Decision making authority in an organisation
can be pushed down to the lower levels or it may lie with the top management.
However, it is not an 'either or' concept.
When an organisation grows in size or complexity, there is a tendency towards
sharing decision making authority with the lower levels. This is because in large
organisations, employees who are closely involved with certain operations tend
to have more knowledge about them than the top management.
An important concept of organising function is discussed above. Identify the
concept and state any three points of its importance.
(AI 2019)
 CBSE Sample Questions
5.1 Concept and Importance
MCQ
1. _____________ is the process by which the manager brings order out of chaos,
removes conflict among people over work or responsibility sharing and creates
an environment suitable for teamwork.
(a) Planning (b) Organising
(c) Staffing (d) Controlling
(2020-21)
5.2 Organising Process
MCQ
2. Rishabh joined an entertainment company Avtaar, as a creative head. As a
manager looking after the creative unit of the company, one of the functions he
has to perform is the process of organising. Which step of the process will he
need to perform after identifying and dividing the work that has to be done in
accordance with previously determined plans?
(a) Identification and division of work
(b) Departmentalisation
(c) Assignment of Duties
(d) Establishing Reporting Relationships
(2022-23)
3. Arrange the following steps in the process of organising in the correct
sequence:
(a) Assignment of duties
(b) Departmentalisation
(c) Identification and division of work
(d) Establishing reporting relationship
Choose the correct option:
(a) (a) → (b) → (d) → (c) (b) (c) → (b) → (a) → (d)
(c) (c) → (b) → (d) → (a) (d) (b) → (c) → (a) → (d)
(Term-1, 2021-22)
4. ______________ is the process of dividing work into manageable activities and then
grouping the activities which are similar in nature.
(a) Coordination
(b) Departmentalisation
(c) Organisation Structure
(d) Delegation of authority
(2020-21)
5.3 Structure of Organisation-Functional and Divisional-Concept.
Formal and Informal Organisation-Concept
MCQ
5. Aarohan Ltd. is a company manufacturing automobile where division of work
into key areas includes production, purchase, marketing, accounts and personnel.
Which of the following is a disadvantage of the organisation structure of Aarohan
Ltd.?
(a) It may lead to increase in cost.
(b) Managers may gain power and assert independence and ignore organisation
interests.
(c) It ensures that different functions get due attention.
(d) Heads do not get training for top management positions.
(2022-23)
6. Name the outcome of the function of management which includes designing of
roles to be filled by suitably skilled people and defining the inter relationship
between roles so that ambiguity in performance of duties can be eliminated.
(a) Organisation structure (b) Delegation of authority
(c) Decentralisation (d) Controlling
(2022-23)
7. Which type of organisational structure will you suggest for a firm which has
diversified activities and operations requiring a high degree of specialisation?
(a) Centralised structure
(b) Decentralised Structure
(c) Divisional structure
(d) Functional structure
(Term-1, 2021-22)
8. Name the concept that refers to the number of subordinates that can be
effectively managed by a superior and determines the number of levels of
management in the organisation.
(a) Organisation structure
(b) Span of management
(c) Hierarchy of authority
(d) Delegation of Authority (Term-
1, 2021-22)
9. ____________ ensures that the heads of separate business units in the
organisation are responsible for profit or loss of their unit and have authority
over it.
(a) Span of management
(b) Divisional Structure
(c) Functional structure
(d) Hierarchy of Authority.
(2020-21)
5.4 Delegation: Concept, Elements and Importance
MCQ
10. ____________ ensures that the subordinate performs tasks on behalf of the
manager thereby reducing his workload and providing him with more time to
concentrate on important matters.
(a) Decentralisation (b) Delegation of authority
(c) Authority (d) Accountability
(Term-1, 2021-22)
11. For the following two statements choose the correct option:
Statement I: Accountability can be delegated.
Statement II: Responsibility can be delegated completely.
Choose the correct option from the options given below:
(a) Statement I is correct and II is wrong.
(b) Statement II is correct and I is wrong.
(c) Both the statements are correct.
(d) Both the statements are incorrect.
(Term-1, 2021-22)
5.5 Decentralisation : Concept and Importance
MCQ
Read the following text and answer the question number 12-17 on the basis of
the same.
'Sarathi', the name has been associated with the manufacturing and sale of
Fashion products since 1960, when Kapil Saarthi opened his first retail fashion
clothing outlet in Ahmedabad. Sarthi Cosmetics was incorporated in India in
1940 and became a member of S&M family of companies in 1959. Sarthi
Perfumes began operations in Gujarat in an existing administrative S&M facility
in 1985. An important difference between S&M and most other companies is that
instead of operating as one large corporation it operates as 180 smaller
companies each focused on a specific product and area, implying selective
dispersal of authority, recognising the decision makers need four autonomy, as
decision making authority is pushed down the chain of command. it enables the
company to maintain short lines of communication with customers and
employees, and accelerate the development of talent.
(Term-1, 2021-22)
12. Identify the philosophy that is being followed by S&M through which it is
dividing the decision making responsibilities among hierarchical levels.
(a) Delegation of authority
(b) Decentralisation of authority
(c) Division of work
(d) Span of management.
13. 'Why is there, need to apply the philosophy being followed by S&M, with
caution?
(a) As it can cause a delay in communication
(b) As it can cause disintegration of the organisation
(c) As it can increase the workload of the top management
(d) As it can reduce the chances of growth of the firm.
14. The application of the philosophy discussed above can foster a sense of
competition amongst the departments, which in turn will help the firm in the
following manner:
(a) Facilitates growth (b) Better control
(c) Relief to top management (d) Quick decision making.
15. Quote the line from above which highlights the importance of the philosophy
towards providing management education to employees.
(a) 'Maintain short lines of communication'
(b) 'Accelerate the development of talent'
(c) 'Selective dispersal of authority;
(d) 'Recognises autonomy' decision makers need for autonomy’
16. As "The decision-making authority is pushed down the chain of command" at
S&M enterprises, it provides the benefit of quick decision making to the
organisation because:
(a) There is no requirement for approval from many levels
(b) Organisation is able to generate more returns
(c) There are innovative performance systems
(d) It's a means of management education
17. The philosophy being followed by S&M is not followed by most other
companies.
This tells us that the philosophy is:
(a) Optional
(b) Compulsory
(c) Limited to superior and his subordinate
(d) Merely done to lessen the burden of the manager
LA (5 marks)
18. An important difference between S&M Ltd and most other companies is that
instead of operating as one large corporation it operates as 180 smaller
companies each focused on a specific product and area, implying selective
dispersal of authority, recognising the decision makers need for autonomy, as
decision making authority is pushed down the chain of command. It enables the
company to maintain short lines of communication with customers and
employees and accelerate the development of talent. Identify the philosophy that
is being followed by S&M Ltd. through which it is dividing the decision-making
responsibilities among the hierarchical levels. State any five points of importance
of the philosophy identified. (2020-
21)
ET (6 marks)
19. Jojo and Jojo is a company known for its consumer business of baby oil and
bandages, but many people do not know that the company also runs a medical
device and diagnostics business, as well as a pharmaceutical company. With more
than 1,80,000 employees worldwide the company has chosen to share decision
making authority with lower levels and place it nearest to the point of action.
Therefore, the response does not take time. This propagates the belief that people
are competent, capable and resourceful who can get a chance to prove their
abilities. And enables the company in identifying those executives who have the
necessary potential to become dynamic leaders, so that the checking required on
decisions taken by lower levels of management is the least. This makes it possible
to evaluate performance at each level and each department can be individually
held accountable for their results. By quoting the lines given above identify and
briefly explain the benefits of the concept discussed above.
(2022-23)
 ANSWERS
Previous Years' CBSE Board Questions
1. (d): Organising
2. (c): Organising is mentioned in the case study as various tasks are divided in
committees.
3. (c): Organising
4. Organising refers to the procedure of aligning various activities in an
organisation in a certain specific order. It involves designing the roles of the
personnel such that the efforts by the employees along with the resources are
coordinated towards the accomplishment of the organisational goals.
5. On the basis of origin-Formal organisation arises as a result of company’s rules
and policies and informal organisation arises out of social interactions.
6. Organising
7. Organising
8. The following points highlight the importance of organising:
(i) Clear definition of working relationships: Under organising, the hierarchical
structure in the organisation is clearly established, thereby avoiding any
ambiguity in the transfer of instructions.
(ii) Less duplication of work: As various activities are properly assigned to
different personnel; duplication of work is minimised.
(iii) Better coordination: Under organising, activities of a similar nature are
grouped together in different departments. This ensures better coordination and
harmony.
(iv) Increased growth and expansion: Through proper organising, an enterprise
can expand it’s business operations and deviate from the traditional norms in a
smooth and better manner.
9. (c): Span of management is not a step in the process of ‘organising’.
10. (c): Assignment of Duties is highlighted in the given statement.
11. (d): Establishing reporting relationships
12. Organising is a process of defining and grouping activities and establishing
authority-responsibility relationship among workers.
13. The following steps are involved in the process of organising:
(i) Identifying and dividing the work: As a first step, various activities in the
organisation are identified and divided as per the pre-defined plans and
objectives.
(ii) Creating departments: Next, the activities of a similar nature are grouped
together in different departments. This is done to promote specialisation.
(iii) Assigning duties: Once, the departments are created, the next step is to
assign the roles and responsibilities to the personnel as per their skills and
abilities.
(iv) Establishing relationships: In this step, a clear hierarchical structure is
established such that every individual clearly knows the various superior-
subordinate relationships in the organisation.
14. (b): Functional organisational structure
15. (d): The organisation structure can be defined as the framework within which
managerial and operating tasks are performed.
16. (a): The type of organisational structure in which jobs of similar nature are
grouped together on the basis of functions to form departments is called
Functional structure.
17. (b): Divisional structure is suitable for a business having a large variety of
products.
18. (b): Divisional structure is suitable for the organisations having varied
product lines.
19. (b): The organisational structure that is suitable for Agile Ltd. is Divisional
Structure.
20. (d): Establishes standards for controlling
21. Informal Organisation helped the Finance Manager Mohit Verma, the Sales
Manager and his team in finalising the suggestion.
22. Functional structure, promotes efficiency in utilisation of manpower.
Functional structure refers to grouping of similar jobs under one department.
Each major function is organised as a separate department which leads to
specialisation and promotes efficiency.
23. Divisional structure is the structure that promotes flexibility and initiative. In
divisional Structure, the organisation structure comprises of separate business
units or divisions. Each division has a divisional manager responsible for
performance and who has complete authority over the division/unit.
24. A functional structure is an organisational structure that groups similar or
related jobs or functions together.
Advantages of functional structure:
(a) It leads to occupational specialisation since emphasis is placed on specific
functions.
(b) It promotes control and coordination within a department because of
similarity in the tasks being performed.
25. Formal organisation refers to organisation structure which is designed by the
management to accomplish a particular task. It clearly specifies the boundaries of
authority and responsibility.
26. It is easier to fix responsibility as mutual relationship are clearly defined.
27. Functional structure of organising is most suitable when the size of the
organisation is large, has diversified activities and operations require a high
degree of specialisation.
28. Limitations of divisional structure of an organisation:
(i) Conflicts: Conflicts may arise among different divisions with respect to
allocation of funds. A particular division may seek to maximise profits at the cost
of other division.
(ii) Higher cost: It may increase the cost since there may be a duplication of
activities across divisions.
(iii) Misuse of authority: Divisional heads may misuse the authority ignoring
organisational interests.
29. Advantages of Informal Organisation:
(a) As prescribed lines of communication are not followed, it leads to much faster
spread of information as well as faster feedback.
(b) It fulfills social needs of the members and allows them to find like minded
people. This enhances their job satisfaction.
(c) It contributes towards fulfillment of organisational objectives by
compensating for inadequacies in the formal organisation. For example, reaction
of employees towards policies can be tested through the informal network
quickly.
30. Following are the three limitations of informal organisation:
(a) Rumours: Informal organisation may create rumours which go against the
interest of the formal organisation.
(b) Resistance to change: Informal groups may oppose changes proposed by
formal organisation. Such resistance to change may delay or restrict growth.
(c) Conformity: Informal organisation often puts pressure on its members to
conform to group expectations. Norms set by informal groups may be against the
organisational interests.
31. Formal organisation is the organisation structure which is designed by the
management to accomplish a particular task.
Advantages of formal organisation:
(a) Clarity: There is no ambiguity in the roles and duties of each member. This
avoids duplication of effort.
(b) Responsibility: It is easy to fix responsibility because mutual relationships are
clearly defined.
(c) Unity of command: There is a chain of command in which each member is
accountable to one superior only.
32. An informal structure is a network of social relationships that arises out of
personal interactions among the employees of an organisation beyond their
officially defined roles. In this regard, it can be said' that an informal structure
originates from within a formal organisation.
The following are the advantages of an informal organisation:
(i) Faster flow of communication: As no definite path or channel of
communication is followed in an informal organisation, information spreads
faster.
(ii) Fulfillment of social needs: An informal organisation allows for personal
communication beyond the officially defined roles. This enables the employees to
interact with like-minded colleagues. This unofficial interaction provides a sense
of belonging ness among the employees towards one another and towards the
organisation.
(iii) Fulfillment of organisational objectives: An informal organisation supports
the working of a formal organisation and thereby helps in the fulfillment of the
organisational objectives in a better manner. For instance, the managers can
interact with the workers informally and assess their views on various matters.
33. A formal organisation structure is a well defined structure of authority and
hierarchy that clearly specifies the boundaries of authority and responsibility in
an organisation. The rules and policies to be followed are clearly stated.
The following points highlights the advantage of the formal organisation:
(a) Reduced confusion: A formal organisation clearly defines the working
relationships and the hierarchy. That is, it clearly specifies who should report to
whom. In this way, it facilitates unity of command, thereby reducing confusion in
the working operations.
(b) High stability: By defining the procedures and rules clearly, a formal
organisation makes the behaviour of the employees more predictable, bringing
stability to the organisation.
(c) Reduced duplication of work: Since the responsibilities are clearly defined,
there is no room for ambiguity in the roles of various employees. This helps in
avoiding duplication of work and efforts.
34. Organisational structure adopted by Yumco Ltd. is Functional Structure.
Advantages of functional structure are:
(a) Specilisation: It leads to occupational specialisation since emphasis is placed
on specific functions, which promotes efficiency in utilisation of manpower.
(b) Improves Control: It promotes control & coordination within a department
because of similarity in the tasks being performed.
(c) It avoids duplication of efforts leading to better economics of scale.
35. (a) The type of organisation which permits, the flow of communication in all
the directions is “Informal Organisation”. Informal organisation refers to the
network of social relations among persons working in an organisation. It emerges
from within the formal organisation.
(b) Advantage of Informal Organisation: Help to fulfill social needs of the
employees and enhance job satisfaction. It helps to create a sense of belonging
ness.
(c) Values which are communicated to the society are:
(i) Removing geographical barriers by setting-up factory in backward areas.
(ii) Generation of Employment.
(iii) Fulfilling social responsibility.
Providing education. Thus, promoting ‘Right to education’.
36. (a) The divisional structure is followed by N-Guard Company. N-Guard
Company decided to appoint different engineers for all the regions.
(b) The advantages of a divisional structure are:
(i) Managerial efficiency: A divisional structure provides numerous opportunities
for the development of skills and knowledge of the managers. The head of each
division gains experience as he or she deals with a variety of functions
simultaneously. This enables the division head to grow professionally and
improve proficiency.
(ii) Measurement of performance: In a divisional structure, the performance of
each of the divisions is judged on the basis of its profit and loss during a
particular period. This type of assessment of performance is easier and helps in
taking appropriate and timely corrective action in case of poor performance. The
limitations of a divisional structure are:
(i) Departmental conflicts - Sometimes conflicts may arise among different
divisions with regard to various decisions and actions of the organisation such as
those relating to allocation of funds and resources.
(ii) Increase in cost - As there exists a similar functional structure under each
division, the same set of functions are performed under each department. Thus,
there is high probability of overlapping of activities, which results in a rise in cost
for the organisation.
37. Divisional structure is an organisation structure comprising of separate
business units or divisions created on the basis of different products,
geographical area, customer groups etc.
Advantages of divisional structure:
(i) Executive development: Divisional heads gain experience in all functions
relating to a particular product. Development of varied skills prepare them for
top management positions.
(ii) Accountability: It is possible to measure performance and fix responsibility
because resources and costs can be easily accounted for as they are assigned to
divisions.
(iii) Easy expansion: For every product a separate division is opened. For
example, if a company wants to introduce a new product, it can be introduced
easily without disturbing the existing divisions. Hence, corporate expansions can
be easily implemented.
(iv) Quick decision making: Every division is independent in itself. The divisional
manager can take decisions regarding his division independently without
consulting other divisional managers.
38. (i) Functional Organisation structure will be most suitable for the company.
That is, it should be managed in the form of departments. Here, related and
similar functions are grouped in one department under one executive. These
departments may be further divided into sections.
(ii) Advantages of Functional Structure
(a) Specialisation: It promotes occupational specialisation since each department
has to perform a specific function. As employees perform similar tasks within a
department, it improves their efficiency and they are able to gain specialisation.
(b) Efficiency: Assigning similar tasks to specific individuals develops operational
and management efficiency.
(c) Effective control and coordination: The similarity in task being performed
within a department ensures better control and coordination.
39. (i) Functional Organisation structure will be most suitable for the company.
Here, related and similar functions are grouped in one department under one
executive. These departments may be further divided into sections.

(ii) Limitation of Functional Structure:

(a) Departmental interest may supersede organisational interest: Departments
may pursue their interests at the cost of organisational interests.
(b) Problem in coordination: There may be lack of cooperation and coordination
between different functional departments.
(c) Conflict of interest: A conflict may arise when the interests of two or more
departments are not compatible.
Conflicts may also arise in the absence of clear separation of responsibility.
40. The divisional structure offers many benefits. Prominent among these are as
follows:
(a) Product specialisation helps in the development of varied skills in a divisional
head and this prepares him for higher positions. This is because he gains
experience in all functions related to a particular product.
(b) Divisional heads are accountable for profits, as revenues and costs related to
different departments can be easily identified and assigned to them. This
provides a proper basis for performance measurement. It also helps in fixation of
responsibility in cases of poor performance of the division and appropriate
remedial action can be taken.
(c) It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision making. Disadvantages: The
divisional structure has certain disadvantages. Some of them are as follows:
(a) Conflict may arise among different divisions with reference to allocation of
funds and further a particular division may seek to maximise its profits at the
cost of other divisions.
(b) It may lead to increase in costs since there may be a duplication of activities
across products. Providing each division with separate set of similar functions
increases expenditure.
41. (a) Types of organisations:
(i) Formal Organisation
(ii) Informal Organisation
(b) Advantages of Formal Organistion are:
(i) It is easier to fix responsibility since mutual relationships are clearly defined.
(ii) Unity of command is maintained through an established chain of command.
(iii) It leads to effective accomplishment of goals by providing a framework for
the operations to be performed and ensuring that each employee knows the role
he has to play.
(iv) It provides stability to the organization as behaviour of employees can be
fairly predicted since there are specific rules to guide them.
Advantages of Informal Organisation:
(i) Prescribed lines of communication are not followed leading to faster spread of
information as well as quick feedback.
(ii) It helps to fulfill the social needs of the members and enhances their job
satisfaction.
(iii) It contributes towards fulfillment of organisational objectives by
compensating for inadequacies in the formal organisation.
42.
43. (d): Delegation
44. (b): Responsibility
45. (b): Grouping activities of similar nature together to facilitate specialisation is
called Departmentalisation.
46. (c): Delegation is compulsory.
47. (a): Authority is the right to command and Responsibility is the obligation of
the subordinate to properly perform the assigned duty.
48. (b): Responsibility is the obligation of a subordinate to properly perform the
assigned duty.
49. (b): Under the process of ‘Departmentalisation’, the activities of similar
nature are grouped together in different departments.
50. (c): The Concept of Management used by Ashok to ensure accomplishment of
the new project is Delegation.
51. (b): Ashok will be able to concentrate on high priority areas, it wiII lead to
effective management.
52. (c): Delegation provides the employees with psychological benefits, which
motivate and encourage them to give their best to the organisation.
53. (c): Both superior and Subordinate.
54. (c): the subordinate gains experience and he is in a position to take up leading
positions in new ventures.
55. (d): Decentralisation is the philosophy that implies selective disposal of
authority.
56. (a): At two levels
57. Responsibility
58. Delegation refers to the transfer of authority and responsibility by the
superior to his or her subordinates.
59. Authority refers to the right of an individual to command his subordinates
and to take action within the scope of his position. Authority arises from
established scalar chain which links the various positions and levels of an
organisation. Authority also refers to the right to take decision inherent in a
managerial position to tell people what to do and expect them to do it.
60. Responsibility is an obligation of the subordinate to properly perform the
assigned duty. It arises from a superior-subordinate relationship.
61. Accountability means that the superior is answerable for the completion of
the job/duty assigned to him, though it may have been delegated to a
subordinate.
62. (a) Motivation of employees: Delegation is not merely sharing of work but
involves trust on the part of the superior and commitment on the part of the
subordinate. This builds the self-esteem of the employees thereby improving
their confidence. It helps to motivate employees as the employees feel
encouraged and try to improve their performance further.
(b) Employee development: Delegation helps in development of employees as the
employees get more opportunities to utilise their talent. It empowers the
employees by providing them a chance to use their skills, gain experience and
develop themselves for higher positions.
(c) Basis of management hierarchy: Delegation helps in establishing a
management hierarchy through clear superior-subordinate relationships. It is
this degree and flow of authority which determines who has to report to whom
which in turn decides the power that each job position enjoys in the organisation.
63. Here, delegation is referred. The process of delegation has three important
elements:
(a) Authority: It is the right of an individual to command his subordinates and to
take action within the scope of his position. The concept of authority arises from
the established scalar chain which links the various positions and levels of an
organisation.
(b) Responsibility: It is the obligation of a subordinate to properly perform the
assigned duty. It arises from a superior-subordinate relationship because a
subordinate is bound to perform the duty assigned to him by his superior.
(c) Accountability: Accountability means being answerable for the final outcome.
Delegation of authority empowers an employee to act for his superior but the
superior would still be accountable for the outcome.
64. Delegation refers to the downward transfer of authority from a superior to a
subordinate. It takes place when a manager passes on to his subordinate some of
his tasks or functions, together with the necessary authority to perform the tasks.
Importance of delegation of authority:
(a) Effective management: By delegation of authority, managers get freedom
from doing routine work. They get more time for strategic planning and policy
making.
(b) Employee development: As a result of delegation of authority, employees get
more opportunities to utilise their talents and skills. It prepares them to be future
managers.
(c) Motivation of employees: Subordinates feel motivated when they are
delegated higher level responsibilities. It enhances their job satisfactions and
confidence level.
(d) It facilitates growth of organisation by providing a ready work force to take
up leading positions in new ventures.
(e) It establishes a management hierarchy through clear superior-subordinate
relationships.
(f) It helps in better coordination by avoiding duplication of work and avoids
overlapping of duties.
65. (a) The concept of organising discussed in the above case is Delegation.
Delegation is the transfer of authority from superior to subordinate, entrustment
of responsibility and creation of accountability for performance.
(b) Essential elements of delegation:
(i) Authority: Authority refers to the right of an individual to command his
subordinates and to act within the scope of his position. It flows from top to
bottom.
(ii) Responsibility: Responsibility as an element of delegation means obligation of
a subordinate to perform the assigned duty properly. It flows upwards.
(iii) Accountability: Accountability as an element of delegation means the
answerability for the outcome of the assigned task. It flows upwards.
66. (i) The concept used by Aman is ‘Delegation’. Delegation refers to the
downward transfer of authority from a superior to a subordinate, thus reducing
his/her work load. It is essential for the efficient functioning of an organisation
because it enables a manager to use his time on high priority activities. The
subordinates perform the task on behalf of the superior. It also satisfies the
subordinate’s need for recognition.
However, delegation does not mean abdication as the superior manager would
still be accountable for the performance of the assigned task. Further, the
authority granted to a subordinate can be taken back and redelegated to another
subordinate.
(ii) Delegation is an integral part of successful running of an organisation.
Effective delegation leads to the following benefits to the organisation -
(a) Effective management: By empowering the employees, the managers are able
to function more efficiently as they get more time to concentrate on important
matters. Freedom from doing routine work provides them with opportunities to
excel in important and new areas.
(b) Employee development: As a result of delegation, employees get more
opportunities to utilise their talent. It allows them to develop those skills which
will enable them to perform complex tasks and assume those responsibilities
which will improve their career prospects.
67. (d): Its movement is from centralisation to delegation.
68. (c): An organisation can never be completely centralised or decentralised. As
it grows in size and complexity there is a tendency to move towards decentralised
decision-making.
69. (d): The concept of ‘Decentralisation’ explains the manner in which decision-
making responsibilities are divided among hierarchical levels.
70. (b): The principle discussed in the above case study is Centralisation and
Decentralisation.
71. Decentralisation refers to systematic effort to delegate to the lower level all
authority except that which can be exercised from central point.
72. Decentralisation refers to the dispersal of the decision-making power among
the middle-level and lower-level managers. The extent of decentralisation varies
from one organisation to another. The following points highlight the importance
of decentralisation:
(a) Initiative: Decentralisation gives some freedom to the lower-level managers
and imparts them a higher degree of autonomy to take initiatives. In the process,
the lower-level managers learn to face new challenges and find solutions for
problems themselves.
(b) Managerial competence: Delegation of authority to lower-level managers
provide them the opportunity to gain experience and thereby develop the skills
and knowledge to face new challenges. This improves their competence and level
of maturity, which in turn helps them to get ready for higher positions.
(c) Control: Decentralisation assists in analysing and evaluating the
performances of each department separately. The extent of achievement of each
department and its contribution to the overall objectives of the organisation can
be easily evaluated in a decentralised system.
73. Decentralisation is discussed above in the question.
‘Decision making authority in an organisation can be pushed down to the lower
levels or it may lie with the top management’. It refers to the dispersal of the
decisionmaking power among the middle level and lower level managers. The
extent of decentralisation varies from one organisation to another.
The importance of decentralisation is discussed as follows:
(i) Initiative: Decentralisation gives some freedom to the lower-level managers
and imparts them a higher degree of autonomy to take initiatives. In the process,
the lower-level managers learn to face new challenges and find solutions for
problems themselves.
(ii) Managerial competence: Delegation of authority to lower-level managers
provides them with the opportunity to gain experience and there by develop the
skills and knowledge to face new challenges. This improves their competence and
level of maturity, which in turn helps them to get ready for higher positions.
(iii) Control: Decentralisation assists in analysing and evaluating the
performances of each department separately. The extent of achievement of each
department and its contribution to the overall objectives of the organisation can
be easily evaluated in a decentralised system.
 CBSE Sample Questions

1. (b): Organising
2. (b): Departmentalisation
3. (b): (c) → (b) → (a) → (d)
4. (b): Departmentalisation
5. (d): Heads do not get training for top management positions.
6. (a): Organisation Structure
7. (d): Functional structure
8. (b): Span of management
9. (b): Divisional Structure
10. (b): Delegation of authority
11. (d): Both the statements are incorrect.
12. (b): Decentralisation of authority
13. (b): As it can cause disintegration of the organisation
14. (a): Facilitates growth
15. (b): ‘Accelerate the development of talent’
16. (a): There is no requirement for approval from many levels
17. (a): Optional
18. The philosophy discussed here is: Decentralisation.
Importance of Decentralisation:
(i) Develops initiative among subordinates: Decentralisation helps to promote
self-reliance and confidence amongst the subordinates.
(ii) Develops managerial talent for the future: Formal training plays an important
part in equipping subordinates with skills that help them rise in the organisation
but equally important is the experience gained by handling assignments
independently.
(iii) Quick decision making: The management hierarchy can be looked upon as a
chain of communication. In a decentralised organisation, however, since decisions
are taken at levels which are nearest to the points of action and there is no
requirement for approval from many levels the process is much faster.
(iv) Relief to top management: Decentralisation diminishes the amount of direct
supervision exercised by a superior over the activities of a subordinate because
they are given the freedom to act and decide albeit within the limits set by the
superior.
(v) Facilitates growth: Decentralisation awards greater autonomy to the lower
levels of management as well as divisional or departmental heads. This allows
them to function in a manner best suited to their department and fosters a sense
of competition amongst the departments.
19. The concept discussed in the passage is decentralisation. Importance of
Decentralisation:
(i) “Response does not take time”. Quick decision making-In a decentralised
organisation since decisions are taken at levels which are nearest to the point of
action and there is no requirement for approvals from many levels, the process is
much faster.
(ii) “Who can get a chance to prove their abilities”. Develops managerial talent for
the future- Decentralisation gives managers a chance to prove their abilities and
creates a reservoir of qualified manpower that can be considered to fill up more
challenging positions through promotion.
(iii) “Identifying those executives who have the necessary potential to become
dynamic leaders”. Develops initiative among subordinates. Decentralisation helps
to promote self-reliance and confidence amongst the subordinates. It also keeps
them in a state wherein they are constantly challenged and have to develop
solutions for the various problems they encounter.
(iv) “This makes it possible to evaluate performance at each level and each
department can be individually held accountable for their results.”
Better control - Feedback from levels helps to analyse variances and improve
operations.
 Concept, Importance & Process of Organising

1 Mark Questions

1. Define ‘organising’ as a function of management. (All India 2014c)

Ans. Organising is the function of management, which coordinates the physical,

financial and human resources and establishes productive relations among them for
achievement of specific goals.

2. Enumerate any two basis of departmentation in an organisation. (Delhi 2009c)

Ans. Two basis of departmentation in an organisation are:

(i) Territories (north, south, east, west, etc).
(ii) Products (appliances, clothes, cosmetics, etc).

3 Marks Question

3. Explain by giving any three reasons why organising is considered as an

important function of management. (Delhi 2010)

Ans. The following points highlight the crucial role that organising plays in any business
enterprise:

(i) Clarity in working relationship The establishment of working relationships clarifies

the lines of communication and specifies, ‘who will report to whom’. This removes
ambiguity in transfer of information and instructions.

(ii) Effective administration Organising provides a clear description of jobs and related
duties. This helps to avoid confusion and duplication. Clarity in working relationships
enables proper execution of work. Management of an enterprise thereby becomes easy
and this brings effectiveness in administration.

(iii) Expansion and growth Organising helps in the growth and diversification of an
enterprise by enabling it to deviate from existing norms and taking up new challenges
and also by facilitating its efficient management.

4/5 Marks Questions

4. Organising involves a series of steps that need to be taken in order to achieve
the desired goals. Explain these steps.
(Delhi 2014; All India 2014,2011c)
or
State the steps in the organising process. (Delhi 2013)
or
Describe briefly the steps in the process of organising. (Delhi 2012)
or
‘Organising is the process of defining and grouping the activities of the
enterprise and establishing the authority relationship among them.’ In the light of
this statement, explain the steps in the process of organising.
(All India 2011)

Ans. Steps in the Process of Organising

Various steps involved in the organising process may be described as follows:

(i) Identification and division of work The organising function begins with the division
of total work into smaller units. Each unit of total work is called a Job. The division of
work into smaller jobs leads to specialisation because jobs are assigned to different
individuals according to their qualifications and capabilities. The division of work and
assignment of jobs leads to systematic working.

(ii) Grouping the jobs and departmentalisation After division of work, related and
similar jobs are grouped together and put under one department.
This can be done in the following two ways :

(a) Functional depart mentation Under this method, jobs related to common functions
are grouped under one department.
(b) Divisional departmentation Under this method, jobs related to one product are
grouped under one department.

(iii) Assignment of duties After dividing the organisation into specialised departments,
each individual working in different departments is assigned a duty, matching to his skill
and qualifications. We can say, the work is assigned to those who are best fitted to
perform it well.

(iv) Establishing reporting relationship Merely allocating the work is not enough.
Each individual should also know from whom he has to take orders and to whom he is
accountable. The establishment of such clear relationships helps to create a
hierarchical structure and helps in coordination amongst various departments.

[Link] any four points of importance of organising as a function of management.

(All India 2012)
or
‘Organisation is the harmonious adjustment of specialised parts for the
accomplishment of some common purpose or purposes.’ In the light of this
statement, explain any four points of importance of organising. (All India 2011;
Delhi 2011)

Ans. Organising is considered as an important function of management because:

(i) Benefits of specialisation Organising leads to a systematic allocation of jobs

amongst the work force. This reduces the work load as well as enhances productivity
because of the specific workers performing a specific job on regular basis. By doing a
job on regular basis, a worker gets experience in that area and leads to specialisation.

(ii) Clarity in working relationship The establishment of working relationships clarifies

lines of communication and specifies ‘who reports to whom’. This removes ambiguity in
transfer of information and instructions.

(iii) Optimum utilisation of resources Organising leads to the proper usage of all
material, financial and human resources. The proper assignment of jobs avoids
overlapping of work and also makes possible the best use of resources. Avoidance of
duplication of work helps in preventing confusion and minimising the wastage of
resources and efforts.

(iv) Expansion and growth Organising helps in the growth and diversification of an
enterprise by enablinglt to deviate from existing norms and taking up new challenges. In
other words, sound organisation helps in taking the various activities under control and
increases the capacity of the enterprise to undertake more activities.
6. Explain
(i) Benefits of specialisation and
(ii) Development of personnel as importance of organising. (Foreign 2011)

Ans. (i) Benefits of specialisation Organising leads to a systematic allocation of jobs

amongst the work force. This reduces the work load as well as enhances productivity
because of the specific workers performing a specific job on regular basis. By doing a
job on regular basis, a worker gets experience in that area and leads to specialisation.

(ii) Development of personnel Delegation of authority allows the managers to reduce

their work load and to pay attention to more important and strategic issues and to
develop new methods and ways of performing job where their potential can be exploited
in more useful manner. Delegation develops in subordinates the ability to deal
effectively with challenges and realise their full potential for more creative work.

7. Explain

 Adaptation to change and .

 Effective administration as importance of organising.
(All India 2010; Delhi 2010c)

Ans. (i) Adaptation to change The process of organising allows a business enterprise
to accommodate changes in the business environment. It allows the organisation
structure to be suitably modified and the inter-relationships amongst various managerial
levels to pave the way for a smooth transition.

(ii) Effective administration Organising provides a clear description of jobs and related
duties. This helps to avoid confusion and duplication. Clarity in working relationships
enables proper execution of work. Management of an enterprise thereby becomes easy
and this brings effectiveness in administration.

8. Explain

 Expansion and growth and

 Optimum utilisation of resources as importance of organising. (Delhi
2010c)

Ans. (i) Expansion and growth Organising helps in the growth and diversification of
an enterprise by enabling it to deviate from existing norms and taking up new
challenges. In other words, sound organisation helps in taking the various activities
under control and increases the capacity of the enterprise to undertake more activities.
(ii) Optimum utilisation of resources Organising leads to the proper usage of all
material, financial and human resources. The proper assignment of jobs avoids
overlapping of work and also makes possible the best use of resources. Avoidance of
duplication of work helps in preventing confusion and minimising the wastage of
resources and efforts.

9. Aman, Avneesh and Amrish have decided to start a business of

manufacturing toys. They identified the following main activities which they have
to perform:

 Purchase of raw materials

 Purchase of machinery
 Production of toys Arrangement of finance
 Sales of toys Identifying the areas where they can sell their toys
 Selection of employees
 In order to facilitate the work, they thought that four managers should
be appointed to look after (a) production (b) finance (c) marketing (d)
personnel.
 Identify the function of management involved in the above mentioned
para.
 Quote the lines from the above para which help you to identify this
function.
 State the steps followed in the process of this function of
management. (HOTS; All India 2009; Delhi 2009)

Ans. (i) ‘The organising function ‘of management is involved in the above para.
(ii) Following lines helped in identifying this function:
‘They identified the following main activities which they have to perform…. ‘
or
‘In order to facilitate the work, they thought that four managers should be appointed…’

(iii) Steps in the process of organising

 Identifying and dividing the work into manageable activities.

 Combining the work or departmentation where activities of a similar nature
are grouped together.
 Assignment of duties or allocating work to different employees.
 Establishing reporting relationships so that each individual knows that from
whom he has to take
 orders and to whom he should report or is accountable.

NOTE According to Koontz and O’ Donnell, ‘Organising involves the grouping of

activities necessary to accomplish goals and plans, the assignments of these activities
to appropriate departments and the provision for authority delegation and coordination’.
6 Marks Questions

10. With the help of any four points, explain the crucial role of ‘organising’
function in an enterprise. (Foreign 2014)
or
Organising plays an important role in any business enterprise. Explain by giving
any four reasons. (Hots; Delhi 2009c)

Ans. Organising is considered as an important function of management because:

(i) Benefits of specialisation Organising leads to a systematic allocation of jobs

amongst the work force. This reduces the work load as well as enhances productivity
because of the specific workers performing a specific job on regular basis. By doing a
job on regular basis, a worker gets experience in that area and leads to specialisation.

(ii) Clarity in working relationship The establishment of working relationships clarifies

lines of communication and specifies ‘who reports to whom’. This removes ambiguity in
transfer of information and instructions.

(iii) Optimum utilisation of resources Organising leads to the proper usage of all
material, financial and human resources. The proper assignment of jobs avoids
overlapping of work and also makes possible the best use of resources. Avoidance of
duplication of work helps in preventing confusion and minimising the wastage of
resources and efforts.

(iv) Expansion and growth Organising helps in the growth and diversification of an
enterprise by enablinglt to deviate from existing norms and taking up new challenges. In
other words, sound organisation helps in taking the various activities under control and
increases the capacity of the enterprise to undertake more activities.

11. Explain the steps in the process of organising. (Compartment 2014)

Ans. Steps in the Process of Organising

Various steps involved in the organising process may be described as follows:
(i) Identification and division of work The organising function begins with the division
of total work into smaller units. Each unit of total work is called a Job. The division of
work into smaller jobs leads to specialisation because jobs are assigned to different
individuals according to their qualifications and capabilities. The division of work and
assignment of jobs leads to systematic working.

(ii) Grouping the jobs and departmentalisation After division of work, related and
similar jobs are grouped together and put under one department.
This can be done in the following two ways :
(a) Functional departmentation Under this method, jobs related to common functions
are grouped under one department.
(b) Divisional departmentation Under this method, jobs related to one product are
grouped under one department.

(iii) Assignment of duties After dividing the organisation into specialised departments,
each individual working in different departments is assigned a duty, matching to his skill
and qualifications. We can say, the work is assigned to those who are best fitted to
perform it well.

(iv) Establishing reporting relationship Merely allocating the work is not enough.
Each individual should also know from whom he has to take orders and to whom he is
accountable. The establishment of such clear relationships helps to create a
hierarchical structure and helps in coordination amongst various departments.12. Give
the meaning of ‘organising’ as a function of management. Explain the steps in the
process of organising. (All India 2011)

Ans. ‘Organising is a process of identifying and grouping the work to be performed,

defining and delegating responsibility and authority and establishing relationships for the
purpose of enabling people to work most effectively together in accomplishing
objectives’.
Organising can be defined as a process that initiates implementation of plans by
assigning jobs and working relationships and effectively deploying the resources for
attainment of identified and desired results or goals.

Steps in the Process of Organising

Various steps involved in the organising process may be described as follows:

(i) Identification and division of work The organising function begins with the division
of total work into smaller units. Each unit of total work is called a Job. The division of
work into smaller jobs leads to specialisation because jobs are assigned to different
individuals according to their qualifications and capabilities. The division of work and
assignment of jobs leads to systematic working.

(ii) Grouping the jobs and departmentalisation After division of work, related and
similar jobs are grouped together and put under one department.
This can be done in the following two ways :
(a) Functional departmentation Under this method, jobs related to common functions
are grouped under one department.
(b) Divisional departmentation Under this method, jobs related to one product are
grouped under one department.

(iii) Assignment of duties After dividing the organisation into specialised departments,
each individual working in different departments is assigned a duty, matching to his skill
and qualifications. We can say, the work is assigned to those who are best fitted to
perform it well.

(iv) Establishing reporting relationship Merely allocating the work is not enough.
Each individual should also know from whom he has to take orders and to whom he is
accountable. The establishment of such clear relationships helps to create a
hierarchical structure and helps in coordination amongst various departments.
 Organisational Structure & Types of
Organisation Structure
1 Mark Questions

1. Distinguish between functional structure and divisional structure on the basis

of formation. (Compartment 2014)
Ans. Functional structure is formed on the basis of functions, whereas divisional
structure is formed on the basis of various product lines, which is further supported by
functions.

2. Define organisation as a structure. (Foreign 2014)

Ans. An organisation structure can be defined as the framework within which
managerial and operating tasks are performed. It specifies the relationships between
people, work and resources.

3. State the suitability of functional structure of organising. (Compartment 2014)

Ans. Functional structure is roost suitable when the size of the organisation is large,
has diversified activities and operations requires a high degree of specialisation.

3 Mark Questions

4. Identify the type of suitable organisational structure for a large scale

organisation having diversified activities requiring high degree of specialisation
in operations. (HOTS; All India 2013)

Ans. Functional structure Under functional structure, an organisation is divided into

different departments or units on the basis of major functions performed. All
departments report to a coordinating head, e.g. in a manufacturing concern the key
functions will include production, purchasing, marketing, personnel, etc. This structure
tries to achieve high level of specialisation by grouping similar jobs together.

5. Explain when and why the need is felt for having a framework, within which
managerial and operating tasks are performed to accomplish desired goals.
Name this framework also. (HOTS; Delhi 2010)

Ans. It is an organisational structure.

Need of organisational structure is felt in the following cases:
(i) It is required when an organisation grows in size or leads to complexity.
(ii) It is required when an organisation is new and is required after planning but before
staffing.
(iii) It is required as it helps in effective administration, expansion, growth and better
utilisation of resources.
6. In a fashion designing unit, following are the main functions
(i) Manufacturing (ii) Finance
(ii) Marketing (iv) Personnel management
Which organisational structure will you prefer for this type of a company and
why? (HOTS; Delhi 2009C)

Ans. For this company, functional organisational structure will be more appropriate.
It has the following advantages:
(i)It promotes control and coordination within a department because of similarity in the
tasks being performed.
(ii) It helps in increasing the managerial and operational efficiency and this results in
increased profit.

4/5 Mark Questions

7. A steel manufacturing company has the following main jobs

(i) Manufacturing
(ii) Finance
(iii) Marketing
(iv)Personnel
(v) Research and development
Which type of organisational structure will you choose for this type of a company
and why? State any four advantages of this organisational structure. (HOTS;
Delhi 2010C)

Ans. I would suggest the functional organisational structure as all these major functions
could be performed well under separate departments.
It offers following advantages
(i) A functional structure leads to occupational specialisation since emphasis is placed
on specific functions.
(ii) It promotes control and coordination within the department.
(iii) It helps in increasing managerial and operational efficiency.
(iv) It leads to minimal duplication of effort. Hence, it is economical.

8. Aman runs a factory wherein he manufactures leather shoes. The business is

doing well and he intends to expand by diversifying into leather bags as well as
leather jackets. Which type of organisation structure would you recommend for
his expanded organisation and why? Give two reasons. (HOTS; All India 2009)

Ans. I would recommend the divisional organisational structure.

This is because (Any two):
(i) The number of main products is more than one.
(ii) Different manufacturing technologies and marketing methods are required.
(iii) Each division is equipped with its own resources in order to function independently
6 Mark Questions

9. Explain the concept of functional structure of an organisation. Also explain any

four disadvantages of functional structure. (All India 2014)

Ans. Functional structure Under functional structure, an organisation is divided into

different departments or units on the basis of major functions performed. All
departments report to a coordinating head, e.g. in a manufacturing concern the key
functions will include production, purchasing, marketing, personnel, etc. This structure
tries to achieve high level of specialisation by grouping similar jobs together.
” Disadvantages of functional structure are:

(i) Specialists working in different departments may not be able to see the perspective
of the organisation as a whole, e.g. the production department may get involved in
producing a quality product without regard to the fact it might not sell at a high price. As
a result, it becomes difficult to achieve the objectives of the organisation.

(ii) It becomes difficult to hold a particular department responsible for any problem, e.g.
when sales are declining, who is responsible? It is difficult to determine whether the
marketing department or the production department is responsible for not producing a
quality product.

(iii) Functional heads do not obtain experience required for top management positions.
Specialised skills and narrow perspective may lead to inflexibility.

(iv) Conflict often arises when the interests of two or more departments are not
compatible.

10. Differentiate between functional and divisional structure of organising on

the basis of the following?
(i) Meaning (ii) Formation
(iii) Specialisation (iv) Responsibility
(v) Managerial development (vi) Cost involved (Foreign 2014)

11. What is meant by functional structure of an organisation? State any five

advantages of this form of organisational structure. (All India 2014; Delhi 2011)

Ans. Functional structure Under functional structure, an organisation is divided into

different departments or units on the basis of major functions performed. All
departments report to a coordinating head, e.g. in a manufacturing concern the key
functions will include production, purchasing, marketing, personnel, etc. This structure
tries to achieve high level of specialisation by grouping similar jobs together.
Advantages of functional structure are as follows:

(i) A functional structure provides occupational specialisation, since, emphasis is placed

on specific functions.

(ii) It promotes control and coordination within a department because of similarity in the
task being performed.

(iii) It increases managerial and operational efficiency and this results in higher profit.

(iv) It makes training of employees easier as it focuses on a limited range of skills.

(v) It ensures the performance of all activities necessary for achieving organisational
objectives. Due attention can also be given to different functions.
12. What is meant by divisional structure of an organisation? For which type of
business enterprises is this structure most suitable? State any four advantages
of this form of organisational structure. (All India 2011)

Ans. Divisional structure Under the divisional structure, an organisation is divided into
different divisions or units on the basis of products or geographical area. Each division
is a self contained, semi-autonomous business unit. Each unit has a divisional manager
responsible for performance and who has authority over the unit. There are certain
matters, which are determined at the apex level only, viz goal determination and policy
formation.

It is suitable for those enterprises where:

(i) A large variety of products are manufactured.
(ii) An organisation grows and needs more employees, more departments.

Advantages of divisional structure are as follows:

(i) Product specialisation helps in the development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are accountable for profits,
revenues and costs related to their
departments.
«
(iii) It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision-making.
(iv) It facilitates expansion and growth as a new division can be added without
interrupting the existing -operations.

13. What is meant by functional structure of organising?

Explain its any two advantages and any two limitations. (Delhi 2011)

Ans. Functional structure Under functional structure, an organisation is divided into

different departments or units on the basis of major functions performed. All
departments report to a coordinating head, e.g. in a manufacturing concern the key
functions will include production, purchasing, marketing, personnel, etc. This structure
tries to achieve high level of specialisation by grouping similar jobs together.
Advantages of functional structure are as follows:

(i) A functional structure provides occupational specialisation, since, emphasis is placed

on specific functions.

(ii) It promotes control and coordination within a department because of similarity in the
task being performed.

(iii) It increases managerial and operational efficiency and this results in higher profit.

(iv) It makes training of employees easier as it focuses on a limited range of skills.

(v) It ensures the performance of all activities necessary for achieving organisational
objectives. Due attention can also be given to different functions.

Limitations of functional structure

Functional structure Under functional structure, an organisation is divided into

different departments or units on the basis of major functions performed. All
departments report to a coordinating head, e.g. in a manufacturing concern the key
functions will include production, purchasing, marketing, personnel, etc. This structure
tries to achieve high level of specialisation by grouping similar jobs together.
” Disadvantages of functional structure are:

(i) Specialists working in different departments may not be able to see the perspective
of the organisation as a whole, e.g. the production department may get involved in
producing a quality product without regard to the fact it might not sell at a high price. As
a result, it becomes difficult to achieve the objectives of the organisation.

(ii) It becomes difficult to hold a particular department responsible for any problem, e.g.
when sales are declining, who is responsible? It is difficult to determine whether the
marketing department or the production department is responsible for not producing a
quality product.

(iii) Functional heads do not obtain experience required for top management positions.
Specialised skills and narrow perspective may lead to inflexibility.
(iv) Conflict often arises when the interests of two or more departments are not
compatible.

14. What is meant by divisional structure of organising?

Explain its any two advantages and any two limitations. (Delhi 2011c; All India
2009)

Ans. Divisional structure of organisation

Divisional structure Under the divisional structure, an organisation is divided into

different divisions or units on the basis of products or geographical area. Each division
is a self contained, semi-autonomous business unit. Each unit has a divisional manager
responsible for performance and who has authority over the unit. There are certain
matters, which are determined at the apex level only, viz goal determination and policy
formation.

It is suitable for those enterprises where:

(i) A large variety of products are manufactured.
(ii) An organisation grows and needs more employees, more departments.

Advantages of divisional structure are as follows:

(i) Product specialisation helps in the development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are accountable for profits,
revenues and costs related to their departments.
(iii) It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision-making.
(iv) It facilitates expansion and growth as a new division can be added without
interrupting the existing -operations.
Limitations of divisional structure are as follows :

(i) Expensive Such a structure involves heavy financial costs due to the duplication of
supporting functional units for the divisions. It also requires adequate number of capable
managers to take charge of their respective divisions.

(ii) May ignore organisational interests All the divisions work as autonomous units.
Divisional heads may gain power and ignores organisational interests.

15. Shreyskar runs a locks manufacturing factory. He wants to expand his

business. For expansion, he contemplates to enter into the manufacturing of
locks for cars as an ancillary company. By doing this, his company will be able to
provide many tory and why? State any five advantages of this organisational
Structure. (HOTS; All India 2010)

Ans. Divisional structure will be chosen for this factory because factory is producing
more than one type of products.

Divisional structure Under the divisional structure, an organisation is divided into

different divisions or units on the basis of products or geographical area. Each division
is a self contained, semi-autonomous business unit. Each unit has a divisional manager
responsible for performance and who has authority over the unit. There are certain
matters, which are determined at the apex level only, viz goal determination and policy
formation.

It is suitable for those enterprises where:

(i) A large variety of products are manufactured.
(ii) An organisation grows and needs more employees, more departments.

Advantages of divisional structure are as follows:

(i) Product specialisation helps in the development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are accountable for profits,
revenues and costs related to their departments.
(iii) It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision-making.
(iv) It facilitates expansion and growth as a new division can be added without
interrupting the existing -operations.

NOTE Under the divisional structure, an organisation is divided into different divisions or
units on the basis of products or geographical area.
 Formal & Informal Organisation
1 Mark Questions

1. State any one advantage of formal organisation. (Delhi 2014)

Ans. Formal organisation results in systematic and smooth functioning of an
organisation.

2. What is meant by formal organisation? (Compartment 2014)

Ans. Formal organisation refers to the organisational structure which is designed by the
management to accomplish a particular task. It specifies the boundaries of authority and
responsibility for the achievement of organisational goals.

3. Why is it easy to fix responsibility in formal organisation? (All India 2009; Delhi
2009c)
Ans. Formal organisation is an official set up. It clearly spells out what exactly is the role
of each job and position in an organisation. The main feature of formal organisation is
well-defined structure of authority, responsibility and structure. Therefore, it is easier to
fix responsibility informal organisation.

4 / 5Marks Questions

4. Distinguish between ‘formal and informal organisation’ on the basis of

meaning,
origin, authority and flow of communication. (Delhi 2013)

Ans. Difference between formal and informal organisation

5. Explain any two advantages and any two disadvantages of informal

organisation.
(All India 2011,2010; Delhi 2010)

Ans. Advantages of informal organisation are as follows:

(i) Fulfils social needs It gives due importance to psychological and social needs of
employees.
(ii) Correct feedback Through informal structure, the top level managers can know the
real feedback of employees on various policies and plans introduced by them.
Disadvantages of informal organisation are as follows :
(i) Spread rumours According to a survey, 70% cff information spread through informal
organisational structure are rumours and can mislead the employees.
(ii) No systematic working It does not form any definite structure for smooth working
of an organisation.

6. State any four advantages of formal organisation. (Delhi 2010)

Ans. Four advantages of formal organisation are as follows:

(i) Systematic working It is an official hierarchy of relations. So, it results in systematic
and smooth functioning of an organisation.
(ii) No overlapping of work In formal organisational structure, work is systematically
divided among various departments and employees. So, there is no possibility of
duplication or overlapping of work.
(iii) Coordination It results in coordinating the activities of various departments.
Coordination proceeds according to a prescribed pattern in the organisation structure.
(iv) Creation of chain of command It clearly defines superior subordinate relationship,
i.e. who reports to whom. Communication has to follow a pattern of formal channels.

7. State any two advantages and any two disadvantages of formal

organisation. (Delhi 2010)

Ans. Advantages of formal organisation

advantages of formal organisation are as follows:
(i) Systematic working It is an official hierarchy of relations. So, it results in systematic
and smooth functioning of an organisation.
(ii) No overlapping of work In formal organisational structure, work is systematically
divided among various departments and employees. So, there is no possibility of
duplication or overlapping of work.
(iii) Coordination It results in coordinating the activities of various departments.
Coordination proceeds according to a prescribed pattern in the organisation structure.
(iv) Creation of chain of command It clearly defines superior subordinate relationship,
i.e. who reports to whom. Communication has to follow a pattern of formal channels.
Disadvantages of formal organisation are as follows:
(i) Delay in action It follows the official chain of command which can’t be changed.
While following scalar chain and chain of command, actions get delayed in formal
structure.
(ii) Emphasis on work only It gives importance to work only, it ignores human
relations, creativity, talents, etc as it reflects technological aspect of the organisation.
6 Marks Questions

8. Differentiate between formal and informal organisation on the basis of the

following?

 Meaning
 Origin
 Authority
 Behaviour
 Flow of communication
 Nature (All India 2014; Compartment 2014)

9. Give the meaning of ‘informal organisation’ and state any five features of it. (All
India 2013; Delhi 2012)

Ans. Informal organisation is an aggregate of inter-personal relationships without any

conscious purpose but which may contribute to joint results. It emerges on its own in a
natural manner within the formal organisation.
Features of an informal organisation are as follows:

(i) Based on formal organisation This is based on formal organisation where people
also have informal relations. It means first of all formal organisation is established and
then informal organisation is created out of it.

(ii) No written rules and procedures In this organisation, there are no written rules
and procedures to govern inter-relationship. But there are group norms which have to
be observed.

(iii) Independent channels of communication In this organisation, relations among

different people are not defined because a person at the lowest rank can have direct
contact with the person at the highest level.
(iv) Not deliberately created It is not deliberately created. It emerges out of mutual
relationship and tastes.

(v) No place on organisation chart It has no place on the properly prepared

organisation chart. Moreover, there is no information about it even in the organisation
manual.

10. What is meant by formal organisation? Explain any five features of formal
organisation. (All India 2012,2009; Delhi 2011)

Ans. Formal organisation is an official setup. It clearly spells out what exactly is the role
of each job and position in an organisation. Features of formal organisation are as
follows:

(i) Defined inter-relationship It is a sort of arrangement which clearly defines mutual

relationship. Everybody knows their authority and responsibilities. This clearly shows
who will be reporting to whom.

(ii) Based on rules and procedures It is important to observe all the pre-determ in ed
rules and procedures in the formal organisation. The objectives laid down under
planning are thus achieved.

(iii) Based on division of work The chief basis of formal organisation is the division of
work. It is this that connects the efforts of different departments with each other.

(iv) Deliberately created It is deliberately created in order to achieve the objectives of

the organisation in an easy manner.

(v) It is more stable Changes cannot be introduced because of the needs of individuals
and their wishes. Therefore, it is more stable.

11. What is meant by informal organisation? State any three advantages and any
two disadvantages of this form of organisation. (All India 2011)

Ans. Informal organisation is an aggregate of inter-personal relationships without any

conscious purpose but which may contribute to joint results. According to Keith Davis,
‘Informal organisation is the network of personal and social relationships not established
or required by formal organisation but arising spontaneously as people associate with
one another.

Various advantages of informal organisation are:

(i) It leads to faster spread of information as well as quick feedback.
(ii) It fulfills the social needs of the members.
(iii) It contributes towards fulfillment of organisational objectives by compensating for
inadequacies in the formal organisation.
Disadvantages of informal organisation are as follows :

(i) Spread rumours According to a survey, 70% cff information spread through informal
organisational structure are rumours and can mislead the employees.

(ii) No systematic working It does not form any definite structure for smooth working
of an organisation.
 Delegation & Decentralisation

1 Mark Questions

1. Give the meaning of authority as an element of delegation. (Delhi 2014)

Ans. Authority refers to the right of an individual to command his subordinates and to
take action within the scope of his position. As an element of delegation, it should be
delegated in such a manner that a subordinate cannot escape from his/her
accountability.

2. Give the meaning of accountability as an element of delegation. (Foreign 2014)

Ans. Accountability means being answerable for the final outcome. It cannot be
delegated and flows upwards, i .e. a superior wi 11 be accountable to his superior for
the satifactory performance of job.

3 Marks Questions

3. Decentralisation is a key element in effective organising. Explain with the help

of any four reasons. (All India 2014,2009)
or
Explain by giving any three reasons why decentralisation is important in an
organisation.
(All India 2010; Delhi 2010)

Ans. Decentralisation refers to the systematic effort to delegate to the lowest level, all
authority except which can be exercised at the central point.
The following factors highlight its importance: (Any Four)

(i) Greatern motivation Decentralisation improves the morale and motivation of

subordinates which is reflected in better work performance.

(ii) Develops initiative among subordinates Decentralisation helps to promote self-

reliance and confidence amongst the subordinates. This is because when lower
managerial levels are given freedom to take their own decisions, they learn to depend
on their own judgement. It helps to promote initiative and creativity among them.

(iii) Develops managerial talent for the future As a result of decentralisation,

employees get more opportunities to develop new skills. It makes them better future
managers.

(iv) Quick decision-making Decentralisation in an organisation, provides more

freedom to lower level managers to take their own decisions. There is no need to get
approval from higher level. It helps in quick and better decision-making.

(v) Facilitates growth and expansion Decentralisation facilitates organisational growth

through expansion and diversification. Top executives are not burdened by the
administrative problems and complexities. So, they are able to plan expansion and
diversification.

4. Explain by giving any three reasons why delegation is important in

an organisation.(Delhi 2010)

Ans. Delegation is important because:

(i) Business growth It helps in the expansion of an organisation by providing a ready

workforce to take up leading positions in new ventures.

(ii) Healthy relations It establishes healthy superior subordinate relationships which

are the basis of hierarchy of management.

(iii) Tool of training It allows the subordinates to take decision independently. Thus, it
is a tool for developing managers for the future.

5. Delegation is a key element in effective organising. Explain with the help of

any four reasons. (Delhi 2009c)

Ans. ‘Delegation means the granting of authority to subordinates to operate within the
prescribed limits/ (1)
Effective delegation leads to the following benefits:

(i) Effective management By empowering the employees, the managers are able to
function more efficiently as they get more time to concentrate on important matters.

(ii) Employee development As a result of delegation, employees get more

opportunities to utilise their talent. It also allows them to develop those skills which will
enable them to perform complex tasks and assume those responsibilities which will
improve their career prospects.

(iii) Facilitating growth Delegation helps in the expansion of an organisation by

providing a ready work force to take up leading positions in new ventures.

(iv) Basis of management hierarchy Delegation of authority establishes healthy

superior-subordinate relationships, which are the basis of hierarchy of management. It
is the degree and flow of authority which determines ‘who is reports to whom’.

4 / 5 Marks Questions
6. Distinguish between ‘Delegation’ and ‘Decentralisation’ on the basis of
Purpose, Scope, Status and Nature. (Delhi 2013)

Ans. Difference between delegation and decentralisation

7. If we delegate the authority, we multiply it by two. If we decentralise it,

we multiply it by many. In the light of this statement, explain any four points of
importance of decentralisation. (HOTS; Delhi 2011)

Ans. In the light of given statement, we can say that decentralisation results in the
multiplication of authority by many because of the following points of its importance:
Decentralisation refers to the systematic effort to delegate to the lowest level, all
authority except which can be exercised at the central point.
The following factors highlight its importance:

(i) Greatern motivation Decentralisation improves the morale and motivation of

subordinates which is reflected in better work performance.

(ii) Develops initiative among subordinates Decentralisation helps to promote self-

reliance and confidence amongst the subordinates. This is because when lower
managerial levels are given freedom to take their own decisions, they learn to depend
on their own judgement. It helps to promote initiative and creativity among them.

(iii) Develops managerial talent for the future As a result of decentralisation,

employees get more opportunities to develop new skills. It makes them better future
managers.

(iv) Quick decision-making Decentralisation in an organisation, provides more

freedom to lower level managers to take their own decisions. There is no need to get
approval from higher level. It helps in quick and better decision-making.

(v) Facilitates growth and expansion Decentralisation facilitates organisational growth

through expansion and diversification. Top executives are not burdened by the
administrative problems and complexities. So, they are able to plan expansion and
diversification.

8. Authority and responsibility are two important elements in delegation of

authority. Explain the two. (All India 2011)

Ans. An organisational structure cannot be conceived without authority and

responsibility. These are two important elements in delegation of authority.

Authority It refers to the right of an individual to command his subordinates and to take
action within the scope of his position. According to Henri Fayol, ‘Authority is the right to
give orders and the power to exact obedience. Authority gives holder the power to
enforce orders or decisions. It can be delegated. It always flows downwards i.e.
vertically from superiors to subordinates’. Responsibility It is the obligation of a
subordinate to properly perform the assigned duties. It arises from a superior-
subordinate relationship. According to Davis Filley, ‘Responsibility is the obligation of
the individual to perform assigned duties to the best of his abilities under the direction of
his executive’.

6 Marks Questions

9. With the help of any four points explain the importance of ‘decentralisation’ in
an organisation.(All India 2014)
or
‘Decentralisation is an important philosophy that implies selective dispersal of
authority’. In the light of this statement explain any four points of importance
of decentralisation. (Compartment 2014)
or
What is meant by decentralisation? State any five points of importance of
decentralisation. (Delhi 2012)

Ans. Decentralisation means distribution of decision-making authority at various levels

in the organisation. According to Louis A Allen, ‘Decentralisation refers to the systematic
effort to delegate to the lowest level, all authority except that which can be exercised at
the central point’.

Importance of decentralisation Decentralisation refers to the systematic effort to

delegate to the lowest level, all authority except which can be exercised at the central
point.
The following factors highlight its importance:

(i) Greatern motivation Decentralisation improves the morale and motivation of

subordinates which is reflected in better work performance.

(ii) Develops initiative among subordinates Decentralisation helps to promote self-

reliance and confidence amongst the subordinates. This is because when lower
managerial levels are given freedom to take their own decisions, they learn to depend
on their own judgement. It helps to promote initiative and creativity among them.

(iii) Develops managerial talent for the future As a result of decentralisation,

employees get more opportunities to develop new skills. It makes them better future
managers.

(iv) Quick decision-making Decentralisation in an organisation, provides more

freedom to lower level managers to take their own decisions. There is no need to get
approval from higher level. It helps in quick and better decision-making.

(v) Facilitates growth and expansion Decentralisation facilitates organisational growth

through expansion and diversification. Top executives are not burdened by the
administrative problems and complexities. So, they are able to plan expansion and
diversification.

10. Besides effective management and employee development delegation helps

the organisation in different ways. Explain any four such ways. (Compartment
2014)
or
What is meant by delegation of authority? Explain any four points of importance
of delegation of authority.
(Delhi; All India 2014, 2009c)
or
‘Delegation is a key element in effective organising’. Explain with the help of four
reasons. (All India 2011)

Ans. Delegation is a key element in effective organising. The delegation of authority is

essential for the existence of an organisation. It helps in the efficient functioning of the
organisation. According to Theo Haimann, ‘Delegation of authority merely means the
granting of authority to subordinates to operate within the prescribed limits’. Delegation
ensures that the subordinates perform tasks on- behalf of manager thereby, reducing
his work load. Difference between delegation and decentralisation
11. Give the meaning of essential elements of ‘delegation’. (All India 2013)

Ans. Delegation means granting of authority to subordinates to operate within the

prescribed limits.
Elements of delegation are:

(i) Authority It refers to the right of an individual to command his subordinates and to
take action within the scope of his position.

 Authority is needed to discharge a given responsibility to the subordinates.

 It flows from top to bottom of the scalar chain.
 The superior has authority over the subordinates. It is highest at the top
management. However, it reduces as we move downward in the corporate
hierarchy.

(ii) Responsibility It is the obligation of a subordinate to properly perform the assigned

duties.

 Responsibility arises from a superior-subordinate relationship because the

subordinate is bound to perform the duty assigned to him by his superior.
 Responsibility flows upwards, i.e. from bottom to top. A subordinate will always be
responsible to his superior.

(iii) Accountability

 Accountability implies ‘being answerable for the final outcome of the assigned
task’.
 Accountability flows upwards, i.e. a subordinate will be accountable to his superior
for satisfactory performance of the assigned work.

12. ‘Delegation is the entrustment of responsibility and authority to another and

the creation of accountability for performance’. In the light of this statement,
identify and explain the essential elements of delegation.(HOTS; All India 2012;
Delhi 2010)
or
Explain elements of delegation of authority. (Delhi 2009)

Ans. Delegation means granting of authority to subordinates to operate within the

prescribed limits.
Elements of delegation are:

(i) Authority It refers to the right of an individual to command his subordinates and to
take action within the scope of his position.

 Authority is needed to discharge a given responsibility to the subordinates.

  It flows from top to bottom of the scalar chain.
 The superior has authority over the subordinates. It is highest at the top
management. However, it reduces as we move downward in the corporate
hierarchy.

(ii) Responsibility It is the obligation of a subordinate to properly perform the assigned

duties.

 Responsibility arises from a superior-subordinate relationship because the

subordinate is bound to perform the duty assigned to him by his superior.
 Responsibility flows upwards, i.e. from bottom to top. A subordinate will always be
responsible to his superior.

(iii) Accountability

 Accountability implies ‘being answerable for the final outcome of the assigned
task’.
 Accountability flows upwards, i.e. a subordinate will be accountable to his superior
for satisfactory performance of the assigned work.

12. Delegation is a key element in effective organising. How? State by giving any
six reasons. (All India 2010)

Ans. Delegation is a key element in effective organising. The delegation of authority is

essential for the existence of an organisation. It helps in the efficient functioning of the
organisation. The following points highlight the importance of delegation of authority are:
‘Delegation means the granting of authority to subordinates to operate within the
prescribed limits/
Effective delegation leads to the following benefits:

(i) Effective management By empowering the employees, the managers are able to
function more efficiently as they get more time to concentrate on important matters.

(ii) Employee development As a result of delegation, employees get more

opportunities to utilise their talent. It also allows them to develop those skills which will
enable them to perform complex tasks and assume those responsibilities which will
improve their career prospects.

(iii) Facilitating growth Delegation helps in the expansion of an organisation by

providing a ready work force to take up leading positions in new ventures.

(iv) Basis of management hierarchy Delegation of authority establishes healthy

superior-subordinate relationships, which are the basis of hierarchy of management. It
is the degree and flow of authority which determines ‘who is reports to whom’.

(v) Reduces the burden of superior executive The delegation of authority means
sharing of work and authority with others. A manager can assign a part of his
responsibility and grant authority to his subordinates. This reduces his work load and
helps superiors in concentrating on the work which is more important.

(vi) Motivation It gives job satisfaction to subordinates. It motivates them to render their
willing cooperation for achieving the organisational goals. It leads them to higher
performance and makes them more responsible.
 Staffing

1. ‘‘It is a career oriented process designed to help the employees in the progress
towards maturity and actualization of their potential capabilities.’’ Identify the
process : (2024)
(A) Staffing
(B) Selection
(C) Development
(D) Training
Ans. (C) Development
2. Match the terms given in Column I with their meanings in Column II : (2024)
Column I Column II
1. Placement (i) Introducing the selected employee to
other employees and familiarising him with
the rules and policies of the organisation
2. Recruitment (ii) It refers to the employee occupying the
position or post for which he/she has been
selected
3. Orientation (iii) Evaluating an employee’s current
and/or past performance as against certain
predetermined standards
4. Performance (iv) The process of searching for
Appraisal prospective employees and stimulating
them to apply for jobs in the organization

Choose the correct option from the following :

(A) 1-(i), 2-(ii), 3-(iii), 4-(iv)
(B) 1-(ii), 2-(iii), 3-(i), 4-(iv)
(C) 1-(ii), 2-(iv), 3-(i), 4-(iii)
(D) 1-(ii), 2-(i), 3-(iv), 4-(iii)
Ans. (C) 1-(ii), 2-(iv), 3-(i), 4-(iii)
3. A renowned car company named ‘BB Motors’ was known for producing high
performance cars. They were committed to ensure that its employees had the
skills and knowledge to build these innovative high-performance cars. To achieve
this, they implemented a unique approach for training. The company
transformed a section of its factory into what they called the ‘Learning Floor’.
Actual work environment was created by allotting a specialized space. The space
was equipped with a range of car components, tools and sophisticated car
equipment identical to those used on the factory floor, where the company’s
employees would undergo their training. (2024)
Identify and explain the method of training used by ‘BB Motors’ to ensure that its
employees had the skills and knowledge to build innovative high-performance
cars.
Ans. Vestibule training
• It is a method of training in which employees learn their jobs on the equipment
they will be using, but the training is conducted away from the actual work floor.
• This is usually done when employees are required to handle sophisticated
machinery and equipment.
4. ‘Verfab’ was a garment manufacturing company known for its high quality
fashionable clothing. They had been in the fashionable clothing business for the
last 23 years. The company was earning enough profit and the demand for their
fashionable clothing was rising tremendously. The company was expanding and
needed to hire new talent to meet the growing demand. They followed a
comprehensive process to ensure that they brought in the best candidates.
The process began with a first-round evaluation of applications. The Human
Resources team carefully reviewed each candidate’s qualifications, experience
and suitability for the available positions. It eliminated unqualified or unfit job
seekers based on the information supplied in the application forms and
shortlisted 21 candidates who met the basic requirements.
The shortlisted candidates were then asked to take a series of tests that
attempted to measure certain characteristics of individuals, ranging from manual
dexterity to intelligence to personality. These tests included assessments of their
sewing skills, attention to detail, and knowledge of garment manufacturing
processes.
15 candidates who performed well in the tests were invited for a formal in-depth
conversation with the senior staff from the design team. Thereafter, 10
candidates were found suitable for the job position available.
Since these 10 candidates had cleared all the above steps, ‘Verfab’ conducted
verification by contacting their previous employers to confirm the details the
candidates had provided.
Thereafter, a decision was made to choose 8 candidates who were best fitted for
the roles.
Explain the steps of the comprehensive process discussed above till the
verification stage, to ensure that the company brought in the best candidates to
meet the growing demand for fashionable clothing. (2024)
Ans. The steps of the comprehensive process discussed above are :
(i) Preliminary screening: It helps the manager to eliminate unqualified or unfit
job seekers based on the information supplied in the application forms.
(ii) Selection tests: These tests attempt to measure certain characteristics of
individuals. ranging from aptitudes, manual dexterity, intelligence to personality.
(iii) Employment interview: A formal, in-depth conversation is conducted to
evaluate the applicant’s suitability for the job and the interviewees may also seek
information from interviewer.
(iv) Reference and background checks: References are used for verifying
information and, gaining additional information on an applicant from previous
employers, known persons, teachers, university professors, etc.
5. Piyush is the Production Manager of a shoe company ‘Comforty’. He has 1000
workers under him in his department. Piyush booked a special order for 300
pairs of gents shoes at an estimated cost price of < 500 per pair plus a 20% profit
margin. This order is to be completed within 10 days. After completion of the
order, Piyush found out that the production cost of one pair of shoes was < 700.
He tried to find out the reason but he couldn’t. He reported it to the Chief
Executive Officer. For this the Chief Executive Officer appointed Abhay, who was
not only a specialized Cost Accountant, but also a qualified Human Resource
Manager. After two days, Abhay reported that the set target could have been
completed by only 800 workers. This revealed that there was overmanning in the
organization. The organization was not utilizing the human resources optimally
which had led to high labour cost. (2024)
The above case highlights an important function of management.
(i) Identify the function of management discussed above.
(ii) State any three points of importance of the function identified in (i) above.
Ans. (i) Controlling
(ii) Importance of Controlling: (Any three)
(1) It helps in accomplishing organisational goals by bringing to light the
deviations, if any, and indicating corrective action.
(2) It helps in judging accuracy of standards in the light of changes taking place in
the organization and environment.
(3) It helps in making efficient use of resources by ensuring that each activity is
performed in accordance with predetermined standards.
(4) It improves employee motivation as the employees know well in advance the
standards of performance on the basis of which they will be appraised.
(5) It ensures order and discipline among employees by keeping a close check on
their activities.
(6) It facilitates coordination in action as each department is governed by pre-
determined standards which are well coordinated with one another.
 Previous Years' CBSE Board Questions
6.1 Staffing: Concept and Importance
VSA (1 mark)
1. How is staffing a continuous process?
(Delhi 2014 C)
LA (5 marks)
2. Asha is living in a small village of Rajasthan. Her mother has good culinary
skills. Inspired from her mother she joined a course of ‘Food and Beverages
Production’ in Jaipur. After completing her course, she asked her mother to open
sweets shop in Jaipur, to which her mother agreed. The business was doing well
and had started growing. To expand her business, she felt the need of additional
personnel. Instead of selecting personnel from any other source, she thought of
helping her relatives and appointed five of them. But after doing all efforts she
found that none of her relatives were providing satisfactory service leading to
lower productivity. Also, the quality of the products started deteriorating.
This made Asha to realise that the ability of an organisation to achieve its goals
depends upon the quality of its human resources. This was ignored by her at the
time of selecting the personnel for her expansion programme.
(a) Identify and state the function of management which could have helped Asha
at the time of fulfilling her need of additional personnel in the organisation.
(b) State any three benefits of the function identified in (a) above.
(Term-II, 2021-22)
6.2 Staffing as a Part of Human Resource Management Concept
VSA (1 mark)
3. How are employees motivated to improve their performance when the
organisation uses internal sources of recruitment?
(AI 2014)
4. ‘Providing for social security and welfare of employees’ is one of the specialised
activities performed by Human Resource Management. Mention any two other
specialised activities of Human Resource Management.
(AI 2014)
5. How does staffing improve job satisfaction and morale of employees?
(AI 2014 C)
SA II (4 marks)
6. Mr. Naresh recently completed his M.B.A. from one of the Indian Institutes of
Management in Human Resource Management. He has been appointed as Human
Resource Manager in a Truck manufacturing Company. The company has 1,500
employees and has an expansion plan in hand that may require additional 500
persons for various types of jobs. Mr. Naresh has been given the complete charge
of the company’s Human Resource Department.
List out the specialised activities that Mr. Naresh is supposed to perform as the
Human Resource Manager of the company.
(Delhi 2015 C)
6.3 Staffing Process
VSA (1/2 mark)
7. ‘Estimating manpower requirements is not merely knowing how many persons
we need.’ What else is needed while estimating manpower requirements? State
any two points. (Term-II, 2021-22)
8. Define ‘Workforce Analysis’.
(Delhi 2019)
9. Alpha Enterprises is a company manufacturing water geyser. The company has
a functional structure for four main functions – Production, Marketing, Finance
and Human Resource. As the demand for the product grew, the company decided
to hire more employees. Identify the concept which will help the Human
Resource Manager in deciding the actual number of persons required in each
department.
(Delhi 2017)
SA I (3 marks)
10. Explain the following steps in the process of staffing:
(a) Performance Appraisal
(b) Promotion and Career Planning
(c) Compensation.
(2020 C)
11. Ashish, the marketing head, Raman, the assistant manager and Jyoti, the
human resource manager of ‘Senor Enterprises Ltd’. decided to leave the
company. The Chief Executive Officer of the company called Jyoti the Human
resource manager and requested her to fill up the vacancies before leaving the
organisation. Informing that, her subordinate Miss Alka Pandit was very
competent and trust worthy Jyoti suggested that if she could be moved up in the
hierarchy, she would do the needful. The Chief Executive Officer agreed for the
same. Miss Alka Pandit contacted ‘Keith Recruiters’ who advertised for the post of
marketing head for ‘Senor Enterprises Ltd’. They were able to recruit a suitable
candidate for the company. Raman’s vacancy was filled up by screening the
database of unsolicited application lying in the office.
(a) Name the internal/external sources of recruitment used by ‘Senor
Enterprises Ltd’. to fill up the above stated vacancies.
(b) Also state any one merit of each of the above identified sources of
recruitment.
(Delhi 2016, AI 2016)
SA II (4 marks)
12. State the first four steps in the process of ‘staffing’. (2021 C)
LA (5 marks)
13. A company was manufacturing ‘LED bulbs’ which were in great demand. It
was found that the target of producing 300 bulbs a day was not met by the
employees. On analysis, it was found that the workers were not at fault. Due to
electricity failure and shortage of workers, the company was not able to achieve
the set targets and alternative arrangement were needed. To meet the increased
demand, the company assessed that approximately 88 additional workers were
required out of which 8 would work as heads of different departments and 10
would work as subordinates under each head. The required qualifications and job
specifications were also enlisted. It was also decided that necessary relaxation
should be given to encourage women, persons from backward and rural areas
and persons with special abilities to assume responsible positions in the
organisation. All efforts were made to match the ability of the applicants with the
nature of work.
(a) Identify the functions of management discussed above.
(b) State the two steps in the process of each function discussed in the above
para.
(c) List any two values which the company wants to communicate to the society.
(Delhi 2015, AI 2015)
ET (6 marks)
14. ‘Moga Industries Ltd.’ approached a well-established university in the city of
Madurai to recruit qualified personnel for various technical and professional jobs.
They selected Tanya, Ritu, Garima and Chetan for various vacancies in the
organisation. After the selection and placement, ‘Moga Industries Ltd.’ felt the
need to increase the skills and abilities, and the development of positive attitude
of the employees to perform their specific jobs better. The company also realised
that learning new skills would improve the job performance of the employees.
Hence, the company decided to take action for the same.
(a) Name the step of the staffing process regarding which the company decided
to take action.
(b) State the benefits of the action to ‘Moga Industries Ltd.’
(AI 2018)
6.4 Recruitment Process
MCQ
15. Identify the External Source of Recruitment illustrated by the picture given
below:

(a) Direct Recruitment

(b) Casual Callers
(c) Advertisement
(d) Labourer Contracter
(2023)
16. Using external sources for filling vacant positions:
(i) Gives a wider choice.
(ii) Simplifies the process of selection.
(iii) Instils a competitive spirit among the existing employees.
(iv) Does not infuse fresh talent in the organisation.
Choose the correct option from the following.
(a) (i) and (ii) only (b) (i) and (iii) only
(c) (i), (iii) and (iv) only (d) (ii) and (iv) only
(2020 C)
VSA (1/2 mark)
17. Identify and state the step in the process of staffing which creates a pool of
prospective job seekers for vacancies in the organisation.
(Term-II, 2021-22)
18. ‘External sources of recruitment may lead to dissatisfaction and frustration
among existing employees. They may feel that their chances of promotion are
reduced.’ Give two situations when external sources may be used without
dissatisfying the existing employees. (Term-II, 2021-22)
19. Frequent transfer of employees often reduces the productivity of the
organisation, still it is being used as a good source of filling the vacancies
internally. Why? State any two reasons.
(Term-II, 2021-22 C)
20. Biru Nandan, Chairman of Lalit group of companies founded ‘Biru University’
for undergraduate and postgraduate courses in diverse disciplines. The
Information Technology department of the ‘Lalit Power Ltd., had few vacancies
related to Cyber Security. The Human Resource Department of the Company
decided to recruit fresh engineering graduates from ‘Biru University’ for the
same. Identify the type of source of recruitment.
(Delhi 2019)
21. Why employees become lethargic when the organisation uses internal
sources of recruitment?
(Delhi 2014)
SA I (3 marks)
22. Explain any three advantages of external sources of recruitment.
(2023)
OR
State any four advantages of external sources of recruitment.
(AI 2014)
23. Name and define the process that helps in finding possible candidates for a
job or a function. (Delhi 2015 C)
SA II (4 marks)
24. "Tapping external sources for various job positions has many benefits: State
any four such benefits. (2023)
25. The Human Resource Manager of Alfa Ltd., a leading air conditioner
manufacturer requires employees for various posts. He wanted to opt for a source
of recruitment where background of potential candidates is sufficiently known.
He knew that applicants introduced by present employees or their friends and
relatives amy prove to be a good source of recruitment.
(i) Identify the external source of recruitment discussed in the above paragraph.
(ii) State any four advantages of external sources of recruitment.
(Term-11, 2021-22)
26. Explain briefly transfer and promotions as important sources of internal
recruitment. (Delhi 2017)
LA (5 marks)
27. State the merits of internal sources of recruitment.
(Delhi 2015 C, AI 2015)
28. State the limitations of internal sources of recruitment. (Delhi 2014 C)
29. State any three merits and two limitations of external sources of recruitment.
(Delhi 2014 C)
6.5 Selection Process
MCQ
30. The next step in the 'Selection Process' after 'Selection Decision' is
(a) Job offer (b) Medical Examination
(c) Selection Tests (d) Contract of Employment
(2023)
31. Which of the following is not a step in the selection process?
(a) Reference and background checks (b) Selection decision
(c) Job Offer (d) Performance appraisal
(2021 C)
32. ____________ test is a measure of an individual's potential for learning new
skills.
(a) Personality (b) Aptitude
(c) Intelligence (d) Interest
(2020 C)
VSA (1/2 mark)
33. Identify and state the type of test in the selection process that measures the
potential of an employee for learning new skills. (Term-II, 2021-22 C)
34. Define Selection. (Delhi 2019)
35. Why is 'employment interview' conducted in the process of selection?
(Delhi 2017)
SA I (3 marks)
36. Hemant is working as a Human Resource Manager inAO chain of hospitals in
Mumbai. He had to appoint nurses for the hospitals. For this, he has conducted
various tests and interviews and verified the information of the applicants. The
final decision has been made in consultation with the heads of the nursing
department. Hemant still has to take some more steps to complete the process of
appointment of nurses. Name and explain these steps.
(Term-II, 2021-22 C)
37. State the steps in the selection procedure, after the employment interview
and before the job offer. (AI 2018)
38. Name and define the process in which candidates are eliminated at every
stage and a few moves on the next stage till the right type of candidate is found.
(Delhi 2015 C)
OR
Name and define the process that helps in choosing the best person out of a
number of prospective candidates for a job. (AI 2015 C)
SA II (4 marks)
39. Identify and give the meaning of the concepts highlighted in the following
statements.
(a) The process of finding possible candidates for a job.
(b) An assessment of the number and types of human resources necessary for the
performance of various jobs.
(c) Introducing the selected employees to other employees and familiarising
them with the rules and policies of the organisation.
(d) It ensures that the organisation gets the best employees amongst the
employees available. (2023)
40. Vandana Public School had a vacancy of a Maths teacher. They were looking
for a smart and creative teacher having a drive for excellence. An advertisement
was given in all leading dailies. Since the response was huge, the school examined
all the application forms and rejected the candidates who did not have the
necessary qualifications. Thereafter, a test was conducted to measure the existing
skills of the candidates. After that, it was followed by a formal in-depth
conversation with the principal of the school and a panel of Maths experts.
(a) Explain the steps that have been performed by Vandana Public School in the
process of identifying and choosing the best candidate.
(b) Give the name and also the meaning of the test which was conducted by the
school. (Foreign 2019)
6.6 Training and Development-Concept and Importance, Methods of Training-On-
the-Job and Off-the-Job, Vestibule Training, Apprenticeship Training and
Internship Training
SA I (3 marks)
41. "The attitudes, skills and abilities of employees to perform specific jobs are
increased by adopting a specific process". This process benefits the organisation
in many ways.
State any three benefits of this process to the organisation.
(2023)
42. Explain the following methods of training:
(i) Vestibule training
(ii) Internship training (2023)
43. The Human Resource Department of 'Oberoi's Airlines Private Ltd. has
recently selected 11 pilots. The new pilots have to handle sophisticated
equipment. For this, the Human Resource Manager wants to design an off-the-job
training programme which will help them to improve their performance on their
jobs.
Identify and explain the method of training that can be used by company in the
given situation.
(Term-11, 2021-22)
44. State any three benefits of training to employees.
(Term-11, 2021-22)
45. Name and give the meaning of the concepts that are highlighted in the
following statements:
(a) It improves the performance of employees on the current job or prepares
them for any intended job.
(b) It not only improves the job performance of the employees but also brings
about growth of the personality. (Term-II, 2021-22)
SA II (4 marks)
46. 'Due to rapid technological changes, jobs have become more complex and
importance of training has increased for employees. State any four such benefits.
(2023)
47. Explain the following methods of training:
(a) Vestibule training
(b) Apprenticeship training (2021 C)
48. The workers of 'Vyam Ltd. are unable to work on new and hi-tech machines
imported by the company to fulfill the increased demand. Therefore, the workers
are seeking extra guidance from the supervisor. The supervisor is overburdened
with the frequent calls of workers.
Suggest how the supervisor by increasing the skills and knowledge of workers
can make them handle their work independently?
(Delhi 2015)
49. The workers of 'Gargya Ltd' are unable to work on new computerised
machines imported by the company to fulfill the increased demand. Therefore,
the workers are seeking extra guidance from the supervisor and the supervisor is
overburdened with the frequent calls of workers.
Suggest how the supervisor by increasing the skills and knowledge of workers
can make them handle their work independently. Also state any three benefits
that the workers will derive by the decision of the supervisor. (AI 2015)
50. A company manufactures very sophisticated switchgears used in automatic
cars. For this, the company uses hi-tech machines. Most of the, times the workers
of the factory remain idle because of lack of knowledge regarding the use of these
hi-tech machines. The frequent visits by the engineers and constant supervision
of the foreman results into high overhead charges. Explain the way by which this
problem can be overcome. Also state how this helps the employees. (AI 2015 C)
LA (5 marks)
51. How is training of employees beneficial for the organisation? State by giving
any four reasons. (Delhi 2014)
OR
State the benefits of training to the organisation. (NCERT, AI 2014 C)

CBSE Sample Questions

6.3 Staffing Process
VSA (2 marks)
1. Explain the two concepts which are part of the exercise which would reveal
whether a company is understaffed, overstaffed or optimally staffed.
(Term-II, 2021-22)
SA II (4 marks)
2. 'In an interview with a leading news channel, Mr. Rakesh Kwatra, CEO of 'Get
My Job' has suggested that the companies which want more and more people to
apply for jobs in their organisation should make the process for applying for jobs
easier and candidate friendly'.
Name and explain the next two steps which follow the step, in the process of the
function of management being discussed above. (2020-21)
6.4 Recruitment Process
VSA (2 marks)
3. Identify and explain the two sources of the source of recruitment which cannot
be used when the existing staff is either insufficient or does not fulfill the
eligibility criteria of the jobs to be filled. (Term-II, 2021-22)
SA I (3 marks)
4. Mrs. Ahilya Pasi is the principal of a prestigious school in New Delhi. The
school has a vacancy of a headmistress/headmaster of the junior wing of the
school. The senior teachers of the school have the opinion that only internal
candidates should be considered for this post. However, Mrs. Pasi and the
management would like to invite applications from external sources too. Briefly
explain any three justifications the management can provide to convince the staff
for inviting applications of external candidates for the vacant post.
(2022-23)
6.5 Selection Process
SA II (4 marks)
5. Name the mechanism that attempts to measure certain characteristics of
individuals in the process of identifying and choosing the best person out of the
number of prospective candidates for the job. Enumerate any three of its types.
(2022-23)
LA (5 marks)
6. In an interview with a leading news channel, Mr. Rakesh Kwatra, CEO of 'Get
My Job" has suggested that the Companies which want more and more people to
apply for jobs in their organisation should make the process of applying for jobs
easier and candidate friendly. It is for this reason, he said, that most progressive
companies today have a short application process. He also said that the
application form filled by the candidate is very important as it is the information
supplied in the application forms, which helps the manager in eliminating
unqualified or unfit job seekers. The company can create a mechanism that
attempts to measure certain characteristics of individuals like aptitude, manual
dexterity, and intelligence to personality. The candidate may then be called for an
in-depth conversation to evaluate their suitability for the job.
(a) Name the process and steps in the process of identifying and choosing the
best person out of a number of prospective candidates for a job discussed above.
(b) Also explain the next three steps in the process which can be subsequently
performed by the company.
(Term-II, 2021-22)
6.6 Training and Development-Concept and Importance, Methods of Training-On-
the-Job and Off-the-Job, Vestibule Training, Apprenticeship Training and
Internship Training
SA I (3 marks)
7. Explain 'Internship training' and 'vestibule training' and classify them as on-
the-job and off-the-job methods of training.
(2020-21)
SA II (4 marks)
8. Enumerate any four benefits of the process by which the aptitudes, skills and
abilities of employees to perform specific jobs are increased.
(2022-23)
 ANSWERS
Previous Years' CBSE Board Questions
1. Staffing is a continuous process to meet the growing needs of an organisation.
Staffing is a continuous process because new jobs are created and some of the
existing employees may leave the organisation. Even the existing employees need
work appraisal training and development.
2. (a) Staffing function of management is suitable which could have helped Asha
at the time of fulfilling her need of additional personnel in the organisation.
(b) Benefits of the function of Staffing are -
(i) Finding competent personnel - Staffing helps to find out and choose the right
personnel required for various job positions in an organisation.
(ii) Improves efficiency - Staffing ensures that the right people are placed at the
right jobs. This improves the overall efficiency and performance of an
organisation.
(iii) Facilitates organisational growth- By ensuring the appointment of efficient
and competent personnel for various jobs, staffing ensures the survival and
growth of an organisation in the long run.
3. Employees are motivated to improve their performance when the organisation
uses internal sources of recruitment.
This is because promotion at a higher-level lead to a chain of promotion at the
lower levels in the organisation.
4. (a) Developing Compensation and incentive plans
(b) Handling grievances and complaints
5. Staffing improves job satisfaction and morale of employees through objective
assessment and fair reward for their contribution, because they understand that
the organisation is treating them fairly.
6. Being a Human Resource Manager of the company, Mr. Naresh is supposed to
perform the following specialised activities:
(i) Human resource planning: To determine the number and types of personnel
required in the organisation.
(ii) Selection: Choosing the most suitable candidates and their placements.
(iii) Developing compensation and incentive plan.
(iv) Training and development of employees and developing performance
appraisal system.
(v) Maintaining labour relations and management relations.
(vi) Handling grievances and complaints of employees.
(vii) Providing social security and welfare of employees.
(viii) Defending the company in lawsuits and avoid legal complications.
7. Estimating Manpower requirements is to estimate the number and kind of
personnel required in the organisation. This is done through workload analysis
and workforce analysis. Workload Analysis is estimating how many persons we
need on the other hand, Workforce Analysis refers to an estimation of the existing
personnel in the organisation.
8. A workforce analysis refers to an estimation of the existing personnel in the
organisation.
9. The concept which will help the Human Resource Manager is called 'workload
analysis. It gives the assessment of quantity and quality of people needed in
different department.
10. Steps in the process of staffing:
(a) Performance Appraisal Performance appraisal means evaluating an
employee's current and/or past performance as against certain predetermined
standards. It also includes providing feedback to the employee on his/her
performance.
(b) Promotion and Career Planning: Promotions are an integral part of people's
career. They refer to being placed in positions of increased responsibility.
Managers need to design activities to serve employees' long-term interests.
(c) Compensation: Compensation refers to all forms of pay or rewards given to
employees. They may be in the form of direct financial payments and indirect
payments.
11. (a) Sources of recruitment used by the 'Senor Enterprises Ltd. to fill up the
vacancies are:
(i) Internal Sources
Promotion: Promotion leads to shifting an employee to a higher position of
higher responsibility which provides better facilities, status and pay. This helps to
improve the motivation, loyalty and satisfaction level of the employee. In this
case, movement of Miss Alka Pandit up in the hierarchy refers to promotion.
(ii) External Sources
Placement agencies and Management consultants : Placement agencies provide
suitable personnel to companies. Management consultant firms help to recruit
technical, professional and managerial personnel. They maintain data bank of
people with different qualifications and skills.
(b) (i) Merits of Promotion: It helps to motivate employees and improves loyalty
and satisfaction level of the employees.
(ii) Placement Agencies and Management Consultants: They help to recruit
technical, professional and managerial personnel.
12. First four steps in the process of 'staffing' are:
(i) Estimating manpower requirements, which involves knowing how many
persons are needed and of what type.
(ii) Recruitment, which involves searching for prospective employees and
stimulating them to apply for jobs in the organisation.
(iii) Selection - It involves choosing from among the pool of prospective job
candidates developed at the stage of recruitment.
(iv) Placement and orientation - Placement refers to occupying of position by the
employee for which he has been selected.
13. (a) Staffing and Controlling.
(b) Steps in staffing:
(i) Estimating manpower requirements which involves knowing how many
persons are needed and of what skill and qualifications.
After doing work load and workforce analysis
(ii) Recruitment which involves searching for prospective employees internally
and externally. The aim of recruitment is to create a pool of applicants in large
number.
Steps in controlling :
(i) Setting performance standards : It is the first step in the process of controlling.
Standards are benchmarks against which actual performance is measured.
Standards can be set in both quantitative as well as qualitative terms.
(ii) Measurement of actual performance: The next step is measurement of actual
performance.
(iii) Comparison of actual performance with set standards : Comparison of actual
performance with standards will reveal the deviations. These deviations indicate
gap between actual and desired results.
(c) Values which the company wants to communicate to the society:
(i) Gender equality
(ii) Upliftment of underprivileged sections of the society (concern for the
society).
14. (a) Training and developing is the step of staffing process regarding which
company decided to take action.
(b) Benefits of Training and development of employees to 'Moga Industries Ltd.':
(i) It improves competence of employees.
(ii) It motivates them to reach the top by improving their skills.
(iii) It also improves their efficiency and effectiveness.
(iv) Organisations are not only able to attract but also retain its talented people.
15. (a) Direct Recruitment
16. (b): (i) and (iii) only
17.

18. External sources refer to the sources in which candidates are invited from
outside the organisation. Two situations where external sources can be used
without dissatisfying existing employees are:
(i) Specialised Personnel: When existing employees do not meet the
requirements of a vacant position, then external sources can be used to recruit.
(ii) Insufficient Staff: In case the existing staff is overloaded, new recruitments
can be done so that workload can be shared leading to overall productivity in
employees.
19. Transfer is used as a good source of filling the vacancies internally because:
(i) Transfer has the benefit of shifting workforce from the surplus departments to
those where there is shortage of staff.
(ii) It is helpful in avoiding termination and in removing individual problems and
grievances.
(iii) It can also be used as a tool of training of employees for learning different
jobs.
(iv) Filling of jobs through transfers is cheaper as compared to getting candidates
from external sources.
(v) People recruited through transfers do not need induction training.
20. The source of recruitment that is being used is 'Campus Recruitment.
21. When the organisation uses internal sources of recruitment employees may
become lethargic because they know that they will automatically get time-bound
promotion.
22. The advantages of using external sources of recruitment are as follows:
(i) Qualified Personnel : By using external sources of recruitment, the
management can attract qualified and trained people to apply for vacant jobs in
the organisation.
(ii) Wider Choice: When vacancies are advertised widely, a large number of
applicants from outside the organisation apply. The management has a wider
choice while selecting the people for employment.
(iii) Fresh Talent: The present employees may be insufficient or they may not
fulfil the specifications of the jobs to be filled. External recruitment provide wider
choice and brings new blood in the organisation. However, it is expensive and
time consuming.
(iv) Competitive Spirit If a company taps external sources, the existing staff will
have to compete with the outsiders. They will work harder to show better
performance.
23. Recruitment is a process that helps in finding possible candidates for a job. It
is a process of searching of prospective employees and encouraging them to
apply for job in the organisation. It is a positive process as it stimulates people to
apply for jobs. Recruitment precedes the selection process. It creates a pool of
candidates so that management can select the most suitable candidate.
24. The advantages of using external sources of recruitment are as follows:
(i) Qualified Personnel : By using external sources of recruitment, the
management can attract qualified and trained people to apply for vacant jobs in
the organisation.
(ii) Wider Choice: When vacancies are advertised widely, a large number of
applicants from outside the organisation apply. The management has a wider
choice while selecting the people for employment.
(iii) Fresh Talent: The present employees may be insufficient or they may not
fulfill the specifications of the jobs to be filled. External recruitment provide
wider choice and brings new blood in the organisation. However, it is expensive
and time consuming.
(iv) Competitive Spirit: If a company taps external sources, the existing staff will
have to compete with the outsiders. They will work harder to show better
performance.
25.
26. Transfer and promotions are the two important sources of internal
recruitment.
Transfers: It involves shifting of an employee from one job to another, one
department to another or from one shift to another, without any major change in
the responsibilities and status of the employee. However, it may lead to changes
in duties and responsibilities, working condition etc. It may or may not lead to
changes in the employee's salary. Transfer is a good source of filling the vacancies
with employees taken from over staffed departments. It is practically a horizontal
movement of employees. Shortage of suitable personnel in one branch may be
filled through transfer from another branch or department. Job transfers are also
helpful in avoiding termination and in removing individual problems and
grievances. At the time of transfer, it should be ensured that the employee to be
transferred to another job is capable of performing it. Transfers can also be used
for training of employees for learning different job skills.
Promotions: Business organisations generally follow the practice of filling higher
jobs by promoting employees from lower rung jobs. Promotion leads to shifting
an employee to a higher position, carrying higher responsibilities. It also provides
the employee better facilities, status and pay. Promotion is a vertical shifting of
employees. This practice helps to improve the motivation, loyalty and satisfaction
level of employees. Promotion has a positive psychological impact over the
employees because a promotion at the higher level may lead to a chain of
promotions at lower levels in the organization.
27. Merits of Internal Sources of Recruitment:
(i) Sources of Motivation: Opportunity of promotion motivates employees for
better performance.
(ii) Simple process: It is a simple and reliable source as candidates already
working in the organisation can be evaluated more accurately and economically.
(iii) Develop future managers: Transfer is a tool of training and developing the
employees.
(iv) No over or under staffing: Transfer helps to shift surplus workforce to
departments or places with shortage of staff.
(v) Economical: Internal sources of recruitment cost very little money.
28. Limitations of Internal Sources of Recruitment:
(i) Limited choice: This method limits the choice as selection is to be made from
few candidates available within the organisation.
(ii) Lack of fresh talent: It prevents infusion of new talent in the company.
(iii) Not suitable for a new enterprise: A new company cannot use internal
sources of recruitment.
(iv) Decrease in enthusiasm level: The employees may become lethargic if they
know that they will automatically get time-bound promotions.
(v) Lack of competition: The spirit of competition among the employees may be
hampered as there is no competition from the outside world.
29. Merits of external sources of recruitment are:
(a) Qualified Personnel : Requisite personnel having the required qualification,
training and skills are available from the external sources.
(b) Fresh Talent: The entry of fresh talent into the organisation is encouraged.
New employees bring new ideas to the organisation.
(c) Wide Choice: When vacancies are advertised, there are chances of receiving
large number of applications.
Limitations of external sources of recruitment:
(a) Dissatisfaction among the existing staff as their chances of promotion is
reduced.
(b) Recruitment from external source is a costly and lengthy process.
30. (b) Medical Examination
31. (d): Performance appraisal
32. (b): Aptitude
33. Aptitude Test
It indicates the person's capacity to develop and is a good index of a person's
future success score.
34. The process of choosing the right candidate out of the gathered pool
developed at the time of recruitment is known as selection.
35. The employment interview is conducted to evaluate the applicant’s suitability
for the job. The interviewer does this by seeking information from the candidate
by asking different questions.
36. The steps Hemant has to take to complete the process of appointment of
nurses:
(i) Medical Examination: After the selection decision, the candidate is required to
undergo a medical fitness test.
(ii) Job Offer: The job offer is given to those applicants who have passed all the
previous hurdles. Job offer is made through a letter of appointment containing a
date by which the appointee must report on duty.
(iii) Contract of Employment: After the candidate accepts the offer a contract of
employment is prepared containing rates of pay, allowances, hours of work, leave
rules, etc.
37. Steps in the selection procedure, after the employment interview and before
the job offer are:
(a) Reference and background checks: Many employers request names, addresses
and telephone numbers of references for the purpose of verifying information
and gaining additional information on an applicant.
(b) Selection decision: The final decision has to be made from among the
candidates who pass the tests, interviews and reference checks.
(c) Medical examination: After the selection decision, the candidate is required to
undergo a medical fitness test. Job offer is given to the candidate being declared
fit after the medical examination.
38. Selection is the process in which candidates are eliminated at every stage and
a few moves on the next stage till the right type of candidate is found.
Selection is the process of choosing from among the pool of the prospective
candidates that have applied at the stage of recruitment. It ensures that the
organisation gets the best among the available candidates.
39. (a) Staffing, the managerial function of filling and keeping filled the positions
in the organisation structure.
(b) Estimating the Manpower Requirements: This involves determining the
future manpower needs of the organisation. It is done through workload analysis
and workforce analysis.
Workload analysis gives us an assessment of the quantity (number) and quality
(types) of people necessary for the functioning of various jobs to accomplish
organisational objectives. Workforce analysis gives us the number and type of
workforce available. This study tells us whether we are understaffed, overstaffed
or optimally staffed.
(c) Placement and Orientation, joining a job marks the beginning of socialisation
of the employee at the workplace. The employee is given a brief presentation
about the company and is introduced to his superiors, subordinates and the
colleagues. He is taken around the workplace and given the charge of the job for
which he has been selected.
(d) Selection, Selection is the process of choosing from among the pool of the
prospective job candidates developed at the stage of recruitment. Even in case of
highly specialised jobs where the choice space is very narrow, the rigour of the
selection process serves two important purposes:
(i) it ensures that the organisation gets the best among the available, and (ii) it
enhances the self-esteem and prestige of those selected and conveys to them the
seriousness with which the things are done in the organisation.
40. (a) The steps that have been performed by 'Vandana Public School' in the
process of identifying and choosing the best candidates are:
(i) Screening: As a first step, candidates who do not fulfil the basic criteria and
qualifications required for the job are eliminated through a preliminary screening
or preliminary interview.
(ii) Test: The next step is to further judge the candidate on different criteria.
Organisations conduct various tests such as intelligence test, aptitude test,
personality test, trade test and interest test.
(iii) Personal interview: A personal interview involves a direct conversation
between the candidate and a manager. An in-depth conversation is conducted
with the candidate to judge the individual's overall suitability for the job position.
(b) Trade test was conducted by the school. This test is used to measure and
analyse the existing skills of the candidate. This test helps to measure the level of
theoretical and practical knowledge possessed by a candidate in the area of the
concerned subject.
41. The process discussed in the given line is "training". Benefits of training to the
organisation
(i) Training is a systematic learning, always better than hit and trial methods
which lead to wastage of efforts and money.
(ii) It enhances employee productivity both in terms of quantity and quality,
leading to higher profits.
(iii) Training equips the future manager who can take over in case of emergency.
42. (a) (i) Vestibule Training: Employees learn their jobs on the equipment they
will be using, but the training is conducted away from the actual work floor.
Actual work environments are created in a class room and employees use the
same materials, files and equipment. This is usually done when employees are
required to handle sophisticated machinery and equipment.
(ii) Internship Training: It is a joint programme of training in which educational
institutions and business firms cooperate.
Selected candidates carry on regular studies for the prescribed period. They also
work in some factory or office to acquire practical knowledge and skills.
43.

44.

45. (a) Training : Training refers to the process of enhancing the skills and
competence of an employee that are required to perform a specific job. The focus
of training is on developing just the right skills required for performing particular
tasks and is, therefore, job-oriented.
(b) Development : Development refers to the process of developing the overall
learning and maturity of the employee. It boosts the overall career prospects of
the employee and is said to be career-oriented.
46. (i) Training helps in obtaining effective response to fast changing
environment - technological and economic.
(ii) Training increases the satisfaction and morale of employees.
(iii) Training enhances employee productivity both in terms of quantity and
quality, leading to higher profits.
(iv) Training makes the employees more efficient to handle machines.
47. (a) Vestibule Training: Vestibule Training is a method of training in which
employees learn their jobs on the equipment they will be using, but the training
is conducted away from the actual work floor. It is usually used when employees
are required to handle sophisticated machinery and equipment.
(b) Apprenticeship Training/Programme : Apprenticeship Training/Programme
is a method of training in which the trainee is kept under guidance of a master
worker for a prescribed amount of time to acquire a higher level of skill. People
who want to enter skilled trades e.g., plumbers & electricians, are often required
to undergo such programme.
48. Training of employees by Vestibule training or/on the job training will help
the workers to handle their jobs better.
The workers will benefit in the following way:
(a) It reduces accidents as the employees become well trained to handle the
machines.
(b) It improves the morale of the employees.
(c) It helps in promotion and career growth due to improved skills and
knowledge.
49. Training of employees by Vestibule training or/on the job training will help
the workers to handle their jobs better.
The workers will benefit in the following way:
(a) It reduces accidents as the employees become well trained to handle the
machines.
(b) It improves the morale of the employees.
(c) It helps in promotion and career growth due to improved skills and
knowledge.
Employee's training in an organisation is necessary due to the following reasons:
(a) Systematic learning: Training is systematic learning, which is better than hit
and trial methods that lead to wastage of efforts, time and money.
(b) Increase in productivity: A trained worker is more efficient in his work. He
has better skills for his job. This leads to increased output, which is profitable for
the company.
(c) Fewer accidents: Trained employees are better in handling machinery and
equipment thereby; the chances of accidents are reduced.
(d) High motivation and morale: Training reduces the rate of labour turnover and
absenteeism and increases job satisfaction. This improves staff morale and self-
esteem.
(e) Lowered Supervision Costs: Trained employees are able to work on their own
in a more efficient manner. Therefore, they do not require to be 'looked after'
much. This reduces the cost of supervision.
50. Employee's training in an organisation is necessary due to the following
reasons:
(a) Systematic learning: Training is systematic learning, which is better than hit
and trial methods that lead to wastage of efforts, time and money.
(b) Increase in productivity: A trained worker is more efficient in his work. He
has better skills for his job. This leads to increased output, which is profitable for
the company.
(c) Fewer accidents: Trained employees are better in handling machinery and
equipment thereby; the chances of accidents are reduced.
(d) High motivation and morale: Training reduces the rate of labour turnover and
absenteeism and increases job satisfaction. This improves staff morale and self-
esteem.
(e) Lowered Supervision Costs: Trained employees are able to work on their own
in a more efficient manner. Therefore, they do not require to be 'looked after'
much. This reduces the cost of supervision.
The workers will benefit in the following way:
(a) It reduces accidents as the employees become well trained to handle the
machines.
(b) It improves the morale of the employees.
(c) It helps in promotion and career growth due to improved skills and
knowledge.
51. Benefits of Training for the organisation are as follows:
(i) Increase in productivity: A trained worker is more efficient in his work. He has
better knowledge, skill and speed for his job. This leads to more output, which is
profitable for the enterprise.
(ii) Proper use and handling of machinery: A trained worker has proper
knowledge for operating machinery and equipment in the right manner. This
ensures proper use of the organisation's resources.
(iii) Fewer accidents: Trained employees are proficient in handling machinery
and equipments. Thereby, the chances of accidents are reduced.
(iv) Less supervision required Training infuses confidence in employees, which
minimizes the need for constant supervision.
CBSE Sample Questions
1. (i) Workload analysis : This would enable an assessment of the number and
types of human resources necessary for the performance of various jobs and
accomplishment of organisational objectives.
(ii) Workforce analysis: This would reveal the number and type available.
2. Selection : Selection is the process of choosing from among the pool of the
prospective job candidates developed at the stage of recruitment. Even in case of
highly specialised jobs where the choice space is very narrow, the rigour of the
selection process serves two important purposes: (i) it ensures that the
organisation gets the best among the available and (ii) it enhances the self-
esteem and prestige of those selected and conveys to them the seriousness with
which the things are done in the organisation.
Placement and orientation: Orientation is introducing the selected employee to
other employees and familiarising him with the rules and policies of the
organisation. Placement refers to the employee occupying the position or post for
which the person has been selected.
3. Two sources of internal recruitment:
(i) Promotion refers to shifting of an employee to a higher position, carrying
higher responsibilities, facilities, status and pay.
(ii) Transfer involves shifting of an employee from one job to another, one
department to another, without substantive change in the responsibilities and
status of the employee.
4. Merits of external sources:
(i) Qualified personnel : By using external sources of recruitment, the
management can attract qualified and trained people to apply for vacant jobs in
the organisation.
(ii) Wider choice: When vacancies are advertised wisely, a large number of
applicants from outside the organisation can apply. The management has a wider
choice while selecting the people for employment.
(iii) Fresh Talent: The present employees may be insufficient or they may not
fulfill the specifications of the jobs to be filled. External recruitment provides
wider choice and brings new blood in the organisation.
(iv) Competitive spirit: If a company taps external sources, the existing sources,
the existing staff will have to compete with the outsiders. They will work harder
to show better performance
5. Selection test is the mechanism that attempts to measure certain
characteristics of individuals in the process of identifying and choosing the best
person out of the number of prospective candidates for the job.
Types of tests are:
(a) Intelligence test is one of the important psychological tests used to measure
the level of intelligence quotient of an individual and is an indicator of a person's
ability or the ability to make decisions and judgments.
(b) Aptitude test is a measure of an individual's potential for learning new skills
and indicates the person's capacity to develop.
(c) Personality tests provide clues to a person's emotions, her reactions, maturity,
and value system and probe the overall personality.
(d) Trade tests measure the existing skills of the individual, level of knowledge
and proficiency in the area of professions or technical training.
(e) Interest tests are used to know the pattern of interests or involvement of a
person.
6. (a) Selection
Steps in the process of selection discussed:
(i) Preliminary Screening.
(ii) Selection Tests.
(iii) Employment interview
(b) Next three steps are:
(i) Reference and background checks: Many employers request names, addresses
and telephone numbers of references for the purpose of verifying information
and gaining additional information on an applicant. Previous employers, known
persons, teachers and university professors can act as references.
(ii) Selection Decision: The final decision has to be made from among the
candidates who passed the tests, interviews and reference checks. The views of
the concerned manager will be generally considered in the final selection.
(iii) Medical Examination: After the selection decision and before the job offer is
made, the candidate is required to undergo a medical fitness test. The job offer is
given to the candidate being declared fit after the medical examination.
7. Internship training is a joint programme of training in which educational
institutions and business firms cooperate. Selected candidates carry on regular
studies for the prescribed period. Vestibule training-Employees learn their jobs
on the equipment they will be using, but the training is conducted away from the
actual work floor. Actual work environments are created in a class room and
employees use the same material, files and equipment. Internship training can be
classified as on-the-job method of training. Vestibule training can be classified as
off-the-job method of training.
8. The benefits of training to an organisation are as follows:
(i) Training is a systematic learning, always better than hit and trial methods
which lead to wastage of efforts and money.
(ii) It enhances employee productivity both in terms of quantity and quality,
leading to higher profits.
(iii) Training equips the future manager who can take over in case of emergency.
(iv) Training increases employee morale and reduces absenteeism and employee
turnover.
(v) It helps in obtaining an effective response to a fast-changing environment -
technological and economic.
 Meaning, Definition, Importance & Process of Staffing

1 Mark Questions

1. How does staffing improve job satisfaction and morale of employees?

State. (Compartment 2014)
Ans. Staffing helps in improving job satisfaction and morale of the employees by
employing right people at right job, train them and developing their abilities, evaluating
their performance and promoting them.

2. How is staffing a continuous process? State. (Compartment 2014)

Ans. Staffing function is described as filling and keeping filled the positions in the
organisation. Staffing is a continuous process because new jobs may be created and
some of the existing employees may leave the organisation.

3. State how staffing ensures ‘continuous survival and growth of enterprise’. (All
India 2013)
Ans. Proper staffing ensures continuous survival and growth of an enterprise through
succession planning for managers.

4. Give the meaning of ‘orientation’ as a step in the process of staffing. (Delhi

2012)
Ans. Orientation refers to introduction of new employees to the existing ones in the
organisation and familiarising them with the rules and policies of the organisation.

5. What is meant by ‘estimating manpower requirement’ as a step in the process

of staffing? (Delhi 2012)
Ans. ‘Estimating manpower requirement’ means finding out the number and their types
of persons or employees needed by the organisation in near future.
6. Give the meaning of ‘placement’ as a step in the process of staffing. (All India
2012)
Ans. Placement refers to the employees occupying the position or post for which the
person has been selected.

7. Give the meaning of ‘compensation’ as a step in the process of staffing(All

India 2012)
Ans. Compensation refers to all forms of pay or rewards offered to employees. It may
be in the form of direct financial payments like wages, salaries, incentives, commission
and bonus or may be in the form of indirect payments like employer paid insurance and
vacations, etc.

8. What is meant by staffing? (Delhi 2010c)

Ans. Staffing has been described as the managerial function of filling and keeping filled
the positions in the organisation structure. In other words, staffing is that part of the
process of management which is concerned with obtaining, utilising and maintaining a
satisfactory work force.

9. How does staffing help to ensure higher performance of employees? (All India
2010)
or
How does staffing help to ensure optimum utilisation of human resources? (Delhi
2010C)

Ans. Staffing helps in ensuring optimum utilisation of human resources by putting right
person on the right job. It prevents under-utilisation of personnel and high labour cost.
At the same time, it avoids disruption of work by indicating the shortage of personnel.

3 Marks Questions

10. Give the meaning of placement, orientation and training in the process of
staffing. (Delhi 2012)

Ans. Placement refers to the employees occupying the position or post for which the
person has been selected.
Orientation refers to introduction of new employees to the existing employees of the
organisation and familiarising them with the rules and policies of the organisation.
Training refers to the systematic development of knowledge, skills and attitude required
by an individual to perform efficiently a given task/job.

11. Why is staffing considered as an important function of management in all

types of organisations? State any three reasons. (Delhi 2011; All India 2011)

Ans. Staffing is considered as an important function of management because of the

following reasons:
(i) It helps in discovering and obtaining competent personnel for various jobs.
(ii) It results in improved performance by putting right person on the right job.
It ensures the continuous survival and growth of an enterprise through the succession
planning by managers.

4/5 Marks Questions

12. Sahil, the director of a garments company, is planning to manufacture bags

for the utilisation of waste material for one of his garments unit. He decided that
this manufacturing unit will be set up in a rural area of Orissa, where people have
less job opportunities and labour is available at a very low rate. He also thought
of giving equal opportunities to men and women.
For this, he selected S Chatterjee, Indeijeet Kaur, Aslam and Sarabjeet as heads
of sales, accounts, purchase and production departments.
  Identify and state the next two steps that Sahil has to follow in the staffing
process after selecting the above heads
 Also identify two values which Sahil wants to communicate to the society by
settingup this manufacturing unit. (HOTS; VBQ; All India 2013)

Ans. (i) Selection is done in the third step, in which a prospective candidate is chosen
from the pool of candidates. It ensures that the organisation gets the best among the
available and it enhances the morale of the selected candidates. The next two steps are
as follows:

 Placement and orientation In this step, employee occupies the position or is

placed, for which he/she has been selected. After this a brief presentation about
the company is given and employee is introduced to his superiors, subordinates
and colleagues.
 Training and development In this step, training is imparted to the selected
candidates, by which he/she can enhance his/her skills, knowledge and through
this, one can also explore the opportunities.

(ii) By setting up a manufacturing unit in the rural area of Orissa, Sahil wanted to
communicate following values to the society:

 Manufacturing bags from the waste material, will help in reducing pollutants from
the environment and will also reduce wastage.
 Giving equal opportunities to men and women, will increase the standard of living
of rural area labourers.

2. Define staffing as a function of management and state its importance. (Delhi

2011c)
or
Explain staffing as a function of management. Also explain by giving any four
reasons why proper staffing is required in an organisation.(All India 2010)
or
Staffing is an important function of management in all organisations. Why? (Delhi
2009)
or
State any four reasons why staffing is needed in an organisation. (All India 2008)

Ans. According to Koontz and O’ Donnell, ‘The managerial function of staffing involves
manning the organisational structure through proper and effective selection, appraisal
and development of personnel to fill the roles designed into the structure’.
Staffing function of management helps in obtaining right people and putting them on the
right jobs.
Proper staffing ensures the following benefits to the organisation: (Any four)

(i) Obtaining competent personnel In all organisations, there is a need for people to
perform work.
Staffing function helps in discovering and obtaining competent personnel for various
jobs.

(ii) Higher performance Staffing finds the right person for the right job. It ensures
higher performance of the employees as work is assigned according to their capabilities
and at the same time, organisational objectives are achieved in the most efficient and
effective manner.

(iii) Survival and growth By appointing efficient staff, staffing ensures the continuous
survival and growth of an enterprise. An organisation grows with the sincere efforts of its
employees only.

(iv) Optimum utilisation of human resources Through manpower planning and job
analysis, we can find out the number and types of employees required in the
organisation. So, there are no chances of overmanning, shortage or under-utilisation of
personnel.

(v) Motivation and morale Staffing as a separate function, is needed to motivate

employees for better performance, incentive plans, staff welfare and for other personnel
activities. If there is a separate personnel department in the organisation, it motivates
employees and develop higher morale in them.

14. Explain in brief the various steps involved in the process of staffing. (All India
2011; Delhi 2008C)
Ans. Various steps in the process of staffing are as follows:

(i) Estimating manpower requirements It refers to finding out the number of persons
or employees and type of employees needed in the organisation in near future. As both
overstaffing and understaffing are undesirable, the manager tries to find out the
manpower requirement by equating work load analysis to work force analysis.

 Work load analysis Finding the number and type of employees required to
perform various jobs.
 Work force analysis Analysing existing work force already occupying the job
positions.
 Comparison The manager compares both the excess of work load over work
force indicated under staffing, and thus fulfils the gap.

(ii) Recruitment It refers to the process of inducing the people to apply for the job in the
organisation. After assessing the number and type of required employees, the manager
tries to get greater number of applicants for the job, so that the organisation can select
better candidates.

(iii) Selection It refers to the choosing of most suitable candidate to fill the vacant job
position. Selection is done through a process, which involves tests, interviews, etc.
(iv) Placement and orientation In this step, employee occupies the position or is
placed, for which he/she has been selected. After this a brief presentation about the
company is given and employee is introduced to his superiors, subordinates and
colleagues.

(v) Training and development In this step, training is imparted to the selected
candidate, by which he/she can enhance his/her skills, knowledge and through this, one
can also explore the opportunities.

(vi) Performance appraisal It refers to evaluating the performance of employees

against some standards which are known to employees in advance.

(vii) Promotion and career planning Promotions are an integral part of people’s
career. It means people placed in positions of increased responsibility or it usually
means more pay, responsibility and job satisfaction.

(viii) Compensation It refers to price of the job. It includes pay, rewards and other
incentives given to all the employees. It includes direct as well as indirect payments.

6 Marks Questions

15. Explain the process of staffing. (Delhi 2010; All India 2009)

Ans. Various steps in the process of staffing are as follows:

(i) Estimating manpower requirements It refers to finding out the number of persons
or employees and type of employees needed in the organisation in near future. As both
overstaffing and understaffing are undesirable, the manager tries to find out the
manpower requirement by equating work load analysis to work force analysis.

 Work load analysis Finding the number and type of employees required to
perform various jobs.
 Work force analysis Analysing existing work force already occupying the job
positions.
 Comparison The manager compares both the excess of work load over work
force indicated under staffing, and thus fulfils the gap.

(ii) Recruitment It refers to the process of inducing the people to apply for the job in the
organisation. After assessing the number and type of required employees, the manager
tries to get greater number of applicants for the job, so that the organisation can select
better candidates.

(iii) Selection It refers to the choosing of most suitable candidate to fill the vacant job
position. Selection is done through a process, which involves tests, interviews, etc.
(iv) Placement and orientation In this step, employee occupies the position or is
placed, for which he/she has been selected. After this a brief presentation about the
company is given and employee is introduced to his superiors, subordinates and
colleagues.

(v) Training and development In this step, training is imparted to the selected
candidate, by which he/she can enhance his/her skills, knowledge and through this, one
can also explore the opportunities.

(vi) Performance appraisal It refers to evaluating the performance of employees

against some standards which are known to employees in advance.

(vii) Promotion and career planning Promotions are an integral part of people’s
career. It means people placed in positions of increased responsibility or it usually
means more pay, responsibility and job satisfaction.

(viii) Compensation It refers to price of the job. It includes pay, rewards and other
incentives given to all the employees. It includes direct as well as indirect payments.

16. Which function of management helps in obtaining right people and putting
them on the right jobs? Explain any five points of importance of this
function. (HOTS; Delhi 2008)

Ans. Staffing function of management helps in obtaining right people and putting them
on the right jobs.

Importance of Staffing
According to Koontz and O’ Donnell, ‘The managerial function of staffing involves
manning the organisational structure through proper and effective selection, appraisal
and development of personnel to fill the roles designed into the structure’.
Staffing function of management helps in obtaining right people and putting them on the
right jobs.
Proper staffing ensures the following benefits to the organisation: (Any four)

(i) Obtaining competent personnel In all organisations, there is a need for people to
perform work.
Staffing function helps in discovering and obtaining competent personnel for various
jobs.

(ii) Higher performance Staffing finds the right person for the right job. It ensures
higher performance of the employees as work is assigned according to their capabilities
and at the same time, organisational objectives are achieved in the most efficient and
effective manner.

(iii) Survival and growth By appointing efficient staff, staffing ensures the continuous
survival and growth of an enterprise. An organisation grows with the sincere efforts of its
employees only.

(iv) Optimum utilisation of human resources Through manpower planning and job
analysis, we can find out the number and types of employees required in the
organisation. So, there are no chances of overmanning, shortage or under-utilisation of
personnel.

(v) Motivation and morale Staffing as a separate function, is needed to motivate

employees for better performance, incentive plans, staff welfare and for other personnel
activities. If there is a separate personnel department in the organisation, it motivates
employees and develop higher morale in them.
 Staffing as a Part of Human Resource Management

1 Mark Question

1.’Providing for social security welfare of employees’ is one of the specialised

activities performed by Human Resource Management. Mention any two other
specialised activities of Human Resource Management. (All India 2014)
or
‘Recruitment’ is one of the specialised activity performed by human resource
management. Mention any two other specialised activities of Human Resource
Management. (Delhi 2014)
or
‘Maintaining labour relations and union management relations’ is one of the
specialised activities performed by Human Resource Management. Mention any
two other specialised activities of Human Resource Management. (Foreign 2014)

Ans. Two other specialised acitivities of Human Resource Management are:

(i) Handling grievances (ii) Training and development of employees

3 Mark Question

2. Staffing as a part of Human Resource Management includes many specialised

activities. Explain any three such activities. (All India 2011)

Ans. Three such activities are as follows:

(i) Recruitment, i.e. search for qualified people.
(ii) Analysing jobs, collecting information about jobs to prepare job descriptions.
(iii) Handling grievances and complaints.

4/5 Mark Question

[Link] Resource Management includes many specialised activities and duties.

State any four such activities. (All India 2008)

Ans. The duties of Human Resource Managers are:

(i) Training and development of employees for efficient performance.
(ii) Maintaining labour relations and union management relations.
(iii) Handling grievances and complaints.
(iv) Providing for social security and welfare of employees.

4. Explain why staffing is considered as the most important part of Human

Resource Management? (All India 2008; Delhi 2008C)

Ans. Staffing is the most important part of Human Resource Management as it

develops and manages the human elements of the enterprise considering their
knowledge, skill, creativity, talents and potentials for contributing towards organisational
objectives. It functions within the scope of human resource department.

Human Resource Management involves determining the organisation’s need of human

resources, recruiting and selecting the best employees, developing, providing
compensation and rewarding the employees. It also includes activities related to liaison
with government, trade unions, etc.

Staffing is the inherent part of Human Resource Management which can be made more
clear by analysing this example, when the above stated functions are carried out at
small scale in small organisations by every manager, we call it as staffing function and
when these functions are performed at large scale in a big organisation, there is a need
to create a separate department called human resource department.
 Recruitment & Its Sources
1 Mark Questions

1. How are employees motivated to improve their performance when the

organisation uses internal sources of recruitment? State. (All India 2014)

Ans. A promotion at a higher level may lead to chain of promotions at lower levels in an
organisation. This motivates the employees to improve their performance through
learning and practice.

2. Why employees become lethargic when the organisation uses internal sources
of recruitment? State. (Delhi 2014; Foreign 2014)

Ans. The spirit of competition among the employees may be hampered as they are
likely to expect automatic promotion because of seniority. Thus they are least interested
in work and become lethargic.

3. Define recruitment. (Delhi 2013)

Ans. According to Yoder, ‘Recruitment is a process to discover the sources of

manpower to meet the requirements of the staffing schedule and to employ effective
measures for attracting that manpower in adequate numbers to facilitate effective
selection of an efficient working force’.

4. State the meaning of the term recruitment in one sentence. (Delhi 2011C; All
India 2010)

Ans. Recruitment refers to the process of searching for prospective employees and
stimulating them to apply for jobs in the organisation.

5. Give one limitation of internal sources of recruitment (Delhi 2010; All India
2010)

Ans. The spirit of competition among the employees may be hampered.

6. Give one advantage of external sources of recruitment. (Delhi 2010; All India
2010)

Ans. Through external sources of recruitment, the management can attract more
qualified and trained people to apply for vacant jobs in the organisation.
3 Mark Questions

7. External sources of recruitment are considered better than internal sources.

Give any three reasons in support of this statement (All India 2011)

Ans. External sources of recruitment are considered better than internal sources
because of the following reasons:

(i) Qualified personnel People outside the organisation may have required
qualification, training and skills available with them which may serve the organisation.

(ii) Fresh talent The entry of fresh talent into the organisation is encouraged. New
employees bring new ideas to the organisation.

(iii) Wider choice When vacancies are advertised, there are chances of receiving large
number of applications. Therefore, it offers a wide choice to the management.

4/5 Mark Questions

8. Internal sources of recruitment are better than external sources of recruitment.

Explain by giving reasons in support of the statement. (Compartment 2014;
Delhi 2011, 2009C)
or
‘Internal sources of recruitment are better than external sources’. How? Give
any four reasons. (All India 2010)

Ans. Internal sources of recruitment are better than external sources in the following
respects: (Any four)

(i) Economical sources Internal sources are less time consuming and less expensive
because the organisation and the employees are already known to each other.

(ii) Simplifies the process of selection Since, the employees are already known to
the organisation, therefore, the process of selection and placement gets simplified.

(iii) Motivates employees Filling higher level jobs through promotion helps to improve
the motivation and morale of employees as they know that they can be promoted to
senior position in the organisation if they work harder for the organisation.

(iv) Sense of security Internal recruitment creates a sense of security among the staff.

(v) No problem in adjustment As the organisation and the employees are familiar with
each other, this leads to smooth functioning of the enterprise without any problem in
adjustment on the part of the new employees or the organisation.
9. Why external sources of recruitment are better than internal sources? (All
India 2014, 2009)
or
External sources of recruitment are better than internal sources. How? Explain by
giving any four reasons in support of your answer. (Delhi 2010c)
Ans. External sources of recruitment are better than internal sources because (Any
four) :
(i) Fresh talent The entry of fresh talent into the organisation is encouraged. New
employees bring new ideas to the organisation.
(ii) Wider choice Through external recruitment, the organisation gets wider choice.
(iii) Qualified personnel By using external recruitment, the management can get
qualified and trained persons.
(iv) Latest technical knowledge Through campus placement, the organisation get
employees with latest technical knowledge.
(v) Competitive spirit When outsiders join the organisation, this develops a competitive
spirit in existing employees of the organisation.

10. State any four limitations of using internal sources of

recruitment. (Compartment 2014; All India 2008)

Ans. Limitations of internal sources of recruitment are as follows:

(i) No scope for fresh talent Internal sources may not be able to bring new competent
fresh talent, ideas and latest technical know-how.

(ii) Not suitable for new organisation A new enterprise cannot use internal sources of
recruitment. No organisation can fill all its vacancies from internal sources.

(iii) Limited choice The choice is limited as the recruitment can be made only out of
the candidates available within the organisation.

(iv) Employees become lethargic The employees may become lethargic if they are
sure of time bound promotions.

11. Explain any two external sources of recruitment. (All India 2011)
Ans. The two external sources of recruitment are:

(i) Employment exchanges They act as middlemen between the job seekers and the
organisation. The job seekers leave their bio-data with the employment exchanges and
the organisations approaches the employment exchanges for suitable candidates. Thus,
the employment exchanges bring the job givers in contact with the job seekers.

(ii) Campus recruitment Sometimes, the senior managers of the organisations visit
various professional colleges, technical institutes to get fresh graduates or the people
with the latest technical know-how. This type of recruitment is more common for
engineers, computer programmers, MBAs, etc. Organisation prefers fresh graduates
because they can be moulded according to the organisation’s requirement easily.

6 Mark Questions

12. Explain any four external sources of recruitment. Which of these sources is
ideal for a manufacturing organisation? (Delhi 2009)
or
What is meant by recruitment? Explain any four external sources of recruitment.
(Delhi 2008C)

Ans. Recruitment means inducing or attracting more and more candidates to apply for
vacant job positions in the organisation. This function is very important because the end
result of recruitment function is receiving large number of applications to make selection
from. Recruitment is a positive process as it attracts suitable candidates to apply for
available jobs. (2)
Different external sources of recruitment are:

(i) Casual callers It is generally followed by the factories of manufacturing

organisations to fill up vacancies at the labour level. In such cases the organisation
keeps the record of casual callers and present them at the time of interview.

(ii) Advertising The most common and popular method of external recruitment is
advertising, e.g. for the job of an accountant, the advertisment can be given in CA
journal, for lower rank it can be given in local newspapers and for higher rank it can be
given in national level reputed newspapers. Advertisement may also be done through
television.

(iii) Placement agencies and management consultant These agencies provide

nation-wide service of matching demand and supply of work force and invite the bio-
data and record from various job seekers and send them to suitable clients. These
agencies charge fees for providing such service.

(iv) Labour contractors They keep a close contact with labourers and they supply
manpower to the factory or manufacturing concerns. Through these contractors,
workers are appointed in factories at a very short notice.

13. What is meant by internal sources of recruitment? Why do organisations

prefer recruitment through internal sources? Explain. (All India 2009)

Ans. Under internal source of recruitment, the vacant job positions are filled by inducing
the existing employees of the organisation. It implies shifting of the existing employees
from one place/post to another place/post. This is called transfer. It also implies shifting
an employee to a higher position carrying higher responsibilities, facilities, status and
pay, through promotions.
Internal sources of recruitment are:
(i) Transfer It means shifting of employees from one job position to other at the same
level of authority. Only the working place is changed. Therefore, it refers to horizontal
movement of the workers. Transfer does not involve any drastic change in the
responsibilities and status of the employee.

(ii) Promotion It refers to shifting of employees from one job position to the other with
higher level of authority. Here, employees move in, upward direction within an
organisational structure. There is also an increase in compensation or salary, e.g.
promotion of a clerk to the post of an accountant.

14. Filling vacancies from within the organisation has some advantages as well
as limitation. Explain any three such advantages and any three limitations. (Delhi
2008)
or
What are internal sources of recruitment? State any four advantages and four
limitations of internal sources of recruitment. (Delhi 2008C)

Ans. Under internal source of recruitment, the vacant job positions are filled by inducing
the existing employees of the organisation. It implies shifting of the existing employees
from one place/post to another place/post. This is called transfer. It also implies shifting
an employee to a higher position carrying higher responsibilities, facilities, status and
pay, through promotions.
Internal sources of recruitment are:

(i) Transfer It means shifting of employees from one job position to other at the same
level of authority. Only the working place is changed. Therefore, it refers to horizontal
movement of the workers. Transfer does not involve any drastic change in the
responsibilities and status of the employee.

(ii) Promotion It refers to shifting of employees from one job position to the other with
higher level of authority. Here, employees move in, upward direction within an
organisational structure. There is also an increase in compensation or salary, e.g.
promotion of a clerk to the post of an accountant.
Internal sources of recruitment are better than external sources in the following
respects:

(i) Economical sources Internal sources are less time consuming and less expensive
because the organisation and the employees are already known to each other.

(ii) Simplifies the process of selection Since, the employees are already known to
the organisation, therefore, the process of selection and placement gets simplified.

(iii) Motivates employees Filling higher level jobs through promotion helps to improve
the motivation and morale of employees as they know that they can be promoted to
senior position in the organisation if they work harder for the organisation.
(iv) Sense of security Internal recruitment creates a sense of security among the staff.

(v) No problem in adjustment As the organisation and the employees are familiar with
each other, this leads to smooth functioning of the enterprise without any problem in
adjustment on the part of the new employees or the organisation.
Limitations of internal sources of recruitment are as follows:

(i) No scope for fresh talent Internal sources may not be able to bring new competent
fresh talent, ideas and latest technical know-how.

(ii) Not suitable for new organisation A new enterprise cannot use internal sources of
recruitment. No organisation can fill all its vacancies from internal sources.

(iii) Limited choice The choice is limited as the recruitment can be made only out of
the candidates available within the organisation.

(iv) Employees become lethargic The employees may become lethargic if they are
sure of time bound promotions.

15. Which source of recruitment is needed to bring new blood in the

organisation? Explain any three advantages and any two limitations of this
source. (HOTS; All India 2008)

Ans. External source of recruitment is needed to bring new blood in the organisation. It
is preferred whenever large number of job positions are vacant. Under this, the
organisation meets its manpower requirement from outside the organisation.
The three advantages of external sources of recruitment are as follows:
(i) Fresh talent The entry of fresh talent into the organisation is encouraged. New
employees bring new ideas to the organisation.
(ii) Latest technological knowledge Through campus placement, organisation can get
employees with latest technical know-how.
(iii) Competitive spirit When outsiders join the organisation, this develops a
competitive spirit in existing employees of the organisation.
Limitations of external sources of recruitment are as follows: (Any two)
(i) Employees may not adjust according to the rules and regulations of the
company The new employees may not adjust themselves as per the rules and
regulations of the organisation which means more chances of employee turnover.
(ii) Costly It is expensive to invite the outsiders to apply for the vacant job positions.
Companies have to bear heavy burden of advertising.
(iii) Time consuming It is a lengthy process as external recruitment takes more time.
 Selection & Process of Selection
1 Mark Question

[Link] is meant by selection of employees? (All India 2011)

Ans. Selection is the process of identifying and choosing the best person out of a
number of prospective candidates for a job.

3 Marks Question

2. Nishant, the director of a garment company, is planning to manufacture bags

for the utilisation of waste material from one of his garment units. He has decided
that this manufacturing unit will be set-up in a rural area of Orissa where people
have very few job opportunities and labour is available at very low rates. He also
thought of giving equal opportunities to men and women.
For this, he wanted four different heads for sales, account, purchase and
production. He gave an advertisement and shortlists ten candidates per post after
conducting different selection tests.

(i) Identify and state the next three steps for choosing the best candidate out of
the candidates short-listed.
(ii) Also identify two values which Nishant wants to communicate to the society
by setting up this manufacturing unit. (VBQ; Delhi 2013)

Ans. (i) Selection is done in the third step, in which a prospective candidate is chosen
from the pool of candidates. It ensures that the organisation gets the best among the
available and it also enhances the morale of the selected candidate. Preliminary
screening and selection tests have been conducted. The next three steps in the process
of selection are:

 Employment interview All applicants who qualify in selection tests are called for
an interview. Interview is formal face to face oral conversation between the
employer and the applicant.
 Reference and background checks A candidate who is successful in the
interview is required to give name and address of some references. The
organisation checks the credibility of the candidate through reference checks
 Selection decision A final decision has to be made about the selection among
the candidates who have cleared the interviews and reference checks.
 (ii) By setting up a manufacturing unit in the rural area of Orissa, Nishant wants to
communicate following values to the society:
 Manufacturing bags from the waste material, will help in reducing pollutants from
the environment and will also reduce wastage.
 Giving equal opportunities to men and women, will increase the standard of living
of rural area labourers.
6 Marks Questions

3. Explain the process of selection of employees. (Delhi 2010,2009c; All India

2010,2009)

Ans. Following are the main steps of selection process adopted by large organisations

(i) Preliminary screening It helps the manager to eliminate those applications who are
not suitable for the current job. Such screening helps in rejecting unfit job seekers by
analysing the information supplied in the application form.
(ii) Selection tests Through various tests, ability and skill of the candidates are
evaluated. These tests are divided into the following three categories:

 Psychological tests Some selection tests are of psychological nature. Objectives

of psychological tests is to examine the mental ability, interest in work, maturity,
etc of the candidates.
 Proficiency tests In this test, candidate’s ability and skill manifested in an
examination are verified. Here, special attention is paid to see the correctness of
the ability and skill as emphasised by the applicant.
 Other tests Main objective of this test is to know the understanding of the
candidates, his communication ability, his mental maturity, writing ability,
alertness, etc.

(iii) Employment interview Having successfully cleared all the tests related to
employment by the candidate, he is called for final interview. The objective is to judge
the personality of the candidate, his way of talking, his conduct and temperament, his
interest, presence of mind and maturity, etc.

(iv) Selection decision Applicants who clear selection tests, employment interview and
reference checks are selected. Prior taking final selection decision, the opinion of
concerned manager is sought.

(v) Job offer After successfully clearing, the job offer is given to the selected
candidates for job. A date is mentioned in the appointment letter, from which one has to
report for the duty.

(vi) Contract of employment After the acceptance of job offer by a selected candidate,
he becomes an employee of the organisation. In this phase, appointee signs various
documents. Main document among them is the attestation form in which the detailed
description of the employee is provided, which he himself attests. This can be used at
the time of need in future.
Apart from this, a written contract of employment is framed in which, the following
information is provided:

 Job title
  Rate of remuneration
 Working hours
 Leave rules •
 Grievance removal procedure

4. You are the personnel manager of Kapila and Company Ltd. You have been
directed by the directors of the company to select a chartered accountant for the
company. Explain the selection procedure you will follow for the same. (HOTS;
Delhi 2008C)

Ans. Following steps are involved in the selection process:

(i) Scrutiny of applications Applications are received in response to the advertisement

or from other sources. They are scrutinised in the light of requirement and suitability and
those found unsuitable are dropped or rejected.

(ii) Selection/Employment tests These tests are developed by psychologists and

other experts to assess candidate’s nature, abilities and characteristics. There are
several tests such as aptitude test, Intelligence test, Interest test, personality test, trade
test, etc.

(iii) Employment interview In this interview, the ability and suitability of a candidate for
a specific job is directly judged by experts or specialists in the board of selection.

(iv) Selection decision Candidates who are considered suitable are selected after
taking the opinion of all the selectors, especially the manager of the concerned
department.

(v) Medical or physical test Selected candidates may be asked to get themselves
thoroughly examined by a prescribed doctor within or outside the organisation.

(vi) Job offer After satisfying, a job offer is being given to the applicant so that within a
reasonable time an applicant would be able to report.

(vii) Contract of employment Than after the acceptance of job offer a contract uf
employment is being given to the employees that includes terms and conditions^!;
employment such as job title, job description, pay, working hours etc.,
 Training, Development & Methods of Training

1 Mark Questions

1. Name and state the ‘on-the-job method of training’ that is used to give training
to the electricians. (HOTS; All India 2013)

Ans. Apprenticeship Programme It is on-the-job training method. Under this, a master

worker as a trainer is appointed, who guides the workers regarding the skill of job.
Electricians are required to undergo such trainings.

2. Name the method of training in which trainees learn on the equipments they
will be using. (HOTS; Delhi 2010; All India 2010)

Ans. In vestibule training, employees learn their jobs on the equipment they will be
using and actual work environments are created in a classroom, which is away from the
actual work floor.

3. Name the method of training in which the trainees works directly with a senior
manager and the manager takes full responsibility of the trainee.
(HOTS; Delhi 2010; All India 2010)

Ans. Coaching.

4. Name the method of training in which the trainee learns under the guidance of
a master worker. (HOTS; Delhi 2010; All India 2010)

Ans. Apprenticeship training.

3 Marks Questions

5. Why is training important for the employees? State any three reasons.
(Compartment 2014; All India 2012)
or
State any three reasons why training is beneficial for employees of an
organisation. (Foreign 2014; Delhi 2008)

Ans. The employees training in an organisation is necessary due to the following

reasons (Any three)
(i) Systematic learning Training is systematic learning, always better than hit and trial
method which leads to reduction of wastage of efforts and money.
(ii) Increase in productivity A trained worker is more efficient in his work. He has
better knowledge, skills and speed for his job. This leads to increase output which is
profitable for the enterprise.
(iii) Fewer accidents Trained employees are proficient in handling machinery and
equipment. Thus, less prone to accidents.

6. Why is training important for an organisation? State any three reasons. (Delhi
2012)

Ans. Training is important for an organisation because of the following reasons;

(i) Training of the workers leads to increase in productivity and reduction of wastages.
(ii) It reduces absenteeism and labour turnover as trained workers become more
confident and thus, they become regular and stick to their job and place.
(iii) It is required to teach technology and work methods to employees.

7. Define training and development. (Delhi 2012)

Ans. Training It refers to the process by which aptitudes, skills and abilities of
employees to perform specific jobs are improved. According to Michael Armstrong,
‘Training is the systematic development of knowledge, skills and attitudes required by
an individual to perform adequately a given task or job’.

Development It involves growth of an employee in all respects. It denotes the process

by which the employees acquire skills and competence to do their present job and
increase their capabilities for handling higher jobs in the future. Development is a
continuous process of building competencies of employees and thus facilitating overall
development of employees.

4/5 Marks Questions

8. Manu, a Chief Manager in a company using highly sophisticated machines and

equipments, wants that very employee should be fully trained before using the
machines and equipments. Suggest and describe the best method of training that
Manu can use for training of the employees. (HOTS; Delhi 2012)

Ans. Vestibule method of training should be imparted in the given situation.

Vestibule training Under this method, employees learn their jobs on the equipment
they will be using, but the training is conducted away from the actual work floor. Actual
work environment is created in a classroom and employees use the same materials,
files and equipments. This is usually done when employees are required to handle
sophisticated machinery and equipment. Vestibule training is suitable where a large
number of persons are to be trained at the same time for the same kind of work. The
main emphasis is on learning rather than on production.
9. Atul is working in an organisation. After every three months, his manager
transfers him from one department to another so that he may gain a broader
understanding of all the departments of the organisation.
Name and explain the method of training Atul is undergoing. (HOTS, All India
2012)

Ans. Job rotation training This kind of training involves shifting the trainee from one
department to another or from one job to another. This enables the trainee to gain a
broader understanding of all parts of the business and how the organisation as a whole
functions. When employees are trained by this method, the organisation finds it easier
at the time of promotions, replacements or transfers. This will broaden his horizon and
capacity to do a variety of jobs. Rotation of an employee on different jobs should not be
done frequently.

10. State any four reasons why training is needed in an organisation. (Delhi
2011,2008)

Ans. Training is important for an organisation because of the following reasons;

(i) Training of the workers leads to increase in productivity and reduction of wastages.
(ii) It reduces absenteeism and labour turnover as trained workers become more
confident and thus, they become regular and stick to their job and place.
(iii) It is required to teach technology and work methods to employees.

11. Explain
(i) Apprenticeship and
(ii) Job rotation, as methods of training.(All India 2011)

Ans. (i) Apprenticeship In this, trainee work under the guidance and supervision of a
guide or a trainer for a prescribed amount of time. During this process of training, the
apprentice is imparted both theoretical and practical training, by the expert. Some of the
areas of apprenticeship training includes

 Building construction.
 Skilled craft like those mechanics, electricians, welders, etc

(ii) Job rotation training This kind of training involves shifting the trainee from one
department to another or from one job to another. This enables the trainee to gain a
broader understanding of all parts of the business and how the organisation as a whole
functions.

When employees are trained by this method, the organisation finds it easier at the time
of promotions, replacements or transfers. This will broaden his horizon and capacity to
do a variety of jobs. Rotation of an employee on different jobs should not be done
frequently.
12. Some learning opportunities are designed and delivered to improve skills and
abilities of employees whereas some others are designed to help in the growth of
individuals in all respects. Identify and explain the two concepts explained above,
(HOTS; Delhi 2009)

Ans. Training Some learning opportunities designed and delivered to improve skills
and abilities of employees are referred to as training.
It is the systematic development of knowledge, skills and attitudes required by an
individual to perform adequately a given task or job.

Development Opportunities designed to help in the growth of individuals in all respects

are referred to as development.
It denotes the process by which the employees acquire skills and competence to do
their present job and increase their capabilities for handling higher jobs in the future.

6 Marks Questions

13. What is meant by training? State any four benefits of training to the
organisation. (Delhi 2014, 2009C)

Ans. Training is the systematic development of knowledge, skills and attitudes required
by an individual to perform adequately a given task or job. The purpose of training is to
achieve a change in the -*’* behaviour of those trained and to enable them to do their
jobs in a better way. Training is not a ‘one step’ process, but is a continuous or never
ending process
Benefits of training are as follows:

(i) Reduced learning time A trained employee takes less time in learning the job as
compared to untrained employee. As a result, there is less wastage of resources and
higher productivity in organisation.

(ii) Better performance The performance of trained employees is always better than
the performance of untrained employees. In the training programmes, their qualities and
capabilities are improved and employees get some experience of working on the job
before they are actually assigned the job. This improves their performance and
efficiency level.

(iii) Attitude formation The training and development aims at moulding the employees
so that they develop positive attitude for the organisation. It motivate them, to be ready
to take the initiative and thus on attitude of support and cooperation exist among the
employees.

(iv) Helps in solving operational problems While performing various activities, the
organisation faces various problems such as problem of absenteeism, wastage of
resources, dissatisfaction of employees, lack of team work, etc. Through training, these
operational problems can be avoided or removed in the organisation.
14. A newly appointed personnel manager is of the view that training is beneficial
only for the workers and not for the organisation. Do you agree with his view?
Give any four reasons in support of your answer. (HOTS; All India 2010; Delhi
2010c)
or
Training is beneficial both for organisation as well as for the employees. Explain
any three benefits of training towards the organisation and any three towards the
employees. (Delhi 2008)

Ans. No, as per my opinion, manager’s view point is not correct. Training is beneficial
for both, viz organisation and for workers.

Training is important for an organisation

Training is important for an organisation because of the following reasons;
(i) Training of the workers leads to increase in productivity and reduction of wastages.
(ii) It reduces absenteeism and labour turnover as trained workers become more
confident and thus, they become regular and stick to their job and place.
(iii) It is required to teach technology and work methods to employees.

Training is important for the employees

The employees training in an organisation is necessary due to the following reasons
(Any three)

(i) Systematic learning Training is systematic learning, always better than hit and trial
method which leads to reduction of wastage of efforts and money.

(ii) Increase in productivity A trained worker is more efficient in his work. He has
better knowledge, skills and speed for his job. This leads to increase output which is
profitable for the enterprise.

(iii) Fewer accidents Trained employees are proficient in handling machinery and
equipment. Thus, less prone to accidents.

15. Explain in brief the following methods of training to the workers

 Apprenticeship training
 Job rotation traning
 Vestibule training (All India 2008; Delhi 2008C)

Ans. (i) Apprenticeship Training

In this, trainee work under the guidance and supervision of a guide or a trainer for a
prescribed amount of time. During this process of training, the apprentice is imparted
both theoritical and practical training, by the expert. Some of the areas of apprenticeship
training includes
  Building construction.
 Skilled craft like those mechanics, electricians, welders, etc

(ii) Job rotation training This kind of training involves shifting the trainee from one
department to another or from one job to another. This enables the trainee to gain a
broader understanding of all parts of the business and how the organisation as a whole
functions.

When employees are trained by this method, the organisation finds it easier at the time
of promotions, replacements or transfers. This will broaden his horizon and capacity to
do a variety of jobs. Rotation of an employee on different jobs should not be done
frequently.
(iii)Vestibule training

Vestibule method of training should be imparted in the given situation.

Under this method, employees learn their jobs on the equipment they will be using, but
the training is conducted away from the actual work floor. Actual work environment is
created in a classroom and employees use the same materials, files and equipments.
This is usually done when employees are required to handle sophisticated machinery
and equipment. Vestibule training is suitable where a large number of persons are to be
trained at the same time for the same kind of work. The main emphasis is on learning
rather than on production.
 Directing

1. For taking the company out of losses, Ravi Kumar took over as the Managing
Director of the struggling ‘Vova Watch Company’ in January 2020. As soon as he
joined, he tried to find out the reason for the company not doing well. He found
that the employees were not involved in decision-making and they had to just
follow orders, resulting in low morale of employees.
Recognising the need for change, Ravi Kumar started on a journey to bring back
the enthusiasm and motivation of the employees. He initiated open dialogues and
encouraged them to actively participate in decision-making. Together, they
developed action plans to address the company’s challenges regarding outdated
designs and inefficient production processes etc.
As time passed, ‘Vova Watch Company’ transformed from a struggling enterprise
to a profit making enterprise. Identify the leadership style of Ravi Kumar : (2024)
(A) Autocratic leadership style
(B) Democratic leadership style
(C) Free-rein leadership style
(D) Both (A) and (B)
Ans. (B) Democratic leadership style
 Previous Years' CBSE Board Questions
7.1 Directing : Characteristics and Importance
VSA (1 mark)
1. How does directing initiate action?
(Al 2014 C)
SA I (3 marks)
2. State any three points of importance of 'Directing' function of management.
(Term-II, 2021-22)
OR
How directing helps in efficient and effective functions of the organisation?
Explain by giving any three points.
(Delhi 2014)
LA (5 marks)
3. Riya was working as a manager in a hotel. During COVID-19 she lost her job.
Now she has started her own restaurant which was providing immunity boosting
food. Her restaurant was a success and she was earning a good profit. To benefit
the people of other areas with her immunity-boosting food, she thought of
starting three restaurants in three different cities. For this, she appointed three
managers. She told all the managers that to be successful it is necessary that they
should guide the people working in their respective teams about the work to be
done by them, when they should do it and how they should do it. She also added
that mere transfer of views or information is not sufficient, it is necessary that
their instructions are implemented in the proper perspective, so that the
organisation may achieve its objectives. To improve the performance level of
employees, she suggested that they develop insights into causes of behaviour of
people. They have to make subordinates act in a desired manner to achieve
organisational goals.
(a) Identify and state the function of management discussed in the above para.
(b) State any three points of importance of the function identified in (a) above.
(Term-11, 2021-22 C)
4. Explain any five points of importance of directing function of management.
(AI 2019, Delhi 2015 C)
7.2 Elements of Directing
VSA (1 mark)
5. Give the meaning of 'motivation' as an element of directing. (Delhi 2017)
SA I (3 marks)
6. Shiv has recently joined an industrial unit manufacturing low-cost LED bulb.
He has five workers working under him. He gives them instructions to ensures
optimum utilisation of resources and achievement of work targets. He provides
good on-the-job training to the workers to build an efficient team. He also
analyses the work performed by them and gives feedback. The work performed
by Shiv may be described as an important element of directing. Name the element
and state two other functions which may be performed by Shiv in addition to
those highlighted above. (AI 2019)
7. Explain briefly any three functions performed by a supervisor. (Delhi 2017)
SA II (4 marks)
8. Identify and explain the elements of 'directing' in the following cases:
(i) Mohan guides the efforts of his subordinates to accomplish the desired
objectives and gives instructions to ensure optimum utilisation of resources and
achievement of work targets.
(ii) S.S. Tripathi, Managing Director, explains the plan in writing to the
departmental managers and receives their feedback. (2021 C)
ET (6 marks)
9. 'The functions and performance of the supervisor are vital to an organisation
because he is directly related with the workers whereas other managers have no
direct touch with bottom level workers. In the light of this statement, explain any
four functions of a supervisor. (AI 2014 C)
7.3 Motivation - Concept, Maslow's
Hierarchy of Needs, Financial and Non-Financial Incentives
MCQ
10. Which of the following is a financial incentive?
(a) Perquisites
(b) Status
(c) Job-enrichment
(d) Job-security (2021 C)
VSA (1 mark)
11. Give an example of 'Employee Recognition Programmes' as a non-financial
incentive. (Delhi 2014)
12. Give any two characteristics of 'Organisational Climate' that influence the
behaviour of individuals and act as a non-financial incentive. (AI 2014)
13. Why is it said that 'Motivation is a complex process'? (Delhi 2014 C)
14. List any two non-financial incentives. (Delhi 2014 C)
SA I (3 marks)
15. Agrima, Arunima and Avika are pursuing MBA from a reputed institution.
Now it is the time of their placement. Agrima wants to work in a company which
would provide her more authority for fulfilling her duties and will give
recognition, rewards, perquisites and prestige of job. Arunima wants to work in
an organisation in which behaviour of individuals is influenced by its
characteristics like autonomy, reward orientation, consideration to employees,
risk taking etc. Avika wants to join the organisation which has appropriate skill
development programmes and sound promotion policy that encourages
employees to exhibit improved performance.
Identify and state the incentives about which Agrima, Arunima and Avika are
talking about. (Term-11, 2021-22)
16. State 'Job Enrichment' and 'Employee Participation' as non-financial
incentives. How do they motivate employees? (Delhi 2019)
17. Huma is working in a company on a permanent basis. As per the job
agreement, she had to work for 8 hours a day and was free to work overtime.
Huma worked overtime, due to which she fell ill and had to take leave from her
work. No one showed concern or enquired about her health. She realised that she
was fulfilling only some of her needs while some other needs still remained to be
fulfilled.
(i) By quoting the lines from the above para, identify the needs of Huma which
she is able to fulfill.
(ii) Also explain two other needs of Huma followed by the above needs, which
still remained to be satisfied. (AI 2014)
18. Rahim was working in an enterprise on daily wages basis. It was difficult for
him to fulfill the basic needs of his family. His daughter fell ill. He had no money
for his daughter's treatment. To meet the expenses of her treatment, he
participated in a cycle race and won the prize money. The cycle company offered
him a permanent pensionable job which he happily accepted.
(i) By quoting the lines from the above para identify the needs of Rahim that are
satisfied by the offer of cycle company.
(ii) Also, explain two other needs of Rahim followed by above that are still to be
satisfied. (Delhi 2014)
SA II (4 marks)
19. Mahamana Enterprises is not only giving salary to its employees but it also
offers bonus to them over and above the salary. To further encourage the
employees, it announced that it will provide a share in the profits of the company
to them. These incentives are helpful in increasing the purchasing power of the
employees.
State four other incentives of the type of incentive discussed in the above para.
(2023)
20. 'Zeto Ltd.' offers its employees shares at a price which is less than the market
price.
(a) Identify the incentive offered by the company and state the type of incentive
discussed above.
(b) State two other incentives of the type of incentive identified in (a) above.
(2023)
21. Identify the need from the 'Maslow's Need Hierarchy' in the following
statements and also state the four assumptions on which Maslow's theory is
based.
(i) These needs refer to affection, sense of belongingness, acceptance and
friendship.
(ii) It refers to the drive to become what one is capable of becoming.
(iii) These needs include factors such as self-respect, autonomy status,
recognition and attention.
(iv) These needs provide security and protection from physical and emotional
harm. (2021 C)
22. Ram Murthy, the CEO of 'Goodcare Hospitals, a leading chain of hospitals,
decided to reward the good work of the doctors of his organisation. For this, he
instituted two running trophies. A 'Healthcare Achievers Trophy' to acknowledge
and appreciate the tireless efforts of the doctors who rendered selfless services to
the patients and another 'Beti Bachao Trophy' to recognise the outstanding work
done by the doctors in saving the girl child. The CEO also wanted to improve the
health services in rural areas all over the country. He decided that all doctors
must work in rural area for at least six months. He also decided that the
paramedical staff should be employed locally.
(a) Identify the incentive provided by 'Goodcare Hospitals' to its doctors through
running trophies.
(b) Which need of the doctors will be satisfied through the incentive identified in
part (a)? State.
(c) State any values that the CEO of 'Goodcare Hospital' is trying to communicate
to the society. (2018)
23. Alfa Ltd. was dealing in renewable energy. To get the business, the team
leader and his team used to travel to different states to give presentation to their
clients. As per the policy of the company, the leader used to travel by air, whereas
his team travelled by road/train. It was not only time consuming but also at times
forced female members to travel alone.
As a result, the subordinates were not acting in a desired manner to achieve
organisational goals. The CEO came to know about it. He called the team leader,
discussed the matter with him and decided to change the travel policy of the
company. It was decided that all the members including the leader would travel
together in future and would usefully utilise the travelling time in discussion with
the subordinates about presentation to be given to the clients. This made a
positive impact and every member of the team started acting in a manner, as
desired by the team leader.
State the features of the elements of the function of management used by the
CEO. (Delhi 2016)
LA (5 marks)
24. Explain any five non-financial incentives. (Al 2019)
25. Smita had been working as an assistant manager with 'Johnson Enterprises.
for the last ten years. She was very popular amongst her colleagues because of
her commitment and dedication towards the work. When the manager senior to
her retired, all her colleagues though that now Smita would be promoted. But to
everyone's surprise the vacant post was filled by an outsider, Mrs. Rita. Smita felt
demoralised and her performance started declining. She would abstain herself
often and could not meet her targets. Mrs. Rita was a good leader, who would not
only instruct her subordinates but would also guide and inspire them. She
noticed Smita's behaviour and felt that her performance could be improved. She
started involving Smita in decision making-issues related to the organisation and
made her a part of high-level joint-management committee. Smita was now
punctual in office and her performance started improving.
(i) Identify the function of management being performed by Rita.
(ii) Name the element of the above function of management which helped Rita to
improve Smita's behaviour.
(iii) State any three features of the element identified in (ii) above. (Delhi 2015)
26. Anjali had been working with "Tata Enterprises' for the last ten years. She was
famous for her dedication towards the work. When the manager senior to her
retired, all her colleagues though that now Anjali would be promoted. But to
everyone's surprise the vacant post was filled by an outsider 'Miss Monika'. Anjali
felt demoralised and her performance started declining. She would absent herself
often and could not meet her targets.
Miss Monika was a good leader who would not only instruct her subordinates,
but also guide and inspire them. She noticed Anjali's behaviour and felt that her
performance could be improved. She started involving Anjali in decision-making
issues related to the organisation and made her a part of a high-level joint
management committee. Anjali was now punctual to office and her performance
started improving.
(a) Identify the function of management being performed by Monika.
(b) Name the element of the above function of management which helped
Monika to improve Anjali's behaviour.
(c) State any three features of the element identified in (b) above. (Al 2015)
7.4 Leadership-Concept, Styles-Authoritative,
Democratic and Laissez Faire
VSA (1/2 mark)
27. Give the meaning of 'Autocratic style of leadership'. (Term-11, 2021-22)
28. Differentiate between 'Democratic' and 'Laissez-Faire' style of leadership.
(AI 2019)
SA I (3 marks)
29. 'Leadership indicates the ability of an individual to maintain good
interpersonal relations with followers and motivate them to contribute towards
achieving organisational objectives: In the light of this statement, explain any two
styles of leadership.
(2021 C)
30. Describe 'Autocratic Style' of leadership. (Foreign 2019)
31. Sandhya is a successful manager at Manisons Enterprises. She has a team of
twelve people working under her. She encourages them to set their own
objectives and take decisions. She respects their opinions and supports them, so
that they can perform their duties and accomplish organisational objectives. To
manage and exercise effective control she uses forces within the group. As an
intelligent manager, at times, she also makes use of positive aspects of informal
communication. This way, she is able to unify diverse interests and ensure that
targets are met.
(a) There are many theories and styles of influencing people's behaviour. Identify
the style used by Sandhya which is based on the use of authority.
(b) State two positive aspects of the communication discussed above, which
Sandhya is using as an intelligent manager. (2018)
32. Pramod was a supervisor at 'Annapurna Aata' factory. The factory was
producing 200 quintals of aata every day. His job was to make sure that the work
goes on smoothly and there was no interruption in production. He was a good
leader who would give orders only after consulting his subordinates and work
out the policies with the acceptance of the group.
Identify and describe the leadership style being adopted by Pramod.
(Delhi 2015)
SA II (4 marks)
33. Umang Gupta is the Managing Director of Denver Ltd. The company had
established a good name for itself and had been doing well. It was known for
timely completion of orders. The Production Manager, Ms. Kanta was efficiently
handling the processing of orders and had a team of fourteen motivated
employees working under her. Everything was going on well. Unfortunately, she
met with an accident. Umang knew that in the absence of Ms. Kanta, the company
may not be able to meet its target. This will lead to customer dissatisfaction with
the risk of loss of business and goodwill. So, he had a meeting with his employees
in which accurate and speedy processing of orders was planned. Everybody
agreed to work as team because the behaviour of Umang Gupta was positive
towards the employees of the organisation. Hence, everyone put in extra time and
efforts and the targets were met on time.
Not only this, Umang visited Ms. Kanta and advised her to take sufficient rest.
(a) Identify the leadership style of Umang Gupta and draw a diagram depicting
the style.
(b) State any two values highlighted by the behaviour of Umang Gupta.
(Delhi 2017)
LA (5 marks)
34. Explain concept of leadership and its various styles. (AI 2015 C)
7.5 Communication-Concept, Formal and Informal Communication; Barriers to
Effective Communication, How to Overcome the Barriers?
VSA (1 mark)
35. What is meant by 'Encoding' as an element of communication? (Delhi 2014)
36. What is meant by 'Decoding' as an element of communication? (AI 2014)
SA I (3 marks)
37. Give the meaning of formal and informal communication.
(Term-11,2021-22 C, 2021 C)
38. Describe any three personal barriers to effective communication.
(Foreign 2019)
39. Explain briefly any three measures to overcome the communication barriers.
(Delhi 2017)
40. Mr. Shudhendu Bose is the owner of 'Bikmac Enterprises' carrying on the
business of manufacturing various kinds of biscuits. There was a lot of
discontentment in the organisation and the targets were not being met. He asked
his son, Naval, who had recently completed his MBA to find out the reason.
Naval found that all decision-making of the enterprises were in the hands of his
father. His father didn't believe in his employees. As a result, both the employer
and the employees were not able to understand each other's messages in the
same sense. Thus, the employees were not happy and targets were not met.
(a) Identify any two communication barriers because of which Bikmac
Enterprises was not able to achieve its targets.
(b) State one more barrier each of the type identified in (a) above.
(Delhi 2016, Al 2016)
41. Neeraj, a sales representative of 'Omida Ltd. has changed seven jobs in the last
one year. He is a hard-working person but is not able to finalise deals with the
customers due to his inadequate vocabulary and omission of needed words.
Sometimes, he uses wrong words because of which intended meaning is not
conveyed. All this creates a mis-understanding between him and his clients.
(a) Identify the communication barrier discussed above.
(b) State the category of this communication barrier.
(c) Explain any other communication barrier of the same category.
(Delhi 2015)
42. Jaideep recently joined as the Managing Director of Tivori Ltd., an apparel
designing company. He observed that the company had a number of experienced
fashion designers on its payroll. They regularly offered useful suggestions which
were neither appreciated nor rewarded by the company. Instead, the company
outsourced its services to some renowned fashion designers and paid them a
good compensation for their services. Because of this the employees felt
disheartened and stopped giving useful suggestions.
(a) Identify the communication barrier discussed above.
(b) State the category of this communication barrier.
(c) Explain any other communication barrier of the same category. (Al 2015)
SA II (4 marks)
43. Nitya is a student of class XII of a well-known school. She has a preconceived
notion that her teacher always finds fault in her work. One day while checking the
project work of class XII, her teacher wanted to appreciate Nitya for her hard
work and good performance, but before she could complete her sentence, Nitya
left the room without listening to her teacher.
(a) Identify the 'barrier to communication' and also the type/category of barrier
to which it is related.
(b) Explain two other communication barriers of the type/category identified in
(a) above. (2023)
44. Give the meaning of 'Formal Communication' and 'Informal Communication'.
(2023)
45. State any four organisational barriers of communication. (2023)
46. Alka is working in the Accounts Department of 'Modern Locks Ltd. Her
mother is not well and to attend to her she wanted to take leave for one week. For
this, she went to the Senior Accountant, Manoj and discussed her problem. At
that time Manoj was simultaneously checking the Balance Sheet of the company.
Since his mind was preoccupied in some work, he did not listen to Alka
attentively and could not understand her problem. Alka was quite disappointed
with the behaviour of Manoj.
(a) Identify the type of communication barrier discussed above.
(b) Also explain any three barriers of the same type. (2021 C)
LA (5 marks)
47. Arun is working in a multinational company in Gurgaon. He was running
temperature for the last many days. When his blood was tested, he was found
positive for dengue with a very low platelet count. Therefore, he was admitted in
the hospital and a blood transfusion was advised by the doctors. One of his
colleagues sent a text message about it to his immediate superior 'Mr. Narain' in
turn sent a text message to the employees of the organisation requesting them to
donate blood for Arun. When the General Manager came to know about it, he
ordered for fumigation in the company premise and cleanliness of the
surroundings.
(a) From the above para quote lines that indicate formal and informal
communication.
(b) State any two features of informal communication.
(c) Identify any two values that are being communicated to the society in the
above case. (Delhi 2016)
48. "The organisation which are keen on developing effective communication,
should adopt suitable measures to overcome the barriers to communication and
improve communication effectiveness. 'Suggest and explain any such five
measures. (Delhi 2015 C)
49. Explain any five semantic barriers to communication. (AI 2015 C)
ET (6 marks)
50. Describe psychological barriers to effective communication. (Delhi 2014 C)
51. Describe personal barriers to effective communication. (AI 2014 C)
 CBSE Sample Questions
7.1 Directing : Characteristics and Importance
SA I (3 marks)
1. State any three points of importance of Directing.
(Term-11, 2021-22)
7.2 Elements of Directing
SA II (4 marks)
2. Identity and explain the elements of directing mentioned below:
(a) Astha, a manager, has the ability to influence others to bring about a change in
their behaviour.
(b) Neeraj, a managing director, declares share in the profits to the manager for
their contribution to increase profits of the company.
(2020-21)
7.3 Motivation - Concept, Maslow's
Hierarchy of Needs, Financial and Non-Financial Incentives
SA I (3 marks)
3. In Saarthak Steel several initiatives have been taken to further improve the
motivation levels of employees through designing jobs that include greater
variety of work content, providing certain stability about future income and
work, providing fringe benefits like housing, medical aid, etc., allotment of shares
in line with various incentives. Identify and briefly explain the incentives being
given by the organisation to the employees.
(2022-23)
4. Mr. Pawan Kumar, the CEO of an E-Commerce start up, which was facing the
problem of huge employee turnover, decided to hold a meeting with the
managers to discuss the issue. While addressing the managers in the meeting, he
advised them to take certain measures which focus on psychological, social and
emotional factors, in order to motivate employees. Explain any two such
measures discussed by him, when he suggested that job should be made
interesting so that the job itself becomes a source of motivation, employees
should be congratulated for good performance, also, stability regarding future
income and work should be provided to employees, in order to develop a positive
attitude among the subordinates.
(Term-II, 2021-22)
7.4 Leadership-Concept, Styles-Authoritative,
Democratic and Laissez Faire
SA I (3 marks)
5. Define leadership as an element of Directing? Enumerate any two styles of
Leadership.
(Term-11, 2021-22)
SA II (4 marks)
6. Pramod is a supervisor at 'Shyam Breads and Biscuits Factory'. The factory
produces 20,000 packets of bread and biscuits every day. As a supervisor, Pramod
ensures that work goes on smoothly and there is no interruption in production.
He is a good leader who gives orders only after consulting his subordinates,
working out the policies with the acceptance of the group. Identify and explain
the leadership style being adopted by Pramod.
(2020-21)
7.5 Communication-Concept, Formal and Informal Communication; Barriers to
Effective Communication, How to Overcome the Barriers?
SA II (4 marks)
7. State any four barriers to communication which are concerned with problems
and obstructions in the process of encoding and decoding the message into
words or impressions.
(2022-23)
8. State any four barriers to communication which are related to authority
relationships, rules and regulations of the company.
(2022-23)
9. Briefly explain the positive and negative aspects of the type of communication
which arises out of the need of employees to exchange their views.
(2020-21)
 ANSWERS
Previous Years' CBSE Board Questions
1. Directing is the function of initiating action by means of giving guidance and
instructions to people for doing work. While other functions are preparatory
functions.
2. Directing is the process of instructing, motivating, guiding and leading people
to work to the best of their capabilities in order to achieve predetermined goals
and objectives.
Importance of Directing:
(i) Achieving objectives: The function of directing initiates the actual action in an
organisation. An individual cannot start working without proper instructions and
directions. Directing helps individuals to complete the assigned task properly and
on time.
(ii) Integration of efforts: Every organisation comprises a number of employees
who have different jobs assigned to them and work at different levels. It is only
through directing that their individual efforts are integrated and channelised
towards the common organisational goals.
(iii) Employee development: Proper directing guides employees in the right
direction. Elements of directing such as motivation and leadership encourage the
employees to work to the best of their capabilities.
3. (a) Directing function of management is discussed in the given para.
Directing is the process of instructing, guiding, communicating, counselling,
motivating and leading people in the organisation to achieve its objectives.
(b) Importance of Directing function are as follows:
(i) Directing helps to initiate action by people in the organisation towards
attainment of desired objectives.
(ii)Directing integrates employees' efforts in the organisation in such a way that
every individual effort contributes to the organisational performance.
(iii) Directing guides employees to fully realise their potential and capabilities by
motivating and providing effective leadership.
(iv)Directing facilitates introduction of needed changes in the organisation.
(v) Effective directing helps to bring stability and balance in the organisation by
fostering cooperation and commitment among the people.
4. Directing helps in the effective and efficient functioning of the organisations
because of the following reasons:
(a) Initiates action: Directing initiates action by guiding, leading, harmonising
and managing the human elements in an organisation to achieve the desired
goals.
(b) Means of motivation and leadership: Directing guides employees to fully
realise their potential and capabilities by motivating and providing effective
leadership.
(c) Facilitates change: All organisations operate in a constantly changing
environment. The changing environment of business can force organisations to
bring changes within the organisation. Such changes can be managed effectively
with the help of proper directing.
(d) Stability and Balance: Effective directing helps to bring stability and balance
in the organisation since it fosters cooperation and commitment among the
people and helps to achieve balance among various groups, activities and the
departments.
(e) Integrates employees' efforts: It is through directing that the employees work
as a team and contribute to achieve organisational goals.
5. Motivation means incitement or inducement to act in the desired way so that
employee accomplish their work. Thus, motivation is an important element that
makes the 'Directing' function successful.
6. The element of directing which is discussed above in the question is
supervision. It is the process of guiding and instructing the subordinates towards
the achievement of desired goals and objectives of the organisation. A supervisor
is a person who lies immediately above the worker in the organisational
hierarchy and directly oversees the activities of the subordinates.
The other functions which may be performed by Shiv in addition to giving
instructions and feedback are:
(i) He acts as a link between the managers and the workers. It is through the
supervisor that the management communicates the ideas and policies to the
workers and the workers communicate their problems and grievances to the
management.
(ii) He is in direct contact with the employees and thereby guides and supports
them. In this way, he helps in maintaining harmony and unity among the
employees.
7. Roles performed by a supervisor are explained below:
(i) Supervisor maintains day-to-day contact and maintains friendly relations with
workers. A good supervisor acts as a guide, friend and philosopher to the
workers.
(ii) Supervisor acts as a link between workers and management. He conveys
management ideas to the workers on one hand and worker's problems to the
management on the other. This role played by supervisor helps to avoid
misunderstandings and conflicts between management and workers/employees.
(iii) Supervisor plays a key role in maintaining group unity among workers
placed under his control. He sorts out internal differences and maintains
harmony among workers.
(iv) Supervisor ensures performance of work according to the targets set. He
takes responsibility for task achievement and motivates his workers effectively.
(v) Supervisor provides good on the-job training to the workers and employees.
A skilled and knowledgeable supervisor can build efficient team of workers.
8. (i) Supervision :- Supervision means overseeing what is being done by the
subordinates and giving instructions to ensure optimal utilisation of resources
and achievement of work targets.
(ii) Communication :- Communication is the process of exchange of ideas, views,
facts, feelings and information, between or among people to create common
understanding.
9. Functions of Supervisor:
(i) The supervisor maintains day-to-day contact and friendly relations with
workers. A good supervisor acts as a guide, friend and philosopher to the
workers.
(ii) Supervisor acts as a link between management and the workers by conveying
the management targets, policies, etc., to the workers and the problems and ideas
of the worker to the management. This role helps in avoiding conflicts and
misunderstandings between management and the workers.
(iii) He plays a key role in maintaining group unity and sorts out internal
differences among the workers.
(iv) A good supervisor continuously analyses the work performed by the workers
and gives them feedback and suggestion to improve their working skills.
(v) Supervisors provide regular on-the-job training to workers.
(vi) Supervisors ensures performance according to the target set. He motivates
his team for better performance.
10. (a): Perquisites
11. Self actualisation needs, Congratulating the employees for good performance
done.
12. Organisational climate indicates the characteristics that distinguish an
organisation. Such as individual autonomy, reward orientation, risk taking etc.,
employees like to work in such organisations.
13. Motivation is a complex process as the individuals are different from each
other in their expectations, perceptions and reactions.
14. (i) Career Advancement Opportunity
(ii) Job Enrichment.
15. Agrima ⇒ status: Ranking position of the Job. Agrima is looking for a rise in
status in terms of power, authority, responsibility, etc. Social, Psychological and
esteem needs of an individual are satisfied by the status given to their job.
Arunima ⇒ Organisational Climate: Refers to characteristics such as employee
freedom, recognition of performance, incentives and rewards that influence the
behaviour of the employees.
Avika ⇒ Career Advancement Opportunities: Offering career and growth
opportunities to the employees by providing skill development programmes and
promotions. Promotions play a vital role in encouraging employees to work
effectively.
16. (i) Job Enrichment- Job enrichment refers to the process of designing jobs in a
manner that it involves more variety of work content, higher level of skills and
knowledge, giving more authority to employees, etc. Endowing the employee
with such challenging work and greater responsibility that requires higher
knowledge and skill will motivate them to work efficiently and effectively to
complete the goals of the organisation.
(ii) Employee Participation-As per this incentive, allowing more participation of
employees in policy and decision-making matters acts as an important non-
financial incentive as it makes them to feel a part of the organisation through
Joint management committees, work committees, etc.
17. (i) The needs of Huma which she is able to fulfill:
(a) Basic Physiological needs
(b) Safety or Security needs
(ii) Huma's needs, which still remained to be satisfied.
(a) Social needs: These needs include the need for the love, friendship, affection
and social integration.
(b) Esteem needs/Ego needs
(c) Self actualisation needs
18. (i) Following needs of Rahim are satisfied by the offer of the cycle company:
(a) Basic physiological needs
(b) Safety or security needs
"The cycle company offered him a permanent pensionable job"
(ii) Other needs of Rahim that are still to be satisfied are as follows:
(a) Social needs
(b) Esteem needs.
19. (i) Pay and allowances: For every employee, salary is the basic monetary
incentive. It includes basic pay, dearness allowance and other allowances. Salary
system consists of regular increments in the pay every year and enhancement of
allowances from time-to-time. In some business organisations, pay hike and
increments may be linked to performance.
(i) Retirement Benefits: Several retirement benefits such as provident fund,
pension, and gratuity provide financial security to employees after their
retirement. This acts as an incentive when they are in service in the organisation.
(iii) Perquisites: In many companies perquisites and fringe benefits are offered
such as car allowance, housing, medical aid, and education to the children, etc.,
over and above the salary. These measures help to provide motivation to the
employees/managers.
(iv) Co-partnership/Stock option: Under these incentive schemes, employees are
offered company shares at a set price which is lower than market price.
Sometimes, management may allot shares in line of various incentives payable in
cash. The allotment of shares creates a feeling of ownership to the employees and
makes them to contribute for the growth of the organisation. In Infosys the
scheme of stock option has been implemented as a part of managerial
compensation.
20. (a) Bonus incentive offered by the company which is the part of financial
incentives.
(b) (i) Pay and Allowances: For every employee, salary is the basic monetary
incentive. It includes basic pay, dearness allowance and other allowances. Salary
system consists of regular increments in the pay every year and enhancement of
allowances from time-to-time. In some business organisations, pay hike and
increments may be linked to performance.
(ii) Productivity linked wage incentives: Several wage incentive plans aim at
linking payment of wages to increase in productivity at individual or group level.
21. (i) Affiliation/Belongingness Needs
(ii) Self Actualisation Needs
(iii) Esteem Needs
(iv) Safety/Security Needs
The following are the assumptions of Maslow's need hierarchy theory:
(i) People's behaviour is based on their needs. Satisfaction of such needs
influences their behaviour.
(ii) People's needs are in hierarchical order, starting from basic needs to higher
level needs.
(iii) A satisfied need no longer can motivate a person; only next higher-level need
can motivate him.
(iv) A person moves to the next higher level of the hierarchy only when the lower
need is satisfied.
22. (a) Non-financial incentive: i.e. Employee recognition is provided by
'Goodcare Hospital' to its doctors through running trophies.
(b) Esteem need of the doctors will be satisfied through the employee recognition
incentive.
(c) CEO of 'Goodcare Hospital' is trying to communicate value of:
(i) "providing employment opportunity" by employing paramedical staff locality.
(ii) "Concern for Backward area" by proving healthcare services in rural area.
23. Motivation is the element used by CEO of the company. Motivation means the
process of stimulating people to action to accomplish desired goals. It is the
process of making subordinates to act in a desired manner to achieve certain
organisational goals.
The CEO understood that the needs of belonging ness of the team members were
not met so he advised travelling together as a team. This motivated the team
members.
Features of Motivation:
(i) Motivation in an internal feeling: The desire, to act in a particular manner.
(ii) Motivation produces goal directed behaviour: For example, if an employee is
interested in promotion, it helps to produce a behaviour to improve performance.
(iii) Motivation is a complex process: Because any type of motivation may not
have a uniform effect on all the members.
24. Non-financial incentives refer to those incentives that focus on non-monetary
needs of the employees such as the social and psychological needs.
The following are some of the non-financial incentives used in the organisations:
(i) Position: Rise in status in terms of power, authority, responsibility provides a
psychological boost to the employees.
For example, a promotion may satisfy the esteem and self-actualisation needs of
an individual.
(ii) Organisational Characteristics: Certain characteristics such as employee
freedom, recognition of performance, incentives and rewards play an important
role in influencing the behaviour of the employees.
For example, if the employees get due recognition for their performance, it
encourages them to work more efficiently.
(iii) Work Enrichment: Often, a challenging work endowed with greater
responsibility and requiring higher knowledge and skill enhances the interest of
the employee. It provides the employee prospects for personal growth. Thus, it
proves to be a good source of motivation for him.
(iv) Career Opportunities: If the organisation is endowed with appropriate
growth and career opportunities for its employees, it strives then to perform
better and thereby, climb the professional ladder.
(v) Job Security: An employee should have a certain extent of security regarding
his association with the organisation. Constant fear of losing the job hampers
their efficiency. However, a complete security can also result in loss of interest in
work.
25. (i) Directing
(ii) Motivation
(iii) Features of motivation:
(a) Motivation is an internal feeling of positivity that makes one work with
enthusiasm.
(b) Motivation produces goal directed behaviour.
(c) Motivation can be either positive or negative.
Positive motive is caused by rewards like increase in salary, promotion etc.
Negative motivation is caused by punishment and threats.
(d) Motivation is a complex process because individuals respond in different
ways due to their different needs and perceptions.
26. (a) Directing
(b) Motivation
(c) Features of motivation:
(i) Motivation is an internal feeling of positivity that makes one work with
enthusiasm.
(ii) Motivation produces goal directed behaviour.
(iii) Motivation can be either positive or negative.
Positive motive is caused by rewards like increase in salary, promotion etc.
Negative motivation is caused by punishment and threats.
(iv) Motivation is a complex process because individuals respond in different
ways due to their different needs and perceptions.
27.

28.
29. In the light of the given statement, the various leadership styles are:
(i) Autocratic or Authoritarian leadership: An autocratic leader has absolute
authority and control who dictates policies and procedures of a business without
obtaining any meaningful participation from his/her subordinates.
(ii) Democratic or Participative leadership: A democratic leader encourages
participation, relies on subordinates' knowledge and expertise for the completion
of tasks and depends on subordination respect for influence.
(iii) Laissez Faire or Free -rein leadership: Laissez-Faire literally means "let them
do", which further implies the intervention of any authority or guide or leader.
30. In an 'Autocratic Style' of leadership:
(a) The leader exercises complete control over the subordinates.
(b) He takes all the decisions independently without consulting subordinates.
(c) He just gives orders and instructions to the subordinates and expects them to
follow the instructions as it is.
(d) It is suitable where: There is little time for discussion in the decision-making
process.
(e) The leader is solely the most knowledgeable and educated individual in the
group.
31. (a) Sandhya has applied Democratic leadership.
(b) Positive aspects of informal communication are:
(i) Managers can fill up communication gap, if there is any, through informal
communication.
(ii) Managers can get true and accurate response of subordinates and work out
the policies with the acceptance of group.
32. Democratic style of leadership has been adopted by Pramod.
A democratic leader makes decision by consulting with his subordinates. This
improves the attitude of the employees towards their jobs and the organisation
thereby improving their morale. This style allows the subordinates to become
part of the team and helps the leader in making better decisions.
33. (a) The leadership style of Mr Umang Gupta is 'Democratic or Participative'
leadership.
(b) The values highlighted in Mr. Umang Gupta's behaviour are Care for
employee's health and their welfare and respect for customers and social
responsibility.
34. Leadership is the process of influencing the behaviour of people towards
achievement of organisational goals.
In the words of Koontz and Weihrich," Leadership is the art or process of
influencing people so that they will strive willingly and enthusiastically towards
the achievement of group goals".
The different styles of leadership are:
(a) Autocratic: he gives orders and expects the subordinates to follow it
unquestioningly. This leader does not like being contradicted.
(b) Democratic or participative leader : He develops action plans and makes
decisions in consultation with the subordinates, he encourages them to
participate in decision making.
(c) Laissez faire or free reign leader: These leaders do not use authority unless
absolutely essential. The followers are given a high degree of independence to
formulate their objectives and ways to achieve them.
35. Encoding is the process of converting the message into communication
symbols such as words, pictures, gestures, etc.
36. Decoding is the process of converting encoded symbols into the message for
the purpose of understanding.
37. Formal communication means the communication that flows through official
channels designed in the organisation chart and may be oral or written but
generally recorded and filed in the office.
Informal communication is the communication that takes place without following
the formal lines of communication and spreads throughout the organisation in all
directions without regard to the levels of management.
38. The following are some of the personal barriers of communication:
(i) Fear: At times, due to the difference in status and authority, the subordinates
fear their superior and often hesitate to communicate freely with them.
In such cases, communication is suppressed.
(ii) Low confidence on subordinates by the superior: When the superior does not
have confidence in the subordinates, he is unwilling to involve them in
discussions and other matters.
This leads to a communication gap between the two.
(iii) Lack of incentive: Lack of incentives (such as appreciation, praise, etc.)
discourages the initiative to communicate.
39. By adopting correct measures and practices, the communication barriers can
be overcome. Some such measures are indicated below:
(i) Clarify the ideas before communication: The message to be communicated
should be clear in all its perspective to the communicator himself. The entire
message should be studied in depth, analysed and stated in such a manner that is
clearly conveyed.
(ii) Communicate according to the needs of receiver: The level of understanding
of receiver should be crystal clear to the communicator. Manager should adjust
his communication according to the education and understanding levels of
subordinates.
(iii) Be aware of languages, tone and content of message: The contents of the
message, tone, language used, the manner in which the message is to be
communicated are the important aspects of effective communication. The
language used should be understandable to the receiver and should not offend
the sentiments of listeners. The message should be stimulating to evoke response
from the listeners.
40. (a) Two communication barriers because of which Bikmac enterprise was not
able to achieve its targets are:
(i) Organisational Barrier:
Organisational Policy: If organisation policy, explicit or implicit, is not supportive
to free flow of communication, it may lead to poor communication. In the given
case, all decision-making was in the hands of his father which was not supportive
for effective communication.
(ii) Psychological Barrier:
Distrust: Distrust between communication sender and receiver acts as a barrier.
If the parties do not believe in each other, they cannot understand each other's
messages. In the given case, his father did not believe in the employees which
created difficulty in understanding each other's messages.
(b) One more barrier of each type:
(i) Organisational Barrier:
Rules and Regulations: Rigid rules and regulations and cumbersome procedures
are a hurdle to communication.
(ii) Psychological Barrier:
Lack of attention: The pre-occupied mind of the receiver and the resultant non
listening of message acts as a major psychological barrier.
41. (a) The communication barrier identified in the present case is badly
expressed message.
(b) Semantic barrier which arises from problems and obstructions in the process
of encoding and decoding of message into words or impressions. It is basically
language related barrier.
(c) Other barriers in the same category are:
(i) Symbols with different meanings: A word may have different meanings. For
example, the word cost may mean one thing to the production department and
something else to the marketing department. Communication becomes
ineffective when the senders and the receivers perceive the same word in
different meanings.
(ii) Unclarified assumptions: Sometimes, messages are based on certain
assumptions. When the sender does not make his assumptions clear, the receiver
may misunderstand the message.
(iii) Body language: When the body movements and gestures are not consistent
with the message and culture communication may be ineffective.
42. (a) Lack of confidence in subordinates.
(b) Personal barriers.
(c) (i) Fear of challenge to authority of the boss may induce the boss to withhold
information.
(ii) Unwillingness to communicate with the boss if it adversely affects his/her
interests.
43. (a) Premature evaluation is discussed in the given para which is a type of
Psychological barrier.
(b) (i) Lack of attention: The pre-occupied mind of receiver and the resultant
non-listening of message acts as a major psychological barrier. For instance, an
employee explains about his problems to the boss who is pre-occupied with an
important file before him. The boss does not grasp the message and the employee
is disappointed.
(ii) Loss by transmission and poor retention: When communication passes
through various levels, successive transmissions of the message results in loss of,
or transmission of inaccurate information. This is more so in case of oral
communication. Poor retention is another problem.
Usually, people cannot retain the information for a long time if they are
inattentive or not interested.
44. Formal Communication
Formal communication flows through official channels designed in the
organisation chart. This communication may take place between a superior and
subordinate, a subordinate and superior or among same cadre employees or
managers. The communications may be oral or written but generally recorded
and filed in the office.
Formal communication may be further classified as - Vertical and Horizontal.
Vertical communication flows vertically, i.e., upwards or downwards through
formal channels. Upward communications refer to flow of communication from
subordinate to superior whereas downward communication indicates
communication from a superior to subordinate.
Horizontal or lateral communication takes place between one division and
another. For example, a production manager may contact marketing manager to
discuss about schedule of product delivery, product design, quality, etc.
Informal Communication
Communication that takes place without following the formal lines of
communication is said to be informal communication. Informal system of
communication is generally referred to as the 'grapevine' because it spreads
throughout the organisation with its branches going out in all directions in utter
disregard to the levels of authority.
45. Organisational barriers: The factors related to organisation structure,
authority relationships, rules and regulations may, sometimes, act as barriers to
effective communication.
Some of these barriers are:
(i) Organisational policy: If the organisational policy, explicit or implicit, is not
supportive to free flow of communication, it may hamper effectiveness of
communications. For example, in an organisation with highly centralised pattern,
people may not be encouraged to have free communication.
(ii) Rules and regulations: Rigid rules and cumbersome procedures may be a
hurdle to communication. Similarly, communications through prescribed channel
may result in delays.
(iii) Status: Status of superior may create psychological distance between him
and his subordinates. A status conscious manager also may not allow his
subordinates to express their feelings freely.
(iv) Complexity in organisation structure: In an organisation where there are
number of managerial levels, communication gets delayed and distorted as
number of filtering points are more.
46. (a) The type of communication barrier is Psychological Barrier/Lack of
attention.
(b) Other Psychological Barriers are as follows: Premature evaluation:
Communication is likely to fail, if the receiver evaluates the meaning of message
before the sender completes the message. Such premature evaluation may occur
due to pre-conceived notions or prejudices against the communicator'
Lack of attention: When the receivers mind is pre-occupied, he fails to
understand what is being said. e.g. a worker explains some problems to his
supervisor. The supervisor is pre-occupied with a telephone call and does not
grasp the message.
Loss by transmission, and poor retention: When communication passes through
various levels, it may result in loss by transmission. Sometimes, poor retention of
people due to lack of interest and attention leads to miscommunication. Distrust
When the sender and the receiver do not believe to each other, the message may
not be understood in its original sense.
47. (a) (i) Informal Communication: "One of his colleagues sent a text message
about it to his immediate superior Mr. Narain". Mr. Narain in turn sent text
messages to the employees of the organisation requesting them to donate blood
for Arun."
(ii) Formal Communication: "When the General Manager came to know about it
he ordered for fumigation in the company premises and cleanliness in the
surroundings.
(b) Its features are:
(i) Informal communication establishes personal relationship among individuals,
irrespective of job profiles.
(ii) Informal communication is a fast process, as it cuts across all the official
channels and information flows in all direction.
(c) Two values which are being communicated are:
(i) Sense of belongingness and empathy.
(ii) Cooperation and concern for the employees and environment.
48. Measures that can be taken to improve communication are:
(a) Communicate according to the needs of the receiver: The communication
should be adjusted according to the education and understanding level of the
receiver.
(b) Consult others before communicating : It is always better to involve others in
developing a plan for communication. Participation helps to gain ready
acceptance and willing cooperation of subordinates.
(c) Be aware of language, tone and content of message: For an effective
communication, the language should be relevant and the tone should not be
offensive. The message should be stimulating to evoke response from the listener.
(d) Be a good listener: Patient and attentive listening by both the sender and
receiver of the message solves many unnecessary problems.
(e) Ensure proper feedback Communication is considered effective when it
ensures the feedback of the receiver. This also helps to modify the
communication.
49. Semantic Barriers: Semantic barriers occur due to differences and individual
interpretations of words. These are discussed below:
(a) Badly Expressed Message: If the manager is not able to communicate his
message clearly to his subordinates due to omission of words, use of wrong or
inadequate vocabulary, it might hamper effective communication.
(b) Symbols with Different Meanings: Sometimes, a word might have different
meanings and if these are not understood in the manner in which they are
expressed then a communication error arises.
(c) Faulty Translation: A faulty translation from one language to another may not
be understood in the right context.
(d) Unclarified assumptions: Some communication may have certain
assumptions which are subject to different interpretations. Unclarified
assumptions might hamper effective communication.
(e) Technical jargon : The workers might not be able to understand the technical
expressions (words) used by the superior which leads to faulty communication.
50. Psychological or emotional barriers to effective communication:
(i) Premature evaluation : People in a hurry read or try to assess the message
even before it is complete, which may lead to misinterpretation of the message.
This may happen due to pre-conceived notions or prejudices.
(ii) Distrust: When the sender and the receiver of the message distrust each
other, the message may not be understood in its original sense.
(iii) Lack of Attention: When the receiver's mind is preoccupied, he fails to listen
and comprehend what is said. For example, a worker explains some problem to
his superior but superior is pre-occupied with a telephone call and may not
understand the problem.
(iv) Loss of message in transmission : When communication passes through
various levels, there is a loss of content with every transmission, leading to
distortion. This is particularly true of oral messages.
(v) Poor Retention: The receiver who cannot retain the information for a long
time may fail to understand it. Poor retention may be due to lack of interest.
51. Personal Barriers to effective communication:
(i) Fear of challenge to authority: Sometimes superiors withhold or suppress
information, if they fear of losing their authority before the subordinates.
(ii) Lack of confidence of superior in his subordinates: If superiors have no
confidence and trust in their subordinates then they pay no attention to the
subordinates advice, opinion or suggestion.
(iii) Unwillingness to communicate: Sometimes subordinates don't feel free to
approach and communicate with the superior. This leads to barriers in
communication.
(iv) Lack of proper incentives: If there is no incentive for communication then the
subordinates may not take any initiative to communicate.
 CBSE Sample Questions
1. Following are the importance of Directing :
(i) Directing helps to initiate action by people in the organisation towards
attainment of desired objectives.
(ii) Directing integrates employees' efforts in the organisation in such a way that
every individual effort contributes to the organisational performance.
(iii) Directing guides employees to fully realise their potential and capabilities by
motivating and providing effective leadership.
2. (a) Leadership - Leadership is the process of influencing the behaviour of
people by making them strive voluntarily towards achievement of organisational
goals. Leadership indicates the ability of an individual to maintain good
interpersonal relations with followers and motivate them to contribute for
achieving organisational objectives.
(b) Motivation - Motivation means incitement or inducement to act or move. In
the context of an organisation, it means the process of making subordinates to act
in a desired manner to achieve certain organisational goals.
3. Incentives being given by the organisation to the employees are:
(a) Job enrichment Job enrichment is concerned with designing jobs that include
greater variety of work content, require higher level of knowledge and skill; give
workers more autonomy and responsibility; and provide opportunity for
personal growth and a meaningful work experience.
(b) Job security: Employees want their jobs to be secure. They want certain
stability about future income and work so that they do not feel worried about
these aspects and work with greater zeal.
(c) Perquisites: In many companies, perquisites and fringe benefits are offered
such as car allowance, housing, medical aid and education to the children, etc.,
over and above the salary.
(d) Co-partnership/stock option: Under these incentive schemes, employees are
offered company shares at a set price which is lower than market price.
Sometimes, management may allot shares in line of various incentives payable in
cash.
4. Non monetary incentives:
(i) Job enrichment: It is concerned with designing jobs that include greater
variety of work content, require higher level of knowledge and skill, etc.
(ii) Employee recognition programmes: Recognition means acknowledgment
with a show of appreciation.
(iii) Job security: Employees want their job to be secured. They want certain
stability about income and work so that they do not feel worried about these
aspects and work with greater zeal.
5. Leadership indicates the ability of an individual to maintain good interpersonal
relations with followers and motivate them to contribute for achieving
organisational objectives. (or any other correct definition)
Styles of leadership:
(i) Autocratic or Authoritarian leader gives orders and expects his subordinates
to obey those orders.
(ii) Democratic or Participative leaders will develop action plans and make
decisions in consultation with their subordinates.
(iii) Laissez faire or Free-rein leader does not believe in the use of power unless it
is absolutely essential.
6. Democratic or participative leader: A democratic leader will develop action
plans and make decisions in consultation with his subordinates. He will
encourage them to participate in decision making. This kind of leadership style is
more common now-a-days, since leaders also recognise that people perform best
if they have set their own objectives. They also need to respect the others opinion
and support subordinates to perform their duties and accomplish organisational
objectives. They exercise more control by using forces within the group.
7. Semantic barriers is the barrier to communication which are concerned with
problems and obstructions in the process of encoding and decoding the message
into words or impressions.
(a) Sometimes intended meaning may not be conveyed by a manager to his
subordinates due to badly expressed messages which may be on account of
inadequate vocabulary, usage of wrong works, omission of needed works, etc.
(b) A word may have different meanings and the receiver has to perceive one
such meaning for the word used by the communicator.
(c) If the translator is not proficient with both the languages, mistakes may creep
in causing different meanings to communication.
(d) Some communications may have certain assumptions which are subject to
different interpretations.
(e) It is usually found that specialists use technical jargon while explaining to
persons who are not specialists in the concerned field and therefore, they may
not understand the actual meaning of many words.
(f) If there is no match between what is said and what is expressed in body
movements, communications may be wrongly perceived.
8. Organisational barriers is the barrier to communication which are related to
authority relationships, rules and regulations of the company.
(a) If organisational policy either explicit or implicit is not supportive to free flow
of communication it may hamper effectiveness of communications.
(b) Rigid rules and regulations, cumbersome procedures may be a hurdle to
communication, as communications through prescribed channels may result in
delays.
(c) Status of superior may create psychological distance between him and his
subordinates.
(d) Complexity in the organisation caused by the number of managerial levels
may delay and distort the communication as the number of filtering points is
more.
(e) If facilities like frequent meetings, suggestion box, and complaint box, social
and cultural gathering, transparency in operations, etc, for smooth, clear and
timely communications are not provided, communications may be hampered.
9. Positive aspects of informal communication:
(i) Sometimes, grapevine channels may be helpful as they carry information
rapidly and therefore, may be useful to the manager at times.
(ii) Informal channels are used by the managers to transmit information so as to
know the reactions of subordinates.
Negative aspects of informal communication:
(i) The grapevine/informal communication sometimes leads to generating
rumours and informal discussions and sometimes may hamper the work
environment.
(ii) It is very difficult to detect the source of such communication.
 Concept, Characteristics, Importance &
Elements of Directing

1 Mark Questions

1. Explain in one sentence how directing initiates action in management.

(Compartment 2014; Delhi 2011)
Ans. Directing initiates action by ordering employees to attain the desired goal of an
organisation.

2. What is meant by directing? (Delhi 2009)

Ans. Directing is the process of instructing, guiding and inspiring people in the
organisation to achieve its objectives.

3. Give any two elements of directing. (All India 2009)

Ans. (i) Supervision
(ii) leadership.

4. State the element of directing which helps in implementing the principle of

scalar chain. (HOTS; All India 2008)
Ans. Communication helps in implementing the principle of scalar chain.

5. State any one characteristic of directing. (Delhi 2008C)

Ans. Directing helps to initiate action by the people in the organisation towards
attainment of desired objectives.

3 Mark Questions

6. How directing helps in efficient and effective functioning of the

organisation? Explain by giving any three points. (Delhi 2014)

Ans. Directing helps in efficient and effective functioning of management because:

(i) It integrates employees Directing integrates employees’ efforts in the organisation
in such a way that every individual’s efforts contributes to the welfare of the
organisation. Thus, it ensures that employees work efficiently for the attainment of
goals.

(ii) It improves efficiency Directing guides employees to fully realise their potentials
and capabilities. Through this function, managers utilise the potential of employees and
persuade them to work with the best of their ability and contribute their maximum efforts
towards the achievement of organisational objectives.

(iii) It facilitates change Business environment is changing very frequently, but the
people generally have a tendency to resist change. In this context, directing helps
manager to persuade his subordinates to carry out changes from time to time to cope
with changes in the environment as the changes are necessary to adapt and it is the
need of modern business

4/5 Mark Questions

7. Explain the meaning and any three characteristics of directing.

(All India 2010)

Ans. Directing refers to the process of instructing, guiding, counselling, motivating and
leading people in the organisation through effective communication, so that their efforts
result in achievement of organisational objectives.
Characteristics of directing are as follows:

(i) Initiating process It involves giving orders and instructions to the employees and
thereby decisions are converted into actions.

(ii) Pervasive function The directing function is performed by all managers at all levels
to achieve the organisational goals.

(iii) A continuous process It is an activity that takes place throughout the life of an
organisation, irrespective of people occupying managerial position.

8. Directing is the heart of the management process. Do you agree? Give any
four reasons in support of your answer. (HOTS; Delhi 2010c, 2009; All India 2010)

Ans. Yes, I do agree with this statement. Directing may be regarded as the heart of the
management process; Its importance may be explained under the following points

(i) Initiates action Directing helps to initiate action by people in the organisation
towards attainment of desired objectives, e.g. if a supervisor guides his subordinates
and clarifies their doubts in performing a task, it will help workers to achieve work
targets given to them.

(ii) Integrates employees’ efforts Directing integrates employees’ efforts in the

organisation in such a way that every individual effort contributes to the attainment of
organisational objectives. Thus, it ensures that the individuals work for organisational
goals.

(iii) Improves efficiency Directing guides employees to fully realise their potential and
capabilities by motivating and providing effective leadership. A good leader can always
identify the potential of his employees and motivate them to extract work up to their
potential.

(iv) Brings balance and stability in the organisation Effective directing helps to bring
stability and balance in the organisation since, it fosters cooperation and commitment
among the people and helps to achieve balance among various group activities and the
departments.

9. Directing is not required at all in management of organisation. Do you agree?

Give two reasons in support of your answer. (HOTS; Delhi 2008)

Ans. No, I do not agree with the above statement. Directing is required in organisation
as it initiates the action of people towards attainment of desired goals.
Reasons

(i) Initiates action Directing helps to initiate action by people in the organisation
towards attainment of desired objectives, e.g. if a supervisor guides his subordinates
and clarifies their doubts in performing a task, it will help workers to achieve work
targets given to them.

(ii) Integrates employees’ efforts Directing integrates employees’ efforts in the

organisation in such a way that every individual effort contributes to the attainment of
organisational objectives. Thus, it ensures that the individuals work for organisational
goals.

(iii)Improves efficiency Directing guides employees to fully realise their potential and
capabilities by motivating and providing effective leadership. A good leader can always
identify the potential of his employees and motivate them to extract work up to their
potential.

(iv) Brings balance and stability in the organisation Effective directing helps to bring
stability and balance in the organisation since, it fosters cooperation and commitment
among the people and helps to achieve balance among various group activities and the
departments.

6 Mark Questions

10. Explain how directing helps in effective and efficient functioning of the
organisation. (Compartment 2014)
or
What is meant by directing as a function of management? Describe any four
points of its importance. (Delhi 2012)
or
‘Every action in the organisation is initiated through directing’. Explain any four
points of importance of directing in the light of this statement. (All India 2012)

Ans. Directing refers to the process of instructing, guiding, counselling, motivating and
leading people in the organisation through effective communication so that their efforts
result in achievement of organisational objectives. The scope of directing is very wide. It
consists of all those activities by which a manager influences the behaviour of his
subordinates to secure desired performance from them.
According to William Newman, ‘Directing deals with the steps, a manager takes to get
subordinates and others to carry out plans’.

Importance of directing
Its importance may be explained under the following points

(i) Initiates action Directing helps to initiate action by people in the organisation
towards attainment of desired objectives, e.g. if a supervisor guides his subordinates
and clarifies their doubts in performing a task, it will help workers to achieve work
targets given to them.

(ii) Integrates employees’ efforts Directing integrates employees’ efforts in the

organisation in such a way that every individual effort contributes to the attainment of
organisational objectives. Thus, it ensures that the individuals work for organisational
goals.

(iii)Improves efficiency Directing guides employees to fully realise their potential and
capabilities by motivating and providing effective leadership. A good leader can always
identify the potential of his employees and motivate them to extract work up to their
potential.

(iv) Brings balance and stability in the organisation Effective directing helps to bring
stability and balance in the organisation since, it fosters cooperation and commitment
among the people and helps to achieve balance among various group activities and the
departments.
 Meaning & Importance of Supervision
1 Mark Questions

1. Define supervision. (All India 2012, 2008)

Ans. Supervision means instructing, guiding and monitoring the subordinates to ensure
that they perform their jobs in accordance with the plans and instructions.

2. How does a supervisor act as a linking pin between management and

the operatives? (All India 2009; Delhi 2008)

Ans. A supervisor acts as a link between management and operatives as he conveys

management ideas to the workers, on one hand and workers’ problems to the
management, on the other.

3. Why is supervision important? (Delhi 2008C)

Ans. Supervision is important because it helps in optimum utilisation of resources.

3 Mark Questions

4. Explain any three functions performed by a supervisor that are vital to

any organisation. (All India 2014)

Ans. Functions of a supervisor are as follows:

(i) Acts as a link between workers and management Supervisor conveys

management policies and ideas to the workers on one hand and workers’ problem to
the management on the other. He plays a crucial role of avoiding misunderstanding and
conflicts between management and workers

(ii) Maintains group unity Supervisor directly overlooks the workers and this is a key
link in maintaining harmony and unity among workers by sorting out their internal
differences.

(iii) Ensures performance of work He takes the responsibility for task achievement
according to the targets and motivates his workers effectively.

5. The performance of an organisation depends upon how a supervisor instructs

and guides the subordinates at operative level. Explain. (HOTS; Delhi 2009c; All
India 2009)

Ans. Supervisor maintains day-to-day contact with workers. He is the link between
workers and management. His role is to monitor and instruct the activities of employees
from over and above. Supervision leads to facilitate control and ensures the optimum
utilisation of resources. If he fails to perform his functions efficiently, best plans and
organisation structure devised by the top management will be rendered useless. Thus,
we can say that the performance of an organisation depends on how supervisor
instructs and guides the subordinates.

4/5 Mark Questions

6. Describe the importance of supervision in directing function of

management. (Delhi 2009C)

Ans. Importance of supervision are as follows:

(i) Ensures performance of work The supervisor makes sure that all the instructions
are communicated to each and every employee.

(ii) Optimum utilisation of resources Under supervision, all the activities are closely
monitored. In this situation, better utilisation of resources is achieved.

(iii) Acts as a link between workers and management Supervisor conveys the
management’s ideas to the workers on one hand and workers problems to the
management on the other, thus acting as a linkpin.

(iv) Plays a leadership role While guiding the employees, the supervisor encourages
and motivates the subordinates to perform at the best of their ability, by good
leadership.

(v) Provides feedback to the workers During supervision, a supervisor is always in

direct contact with his subordinates. As a result, ideas, suggestions, complaints, etc of
employees with regard to managerial decisions are continuously received by the
supervisor. He also gives feedback to workers on how to improve there work.
7. ‘Supervision is not at all required in an organisation’. Do you agree? Give two
reasons in support of your answer. (HOTS; Delhi 2008; All India 2008)

Ans. No, I do not agree with the given statement. Supervision is required in an
organisation. The supervisor occupies a strategic position in the organisation. He
represents management’s ideas, thoughts and desires to the operative workers and
conveys workers’ attitudes and opinions to the top management.

Reasons
(i) Ensures performance of work The supervisor makes sure that all the instructions
are communicated to each and every employee.

(ii) Optimum utilisation of resources Under supervision, all the activities are closely
monitored. In this situation, better utilisation of resources is achieved.

(iii) Acts as a link between workers and management Supervisor conveys the
management’s ideas to the workers on one hand and workers problems to the
management on the other, thus acting as a linkpin.

(iv) Plays a leadership role While guiding the employees, the supervisor encourages
and motivates the subordinates to perform at the best of their ability, by good
leadership.

(v) Provides feedback to the workers During supervision, a supervisor is always in

direct contact with his subordinates. As a result, ideas, suggestions, complaints, etc of
employees with regard to managerial decisions are continuously received by the
supervisor. He also gives feedback to workers on how to improve there work.

6 Mark Questions

8. The function and performance of the supervisor are vital to an organisation

because he is directly related with the workers whereas, other managers have no
direct touch with bottom level workers’. In the light of this statement, explain any
four functions Of a supervisor. (Compartment 2014)
or
‘The supervisor performs a very important role in an organisation by performing .
multiple functions’. State any six such functions. (Delhi 2013)

Ans. Supervisor is a person, who is primarily an incharge of a section and employees,

or is responsible for both the quantity and quality of production.
The functions of supervision are as follows

(i) Providing Guidance and Leadership The supervisor leads the workers of his
department. He fixes production targets for them and provides them the necessary
guidance for doing thfe work assigned to them. He provides on-the-job training to the
workers working under him.
(ii) Motivation The supervisor motivates his subordinates by providing financial and
non-financial incentives. He inspires them for higher quality and productivity.

(iii) Preserving Records The supervisor keeps records of output and other related
aspects of each employee. He sends the necessary information to the top management.

(iv) Controlling Output The supervisor controls the performance of the workers by
comparing their performance with the standards. He also takes necessary action to
ensure that production is done according to the predetermined standards.

(v) Liaison between Management and Workers The supervisor is an important link
between the management and the workers. He explains management policies to the
workers and also passes on the management’s instructions. He has a close contact with
the workers and tries to understand their problems. He brings worker’s problems to the
notice of the top management.

(vi) Grievance Handling A supervisor is in direct touch with the workers, so he can
handle their grievances effectively. He should maintain good relations with the workers
so that the workers come to him if they have any grievance. When a grievance is
reported, he should try to remove it. But, if he cannot redress the grievance, he should
report it to the upper level management.

9. Give the meaning of supervision as an element of directing and any four points
that explain its role. (Delhi 2012)
or
Explain the role of supervision as an element of directing function of
management. (Delhi 2011)

Ans. It means instructing, guiding and monitoring the subordinates to ensure that they
perform their jobs in accordance with the plans and instructions. It means overseeing
what is being done by subordinates and giving instructions to ensure proper utilisation
of resources and achievement of work targets.

Role of supervisor
Supervisor is a person, who is primarily an incharge of a section and employees, or is
responsible for both the quantity and quality of production.
The functions of supervision are as follows

(i) Providing Guidance and Leadership The supervisor leads the workers of his
department. He fixes production targets for them and provides them the necessary
guidance for doing thfe work assigned to them. He provides on-the-job training to the
workers working under him.

(ii) Motivation The supervisor motivates his subordinates by providing financial and
non-financial incentives. He inspires them for higher quality and productivity.
(iii) Preserving Records The supervisor keeps records of output and other related
aspects of each employee. He sends the necessary information to the top management.

(iv) Controlling Output The supervisor controls the performance of the workers by
comparing their performance with the standards. He also takes necessary action to
ensure that production is done according to the predetermined standards.

(v) Liaison between Management and Workers The supervisor is an important link
between the management and the workers. He explains management policies to the
workers and also passes on the management’s instructions. He has a close contact with
the workers and tries to understand their problems. He brings worker’s problems to the
notice of the top management.

(vi) Grievance Handling A supervisor is in direct touch with the workers, so he can
handle their grievances effectively. He should maintain good relations with the workers
so that the workers come to him if they have any grievance. When a grievance is
reported, he should try to remove it. But, if he cannot redress the grievance, he should
report it to the upper level management.
 Motivation, Maslow’s Need Hierarchy
Theory of Motivational & Financial &
Non-financial Incentives

1 Mark Questions

[Link] any two examples of employee recognition as a non-financial

incentive. (Delhi 2014C)

Ans. Two examples of employee recognition are:

(i) Installing awards or certificate for best performance.
(ii) Displaying on the notice board or in company news letter about the achievement of
employee.

2. Give any two characteristics of organisational climate that influence the

behaviour of individuals and act as a non-financial incentive. (All India 2014)

Ans. Characteristics of organisational climate are:

(i) Reward orientation
(ii) Individual autonomy

3. List any two non-financial incentives. (Compartment2014)

Ans. Non-financial incentives include

(i) Status
(ii) Career advancement

4. Why is motivation called a complex process? (Compartment 2014; Delhi 2013)

Ans. Motivation is a complex process as individuals are heterogeneous in their

expectations, perceptions and reactions. Different people have to be motivated
differently as any one type of motivation cannot have a uniform effect on all the
members.

5. What is meant by motivation? (All India 2013)

Ans. Motivation is the process of stimulating people to act voluntarily to accomplish

desired goals.

6. Name the term used in management which stimulates people to take up

work voluntarily. (HOTS; All India 2011)

Ans. ‘Motivation ‘stimulates people to take up work voluntarily.

3 Marks Questions

7. Huma is working in a company on a permanent basis. As per the job

agreement, she had to work for 8 hours a day and was free to work overtime.
Huma worked overtime, due to which she fell ill and had to take leave from her
work. No one showed concern and enquired about her health. She realised that
she was fulfilling only some of her needs while some other needs still remained
to be fulfilled.

 By quoting the lines from the above para, identify the needs of Huma which
she is able to fulfil.
 Also explain two other needs of Huma followed by the above needs, which
still remained to be Satisfied.

Ans. (i) ‘No one showed concern and enquired about her health’, the quoted line
depicts that her affliation/belongingness needs are not fulfilled.
(ii) The two other needs which still remain to be satisfied according to Maslows’ Need
Hierarchy Theory are:

 Esteem needs These include fulfilment of needs such as self-respect, autonomy

status, recognition and attention.
 Self-actualisation needs It is the highest level of need in the need hierarchy
theory. These needs include growth, self-fulfilment and achievement of goals.

8. Kavya is working in a company on permanent basis. As per the job agreement,

she had to work for 8 hours a day and was free to work overtime. Kavya worked
overtime. But even after working for long hours and putting in her best efforts, no
recognition was given to her by her boss. Due to overtime, she fell ill and had to
take leave from her work. No one showed concern and enquired about her health.
She realised that she was fulfilling only some of her needs while some other
needs still remained to be fulfilled.

 Identify and explain the needs of Kavya discussed in the above para, by
quoting the lines.
 Also explain two other needs of Kavya followed by the above needs, which
still remained to be satisfied. (Foreign 2014)

Ans. (i) ‘No one showed concern and enquired about her health’, the quoted line
depicts that her affliation/belongingness needs are not fulfilled.
(ii) The two other needs which still remain to be satisfied according to Maslows’ Need
Hierarchy Theory are:
  Esteem needs These include fulfilment of needs such as self-respect, autonomy
status, recognition and attention.
 Self-actualisation needs It is the highest level of need in the need hierarchy
theory. These needs include growth, self-fulfilment and achievement of goals.

9. Rahim was working in an enterprise on daily wage basis. It was difficult for him
to fulfil the basic needs of his family. His daughter fell ill. He had no money for his
daughter’s treatment. To meet the expenses of her treatment, he participated in
cycle race and won the prize money. The cycle company offered him a permanent
pensionable job which he happily accepted.

 By quoting the lines from the above para identify the needs of Rahim that
are satisfied by the offer of cycle company.
 Also, explain two other needs of Rahim followed by above needs that are
still to besatisfied. (VBQ; Dehll 2013)

Ans. (i) ‘The cycle company offered him a permanent pensionable job which he happily
accepted’. This quoted line have cleared that basic physiological need of Rahim is
satisfied by this.
(ii) After the physiological need Rahim strives for:

 Safety/Security needs They are concerned with physical, economic and social
security.
 Social need After getting security from the society, Rahim wants affection, sense
of belongingness, acceptance and friendship.

10. Explain any three assumptions of Maslow’s Need Hierarchy Theory. (All India
2012)
Ans. Assumptions of Maslow’s Need Hierarchy Theory are:
(i) People’s behaviour being affected by their needs.
(ii) There are many needs of people and their order or priority can be made.
(iii) Motivation ends with the satisfaction of needs. After that, the next higher need
serves as a motivator.

11. What is meant by non-financial incentives? List any two non-financial

incentives. (Delhi 2011C; All India 2009)
Ans. Non-monetary or non-financial incentives are those incentives which do not
involve monetary benefits. These incentives are based on factors which give us a
feeling of satisfaction of doing or accomplishing something worth-while to the workers.
The two non-financial incentives are:
(i) Participation in management decisions.

(ii) Job security.

12. What is meant by financial incentives? State any two financial incentives. (All
India 2011; Delhi 2009C)

Ans. Financial incentives refer to incentives which are in direct monetary form and
serves to motivate people for better performance.
Two financial incentives are:
(i) Pay and allowances Salary is the basic monetary incentive for every employee. It
includes basic pay, dearness allowances and other allowances.
(ii) Productivity linked wage incentives Some incentives plans link wages with
productivity of an individual or that of the group to motivate him/them to produce more.

4 / 5 Marks Questions

13. Define motivation. How does it improve efficiency and facilitate the
accomplishment of organisational goals?(Delhi 2012,2008C)

Ans. It is the process of stimulating people to act voluntarily to accomplish desired

goals.
In other words, motivation refers to the way a person is enthused at work to intensify his
willingness to use his potentiality for the achievement of organisational objectives. It is
through motivation that managers attempt to inspire the employees to work for the
organisation.
According to William G Scott, ‘Motivation means a process of stimulating people to
action to accomplish desired goals’.

Motivation improves the efficiency The level of performance of employees depends

not only on individual abilities but also his willingness to achieve a high level of
performance. Motivation induces employees to work better and to use their full potential.
Thus, motivation helps in increasing productivity and overall efficiency.

Motivation facilitates the accomplishment of organisational goals Management

can achieve the goals effectively by motivating the subordinates. The motivated
employees contribute to the fulfillment of the assigned tasks with their best efforts. In
the existence of an effective system of motivation, the worker cooperate voluntarily with
the management towards the accomplishment of organisational goals

14. Explain any four non-financial incentives. (All India 2011)

or
To satisfy the social and psychological needs, which types of incentives are
needed? Explain any five types of such incentives. (HOTS; All India 2008)

Ans. To satisfy the social and psychological needs, non-monetary incentives are
needed.
Various types of non-financial incentives are as follows:

(i) Job security Generally, workers prefer security of job. It is an assurance by the
employer that the worker will continue in the employment. It eliminates uncertainty
about the earnings and job and have a positive impact on the efficiency.

(ii) Participation in management’s decisions The active participation of workers and

their representatives in decision-making helps in securing cooperation and commitment
of workers towards organisational goals.

(iii) Employee recognition It is one of the most important motivator. It helps in

improving the attitudes of employees and at the same time, motivates them to put their
best efforts. Efficiency and innovations of the workers should be recognised and
praised. Recognition can be given by appreciating the work, installing awards and
certificates, display of achievements on the notice board, etc.

(iv) Job enrichment Assignment of challenging Jobs is a significant non-financial

incentive. Assignment of challenging work to subordinates provide opportunities for
maximum development ‘ and helps them to reach upto the point of self-realisation.

(v) Status In the organisation context, status means ranking of positions in the
organisation. The status of a person is reflected in his authority, responsibility, pre-
requisites and recognition. Psychological, social and esteem needs of an individual are
satisfied by status.

15. Ayasha Ltd assured their employees that inspite of recession, no worker will
be retrenched from the job.

 Name and explain the type of incentive offered to the employees.

 Explain one more incentive of the same category. (HOTS; Delhi 2010)

Ans. (i) Job security Ayasha Ltd offered non-financial incentive i.e. ‘job security’. It
refers to the stability about future income and work so that the employees do not feel
worried on these aspects and work with great zeal. Workers may not prefer jobs with
higher wages or salaries which do not carry security.

(ii) Employee recognition programmes The other incentive of this category is

employee recognition. When the services of an employee is recognised, he feels
morally upgraded and his confidence level goes high. He prepares himself to take new
challenges.
Recognition can be given by

 Congratulating the employee for good performance

 Displaying the achievement of an employer on a notice board or company news
letter
 Installing awards or certificates for best performance, etc
 Distributing moments and complimentaries like T-shirts, etc.
16. Blue Birds Ltd offers to its employees to issue shares at a price which is less
than the market price.

 Name arid explain the type of incentive offered to the employees.

 Explain one more incentive of the same category. (HOTS; All India 2010)

Ans. (i) Co-partnership By offering its employees issue of shares at a price less than
the market price, Blue Birds Ltd offered ‘co-partnership’ which is a financial incentive.
The company did so, to motivate its employees so that they work with great zeal. All
types of such incentives are measured in monetary terms. By offering such incentives,
the company motivates its people to improve their performance. These incentives may
be provided on individual or group basis.

(ii) Bonus It is an incentive offered over and above wages/salary to the employees.
Monetary benefits have only limited utility in increasing the motivation of employees.
After the basic needs have been met, the role of money in motivating the employees is
generally decreased.

17. Motivation plays an important role in the success of management. Explain any
four points of importance of motivation in the light of the statement. (Delhi 2010)
or
Describe the role of motivation in directing function of management. (Delhi
2009C; All India 2009)

Ans. Importance of motivation are as follows: (Any four)

(i) Changes negative attitude to positive attitude Sometimes, workers have

indifferent or negative attitude towards work. Motivation helps to build a positive attitude
towards work through suitable rewards, positive encouragement and praise for good
work.

(ii) Improves efficiency Motivation influences the level of performance of employees

which depends not only on individual abilities but also on their willingness to achieve a
higher level of performance. Motivation infuses willingness to work. In this way,
motivation bridges the gap between the ability to work and willingness to work.

(iii) Helps to introduce changes smoothly Whenever some changes are brought in
the organisation, employees resist change. However, with proper motivation, employees
can be convinced that the proposed changes will bring additional rewards to the
employees. This will help them to readily accept the changes.

(iv) Creates supportive work environment Organisation offers various rewards to

their employees to satisfy their diverse needs. They offer monetary rewards,
promotional opportunities, recognition of efficient work and involvement of employees in
decision-making. These bring satisfaction among employees. Such satisfaction leads to
cordial relationship between the employer and employee.
(v) Reduction in employees’ turnover Motivation creates confidence and loyality in
the subordinates. The rate of employment or employees turnover is reduced. This
results in maintaining a stable work force. The skill and experience of employees
continue to be available to the advantage of the organisation as well as the employees.

18. Maslow’s Need Hierarchy is considered fundamental to understand

the motivation. Explain the role of need hierarchy in motivation.
(All India 2008)

Ans. Malow’s Hierarchy of Need refers to the systematic arrangement of human needs.
It is considered fundamental to understanding of motivation. Motivation has a direct link
with needs. People have wide range of needs.
Maslow classified human needs into five categories in order of priority:

(i) Physiological needs These needs include the needs for food, water, clothing, and
shelter. These are also called the basic needs and are common to all individuals. The
fulfillment of these need is necessary for the survival of human beings

(ii) Safety and security needs These needs provide security and protection from
emotional and physical harm, e.g. job security, stability of income, pension plans, etc.

(iii) Affiliation/Belonging needs These needs refer to affection, sense of

belongingness, acceptance and friendship.

(iv) Esteem needs These needs concern with the desire to prove one’s worth in the
eyes of others, e.g. self-respect, self-confidence, etc.

(v) Self-actualisation needs This need is related to the development of one’s potential
to fullest possible extent.
A manager must understand the needs and wants of people in order to motivate them to
work. A satisfied need can no longer persuade/motivate a person. It is only the next
higher level need that can motivate a person. For satisfaction of these needs,
management must offer different incentives, financial or non-financial. e.g.

(i) Physiological needs For this, they offer monetary incentives, e.g. good
salary/wages and comfortable working conditions.
(ii) Safety and security needs For these needs, they offer job security, pension,
insurance, etc.
(iii) Social Needs For satisfaction of these needs, they encourage team-building and
provides workers, the opportunity to interact socially.

19. ‘It is only motivation through which the managers can inspire their
subordinates to give their best to the organisation’. In the light of this statement,
explain any five points of importance of motivation. (All India 2008)

Ans. According to William G Scott, ‘Motivation means a process of stimulating people to

action to accomplish desired goals.’

Importance of motivation
Importance of motivation are as follows:

(i) Changes negative attitude to positive attitude Sometimes, workers have

indifferent or negative attitude towards work. Motivation helps to build a positive attitude
towards work through suitable rewards, positive encouragement and praise for good
work.

(ii) Improves efficiency Motivation influences the level of performance of employees

which depends not only on individual abilities but also on their willingness to achieve a
higher level of performance. Motivation infuses willingness to work. In this way,
motivation bridges the gap between the ability to work and willingness to work.

(iii) Helps to introduce changes smoothly Whenever some changes are brought in
the organisation, employees resist change. However, with proper motivation, employees
can be convinced that the proposed changes will bring additional rewards to the
employees. This will help them to readily accept the changes.

(iv) Creates supportive work environment Organisation offers various rewards to

their employees to satisfy their diverse needs. They offer monetary rewards,
promotional opportunities, recognition of efficient work and involvement of employees in
decision-making. These bring satisfaction among employees. Such satisfaction leads to
cordial relationship between the employer and employee.

(v) Reduction in employees’ turnover Motivation creates confidence and loyality in

the subordinates. The rate of employment or employees turnover is reduced. This
results in maintaining a stable work force. The skill and experience of employees
continue to be available to the advantage of the organisation as well as the employees.

6 Marks Questions

20. Explain the following non-financial incentives:

 Status
 Organisation climate
 Career advancement opportunities (All India 2013)

Ans. Non-financial incentives are used to motivate employees to improve their

performance. These incentives are not measured in terms of money, rather they provide
psychological and emotional satisfaction.

(i) Status In business terms, status means ranking of positions in the organisation. The
authority, responsibility, rewards, recognition, perquisites and prestige of job indicate
the status given to a person holding a managerial position. It satisfies psychological,
social and esteem needs of an individual.

(ii)Organisation climate Organisational climate refers to the sum total of

characteristics like individual autonomy, reward orientation, consideration to employees,
risk-taking, etc. A positive climate serves as an incentive, supportive relationships,
knowledge of work done, healthy competition for superior performance, etc are
motivating factors.

(iii) Career advancement opportunity Most of the employees want to explore in their
career. An organisation can motivate its employees by providing them opportunities for
in-service training and promotion. In other words, if the employees are provided the
opportunity for their advancement and growth and to develop their potentiality, they feel
very much satisfied and become more committed towards the organisation goals.

21. Money is not the only motivator. Then what else is required to motivate
employees? Explain by giving any four points. (HOTS; Delhi 2010c)
or
Human beings cannot be motivated only through monetary incentives. Non-
monetary incentives are also necessary to motivate them. Explain any four such
non-monetary incentives. (All India 2009)

Ans. Non-financial incentives are used to motivate employees to improve their

performance. These incentives are not measured in terms of money, rather they provide
psychological and emotional satisfaction. Money is not the only motivator. The non-
financial incentives have to be used in addition of financial incentives. ‘

Types of non-financial incentives

To satisfy the social and psychological needs, non-monetary incentives are needed.
Various types of non-financial incentives are as follows:

(i) Job security Generally, workers prefer security of job. It is an assurance by the
employer that the worker will continue in the employment. It eliminates uncertainty
about the earnings and job and have a positive impact on the efficiency.

(ii) Participation in management’s decisions The active participation of workers and

their representatives in decision-making helps in securing cooperation and commitment
of workers towards organisational goals.

(iii) Employee recognition It is one of the most important motivator. It helps in

improving the attitudes of employees and at the same time, motivates them to put their
best efforts. Efficiency and innovations of the workers should be recognised and
praised. Recognition can be given by appreciating the work, installing awards and
certificates, display of achievements on the notice board, etc.

(iv) Job enrichment Assignment of challenging Jobs is a significant non-financial

incentive. Assignment of challenging work to subordinates provide opportunities for
maximum development ‘ and helps them to reach upto the point of self-realisation.

(v) Status In the organisation context, status means ranking of positions in the
organisation. The status of a person is reflected in his authority, responsibility, pre-
requisites and recognition. Psychological, social and esteem needs of an individual are
satisfied by status.

(vi) Organisation climate Organisational climate refers to the sum total of

characteristics like individual autonomy, reward orientation, consideration to employees,
risk-taking, etc. A positive climate serves as an incentive, supportive relationships,
knowledge of work done, healthy competition for superior performance, etc are
motivating factors.

(vii) Career advancement opportunity Most of the employees want to explore in their
career. An organisation can motivate its employees by providing them opportunities for
in-service training and promotion. In other words, if the employees are provided the
opportunity for their advancement and growth and to develop their potentiality, they feel
very much satisfied and become more committed towards the organisation goals.
 Concept, Importance & Style of Leadership

1 Mark Questions

1. What is meant by ‘democratic style’ of leadership? (All India 2013)

Ans. A democratic leader provides freedom of thinking. He listens to the suggestions,
grievances and opinions of the subordinates.

2. Name the term used in management for influencing people to strive willingly
for group objectives.(HOTS; All India 2012)
Ans. Leadership influencing people to strive willingly for group objectives.

3 Marks Questions

3. Explain any three qualities of a good (Delhi 2012,2008; All India 2011)

Ans. Qualities of a good leader are as follows: (Any three)

(i) Knowledge A good leader should have required knowledge and competence. Only
such person can instruct subordinates correctly and influence them.
(ii) Initiative A leader should have courage and ability to take initiative. He should not
wait for opportunities to come to his way, rather he should grab the opportunities and
use it to the advantage of organisation. .
(iii) Integrity A leader should possess high level of integrity and honesty. He should be
a role model to others regarding the ethics and values.
(iv) Sound physique A good leader must have good health and physical fitness. He
requires tremendous stamina and urge for hard work.

4. Explain the concept of motivation and leadership. (Delhi 2011)

Ans. Motivation It is the process of stimulating people to act or to accomplish desired

goals. It is an internal feeling. According to Berelson and Steiner, ‘Motivation is an inner
state that energises, activates and that directs or channels behaviour towards goals’.
Motivation is something that motivates a person into action and continues him in the
course of action enthusiastically. It determines the behaviour of a person to a great
extent.

Leadership It is the process of influencing the behaviour of other people so that they
work willingly for the attainment of goals in a given situation. According to Koontz and
O’Donnell, ‘Leadership is an art or process of influencing people so that they will strive
willingly and enthusiastically towards the achievement of group goals’.
Leadership is a psychological process of influencing followers or subordinates and
providing guidance to them.
5. Leadership is an essential element of directing. State any three reasons, why it
is essential? (Delhi 2008)

Ans. Leadership is considered as the most important element of directing function

because of the following reasons: (Any three)

(i) Effective direction An organisation comes into existence with certain objectives. To
attain the objectives, the activities of the Organisation must be directed. Direction of the
activities is effected through leadership. In short, effective leadership directs the
activities of an organisation towards the attainment of the specified organisational goals.

(ii) Source of motivation Effective leadership motivates the subordinates to contribute

their energies for the benefit of the organisation.

(iii) Provide confidence Leadership creates confidence in the subordinates by giving

them proper guidance and advice.

(iv) High morale Good leadership increases the morale of the employees which in turn,
contributes to higher productivity.

(v) Development of team spirit Effective leadership promotes team spirit and team
work which is quite essential for the success of an organisation.

4 / 5 Marks Question

6. ‘All managers are leaders but all leaders are not managers’. In the light of this
statement, differentiate between leadership and management. (HOTS; Delhi 2009)

Ans. A manager is a leader of his unit because he performs leadership function for his
unit. But this does not mean that leadership and managership are synonymous. A
person who is a leader may not be a manager, e.g. a trade union leader is not a
manager. Similarly, leaders in political and social fields are not managers.
Difference between management and leadership

6 Marks Questions

[Link] is meant by leadership? Describes any four qualities of a good leader. (All
India 2012)

Ans. Leadership is an attempt aimed at influencing people directly towards the

attainment of given goals. Leadership may also be defined as an art or process of
influencing people so that they will strive willingly and enthusiastically towards the
achievement of group goals.
In the words of Louis A Allen, ‘A leader is one who guides and directs other people. A
leader gives the efforts of his followers a direction and purpose by influencing their
behaviour’.

Qualities of a good leader

Qualities of a good leader are as follows:
(i) Knowledge A good leader should have required knowledge and competence. Only
such person can instruct subordinates correctly and influence them.
(ii) Initiative A leader should have courage and ability to take initiative. He should not
wait for opportunities to come to his way, rather he should grab the opportunities and
use it to the advantage of organisation. .
(iii) Integrity A leader should possess high level of integrity and honesty. He should be
a role model to others regarding the ethics and values.
(iv) Sound physique A good leader must have good health and physical fitness. He
requires tremendous stamina and urge for hard work.
8. A leader who has only good physical features and required knowledge
and competence cannot inspire others to work. Then what else is required by a
leader to be successful? Explain by giving any six points. (All India 2010; Delhi
2010c)

Ans. Other qualities of a leader are as follows:

(i) Integrity and honesty A leader must possess high level of integrity and honesty. He
must follow ethics and values then only he can expect his subordinates to be ethical
and honest.
(ii) Initiative A leader must take initiative to grab the opportunities. He must have
courage and initiative to take bold decisions. He must take risk for the advantage of
organisation.
(iii) Decisiveness Leader should be quick in managing the work. Once he is convinced
about a fact, he should be firm and should not change his opinions frequently.
(iv) Self-confidence and sense of responsibility A leader must be confident then only
he will be able to tackle any situation successfully. Only a confident leader can create
confidence in his subordinates. A leader must have the sense of responsibility for
achievement of goals or target of his group members.
(v) Social skills A leader must be friendly with his subordinates. He must provide
supportive environment to subordinates so that they do not hesitate to discuss their
problems. He must understand people and try to maintain good relations with them.
(vi) Motivational skills Leader should be an effective motivator. He should understand
the needs of people and motivate them by satisfying their needs.

9. Leadership is a key factor in making any organisation successful. Do you agree

with this statement? Give any four reasons in support of your answer. (All India
2010)
or
‘Leadership is considered as the most important element of the directing function
of management’. In the light of this statement, explain the importance of
leadership. (All India 2008)

Ans. Yes, I agree with this statement. Leadership is a key factor in making an
organisation successful because:
(i) Leadership influences the behaviour of the people and make them to channelise their
energies for the benefit of the organisation. Good leaders always produce good results
through their followers.

 A leader maintains personal relations and helps followers in fulfilling their needs.
He provides needed confidence, support and encouragement.
 Leader plays a key role in introducing required changes in the organisation. He
persuades, clarifies and inspires people to accept changes whole heartidly. Thus,
he overcomes the problem of resistance to change and introduces it with minimum
discontentment.
 Leader provides training to their subordinates. A good leader always build-up his
successor and helps in smooth succession process.
10. What is leadership? Explain the importance of leadership in the management
of a business organisation. (Delhi 2008C)

Ans. It is the process of influencing the behaviour of other people so that they work
willingly for the attainment of goals in a given situation. It is regarded as the most
important element of directing function. According to Theo Haimann, ‘Leadership is the
process by which an executive imaginatively directs, guides and influences the work of
others in choosing and attaining specified goals by mediating between the individuals
and the organisation in such a manner that both will obtain maximum satisfaction.

Importance of leadership
Leadership is considered as the most important element of directing function because of
the following reasons:

(i) Effective direction An organisation comes into existence with certain objectives. To
attain the objectives, the activities of the Organisation must be directed. Direction of the
activities is effected through leadership. In short, effective leadership directs the
activities of an organisation towards the attainment of the specified organisational goals.
(ii) Source of motivation Effective leadership motivates the subordinates to contribute
their energies for the benefit of the organisation.
(iii) Provide confidence Leadership creates confidence in the subordinates by giving
them proper guidance and advice.
(iv) High morale Good leadership increases the morale of the employees which in turn,
contributes to higher productivity.
(v) Development of team spirit Effective leadership promotes team spirit and team
work which is quite essential for the success of an organisation.

11. Leadership style refers to behaviour pattern, which leader reflects in his role
as a leader. On the basis of this statement discuss the different types of
leadership styles, giving suitable examples. (All india2008)

Ans. Following are the types of leadership styles:

(i) Autocratic/Authoritative leadership Under this style, all decision-making power is

vested in the leader and he exercises complete control over his subordinates.
The leader determines the policies without consulting them and assign task to them
without giving them any freedom. It is like ‘bossing people around’. It is a boss centered
leadership, and is also called directive style of leadership.
e.g. Mr Ratan, the GM of Addi Industries delegates the work to his staff Ms Ritu, Mr
Saurabh, Mr Manan, according to his discretion. Here Mr Ratan is behaving as an
autocratic leader.
 (ii)

Democratic/Participative leadership Under this style, leader consults his subordinates

in decision-making process and works out policies with the acceptance of the group. He
encourages them to give suggestions in setting goals and implementing decisions. It is
group centered leadership.
e.g. Mr Ratan realised that due to the absence of Mr Manan, the targets will not be met,
so he discusses with his staff about meeting the deadline. Every body decided to do
overtime and complete the task. Here Mr Ratan is behaving as a democratic leader

(iii) Laissez-faire/Free-rein leadership Under this style, the leader gives full freedom
to the subordinates in setting goals. Such a leader avoids use of power. The leader
does not interfere in the activities of the subordinates. Group members work themselves
as per their own choice and competence. It is called subordinate centered leadership,
e.g. The staff plans to organise a party in the honour of Mr Manan as he got promoted.
Mr Ratan asks the other members of the staff to fix the venue and menu for the
occasion. Here, Mr Ratan is behaving as a free-rein leader.

NOTE A leader may use all the styles over a period of time. However, one style tends to
predominate the normal way of using power.
 Meaning, Importance & Types of Communication
Barriers & Measures to Overcome Them

1 Mark Questions

1. What is meant by decoding as an element of communication? (All India 2014)

Ans. Decoding is the process of converting encoded symbols of the sender.

2. What is meant by feedback in the concept of communication? (Foreign 2014)

Ans. The action of the receiver, which reciprocates to the sender of the message, that
he has understood the message in its true sense is called feedback.

3. What is meant by encoding as an element of communication? (Delhi 2014)

Ans. The sender translates the message into words, symbols, gestures or other
symbols, which he feels, he will make the receiver understand the message. This is
known as encoding of message.

4. Define formal communication. (Delhi 2012)

Ans. Formal communication refers to the official communication which takes place
through the chain of command.

5. What is meant by informal communication? (Delhi 2012)

Ans. Informal communication is the communication that takes place without following
the formal lines of communication.

6. Define communication. (All India 2012)

Ans. Communication is the process of exchange of ideas and views among two or more
persons to create common understanding.
According to Newman, Summer and Warren, ‘Communication is an exchange of facts,
ideas, opinions or emotions between two or more persons’.

3 Marks Questions

7. Explain any three personal barriers to effective communication. (Foreign 2014)

Personal barriers to effective communication are-
(i) Lack of confidence of superior in his subordinates If superiors have no
confidence and trust in their subordinates, then they pay no attention to their advice,
opinion or suggestions.

(ii) Lack of incentives If there is no incentive for communication, then subordinates

may not take initiatives to give suggestions, e.g. if there is no reward given for giving
some good suggestion, then employees will take no initiative to give good suggestions.

(iii) Fear of authority Some superiors may modify feedback going from lower-level
employees. This may be done especially if the feedback is a complaint directed against
the superior. The dishonest superior may block complains reaching to senior
management in order to prevent challenge from authority. In other words, sometimes
superiors conceal and hide information if they have fear of losing their authority over the
subordinates.

8. Explain any three organisational barriers to effective communication. (Foreign

2014)

Ans. Organisational barriers to effective communication are:

(i) Organisational policy If organisational policy does not support free flovv of
information, it may result in barriers, e.g. in centralised organisation, most of the
information remains at top level only. People at lower level may not be able to
communicate freely in centralised organisation.

(ii) Status Sometimes the people working at higher level do not believe in the
information supplied by lower level employees as they feel how would he know about
my job and who is he giving suggestions. .

(iii) Rules and regulations Rigid rules and regulations may also create barriers as
following rules may lead to red tapism, delay of action and delay in movement of
information.

9. There are some barriers in communication which are concerned with

encodingand decoding of message. State any three such barriers. (HOTS; All
India 2008; Delhi 2008)

Ans. These barriers are known as semantic barriers.

Three types of barriers in communication are as follows: (Any three)

(i) Badly expressed message Sometimes due to lack of vocabulary, manager may use
wrong words, omission of needed words, etc. Due to this, the manager may fail to
convey the same meaning to his subordinates.

(ii) Symbols with different meanings Sometimes a word may have different
meanings. Receiver may understand the other meaning, e.g. price, prize, principle,
principal, right, write, etc.
(iii) Faulty translations Sometimes the workers do not understand the language which
is used by So workers get it translated. If translator is not efficient, he may make
mistakes in translation. Due to wrong translation, there may be transfer of wrong
message.

(iv) Unclarified assumptions Sometimes, the worker may misinterpret the

assumptions, e.g. boss may instruct the subordinate to take care of goods. He may
mean that take care of quality of good whereas, workers may understand that he is
instructing to keep the goods safely.

10. There are some barriers in communication which are concerned with the state
of mind of both the sender and the receiver. State any three such barriers. (HOTS;
All India 2008; Delhi 2008)

Ans. Such barriers are known as psychological barriers.

Some of the psychological barriers are as follows: (Any three)
(i) Premature evaluation Communication is likely to fail if the receiver evaluates the
meaning of message before the sender completes the message. Such premature
evaluation may occur due to pre-conceived notions or prejudice against the
communicator.

(ii) Lack of attention When the receiver’s mind is preoccupied, he fails to listen to what
is said. e.g. a worker explains some problems to his supervisor. The supervisor is
preoccupied with a telephone call and does not grasp the message.

(iii) Loss by transmission and poor retention In case of oral communication, when
communication passes through various levels, successive transmission of the message
results in loss or transmission of inaccurate information.

(iv) Distrust Some communicators don’t have leadership skills hence, they cannot
effectively communicate with subordinates. When the sender and the receiver do not
believe each other, the message may not be understood in its original sense.

4 / 5 Marks Questions

11. Communication plays a key role in the directing function of management. Do

you agree? Give any four reasons in support of your answer,(All India 2010)
or ,
Describe the role of communication in the directing function of
management. (All India 2009)

Ans. Yes, communication piays a key role in the directing function of management.
The communication is an important element of directing because of the following points:

(i) Acts as a basis of coordination and cooperation Communication acts as a basis

of coordination, it provides coordination among departments, activities and persons in
the organisation. Such coordination is provided for explaining about organisational
goals, the mode to their achievement and inter-relationships between different
individuals, etc,

(ii) increases managerial efficiency The employees must know clearly about their
responsibilities and authority, who will report to whom, what part of total job, they are
expected to perform and what are their decision-making powers and this leads to
smooth flow of communication.

(iii) Helps in smooth working of an enterprise All interactions in an organisation and

smooth working of an enterprise is possible only when there is no communication gap.
Right from establishing of enterprise til! its survival, communication is essential.

(iv) Promotes cooperation and industrial peace Efficient operation is the aim of all
prudent management. It may be possible only when there is industrial peace in the
factory and mutual cooperation between management and workers. The two way
communication promotes cooperation and mutual understanding between the
management and workers.

12. There are some barriers in communication which are concerned with
organisational structure and rules and regulations. State any four such
barriers. (HOTS; All India 2008)

Ans. Such barriers are known as organisational barriers. Some of them are:
(i) Organisational policy If organisational policy does not support free flow of
information, it may result in barriers, e.g. in centralised organisation, most of the
information remains at top level only. People at lower level may not be able to
communicate freely in centralised organisation.
(ii) Status Sometimes the people working at higher level do not believe in the
information supplied by lower level employees as they feel how would he know about
my job and who is he giving suggestions.
(iii) Rules and regulations Rigid rules, and regulations may also create barriers as
following rules may lead to red tapism, delay of action and delay in movement of
information.
(iv) Complex organisation When the information passes through various levels then it
can lead to screening or filtering of information at different levels, e.g. while giving the
feedback, the ordinates filter all their negative points and highlight only their positive
side.

6 Marks Questions

13. Describe psychological barriers to effective communication. (Compartment

2014)
or
Explain any four psychological barriers to effective communication. (All India
2013)
Ans. Communication is a process, by which people create and share information with
one another in order to reach common understanding.

Psychological barriers to effective communication People tend to use emotions and

personal values such as attitudes, judgements etc during communication. These
qualities may hinder clear communication and may even offered the receiver and cause
miscommunication.

Types of psychological barriers

Such barriers are known as psychological barriers.

Some of the psychological barriers are as follows: (Any three)

(i) Premature evaluation Communication is likely to fail if the receiver evaluates the
meaning of message before the sender completes the message. Such premature
evaluation may occur due to pre-conceived notions or prejudice against the
communicator.

(ii) Lack of attention When the receiver’s mind is preoccupied, he fails to listen to what
is said. e.g. a worker explains some problems to his supervisor. The supervisor is
preoccupied with a telephone call and does not grasp the message.

(iii) Loss by transmission and poor retention In case of oral communication, when
communication passes through various levels, successive transmission of the message
results in loss or transmission of inaccurate information.

(iv) Distrust Some communicators don’t have leadership skills hence, they cannot
effectively communicate with subordinates. When the sender and the receiver do not
believe each other, the message may not be understood in its original sense.

14. Barriers to effective communication exist in all organisations to a greater or

lesser degree. State any six measures to overcome these barriers. (Delhi 2013)

Ans. Organisation should adopt suitable measures to overcome the barriers and
improve communication effectiveness.
The various measures to overcome the barriers are:
(i) Be aware of languages, tone and content of message Language, tone and
content of message should be so adjusted according to the situation that it is easily
understood by the receiver and stimulates them.
(ii) Convey things of help and value to listeners To get good response from the
subordinates, it should be ensured that the message relates to their interests.
(iii) Ensure feedback For success of communication, response of the listeners should
be encouraged by the manager.
(iv) Communicate for present as well as future For communication to be successful,
managers should incorporate existing commitments as well as future goals of the
organisation.
(v) Follow-up communication Sometimes it is difficult to implement instructions in its
totality by the subordinates. To overcome this, regular follow-up should be done by
managers.
(vi) Be a good listener Lot of problems can be solved due to attentive listening quality
of the manager.

15. Describe any four semantic barriers of communication. (Delhi 2011, 2011c)

Ans. Semantic barriers are concerned with problems and obstructions in the process of
encoding and decoding of message into words or impressions. The sender may be
trying to communicate something different from what is being understood.

Types of semantic barriers of communication

These barriers are known as semantic barriers.
Three types of barriers in communication are as follows: (Any three)

(i) Badly expressed message Sometimes due to lack of vocabulary, manager may use
wrong words, omission of needed words, etc. Due to this, the manager may fail to
convey the same meaning to his subordinates.

(ii) Symbols with different meanings Sometimes a word may have different
meanings. Receiver may understand the other meaning, e.g. price, prize, principle,
principal, right, write, etc.

(iii) Faulty translations Sometimes the workers do not understand the language which
is used by So workers get it translated. If translator is not efficient, he may make
mistakes in translation. Due to wrong translation, there may be transfer of wrong
message.

(iv) Unclarified assumptions Sometimes, the worker may misinterpret the

assumptions, e.g. boss may instruct the subordinate to take care of goods. He may
mean that take care of quality of good whereas, workers may understand that he is
instructing to keep the goods safely.

15. Describe any four organisational barriers of effective communication. (All

India 2011)

Ans. (i) Organisational policy If organisational policy does not support free flow of
information, it may result in barriers, e.g. in centralised organisation, most of the
information remains at top level only. People at lower level may not be able to
communicate freely in centralised organisation.

(ii) Status Sometimes the people working at higher level do not believe in the
information supplied by lower level employees as they feel how would he know about
my job and who is he giving suggestions.
(iii) Rules and regulations Rigid rules, and regulations may also create barriers as
following rules may lead to red tapism, delay of action and delay in movement of
information.

(iv) Complex organisation When the information passes through various levels then it
can lead to screening or filtering of information at different levels, e.g. while giving the
feedback, the ordinates filter all their negative points and highlight only their positive
side.

17. Explain any four personal barriers of effective communication.

(All India 2011)

Ans. Communication begins and ends at the perspn. Thus, there are barriers to
communication that are personal in nature. Personal barriers of communication are as
follows:
(i) Lack of confidence of superior in his subordinates If superiors have no
confidence and trust in their subordinates, then they pay no attention to their advice,
opinion or suggestions.
(ii) Lack of incentives If there is no incentive for communication, then subordinates
may not take initiatives to give suggestions, e.g. if there is no reward given for giving
some good suggestion, then employees will take no initiative to give good suggestions.
(iii) Fear of authority Some superiors may modify feedback going from lower-level
employees. This may be done especially if the feedback is a complaint directed against
the superior. The dishonest superior may block complains reaching to senior
management in order to prevent challenge from authority. In other words, sometimes
superiors conceal and hide information if they have fear of losing their authority over the
subordinates.
(iv) Unwillingness to communicate The personal characteristic of an individual also
influences the free flow of communication. Sometimes the superiors may not be
prepared to communicate with subordinates. These superiors may have selfish
intentions and may prevent anv negative information that threatens their reputation.

18. Managerial functions cannot be carried out without an efficient system of

communication. Do you agree with this statement? Give any five reasons in
support of your answer. (HOTS; Delhi 2010)
or
Effectiveness of a manager depends on his ability to communicate effectively.
Explain how. (Delhi 2009)
or
What is meant by communication? Explain how communication is an important
function of management. (All India 2009)

Ans. Communication may be defined as a process of exchanging ideas and information

between two or more persons to create mutual understanding.
Importance of communication are as follows:
(i) Acts as a basis of coordination Communication acts as a basis of coordination. It
provides coordination among departments, activities and persons in the organisation.
Such coordination is provided for explaining about organisational goals, the mode to
their achievement and inter-relationships between different individuals, etc.

(ii) Acts as a basis of decision-making The decisions made in an organisation

depends largely on the amount and quality of information available. On the basis of
communication of relevant information, one can take right decisions.

(iii) Increases managerial efficiency The employees must know clearly about their
responsibilities and authority, who will report to whom, what part of total job they are
expected to perform and what are their decision-making powers and this leads to
smooth flow of communication.

(iv) Helps in the process of motivation and morale Motivation and morale of
employees largely depend upon the effectiveness of communication. Sharing of
information with employees helps management to secure their willing cooperation.

(v) Effective leadership Communication is the basis of leadership. By developing the

skills of communication, a manager can be a real leader of his subordinates. A good
system of communication brings them in close contact with each other and removes
misunderstandings.

19. List the barriers of effective communication. Explain any two. (All India 2008)

Ans. Such barriers are known as psychological barriers.

Some of the psychological barriers are as follows: (Any three)

(i) Premature evaluation Communication is likely to fail if the receiver evaluates the
meaning of message before the sender completes the message. Such premature
evaluation may occur due to pre-conceived notions or prejudice against the
communicator.

(ii) Lack of attention When the receiver’s mind is preoccupied, he fails to listen to what
is said. e.g. a worker explains some problems to his supervisor. The supervisor is
preoccupied with a telephone call and does not grasp the message.

(iii) Loss by transmission and poor retention In case of oral communication, when
communication passes through various levels, successive transmission of the message
results in loss or transmission of inaccurate information.

(iv) Distrust Some communicators don’t have leadership skills hence, they cannot
effectively communicate with subordinates. When the sender and the receiver do not
believe each other, the message may not be understood in its original sense.
Such barriers are known as organisational barriers. Some of them are:
(i) Organisational policy If organisational policy does not support free flow of
information, it may result in barriers, e.g. in centralised organisation, most of the
information remains at top level only. People at lower level may not be able to
communicate freely in centralised organisation.

(ii) Status Sometimes the people working at higher level do not believe in the
information supplied by lower level employees as they feel how would he know about
my job and who is he giving suggestions.

(iii) Rules and regulations Rigid rules, and regulations may also create barriers as
following rules may lead to red tapism, delay of action and delay in movement of
information.

(iv) Complex organisation When the information passes through various levels then it
can lead to screening or filtering of information at different levels, e.g. while giving the
feedback, the ordinates filter all their negative points and highlight only their positive
side. Communication begins and ends at the person. Thus, there are barriers to
communication that are personal in nature. Personal barriers of communication are as
follows:

(i) Lack of confidence of superior in his subordinates If superiors have no

confidence and trust in their subordinates, then they pay no attention to their advice,
opinion or suggestions.

(ii) Lack of incentives If there is no incentive for communication, then subordinates

may not take initiatives to give suggestions, e.g. if there is no reward given for giving
some good suggestion, then employees will take no initiative to give good suggestions.

(iii) Fear of authority Some superiors may modify feedback going from lower-level
employees. This may be done especially if the feedback is a complaint directed against
the superior. The dishonest superior may block complains reaching to senior
management in order to prevent challenge from authority. In other words, sometimes
superiors conceal and hide information if they have fear of losing their authority over the
subordinates.

(iv) Unwillingness to communicate The personal characteristic of an individual also

influences the free flow of communication. Sometimes the superiors may not be
prepared to communicate with subordinates. These superiors may have selfish
intentions and may prevent anv negative information that threatens their reputation.

20. Discuss the various formal communication and informal communication

networks, (All India 2008)

Ans. Communication network indicates the pattern through which communication flows
within the organisation.
(i) Major formal communication networks are as follows:
  Single chain network Communication flows from each superior to his
subordinate through a single chain.
 Wheel network All subordinates under one superior communicates through
him/her only.
 Circular network Communication moves in a circle. Each person can
communicate with his/her adjoining two persons.
 Free flow network Each person can communicate with others freely.
 Inverted V network A subordinate can communicate with his/her immediate
superior as well as superior’s superior.

(ii) Various
informal communication networks are as follows:

 Single strand network A person communicates with the other in sequence.

 Gossip network A person communicates with all on selective basis.
 Probability network A person communicates randomly with ohters.
 Cluster network A person communicates with only those people whom he/she
trusts.
 Controlling

Previous Years' CBSE Board Questions

8.1 Concept and Importance
MCQ
1. Umang was working as a 'Production Manager' at 'LG Papers Ltd'. The
company had launched new eco-friendly paper straws in the market. He was
given a target of producing 5,000 straws a day, by the General Manager. In spite of
making the employees work overtime, Umang could not meet the target.
On investigation, it was found that the employees had not received the right
training to manufacture these eco-friendly paper straws. So, the employees were
sent for special training.
The function of management which helped Umang in identifying that he could
not meet the target is
(a) Planning (b) Organising
(c) Directing (d) Controlling.
(2023)
2. 'Whether the decisions have been translated into desired actions or not' can be
confirmed by performing which of the following function of management?
(a) Planning (b) Organising
(c) Directing (d) Controlling
(2023)
3. Himanshu is working as a "Marketing Manager" in 'Suvidit-Air-Conditioners, a
well known brand in the field of air-conditioners. Till last month, the company
was able to achieve its sales targets. But this month Himanshu observed that
targets were not being met and the number of air-conditioners sold was
decreasing. He analysed the situation and found that the new salesman appointed
last month was not good and for this, he took necessary action.
Which of the following function of management helped Himanshu to identify the
decrease in sale?
(a) Planning (b) Organising
(c) Directing (d) Controlling
(2023)
4. Which of the following headings does not highlight the importance of
'controlling function of management?
(a) Ensuring order and discipline
(b) Initialising action by people in the organisation
(c) Making efficient use of resources
(d) Improving employees' motivation (2021 C)
VSA (1/2 mark)
5. One of the functions of management completes one cycle of management
process and improves planning in the next cycle in the light of the problems that
were identified in the existing plans.
Identify and state the function of management discussed above.
(Term-II, 2021-22)
6. Identify and give the meaning of the function of management that helps in
verifying whether the standards set are accurate and objective or not.
(Term-II, 2021-22 C)
7. Why is it said that Controlling is a continuous activity? (Foreign 2019)
8. Why is Controlling called a forward-looking function? (Foreign 2019)
9. Hina Sweets is a renowned name for quality sweets since 1935. Harsh, the
owner of Hina Sweets, was worried as the sales had declined during the last three
months. When he enquired from the Sales Manager, the Sales Manager reported
that there were some complaints about the quality of sweets. Therefore, Harsh
ordered for sample checking of sweets. Identify the step taken by Harsh that is
related to one of the functions of management. (Delhi 2017)
SA I (3 marks)
10. Explain (i) Ensuring order and discipline, and (ii) facilitating co-ordination in
action, as importance of controlling function of management. (2023)
11. Explain how controlling helps in "making efficient use of resources" and
"improving employee's motivation". (Term-II, 2021-22)
12. AS Ltd. is a large company engaged in assembly of air conditioners. Recently
the company had conducted the 'Time' and 'Motion' study and concluded that on
an average a worker can assemble ten air conditioners in a day. The target
volume of the company in a day is assembling of 1,000 units of air-conditioners.
The company is providing attractive allowances to reduce labour turnover and
absenteeism. All the workers are happy. Even then the assembly of air
conditioners per day is 800 units only. To find out the reason the company
compared actual performance of each worker and observed through C.C.T.V. that
some of the workers were busy in gossiping.
(a) Identify the function of management discussed above.
(b) State the steps in the process of the function identified which are discussed in
the above paragraph. (Al 2015)
LA (5 marks)
13. State any five points that highlight the importance of 'controlling' function of
management. (NCERT, Delhi 2017)
8.2 Relationship Between Planning and Controlling
LA (5 marks)
14. State the relationship between planning and controlling functions of
management. (NCERT, AI 2016, Delhi 2014)
8.3 Steps in the Process of Controlling
MCQ
15. Which of the following is not a step in the process of 'Controlling' function of
management?
(a) Setting performance standards
(b) Assignment of duties
(c) Taking corrective action
(d) Comparing actual performance with standards (2023)
VSA (1/2 mark)
16. The final step in the controlling process is taking corrective action, but when
deviations are within acceptable limits no corrective action is required.' When
and why corrective action is required? State. (Term-II, 2021-22)
17. 'Analysing deviations' is an important step in the process of controlling. It is
therefore important to focus on key result areas which are critical to the success
of an organisation. Identify and give the meaning of the concept discussed above.
(Term-11, 2021-22)
18. Mahima Jain is the Senior Manager in the Advisory Services Department of
Kodes Ltd. She regularly prepares performance reports of her subordinates as a
part of the appraisal. Identify the step of the controlling process performed by
her. (Foreign 2019)
19. Give the meaning of 'Critical Point Control. (Delhi 2014 C)
20. What is meant by 'Management by Exception' in the process of controlling?
(AI 2014 C)
SA I (3 marks)
21. Explain: (i) Critical point control and (ii) Management by exception, as an
important part of 'Analysing Deviations' a step in the process of controlling.
(2023)
22. Explain the first two steps in the process of controlling.
(Term-II, 2021-22 C)
23. Actual performance of employees is measured in the second step of
'controlling process. Explain the next three steps in the process. (2021 C)
SA II (4 marks)
24. Vinber Ltd. set up a manufacturing unit at Bhiwadi in Himachal Pradesh to
manufacture electric geysers and supply them to dealers all over the country.
Their production target was 500 geysers per week. It was decided by the
management that variation in production upto 10 units would be acceptable. At
the end of the first week, the production was 450 geysers. The next week,
production increased to 470 geysers. A week later, production was 460 geysers.
On investigation, it was found that fluctuation in production was due to irregular
supply of electricity.
(a) The above para discusses some of the steps in the process of one of the
functions of management. Explain these steps.
(b) Also, state the step(s) that have not been discussed in the above para.
(Delhi 2019)
25. Explain the steps in the controlling process. (NCERT, Delhi 2016)
 CBSE Sample Questions
8.1 Concept and Importance
MCQ
1. Raman and Vasudev were two employees who were embezzling an import-
export company in Varanasi where they were working. The finance manager of
the company Sampat Singh became suspicious of the two employees when he
realised that their activities were not being performed as per the plans. He
installed a software program that could secretly log every single stroke of the
suspects' computer keys and send an encrypted email report to the Cyber police.
The police were able to catch the two dishonest employee’s red handed and
arrest them. Identify the function of management being discussed above.
(a) Staffing (b) Coordination
(c) Controlling (d) Organising (2022-23)
2. Name the function of management which helps in the formulation of future
plans, in the light of the problems that were identified and thus, helps in better
planning in the future period.
(a) Planning (b) Organising
(c) Directing (d) Controlling (2020-21)
SA I (3 marks)
3. "Controlling is an indispensable function management. Without controlling the
best of plans can go away". Do you agree? Explain any two reasons in support of
your answer.
(2020-21)
8.2 Relationship Between Planning and Controlling
MCQ
4. Radha started a home cooked food delivery Dabba service. Her mother, who is
a great cook, decided to help her. They relied on friends and family for orders and
then on word of mouth. As a step in the process of ensuring that activities are
performed as per her plan of supplying healthy, good quality, reasonable food and
earning profit, she decided to keep both qualitative and quantitative benchmarks
towards which she would strive to work. A function of management is being
discussed above. An important characteristic of this function of management is :
(a) It is the first function of management.
(b) It is the last function of management.
(c) It is both forward looking and backward looking.
(d) It is required only in business organisations. (2022-23)
8.3 Steps in the Process of Controlling
MCQ
5. Identify an important principle of management control in which only
significant deviations which go beyond the permissible limit should be brought to
the notice of management.
(a) Management by control
(b) Control by exception
(c) Critical point control
(d) (a) and (b) (2020-21)
VSA (2 marks)
6. "Measurement of a company's progress may involve calculation of certain
ratios like gross profit ratio, net profit ratio, and return on investment etc. at
periodic intervals". Identify the function of management involved in the above
context. Also, briefly explain the step in the process of the identified function
discussed above. (Term-II, 2021-22)
SA I (3 marks)
7. Explain "Critical point control" with respect to Analysing deviations, a step in
the process of controlling. Give a suitable example.
(2022-23)
8. Explain "Management by exception" with respect to Analysing deviations, a
step in the process of controlling. Give a suitable example.
(2022-23)
9. "It is generally believed that measurement of performance should be done
after the task is completed."
Identify and explain the step in the process of the function of management being
discussed above and the step followed by the same in the process.
(2020-21)
 ANSWERS
Previous Years' CBSE Board Questions

1. (d): Controlling
2. (d): Controlling
3. (d): Controlling
4. (b): Initialising action by people in the organisation
5.

6. Controlling function of management helps in verifying whether the standards

set are accurate and objective or not. Controlling is the function of management
which ensures that the activities in an organisation are performed as per plans by
comparing actual performance with the standards, finding out deviations and
taking corrective action, if required.
7. Controlling is said to be a continuous activity as it is a never-ending process
and involves a constant assessment and evaluation of the progress of current
tasks and activities as against the set standards.
8. Controlling is said to be a forward-looking in the sense that the corrective
actions taken under controlling from the basis of future plans and policies. In this
way, it guides the future of action and aims at improving both performance and
efficiency in the long run.
9. The steps taken by Harsh is related to 'control' function of management.
10. (i) Ensuring order and discipline: Controlling creates an atmosphere of order
and discipline in the organisation. It helps to minimise dishonest behaviour on
the part of the employees by keeping a close check on their activities. The box
explains how an import-export company was able to track dishonest employees
by using computer monitoring as a part of their control system.
(ii) Facilitating coordination in action: Controlling provides direction to all
activities and efforts for achieving organisational goals. Each department and
employee is governed by pre-determined standards which are well coordinated
with one another. This ensures that overall organisational objectives are
accomplished.
11.

12. (a) Controlling.

(b) Steps discussed in the above paragraph are:
'The target volume of the company in a day is assembling of 1,000 units of air-
conditioners'.
(i) Setting performance standards which are the criteria against which the actual
performance is to be measured.
(ii) Measurement of actual performance.
'Even then the assembly of air-conditioners per day is 800 units only'.
Measurement of actual performance with the standards in an objective and
reliable manner.
(iii) Comparing actual performance with the standards.
'The company compared actual performance of each worker’.
Comparing actual performance with the standards to find out the deviation, if
any.
(iv) Analysing deviations to final its cause.
'observed through C.C.T.V. that some of the workers were busy in gossiping'.
13. Control is an essential function of management. Without proper control the
best of plans can become ineffective and useless. A good control system helps an
organisation in the following ways:
(i) Accomplishing organisational goals: The controlling function measures
progress towards the organisational goals and brings to light the deviations, if
any. This helps the manager to take prompt corrective action. It, thus, guides the
organisation and keeps it on the right track so that organisational goals are
achieved.
(ii) Judging accuracy of standards: A good control system enables management to
verify whether the standards set are accurate and achievable. An efficient control
system keeps a careful check on the changes taking place in an organisation and
in the environment and helps to review and revise the standards in the context of
such changes.
(iii) Making efficient use of resources: By exercising control, a manager seeks to
reduce wastage and spoilage of resources. Each activity is performed in
accordance with predetermined standards and norms. This ensures that
resources are used in the most effective and efficient manner.
(iv) Improving employee motivation: A good control system ensures that
employees know well in advance what they are expected to do and what are the
standards of performance on the basis of which they will be appraised. It, thus,
motivates them and helps them to give better performance.
(v) Facilitating coordination in action: Controlling provides direction to all
activities and efforts for achieving organisational goals. Each department and
employee are governed by predetermined standards which are well coordinated
with one another. This ensures that overall organisational objectives are
accomplished.
14. Relationship between 'Planning and Controlling' -
(a) Both planning and controlling are inter-related and inter-dependent :
(i) Controlling is always bench marked on planning : Controlling can be done on
the existence of certain standard of performance provided by planning. There
would be nothing to control in the absence of a plan.
(ii) Planning without controlling is of no use: Controlling is necessary to monitor
the progress made and find deviation, so one can initiate corrective actions to
ensure that the plans are implemented effectively and efficiently. The cause of
deviation leads to planning in future.

(b) Similarities between planning and controlling :

(i) Plans provide directions and control ensures that results are consistent with
plans. Plans show the way, control helps us to progress on the way.
(ii) Planning and controlling are forward-looking :
Planning is looking ahead because plans are prepared for the future. Controlling
is forward looking because corrective action in controlling is taken to prevent the
recurrence of deviations in future. It seeks to improve future performance.
(iii) Planning and controlling are also backward looking:
Planning is looking back because new plans are based on situations of the past.
Controlling is looking back as it compares the actual performance with the
standards set in the past. This involves scrutinising the events after they have
taken place.
15. (b): Assignment of duties
16. When deviations go beyond the admissible limits, corrective actions are taken
to ensure the errors do not occur again. Controlling function ensures that each
task is performed as per the set standards. While monitoring the actual
performance if any deviations are recognised, the cause for these deviations is
identified.
17. The concept discussed in the above lines is 'Critical Point Control'. This
technique is based on the belief that a manager cannot control each and every
activity of the organisation. Thus, focus should solely be on the key result areas
(KRAs) that are critical to the success of the organisation.
18. The step of the controlling process performed by her by preparing
performance reports of her subordinates as a part of the appraisal is the
measurement of actual performance.
19. 'Critical point control' means control system should focus on key result areas
(KRAs), which are critical to the overall performance of an organisation.
20. Management by Exception emphasises that only significant deviations which
go beyond the permissible limits should be brought to the notice of management.
21. (i) Critical point control: It is neither economical nor easy to keep a check on
each and every activity in an organisation. Control should, therefore, focus on key
result areas (KRAs) which are critical to the success of an organisation. These
KRAS are set as the critical points. If anything goes wrong at the critical points,
the entire organisation suffers. For instance, in a manufacturing organisation, an
increase of 5 per cent in the labour cost may be more troublesome than a 15 per
cent increase in postal charges.
(ii) Management by exception: Management by exception, which is often referred
to as control by exception, is an important principle of management control
based on the belief that an attempt to control everything results in controlling
nothing. Thus, only significant deviations which go beyond the permissible limit
should be brought to the notice of management.
Thus, if the plans lay down 2 per cent increase in labour cost as an acceptable
range of deviation in a manufacturing organisation, only increase in labour cost
beyond 2 per cent should be brought to the notice of the management.
However, in case of major deviation from the standard (say, 5 per cent), the
matter has to receive immediate action of management on a priority basis.
22. First two steps in the process of controlling:
(i) Setting performance standards: Standards are the criteria against which
actual performance would be measured. Standards can be set in both quantitative
as well as qualitative terms.
(ii) Measurement of actual performance: Performance should be measured in an
objective and reliable manner.
There are several techniques for measurement of performance like personal
observation, sample checking, etc.
23. The next three steps in the process of controlling are:
(i) Comparing actual performance with standards: Performance against
standards should be measured on a forward-looking basis so that deviations can
be discovered and avoided before they happen. Appraising actual or predicted
performance is relatively simple if criteria are properly drawn and methods for
determining exactly what subordinates are doing are available.
(ii) Analysing deviations: The actual performance and set standards of an
organisation rarely match with each other. Usually, there is always some variation
between the expected and actual performance. Therefore, the fourth step of the
process of controlling is to analyse the deviations. To do so, an organisation must
fix an acceptable range of deviation in performance. Besides, an organisation
should focus more on the significant deviation and less on the minor deviations.
For this, managers of an organisation usually take the help of
(a) Critical Point Control
(b) Management by Exception.
(iii) Taking corrective action: The last and final step of the process of controlling
is to take corrective action. If the deviations are within the acceptable limits set
by the managers, then there is no need to take corrective action. However, if the
deviations go beyond the set acceptable limit in the key areas, then proper and
immediate managerial actions are required. An organisation can easily rectify the
defects in the actual performance through the corrective steps.
24. (a) The steps in the controlling process that are being followed are as follows:
(i) Setting standards: The first step in the process of controlling is to develop the
standards or benchmarks for performance as against which the actual
performance would be measured. The standards can be set in both qualitative
and quantitative terms.
(ii) Measuring actual performance: Once the performance standards are set, the
next step is to measure the actual performance. This may be done through
various techniques such as personal observation and performance reports.
Performance can be evaluated after the completion of an activity as well as while
it is in progress.
(iii) Comparing the performances: Performances once measured are then
compared with the set standards. Such a comparison helps in assessing the
deviations in performance. In regard to this, comparisons in quantitative terms
are much easier than in qualitative terms.
(iv) Analysing deviations: Every organisation faces deviations in the actual
performance as against the pre-defined standards. It is important for managers
to find the deviations that are beyond the permissible range. Once the deviations
are recognised, it is necessary to identify the cause for it. There can be a number
of factors causing deviations in performance such as infeasible standards,
deficiencies in process, under-utilisation of resources and changes in business
environment.
(b) The step which was missing is: Taking Corrective measures. When deviations
go beyond the admissible limits, there arises a need for the manager to take
corrective actions. This is the final step in the controlling process which aims at
correcting the deficiencies of the organisation so that such deviations do not
occur again.
25. Steps in controlling process:

(i) Setting performance standards : The first step of controlling is, to set
performance standards. Standards are those criteria on the basis of which the
actual performance is measured. Standards can be qualitative or quantitative or
both. Managers evaluates the actual performance on the basis of these standards
and find out the deviations.
(ii) Measurement of actual Performance : The second step is measurement of
performance. The measurement of actual performance tells the manager whether
the work has been done as per plan or not.
(iii) Comparison of actual performance with standards: At this step actual
performance is compared with the standards and deviations are found out.
(iv) Analysing Deviations: At this stage, deviations are analysed. In the analysis of
deviations following things are studied.
The extent of deviation and finding the cause of deviation
(a) Extent of deviation : When the actual performance matches the standard
performance, it reflects that performance is satisfactory. The actual performance
can be better than the standard (Positive deviation) or is less than the standard
(negative deviation) The extent of deviation is measured. An organisation needs
to set the acceptable range of variation. If the deviation is beyond the range,
managerial attention is needed.
(b) Causes of deviation: When the deviations are beyond the acceptable range of
variation, a detailed analysis has to be made. This helps to know the causes of
such deviations.
(v) Taking corrective Action: Taking corrective action is an important measure.
By the end of the third steps, the deviations and their cause become known. The
purpose of corrective action is to bring the actual work progress to the level of
expected progress or even improve the standards.

CBSE Sample Questions

1. (c) Controlling
2. (d): Controlling
3. Yes. Importance of controlling:
(i) Accomplishing organisational goals : The controlling function measures
progress towards the organisational goals and brings to light the deviations, if
any and indicates corrective action.
(ii) Judging accuracy of standards : A good control system enables management
to verify whether the standards set are accurate and objective.
(iii) Making efficient use of resources : By exercising control, a manager seeks to
reduce wastage and spoilage of resources. Each activity is performed in
accordance with predetermined standards and norms.
(iv) Improving employee motivation : A good control system ensures that
employees know well in advance what they are expected to do and what are the
standards of performance on the basis of which they are appraised.
(v) Ensuring order and discipline : Controlling creates an atmosphere of order
and discipline in the organisation.
(vi) Facilitating coordination in action : Controlling provides direction to all
activities and efforts for achieving organisational goals.
4. (c): It is both forward looking and backward looking
5. (b): Control by exception
6. (a) Controlling
(b) Measurement of actual performance:
Once performance standards are set, the next step is measurement of actual
performance.
Performance should be measured in an objective and reliable manner. There are
several techniques for measurement of performance. These include personal
observation, sample checking, performance reports, etc.
7. Critical point control: It is neither economical nor easy to keep a check on each
and every activity in an organisation. Control should therefore focus on key result
areas which are critical to the success of an organisation. These KRAS are set as
the critical points. If anything goes wrong at the critical points, the entire
organisation suffers. For instance, in a manufacturing organisation, an increase of
5% in the labour cost may be more troublesome than a 15% increase in postal
charges.
8. Management by exception : Management by exception, which is often referred
to as control by exception, is an important principle of management control
based on the belief that an attempt to control everything results in controlling
nothing.
Thus, only significant deviations which go beyond the permissible limit should be
brought to the notice of the management.
For instance, if the plans lay down 2% increase in labour cost as an acceptable
range of deviation in a manufacturing organisation, only an increase in labour
cost beyond 2% should be brought to the notice of the management. However, in
case of major deviation from the standard (say, 5%), the matter has to receive
immediate action of management on a priority basis.
9. Measurement of Actual performance.
Performance should be measured in an objective and reliable manner. There are
several techniques for measurement of performance. Wherever possible
measurement of work should be done during the performance. Comparing actual
performance with standards: This step involves comparison of actual
performance with the standard. Such comparison will reveal the deviation
between actual and desired results. Standards become easier when standards
are set in quantitative terms.
 Meaning, Importance & Limitations of Controlling
1 Mark Questions

1. Why it is said that controlling is a continuous activity? (Delhi 2011)

Ans. Controlling is a continuous activity as the progress has to be assessed
continuously as per the pre-determined standards.

[Link] is it said that controlling is looking back? (All India 2011,2009; Delhi 2009)
Ans. Controlling is called a process of looking back as under it, actual results are
compared with the set standards, decided in the past. After that, a corrective action is
initiated.

3.’Controlling is a pervasive function’. Explain. (Delhi 2009; All India 2009)

Ans. Controlling is a pervasive function because it is performed:
(i) In all the organisations whether profit making or non-profit making.
(ii) At all levels of management whether top, middle and lower level to ensure that work
at every stage is performed as planned.

[Link] controlling, why is actual performance compared with standards?(All India

2009; Delhi 2009 C)
Ans. The actual performance is compared with standards to locate the deviations, if
any.

[Link] function of management ensures that actual activities confirm to planned

activities? (HOTS; Delhi 2008)
Ans. The controlling function of management ensures that actual activities confirm to
planned activities.

[Link] the function which reviews the operations in a business unit. (HOTS; All
India 2008)
Ans. Controlling.

3 Marks Questions

[Link] how controlling helps in

(i)Accomplishing organisational goals; and
(ii)Judging accuracy of standards. (All India 2013)

Ans. (i) Accomplishing organisational goals The controlling function measures the
performance against the pre-determined standards and corrects deviations. This helps
in ensuring that organisation is moving on right track to achieve the organisational
goals. In other words, by controlling, the manager ensures that resources are obtained
and used economically and efficiently for the achievement of organisational objectives.
(ii) Judging accuracy of standards A sound controlling system helps the management
to verify whether the standards set are accurate and objective. It keeps a careful check
on the changes, which are taking place in the organisation and helps in revising
standards as and when required.

[Link] how controlling helps in

(i)Making efficient use of resources; and
(ii)Improving employee’s motivation (All India 2013)

Ans. (i) Making efficient use of resources By exercising control, a manager seeks to
reduce wastage and spoilage of resources. Each activity is performed in accordance
with pre-determined standards and norms. This ensures that resources are used in the
most effective and efficient manner.

(ii) Improving employees motivation A good control system ensures that employees
knows well in advance what they are expected to do and what are the standards of
performance on the basis of which they will be appraised. Thus, it motivates them and
helps them to give better performance.

9.’Controlling is forward looking’. Explain. (hots; ah India 2009; Delhi 2009)

Ans. Controlling is forward looking as it must focus attention on two things checking
current performance and providing early information to achieve results in conformity
with set standards. Checking on operations should enable prompt detection of faults
before it is too late for remedy. Deviations, if any, should lead to investigation of the
factors responsible which may effect future operations. Remedial actions should be
followed so as to prevent the occurrence of defects thereafter. In other words, control
must ensure timely detection of deviations and prevention of their repetition in future.

10.’Controlling is looking back’. Give a suitable example in support of your

answer.(HOTS; Delhi 2008 C)

Ans. Controlling is called a process of looking back as under it/ actual results are
compared with the set standards, decided in the past. After that, a corrective action is
initiated. In other words, if the standards are not decided in the past, controlling is not
possible. Hence, it is true that controlling is backward looking.
For example, a salesman is expected to sell 50 units of a product per week. This is the
standard against which actual performance would be judged at the end of the week. If
he sells 35 units during the week, reasons for shortfall would be ascertained by his
superior.

4/5 Marks Question

[Link] does controlling help in achieving objectives and improving employers

‘morale? (Delhi 2009)
Ans. Controlling helps in achieving objectives and improving employers’ morale by
following ways: Controlling helps in achieving objectives By continuously measuring the
performance in the light of organisational goals brings out the deviations, if any and
indicates the corrective actions to be taken. Thus, controlling keeps the organisation on
the right track.
Controlling improves employers’ morale The implementation of controlling makes all the
employees to work with complete dedication because they are aware that their
performance will be evaluated and they will have a chance to build their reputation in
the organisation. The employees who show good performance are rewarded by giving
them promotions, cash prizes, etc.

6 Marks Questions

12. Explain any four points that highlight the importance of controlling.(Delhi
2014; Foreign 2014)
or
Briefly explain the importance of controlling. (Ail India 2012; Delhi 2011c)

Ans. Importance of controlling are as follows;

(i) Accomplishing organisational goals The controlling function measures the

performance against the pre-determined standards and corrects deviations. This helps
in ensuring that organisation is moving on right track to achieve the organisational
goals. In other words, by controlling, the manager ensures that resources are obtained
and used economically and efficiently for the achievement of organisational objectives.

(ii) judging accuracy of standards A sound controlling system helps the management
to verify whether the standards set are accurate and objective. It keeps a careful check
on the changes, which are taking place in the organisation and helps in revising
standards as and when required.

(iii) Making efficient use of resources By exercising control, a manager seeks to

reduce wastage and spoilage of resources. Each activity is performed in accordance
with pre-determined standards and norms. This ensures that resources are used in the
most effective and efficient manner.

(iv) It improves employees’ morale The implementation of controlling makes all the
employees to work with complete dedication because they are aware that their
performance wiil be evaluated and they will have a chance to build their reputation in
the organisation. The employees who show good performance are rewarded by giving
them promotions, cash prizes, etc.

(v)It helps in better performance Planning and controlling are closely inter-related as
the real test of planning is controlling. Control reveals deficiencies and deviations,
suggests corrective actions for prevention of deviations and deficiencies through
modified planning.
(vi) Facilitates coordination Control keeps all activities and efforts within their fixed
boundaries and makes them move towards the set goals. Thus, control facilities
coordination, it provides unity of direction.

13.’Controlling is an indispensable function of management’. Do you agree? Give

four reasons in support of your answer. (Compartment 2014; Delhi 2008)

Ans. Yes, controlling is an indispensable function of management, it is a force which

helps the management to attain the pre-determined or planned performance.

Reasons for good control system

Importance of controlling are as follows;

(i) Accomplishing organisational goals The controlling function measures the

performance against the pre-determined standards and corrects deviations. This helps
in ensuring that organisation is moving on right track to achieve the organisational
goals. In other words, by controlling, the manager ensures that resources are obtained
and used economically and efficiently for the achievement of organisational objectives.

(ii) judging accuracy of standards A sound controlling system helps the management
to verify whether the standards set are accurate and objective. It keeps a careful check
on the changes, which are taking place in the organisation and helps in revising
standards as and when required.

(iii) Making efficient use of resources By exercising control, a manager seeks to

reduce wastage and spoilage of resources. Each activity is performed in accordance
with pre-determined standards and norms. This ensures that resources are used in the
most effective and efficient manner.

(iv) It improves employees’ morale The implementation of controlling makes all the
employees to work with complete dedication because they are aware that their
performance will be evaluated and they will have a chance to build their reputation in
the organisation. The employees who show good performance are rewarded by giving
them promotions, cash prizes, etc.

(v)It helps in better performance Planning and controlling are closely inter-related as
the real test of planning is controlling. Control reveals deficiencies and deviations,
suggests corrective actions for prevention of deviations and deficiencies through
modified planning.

(vi) Facilitates coordination Control keeps all activities and efforts within their fixed
boundaries and makes them move towards the set goals. Thus, control facilities
coordination, it provides unity of direction.
 Relationship between Planning & Controlling
4/5 Marks Questions

1. Explain the relationship between planning and controlling. (Compartment 2014)

or
‘Planning and controlling are inseparable twins of management’, how?(HOTS;
Delhi 2013)

Ans. Planning and controlling are inseparable twins of management

because: .
(i) Planning provides the basis for controlling activities.
(ii) Controlling ensures that planned goals are achieved efficiently and effectively. It
measures
the performance with the pre-determined standards and finds out the deviations, if any.
(iii) The causes of deviations as remarked by controlling are the basis of effective future
planning.
(iv) Planning and controlling both are forward looking as well as backward looking.
(v)Both are integral parts of an organisation and are necessary for the smooth
functioning of an enterprise.

2.’There is a close and reciprocal relationship between planning and controlling’.

Explain this statement. (Hots; All India 2011; Delhi 2011)

Ans. Planning is the basis for control in the sense that it provides the entire spectrum
on which control function is based. In fact, these two terms are often used together in
the designation of the department which carries production, planning and scheduling.
Control measures the behaviour and activities in the organisation and suggests
measures to remove deviations, if any.
Control is the result of particular plans, goals or policies. Thus, planning offers and
affects control. Also, planning is affected by control in the sense that many of the
information provided by control is used for planning. Thus, there is a reciprocal
relationship between planning and controlling.

6 Marks Questions

3. Describe the relationship between planning and controlling?

(All India 2014; Delhi 2014; Foreign 2014)
or
Explain controlling as a function of management. How are controlling and
planning related? (All India 2011)

Ans. Controlling as a function of management can be defined as the process through

which managers assure that the activities and results are in conformity with the planned
activities and results. It involves verifying whether activities are performed according to
the adopted plans.
Relationship between planning and controlling Planning involves selecting
enterprise objectives and deciding ways to achieve them. Controlling is the process of
assuring that actions are in line with the plans. Planning sets the course and control
makes event to conform the chosen course or initiates action to appropriately change
the plan. All controls imply existence of goals and plans. No manager can ascertain
whether his subordinates are operating in the desired way unless he has a plan. Control
will be much better, if the plans are clear and well coordinated.
Without planning, there is no basis for controlling activities. In the absence of plans, it is
not possible to evaluate. In the absence of plans, it is not possible to evaluate
performance. Similarly, without controlling, planned activities cannot be properly
implemented and there cannot be improvement in future plans. Pre-determined goals
can be achieved only through controlling. , Planning without control is useless and
control without planning is meaningless. Planning, based on facts, makes controlling
easier. Thus, planning and controlling are mutually inter-related and interdependent.

4. Rajeev and Sanjeev are managers in the same organisation heading different
units. While discussing about the functions of management, Rajeev says that
planning is looking ahead whereas, controlling is looking back. But Sanjeev says,
‘You are wrong because planning is looking back and controlling is looking
ahead’.
Both are giving reasons in favour of their statements. Explain the possible
reasons given by both and justify who is correct. (Hots; Delhi 2009 c)
or
Vipin and Jatin are managers in the same organisation heading different units.
While discussing about the functions of management, Vipin says, ‘Planning is
looking back whereas, controlling is looking ahead’. But Jatin says, ‘You are
wrong because planning is looking ahead and controlling is looking back’.
Both are giving reason in favour of their statements. Explain the possible reason
given by both and justify who is correct. (Hots; ah India 2009)

Ans. Both the managers are correct, as planning and controlling both are backward
looking as well as forward looking process.

Controlling is backward looking because it is like a postmortem of past activities. The

manager looks back to previous years’ performance to find out its deviation from pre-
determined standard. Planning is also backward looking because planning is guided by
past experiences and feedback report of controlling function.

Planning is forward looking because plans are prepared for future. It involves looking in
advance and making policy for maximum utilisation of resources in future.
Controlling is also forward looking because it does not end only by comparing past
performance with standards. It involves finding the reasons for deviations and suggests
the measures so that these deviations do not occur in future.
It can be stated that ‘planning is forward looking and controlling is backward looking’ is
only partially correct as planning and controlling are both forward looking as well as
backward looking process.
 Steps in the Process of Controlling
1 Mark Questions

[Link] the meaning of ‘critical point control’. (Foreign 2014)

Ans. Control should focus on Key Result Areas (KRAs). Which are critical to the
success of an organisation. Therefore, each and every activity should not be controlled
and only focus should be on critical points.

[Link] is meant by ‘management by exception’ in the process of controlling?

(Compartment 2014)

Ans. ‘Management by exception’ is an important principle of control, which propagates

that only significant deviations which goes beyond the permissible limit should be
brought to the notice of management, as an attempt to control everything, results in
controlling nothing.

[Link] should be done while ‘taking corrective actions’ in the process of

controlling when especially in the important areas, deviations go beyond the
acceptable range? (Delhi 2013)

Ans. Immediate managerial attention is required if the deviations go beyond the

acceptable range in important areas. After the analysis of deviations and their causes,
the task is to remove the hurdles from the actual work plan. The purpose of this step is
to bring the actual performance upto the level of expectations by opting corrective
measures.

4. What is important while analysing deviations in controlling? (Delhi 2011)

Ans. While analysing deviations, it is important to determine the acceptable range of

deviations/KRA (Key Result Areas).

[Link] should be the focus point for a manager while controlling, as controlling
at each and every step is not possible?(All India 2011)

Ans. Focus on Key Result Areas (KRAs), which are critical to the success of an
organisation.

[Link] is actual performance compared with standards in the process of

controlling? (Delhi 2010; All India 2010,2009)

Ans. While performing the function of controlling, a manager compares the actual work
performance with the standards. He tries to find out whether the actual performance is
more or less than the standards and find out the deviations, if any.

4 / 5 Marks Questions

7. Controlling is a systematic process involving a series of steps. State the steps

involved in the process. (Compartment 2014; All India 2014, 2011, 2008)
or
Explain the various steps involved in the process of controlling. (Delhi 2011 c)
or
Explain the process of controlling. (Delhi 2010)

Ans. Controlling is measuring and correcting the activities of subordinates to ensure

that events confirm to plans. It is a systematic process involving a series of steps, which
are as follows:

(i)Setting performance standards The first step in the controlling process is to set the
performance standards. Standards are those criterias, on which the actual
performances are measured. These standards serve as a benchmark towards which an
organisation strives to work.

(ii) Measurement of actual performance After the establishment of standards, the next
step is measuring the actual performance with the set standards. This can be done by
opting several methods like personal observation, sample checking, performance
reports, etc.

(iii) Comparison of actual performance with standards In this step, the actual
performances are compared with the established standards. Such comparisons reveal
the deviation between planned and actual results.

(iv) Analysing deviations At this stage, acceptable and non-acceptable deviations

areanalysed where following things are noticed:

 Critical point control It means keeping focus on key result areas where
deviations are not acceptable and it should be attended on the priority basis.
  Management by exception It means if a manager tries to control everything, it
may end up in controlling nothing. Thus, he should first handle the significant
deviations, which require his priority.

(v) Taking corrective action The most important step in the controlling process is
taking corrective actions. After the deviations and their causes are analysed, the task is
to remove the hurdles from the actual work plan. The purpose of this step is to bring the
actual performance up to the level of expectations by opting corrective measures.

8. After setting the performance standards, the next step in the controlling
process is the ‘measurement of actual performance’. Explain this step in the
process of Controlling. (All India 2013)

Ans. Measurement of actual performance Once the standards of desired

performance are fixed, the next step is to measure the actual performance.
Performance should be measured in same terms, in which standards have been
established. Comparison of performance with standards is comparatively easier when
the standards are expressed in quantitative units.
This will also facilitate comparison, e.g. if the standard for a factory has been laid down
as 500 tons per month, the monthly output of the factory should alsc be measured in
tons. There are several techniques for measurement of performance. These include
personal observation, sample checking, performance reports, etc.

9. Explain how ‘management by exception’ helps in the controlling process.(All

India 2013)

Ans. It is an important principle of management control based on the belief that an

attempt to control everything results in controlling nothing. This is known as ‘control by
exception’. Thus, only significant deviations which go beyond the permissible limit
should be brought to the notice of management. An attempt t:o go through all deviations
tend to increase unnecessary efforts and to decrease attention on important problems.

10. Explain how ‘critical point control’ helps in the controlling process. (All
india2013)

Ans. Small deviations in certain areas may have greater significance than larger in
other areas. According to this principle, control should focus on Key Result Areas
(KRAs), which are critical to the success of the organisation. When anything goes
wrong in these areas, the entire organisation suffers, e.g. a 2% increase in labour cost
is much more harmful than a 5% increase in postal charges.

11. Seeta, Geeta and Babita Ltd is engaged in manufacturing machine

components. The target of production is 250 units per day per worker. The
company had been successfully attaining this target until two months ago. Over
the last two months, it has been o bserved that daily production varies between
200-210 units per worker.

(i) Name the function of management and identify the step in the process of this
function which helped in finding out that the actual production of a worker is less
than the set target.

(ii) To complete the process of the function identified in and to ensure the
performance as per set targets, explain what further steps a manager has to take.
(All India 2010)
or
Kapil and Kamal Company is a large manufacturing unit. Recently, the company
had conducted time and motion studies and concluded that on an average, a
worker could produce 300 units per day. However, it has been noticed that the
average daily production of a worker is in the range of 200-225 units.

(i)Name the function of management and identify the step in the process of this
function which helped in finding out that the actual production of a worker is less
than the set target.

(ii)To complete the process of the function identified in and to ensure the
performance as per time and motion studies, explain what further steps a
manager has to take.(HOTS; Delhi 2010 C)

Ans. (i) The management function which helps in finding out that the actual production
of a worker is less than the set target is known as controlling. Here, comparing actual
performance with standards or appraisal of performance is the step involved in the
process of controlling.
(ii) A manager has to take following steps to complete the process of controlling:

 Analysing deviations Deviations can be due to multiple reasons like unrealistic

standards, defective process, in adequacy of resources, environmental factors,
etc.
 Taking corrective actions The final step in the control process is taking
appropriate actions so that deviations may not occur again and the objectives of
the organisation are achieved. It may also necessitate reforming the process of
selection and training of workers. Thus, controlling may require change in all other
managerial functions.
 Financial Management

1. ‘Dovex’ was a large company with a renowned name in healthcare industry,

specialising in the development and production of life saving medications and
medical devices. With a strong reputation for ethical practices, ‘Dovex’ attracted a
large number of investors who had great faith in the company’s future. This
allowed ‘Dovex’ to raise capital easily from the market whenever expansion or
new projects were to be undertaken. As a result, it could pay high dividends to
the shareholders. The factor affecting dividend decision discussed above, which
allowed ‘Dovex’ to pay high dividends to the shareholders is : (2024)
(A) Cash flow position
(B) Stock market reaction
(C) Legal constraints
(D) Access to capital market
Ans. (D) Access to capital market
2. In the ________________ market, prices are determined and decided by the
management of the company. (2024)
(A) Primary
(B) Secondary
(C) Money
(D) Stock
Ans. (A) Primary
3. The process of estimating fund requirements of a business and specifying the
sources of funds is called : (2024)
(A) Capital structure
(B) Financial planning
(C) Financial management
(D) Capital budgeting
Ans. (B) Financial planning
4. Statement I : A financial market facilitates the transfer of savings from savers to
investors.
Statement II : It gives savers the choice of different investments and helps to
channelise surplus funds into the most productive use. (2024)
Choose the correct option from the following :
(A) Statement I is true and Statement II is false.
(B) Statement II is true and Statement I is false.
(C) Both the Statements are true.
(D) Both the Statements are false.
Ans. (C) Both the Statements are true.
4. Choose the incorrect statement from the following about functions of a Stock
Exchange : (2024)
(A) Provides liquidity and marketability to new securities
(B) Ensures safety of transactions
(C) Contributes to economic growth
(D) Provides scope for speculation
Ans. (A) Provides liquidity and marketability to new securities
5. Kanav, after passing out of college with specialization in renewable energy, was
determined to start a solar power plant. The venture required heavy investment
in plant and machinery and less on manual labour. Kanav invested in the latest
solar panel technology and infrastructure and purchased the latest solar panels,
inverters and battery storage systems.
Despite the high risk and substantial investment, Kanav’s business had good
expansion possibilities. The world was increasingly moving towards clean energy
solutions, and there was a growing demand for sustainable power sources. So,
Kanav decided to create a higher capacity to meet the anticipated demand
quickly. This entailed further investment in fixed assets which Kanav was able to
arrange.
As the years passed, the solar power plant did very well and played a pivotal role
in the city’s transition towards a greener and more sustainable future.
Identify and explain the two factors affecting the fixed capital requirements
discussed in the above case. (2024)
Ans. Factor affecting the fixed capital requirements in the case are:
(i) Choice of technique:
• A capital-intensive organisation requires higher investment in plant and
machinery as it relies less on manual labour, thus higher fixed capital.
• Labour intensive organisations require less investment in fixed assets. Hence,
their fixed capital requirement is lower.
(ii) Growth prospects:
• When growth is expected, a company may choose to create higher capacity in
order to meet anticipated higher demand quicker.
• This entails larger investment in fixed assets and consequently larger fixed
capital.
6. State any three protective functions of Securities and Exchange Board of India.
(2024)
Ans. Protective functions of Securities and Exchange Board of India are:
(i) It prohibits fraudulent and unfair trade practices like making misleading
statements, manipulations, price rigging etc.
(ii) It controls insider trading and imposing penalties for such practices.
(iii) It undertakes steps for investor protection.
(iv) It promotes fair practices and code of conduct in securities market.
7. Differentiate between ‘Money Market’ and ‘Capital Market’ on any three bases.
(2024)
Ans. Difference between 'Money Market' and 'Capital Market' :
Basis Money market Capital market
Participants Participants are by and Participants are financial
large, institutional institutions, banks, corporate
participants such as the RBI, entities, foreign investors and
banks, financial institutions ordinary retail investors/public.
and finance companies.
Instruments The main instruments The main instruments traded are
traded are short term debt equity shares, debentures, bonds,
instruments such as T-bills, preference shares etc.
trade bills reports,
commercial paper and
certificates of deposit.
Investment Investment in money Investment in capital market
outlay market entail huge sums of does not necessarily require a
money as instruments huge financial outlay
are quite expensive
Duration It deals in instruments with It deals in medium and long term
maximum tenure of one securities
year
Liquidity Money market instruments Capital market securities are
enjoy relatively a higher considered liquid investments
degree of liquidity as there because they are marketable on
is formal arrangement for the stock exchanges, however a
this. share may not be actively traded.
Safety Money market is generally Capital market instruments are
much safer with a minimum riskier both with respect to
risk of default returns and principal repayment
Expected Investment in money Investment in capital market
return market generally yield generally yield higher return for
relatively lower rate of investors.
return
 Previous Years' CBSE Board Questions
9.1 Financial Management: Concept, Role and Objective
VSA (1 mark)
1. State the objective of 'Financial Management.
(2020 C, AI 2014)
2. What is meant by 'financial management?
(Delhi 2017)
3. Is Management concerned only with doing the right task, completing activities
and achieving goals without taking into consideration the cost benefit? Give
reason in support of your answer. (AI 2016)
SA I (3 marks)
4. Give the meaning of Financial Management. State its main objective.
(NCERT, Delhi 2019)
5. Somnath Ltd. is engaged in the business of export of garments. In the past, the
performance of the company had been upto the expectations. In line with the
latest technology, the company decided to upgrade its machinery. For this, the
Finance Manager, Dalmia estimated the amount of funds required and the
timings. This will help the company in linking the investment and the financing
decisions on a continuous basis. Dalmia therefore, began with the preparation of
a sales forecast for the next four years. He also collected the relevant data about
the profit estimates in the coming years. By doing this, he wanted to be sure
about the availability of funds from the internal sources of the business. For the
remaining funds, he is trying to find out alternative sources from outside. Identify
the financial concept discussed in the above para. Also state the objectives to be
achieved by the use of financial concept, so identified.
(Delhi 2017)
9.2 Financial Decisions: Investment,
Financing and Dividend - Meaning and Factors Affecting
MCQ
6. 'Temptations' is a food joint in Imperial Mall in Bengaluru. It is becoming
popular among students and working people due to healthy, on-the-go dishes on
its menu like 'Paneer Wrap', 'Chickpeas Salad', 'Grilled Sandwiches, etc. It has
now decided to open two new branches in other parts of Bengaluru. Which
financial decision has been discussed in the above case?
(a) Long-term investment decision
(b) Short-term investment decision
(c) Dividend decision
(d) Financing decision
(2020 C)
VSA (1 mark)
7. Koby Ltd. is an 87-year-old reputed consumer goods company. It is known for
offering good quality electronic products at reasonable prices. It has branches all
over India. It has a large shareholder base. The shareholders desire that some
dividend is paid every year on their investments. Company's management
understands that it is important to keep the shareholders happy and satisfied. As
a matter of policy, they declare a certain amount of dividend every year out of
profits rather than reinvesting the whole as retained earnings. Identify the factor
affecting dividend decision being highlighted in the above situation.
(Foreign 2019)
8. The size of assets, the profitability and competitiveness are affected by one of
the financial decisions. Name and state the decision.
(Delhi 2016)
9. Besides the investment decision the finance function is concerned with two
other broad decision. Name these decisions.
(Delhi 2015 C)
10. Besides financing decision the finance, function is concerned with two other
broad decisions. Name these decisions.
(Delhi 2015 C)
11. Besides the dividend decision, the finance function is concerned with two
other broad decisions. Name these decisions.
(AI 2015 C)
12. What is meant by 'Financial Risk'?
(AI 2014)
SA I (3 marks)
13. State any three factors affecting the dividend decision. (2023,
Term-II, 2021-22)
14. Give the meaning of 'Investment' and 'Financing' decisions of financial
management. (AI 2014)
15. Give the meaning of 'Investment decision' and 'Dividend decision.
(AI 2014 C)
16. Explain the factors that affect capital budgeting decision.
(Delhi 2014 C)
SA II (4 marks)
17. What is meant by 'Investment Decision'? State how 'Long term Investment
Decision' and 'Short term Investment Decision' affect the business.
(2023)
18. Explain any two factors that affect the dividend decision of a company.
(2021 C, 2020 C)
19. Explain any two factors that affect the Financing decision of a company.
(2021 C)
LA (5 marks)
20. NB Ltd. is India's largest manufacturer of cement. Its operations are spread
throughout the country with 17 modern cement factories. It has a workforce of
9,000 persons. Since its inception, the company has been a trendsetter for the
cement industry. The company is planning to grow in long-run and wants to
double its capacity in next 3 years. For this, Finance Manager has to decide about
the quantum of finance to be raised from various long-term sources. For this, he
needs to identify various available sources of funds and the proportion of funds
from each source.
(i) Identify the financial decision to be taken by the Financial Manager.
(ii) State any four factors which would affect the decision identified in (i) above.
(Term-II, 2021-22)
21. Anant Ltd. is a company dealing in ready-made garments from last many
years. Recently, the profit of the company has started increasing. The finance
manager decided to retain the profit instead of distributing it among
shareholders.
(i) Identify and state the financial decision taken by finance manager in the above
case.
(ii) state any three factors affecting the decision identified in (i) above.
(Term-11, 2021-22)
22. Ravi has joined as a finance manager in MTA Ltd. He had to arrange funds of
rupees one crore for the company. The Chief Executive Officer of the company
wants to arrange the funds by a public issue whereas the finance manager wants
to have a mix of debt and equity as this will determine the overall cost of capital
and the financial risk of the enterprise.
(i) Identify and give the meaning of the financial decision suggested by the
finance manager in the above case.
(ii) State any three factors affecting the decision identified in (i) above.
(Term-11, 2021-22)
23. 'A.M. Motors Ltd. is a leading company in car manufacturing. Due to the
changing environment and initiatives taken by the Government of India, the
company wants to enter into manufacturing of e-cars also. For this project the
company requires 2,000 crores. But before purchasing the machines and other
assets, the finance manager has to assess the degree of risk involved in the
project as this type of decision affects the earning capacity of the business over
the long run. Besides this, there are various other factors which may affect this
decision of the finance manager.
(i) Identify and state the financial decision discussed in the above para.
(ii) State any two factors that may affect the decision of the finance manager
identified in (i) above.
(Term-II, 2021-22 C)
24. Sun Industries Ltd. is a leading company in India which manufactures steel.
Its plants are located in Jamshedpur and Bokaro. Currently it produces about
three million tonnes of saleable steel. As the demand for steel is growing, it is
planning to expand the capacity of the existing steel plants. It is estimated that it
will require < 1,800 crore of fixed capital and < 200 crore of working capital. To
raise the funds, the company is considering whether it should issue equity shares
or 7% debentures of <2,000 crore. Presently the capital structure is comprising
of equity only. The Finance Manager of the company suggested that since the
stock markets are undergoing a bearish phase, it should issue debentures.
(a) Is it justified to raise funds by issuing debentures? Give reason in support of
your answer.
(b) Explain the impact of issue of debentures on the risk faced by the company.
(c) Explain the impact of 'cost of debt' and 'cost of equity' on the capital structure
of the company.
(2020 C)
ET (6 marks)
25. 'Sarah Ltd. is a company manufacturing cotton yarn. It has been consistently
earning good profits for many years. This year too, it has been able to generate
enough profits. There is availability of enough cash in the company and good
prospects for growth in future. It is a well-managed organisation and believes in
quality, equal employment opportunities and good remuneration practices. It has
many shareholders who prefer to receive a regular income from their
investments.
It has taken a loan of ₹40 lakhs from IDBI and is bound by certain restrictions on
the payment of dividend according to the terms of loan agreement. The above
discussion about the company leads to various factors which decide how much of
the profits should be retained and how much has to be distributed by the
company. Quoting the lines from the above discussion, identify and explain any
four such factors.
(Delhi 2015)
26. 'Abhishek Ltd.' is manufacturing cotton clothes. It has been consistently
earning good profits for many years. This year too, it has been able to generate
enough profits. There is availability of enough cash in the company and good
prospects for growth in future. It is a well-managed organisation and believes in
quality, equal employment opportunities and good remuneration practices. It has
many shareholders who prefer to receive a regular income from their
investments.
It has taken a loan of 50 lakhs from ICICI Bank and is bound by certain
restrictions on the payment of dividend according to the terms of the loan
agreement.
The above discussion about the company leads to various factors which decide
how much of the profits should be retained and how much has to be distributed
by the company.
Quoting the lines from the above discussion, identify and explain any four such
factors. (Al 2015)
27. Explain the following as factors affecting dividend decision:
(i) Stability of earnings. (ii) Growth opportunities;
(iii) Cash flow position and (iv) Taxation policy.
(Delhi 2014)
9.3 Financial Planning-Concept and Importance
MCQ
28. Which of the following statements does not highlight the importance of
financial planning?
(a) Detailed plans of action prepared under financial planning increase waste,
duplication of efforts and gaps in planning.
(b) It helps in forecasting what may happen in future under different business
situations.
(c) It provides a link between investment and financing decisions on a
continuous basis.
(d) It helps in avoiding business shocks and surprises and helps the company in
preparing for the future.
(2023)
VSA (1 mark)
29. 'XY Ltd' is registered with an authorised capital of 10 crore. The paid-up
capital of the company is 6 crores. The company was facing shortage of funds.
The management of the company decided to raise funds by issue of 1,00,000
equity shares of 100 each. The issue was fully subscribed. After this it was
realised that the funds raised were in excess of the actual requirement.
Identify and define the concept which was not considered by the company before
deciding the amount of funds to be raised.
(Foreign 2019)
30. Name and state the aspect of financial management that enables to foresee
the fund requirements both in terms of the quantum and the timings.
(Al 2016)
SA II (4 marks)
31. Harish is working as a finance manager in 'Kozee Softwares Ltd. He has been
awarded 'Best employee of the year award because of his foresightedness. He
always aims at smooth operations of all the financial activities by focusing on
fund requirements and their availability in the light of financial decisions. He
takes into consideration the growth, performance, investments and requirement
of funds for a given period so that financial resources are not left idle and don't
unnecessarily add to the cost. By doing all this, Harish strives to achieve the two
main objectives of an important concept of financial management. Identify the
concept and explain its two objectives.
(2023)
9.4 Capital Structure - Concept & Factors
Determining Capital Structure
MCQ
32. Which of the following is not a factor affecting capital structure of a company?
(a) Cost of Debt (b) Growth Opportunities
(c) Cash Flow Position (d) Interest Coverage Ratio
(2023)
33. ______________ refers to the increase in profit earned by the equity shareholders
due to the presence of fixed financial charges like interest.
(a) Capital structure (b) Earning per share
(c) Trading on equity (d) Return on investment
(2023)
VSA (1 mark)
34. How does 'Cost of Debt' affect the capital structure of an enterprise?
(Delhi 2019)
35. Rizul Bhattacharya after leaving his job wanted to start a Private Limited
Company with his son. His son was keen that the company should start
manufacturing of mobile phones with some unique features. Rizul Bhattacharya
felt that the mobile phones are prone to quick obsolescence and a heavy fixed
capital investment would be required regularly in this business. Therefore, he
convinced his son to start a furniture business.
Identify the factor affecting fixed capital requirement which made Rizul
Bhattacharya to choose furniture business over mobile phones.
(AI 2016)
36. A textile company is diversifying and starting a steel manufacturing plant.
State with reason the effect of diversification on the fixed capital requirements of
the company. (Delhi 2015 C)
37. How does 'Cost of Equity' affect the capital structure of an enterprise?
(AI 2015)
SA I (3 marks)
38. What is meant by 'Capital Structure? Explain any two factors that affect the
capital structure of a company.
(Delhi 2019)
39. The Return on Investment (ROI) of a company ranges between 10-12% for
the past three years. To finance its future fixed capital needs, it has the following
options for borrowing debt:
Option 'A': Rate of interest 9%
Option 'B': Rate of interest 13%
Which source of debt, 'Option A' or 'Option B', is better? Give reason in support of
your answer. Also state the concept being used in taking the decision.
(AI 2018)
SA II (4 marks)
40. 'X Ltd. issued 14% Debentures of ₹ 4,00,000 and 10,000 Equity shares of 60
each. This investment resulted in a net profit of 2,00,000 before interest and tax.
The tax rate was 50%.
(a) Calculate the 'Return on Investment' and 'Earning per Share' of 'X Ltd.
(b) State with reason whether the above example is that of favourable or
unfavourable financial leverage.
(2023)
LA (5 marks)
41. 'Determining the relative proportion of various types of funds depends upon
various factors. Explain any five such factors.
(Delhi 2014)
ET (6 marks)
42. 'Viyo Ltd., is a company, manufacturing textiles. It has a share capital of 60
lakh. The earning per share in the previous year was 0.50. For diversification, the
company requires additional capital of 40 lakh. The company raised funds by
issuing 10% debentures for the same. During the current year, the company
earned profit of 28 lakh on capital employed. It paid tax @ 40%.
(a) State whether the shareholder gained or lost, in respect of earning per share
on diversification. Show your calculations clearly.
(b) Also, state any three factors that favour the issues of debentures by the
company as part of its capital structure.
(Delhi 2016)
43. Explain the following as factors affecting the choice of capital structure:
(i) Cash flow position (ii) Cost of equity
(iii) Floatation costs (iv) Stock market conditions
(AI 2014)
9.5 Fixed and Working Capital - Concept and Factors
Affecting their Requirements
MCQ
44. During the Covid-19 pandemic, the restaurant industry faced many
challenges. The slowdown led to huge decrease in demand. From April 2022, the
effect of Covid started reducing. The economy started picking up and a boom was
noticed in the restaurant industry. As a result, larger amount of working capital
was required with increased production and sales.
The factor affecting the working capital requirement discussed above is:
(a) Seasonal factor (b) Production cycle
(c) Operating efficiency (d) Business cycle.
(2023)
45. Match the factors affecting fixed capital requirements in the Column-I with
their explanations given in Column-II.
 (2023)
VSA (1 mark)
46. Organisations which choose to diversify their operations require ____________
fixed capital. (more/less)
(2020 C)
47. In the paint industry, various raw materials are mixed in different proportions
with petroleum for manufacturing different kinds of paints. One specific raw
material is not readily and regularly available to the paint manufacturing
companies. Bonler Paints Company is also facing this problem and because of this
there is a time lag between placing the order and the actual receipt of the
material. But once it receives the raw materials, it takes less time in converting it
into finished goods.
Identify the factor affecting the working capital requirements of this industry.
(AI 2018)
48. Radhika and Vani who are young fashion designers who left their job with
famous fashion designer chain to set-up a company 'Fashionate Pvt. Ltd'. They
decided to run a boutique during the day and coaching classes for entrance
examination of National Institute of Fashion Designing in the evening. For the
coaching centre, they hired the first floor of nearby building. Their major expense
was money spent on photocopying of notes for their students. They thought of
buying a photocopier knowing fully that their scale of operations was not
sufficient to make full use of the photocopier.
In the basement of the building of 'Fashionate Pvt. Ltd: Praveen and Ramesh were
carrying on a printing and stationery business in the name of 'Neo Prints Pvt. Ltd.
Radhika approached Praveen with the proposal to buy a photocopier jointly
which could use by both of them without making separate investment, Praveen
agreed to this.
Identify the factor affecting fixed capital requirements of 'Fashionate Pvt. Ltd.
(Delhi 2016)
49. 'Indian Logistics' has its own warehousing arrangements at key locations
across the country. Its warehousing services helps business firms to reduce their
overheads, increase efficiency and cut down distribution time.
State with reason, whether the working capital requirements of Indian Logistics
will be high or low.
(Delhi 2015)
OR
'Bharat Express' specialises in Courier Services, its wide range of express package
and parcel services help business firms to make sure that the goods are made
available to the customers at the right place and at the right time.
State with reason, whether the working capital requirements of 'Bharat Express'
will be higher or low.
(AI 2015)
SA I (3 marks)
50. Explain any three factors that affect the working capital requirements of a
company.
(NCERT, Delhi 2019)
51. Indian equity markets are going through a phase of boom. There is a huge
growth potential for innovative technologies. This has resulted in lots of new
ventures lying for a market share and old enterprises trying to keep up with the
pace with which changes are taking place in the economy. This technological
innovation has helped even smaller businesses to compete on a global scale.
Identify and explain the three factors highlighted above which affect the working
capital requirements of such enterprises.
(Delhi 2019)
SA II (4 marks)
52. Explain the following factors affecting the working capital requirements of an
enterprise:
(i) Nature of business
(ii) Availability of raw material
(2023)
53. Rajesh wants to start a small factory for producing Hand Sanitizers. For
establishing the plant and acquiring other fixed assets he needs ₹ 80 lakh. Explain
any two factors which affect the requirement of fixed capital of this company.
(2021 C)
54. 'R.K. Fertilizers Ltd. has planned to set up a plant for manufacturing urea
fertiliser which has very high market potential as there is excess demand as
compared to supply. The company is planning to operate at a higher scale which
will require a bigger plant, more space, etc. The company has also planned to
replace its plant and machinery as the same are prone to obsolescence with the
change in technology. To meet the growing demand of fertilisers that may result
in increase in profits, the company is also planning to diversify its operations. It
wants to enter in the area of cement manufacturing. Thus, it is a capital-intensive
project involving an investment of ₹ 3,000 crore.
Identify and state any five factors affecting the fixed capital requirements of 'R.K.
Fertilisers Ltd. discussed in the above para.
(Term-11,2021-22 C)
55. From last many years, in the month of November, due to sudden rise in the
pollution levels in Delhi and other parts of northern India, there has been an
increase in the demand for air purifiers. Inderprastha Technologies Ltd., a
manufacturer of air purifiers wants to encash this opportunity and wants to raise
its investment in stock. It is expected that this decision would increase the rate of
profitability of the business. Due to this many competitors have recently entered
in this industry. In order to increase the sales, the company has started selling air
purifiers on liberal credit terms. It is not affecting the profits of the company
since the production cycle of the product is short. Identify and state any two
factors that 'Inderprastha Technologies Ltd.' will keep in mind before deciding its
working capital requirements. Also state three other factors which should be kept
in mind while deciding the working capital requirements of a company.
(2020 C)
ET (6 marks)
56. Explain the following as factors affecting the requirements of working capital:
(i) Nature of business
(ii) Scale of operations
(iii) Seasonal factors
(iv) Production cycle
(AI 2014)
57. Explain how the following factors affecting the working capital requirements
of a business:
(i) Inflation,
(ii) Business cycle,
(iii) Level of competition and
(iv) Nature of business.
(AI 2014)
 CBSE Sample Questions
9.2 Financial Decisions: Investment,
Financing and Dividend - Factors Affecting
SA II (4 marks)
1. State any four factors affecting the financial decision that is concerned with
raising of finance using shareholders' funds and borrowed funds.
(2022-23)
LA (5 marks)
2. Vansh Limited is a large and reputed company which manufactures ventilators.
After the outbreak of 'COVID-19' in 2020, the company witnessed an increase in
revenue by 40%. It has plans to further increase its production capacity and also
start production of PPE kits, sanitisers and masks in 2022. The Finance manager
of the Company, Mr. Rajiv feels confident about the future of the company and its
liquidity position. Discuss the meaning of Dividend Decision and in the light of
the above statement explain any two factors which should be considered by
'Vansh Limited' while formulating the dividend policy of the company.
(Term-II, 2021-22)
9.4 Capital Structure - Concept & Factors
Affecting Capital Structure
LA (5 marks)
3. Vedansh Limited has a share capital of ₹ 10,00,000 divided into shares of ₹ 100
each. For expansion purpose, the company requires additional funds of ₹
5,00,000. The management is considering the following alternatives for raising
funds:
Alternative 1: Issue of 5000 Equity shares of ₹ 100 each
Alternative 2: Issue of 10% Debentures of Rs. 5,00,000 The company's present
Earnings Before Interest and Tax (EBIT) is ₹ 4,00,000 p.a. Assuming that the rate
of Return of Investment remains the same after expansion, which alternative
should be used by the company in order to maximise the returns to the equity
shareholders. The Tax rate is 50%. Show the working.
(Term-11, 2021-22)
4. Explain any four factors that affect the choice of capital structure of a company.
(2020-21)
9.5 Fixed and Working Capital - Concept and Factors
Affecting their Requirements
SA I (3 marks)
5. List any three factors affecting the Working Capital requirement of a company.
(Term-II, 2021-22)
SA II (4 marks)
6. Krish limited is in the business of manufacturing and exporting carpets and
other home décor products. It has a share capital of ₹ 70 lacs at the face value of ₹
100 each. Company is considering a major expansion of its production facilities
and wants to raise ₹ 50 lacs. The finance manager of the company Mr. Prabhakar
has recommended that the company can raise funds of the same amount by
issuing 7% debentures. Given that earning per share of the company after
expansion is ₹ 35 and tax rate is 30%, did Mr. Prabhakar give a justified
recommendation? Show the working. (2022-23)
7. Dheeraj wants to start a business of selling N-95 masks after the outbreak of
the global pandemic of COVID-19. Due to the uncertain market conditions, he
wants to make a low investment in fixed capital. Suggest how the decisions
related to the choice of technique and financing alternatives can help Dheeraj in
ensuring a low investment in fixed capital requirements. (2020-
21)

ANSWERS
Previous Years' CBSE Board Questions

1. The objective of 'Financial Management' is to maximise shareholders' wealth.

2. Financial Management is concerned with procurement of finance at optimal
cost as well as the most efficient usage of finance. It seeks to identify the best
financing alternatives and the best investment alternatives.
3. No, in addition, getting things done effectively and efficiently, these have to be
done economically.
4. Financial management refers to the efficient acquisition, allocation and usage
of funds by the company. It is carried out with the primary aim of reducing the
cost of the funds that are procured, minimising the risk and effective distribution
of funds to different opportunities. The primary objective of financial
management is 'Wealth Maximisation' which refers to taking those financial
decisions that aim at maximising the shareholders' wealth. That is, to opt for
those financial decisions that proves gainful from the point of view of its
shareholders. Here, the shareholders are said to gain when the market value of
the shares held by them rises, which in turn takes place when the benefits from
the financial decisions made by the company exceeds the cost involved. When the
financial decisions successfully fulfil the objective of wealth maximisation, other
objectives such as proper utilisation of funds, maintenance of liquidity,
maximisation of profits and meeting financial obligations are automatically
fulfilled.
5. The financial concepts discussed above are Investment decisions and Financing
decisions.
(a) Capital budgeting decision was taken as the firm required upgradation of its
machinery. This being a crucial long term financial decision the Finance Manager
made the sales' forecast for the next four years along with profit estimates were
made.
(b) Financing decision - The estimates about the quantum of finance to be
generated internally over a period of next few years was taken. The remaining
finance was being planned from the most suitable external source. The objectives
to be achieved by the above exercise of the finance manager is to generate finance
at minimal cost to the company. He is trying to ensure that the required amount
of finance is available to the company at the exact time of need.
6. (a): Long-term investment decision
7. The factor affecting dividend decision being highlighted in the above situation
is "shareholders' preference". While distributing the dividends, a company must
also keep in mind the preferences of its shareholders.
8. 'Investment Decision' is the financial decisions that affects the size of asset of
the company and its profitability and competitiveness. Investment Decision
relates to how the firm's funds are deployed in different assets. So, that the firm is
able to earn the highest possible return on investment.
9. Dividend decision and Financing decision.
10. Investment decision and Dividend decision.
11. Investment decision and Financing decision.
12. The risk of default on payment of borrowed funds at a fixed time is known as
financial risk.
13.
14. Investment Decision: It relates to decisions about how the firm's funds are
invested in different assets. These may relate to investment is short-term/current
assets (working capital decisions) or long term, fixed assets (capital budgeting
decisions).
Financing Decision: This decision relates to quantum of finance raised from
different sources. A company can raise finance from various sources such as by
issue of shares, debentures or by taking loan and advances. Deciding how much
fund to raise from which source of finance is dealt in financing decision. Sources
of finance can be divided into two categories:
(a) Owner's fund (b) Borrowed fund.
15. Investment decision: Relates to decision about how the firm's funds are
invested in different assets. These may related to investment in short
term/current assets (working capital decision) or long term/fixed assets (capital
budgeting decisions).
Dividend decision: Relates to the decision as to how much profit after paying
taxes should be distributed to the shareholders as dividend or how much should
be retained in the business to finance long term needs of the firm.
16. Factors Affecting Capital Budgeting Decision:
(a) Cash flows of the project: When a firm invest huge funds in investment
project, it expects to generate reasonable and regular cash flows from the project.
Cash flow must not only cover fixed cash payment obligation but there should be
adequate buffer fund also.
(b) Rate of return : The most important criterion for capital budgeting decision is
the expected rate of return from a project.
(c) Interest Coverage Ratio (ICR): It is the number of times earnings before
interest and taxes of a company covers the interest obligation.
(d) Debt Service Coverage ratio (DSCR). In this case, the cash profit generated is
compared with total cash required for the service of debt and preference share
capital. High DSCR is desirable.
(e) Because interest is deductible expense cost of debt is affected by tax rate. A
high tax rate makes debt relatively cheaper.
17. The decision relates to careful selection of assets in which funds will be
invested by the firms. A firm has many options to invest their funds but firm has
to select the most appropriate investment which will bring maximum benefit for
the firm and selecting most appropriate proposal is investment decision. Example
- purchase of new plant and premises.
(i) Long term Investment decision (Capital Budgeting decision) involves
committing the finance on a long-term basis. These decisions special for any
business because they impact business earning capacity in the long-run.
(ii) Short-term Investment Decision (Working Capital decision) affects the day-
to-day working of business. They affect liquidity as well as profitability of
business.
18. Factors affecting dividend decision of a company are:
(a) Amount of Earnings: Dividends are paid out of current and past earning.
Therefore, earnings is a major determinant of the decision about dividend.
(b) Stability Earnings: Other things remaining the same, a company having stable
earning is in a better position to declare higher dividends. As against this, a
company having unstable earnings is likely to pay smaller dividend.
(c) Stability of Dividends: Companies generally follow a policy of stabilising
dividend per share. The increase in dividends is generally made when there is
confidence that their earning potential has gone up and not just the earnings of
the current year.
(d) Growth Opportunities: Companies having good growth opportunities retain
more money out of their earnings so as to finance the required investment. The
dividend in growth companies is, therefore, smaller, than that in the non-growth
companies
19. Factors affecting financing decision are:
(a) Fixed Operating Costs: If a business has high fixed operating costs (e.g.,
building rent, Insurance premium, Salaries, etc.), It must reduce fixed financing
costs. Hence, lower debt financing is better. Similarly, if fixed operating cost is
less, more of debt financing may be preferred.
(b) State of Capital Market: Health of the capital market may also affect the choice
of source of fund. During the period when stock market is rising, more people
invest in equity. However, depressed capital market may make issue of equity
shares difficult for any company.
20.

21. (i) The Finance Manager of Anant Ltd. has taken a Dividend Decision. It refers
to the decisions regarding the distribution of profit or surplus of the company.
The profits can either be distributed to the shareholders in the form of dividends
or retained by the company itself.
(ii) Factors Affecting the Dividend Decisions are:
(a) Amount of earnings: As a firm pays dividends out of its own earnings (either
current or past), it can be said that companies with higher earnings are in a
position to pay a higher amount of dividend to its shareholders and vice versa.
(b) Stable earnings: A company with stable and smooth earnings is in a position
to distribute higher dividend as compared to those that have an unstable earning.
(c) Stable dividends: In general, companies try to avoid frequent fluctuations in
dividend per share and opt for increasing (or decreasing) their value only when
there is a consistent rise (or fall) in the earnings of the company.
22. (i) The Financial decision suggested by the Finance Manager is the Financing
Decision.
It refers to the decisions regarding the identification of various sources of funds
(as debt and equity) and deciding the best combination among them. These
decisions are taken on the basis of risk and profitability of various alternatives.
(ii) Factors Affecting Financing Decision are -
(a) Cost of raising funds: Those sources of funds are preferred that involve
minimum cost.
(b) Risk involved: Sources of funds that involve moderate risk are preferred over
those that involve high risk. For example, debt or debentures involve the risk of
default payment which must be carefully analysed before taking the debt.
(c) Floatation cost: These are the costs involved in the process of raising funds.
They can be in the form of broker's commission, fees of underwriters, etc. Those
sources of funds are preferred that involve minimum floatation cost.
23. (i) Investment decision
The investment decision relates to how the firm's funds are invested in different
assets.
(ii)Factors affecting Long-term Investment decision/Capital Budgeting Decision:
(a) The amount of cash flows of the project should be carefully analysed before
considering a capital budgeting decision, which may be in the form of a series of
cash receipts and payments over the life of an investment.
(b) The expected rate of return from each proposal and the assessment of risk
involved are important factors while taking capital budgeting decisions.
(c) Several investment criteria may be used to evaluate investment proposals
regarding the amount of investment, interest rate, cash flows and rate of return,
etc., before taking the decision to invest in a particular project.
24. (a) Yes, it is justified to raise funds by issuing debentures.
Reason:
(i) During a bearish phase in the capital market, a company may find raising of
equity capital more difficult and it may opt for debt.
(ii) It will help to lower the overall cost of capital.
(iii) It will help to reduce the tax liability.
(b) The issue of debentures will increase the financial risk faced by the company
as the payment of interest and the return of principle is obligatory for the
business. Any default in meeting these commitments may force the business to go
into liquidation.
(c) Impact of 'cost of debt' on the capital structure of the company: More debt can
be used in the capital structure if debt can be raised at a lower rate.
Impact of 'cost of equity' on the capital structure of the company: When a
company increases debt, the financial risk faced by the equity shareholders
increases. Consequently, their desired rate of return may increase due to which
cost of capital will increase.
25. Factors affecting dividend decision of a company:
(i) Stability of earnings: A company having stable earnings is in a position to
declare more dividends and vice-versa. "It has been consistently for many years."
(ii) Cash flow position: The better the cash flow position
of the company, the better will the capacity of the company to pay dividend.
"There is availability of enough cash in the company."
(iii) Growth opportunities: If the company has more opportunities for growth, it
will require more finance. In such a situation, a major part of the income should
be retained and a small part of it should be paid as dividend. "Good prospects for
growth in the future"
(iv) Contractual constraints: When a company receives finance in the form of
debt, the debt provider can put a ban on the company to give any dividend. "It has
taken a load of ₹ 40 lakh agreement".
26. Factors affecting dividend decision of a company:
(i) Stability of earnings: A company having stable earnings is in a position to
declare more dividends and vice-versa. "It has been consistently for many years."
(ii) Cash flow position: The better the cash flow position of the company, the
better will the capacity of the company to pay dividend." There is availability of
enough cash in the company"
(iii) Growth opportunities: If the company has more opportunities for growth, it
will require more finance. In such a situation, a major part of the income should
be retained and a small part of it, should be paid as dividend. "Good prospects for
growth in the future".
(iv) Contractual constraints: When a company receives finance in the form of
debt, the debt provider can put a ban on the company to give any dividend. "It has
taken a load of ₹ 50 lakhs agreement".
27. (i) Stability of earnings: A company having stable earnings is in a position to
declare higher dividends. A company with unstable income will prefer to give
smaller dividend.
(ii) Growth opportunities: Companies having good growth opportunities retain
more money from their earnings so as to finance the required investment.
(iii) Cash flow position: Comfortable cash flow position is the pre-condition to
declare dividend by a company.
(iv) Taxation policy: The choice between dividend payment and retention of
earning is also affected by the difference is tax treatment of dividend and capital
gains. If dividends are tax free, it would be better to pay more dividends.
28. (a): Detailed plans of action prepared under financial planning increase
waste, duplication of efforts and gaps in planning.
29. The concept which was not considered by the company before deciding the
amount of funds to be raised is 'Financial Planning'.
30. Financial Planning enables to foresee the fund requirements both in terms of
quantum and the timing. The process of estimating the fund requirement of a
business and specifying the source of funds is known as Financial Planning.
31. Financial Planing
Twin objectives of financial planing are:
(i) To ensure availability of funds whenever required: This includes a proper
estimation of the funds required for different purposes such as for the purchase
of long-term assets or to meet day-today expenses of business etc.
Apart from this, there is a need to estimate the time at which these funds are to
be made available. Financial planning also tries to specify possible sources of
these funds.
(ii) To see that the firm does not raise resources unnecessarily: Excess funding is
almost as bad as inadequate funding. Even if there is some surplus money, good
financial planning would put it to the best possible use so that the financial
resources are not left idle and don't unnecessarily add to the cost.
32. (b): Growth opportunities
33. (c): Trading on equity
34. Cost of debt: The cost of debt affects the capital structure in the sense that if
the firm can borrow at a lower cost, then it can increase its debt. That is, more
debt can be used, if cost of debt is lower and vice-versa.
35. Technology Upgradation: In mobile phones, business assets becomes obsolete
very soon, so their replacement is to be done faster. Hence, fixed capital
requirement will be high to purchase such assets. Considering this, Rizul choose
furniture business over mobile phones.
36. Diversification will lead to increase in the fixed capital requirement of the
company as more money will be required for investment in fixed assets.
37. Cost of equity: The rate of return expected by the shareholders is directly
related to the risk associated with their investment. As the financial risk faced by
the company increases, the shareholders' expectation of rate of return increases
and vice versa. Now, as the company increases the component of debt, the
financial risk faced by it also increases.
38. Capital structure is simply referred to as the combination of debt and equity
used by a company for financing its fund requirements.
Algebraically Capital Structure is equal to

Two factors which affect the capital structure of a company are:

(i) Equity cost: The rate of return expected by the shareholders is directly related
to the risk associated with their investment made by them. As the financial risk
faced by the company increases, the shareholders' expectation of rate of return
increases and vice versa.
Now, as the company increases the component of debt, the financial risk faced by
it also increases. Therefore, the shareholders' expectation of rate of return
increases. This relationship suggests that a company cannot increase the
component of debt in its capital structure beyond a certain level.
(ii) Floatation cost: It refers to the cost of raising funds such as broker's
commission and underwriting commission. Higher the floatation cost involved in
raising funds from a particular source, the lower is its proportion in the capital
structure. For example, if public issue of shares involves higher floatation cost
than debt, then the company would go for more of debt and less of equity in the
capital structure.
39. 'Option A' source of debt is better than 'Option B. Aim of financial
management is to increase earning of its shareholders. Debt will result in
increase in earning only when Return on Investment (ROI) is more than rate of
interest on debt. If rate of Interest on debt is more than the return on investment
then more debt means more loss for company. Concept of Trading on Equity is
used in taking the decision.
40. (a): EBIT = ₹ 2,00,000

(b) The given example is unfavourable financial leverage.

41. Following are the factors determining the relative proportion of types of
funds:
(a) Cash flow position: Size of projected cash flows must be considered before
issuing debt. If the company does not have regular and predictable cash flows, it
should avoid debt and issue more equity, while if it has regular and predictable
cash flows, it can go in for more debt.
(b) Cost of debt: Lower cost of debt increases the capacity of the company to
employ larger debt. However, in case of higher cost of debt, company should
prefer more of equity.
(c) Taxrate: Since interest paid on debt is a tax-deductible expense, a higher tax
rate makes debt relatively cheaper.
(d) Cost of equity: It indicates the expected rate of return for the equity
shareholder which is commensurate with the risk they are assuming. It increases
with the increase in debt. Thus, debt should be used only to a limited level.
(e) Return on investment: If return on investment is more than rate of interest
then company must prefer debt in its capital structure whereas if return on
investment is less than rate of interest to be paid on debt, then company should
avoid debt.
42. (a) Assumption: Face value of share is ₹10 each. Computation of profit for
equity in the previous year :

(b) Factors that favours the issue of debentures by the company are:
(i) Cost: Debt is cheaper source of finance because interest on debt is tax
deductible expense. More debt can be used in capital structure, if cost of debt is
low.
(ii) Control considerations: Debt normally does not cause a dilution of control
while issue of equity shares may reduce management control over the business.
(iii) Cash flow position of the company: A strong cash flow position of the
company makes debt financing better than funding through equity because it can
generate enough cash flows to pay interest on debt.
43. (i) Cash flow position: Size of projected cash flows must be considered before
issuing debt. If the company does not have regular and predictable cash flows, it
should avoid debt and issue more equity, while if it has regular and predictable
cash flows, it can go in for more debt.
(ii) Cost of equity: It indicates the expected rate of return for the equity
shareholder which is commensurate with the risk they are assuming. It increases
with the increase in debt. Thus, debt should be used only to a limited level.
(iii) Floatation costs: The fund raising exercise also costs something, example -
cost of advertising, printing cost of prospectus, etc. This cost is called floatation
cost. Higher the floatation cost, less attractive the source. Public issue of shares
and debentures requires considerable expenditure. These consideration may also
affect the choice between debt and equity and hence the capital structure.
(iv) Stock market condition : During the period when stock market is rising (i.e., a
bullish phase), more people invest in equity. Equity shares are more easily sold
even at a higher price. Use of equity is often preferred by companies in such a
situation. However, during the period of depressed capital market, (i.e., a bearish
phase) a company may find raising of equity capital more difficult and it may opt
for debt.
44. (d): Business cycle
45. (a): A-(i), B-(iv), C-(ii), D-(iii)
46. More
47. Availability of Raw Material: Un-interrupted availability of raw-material
reduces blockage of funds in working capital requirements of this industry.
48. Level of Collaboration is the factor affecting fixed capital requirements of
Fashionate Pvt. Ltd.
According to this factor, certain business organisation shares each other’s'
facilities, e.g., a bank may use another bank's ATM. Such collaboration reduces the
level of investment in fixed assets for each firm so, fixed capital requirement is
lower.
49. Low, as it is a service industry, which usually do not have to maintain
inventory.
50. The factors which affect the working capital requirements of a company are:
(i) Fluctuations in business cycle: During a boom period, the market flourishes
and thereby there is higher sale, higher production, higher stock and debtors.
Thus, during this period, the need for working capital by a company increases. As
against this, in a period of depression, there is low demand, lesser production and
sale, etc. Therefore, the requirement for working capital is also less.
(ii) Inflation: A rise in the rate of inflation implies that the prices of raw
materials, labour, etc. increase. This suggests that larger amount of funds would
be required to maintain even the existing volume of production and sales. This in
turn, increases the requirement of working capital. On the other hand, a low rate
of inflation implies less requirement of working capital for a business.
(iii) Extent of availability of raw material: If the raw materials required by the
company are such that they are easily available, then this suggests that the firm
does not need to maintain a large stock of inventories of raw material. In such
situations, the company requires less working capital. On the other hand, if the
raw materials are not easily available or their supply is not smooth, then the
company must maintain a huge stock of raw material to ensure uninterrupted
operations, thereby requiring a large working capital.
51. The factors which affect the working capital requirements of such enterprises
highlighted in the question above are:
(i) Fluctuations in business cycle: During a boom period, the market flourishes
and thereby there is higher sale, higher production, higher stock and debtors.
Thus, during this period the need for working capital by a company increases. As
against this, in a period of depression, there is low demand, lesser production and
sale, etc. Therefore, the requirement for working capital is also less.
Line: 'Indian equity markets are going through a phase of boom.
(ii) Growth Prospects: Higher growth and expansion of a company is associated
with higher production, more sales, more inputs, etc. Thus, companies with
higher growth prospects require a higher amount of working capital and vice
versa.
Line: There is a huge growth potential for innovative technologies.
(iii) Extent of competition: The higher the extent of competition in the market,
the larger is the amount of stock of goods that the firms must maintain to meet
the demand and therefore the higher is the requirement of working capital.
Line: This has resulted in lots of new ventures lying for a market share and old
enterprises trying to keep up with the pace with which changes are taking place
in the economy.
52. (i) Nature of Business: The nature of a business influences the working
capital requirement. A trading organisation usually needs a smaller amount of
working capital compared to a manufacturing organisation. This is because, there
is usually no processing. Therefore, there is no distinction between raw materials
and finished goods.
(ii) Availability of Raw Material: If the raw materials and other required materials
are available freely and continuously, lower stock levels may suffice. If, however,
raw materials do not have a record of uninterrupted availability, higher stock
levels may be required thus raising the need for working capital.
53. Factors affecting fixed capital requirements of a company:
(i) Nature of Business: The type of business has a bearing upon the fixed capital
requirements. For example, a trading concern needs lower investment in fixed
assets compared with a manufacturing organisation; since it does not require to
purchase plant and machinery, etc.
(ii) Scale of Operations: A larger organisation operating at a higher scale needs
bigger plant, more space etc. and therefore, requires higher investment in fixed
assets when compared with the small organisation.
54. Factors affecting the requirement of Fixed Capital:
(i) Nature of Business: The type of business has a bearing upon the fixed capital
requirements as a trading concern needs lower investment in fixed assets
compared with a manufacturing organisation since it does not require to
purchase plant and machinery, etc.
(ii) Scale of Operations: A larger organisation operating at a higher scale needs
bigger plant, more space etc. and therefore, requires higher investment in fixed
assets when compared with the small organisation.
(iii) Technology Upgradation: In certain industries, assets become obsolete
sooner and need to be replaced faster, resulting in higher investment in fixed
assets.
(iv) Growth Prospects: Higher growth of an organisation generally requires
higher investment in fixed assets to meet the anticipated higher demand quicker.
(v) Diversification: A firm may choose to diversify its operations leading to higher
investment in fixed capital.
(vi) Choice of Technique: A capital-intensive organisation requires higher
investment in plant and machinery as it relies less on manual labour resulting in
higher requirement of fixed capital as compared to a labour intensive
organisation.
55. Factors that 'Inderprastha Technologies Ltd. will keep in mind before deciding
its working capital requirements:
(i) Seasonal Factor: Peak season requires higher working capital than lean season
due to higher level of activity.
(ii) Level of competition: Higher competition requires larger stocks to meet
urgent orders, thus, higher working capital is required.
(iii) Credit Allowed: A liberal credit policy results in higher level amount of
debtors, increasing the requirements of working capital.
(iv) Production cycle: Shorter the production cycle, lower is the amount of
working capital.
Other factors affecting working capital requirements of a company:
(i) Nature of Business: A manufacturing business requires more working capital
than a trading business since raw material is converted into finished goods.
(ii) Business Cycle: In case of boom, larger working capital is required as
production and sales are more in comparison to depression phase.
(iii) Operating efficiency: Operating efficiency reduces the levels of inventories
and debtors, thereby, reducing working capital requirements.
56. (i) Nature of Business: The basic nature of business influences the amount of
working capital required. A trading firm needs a lower amount of working capital
compared to a manufacturing firm. This is because there is usually no processing,
therefore, there is no distinction between raw materials and finished goods in
trading firm. Goods can be sold as soon as or even before it is received.
(ii) Scale of Operations: A large-scale organisation requires larger amount of
working capital as compared to small-scale organisation because the quantum of
inventory, debtors and cash required is generally high.
(iii) Seasonal Factors: Industries, which produce and sell seasonal goods, require
large working capital at the time of the season than industries with regular
production, and sales.
(iv) Production Cycle: Production cycle is the time span between the receipt of
raw material and its conversion into finished goods. Longer the process of
production, higher will be the amount of working capital required. On the other
hands, firms with shorter production cycle can manage with less working capital.
57. (i) Inflation: With rising prices, larger amount is required to maintain a
constant volume of production and sales. It will result in an increase in the
working capital requirements. However, it must be noted that an inflation rate of
5%, does not mean that every component of working capital will change by the
same percentage.
(ii) Business Cycle: Different phases of business cycle affect the working capital
requirement of a firm. More working capital is needed in boom period as
compared to dull period.
(iii) Level of Competition: Higher level of competition may compel a firm for
higher stock of finished goods and liberal credit to its customer. It will need
higher amount of working capital. However, in case of less competition, firms can
manage with less working capital.
(iv) Nature of Business: The basic nature of business influences the amount of
working capital required. A trading firm needs a lower amount of working capital
compared to a manufacturing firm. This is because there is usually no processing,
therefore, there is no distinction between raw materials and finished goods in
trading firm. Goods can be sold as soon as or even before it is received.
 CBSE Sample Questions

1. Following are the factors affecting financial decision of a company:

(a) Size of the projected Cash flows must be considered before borrowing.
(b) Interest Coverage Ratio refers to the number of times earnings before interest
and taxes of a company covers the interest obligation.
(c) Debt Service Coverage Ratio takes care of the deficiencies referred to in the
interest coverage ratio.
(d) More debt can be used if debt can be raised at a lower rate
(e) A higher Tax Rate makes debt relatively cheaper and increases its attraction
vis-a-vis equity.
(f) Process of raising resources also involves some cost which may affect the
choice between debt and equity and hence capital structure.
(g) If a firm's business risk is lower, its capacity to use debt is higher and vice
versa.
(h) To maintain flexibility the firm must maintain some borrowing power to take
care of unforeseen circumstances.
(i) Capital Structure of other companies is a useful guideline in the capital
structure planning.
(j) Stock Market Conditions often affect the choice between debt and equity.
(k) Every company operates within a regulatory framework provided by the law.
(l) Control as a factor also influences the choice between debt and equity
especially in companies in which the current holding of management is on a
lower side.
(m) If the ROI of the company is higher, it can choose to use trading on equity to
increase its EPS.
(n) When a company increases debt, the financial risk faced by the equity
shareholders increases consequently their desired rate of return may increase.
2. Dividend decision: The decision involved here is how much of the profit earned
by the company is to be distributed among the shareholders and how much of it
should be kept in the business.
Factors affecting Dividend decision:
(i) Amount of Earnings: Dividends are paid out of current and past earnings.
Therefore, earnings are a major determinant of the decision about dividend.
(ii) Growth Opportunities: Companies having good growth opportunities retain
more money out of their earnings so as to finance the required investment. The
dividend in growth companies is, therefore, smaller than that in the non-growth
companies.
3. Rate of Return of Investment is 4,00,000/10,00,000 X 100 = 40%
EBIT after expansion = 40% X 15,00,000 - 6,00,000

The company should use Plan 2 in order to increase the return to the equity
shareholders.
4. Following are the factors affecting capital structure of the company:
(i) Cash Flow Position: Size of projected cash flows must be considered before
borrowing. Cash flows must not only cover fixed cash payment obligations but
there must be sufficient buffers also.
(ii) Interest Coverage Ratio (ICR): The interest coverage ratio refers to the
number of times earnings before interest and taxes of a company covers the
interest obligation.
(iii) Debt Service Coverage Ratio (DSCR) : Debt Service Coverage Ratio takes care
of the deficiencies referred to in the Interest Coverage Ratio (ICR). The cash
profits generated by the operations are compared with the total cash required for
the service of the debt and the preference share capital.
(iv) Cost of debt: A firm's ability to borrow at a lower rate increases its capacity
to employ higher debt. Thus, more debt can be used if debt can be raised at a
lower rate.
5. Factors affecting working capital requirement of the company:
(i) Nature of Business influences working capital requirements in a trading
organisation which usually needs a smaller amount of working capital compared
to a manufacturing organisation, while service industries which usually do not
have to maintain inventory require less working capital.
(ii) Scale of operations influences working capital requirements in large
organisations which require a large amount of working capital as compared to
the organisations which operate on a lower scale.
(iii) Business cycle affects the requirement of working capital by a firm, as in case
of a boom a larger amount of working capital is required as compared to the
period of depression.
6. Earnings per share = ₹ 35
EPS = Earning after tax/ Number of equity shares
35 = Earning after tax/70,000
Earning after tax = ₹ 24,50,000
Interest = 50,00,000 × 7/100 = ₹ 3,50,0000
Let the Earning before tax (EBT) = x EBT – Tax = EAT
X - 0.30x = 24,50,000; 0.70x = 24,50,000
x = 24,50,000/0.70; x = 35,00,000
Earning before tax = ₹ 35,00,000
EBIT = Earning before tax + Interest
= 35,00,000 + 3,50,000 = ₹ 38,50,000
ROI = EBIT/Total Investment x 100
= 38,50,000/1,20,00,000 x 100 = 32.08%
As ROI (32.08%) > Rate of interest (7%).
The company can choose to use trading on equity to increase its EPS. The finance
manager was justified in making this recommendation.
7. Choice of Technique: As he wishes to stick to a low investment model, we may
suggest him to go with the labour-intensive approach to manufacture N- 95
masks.
Since better technology would cost him much and his risk appetite is not
conducive for capital intensive techniques of production.
Financial Alternatives: As he wishes to stick to a low investment model, we may
suggest him to go with the lease option for fixed assets like building, heavy
machinery etc. as this may reduce his investments requirement in the business.
 Meaning, Role & Objectives of Financial Management

1 Mark Questions

1. Define financial management. (Foreign 2014; All India 2011)

Ans. According to Weston and Brighan, ‘Financial management is an area of financial

decision-making harmonising individual motives and enterprise’s goals’.

2. What is the primary objective of financial management? (Delhi 2013)

Ans. The primary aim of financial management is to maximise shareholders’ wealth.

3 Marks Questions

3. Wealth maximisation is the primary objective of financial management. Explain.

(Compartment 2014)
or
What is meant by financial management? State the primary objective of financial
management. (All India 2012; Delhi 2012)
or
Explain the meaning and objective of financial management. (Delhi 2010)
or
State the objectives of financial management.(Delhi 2009)
or
What do you understand by the term ‘financial management’? What is the
objective of financial management? (Delhi 2009 c)

Ans. Financial management is concerned with optimal procurement as well as the

usage of finance. For optimal procurement, different available sources of finance are
identified and compared in terms of their costs and associated risks.
The primary objective of financial management is to maximise shareholders’ wealth.
This means maximisation of the market value of equity shares. Increase in market value
of shares depends on the financial decisions taken by the firm. Market price of the
shares is the index of the capital invested. If the market price of the shares increases, it
can be said that capital invested by the shareholders has been appreciating. On the
contrary, fall in the market price of the shares has an adverse effect on their wealth.
The other main objectives of financial management are:
(i) Ensuring availability of funds at reasonable cost.
(ii) Ensuring effective utilisation of funds.
(iii) Ensuring safety of funds by creating reserves and reinvestment of profits.
4. Sound financial management is the key to the prosperity of business. Explain.
(HOTS; All India 2009)
or
Explain, how does proper financial management helps in the growth of business?
(All India 2009)

Ans. Sound financial management is the key to the prosperity of business because of
the following advantages: (Any three)
(i) It helps in obtaining sufficient funds at minimum cost.
(ii) Ensures effective utilisation of funds. It tries to invest funds in various assets with a
view to maximise the return on shareholders’ investment.
(iii) Tries to generate sufficient profits to finance expansion and modernisation of the
enterprise and secure stable growth.
(iv) Ensures safety of funds through creation of reserves, re-investment of profits, etc.

4/5 Marks Questions

5. Give the meaning of Investment and financing decisions of

financial management. (All India 2014)

Ans. Investment decisions It involves careful selection of assets in which funds are to
be invested. Decisions, relating to investment in fixed assets are known as capital
budgeting, whereas those concerning investment in current assets are called working
capital decisions. A business needs to invest funds for setting up new business, for
expansion and modernisation. Investment decision is taken after careful scrutiny of
available alternatives in terms of costs involved and expected return. These decisions
are crucial in nature due to following reasons:
(i) These are long-term decisions and can be reversed only at huge costs.
(ii) These generally involve commitment of huge funds.
(iii) These have a significant effect on the profitability and future of the business.

Financing decisions It is concerned with the decisions of how much funds are to be
raised from which long-term source, i.e. by means of shareholders’ funds or borrowed
funds.
Shareholders’ funds include share capital, reserves and surplus and retained earnings,
whereas borrowed funds include debentures, long-term loans and public deposits.

6. Explain the concept and the objective of financial management. (All India 2013)

Ans. Concept of financial management Financial management is concerned with

optimal procurement as well as the usage of finance. For optimal procurement, different
available sources of finance are identified and compared in terms of their costs and
associated risks. The primary objective of financial management is to maximise
shareholders’ wealth. This means maximisation of the market value of equity shares.
Increase in market value of shares depends on the financial decisions taken by the firm.
Market price of the shares is the index of the capital invested. If the market price of the
shares increases, it can be said that capital invested by the shareholders has been
appreciating. On the contrary, fall in the market price of the shares has an adverse
effect on their wealth.

The other main objectives of financial management are:

(i) Ensuring availability of funds at reasonable cost.
(ii) Ensuring effective utilisation of funds.
(iii) Ensuring safety of funds by creating reserves and reinvestment of profits.
 Meaning, Importance & Objectives of Financial Planning

3 Marks Questions

1. What is meant by financial planning? State any two points of importance of

financial planning. (Compartment 2014; All India 2012; Delhi 2012)
or
‘Financial planning tries to link the present with the future’. Explain the
importance of financial planning in the light of this statement. (HOTS; Delhi 2010
C, 2008; All India 2009)
or
Explain the meaning of financial planning. Why is it important? Give any two
reasons. (All India 2010)
or
What do you understand by the term financial planning? Describe why financial
planning is essential in financial management? (All India 2009)

Ans. Financial planning is the preparation of financial blueprint, which foresees entire
fund requirement in respect to quantum as well as the timing. It is the process of
estimating the fund requirements of business and specifying the sources of funds. It
involves the preparation of a financial blue print of an organisation’s future operations.
The objective of financial planning is to ensure that enough funds are available at right
time.
Financial planning is essential in financial management because: (Any two)
(i) Helps in avoiding business shocks and surprises Proper provision regarding
shortage or surplus of funds is made by anticipating future receipts and payments.
Hence, it helps in avoiding business shocks and surprises.
(ii) Helps in coordination It helps in coordinating various business activities, such as
sales, purchase, – production, finance, etc.
(iii) Helps in avoiding wastage of finance In the absence of financial planning,
wastage of financial resources may take place. This arises due to the complex nature of
business operations such as, excessively over or under estimation of finance for a
particular business operation. $uch type of wastages can be avoided through financial
planning.

2.’ Financial planning is a financial blue print of an organisation’s future

operations’. Explain the twin objectives of financial planning in the light of this
statement. (HOTS; Ali India 2010, 2009; Delhi 2009)

Ans. Financial planning strives to achieve the following two objectives

(i) To ensure availability of funds whenever these are required This includes a
proper estimation of the funds required for different purpose such as for the purchase of
long-term assets or to meet day-to-day expenses of business, etc. Apart from this, there
is a need to estimate the time at which these funds are to be made available. Financial
planning also tries to specify possible sources of these funds.
(ii) To ensure unnecessary finance is not raised Excess funding is almost as bad as
inadequate funding. Even if there is some surplus money, good financial planning would
put it to the best possible use so that the financial resources are not left idle and don’t
unnecessarily add to the cost.

4/5 Marks Questions

3. Explain any four points that highlight the importance of financial planning.
(Delhi 2014)
or
What is meant by financial planning? State any three points of its importance.(All
India 2013)

Ans. Meaning of financial planning Financial planning is the preparation of financial

blueprint, which foresees entire fund requirement in respect to quantum as well as the
timing. It is the process of estimating the fund requirements of business and specifying
the sources of funds. It involves the preparation of a financial blue print of an
organisation’s future operations. The objective of financial planning is to ensure that
enough funds are available at right time.
The following points highlight the importance of financial planning:
(i) Helps in coordinating By providing clear policies and procedures, it helps in
coordinating various business functions.
(ii) Helps in operational activities Success or failure of every business function
depends upon the financial decision. It helps in giving the framework under which
operational activities are carried on effectively.
(iii) Proper utilisation of funds Finance acts as the life-blood for an organisation. For
smooth functioning, it is required by every organisation. Financial planning ensures
availability of funds whenever required. Thus, it helps in proper utilisation of funds.
(iv) Base for financial control It helps in providing the base for checking and
comparing activities from the financial viewpoint.

4. What is required to tackle the uncertainty in respect of availability and timings

of funds? Name the concept involved and explain three points of its importance.
(HOTS; All India 2008; Delhi 2008)
or
Name the process which helps in determining the objectives, policies,
procedures, programmes and budgets to deal with the financial activities of an
enterprise, explain its three points of importance. (Hots; Delhi 2008)

Ans. Financial planning helps in determining the objectives, policies, procedures,

programmes and budgets to deal with the financial activities of an enterprise.
Importance of financial planning Financial planning is the preparation of financial
blueprint, which foresees entire fund requirement in respect to quantum as well as the
timing. It is the process of estimating the fund requirements of business and specifying
the sources of funds. It involves the preparation of a financial blue print of an
organisation’s future operations. The objective of financial planning is to ensure that
enough funds are available at right time.
The following points highlight the importance of financial planning:
(i) Helps in coordinating By providing clear policies and procedures, it helps in
coordinating various business functions.
(ii) Helps in operational activities Success or failure of every business function
depends upon the financial decision. It helps in giving the framework under which
operational activities are carried on effectively.
(iii) Proper utilisation of funds Finance acts as the life-blood for an organisation. For
smooth functioning, it is required by every organisation. Financial planning ensures
availability of funds whenever required. Thus, it helps in proper utilisation of funds.
(iv) Base for financial control It helps in providing the base for checking and
comparing activities from the financial viewpoint.

6 Marks Question

5. What is meant by ‘financial planning’? Explain any five points which highlight
its importance. (Delhi 2013)
or
‘Sound financial planning is essential for the success of any business enterprise’.
Explain this statement by giving any six reasons. (Hots; ah India 2011; Delhi
2011)
or
Explain the term ‘financial planning’ and any four points of its importance in
financial management. (Delhi 2011 c)

Ans. Financial planning is the preparation of financial blue print, which foresees entire
fund requirement in respect to quantum as well as the timing.
Various points of importance of financial planning are:

(i) Helps to face the eventualities It forecasts the future business situations which
helps in preparing alternative financial plans to face the eventual situations.

(ii) Helps in avoiding business shocks and surprises Proper provision regarding
shortage or surplus of funds is made by anticipating future receipts and “payments.
Hence, it helps in avoiding business shocks and surprises.

(iii) Helps in coordination It helps in coordinating various business activities, such as

sales, purchase, production, finance, etc.

(iv) Helps in avoiding wastage of finance In the absence of financial planning,

wastage of financial resources may take place. This arises due to the complex nature of
business operations such as, excessively over or under estimation of finance for a
particular business operation. Such type of wastages can be avoided through financial
planning.

(v)Helps to link the present with the future It makes efforts to link the present with the
future. By doing so, it helps to minimise the risks of future uncertainties.

(vi) Helps in creating link between investment and financing decisions It helps in
deciding that where the to invest and from where the required funds will be made
available. Under it, the mix of share capital and debt capital is made in such a manner
that cost of capital is reduced to minimum.
 Financial Decisions, Capital Structure
1 Mark Questions

1. Define capital structure. (Delhi 2014)

Ans. Capital structure can be defined as the mix between the owners’ funds and
borrowed funds.
Capital Structure = Debt/Equity

2. How does cost of debt affect the capital structure of a company? State.(Foreign
2014, Delhi 2009)

Ans. When a firm is able to borrow at a lower rate, ft increases the capacity to employ
higher debt and can increase the debt component in the capital structure.

3. What is meant by financial risk? (All India 2014)

Ans. Financial risk refers to a position when a company is not able to meet its fixed
financial charges namely interest, preference dividend payment and repayment
obligations.

4. Name the major determinant of dividend decision. (All India 2011)

Ans. Dividends are paid out of current and past earnings. Therefore, earning is the
most important determinant of dividend decision.

5. Which type of companies can declare higher dividend? (Delhi 2011 c)

Ans. A company having stable earnings is in a position to declare higher dividends.

6. Name the financial decision which will help a businessman in opening a

new branch of its business. (Hots; Delhi 2010)

Ans. Investment decision helps a businessman in opening a new branch of its

business.

7. Cost of debt is lower than the cost of equity share capital. Give reason why
even then a company cannot work only with the debt? (Hots, - All India 2010;
Delhi 2010)

Ans. A company cannot work only with debt because a company cannot be formed or
be in existence without equity.
8. What is meant by floatation cost? (Delhi 2009 c)

Ans. Floatation costs are those expenses which are incurred while issuing securities
like equity shares, preference shares, debentures, etc, e.g. underwriting commission,
brokerage, stamp duty, listing charges, etc.

9. Which component of capital structure determines the overall financial risk in

an organisation? (Hots; Delhi 2009 c)

Ans. Proportion of debt in the total capital determines the overall financial risk.

10. What does higher business risk indicate? (All India 2009; Delhi 2009)

Ans. Higher business risk indicates high fixed operating cost.

11. What is meant by cost of equity? (All India 2009)

Ans. Equity shareholders expect a return on their investment, i.e. Earnings per Share
(EPS). When a company increases debt, the financial risk faced by the equity
shareholders increases and then EPS starts decreasing with inclusion of debt beyond a
certain point. Thus, cost of equity may go up sharply and share price may decrease.

12. What does a firm’s lower business risk indicate? (All India 2009)

Ans. A firm’s lower business risk indicates that a firm has lowered operating cost and
can raise more capital by issue of debt securities. Whereas, at the time of high business
risk, it should depend upon equity.

13.’A company wants to establish a new unit in which a machinery of worth? 10

lakh is involved’. Identify the type of decision involved here in financial
management. (HOTS; Delhi 2008)

Ans. The given situation pertains to investment in fixed assets of the business. Hence,
it is capital budgeting decision or fixed investment decision.

14. Name the concept which increases the return on equity shares with a change
in the capital structure of a company. (Delhi 2008)
Ans. Trading on equity increases the return on equity shares with a change in the
capital structure of a company.
3 Marks Questions

15. Give the meaning of ‘investment decision’ and ‘dividend decision’.

(Compartment 2014)

Ans. (i) Investment decision It relates to as how the funds of a firm are to be invested
into different assets, so that the firm is able to earn highest possible return for the
investors. Investment decision can be long-term, also known as capital budgeting where
the funds are committed into long-term basis. Short-term investment decision also
known as working capital decision and it is concerned with the levels of cash,
inventories and debtors.

(ii) Dividend decision It relates to decision regarding distribution of dividend. The

decision taken is as to how much dividend is to be retained in business and how much
should be distributed to shareholders, after taking into account various factors affecting
it.

16. Explain the factors that affect capital budgeting decision. (Compartment 2014)

Ans .Factors affecting capital budgeting/long-term investment decisions are:

(i) Cash flow of the project Whenever a company is investing huge funds in an
investment proposal, it expects some regular amount of cash to meet day-to-day
requirements. The amount of cash flow of an investment proposal will be assessed
properly before investing in the proposal.
(ii) Return on investment The most important criteria to decide the investment
proposal is rate of return it will bring back for company, e.g. if project A is bringing 10%
return and project B is bringing 15% return then, a businessman would prefer project B.
(iii) Risk involved With every investment proposal, some degree of risk is also
involved. The company must try to calculate the risk involved in every proposal and
.should prefer the investment proposal with moderate degree of risk only. .

17. Explain how the

(i) cost of debt and
(ii) cost of equity, affect the choice of capital structure. (Delhi 2010 c)

Ans. (i) Cost of debt A firm’s ability to borrow at a lower rate of interest increases its
capacity to employ higher debt. Thus, more debt can be used if debt can be raised at
lower rate.

(ii) Cost of equity Equity shareholders expect a return on their investment, i.e.
Earnings Per Share (EPS). When a company increases debt, the financial risk faced by
the equity shareholders increases and then EPS starts decreasing with inclusion of
debt, beyond a certain point. Thus, with the increase in risk, cost of equity may go up
sharply and share prices may decrease.
18. Explain how the
(i) Risk consideration and
(ii) Tax rate affect the choice of capital structure? (All India 2010)
or
Explain any two factors that affect the capital structure of a company. (All India
2008)

Ans. (i) Risk of consideration While deciding the capital structure, risk must be
analysed and considered. Total risk consists of two types of risks:

(a) Financial risk It refers to a position when a company is unable to meet its fixed
financial charges namely, interest payment, preference dividend and payment
obligations. It arises when a company borrows. Use of debt increases the financial risk
of a business.

(b) Business risk It depends upon fixed operating costs. Higher fixed operating cost
means higher business risk and vice-versa. If a firm’s operating risk is lower, its capacity
to use debt is higher and vice-versa.

(ii) Tax rate Interest is a deductible expense. Cost of debt is affected by the tax rate. A
higher tax rate
makes debt relatively cheaper and increases its attraction in relation to equity.

19. What is meant by financial management? State any two financial decisions
taken by a financial manager. (Delhi 2009, All India 2009)
or
State three decisions involved in financial management. (Delhi 2008 C)

Ans. Financial management is concerned with optimal procurement as well as the

usage of finance. For optimal procurement, different available sources of finance are
identified and compared in terms of their costs and associated risks.
Main decisions involved in financial management are as follows:

(i) Investment decision The investment decision relates to how the firm’s funds are
invested in different assets. Investment decision may be long-term or short-term. Long-
term investment decision is called capital budgeting decision and short-term investment
decision is called working capital decision.
(ii) Financing decision It deals with quantum of finance to be raised from long-term
sources, viz debt equity. In other words, it refers to the determination as how the total
funds required by the business will be obtained from various long-term sources.
(iii) Dividend decision This decision involves how much of the ‘after tax profits’ is to be
distributed as dividends to shareholders and how much to retain in the business to meet
future investment requirements.

20. How does trading on equity affect the choice of capital structure of a
company?
Explain with the help of suitable example. (Delhi 2008 c)

Ans. Trading on equity refers to the use of fixed cost sources of finance such as
debentures and preference share capital in the capital structure so as to increase the
return on equity shares. There are two conditions to use trading on equity:
(i) The rate of interest on loan/debentures should be less than the rate of Return on
Investment.
(ii) The interest should be deducted from profit before tax.
For example, Let us consider two public companies X Ltd and Y Ltd.
The following calculation will show how trading on equity increases the return on equity
shares
Thus, it can be concluded that Y Ltd using fixed cost sources, i.e. debentures, earn a
relatively high rate of return on equity capital.

4/5 Marks Questions

21. Give the meaning of investment and dividend decisions of financial

management.(Foreign 2014)

Ans. (i) Investment decision It relates to as how the funds of a firm are to be invested
into different assets, so that the firm is able to earn highest possible return for the
investors. Investment decision can be long-term, also known as capital budgeting where
the funds are committed into long-term basis. Short-term investment decision also
known as working capital decision and it is concerned with the levels of cash,
inventories and debtors.

(ii) Dividend decision It relates to decision regarding distribution of dividend. The

decision taken is as to how much dividend is to be retained in business and how much
should be distributed to shareholders, after taking into account various factors affecting
it.

22. What is meant by long-term investment? State any three factors which affect
the long-term investment decision. (Delhi 2013; All India 2013)
or
Investment decision can be long-term and short-term. Explain long-term
investment decision and state any two factors affecting this decision. (All India
2012)

Ans. A long-term investment decision is also called a capital budgeting decision. It

involves committing the finance on a long-term basis, e.g. making investment in a new
machine to replace an existing one or acquiring a new fixed asset or opening a new
branch. Factors affecting capital budgeting/long-term investment decisions are:

(i) Cash flow of the project Whenever a company is investing huge funds in an
investment proposal, it expects some regular amount of cash to meet day-to-day
requirements. The amount of cash flow of an investment proposal will be assessed
properly before investing in the proposal.

(ii) Return on investment The most important criteria to decide the investment
proposal is rate of return it will bring back for company, e.g. if project A is bringing 10%
return and project B is bringing 15% return then, a businessman would prefer project B.

(iii) Risk involved with every investment proposal, some degree of risk is also involved.
The company must try to calculate the risk involved in every proposal and .should prefer
the investment proposal with moderate degree of risk only.

[Link] the following as factors affecting financing decision

(i) Cost
(ii) Cash flow position of business
(iii) Control considerations
(iv) Floatation cost (Delhi 2012)

Ans. (i) Cost The cost of raising funds through different sources are different. A prudent
financial manager would normally tax for a source which is the cheapest. Debt is
considered the cheapest of all sources, tax deductibility makes it still cheaper.

(ii) Cash flow position of business A stronger cash flow position may make debt
financing more viable than funding through equity. Therefore, in order to take advantage
of cheap finance, companies prefer debt to equity.

(iii) Control considerations The ultimate control of the company is that of the equity
shareholders. Greater the number of equity shareholders, the greater will be the control
in the hands of more people. This is not a good situation. Therefore, from this point of
view the equity share capital should be avoided.

(iv) Floatation cost From the point of view of floating costs, higher the floatation cost,
less attractive the source becomes.
24. Determining the relative proportion of various types of funds depends upon
various factors. Explain any five such factors. (Hots; Delhi 2011)
or
Determining the overall cost of capital and the financial risk of the enterprise
depends upon various factors. Explain any five factors. (All India 2011)

Ans. Following are the factors determining the relative proportion of various types of
funds, or the capital structure:

(i) Position of cash flow Size of projected cash flow must be considered before issuing
debt. Cash flow must not only cover fixed cash payment obligations but there must be
sufficient cash for smooth working of the business.

(ii) Return on Investment (Rol) It refers to the earning expected from the investment. If
Rol of a company is high, it can opt for trading on equity to increase the earning per
share. Thus, it is an important determinant of the extent of trading on equity.

(iii) Cost of capital It may be defined as the payment made by company to obtain
capital. Thus, interest is the cost of debentures or loan and dividend paid by the
company is the cost of equity and preference share capital. The rate of dividend on
preference shares is fixed which is generally lower than that of equity shares. The cost
of debentures is generally lower and tax deductible.

(iv) Risk of consideration while deciding the capital structure, risk must be analysed
and considered. Total risk consists of two types of risks:
(a) Financial risk It refers to a position when a company is unable to meet its fixed
financial charges namely, interest payment, preference dividend and payment
obligations. It arises when a company borrows. Use of debt increases the financial risk
of a business.

(b) Business risk It depends upon fixed operating costs. Higher fixed operating cost
means higher business risk and vice-versa. If a firm’s operating risk is lower, its capacity
to use debt is higher and vice-versa.

(v) Flexibility To maintain flexibility, a firm should not use its debt potential in full, So
that it can borrow in unforeseen circumstances.

25. How are the shareholders likely to gain with loan components in
capital employed? Explain with suitable example. (Hots; All India 2011)

Ans. With a debt component in the total capital, shareholders are likely to have the
benefit of a higher rate of return on the share capital. This is because debt/loan carry a
fixed charge and the amount of interest paid is deductible from the earnings before tax
payment. The benefit to the shareholders will be realised only if the average rate of
return on total capital invested is more than the rate of interest payable on loan/debt.
For example, Trading on equity refers to the use of fixed cost sources of finance such
as debentures and preference share capital in the capital structure so as to increase the
return on equity shares. There are two conditions to use trading on equity:

(i) The rate of interest on loan/debentures should be less than the rate of Return on
Investment.

(ii) The interest should be deducted from profit before tax.

For example, Let us consider two public companies X Ltd and Y Ltd.
The following calculation will show how trading on equity increases the return on equity
shares

Thus, it can be concluded that Y Ltd using fixed cost sources, i.e. debentures, earn a
relatively high rate of return on equity capital.
26. Name the decision taken by a financial manager which determines the overall
cost of capital and the financial risk of the enterprise. Explain any two factors
which affect this decision. (Hots; All India 2011)

Ans. Financing decision determines the overall cost of capital and the financial risk of
the enterprise. The two main factors which affect financing decisions are:
(i) Cost The costs of raising funds through different sources are different. A prudent
financial manager would normally tax for a source which is the cheapest. Debt is
considered the cheapest of all sources, tax deductibility makes it still cheaper.
(ii) Control consideration The ulitmate control of the company is that of the equity
shareholders. Greater the number of equity shareholders, the greater will be the control
the hands of more people. This is not a good situation. Therefore, from this point of view
the equity share capita! should be avoided.

27. Name the decision which financial manager will take, keeping in view the
overall objective of maximising shareholders’ wealth. Explain any two factors
which affect this decision. (HOTS; All India 2011)

Ans. Dividend decision A financial manager takes decision in three broad areas, viz,
investment, financing and dividend, for maximising shareholders’ wealth. Wealth
maximisation is possible with increase in price of shares. A good dividend policy will
enhance the market value of shares thus, meeting the objective of wealth maximisation.
It also influences the financing decision of the firm, since the firm will not require funds
to the extent of re-invested retained earnings. So, it should be taken keeping in view the
overall objective of maximising shareholders’ wealth.
The two factors which affect dividend decisions are:

(i) Earnings Dividends are paid to the shareholders either from the past earnings or
from the current earnings or from both. Therefore, ‘earnings’ is a major factor which
affects dividend decision.

(ii) Stability of earnings It also affects the dividend decision. A company having stable
earnings can declare higher dividend whereas, a company having unstable earnings is
likely to pay smaller dividend.

6 Marks Questions

28. Explain the following as factors affecting dividend decision (All India 2014;
Delhi 2014)
(i) Stability of earnings
(ii) Growth opportunities
(iii) Cash flow position
(iv) Taxation policy

Ans. Dividend decision relates to how much of the company’s net profit is to be
distributed to the
shareholders and how much of it is to be retained in the business.
Factors affecting dividend decision are:

(i) Stability of earnings Stability of earnings of a business unit also affects the dividend
decision. A company having stable earnings can declare higher dividend whereas a
company having unstable earnings is likely to pay smaller dividend.

(ii) Growth opportunity Companies which are intended to grow, generally pay less
dividend and retain more money out of profits to invest in profitable projects. On the
contrary, companies which are not intended to grow and have enough earnings and
cash, can pay higher dividends.

(iii)Cash Flow position Dividend involves an outflow of cash. Availability of enough

cash is necessary for payment of declaration of dividends.

(iv) Taxation policy The decision is affected by tax treatment of dividends and capital
gains. For a company, it is better to pay less by dividends when the tax rate on dividend
is higher and pay more as dividends when tax rate is lower. This is because however
dividends are tax fall in the hands of shareholders, dividends distribution tax is levied on
the company.

29. Explain the following as factors affecting ‘dividend decision’.

(i) Stability of dividend
(ii) Shareholders’ preference
(iii) Legal constraints .
(iv) Access to capital market (Delhi 2014)
Ans. Dividend decisions relate to how much of the company’s after tax profit is to be
distributed to the
share holders and how much of it should be retained in the business for future
requirements.
Factors affecting dividend decisions are:

(i) Stability of dividend Companies generally have a policy of stabilising dividends, i.e.
increase in dividend is only done when the earning potential of the company has gone
up and not just the current year’s earnings. Thus, dividend per share is not altered when
the change is small or temporary in nature.

(ii)Shareholders’ preference While declaring dividends, management must keep in

mind the preferences of the shareholders in this regard. If the shareholders in general
desire that at least a certain amount is paid as dividend, the companies are likely to
declare the same. There are always some shareholders who depend upon a regular
income from their investments.

(iii)Legal constraints Certain provisions of The Companies Act place restrictions on

payouts as dividend. Such provisions must be adhered while declaring the dividend.
(iv) Access to capital market Large and reputed companies generally have easy
access to the capital market and, therefore, may depend less on retained earning to
finance their growth. These companies tend to pay higher dividends than the smaller
companies.

30. Explain any four factors which affect the ‘dividend decision’ of a
company.(Compartment 2014, All India 2013)
or
What is meant by ‘dividend decision’? Explain any four factors which affect the
dividend decision of a company. (Delhi 2013)
or
What is meant by ‘dividend decision’? State any four factors affecting the
dividend decision. (Delhi-2010)

Ans. This decision involves how much of the ‘after tax profits’ is to be distributed as
dividends to shareholders and how much to retain in the business to meet future
investment requirements.

Various factors affecting dividend decision

Trading on equity refers to the use of fixed cost sources of finance such as debentures
and preference share capital in the capital structure so as to increase the return on
equity shares. There are two conditions to use trading on equity:
(i) The rate of interest on loan/debentures should be less than the rate of Return on
Investment.
(ii) The interest should be deducted from profit before tax.
For example, Let us consider two public companies X Ltd and Y Ltd.
The following calculation will show how trading on equity increases the return on equity
shares
Thus, it can be concluded that Y Ltd using fixed cost sources, i.e. debentures, earn a
relatively high rate of return on equity capital.
Dividend decisions relate to how much of the company’s after tax profit is to be
distributed to the
share holders and how much of it should be retained in the business for future
requirements.
Factors affecting dividend decisions are:

(i) Stability of dividend Companies generally have a policy of stabilising dividends, i.e.
increase in dividend is only done when the earning potential of the company has gone
up and not just the current year’s earnings. Thus, dividend per share is not altered when
the change is small or temporary in nature.

(ii)Shareholders’ preference While declaring dividends, management must keep in

mind the preferences of the shareholders in this regard. If the shareholders in general
desire that at least a certain amount is paid as dividend, the companies are likely to
declare the same. There are always some shareholders who depend upon a regular
income from their investments.

(iii)Legal constraints Certain provisions of The Companies Act place restrictions on

payouts as dividend. Such provisions must be adhered while declaring the dividend.

(iv) Access to capital market Large and reputed companies generally have easy
access to the capital market and, therefore, may depend less on retained earning to
finance their growth. These companies tend to pay higher dividends than the smaller
companies.
31. Explain any four factors which determine the choice of the capital structure of
a company. (Compartment 2014; All India 2012, 2011, 2008; Delhi 2011, 2008)
or
Explain the following as factors affecting the choice of capital structure.
(i) Return on Investment (Rol) (ii) Flexibility
(iii) Risk consideration (iv) Control (Foreign 2014)
or
Explain the following factors affecting the choice of capital structure.
(i)Cash flow position (ii) Cost of equity
(iii) Floatation tests (iv) Stock market condition (Foreign 2014)
or
Determination of capital structure of a company is influenced by a number of
factors. Explain any four of them. (All India 2009; Delhi 2009)

Ans. Various factors influencing capital structure are:

(i) Position of cash flow Size of projected cash flow must be considered before issuing
debt. Cash flow must not only cover fixed cash payment obligations but there must be
sufficient cash for smooth working of the business.

(ii) Return on Investment (Ro!) It refers to the earning expected from the investment. If
Rol of a company is high, it can opt for trading on equity to increase the earning per
share. Thus, it is an important determinant of the extent of trading on equity.

(iii) Cost of capital It may be defined as the payment made by company to obtain
capital. Thus, interest is the cost of debentures or loan and dividend paid by the
company is the cost of equity and preference share capital. The rate of dividend on
preference shares is fixed which is generally lower than that of equity shares. The cost
of debentures is generally lower and tax deductible.

(iv) Risk Consideration While deciding the capital structure, risk must be analysed and
considered. Total risk consists of two types of risks:
(a)Financial risk It refers to a position when a company is unable to meet its fixed
financial charges namely, interest payment, preference dividend and payment
obligations. It arises when a company borrows. Use of debt increases the financial risk
of a business.

(b) Business risk It depends upon fixed operating costs. Higher fixed operating cost
means higher business risk and vice-versa. If a firm’s operating risk is lower, its capacity
to use debt is higher and vice-versa.

(v) Flexibility To maintain flexibility, a firm should not use its debt potential in full, So
that it can borrow in unforeseen circumstances.
(vi) Cost of Equity Equity shareholders expect a return on their investment, i.e. Earning
Per Share (EPS). When a company increases debt, the financial risk faced by the equity
shareholders increases and then EPS starts decreasing with inclusion of debt, then
beyond this point, cost of equity may go up sharply and share price may decrease.
(vii) Control If the firm wants more control, it will choose to raise funds through debt.
(viii) Floatation cost Raising funds through debt or equity involves same cost. Loan
from bank may not cost too much. Thus, the floatation costs may also affect choice of
capital structure.
(ix) Stock market consideration During the bullish phase, it is easy to raise funds
through equity. Vice-versa, during a bearish phase the raising of equity capital becomes
diffcult and thus, the firm may opt for debt.

32. What is meant by financing decision? State any four factors affecting the
financing
decision. (All India 2010; Delhi 2010)

Ans. Financial decision deals with quantum of finance to be raised from long-term
sources, viz debt equity. In other words, it refers to the determination as how the total
funds required by the business will be obtained from various long-term sources. There
should be a proper balance between debt and share capital as it influences the market
price of the shares and cost of capital.

Factors affecting financing decisions

(i) Cost The cost of raising funds through different sources are different. A prudent
financial manager would normally tax for a source which is the cheapest. Debt is
considered the cheapest of all sources, tax deductibility makes it still cheaper.

(ii) Cash flow position of business A stronger cash flow position may make debt
financing more viable than funding through equity. Therefore, in order to take advantage
of cheap finance, companies prefer debt to equity.

(iii) Control considerations The ultimate control of the company is that of the equity
shareholders. Greater the number of equity shareholders, the greater will be the control
in the hands of more people. This is not a good situation. Therefore, from this point of
view the equity share capital should be avoided.

(iv) Floatation cost From the point of view of floating costs, higher the floatation cost,
less attractive the source becomes.

33. What is meant by financial structure or capital structure of an organisation?

Explain any two advantages and two limitations of it. (Delhi 2009)

Ans. Meaning of capital or financial structures Capital structure refers to the mix
between owners’ fund (equity) and borrowed funds (debt).
Advantages of capital structure are: (Any two)
(i) Return The capital structure should give maximum return to the shareholder.
(ii) Risk The use of debt adds to the risk of the company and shareholder. Therefore, it
should be used cautiously with equity.
(iii) Flexibility If a firm uses its debt potential to the full, it loses flexibility to issue further
debt. To maintain some borrowing power to take care of unforeseen circumstances.
Disadvantages of capital structure are: (Any two)

(i) Debt and equity differ in cost and risk. As the debt involve less cost, but it is very
risky whereas, equity are expensive securities, but these are safe securities from the
company’s prospects.

(ii) Debt is risky because payment of regular interest on debt is a legal obligation of the
business. In case, they fail to pay debt security holders can claim over the assets of the
company and if firm fails to meet return of principal amount, it can even go to liquidation
[Link] at the stage of insolvency.

(iii) Equity securities are safe securities from company’s point of view as company has
no legal obligation to pay dividend to equity shareholders if it is running in loss.
 Fixed Capital & Working Capital

1 Mark Questions

1. How does inflation affect the working capital requirements of a company?

State. (Delhi 2014)

Ans. With rising prices, larger amounts are required even to maintain a constant volume
of production and sales. The working capital requirement of a business thus, become
higher with higher rate of inflation.

2. State how growth prospects affect the working capital requirement of a

company? (Delhi 2013)

Ans. If the growth potential of a concern is perceived to be higher, it will require large
amount of working capital, so that it will be able to meet higher production and sales
target whenever required.

3. Name any two essential ingredients of sound working capital management.(All

India 2010)

Ans. (i) Inventory management (ii) Receivable management

4. Define fixed capital. (All India 2010; Delhi 2010, 2009, 2008)

Ans. The amount of capital investment in fixed assets is called fixed capital, e.g. plant
and machinery, land and building, etc.

5. What is working capital? (Delhi 2010, 2009, 2008; All India 2008)

Ans. Working capital is that part of total capital which is required for holding current
assets. It may also be defined as an excess of current assets over current liabilities.

6. Identify the decision taken in financial management which affects the liquidity
as well as the profitability of business. (Hots; All India 2008)

Ans. Short-term investment decision or working capital decision affects the liquidity as
well as the profitability of the business.

7. State why does the working capital needs for a service industry different from
that of a manufacturing industry? (Hots; All India 2008)

Ans. Service industries require no inventory and manufacturing overheads, hence,

require less working capital.
4/5 Mark Questions

8. Explain any four factors which affect the working capital requirements of
a company. (All India 2013)

Ans. Working capital is that part of total capital which is required for holding current
assets. It may also be defined as an excess of current assets over current liabilities.
The four main factors affecting working capital requirements are as follows

(i) Production cycle It is the time span between the receipt of raw materials and their
conversion into finished goods. Length of production cycle affects the working capital
requirement. If the duration of production cycle is longer, the working capital
requirements to meet day-to-day expenses would be higher and vice-versa.

(ii) Business cycle At times of boom period in the market, e.g. Diwali, Guru Parv, etc.
The production as well as sales are likely to be higher. Whereas, the working capital
requirement would be lower in times of depression in the market. •

(iii) Nature of business A trading business needs less amount of working capital
because there is no processing of goods. On the other hand, the working capital
requirement would be more in case of manufacturing business where raw materials are
converted into finished goods.

(iv) Scale of operations A large scale organisation requires large amount of working
capital as compared to a small scale organisation because the quantum of inventory,
debtors and cash required is generally high.

9. Explain any four factors which affect the ‘fixed capital’ requirements of a
company. (All India 2013)

Ans. The amount of capital investment in fixed assets is called fixed capital, e.g. plant
and machinery, land and building, etc.

(i) Nature of business While deciding the fixed capital requirement of a business
enterprise, its nature should be considered, e.g. trading concern needs lower
investment in fixed assets as compared with a manufacturing organisation; since it does
not require to purchase plant and machinery, etc.

(ii) Scale of operations A large organisation operating at a higher scale needs higher
investment in fixed assets as compared to the small organisation.

(iii) Choice of technique A capital intensive organisation requires higher investment in

plant and machinery. So, requirement of fixed capital would be higher. On the other
hand, labour intensive organisation requires less investment in fixed assets.

(iv) Technology upgradation These days upgradation with the latest technologies is
essential and there is a need to replace the old technology with new. Thus, in this case,
higher investment is required and vice-versa.

10. Neelabh is engaged in transport business and transports fruits and

vegetables to different states. Stating the reason in support of your answer,
identify the working capital requirements of Neelabh. Neelabh also wants to
expand and diversify his transport business, explain any two factors that will
affect his fixed capital requirements. (Hots; Delhi 2012)
or
Pranav is engaged in transport business. Identify the working capital
requirements of Pranav stating the reason in support of your answer. Pranav
wants to expand and diversify his transport business. Explain any two factors
that will affect his fixed capital requirements. (All India 2012)

Ans. In the transportation business, lesser amount of working capital is required as

Neelabh and Pranav are engaged in service industry. A firm engaged in service industry
needs less working capital.

(i) Lower investment is required to carry out the day-to-day operations.

(ii) Lower investment require to maintain inventory, if any.

(iii) Cash transactions.

Factors affecting the fixed capital requirement are:

(i) Growth prospects Businessman wants to expand his business, in such a situation,
company requires higher investment to meet the anticipated demand in future. Thus the
requirement of fixed capital will be higher.

(ii) Diversification’ If the businessman diversify his business, this mean larger amount
of fixed capital is required.

6 Mark Questions

11. Explain the following as factors affecting the requirements of working

capital (All India 2014; Foreign 2014)
(i)Nature of business (ii) Scale of operations
(iii) Seasonal factors (iv) Production cycle

Ans. Factors affecting working capital requirements are:

(i) Nature of business A trading business needs less amount of working capital
because there is no processing of goods. On the other hand, the working capital
requirement would be more in case of manufacturing business where raw materials are
converted into finished goods.
(ii) Scale of operation A large scale organisation requires large amount of working
capital as compared to small scale organisation because the quantum of inventory,
debtors and cash required is generally high.

(iii) Seasonal factors Business operations are affected by the seasonal changes. As
during peak season higher are the level of activities and higher the requirements of
working capital, on the other hand, during lean season requirements of working capital
will be lower.

(iv) Production cycle It cycle is the time span between the receipt of raw materials and
their conversion into finished goods. Length of production cycle affects the working
capital requirement. If the duration of production cycle is longer, the working capital
requirements to meet day to day expenses would be higher and vice-versa.

12. Explain the following as factors affecting the requirements of working

capital (Delhi 2014)
(i) Business cycle (ii) Operating efficiency
(iii) Availability of raw material (iv) Level of competition

Ans. Working capital is the capital invested in current assets which facilitates day-to-
day operations of
the business. The amount of working capital required depends on various factors;
Factors affecting working capital requirement are:

(i) Business cycle Different phases of business cycles affect the requirement of
working capital by a firm. In case of a boom, the sales as well as production are likely to
be larger and, therefore, larger amount of working capital is required. As against this,
the requirement for working capital will be lower during the period of depression as the
sales as well as production will be small.

(ii)Operating efficiency Firms manage their operations with varied degrees of

efficiency. For example, a firm managing its raw materials efficiently may be able to
manage with a smaller balance. This is reflected in a higher inventory turnover ratio.
Similarly, a better debtors turnover ratio may be achieved reducing the amount tied up
in receivables. Better sales effort may reduce the average time for which finished goods
inventory is held. Such efficiencies may reduce the level of raw materials, finished
goods and debtors resulting in lower requirement of working capital.

(iii) Availability of raw material It raw material required in freely available, lower stock
levels may be sufficient and vice-versa lead time, i.e. time lag between placing the order
and actual receipt of material is also a major determinant.
A larger lead time will require larger amount of raw material to be stored, thus larger
amount of working capital is required.

(iv) Level of competition Higher level of competitiveness may necessitate larger stocks
of finished goods to meet urgent orders from customers. This increases the working
capital requirement.

[Link] how the following factors affect the working capital requirements
of Business
(i) Inflation
(ii) Business cycle
(iii) Level of competition
(iv) Nauture of business

Ans. Factors affecting working capital requirement are:

(i) Inflation Inflation leads to increase in prices of raw materials, thus more working
capital is required.

(ii) Business cycle Different phases of business cycles affect the requirement of
working capital by a firm. In case of a boom, the sales as well as production are likely to
be larger and, therefore, larger amount of working capital is required. As against this,
the requirement for working capital will be lower during the period of depression as the
sales as well as production will be small.

(iii) Level of competition Higher level of competitiveness may necessitate larger stocks
of finished goods to meet urgent orders from customers. This increases the working
capital requirement.

(iv) Nature of business A trading business needs less amount of working capital
because there is no processing of goods. On the other hand, the working capital
requirement would be more in case of manufacturing business where raw materials are
converted into finished goods.

14. Explain the following as factors affecting the requirements of fixed capital.
(i) Scale of operations
(ii) Choice of technique
(iii) Technology upgradation
(iv) Financing alternatives
or
Explain any four factors affecting fixed capital requirement of a
company.(Compartment 2014)

Ans. The capital invested in fixed assets like land and buildings, plant and machinery,
furnitures and fixtures etc, is known as fixed capital. How much is to be invested in fixed
capital. How much is to be invested in fixed assets is determined by many factors.
Factors affecting fixed capital requirement are:

(i) Scale of operations A larger organisation operating at a higher scale needs higher
investment in fixed assets as compared with the small organisation.
(ii) Choice of technique Some organisations are capital intensive whereas others are
labour intensive. A capital intensive organisation requires higher investment in plant and
machinery as it relies less on manual labour. The requirement of fixed capital for such
organisations would be higher. Labour intensive organisations on the other hand require
less investment in fixed assets.

(iii)Technology upgradation In certain industries, assets become obsolete sooner.

Consequently, their replacements become due faster. Higher investment in fixed assets
may, therefore, be required in such cases, e.g. computers become obsolete faster and
are replaced much sooner than say, furniture. Thus, such organisations which use
assets are prone to obsolescence require higher fixed capital to purchase such assets.

(iv) Financing alternatives Availability of leasing facilities reduce the fund requirement
to be invested in fixed capital as the firm has to only pay lease rentals against outright
purchase of the asset.

15. Explain the following as factors affecting the requirements of fixed capital
(i) Nature of business
(ii) Growth prospects
(iii) Diversification
(iv) Level of collaboration (Delhi 2014)

Ans. (i) Nature of business The type of business has a bearing upon the fixed capital
requirements, e.g. a trading concern needs lower investment in fixed assets compared
with a manufacturing organisation, since it does not require to purchase plant and
machinery, etc.

(ii) Growth prospects Higher growth of an organisation generally requires higher

investment in fixed assets. Even when such growth is expected, a company may
choose to create higher capacity in order to meet the anticipated higher demand
quicker. This entails larger investment in fixed assets and consequently larger fixed
capital.

(iii)Diversification If a firm diversify its operations, its fixed capital requirements

increases.

(iv) Level of collaboration Usually organisations show each other’s facilities as it is

feasible and reduces the level of investment in fixed assets, e.g. PNB bank may use
ATM of Andhra Bank.
16. You are the financial manager of a newly established company. The directors
have asked you to determine the amount of working capital requirement for the
company. Explain any four factors that you will consider while determining the
working capital requirement of the company.
(HOTS; Delhi 2011,2009,2008,2008 C; All India 2009)
or
Explain any four factors which determine the working capital requirement of an
organisation. (Delhi 2011)

Ans. Factors determining the working capital requirement

(i) Nature of business A trading business needs less amount of working capital
because there is no processing of goods. On the other hand, the working capital
requirement would be more in case of manufacturing business where raw materials are
converted into finished goods.

(ii) Scale of operation A large scale organisation requires large amount of working
capital as compared to small scale organisation because the quantum of inventory,
debtors and cash required is generally high.

(iii) Seasonal factors Business operations are affected by the seasonal changes. As
during peak season higher are the level of activities and higher the requirements of
working capital, on the other hand, during lean season requirements of working capital
will be lower.

(iv) Production cycle It cycle is the time span between the receipt of raw materials and
their conversion into finished goods. Length of production cycle affects the working
capital requirement. If the duration of production cycle is longer, the working capital
requirements to meet day to day expenses would be higher and vice-versa.

Working capital is the capital invested in current assets which facilitates day-to-day
operations of
the business. The amount of working capital required depends on various factors;
Factors affecting working capital requirement are:

(i) Business cycle Different phases of business cycles affect the requirement of
working capital by a firm. In case of a boom, the sales as well as production are likely to
be larger and, therefore, larger amount of working capital is required. As against this,
the requirement for working capital will be lower during the period of depression as the
sales as well as production will be small.

(ii) Operating efficiency Firms manage their operations with varied degrees of
efficiency. For example, a firm managing its raw materials efficiently may be able to
manage with a smaller balance. This is reflected in a higher inventory turnover ratio.
Similarly, a better debtors turnover ratio may be achieved reducing the amount tied up
in receivables. Better sales effort may reduce the average time for which finished goods
inventory is held. Such efficiencies may reduce the level of raw materials, finished
goods and debtors resulting in lower requirement of working capital.

(iii) Availability of raw material It raw material required in freely available, lower stock
levels may be sufficient and vice-versa lead time, i.e. time lag between placing the order
and actual receipt of material is also a major determinant.
A larger lead time will require larger amount of raw material to be stored, thus larger
amount of working capital is required.

(iv) Level of competition Higher level of competitiveness may necessitate larger stocks
of finished goods to meet urgent orders from customers. This increases the working
capital requirement.

(i) Inflation Inflation leads to increase in prices of raw materials, thus more working
capital is required.

(ii)Business cycle Different phases of business cycles affect the requirement of

working capital by a firm. In case of a boom, the sales as well as production are likely to
be larger and, therefore, larger amount of working capital is required. As against this,
the requirement for working capital will be lower during the period of depression as the
sales as well as production will be small.

(iii)Level of competition Higher level of competitiveness may necessitate larger stocks

of finished goods to meet urgent orders from customers. This increases the working
capital requirement.

(iv) Nature of business A trading business needs less amount of working capital
because there is no processing of goods. On the other hand, the working capital
requirement would be more in case of manufacturing business where raw materials are
converted into finished goods.

17. You are a finance manager of a newly established company. The directors
have asked you to determine the amount of fixed capital requirement for the
company. Explain any four factors that you will consider while determining the
fixed capital requirement of the company. (hots; All India 2011,2010; Delhi 2011 c,
2009,2008)

Ans. Factors determining the fixed capital requirement (Any four)

The capital invested in fixed assets like land and buildings, plant and machinery,
furnitures and fixtures etc, is known as fixed capital. How much is to be invested in fixed
capital. How much is to be invested in fixed assets is determined by many factors.
Factors affecting fixed capital requirement are:
(i) Scale of operations A larger organisation operating at a higher scale needs higher
investment in fixed assets as compared with the small organisation.
(ii)Choice of technique Some organisations are capital intensive whereas others are
labour intensive. A capital intensive organisation requires higher investment in plant and
machinery as it relies less on manual labour. The requirement of fixed capital for such
organisations would be higher. Labour intensive organisations on the other hand require
less investment in fixed assets.

(iii)Technology upgradation In certain industries, assets become obsolete sooner.

Consequently, their replacements become due faster. Higher investment in fixed assets
may, therefore, be required in such cases, e.g. computers become obsolete faster and
are replaced much sooner than say, furniture. Thus, such organisations which use
assets are prone to obsolescence require higher fixed capital to purchase such assets.

(iv) Financing alternatives Availability of leasing facilities reduce the fund requirement
to be invested in fixed capital as the firm has to only pay lease rentals against outright
purchase of the asset.

(i) Nature of business The type of business has a bearing upon the fixed capital
requirements, e.g. a trading concern needs lower investment in fixed assets compared
with a manufacturing organisation, since it does not require to purchase plant and
machinery, etc.
(ii) Growth prospects Higher growth of an organisation generally requires higher
investment in fixed assets. Even when such growth is expected, a company may
choose to create higher capacity in order to meet the anticipated higher demand
quicker. This entails larger investment in fixed assets and consequently larger fixed
capital.
(iii) Diversification If a firm diversify its operations, its fixed capital requirements
increases.
(iv) Level of collaboration Usually organisations show each other’s facilities as it is
feasible and reduces the level of investment in fixed assets, e.g. PNB bank may use
ATM of Andhra Bank.
 Financial Markets

Previous Years' CBSE Board Questions

10.1 Financial Markets: Concept
LA (5 marks)
1. What is meant by 'Financial Market'? State any four functions of financial
market. (Term-II, 2021-22)
10.2 Money Market: Concept
SA I (3 marks)
2. Currently, the banking sector in the Indian economy is facing lots of problems.
The rates of interest that banks are paying on deposits have sharply decreased; as
a result, banks are able to collect lesser amounts of deposits. Due to the policies
of the Reserve Bank of India, lending rates have also decreased. The automobile
industry is also facing a lot of problems and thus they have also reduced the
prices of cars. This has encouraged people to take car loans from banks as the
interest rates on loans, along with prices of cars in the automobile sector are
declining. Due to this position of tight liquidity, 'The Oberoi Bank Ltd.' decided to
raise funds by issuing an unsecured, short-term instrument which could be
purchased by corporations, companies and individuals.
(a) Identify and explain the money market instrument used by 'The Oberoi Bank
Ltd.' to raise funds.
(b) Also explain the money market instrument used by the banks to maintain
Cash Reserve Ratio. (2020 C)
LA (5 marks)
3. Explain 'Treasury Bill' and 'Call Money' as instruments of 'Money Market'
(Term-II, 2021-22 C)
10.3 Capital Market and Its Types (Primary and Secondary)
MCQ
4. Adapting to a change in consumer preference towards online shopping, 'Fast-
Service' started a grocery delivery app. It is a platform that ensures 10-minute
deliveries of groceries. Because of this service, 'Fast-Service' earned huge profit
within a year. It planned to expand its operations and decided to raise funds by
directly issuing its securities to investors.
The market through which 'Fast-Service' has decided to raise funds for its
expansion is
(a) Money market
(b) Primary market
(c) Secondary market
(d) Both Primary and Secondary markets (2023)
5. Capital Market instruments are riskier both with respect to returns and
principal repayment as compared to Money Market instruments. This highlights
the following point of difference between 'Capital Market' and Money Market':
(a) Instruments
(b) Duration
(c) Safety
(d) Liquidity. (2023)
Read the following paragraph and answer question nos. 6-9 on the basis of the
same:
Mayank Ltd. is a real estate company. Since its establishment, the company
acquired a good market share. With the boom in the Indian economy, the real
estate sector is also witnessing a boom due to lower interest rates on housing
loans and accompanying income-tax concessions. For meeting this increasing
demand, the finance manager of the company suggested to raise ₹ 1,250 crore by
issuing shares and ₹ 750 crore by way of loan from the bank. He was of the
opinion that this will increase per share earnings of the shareholders. The
directors of the company wanted to raise capital more quickly and suggested that
it would be better to allot the securities to some selected individuals. They also
suggested that instead of taking loan from the bank the privilege can be given to
existing shareholders to subscribe to a new issue of shares for ₹ 750 crore.
(2021 C)
6. The method of raising ₹ 1,250 crore suggested by the finance manager is:
(a) Offer for sale
(b) Offer through prospectus
(c) Private placement
(d) e-IPOs.
7. 'The directors of the company wanted to raise capital more quickly and
suggested that it would be better to allot the securities to some selected
individuals. In the above lines the method of floatation of new issues suggested
by the directors is:
(a) Offer for sale
(b) Offer through prospectus
(c) Private placement
(d) e-IPOs.
8. 'They also suggested that instead of taking loan from the bank the privilege can
be given to existing shareholders to subscribe to a new issue of shares for ₹ 750
crore'. The method of floatation of new issues discussed in the above lines is:
(a) Offer for sale
(b) Offer through prospectus
(c) Private placement
(d) Rights issue.
9. The market through which the financial manager and the directors wanted to
collect funds is:
(a) Money Market
(b) Capital Market
(c) Both (a) and (b)
(d) Neither (a) nor (b).
VSA (2 marks)
10. 'Gujarat Textiles Ltd.' needs to raise a fund of ₹ 80 crore. It cannot afford the
cost of public issue, so it was decided to allot its equity shares to institutional
investors like LIC and some selected investors. Identify and explain the method of
floating new issues used by Gujarat Textiles Ltd. (Term-II, 2021-22)
SA I (3 marks)
11. Explain 'Offer for Sale' and 'Rights Issue' as methods of floatation of new
issues in the primary market. (Term-11, 2021-22 C)
12. 'Financial markets are classified on the basis of the maturity of financial
instruments traded in them. Name the market in which the instruments with
more than one year maturity are traded. Also state any two features of this
market. (Delhi 2019)
LA (5 marks)
13. Differentiate between 'Capital market' and 'Money market' on the following
basis:
(i) Participants; (ii) Instruments; (iii) Investment outlay;
(iv) Duration and (v) Liquidity. (Delhi 2014, Delhi 2014 C)
OR
Differentiate between 'capital market' and 'money market' on the basis of:
(i) Safety; (ii) Expected return; (iii) Meaning:
(iv) Instruments and (v) Duration (Delhi 2014)
ET (6 marks)
14. Distinguish between Primary market and secondary market. (AI 2015 C)
10.4 Stock Exchange : Functions and Trading Procedure
SA I (3 marks)
15. (i) Name the process of holding securities in an electronic form.
(ii) Name any two participants of Money Market.
(iii) Name the depositories that hold securities in electronic form. (2023)
16. The stock Exchange performs many vital functions in today's commercial
world? Explain any three such functions. (AI 2015)
SA II (4 marks)
17. Stock exchange acts as a regulator of the securities market. It creates a
continuous market where the securities are bought and sold. It gives investors
the chance to disinvest and reinvest. Through this process of disinvestment and
reinvestment, savings get channelised into their most productive investment
avenues. To ensure that the investing public gets a safe and fair deal in the
market, the membership of the stock exchange is well regulated and its dealings
are well defined according to the existing legal framework. It also ensures wider
share of ownership by regulating new issues, better trading practices and taking
effective steps in educating the public about investments. Various functions
performed by the Stock Exchange are discussed in the above para. By quoting
lines from above para, state any four functions of stock exchange. (AI 2019 C)
OR
State any four functions of 'Stock Exchange'. (Delhi 2016, Al 2016)
10.5 Securities and Exchange Board of India (SEBI) - Objectives and Functions
VSA (2 marks)
18. 'Training of intermediaries of the securities market' is a development function
performed by Securities and Exchange Board of India.
State two other development function. (Term-II, 2021-22 C)
SA I (3 marks)
19. State any three protective functions of Securities and Exchange Board of India.
(2023)
20. State any three objectives of Securities and Exchange Board of India.
(2021 C)
21. Mr. Sanjay Nehra was the Chairman of 'Taran Bank. The bank was earning
good profits. Shareholders were happy as the bank was paying regular dividends.
The market price of their share was also steadily rising. The bank was about to
announce taking over of 'Vena Bank. Mr. Sanjay Nehra knew that the share price
of 'Taran Bank' would rise on this announcement. Being a part of the bank, he
was not allowed to buy shares of the bank. He called one of his rich friends Sudhir
and asked him to invest ₹ 5 crores in shares of his bank promising him the capital
gains.
As expected, the share prices went up by 40% and the market price of Sudhir's
shares was now ₹ 7 crores. He earned a profit of 2 crores. He gave ₹ 1 crore to Mr.
Sanjay Nehra and kept ₹ 1 crore with himself. On regular inspection and by
conducting enquiries of the brokers involved, Securities and Exchange Board of
India (SEBI) was able to detect this irregularity. The SEBI imposed a heavy
penalty on Mr. Sanjay Nehra. By quoting the lines from the above para identify
and state any two functions that were performed by SEBI in the above case.
(Delhi 2016, AI 2016)
SA II (4 marks)
22. Keeping in mind the emerging nature of the securities market in India,
Securities and Exchange Board of India was entrusted with the twin task of both
regulation and development of the securities market.
State any two regulatory and two development functions of it.
(2023)
 CBSE Sample Questions
10.2 Money Market and Its Instruments
SA I (3 marks)
1. State any three money market instruments. (2020-21)
10.3 Capital Market and Its Types (Primary and Secondary)
MCQ
2. Match the various terms of Financial Markets Column-l with their respective
Statements in Column-II.

(a) A-(ii), B-(iii), C-(i) (b) A-(i), B-(iii), C-(ii)

(c) A-(iii), B-(ii), C-(i) (d) A-(i), B-(ii), C-(iii)
(2022-23)
Read the following text and answer questions 3-6 on the basis of the same:
ISQAA SOLAR limited is searching options to raise ₹ 20,000 crore from the
primary market for diversification and modernisation of existing projects. It
hired the services of a renowned financial consultancy firm, DHAN LAXMI PVT.
LTD. for suggesting options for the same DHAN LAXMI PVT. LTD. suggested a list
of options to the Board Directors of the company. It was decided that for the
immediate requirement of ₹ 1500 crore the company will give a privilege to
existing shareholders to subscribe to a new issue of shares according to the terms
and conditions of the company. ₹ 4500 crore would be raised by allotment of
securities to a consortium of financial institutions, instead of inviting
subscription from the public by making a direct appeal to investors to raise
capital. It was further decided to raise capital to the tune of ₹ 6000 crore through
an issuing house. All these options were accepted by the Board of Directors. The
Board further decided to raise ₹ 8000 crore through the online system of the
stock exchange by entering into an agreement with the exchange.
(2020-21)
3. Identify the method of floatation of new issues in the primary market, not
taken up by ISQAA SOLAR LTD.
(a) Offer for sale (b) Rights issue
(c) E-IPO (d) Offer through prospectus
4. " ₹ 4500 crore would be raised by allotment of securities to a consortium of
financial institutions, instead of inviting subscription from the public by making a
direct appeal to investors to raise capital." Identify the method of floatation of
new issues in the primary market being discussed above, which the company has
decided to use.
(a) Offer for sale (b) Private placement
(c) Right Issue (d) Offer through Prospectus
5. Identify the reason which has made the firm raise funds from the institutional
investors.
(a) It helps to raise funds quickly (b) It is not expensive
(c) Both a & b (d) None of the above.
6. How much money was raised by the company through E-IPO's
(a) ₹ 8000 crore (b) ₹ 4500 crore
(c) ₹ 20,000 crore (d) ₹ 6000 crore
VSA (2 marks)
7. 'MYKAA Limited 'is dealing in all types of cosmetic products. It is enjoying
increased demand for its product during the last few years. For the purpose of
expansion, the company needs 100 crore as additional capital. The company
decides to raise funds through equity shares. Chirag Kapoor, the finance manager
of the company recommended that the shares may be sold through issuing
houses or brokers. Identify and explain the method recommended by Mr. Kapoor
through which the company can raise additional funds for expansion purposes.
(Term-II, 2021-22)
10.4 Stock Exchange - Functions and Trading Procedure
MCQ
8. _______________ is a number assigned to each transaction by the stock exchange
and is printed on the contract note.
(a) Client code number (b) Unique order code
(c) Permanent account number (d) Depository participant
number (2022-23)
9. Arrange the steps involved in trading procedure at the stock exchange in
correct sequence:
(i) Settlement of order
(ii) Opening of Demat Account
(iii) Placing of order
(iv) Execution of order
(a) (ii) → (iv) → (iii) → (i) (b) (ii) → (i) → (iii) → (ii)
(c) (iii) → (ii) → (ii) → (i) (d) (ii) → (iii) → (iv) → (i)
(2022-23)
SA I (3 marks)
10. State any three functions performed by the stock exchange.
(2022-23)
10.5 Securities and Exchange Board of India (SEBI) - Objectives and Functions
MCQ
11. Which of the following statement is incorrect?
(a) Providing liquidity to securities is one of the functions of stock exchange.
(b) Process of holding shares in electronic form is known as Dematerialisation.
(c) Securities Exchange Board of India performs the regulatory function of
controlling insider trading and imposing penalties for such practices.
(d) Capital market consists of Commercial banks, Development banks and stock
exchanges (2022-23)
SA I (3 marks)
12. State any three objectives of the Securities Exchange Board of India.
(2022-23)
13. State the development functions of the Securities and Exchange Board of
India. (2020-21)
LA (5 marks)
14. State any five regulatory functions of the Securities and Exchange Board of
India. (Term-II, 2021-22)
 ANSWERS
Previous Years' CBSE Board Questions

1.

2. (a) The money market instrument used by 'The Oberoi Bank Ltd.' to raise funds
is Certificate of Deposit.
(i) It is an unsecured, negotiable, short-term instruments in bearer form, issued
by commercial banks and development financial institutions.
(ii) It can be issued to individuals, corporations and companies during periods of
tight liquidity.
(b) The money market instrument used by the banks to maintain Cash Reserve
Ratio is Call Money by which banks borrow from each other for a period of one
day to fifteen days.
3. (i) Treasury bills:
(a) A treasury bill is an instrument of short-term borrowing by the Government
of India, maturing in less than one year.
(b) They are issued by the Reserve Bank of India on behalf of the Central
Government to meet its short term requirement of funds.
(c) They are issued in the form of promissory notes and are highly liquid and
have negligible risk of default.
(d) They are issued at a price which is lower than their face value and repaid at
par and are also known as Zero Coupon Bonds.
(e) They are available for a minimum amount of ₹ 25,000/- and in multiples
thereof.
(ii) Call Money:
(a) Call money is a method by which banks borrow from each other to be able to
maintain the cash reserve ratio.
(b) Call money is short term finance repayable on demand, with a maturity
period of one day to fifteen days, used for inter-bank transactions.
(c) The interest rate paid on call money loans known as the call rate is a highly
volatile rate that varies from one day to another day and sometimes even from
one hour to another hour.
4. (b): Primary Market
5. (c): Safety
6. (b): Offer through prospectus
7. (c): Private placement
8. (d): Rights issue
9. (b): Capital Market
10.
11. Methods of floatation of new issues in the primary market:
(i) Offer for Sale: Under this method, securities are not issued directly to the
public but are offered for sale through intermediaries like issuing houses or
stockbrokers.
As the intermediaries offer the new securities to the general public, the company
is saved from the complexities and formalities of issuing the securities directly to
the public.
(ii) Rights issue: In this method, the existing shareholders are offered the 'right'
to subscribe to a new issue of shares according to the terms and conditions of the
company. The shareholders are offered new shares in proportion to the number
of shares they already possess.
12. In a Capital Market, the instruments with more than one year maturity are
traded. A capital market refers to the market that deals in the trading of medium
and long-term securities.
The instruments traded in the capital market comprises equity and preference
shares, debentures, bonds, etc.
The features of the capital market are as follows:
(i) The capital market acts as a platform that links the savers and investors. It
directs the savings of the households to their most productive use. In this way, it
adds to the growth prospects of an economy.
(ii) It works strictly according to the guidelines and policies issued by the
government.
13. Differences between 'Capital Market' and 'Money Market':
14. Differences between primary market and secondary market:

15. (i) Dematerialisation

(ii) RBI, Commercial Banks, Mutual Funds etc.
(iii) NSDL and CDSL
16. Functions of stock exchange:
(a) Providing liquidity and marketability to existing securities: Stock exchange is
a market where securities are bought and sold. This provides liquidity and
marketability to already issued securities. It gives investors chance to disinvest
and reinvest.
(b) Pricing of securities: A stock exchanges are a mechanism where prices of
securities are determined by the forces of demand and supply. It provides a
mechanism of constant valuation.
(c) Safety of transactions: The membership of a stock exchange is well-regulated.
Dealings take place according to the existing legal framework. This ensures safe
and fair deals for both buyer and seller of securities.
17. The functions performed by the Stock Exchange are as follows:
(i) Provide liquidity and marketability - 'Stock exchange creates a continuous
market where the securities are brought and sold. It provides a ready platform
for the trading of existing securities.
(ii) Spreading Equity Cult 'Stock exchange takes effective steps in educating the
public about investments' It encourages wider ownership of securities.
(iii) Facilitates growth and development of the economy - 'It provides a platform
for channelising the savings to the most productive use. It gives investors the
chance to disinvest and reinvest. Through this process of disinvestment and
reinvestment, savings get channelised into their most productive investment
avenues.
(iv) Ensures safety in transactions 'it ensures that investing people gets a safe
and a fair deal in the market, the membership of the stock exchange is well
regulated and its dealings are well defined according to the existing legal
framework.
18. Development functions of Securities and Exchange Board of India are:
(i) Conducting research and publishing information useful to all market
participants.
(ii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
19. Protective Functions
(i) Prohibition of fraudulent and unfair trade practices like making misleading
statements, manipulations, price rigging etc.
(ii) Controlling insider trading and imposing penalties for such practices.
(iii) Undertaking steps for investor protection.
(iv) Promotion of fair practices and code of conduct in securities market.
20. Objectives of SEBI: The overall objective of SEBI is to protect the interests of
investors and to promote the development of, and regulate the securities market.
Its other objectives are:
(i) To regulate stock exchanges and the securities industry to promote their
orderly functioning.
(ii) To protect the rights and interests of investors, particularly individual
investors and to guide and educate them.
(iii) To prevent trading malpractices and achieve a balance between self
regulation by the securities industry and its statutory regulation.
(iv) To regulate and develop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers, etc., with a view to make them
competitive and professional.
21. Functions that are performed by the SEBI are:
(a) Regulatory Functions: "On regular inspection and by conducting enquires of
the brokers involved, SEBI was able to detect the irregularities. Under regulatory
functions, SEBI calls for information by undertaking inspections conducting
audits of stock exchange and intermediaries.
(b) Protective functions: "The SEBI imposed a heavy penalty on Mr. Sanjay Nehra"
which will act as a deterrent to others. Under protective functions, SEBI prohibits
fraudulent and unfair trade practices in the securities market e.g., price rigging,
making misleading statements in prospectus, manipulation of price etc. It
promotes fair practices and code of conduct in securities market.
22. Regulatory Functions
(i) Registration of brokers and sub brokers and other players in the market.
(ii) Registration of collective investment schemes and Mutual Funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant
bankers and the business in stock exchanges and any other securities market.
Development Functions
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market
participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
 CBSE Sample Questions

1. Money market instruments are:

(i) Treasury Bill: It is basically an instrument of short-term borrowing by the
Government of India maturing in less than one year.
(ii) Commercial paper: It is a short-term unsecured promissory note, negotiable
and transferable by endorsement and delivery with a fixed maturity period.
(iii) Call money: It is short term finance repayable on demand, with a maturity
period of one day to fifteen days used for inter bank transactions.
2. (a): A - (ii), B - (iii), C - (i)
3. (d): Offer through prospectus
4. (b): Private placements
5. (c) Both (a) and (b)
6. (a): ₹ 8000 crore
7. Offer for Sale: Under this method, securities are not issued directly to the
public but are offered for sale through intermediaries like issuing houses or stock
brokers. In this case, a company sells securities embolic at an agreed price to
brokers who, in turn, resell them to the investing public.
8. (b): Unique order code
9. (d): (ii), (iii), (iv), (i)
10. Following are the functions of stock exchange:
(i) Providing liquidity and marketability to existing securities.
(ii) Pricing of securities on the stock exchange is determined by the forces of
demand and supply.
(iii) Safety of transaction is ensured as membership of a stock exchange is well
regulated and its dealings are well defined.
(iv) Contributes to economic growth through the process of disinvestment and
reinvestment.
(v) Spreading of equity cult by ensuring wider ownership by way of regulating
new issues.
(vi) Providing scope for speculation by ensuring speculative provisions of law for
it to take place in a restricted and controlled manner.
11. (c): Securities Exchange Board of India performs the regulatory function of
controlling insider trading and imposing penalties for such practices.
12. Following are the objectives of SEBI:
(a) To regulate stock exchanges and the securities industry to promote their
orderly functioning.
(b) To protect the rights and interests of investors, particularly individual
investors and to guide and educate them.
(c) To prevent trading malpractices and achieve a balance between self
regulation by the securities industry and its statutory regulation.
(d) To regulate and develop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers etc., with a view to making them
competitive and professional.
13. Development Functions of Securities and Exchange Board of India:
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market
participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
14. Regulatory functions of Securities and Exchange Board of India:
(i) Registration of brokers and sub-brokers and other players in the market.
(ii) Registration of collective investment schemes and Mutual Funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant
bankers and the business in stock exchanges and any other securities market.
(iv) Regulation of takeover bids by companies.
(v) Calling for information by under-taking inspections, conducting enquiries and
audits of stock exchanges and intermediaries.
 Meaning, Functions & Classification of Financial Market

1 Mark Questions

1. State any one consequence of a well performed allocative function of

financial market.(Delhi 2013)

Ans. Providing liquidity to financial assets.

2. Name the two major alternative mechanisms through which allocation of funds
can be done. (All India 2013)

Ans. (i) Banks

(ii) Financial markets

3. Give the meaning of secondary market. (Delhi 2013)

Ans. Secondary market refers to market for sale and purchase of previously issued
securities. It is also known as stock exchange.

4. Give the meaning of money-market. (Delhi 2013)

Ans. Money-market refers to market for short-term funds, which deals in monetary
assets whose period of maturity is upto one year.

5. State the essential function of primary market. (All India 2013)

Ans. The important function of a primary market is to facilitate the transfer of investible
funds from savers to entrepreneurs, seeking to establish new enterprises.

6. What is meant by capital market? (Delhi 2011c)

Ans. Capital market refers to whole network of organisations, institutions through which
medium and long-term funds, both debt and equity are raised and invested.

7. What is meant by ‘primary market’? (All India 2011)

Ans. Primary market is the market where securities are being issued for the first time.
Therefore, it is also known as ‘New Issue Market’ (NIM).

3 Marks Questions
8. Give the meaning of the following money market instruments
(i) Certificate of deposit; and
(ii) Commercial bill (Compartment 2014; Foreign 2014)

Ans. (i) Certificate of deposit These are short-term, unsecured, negotiable

instruments in bearer form. They are issued by commercial banks or development
financial institution to individuals, corporations and companies. These are issued
generally in times of tight liquidity when the deposit growth of banks is slow but the
demand for credit is high, to mobilise large amounts of money for short periods.

(ii) Commercial bill A commercial bill is a bill of exchange used to finance the working
capital requirements of business firms. It is a short-term negotiable, self-liquidating
instrument, whijch is used to finance the credit sale of the firms. When goods are sold
on credit, seller draws the bill of exchange on the buyer. On being accepted by the
buyer, it becomes a trade bill, which is a marketable instrument. On being discounted
from the bank, the trade bill becomes the commercial bill.

[Link] the meaning of the following money market instruments

(i)Treasury bill; and
(ii)Call money (Compartment 2014; Foreign 2014)

Ans. (i) Treasury bill Also known as zero coupon bond, an T-Bill is issued by RBI on
behalf of Central Government to meet its short-term requirement of funds It is issued in
form of promissory note.
They are highly liquid and have negligible risk. They are issued at discount and
redeemed at par, e.g. 91 days, treasury bill of face value of? 1,00,000 is purchased at ?
96,000 and at the maturity investor gets? 1,00,000, ? 4000 being the interest received
by him.

(ii) Call money Call money is a short-term finance repayable on demand, with a
maturity of 1 to 15 days. It is used for inter bank transactions. Banks have to maintain a
minimum cash balance known as Cash Reserve Ratio. RBI changes this ratio from time
to time. Call money is a method by which banks borrow from each other to be able to
maintain Cash Reserve Ratio. The interest paid on call money loans is called call rate,
which is very volatile and changes even from hour to hour.

10. Financial market plays an important role in the allocation of scarce resources
in an economy by performing various functions. Explain any three functions of
financial market. (Delhi 2014)

Ans. Financial market plays an important role in the allocation of scarce resources in an
economy by performing these important factions:

(i) Mobilisation of savings and channeling them into the most productive uses A
financial market facilitates the transfer of savings from savers to investors. Thus, it will
help in channelising surplus funds into the most productive uses.
(ii)Facilitating price discovery Interaction between supplier and investor helps to
establish a price for the financial asset which is being traded in that market.

(iii) Providing liquidity to financial assets Financial market facilitates easy purchase
and sales of financial assets. In doing so, they provide liquidity which means these
assets are converted into cash whenever required.

11. What is meant by primary market? Explain any two methods of floating new
issues in the primary market. (All India 2009)

Ans. Primary market is the market where securities are being issued for the first time.
Therefore, it is also known as ‘New Issue Market’ (NIM).

Methods of floatation are as follows:

(i) Offer through prospectus Under this method, company issues a prospectus to
inform and attract general public. In prospectus, company provides details about the
purpose for which funds are being raised, past financial performance of the company,
background and future prospects of company.

(ii) e-IPOs It is the new method of issuing securities through online system of stock
exchange. In this, company has to appoint registered brokers for the purpose of
accepting applications and placing orders. The issuer company has to apply for listing of
its securities and the leading manager coordinates all the activities of these issues
through various intermediaries.

12. Nature of money market can be well explained with the help of its features.
State any three such features of money market. (All India 2008; Delhi 2008)

Ans. The features of the money market are: (Any three)

(i) Instruments Money market raises funds by wide variety of short-term securities such
as call money, treasury bills, trade bills, commercial paper, certificate of deposit, etc.
(ii) Duration Money market provides funds for a period of less than one year.
(iii) Participant The participants in the money market are large institutional investors
such as Reserve Bank of India (RBI), commercial banks, financial institutions, non-
banking finance companies, state government, large corporate houses, etc.
(iv)Investment outlay Investment in money market entails huge sum of money as the
instruments are quite expensive.
(v)Liquidity Money market instruments enjoy a high degree of liquidity as there is a
formal arrangement for it. The Discount Finance House of India (DFHI) has been
established for the specific objective of providing a ready market for money market
instruments.
(vi)Expected return The expected rate of return of the money market is generally low
as money is invested for a short duration.
13. Nature of a capital market can be well explained with the help of its features.
State any three such features of a capital market. (All India 2008)

Ans. The features of a capital market are: (Any three)

(i) Link between savings and investment opportunities Capital market is a crucial
link between saving and investment process. The capital market transfers money from
savers to entrepreneurial borrowers.
(ii) Long-term funds Capital market is concerned with medium-term and long-term
funds. Funds raised through capital market are used for long-term financial needs such
as procurring plant, machinery, land, etc.
(iii) Participants Both individual investors and institutional investors participate in
capital market.
(iv) Instruments The main instruments of a capital market are equity shares,
preference shares, bonds and debentures.

4/5 Marks Questions

14. Differentiate between capital market and money market on the basis of the
following

(i) Meaning (ii) Liquidity

(iii) Safety (iv) Expected return

(v) Duration (Delhi 2014, Foreign 2014)

or

Differentiate between capital market and money market on the basis of the
following

(i)Participants (ii) Instruments

(iii)Duration (iv) Investment outlay

(v) Liquidity (All India 2014 C)

Ans. Differences between capital market and money market are:

15. What is meant by capital market ? Name the two types of capital market and
differentiate between the two on any four basis (Compartment 2014)
or
Difference between ‘Primary Market’ and ‘Secondary Market’ on any five
basis. (Ail India 2014)

Ans. Capital market refers to facilities and institutional arrangements through which
long-term fund, both debt and equity are raised and invested. The capital market
consists of development banks, commercial banks and stock exchanges.
The two types of capital market are
(i) Primary market or new issue market (NIM)
(ii) Secondary market or stock exchange

16. Financial market plays an important role in the allocation of scarce resources
in an economy by performing many important functions. Explain any four such
functions. (Foreign 2014; All India 2011)
or
Explain any three functions of financial market. (All India 2013)
or
Explain any four functions of financial market. (Delhi 2012)
or
What is meant by financial market? Explain any two functions of financial market.
(All India 2011)
or
Describe any four functions of financial market.(All India 2011)

Ans. Meaning of financial market It is a link between the savers and the borrowers.
This market transfers money or capital from those who have surplus money to those
who are in need of money.
The functions of financial market are:
(i) Facilitating price discovery In the financial market, households are suppliers of
funds and business firms represent the demand. The interaction between them helps to
establish a price for the financial asset which is being traded in that particular market.
(ii)Provides liquidity to financial assets The investors can invest their money,
wherever they desire, in securities through the medium of financial market and convert
them into cash by selling their financial assets through the mechanism of financial
market.
(iii)Reduce the cost of transactions Financial market provides complete information
regarding price, availability and cost of various financial securities. So, investors and
companies do not have to spend much on getting this information.
(iv) Mobilisation of savings and channelising them into most productive uses A
financial market facilitates the transfer of savings from savers to investors. It gives
savers a wide choice of making investments and thus, channelise surplus funds into
productive uses.

17. Explain any four methods of floating new issues in the primary market. (Ail
India 2012)
or
Explain any four methods of flotation of new issues in the primary market.(Delhi
2011 C)

Ans. There are various methods of floating new issues in the primary market: (Any four)
(i) Offer through prospectus Under this method, company issues a prospectus to
inform and attract general public. In prospectus, company provides details about the
purpose for which funds are being raised, past financial performance of the company,
background and future prospects of company.
(ii)Offer for sale Under this method, securities are not issued directly to the public but
are offered for sale through intermediaries like issuing houses on stock brokers at a
fixed price.
(iii)Private placement Under this method, company sells the securities to some
selected institutional investors (like UTI, LIC, etc) and some individuals.
(iv) e-IPOs It is the new method of issuing securities through on line system of stock
exchange. In this, company has to appoint registered brokers for the purpose of
accepting applications and placing orders.
(v)Right issue This is a right (or privilege) to existing shareholders to subscribe to a
new issue of shares in proportion to the number of shares held by them.

18. What is meant by money market? Explain any two instruments used in
money market. (Delhi 2011)
or
Explain any two instruments used in money market. (All India 2008)

Ans. Money market is a market for short-term funds which deals in monetary assets
whose period of maturity is up to one year.
The two instruments used in money market are:

(i) Treasury bills (T-bills) It is an instrument of short-term borrowing by the RBI on

behalf of government of India, maturing in less than one year. They are also known as
zero coupon bonds. They are issued in the form of promissory note. They are highly
liquid and provide assured yield. There is no risk of default. They are issued at a
discount and repayable at par. They are available for a minimum amount of ? 25,000
and in multiples thereof.

(ii) Commercial paper (CP) A commercial paper is an unsecured instrument issued in

the form of a ‘ promissory note. They are negotiable and transferable by endorsement
and delivery. It is issued by large and credit worthy companies for reusing short-term
funds at lower rates of interest than market rates, It usually has a maturity period of 15
days to one year. It is sold at a discount and ‘ redeemed at par.
6 Marks Question

19. Explain the following money market instruments (Delhi 2013)

(i)Call money (ii) Treasury bill
(iii) Commercial paper (iv) Certificate of deposit

Ans. Money market refers to market for short-term funds, which deals in monetary
assets whose period of maturity is upto one year.
(i) Call money It is a method by which commercial banks borrow from each other. It is
short-term finance repayable on demand, with a maturity period of one day to fifteen
days, used for inter-bank transactions.
(ii) Treasury bill (T-bill) It is an instrument of short-term borrowing by the RBI on behalf
of government of India, maturing in less than one year. They are also known as zero
coupon bonds. They are issued in the form of promissory note. They are highly liquid
and provide assured yield. There is no risk of default. They are issued at a discount and
repayable at par. They are available for a minimum amount of? 25,000 and in multiples
thereof.
(iii) Commercial Paper (CP) A commercial paper is an unsecured instrument issued in
the form of a promissory note. They are negotiable and transferable by endorsement
and delivery. It is issued by large and credit worthy companies for reusing short-term
funds at lower rates of interest than market rates. It usually has a maturity period of 15
days to one year. It is sold at a discount and redeemed at par.
(iv) Certificate of Deposit (CD) They are unsecured, negotiable, short-term
instruments in bearer form, issued by commercial banks. Only bank can issue CD. It is
a bearer certificate and is negotiable in the market.
 Stock Exchange, Functions & Trading
Procedure on a Stock Exchange

1 Mark Question

1. State any one function of stock exchange. (Delhi 2012)

Ans. It provides liquidity and marketability to existing securities.

3 Marks Question

2.’Stock exchange not only contributes to the economic growth, but also
performs
many other functions’. Explain any three such functions. (AllIndia2014)

Ans. A stock exchange provides a platform for disinvestment and reinvestment of

savings into most productive avenues stock. Thus leads to economic growth.
However, stock exchange performs following functions:
(i) Provides liquidity and marketability of existing securities Stock exchange
provides a ready and continuous market where securities are bought and sold. It gives
investors the chance to disinvest or reinvest. Thus, regular dealing provides both
liquidity and marketability to existing securities.
(ii) Pricing of securities The stock exchange helps in determining the prices of various
securities that reflect their real worth. It enables correct pricing of securities through the
interplay of demand and supply. ‘
(iii) Safety of transaction The stock exchange is well regulated and its dealings are
well defined according to the existing legal framework. This ensures that the investing
public gets a safe and fair deal in the market.

4/5 Marks Questions

3. Explain the trading procedure on a stock exchange (Compartment 2014)

Ans. The procedure for purchase of and sale of securities in a stock exchange involves
the following steps:

(i) Selection of a broker The first step is to select a broker, who will buy/sell securities
on behalf of the investor/speculator. Brokers may be individuals, partnership firms or
corporate bodies. Selection of broker is compulsory as trading can only be done by
SEBI registered brokers, who are members of a stock exchange.

(ii) Opening of a demat account with depository Dematerialised (Demat) account

refers to an account which an individual must open with the depository participant
(banks, stock brokers) to trade in the listed securities in electronic form.
Depository is an institution/organisation which holds securities in electronic form, in
which trading is to be done. At present there are two depositories in India
(a)NSDL (National,Securities Depository Ltd.) and
(b)CDSL (Central Depository Services Ltd.)

Depository Participant (DP) maintain your securities account balance and intimates the
account statues from time to time.
(iii) Placing the order The next step is to place the order with the broker, which can be
done through telephone, cell phone, e-mail, etc.
Instruction regarding which securities and how many securities are to be bought or sold
should be clearly given to the broker.
(iv) Executing the order According to the instructions, the broker executes the order
and buys or sells the required securities. The broker than issues a contract note. A copy
of contract note specifies the name and the price of securities, names of parties,
brokerage charges, etc., which is signed by the broker.
(vi) Settlement This is the last stage in the trading of securities done by brokers on
behalf of their clients. The mode of settlement depends upon the nature of contract.
Equity spot markets follow a T + 2 rolling settlement. This means a trade taking place on
Monday gets settled by Wednesday. Trading times on stock exchange are between
9:55 am and 3:30 pm 1ST, from Monday to Friday. Each exchange has its own clearing
house, which assumes all settlement risk.

4. Explain any four functions of stock exchange. (Delhi 2013)

or
Explain any four functions of stock exchange. (All India 2011)
or
List the functions of stock exchange and explain any two. (All India 2008)
or
Explain any four functions of stock exchange. (Delhi 2008; All India 2008)

Ans. Main functions of stock exchange are as follows:

(i) Pricing of securities The stock market helps to value the securities on the basis of
demand and supply factors. Higher the demand for such securities, higher is their value.
The valuation of securities is useful for investors, government and creditors.
(ii) Contributes to economic growth In stock exchange, securities of various
companies are bought and sold. This process of disinvestment and reinvestment helps
to invest in most productive investment proposal and this leads to capital formation and
economic growth.
(iii) Spreading of equity cult Stock exchange encourages people to invest in
ownership securities by regulating new issues, better trading practices and by educating
people about investment.
(iv) Liquidity The main function of stock market is to provide ready market for sale and
purchase of securities which assures the investors that their investment can be
converted into cash whenever they want. The investors can invest in long-term
investment projects, as because of stock exchange they can convert it into short-term
and medium-term.
 SEBI: Reasons for Setting up, Objectives & Functions

1 Mark Questions

1. State any one regulatory function of Securities and Exchange Board of India
(SEBI). (Delhi 2012)

Ans. SEBI prohibits insider trading and take-over bids by imposing penalties.

2. State any one protective function of Securities and Exchange Board of India
(SEBI). (Delhi 2012; All India 2012)

Ans. SEBI prohibits fraudulent and unfair trade practices like misleading statements,
manipulations, price rigging, etc.

3. State any one development function of SEBI. (All India 2012)

Ans. SEBI conducts research and publish information which is useful to all market
participants.

3 Marks Questions

4. State any three development functions of Securities and Exchange Board of

India (SEBI). (All India 2013)

Ans. The three development functions of SEBI are:

(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible
approach.

5. State any three protective functions of Securities and Exchange Board of India
(SEBI). (All India 2013 C)

Ans. The three Protective Functions of SEBI are:

(i) Controlling insider trading and imposing penalties for such practices.
(ii) Undertaking steps for investor protection.
(iii) Promotion of fair practices and code of conduct in securities market.

6. Explain any three objectives of Securities and Exchange Board of India (SEBI).
(Delhi 2011)
or
‘To promote orderly and healthy growth of securities market and protection of
investors, SEBI was set up’. With reference to this statement, explain the
objectives Of SEBI. (All India 2011; Delhi 2011)

Ans. The basic objective of SEBI is to protect the interests of investors and to promote
the development of stock exchange and regulate the securities market.
Following are the objectives of SEBI:

(i) To regulate stock exchange and securities markets to promote their orderly
functioning.

(ii) To protect the rights of investors and ensuring safety to their investment.

(iii) To prevent fraudulent and malpractices by balancing between self-regulation of

business and its statutory regulations.

(iv) To regulate and develop a code of conduct and fair practices by intermediaries like
brokers, merchant bankers, etc. So, that they become competitive and professional.

NOTE SEBI came into effect due to several irregularities and malpractices. To eliminate
these problems, SEBI was set up with certain objectives of protecting the investors and
development of securities market.

4/5 Marks Question

7. Explain the regulatory and development functions of SEBI.(Delhi 2008 c)

Ans. Regulatory functions of SEBI are as follows: (Any two)

(i) To regulate business in stock exchanges.
(ii) To register and regulate the working of intermediaries.
(iii) To register and regulate the working of mutual funds.
(iv)To conduct inquiries and audit of stock exchange.
(v)Regulation of taken-over bids by companies.

Developmental Functions of SEBI

The three development functions of SEBI are:
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
 Marketing

1. The marketing management philosophy which uses availability and

affordability as a means to achieve the objectives is : (2024)
(A) Marketing concept
(B) Selling concept
(C) Product concept
(D) Production concept
Ans. (D) Production concept
2. Identify the tool of promotion used by ‘Mehta Sons Garments’ to boost its sales:
(2024)
(A) Advertising
(B) Personal selling
(C) Sales promotion
(D) Public relations
Ans. (C) Sales promotion
3. Which of the following is not a component of ‘Physical Distribution’ ? (2024)
(A) Inventory control
(B) Standardisation and grading
(C) Order processing
(D) Transportation
Ans. (B) Standardisation and grading
4. Beenu had a bookstore in Sabad called ‘Book-mark’. For years, the bookstore
was doing reasonably well but with the rise of digital books and online retailers,
her sales had declined. Beenu’s daughter, who had just completed her MBA with a
specialisation in marketing decided to launch a marketing campaign to revive the
bookstore. The campaign’s focus was on the joy of reading books in physical
form, the joy of turning pages and the warm atmosphere of the bookstore. She
organised story writing and other competitions every weekend. The information
of these was given to the parents and children through television, radio,
children’s magazines, etc. Attractive prizes were offered to the winners. This
increased the footfall of the children and their parents and the bookstore soon
became popular.
The tool of communication used by Beenu’s daughter to revive the bookstore
was: (2024)
(A) Advertising
(B) Personal selling
(C) Sales promotion
(D) Public relations
Ans. (D) Public relations
5. Explain the following techniques of Scientific Management : (2024)
(i) Time study
(ii) Differential piece wage system
(iii) Motion study
Ans. (i) Time study:
• It is a technique of scientific management which determines the standard time
taken to perform a well defined job.
• It is used to determine the number of workers to be employed; frame suitable
incentive schemes and determine labour costs.
(ii) Differential piece wage system:
• Differential Piece Wage System is a technique which differentiates between
efficient and less efficient workers. It rewards the efficient workers and motivates
the less efficient ones to improve their efficiency.
• In this plan, there are two piece rates – one for those workers who produce the
standard output or more, and the other for those who produce less than the
standard output.
(iii) Motion study:
• Motion study refers to the study of movements which are undertaken while
doing a typical job.
• It seeks to eliminate unnecessary movements so that it takes less time to
complete the job efficiently.
6. Explain the following features of principles of management : (2024)
(i) General guidelines
(ii) Mainly behavioural
(iii) Formed by practice and experimentation
Ans. (i) General guidelines:
• The principles of management are guidelines to action but do not provide
readymade straitjacket solutions to all managerial problems.
• It is so because real business situations are very complex and dynamic and are a
result of many factors.
(ii) Mainly behavioural:
• Management principles aim at influencing behaviour of human beings.
• They enable a better understanding of the relationship between human and
material resources in accomplishing organisational purposes.
(iii) Formed by practice and experimentation:
• The principles of management are formed by experience and collective wisdom
of managers.
• The principles are formed by experimentation.
7. Atul Sharma was the Chief Executive Officer of a footwear company, ‘Stepone
Footwear’. The company manufactured innovative and comfortable footwear for
all age groups. Atul Sharma was known for meticulous planning. He ensured that
the goals and objectives of the company are clearly stated so that they act as a
guide for deciding what action should be taken and in which direction. Before
each season, ‘Stepone Footwear’ carefully analysed market trends, customer
preferences and production schedules. This analysis enabled the company to look
ahead and anticipate changes and develop managerial responses, wherever
necessary. As a result, they were able to consistently deliver innovative and
comfortable shoes to the market.
During one season, there was a sudden surge in demand for eco-friendly shoes.
‘Stepone Footwear’ had already planned their production for the year with
specific goals to be achieved within a specific time frame. The managers of
‘Stepone Footwear’ did not have the flexibility to change the plan to cope with the
changed circumstances. Another shoe company ‘Eco Step’ quickly adapted and
started manufacturing comfortable eco-friendly shoes. By not being able to adjust
to the rapidly changing market, ‘Stepone Footwear’ faced inventory surplus while
‘Eco Step’ emerged as a market leader in sustainable eco-friendly footwear.
Quoting lines from the above paragraph, identify and explain two benefits and
two limitations of ‘Planning’ function of management discussed in the above case.
(2024)
Ans. Benefits of planning:
(i) Planning provides directions:
Planning provides direction for action by stating in advance how work is to be
done.
“He ensured that the goals and objectives of the company are clearly stated so
that they act as a guide for deciding what action should be taken and in which
direction.”
(ii) Planning reduces the risks of uncertainty:
By deciding in advance, the tasks to be performed, planning shows the way to
deal with changes and uncertain events.
“This analysis enabled the company to look ahead and anticipate changes and
develop managerial responses, wherever necessary”
Limitations of planning:
(i) Planning leads to rigidity:
In an organisation, a well defined plan is drawn up with specific goals to be
achieved within a specific time frame, these plans then decide the future course
of action and managers may not be in a position to change it.
“The managers of 'Stepone Footwear' did not have the flexibility to change the
plan to cope with the changed circumstances.”
(ii) Planning may not work in a dynamic environment:
The organisation has to constantly adapt itself to changes taking place in the
dynamic environment. However, planning cannot foresee everything and thus,
there may be obstacles to effective planning.
“By not being able to adjust to the rapidly changing market, 'Stepone Footwear’
faced inventory surplus while 'Eco Step' emerged as a market leader in
sustainable eco-friendly footwear.”
8. Give the meaning of ‘Training’. Explain the following methods of training :
(i) Apprenticeship Training, (ii) Internship Training (2024)
Ans. Training:
Training is any process by which the aptitudes, skills and abilities of employees to
perform specific jobs are increased.
OR
It is a process of learning new skills and application of knowledge in order to
improve the performance of employees on the current job or prepare them for
any intended job.
(i) Apprenticeship Training:
• Under this method of training, the trainee is put under the guidance of a master
worker, in order to acquire a higher level of skill.
• It is useful for people to become, for example, plumbers, electricians, etc.
(ii) Internship Training:
• It is a joint programme of training, in which educational institutions and
business firms cooperate.
• Selected candidates work in some factory or office to acquire practical
knowledge and skill, along with their regular studies.
9. Explain any four points of importance of ‘Directing’ function of management.
(2024)
Ans. Importance of directing:
(i) Initiates action:
Directing helps to initiate action among people in an organisation towards
attainment of desired objectives.
(ii) Integrates employees’ efforts:
Directing integrates employees’ efforts in the organisation in such a way that
every individual effort contributes to the organizational performance. Thus, it
ensures that the individuals work for organisation’s goals.
(iii) Guides employees to fully realise their potential:
Directing guides employees to fully realise their potential and capabilities by
motivating and providing effective leadership.
(iv) Facilitates introduction of needed changes:
A manager reduces resistance to change through motivation, communication and
leadership, and develop required cooperation in introducing changes in the
organisation.

(v) Brings stability and balance in the organisation:

It fosters cooperation and commitment among the people and helps to achieve
balance among various groups, activities and the departments.
 Previous Years' CBSE Board Questions
11.1 Marketing-Concept, Functions and Philosophies
MCQ
1. 'Roma Ltd:' identified the needs of the customers for the successful marketing
of their products. This was important for making an analysis of the available
opportunities, threats, weaknesses and strengths of the organisation and help in
deciding what opportunities can best be pursued by it. By doing so, which of the
following functions of marketing is being performed by 'Roma Ltd.?
(a) Standardisation and grading
(b) Product designing and development
(c) Marketing planning
(d) Gathering and analysing market information (2023)
2. Rajeev, a leading rice seller, always ensures that rice conforms to the
predetermined standards of quality, price and packaging which reduces the need
for inspection and testing. He also classified the rice into regular choice basmati,
mogra basmati, dabar basmati and super basmati according to the quality of rice
and has fixed the prices accordingly.
Which function of marketing is being discussed here?
(a) Gathering and analysing market information
(b) Product designing and development
(c) Market planning
(d) Standardisation and Grading (Term-1, 2021-22)
3. The marketing philosophy which advocates that business should not be short-
sighted to serve only consumer needs but should also consider the larger issues
of social problems like environmental pollution, deforestation, adulteration as
well, is known as:
(a) Product concept
(b) Marketing concept
(c) Production concept
(d) Societal marketing concept. (Term-1, 2021-22)
4. The marketing management philosophy which aims at earning profit by
making continuous product improvements is:
(a) Marketing concept
(b) Selling concept
(c) Production concept
(d) Product concept. (Term-1, 2021-22)
5. 'Marketing Planning' as a function of marketing means to develop a plan for:
(a) Identifying the needs of the customers
(b) Analysing the available opportunities and threats in the organisation
(c) Increasing the level of production, promotion of product etc., and specifying
the action programmes
(d) Developing repeat purchases by the customers. (2021 C)
VSA (1 mark)
6. What is meant by 'Marketing Management"? (Delhi 2019)
7. Why is the understanding of 'Marketing Management Philosophies' important?
(2018)
8. Name the market function which is concerned with informing the customers
about the firm's products. (Delhi 2016)
9. Beauty Product Ltd.' is a natural and ethical beauty brand famous for offering
organic beauty products for men and women. The company uses plant-based
materials for its products and is the No. 1 beauty brand in the country. It not only
satisfies its customers but also believes in overall protection of the planet
Identify the marketing management philosophy being followed by 'Beauty
Products'. Ltd. (Delhi 2015)
SA I (3 marks)
10. JTM Ltd. launched 'Buddyline, an exercise book and comprehensive stationery
brand name comprising of ball pens, gel pens and geometry boxes after
identifying the target market and understanding the needs and wants of the
consumers of that market. All their products were of good quality and eco-
friendly but expensive. They wanted to distinguish their products from that of
their competitors. They spent lot of efforts, time and money in creating the brand
name, as they knew that without a brand name, they can only create awareness
for the generic products and can never be sure of the sale of their products. The
effort paid off and the demand for the products started growing. The customers
liked the brand and became habitual to it. They did not mind paying a higher
price. Over a period of time, it became a status symbol to buy 'Buddyline' brand
because of its quality. The consumers felt pride in using them.
(i) Identify the marketing management philosophy followed by JTM Ltd.
(ii) Explain the advantages of branding to the marketers highlighted in the above
case. (Delhi 2019)
11. Ginika, Tanish and Rohit were friends from college days and now they are
doing different kinds of business. They regularly meet and discuss their business
ideas and exchange notes on customer satisfaction, marketing efforts, product
designing, selling techniques, social concerns etc.
In one of such meetings, Ginika drew the attention of Tanish and Rohit towards
the exploitation of consumers. She said that most of the sellers were exploiting
the consumers in various ways and were not paying attention towards the social,
ethical and ecological aspects of marketing, whereas she was not doing so.
Tanish said that they were under pressure to satisfy the consumers, but stated
that the consumers would not buy or not buy enough unless they were
adequately convinced and motivated for the same.
Rohit stressed that a company cannot achieve its objectives without
understanding the needs of the customers. It was the duty of the businessmen to
keep consumer satisfaction in mind because business is run by the resources
made available to them by the society. He further stated that he himself was
taking into consideration the needs of the customers.
Identify the various types of thinking that guided Ginika, Tanish and Rohit in the
marketing efforts of their business. Also, state one more feature of the various
types of thinking identified that is not given in the above para. (Delhi 2017)
12. Identify and explain the marketing management philosophy which implies
that products and services are bought not merely because of their quality or
brand name, but because they satisfy a specific need of a customer.
(Delhi 2014C)
LA (5 marks)
13. After acquiring the necessary knowledge and skills on starting an Aloevera
Farm, Ashok wanted to be the leading manufacturer of Aloevera products
worldwide. He observed that the products were expensive as the demand of the
products was more than the supply. He was also keen to promote methods and
practices that were economically viable, environmentally sound and at the same
time protecting public health.
Ashok's main consideration was about the amount of money paid by the
consumers in consideration of the purchase of Aloevera products. He also
thought that competitor’s prices and their anticipated reactions must also be
considered for this. After gathering and analysing information and doing correct
marketing planning, he came to know that the consumers compare the value of a
product to the value of money which they are required to pay. The consumers will
be ready to buy a product when they perceived that the value of the product is at
least equal to the value of money which they would pay.
Since he was entering into a new market, he felt that he may not be able to cover
all costs. He knew that in the long run the business will not be able to survive
unless all costs are covered in addition to a minimum profit. He examined the
quality and features of the products of the competitors and the anticipated
reactions of the consumers. Considering the same, he decided to add some
unique features to the packaging and also decided to provide free home delivery
of the products. The above case relates to a concept which is considered to be an
effective competitive marketing weapon. In conditions of perfect competition,
most of the firms compete with each other on this concept in the marketing of
goods and services.
(a) Identify the concept.
(b) Explain briefly any four factors discussed in the above case related to the
concept so identified. (Al 2018)
ET (6 marks)
14. Radhika was a student of Business studies of Class XII. Her father was a
farmer who grew different varieties of rice and was well-versed about various
aspects of rice cultivation. He was also selected by the government for a pilot-
project on rice cultivation of good quality rice at a reasonable price. Her father
suggested her to use internet to gather customers views and opinions. She found
that there was a huge demand for packaged organic rice. She knew that there
were no pre-determined specifications in case of rice because of which it would
be difficult to achieve uniformity in the output. To differentiate the product from
its competitors, she gave it the name of 'Malabari Organic Rice' and classified it
into three different varieties namely Popular, Classic and Supreme, based on the
quality. She felt that these names would help her in product differentiation.
Explain the three functions of marketing, with reference to the above paragraph.
(AI 2015)
15. Explain the following functions of marketing:
(i) Gathering and analysing market information
(ii) Market Planning;
(iii) Product designing and development;
(iv) Customer Support Services. (Delhi 2014)
16. Explain the following functions of Marketing:
(i) Product designing and development
(ii) Standardisation and Grading
(iii) Customer support Services
(iv) Pricing of products (AI 2014)
11.2 Marketing Mix-Concept and Elements
MCQ
17. ___________ as an element of marketing mix includes the activities that make the
firm's products available to the target customers.
(a) Promotion (b) Place
(c) Product (d) Price (2023)
18. Statement-I: The concept of product relates to not only the physical product
but also the benefits offered by it from customer's point of view.
Statement-II: The concept of product does not include the extended product by
way of after sale services, availability of spare parts, handling complaints etc.
Choose the correct option from the following:
(a) Both statement-I and statement-ll are correct.
(b) Both statement-I and statement-II are incorrect.
(c) Statement-l is correct and statement-II is incorrect.
(d) Statement-l is incorrect and statement-II is correct. (2023)
19. "Price fixation process is affected by distribution system, quality of salesmen
employed, quality and amount of advertising, type of packaging, credit facility
provided, etc.,"
The factor affecting price determination is:
(a) Utility and Demand
(b) Extent of competition in the market
(c) Pricing objectives
(d) Marketing methods used. (Term I, 2021-22)
20. When COVID vaccination started, the Central Government capped the prices
of the vaccines for private hospitals with Health Ministry notifying that
appropriate action would be taken for over -charging. State Governments were
told to ensure that prices charged by various private hospitals do not exceed the
ceiling. The factor affecting price determination discussed above is:
(a) Product cost
(b) Utility and demand
(c) Government and legal regulations
(d) Extent of competition in the market. (Term-1, 2021-22)
21. Which of the following statements is not a part of the process of marketing
management?
(a) Choosing a target market
(b) Getting, keeping as well as growing customers
(c) Achieving the objectives through creating, developing and communicating
superior customer values of management
(d) Becoming essentially a member of marketing association
(Term-1, 2021-22)
22. The element of marketing mix which communicates availability of the
product, its features, merits, etc. to the target customers and persuades them to
buy the product is called
(a) Product
(b) Price
(c) Place
(d) Promotion. (Term-1, 2021-22)
VSA (1 mark)
23. Give the meaning of 'Physical Distribution' as an element of Marketing Mix.
(Delhi 2019)
24. 'Maruti Vega Ltd. entered into the market with coloured television and have
now introduced products like audio systems, air-conditioners washing machines,
etc. The company is not only offering the products but also handling complaints
and offering after-sales services. Identify the element of marketing mix discussed
here. (AI 2015)
25. A consumer product manufacturing company is offering a numbers of
consumer products like toiletries, detergent powder, food products etc. Identify
the element of marketing mix referred here. (AI 2015 C)
ET (6 marks)
26. 'Hayaram' is a famous chain selling a large variety of products in the Indian
market. Their products include chips, biscuits, sweets and squashes. It charges a
comparatively higher price than its competitors as it sells quality products.
Besides, it offers regular discounts to its customers and easy credit terms to its
retailers. It has five of its own retail shops. It also sells its products through
various grocery stores so that the products are made available to customers at
the right place, in the right quantity and at the right time. It regularly uses
different communication tools to increases its sales.
The above para describes the combination of variables used by Hayaram to
prepare its market offering. Identify and explain the variables.
(Delhi 2015)
OR
Explain the four important elements of marketing mix.
(Delhi 2014 C)
11.3 Product - Branding, Labelling and Packaging - Concept
MCQ
27.

The symbol which appears on all the 'Elegant' cars and which is not utterable is
known as its
(a) Brand (b) Brand name
(c) Brand mark (d) Trade mark. (2023)
28. A name, term, sign, symbol, design or some combination of them used to
identify the products goods or services of one seller or group of sellers and to
differentiate them from those of the competitors is known as
(a) brand
(b) brand mark
(c) brand name
(d) trade mark. (2023)
29. Packaged food items in India must have a colour code. As per Food Safety and
Standards Authority of India (FSSAI) a green dot on its label indicates vegetarian
food, whereas a red dot indicates non-vegetarian food.
Which function of labelling is discussed above?
(a) Describes the product and specifies its contents
(b) Identification of the product or brand
(c) Helps in promotion of the product
(d) Providing information required by law (Term-1, 2021-22)
30. Matchsticks come in matchboxes which are thrown by the consumer after the
matchsticks are utilised. Matchbox represents which level of packaging?
(a) Primary package
(b) Secondary packaging
(c) Transportation packaging
(d) Speciality packaging (Term-1, 2021-22)
31. 'Kent' started off as a RO water purifier company. Over the years, it diversified
its product portfolio and now offers a wide range of healthcare products like air
purifier, vegetable cleaners, water softeners and a range of modern kitchen
appliances all under the same brand name.
Which characteristic of brand name is reflected in the above para?
(a) Suggestive
(b) Versatile
(c) Staying power
(d) Capable of legal protection (Term-1, 2021-22)
32. In Column I of the following table the important components of product are
given and in Column II their respective meanings are given:

Which of the following matches is correct?

(2021 C)
33. The process of classification of products into different groups on the basis of
their important characteristics refers to which of the following marketing
functions?
(a) Grading (b) Standardisation
(c) Product designing (d) Marketing planning (2020 C)
VSA (1 mark)
34. 'Buy one get one free' is printed on the label of the package of a mosquito
repellent.
State the labelling function being performed by this statement.
(AI 2018)
SA I (3 marks)
35. There are some characteristics that should be kept in mind while choosing a
brand name. Explain any two such characteristics that a good brand name should
have. (Delhi 2015)
36. There can be three different levels of packaging. Explain any two of them.
(AI 2015 C)
37. Crackers Ltd. a fire cracker manufacturing company launched some new
products on the eve of Diwali which attracted many buyers. To meet the
increased demand, the company employed children from nearby villages.
Although the product was in great demand, appropriate safety warnings for use
were not mentioned on the packets that led to many accidents.
(i) Identify and explain the important product related decision that was not taken
into consideration by the company.
(ii) Also, identify any two values which were violated by the company.
(Delhi 2014)
38. ABC Crackers Ltd., a fire cracker manufacturing company launched some new
products on eve of Diwali in the market, which attracted many buyers. To meet
the increased demand, the company employed people from nearby village where
there is a lot of unemployment. Because of the good behaviour of the
management with the employees, more and more people wanted to join the
company. As the products were in great demand in the market, a competitor
imitated the products. The products of the competitor were not accepted by the
consumer as it was a status symbol to buy the products of ABC Crackers Ltd.
Because of their quality.
(a) Identify and explain the product-related decision because of which
consumers preferred the products of ABC Crackers Ltd.
(b) Also identify any two values which ABC Crackers Ltd. want to communicate to
the society. (AI 2014)
SA II (4 marks)
39. Your company has setup a food processing unit in Kashmir with a production
capacity of 10,000 litres of apple juice per day. The company plans to market the
apple juice in tetra pack of 100ml. Design a label for the same. (Delhi 2015 C)
40. Your company has setup a coconut hair-oil factory in coastal Kerala, with a
production capacity of 10,000 bottles of 100 millilitre per day. The company
plans to market the hair-oil with the brand name 'Kale Kesh'. Design a label for
the hair oil bottles. (Al 2015 C)
LA (5 marks)
41. State any five characteristics of a good brand name. (Delhi 2014 C)
ET (6 marks)
42. Ashima purchased a bottle of tomato-sauce from the local grocery shop. The
information provided on the bottle was not clear. She fell sick on consuming it.
She filed a case in the district forum under Consumer Protection Act and got the
relief.
(a) Identify the important aspect neglected by the marketer in the above case.
(b) Explain briefly the function of the aspect identified in (a) above.
(Delhi 2016)
11.4 Price-Concept, Factors Determining Price
VSA (1 mark)
43. While the product ____________ sets the lower limit of the price, the utility
provided by the product sets the upper limit of price, which a buyer would be
prepared to pay.
(2020 C)
ET (6 marks)
44. There are number of factors which affect the fixation of the price of a product.
Explain any four such factors.
(NCERT, Delhi 2015 C)
11.5 Physical Distribution - Concept and Components and Channels of
Distribution
MCQ
45. 'A good physical distribution system should provide for an accurate and
speedy processing of orders in the absence of which goods will reach the
customers late or in wrong quantity'.
The component of physical distribution highlighted above is:
(a) Warehousing (b) Order Processing
(c) Transportation (d) Inventory Control.
(2023)
46. From the following, identify the channel of distribution in which goods pass
from the manufacturer to the retailers who, in turn, sell them to the final users.
(a) One level channel (b) Two level channel
(c) Three level channel (d) Zero level channel
(2023)
47. The element of marketing mix through which the goods and services are
made available at right place, at right time and to right people without change, is
known as:
(a) Promotion (b) Warehousing
(c) Transportation (d) Physical distribution
(Term-1, 2021-22)
Read the following paragraph and answer question nos. 48-51 on the basis of the
same:
Kshitij just completed his MBA from IIM Ahmedabad. He was not interested in
doing a job. So, he decided to start his own start-up. He along with his friend
Naitik decided to start a dairy business for providing fresh and pure milk to
people. For this, they gathered and analysed market information. They found that
people were interested in buying cow's pure milk. So, for meeting the demand for
pure cow milk, they purchased 50 cows. They installed a plant for pasteurisation
of the milk. Fresh milk was pasteurised and packed in glass bottles. On the
bottles, all information related to milk such as Date of Manufacturing, Nutrition
value, Quantity, MRP, etc. was given. They gave the name 'Fresh Delight' to the
milk which was also printed on the bottles. For distribution of milk, they hired
delivery boys who supply this milk door to door. They got the name 'Fresh
Delight' registered so that no other firm can use such name in the country.
(2021 C)
48. Which function of marketing was performed by Kshitij and Naitik before
purchasing the cows?
(a) Marketing Planning
(b) Packaging and Labelling
(c) Gathering and Analysing Market Information
(d) Branding
49. They gave the name 'Fresh Delight' to the milk: The process of giving this
name is known as:
(a) Branding (b) Brand Name
(c) Trade Mark (d) Packaging
50. 'On the bottles all information related to milk was given. This important
product related decision is:
(a) Packaging (b) Labelling
(c) Branding (d) Both (a) and (c)
51. 'For distribution of milk, they hired delivery boys who supply this milk door
to door. The element of marketing mix highlighted here is:
(a) Product (b) Price
(c) Place/Physical distribution (d) Both (A) and (B)
VSA (1 mark)
52. Name the function of marketing which is concerned with the cost and location
of target market.
(AI 2016)
SA I (3 marks)
53. Explain how the 'product related factors' affect the choice of channels of
distribution?
(Delhi 2015)
54. How do the 'Company-related factors' affect the choice of channels of
distribution? Explain.
(Al 2015)
SA II (4 marks)
55. Mudit Gupta set up 'Healthy Biscuits': a company manufacturing various
kinds of biscuits like oat biscuits, soya biscuits, ragi biscuits and whole wheat
biscuits. He knew that a customer would only pick up a small quantity of the
product, so he did not want to invest in starting his own retail outlets. He planned
to market the product at the 'In and out' stores at various petrol pumps in the city
though the other biscuit manufacturers were using other channels of
distribution.
(a) Give the meaning of 'Channels of Distribution'.
(b) Name the factors that affected the determination of choice of channels and
state
how they will affect the choice of channel of distribution in the above case.
(Delhi 2019)
ET (6 marks)
56. Mediquip Ltd. is a company dealing in distribution of medical equipments.
The company recently imported 15000 units of sugar testing machines to test the
sugar levels without taking blood samples. For deciding the marketing strategy,
the Chief Executive Officer of the company called a meeting of the marketing
heads of different zones.
In the meeting, Sandeep, the North Zone Marketing Head, suggested that since
the machines were sophisticated, they need to visit hospitals personally, to
explain its working to the hospital staff who would be using the machines. He
also suggested that additional trained people may be recruited for the same.
Himanshu, another Zonal Head, added that since lot of money had been spent on
the import of the machines, the company was short of funds to pay to the
additional staff as suggested by Sandeep.
Rahul, a newly appointed Zonal Head of South Zone suggested that since the size
of the order is not large, a detailed study of the factors determining the choice of
channels of distribution is required before making the right choice.
(a) Identify the factors influencing the choice of channels of distribution which
were discussed in the meeting.
(b) Also, explain briefly the other consideration to be taken care of in each factor
identified in part (a).
(Delhi 2017)
57. The choice of an appropriate channel of distribution depends upon a number
of factor. Explain any four such factors.
(NCERT, Delhi 2015, Delhi 2014C)
11.6 Promotion - Concept and Elements, Advertising, Personal Selling, Sales
Promotion and Public Relations
MCQ
58. ______________ involves a variety of programmes designed to promote or protect
a company's image and its individual products in the eyes of the public.
(a) Personal selling (b) Public relations
(c) Sales promotion (d) Advertising (2023)
59. Which of the following statements is incorrect about Personal Selling?
(a) It is a direct face to face dialogue that involves an interactive relationship
between the seller and buyer.
(b) It refers to short-term incentives designed to encourage the buyers to make
immediate purchase of a product or service.
(c) It allows a sales-person to develop personal relationship with the prospective
customers.
(d) In this it is possible to take a direct feedback from the customer and to adopt
the presentation according to the needs of the prospects.
(2023)
60. The most commonly used tool of promotion which is a paid form of
communication and in which the sponsor bears the cost of communicating with
the prospects is
(a) advertising (b) personal selling
(c) sales promotion (d) public relations.
(2023)
61. Which of the following product-related decisions helps in providing basis for
distinguishing the product of a firm with that of a competitor which in turn helps
in building customer's loyalty and in promoting its sales?
(a) Advertising (b) Pricing
(c) Branding (d) Promotion
(Term-1, 2021-22)
62. Hariom Jewellers introduced a series of short-term incentives like 40%
discount on diamond jewellery, 0% making charges and a contest to win a luxury
car to encourage the buyers to make immediate purchase of their products
during the festive season. Identify the promotional tool used by them:
(a) Advertising (b) Personal selling
(c) Sales Promotion (d) Publicity
(Term-1, 2021-22)
63. Maintenance services, after sales services and handling customer complaints
are very effective. In bringing repeat sales from customers and developing brand
loyalty for a product by maximising customer satisfaction. The function of
marketing discussed above is:
(a) Pricing of product (b) Warehousing
(c) Customer support services (d) Branding
(Term-1, 2021-22)
VSA (1 mark)
64. 'Nayan Medicare Equipment Ltd. manufactures equipment for surgeons
having a unique laser technique. The equipment can be used by the surgeons only
after proper training. Even their maintenance requires guidance of specialised
engineers. Because of this, the equipment is used in a limited number of
hospitals. The company wants to increase the sale of the equipment.
Suggest the promotion tool to be used by the company giving reason in support
of your answer.
(Term-1, 2021-22)
65. Beena has been using 'Klean, a famous detergent available in the market on
watching numerous advertisements in the television, she decided to try a new
brand of detergent. When she went to the nearby store to purchase the same, she
saw detergents of other producers making similar claims of whiteness and stain
removing abilities. Hence, she could not make up her mind as which detergent to
purchase.
Name the objection of advertising being discussed in this case.
(Term-1, 2021-22)
66. State, giving reason, whether the following statement is true or false:
"Advertising refers to short term incentives which are designed to encourage the
buyers to make immediate purchase of a product."
(2020 C)
67. Sunita took her niece, Aishwarya for shopping to 'Benetton' to buy her a dress
on the occasion of her birthday. She was delighted when on payment for the dress
she got a discount voucher to get 20% off for a meal of 500 or above at a famous
eating joint. Identify the technique of sales promotion used by the company in the
above situation. (Delhi 2017)
68. Name the marketing function which is concerned with informing the
customers about the firm's products.
(Delhi 2016)
69. ATV manufacturing company is spending substantial amount of money to
persuade the target customers to buy its T.V. sets through advertisements,
personal selling and sales promotion techniques.
Identify the element of marketing mix referred here.
(Delhi 2015 C)
SA I (3 marks)
70. 'Stay Fit, a probiotic drink was launched in the market by Dabal India Ltd. and
is available in various cities across the country. Doctors are recommending it as it
is very useful for the stomach. The company is also using various tools to inform
and persuade customers about its product.
It has recently started free distribution of its samples to encourage the customers
to know about its benefits to buy this probiotic drink in future. The company has
also appointed a large number of salespersons, who contact the prospective
buyers and communicate with them to make sales. This way, the company is able
to develop personal rapport with its customers.
In order to create awareness and to increase its popularity among school
children, it also organises workshops for students and teachers. It also arranged
visits of students and teachers to the factory to create awareness about the
standards of hygiene adopted in processing and packaging, etc. This helps the
company to build a positive image of its product in the society. This way the
company is using a combination of communication tools to inform and persuade
customers about their firm's product.
Identify and explain these tools.
(2020 C)
71. Sometimes advertising confuses the buyers. 'Do you agree with this'? Give
reasons in support of your answer. Also state the arguments of supporters of
advertisement regarding the above statement.
(Delhi 2015 C)
72. 'You don't close a sale, you open a relationship, if you want to build a long-
term successful enterprise. Identify the communication tool used by the
marketer. State any two features of this communication tool.
(AI 2014 C)
ET (6 marks)
73. 'X Ltd. is engaged in the manufacturing of cars. The company surveyed the
market and found that customers need a car which runs on eco-friendly fuel
instead of petrol or diesel. Keeping the needs of customers as well as social,
ethical and ecological aspects of marketing in mind, the company launched a new
model of car that runs on bio-diesel. The launch event was covered by the top
news channels and newspapers. This was done to disseminate information about
the car and build goodwill of the business. 'X Ltd.' understands that it is
imperative to manage public opinion and company's relations with the public on
a regular basis.
(a) Identify and explain the marketing philosophy involved in the above case.
(b) Identify and explain the communication tool that was used by the company.
(c) Explain any two other promotional tools that can be used by 'X Ltd.' to achieve
its objectives.
(2023)
74. A Company was marketing 'water purifiers' which were very popular due to
their quality and after sales services provided to the customers. The Company
was a leading company in the market and earning huge profits. Because of huge
profit, the company ignored the after sales services. As a result, its relations with
the customers got spoiled and the image of the company was damaged in the
public. Top management became concerned when the profits for the current
quarter fell steeply.
On analysis it was revealed that ignoring the after sales services was its reason.
Therefore, the company took all possible measures to protect and promote its
favourable image in the eyes of the public. As a result, the goodwill of the
company improved in the society.
(a) Name and state the communication tool used by the marketer in the above
case to improve its image.
(b) Also explain role of the tool as identified in part (a).
(Delhi 2016)
OR
Describe the role of public relations in sales promotion.
(Delhi 2015 C)
75. 'Though advertising is one of the most frequently used medium of promotion
of goods and services, yet it attracts lot of objections'. Explain any four such
objections. (Delhi 2014, Al 2014)
 CBSE Sample Questions
11.1 Marketing-Concept, Functions and Philosophies
MCQ
1. One of the following is considered to be an extension of the marketing concept,
which apart from customer satisfaction pays attention to ethical and ecological
aspects of marketing. Identify the concept.
(a) Selling concept (b) Product concept
(c) Production concept (d) Societal Marketing concept
(2022-23)
2. Which of the following statement is incorrect?
(a) Marketing is a social process.
(b) Focus of the marketing activities is on customer needs.
(c) Marketing is merely a post production activity.
(d) Marketing mix is a wider term than product mix.
(Term-1, 2021-22)
3. _____________ is a process of classification of products into different groups on
the basis of some important characteristics such as quality, size, etc.
(a) Standardisation (b) Grading
(c) Product Development (d) Selling
(Term-1, 2021-22)
4. "Availability and affordability of the product were considered to be the key to
the success of a firm.”
Identify the concept of marketing management highlighted by this statement.
(a) Production concept (b) Product concept
(c) Societal concept (d) Marketing concept
(Term-1, 2021-22)
5. The marketing management philosophy which is based on the premise that
any activity which satisfies human needs but does not pay attention to the ethical
and ecological aspects of marketing cannot be justified is known as:
(a) Marketing concept (b) Societal marketing concept
(c) Production concept (d) Product concept
(Term-1, 2021-22)
6. A person feeling hungry may get food by offering to give money or some other
product or service in return to someone who is willing to accept the same for
food.
The important feature of marketing illustrated above is:
(a) Exchange mechanism (b) Customer value
(c) Creating a market offering (d) Needs and wants
(Term-1, 2021-22)
7. Zolo, a marketer of cars having 40% of the current market share of the country
aims at increasing the market share to 70% in next few years. For achieving this
objective, the manager of the company specified the action programme covering
various aspects.
Identify the function of marketing discussed above:
(a) Customer support services
(b) Gathering and Analysing market information
(c) Product designing and development
(d) Marketing Planning.
(Term-1, 2021-22)
8. Marketing mix is the set of _____________ that the firm uses to pursue its
marketing objectives in the target market.
(a) Production tools (b) Promotional tools
(c) Marketing tools (d) Selling tools
(Term-1, 2021-22)
9. In order to get feedback about its recently launched immunity boosting
ayurvedic medicine, Atulya limited conducted an online survey using a
questionnaire, to gather customer views and opinions. Identify the marketing
function being used by Atulya Limited:
(A) Standardisation
(b) Product Designing
(c) Customer support service
(d) Gathering and analysing market information.
(2020-21)
ET (6 marks)
10. Choco Ltd. offers a wide variety of chocolate products. It has an action
program of not selling its products by their generic name but under different
names like Choco-silk bar, Choco-Munchy and Choco-crunchy etc. for different
customer segments. All these names have great popularity and acceptability in
the markets. As the company policy the products were offered at reasonable and
affordable prices for targeting a mass customer base. During the festive season,
the company launched a massive promotional campaign to increase its revenue
and achieve its communication objectives. The company introduced free gifts for
the customers. Their on-ground sales team delivers the product not only to the
departmental stores but also to small shops, so that all segments of customers
can easily get the products. They also provide information and support services
to customers to ensure repeat sales. From the viewpoint of the management
function, briefly explain any four activities of marketing which the firm will be
involved in, apart from the above-mentioned ones it's already performing.
(2022-23)
11.2 Marketing Mix-Concept and Elements
MCQ
Read the following text and answer question no. 11 to 14 on the basis of the
same:
Yamuna Prasad, a small shopkeeper in Bikaner, Rajasthan used to sell the
famouse 'Bhujia-Sev. It was a quick selling product for locals and foreign tourists.
His second generation expanded the business and got 'Yamuna Ki Bhujia'
registered with concerned authories. Gradually, the brand offered a wide range of
products to its customers like namkeen, sweets, bakery items, etc. However,
'Bhujia-Sev' remained the most popular product of the brand creating maximum
revenue.
'Yamuna Ki Bhujia' offered its products at competitive prices even while offering
customer services like gift packaging and free home delivery to become a
household name. Now, it has virtually become a synonym for Bhujia-sev in the
market, so much so, that people ask for 'Yamuna Ki Bhujia' instead of Bhujia-sev.
'Yamuna Ki Bhujia' has developed a strong distribution network in India and
abroad by setting up retail outlets and reaching out to the customer through
internet selling.
Promotion of the brand had always been low profile, till the increase in
competition pushed it to hire the services of a professional advertising agency,
VIGYAPAN PVT. LTD for promoting the product. On the advice of VIGYAPAN PVT.
LTD, 'Yamuna Ki Bhujia' has also worked upon managing public opinion by
developing relations with the masses through sponsoring cultural and sporting
events, maintenance of public parks etc.
(2020-21)
11. 'His second generation expanded the business and got 'Yamuna Ki Bhujia'
registered with concerned authorities. With reference to the given text 'Yamuna
ki Bhujia' is a ___________ giving it a legal protection against its use by anyone else.
(a) Brand value (b) Trade mark
(c) Trait mark (d) Brand mark
12. 'Yamuna Ki Bhujia' offered its products at competitive prices even while
offering customer services like gift packaging and free home delivery to become a
household name.
Identify the factor affecting the element of marketing mix being discussed above.
(a) Marketing methods used (b) Objectives
(c) Extent of competition in the market (d) Product cost
13. 'Yamuna Ki Bhujia' has developed a strong distribution network in India and
abroad by setting up retail outlets and reaching out to the customer through
internet selling.
Identify the decision related to the element of marketing mix being discussed
above.
(a) Storing and assorting products in order to create time utility
(b) Regarding the channels or using intermediaries
(c) Botha & b
(d) One regarding branding, packaging and labelling
14. On the advice of VIGYAPAN PVT. LTD, 'Yamuna Ki Bhujia' has also worked
upon managing public opinion by developing relation with the masses through
sponsoring cultural and sporting events, maintenance of public parks etc. Name
the department in the organisation which is generally responsible for performing
the above important task of managing public opinion.
(a) Marketing Department
(b) A separate department created in the firm for the purpose
(c) An outside agency
(d) Any of the above
15. Match the concept of marketing in column I with their respective definition in
column Il

(2020-21)
ET (6 marks)
16. "The elements of marketing mix are popularly known as 4 P's of marketing."
Briefly explain these elements.
(2020-21)
11.3 Product - Branding, Labelling and Packaging - Concept
MCQ
17. A brand or part of the brand that is given legal protection is called
_______________
(a) Brand Mark
(b) Trade mark
(c) Brand
(d) Brand name (Term-1, 2021-22)
18. ____________ is an important function of marketing which is important not only
for protection of the product but also serves as a promotional tool.
(a) Grading (b) Labeling
(c) Packaging (d) Branding
(Term-1, 2021-22)
11.4 Price - Concept, Factors Determining Price
MCQ
19. While the product costs set the lower limits of the price for a product, the
upper limit of price which a buyer would be prepared to pay is decided by:
(a) Utility and demand of the product
(b) The marketing manager of the firm
(c) The Government
(d) The competitors of the firm
(2022-23)
20. Product cost sets the lower limits of the price, the utility provided by the
product and the intensity of demand of the buyers sets the upper limit. So, in case
of inelastic demand, total revenue ____________ when price increases
(a) Rises (b) Falls
(c) Constant (d) Both (a) and (b)
(Term-1, 2021-22)
21. Style and Fit, a footwear manufacturing company has decided to offer 50% off
on all its products, due to the fall in demand of its products as more efficient
substitutes have been introduced in the market.
Identify the pricing objective included by the firm which has made the firm resort
to discounting its product.
(a) Obtaining market share leadership
(b) Surviving in the competitive market
(c) Attaining product quality leadership
(d) Protect the interest of public
(Term-1, 2021-22)
11.5 Physical Distribution - Concept and Components and Channels of
Distribution
MCQ
22. Statement I: Transportation helps in creating time utility and warehousing
helps in creating place utility.
Statement II: The process of classification of products into different groups on the
basis of their important characteristics is known as standardisation.
Choose the correct option from the options given below:
(a) Statement I is true and II is false.
(b) Statement II is true and I is false.
(c) Both the statements are true.
(d) Both the statements are false.
(2022-23)
23. One of the important decision areas under the marketing function of
____________ is managing inventory.
(a) Branding (b) Pricing
(c) Promotion (d) Physical distribution.
(2022-23)
24. A major decision area under one of the functions of marketing is the decision
regarding marketing intermediaries to be used. Name the function.
(a) Physical Distribution (b) Gathering and analysing
market information
(c) Promotion (d) Transportation
(Term-1, 2021-22)
11.6 Promotion - Concept and Elements, Advertising, Personal Selling, Sales
Promotion and Public Relations
MCQ
25. Which of the following statements about Advertising is incorrect?
(a) It is a personal form of communication.
(b) It is a paid form of communication.
(c) It is a mass selling technique.
(d) It is inflexible as the message can't be adjusted to the needs of the buyer.
(2022-23)
26. ____________ involves a variety of programmes designed to promote and protect
a company's image and its individual products in the eyes of the public.
(a) Advertising (b) Personal selling
(c) Publicity (d) Public relations
(Term-1, 2021-22)
27. For the following two statements choose the correct option:
Statement I: Advertising is an impersonal form of communication.
Statement II: Advertising lacks direct feedback.
(a) Statement I is correct and II is wrong.
(b) Statement II is correct and I is wrong.
(c) Both the statements are correct.
(d) Both the statements are incorrect.
(Term-1, 2021-22)
ET (6 marks)
28. 'Advertising' and 'Personal selling' both are communication tools used by the
marketers to promote their products. Yet, they differ in their approach.
Differentiate between the two by giving any six points.
(2020-21)

ANSWERS
Previous Years' CBSE Board Questions

1. (d): Gathering and analysing market information

2. (d): Rajeev is performing the function of Standardisation and Grading
3. (d): Societal marketing concept
4. (d): Product concept
5. (c): Increasing the level of production, promotion of product etc., and
specifying the action programmes
6. Marketing management is defined as 'the process of planning and executing
the concept, pricing, promotion and distribution of ideas, goods and services to
create exchanges that satisfy individual and organisational goals'.
7. An understanding of marketing management philosophy is important as it
determines the emphasis that needs to be put on different factors, in achieving
the organisational sales objectives e.g. deciding the product mix, deciding on use
of marketing and sales efforts.
8. 'Promotion' is the market function which is concerned with informing the
potential customers about the firm's products, its features, quality etc., and
persuading them to buy it.
9. Societal marketing concept.
10. (i) The marketing management philosophy that is being followed by JTM ltd.
is 'Societal Marketing Concept'. This is because, it not only identified the needs
and wants of the consumers but also delivered a good quality and eco-friendly
product.
(ii) The following advantages of branding are being discussed:
(a) Branding enables a firm to clearly distinguish its product from the product of
other firms.
(b) Branding enables consumers to clearly distinguish the product from various
other available products. Consumers see a good brand as a mark of authenticity
and genuinity.
(c) Good branding helps in creating loyalty and habituality for product among the
customers. The firm can take advantage of this and charge a different price
(generally a higher price) for its product. Also, a good brand name helps in
providing an initial boost to the demand of the new product.
(d) Established and famous brands act as status symbols for the consumers,
thereby providing them psychological and social benefits.
11. The different kinds of thinking that guided the three friends are :

12. Marketing concept: This philosophy emphasises that in the long-run, a firm
can achieve its objective by identifying the needs of its present and prospective
customers and satisfying them in an effective manner. Thus, satisfaction of
customer's needs in a better way is considered to be the key to success.
13. (a) Marketing concept
(b) (i) Identification of Aloevera products market and their consumers. He found
that demand remained unfulfilled due to lesser supply.
(ii) Understanding need of the Aloevera Customers: Aloevera consumers were
ready to buy a product when value of the product would be equal to value of
money they would pay.
(iii) Developing product quality and features of free home delivery to satisfy
needs of the customer that too better than competitors.
(iv) His all activities were directed towards earning a profit as they knew that in
long run to survive, he needed to cover cost and earn a minimum profit. The firms
adopting marketing concept give importance to two important market forces.
These are customer needs and activity of competitors. Firms keep a close eye on
the needs and wants of customers and try to satisfy better than their competitors.
14. Function of marketing with reference to the above paragraph are:
(i) Gathering and analysing market information: Use of internet to gather
customers views and options. A marketer has to gather information about the
needs of the customers and take decisions for the marketing of the products and
services.
(ii) Standardisation and Grading: ...classified it into three different varieties
namely - Popular, Classic and Supreme, based on the quality'.
Standardisation refers to the process of setting certain standards for a
commodity on the basis of certain features. It conveys the idea of conformity with
the required quality of the product itself.
Grading refers to the process of dividing the products into classes, lots or grades
in accordance with the pre-determined standards.
(iii) Branding: Branding may be defined as the process of assigning a brand name
to the product so that, it can be easily identified and distinguished from
competitors and remembered. 'To differentiate the product from its competitors,
she gave it the name of 'Malabari Organic Rice.
15. (i) Gathering and analysing market information : A marketer has to gather
information about the market. Gathering and analysing market information helps
in identifying the needs of the customers. It forms the basis for product
development. It also helps in identifying the opportunities, threats, strength and
weaknesses.
(ii) Market planning: A company should have appropriate marketing plans to
enhance the existing market share. It provides the guidelines to achieve the
marketing objectives. It includes decisions regarding the types of product, market
segment, production schedules and product promotion plans.
(iii) Product designing and development: It is concerned with making the
product more attractive so that, it meets the expectations of customers. A good
design can improve performance of a product and also give it a competitive
advantage in the market. For example, when we plan to buy any product, say a
bike, not only see its features like cost, mileage etc, but also design aspects like its
shape, style etc.
(iv) Customer Support Service: Business aims to win customers through
providing efficient and quick after sale services, technical support and certain
financial services and maintenance service. Such services ensure customer
satisfaction and help to build a brand loyalty for the products and bring repeat
sales.
16. (i) Product designing and development: It is concerned with making the
product more attractive so that it meets the expectations of customers. A good
design can improve performance of a product and also give it a competitive
advantage in the market. For example, when we plan to buy any product, say a
bike, we not only see its features like cost, mileage etc, but also design aspects
like its shape, style, etc.
(ii) Standardisation and Grading: Standardisation refers to producing goods of
predetermined specification leading to consistency. Grading refers to classifying
products into different groups on the basis of its important characteristics such
as quality and size. Standardisation and grading leads to better price realisation
from the customer.
(iii) Customer Support Service: Business aims to win customers through
providing efficient and quick after sale services, technical support and certain
financial services and maintenance service. Such services ensure customer
satisfaction and help to build a brand loyalty for the products and bring repeat
sales.
(iv) Pricing of Products: Price is defined as the exchange value in terms of money
and pricing of products refers to the process of fixing up the price of a product. It
plays an important part in the success or failure of a product as the demand of a
product is related to its price.
17. (b): Place
18. (c) Statement-l is correct and statement-II is incorrect.
19. (d) The factor affecting price determination is 'Marketing methods used.
20. (c): Government and legal regulations.
21. (d) Becoming essentially a member of marketing association.
22. (d): Promotion
23. Physical distribution refers to the process of making the goods and services
available at the right place and at the right time so that the consumers can easily
purchase the goods without any delay. It involves deciding the channels of
distribution through which the products would be moved from the place of
production to the place of consumption.
24. Product Mix and customer support services.
25. Product mix
26. The combination of variables used by Hayaram to prepare its market
offerings are:
(i) Product: It refers to various aspects relating to the products to be offered for
sale. It relates to decision regarding planning, designing and developing the right
type or products for the consumers. It includes branding, labelling and packaging.
"Their products include chips, biscuits, sweets and squashes."
(ii) Price: Price is the amount of money customers have to pay to obtain the
product. Price element includes price of product, margins, pricing policy and
strategy. "It charges a comparatively higher price than its competitors."
(iii) Place: It refers to the activities involved in making the product available to
the target customers. Selection of distribution channel and physical distribution
are the main activities involved in it. "It has five retail shops that are its own."
(iv) Promotion: This element includes activities such as, advertising, personal
selling, sales promotion and publicity. 'It regularly uses different communication
tools to increase its sales.
27. (c): Brand mark
28. (a): Brand
29. (d): Providing information required by law is the function of labelling
discussed here.
30. (a): Primary Package refers to the product's immediate container.
31. (b): The feature of the brand name mentioned here is versatile.
32. (c): A-iii, B-i, C-ii
33. (a): Grading
34. Labelling helps in promotion of product: An important function of labelling is
to aid in promotion of the product. A carefully designed label can attract attention
and give reason to the buyer to purchase.
35. Two characteristics of a good brand name are as follows:
(a) The brand name should be short, easy to pronounce, spell and remember, e.g.,
VIP, Lux, Rin, Ponds, Vim, etc.
(b) The brand name should suggest the qualities and benefits of the product, e.g.,
Frooti, Promise, Boost, Revital, Rasna.
36. The three different levels of packaging are primary level packaging, secondary
level packaging and transportation packaging.
(i) Primary Packaging: It refers to the product's immediate container in which
the contents are kept for example, Toothpaste tube.
(ii) Secondary Packaging: It refer to additional layers of protection that are kept
till the product is ready for use. For example, Cardboard box of a toothpaste.
37. (i) Labelling : This decision related to product was not taken into
consideration by the company. Labelling is the process of designing the label and
putting it on the package to provide information about the product, its
composition, date of manufacture, price, precaution of the use, etc. Such
information would enable the consumer to take proper decision to buy a product.
(ii) The values violated are: (a) "Respect of Law" as company is employing
children as labour.
(b) "Safety of human beings" as appropriate safety warning for use were not
mentioned on the pack that led to many accidents.
38. (a) The product-related decision because of which consumers preferred the
products of ABC Crackers Ltd, is Branding. It refers to the process of giving a
name, sign or symbol to a product to differentiate it from those of competitor's
products.
(b) Two values which ABC Crackers Ltd. wanted to communicate to the society.
(i) Community development.
(ii) Increase in employment opportunities in rural under developed backward
areas.
39. Kashmir Apple Juice
Nutrition facts
Serving Size: 1 Pack (100 ml)
Amount per serving calories 100 ml
 % content
Total Fat 0%
Sodium 1%
Potassium 7%
Total carbohydrates 25 g 8%
Sugars 22 g
Protein 0 g
Ingredients: Organic Apple Juice
Best before 3 months from the date of manufacturing.
MRP ₹ 20 (inclusive of all taxes)
Batch No.: Jan 0.343
Date of Mfg. 23, sept. 2016
Mgfd. by S.K. Ltd. 3/25, Gulmarg J&K193403.

40. 'Kale Kesh'

Premium Coconut Hair Oil
Composition
Coconut oil 80%
Sesamum indicium 10%
Abrus 2%
Olea europaea 3%
Hibiscus 2.5%
Bacopa 2.5%
Net content 100 ml
Mfg.: 4c No. KL-201-AY
Batch No. 9-708/68/15
MRP: ₹ 100
Mfd: By Ramdev herbals,
Thiruvananthapuram Kerala – 695614

41. Characteristics of good brand name are :

(a) Simple and easily pronounceable : Brand name should be simple short and
easy to pronounce, remember and should not have any negative meaning in any
major language. For example, Surf, Lux, VIP. etc.
(b) Suggestive: Brand name should suggest the benefits, quality or purpose of the
product. For Example, Lijjat Papad suggests taste of papad.
(c) Distinctive: Brand name should be unique and distinctive so that the product
is easily differentiated. For example, Liril, Sprite, etc.
(d) Adaptable: Brand name should be adaptable to packing or labeling
requirements, to different advertising media and to different languages.
(e) Versatile : Brand name should be versatile so that it can accommodate any
new product added to the line. For example, name like Maggi or Colgate has this
characteristics.
42. (a) The important aspect neglected by the marketer is 'labelling'. Labelling
refers to designing the label to be put on the package. A label is a tag attached to
the product to describe the nature, contents, ownership, destination etc. of the
product. It is a medium through which the manufacturer gives information to the
user or consumer.
(b) Labelling has the following functions-
(i) Describe the product and specify its contents: The most important functions
of label are to describe the product, its usage, expiry date, precautions in use, etc.,
and specify its contents net weight when packed.
(ii) Identification of the product or brand: The label helps the customer to
identify the product. For example, blue colour of Cadbury chocolates helps to
identify it more easily from other chocolates kept on the shelf of a shop.
(iii) Grading of the product or brand: With the help of label, products can be
graded in different categories for example, Lipton green label, yellow label etc.
(iv) Helps in promotion of the product: Label plays an important role in
promotional schemes launched by companies, For example, a pack of chocolates
mentioning "Save ₹ 12" helps in promotion.
(v) Providing information required by the law: Labelling performs the function of
providing information required by law eg., the statutory warning on the packet of
cigarettes, "smoking is injurious to health".
43. Cost
44. Price: Price refers to the amount of money, which a customer has to pay to
buy a product. Factors that affect the fixation of price of a product are:
(a) Product cost: It includes cost of producing, selling and distributing the
product. This sets the minimum price at which the product may be sold. In the
long run, price should be able to recover all the costs and a fair return on
investment. Cost is of three types: fixed cost, variable cost and semi variable cost.
(b) Utility and demand of the product: The utility provided by the product and
the intensity of demand of product sets and upper limit of price, which the
customers would be ready to pay. Price is also affected by the elasticity of
demand of the product. When a small change is price leads to major charge in
demand, price is said to be elastic. When a change in price leads to no change in
demand it is said to be inelastic. In such cases prices can be safely raised without
a drop in demand.
(c) Degree of Competition: The firm has to consider the price, quality and
features of the competitor's products available in the market.
(d) Government and legal regulations : Government may regulate the price of a
product in the public interest. The Indian Government controls the prices of
essential consumer items like, kerosene oil, LPG and certain food items.
45. (b): Order Processing
46. (a): One level channel
47. (d): Physical distribution is the element of the marketing mix through which
goods and services are made available at the right place, at the right time and to
the right people without change.
48. (c): Gathering and Analysing Market Information
49. (a): Branding
50. (b): Labelling
51. (c): Place/Physical distribution
52. Place or physical distribution is the marketing function that is concerned with
the cost and location of target market.
53. Product related factors which affect the choice of channels of distribution:
(a) Industrial products: Industrial products are technical made to order,
expensive and purchased by few buyers. They require a shorter, direct channel
involving few middlemen.
(b) Consumer products Consumer products are standardised, less expensive, less
bulky, non-technical and frequently bought. So, they can be better distributed by
a number of middlemen.
(c) Perishable products: Perishable products like fruits, vegetables require short
channel of distribution as it must reach the customer soon. Non-perishable
products such as soaps, oils can use a longer channel of distribution.
(d) Degree of complexity: Technically complex products require expert advice
and counselling at the point of sale and so the direct channel is preferred.
54. Company related factors which affect the choice of channels of distribution:
(a) Financial strength of the company : If the financial strength of the company is
good, it would prefer shorter channels. Functions such as, having own retail chain
or having a large sales force need lots of funds.
(b) Degree of control over channel members: If company's management wants
greater control over channel members, shorter channels may be used.
55. (a) Channels of distribution refer to the individuals, institutions or agents
who facilitate the process of distribution of the product.
(b) The factors which affect the determination of choice of channels are:
(i) Product type - Products are checked on the basis of whether they are
perishable or non-perishable, industrial or consumer product, whether their unit
value is high or low and the degree of complexity of the product. Since, Biscuits
are perishable goods, the channel of distribution followed by Mudit Gupta should
be short.
(ii) Market Factors- Factors such as size of the market, geographical
concentration of buyers, quantity demanded, etc. also affect the choice between
the channels. Since, Mr Gupta knows that a customer would only pick up a small
quantity of the product, so he does not want to invest in starting his own retail
outlets. So, he should follow a short channel of distribution.
(iii) Competitive factors- The degree of competition and the channels opted by
other competitors affect the choice of a channel of distribution. Depending on its
policies, a company may adopt a similar channel as chosen by its competitors or
opt for a different channel. In this case, the firm has decided to follow the channel
which was different from those opted by the other firms.
56. (a) The factors that were discussed and have an influence in selection of the
channel of distribution are as follows:
"Since the machines were sophisticated, they need to visit the hospitals
personally to explain its working to the hospital staff"
This indicates that
(i) There would be few customers in a town/city.
(ii) It is a sophisticated product which may need careful handling.
(ii) It is a technical product which needs demonstration and explaining.
(b) The other factors that should be considered are:
(i) There would be few customers from a city, but they would be very important
for the future prospects of the company in launching more of similar products.
(ii) It being a sophisticated product, would require proper packing for
transportation and careful handling before and during delivery.
(iii) The individual customers must be given adequate technical support for
correct operation of the equipment.
(iv) It being an expensive equipment, it must be well supported with after sales
service.
57. Factors which affect the choice of channel of distribution:
(i) Marketing related factors: The choice of channels is affected by many markets
related factors.
These are:
(a) Nature of the Market: For consumer goods, the channels of distribution are
mostly indirect whereas for industrial goods direct channels are preferred.
(b) Size of market: The number of channel constituents depends largely on the
customer base of the products. In those products, where the market size is large
and varied, the number of intermediaries is large whereas for products, where
the customer base in small, direct channel of distribution are engaged.
(c) Quantum of Trade: Direct channels of distribution are used where the
quantity of purchases is big. Indirect channels of distribution are used mainly
where the size of purchases is small and widely spread.
(ii) Product Related factors: Before deciding channel of distribution for a product,
various product related factors are to be considered.
These are:
(a) Nature of the product: Customised products require direct distribution as
they involve interactions between the buyer and the seller. Whereas standardised
products are sold through a number of intermediaries.
(b) Product Complexities: Technologically complex products are sold directly
whereas to sell simple products indirect channels may be employed.
(c) Perishability of the product: Zero or one level channels are preferred for
perishable products to avoid the delay in delivery as compared to non-perishable
products.
(d) Price of the product: High priced products are mostly sold directly whereas
cheap, inexpensive products are sold with the help of a large number of
intermediaries.
(iii) Company characteristics: The important company characteristics affecting
the choice of channels of distribution include the financial strength of the
company and the degree of control it wants to hold on distribution. Direct selling
is expensive and so if a company is financially strong and has enough resources at
its disposal, it can use direct channel while a financially weak company will have
to rely on intermediaries. Company desiring control on distribution of goods and
service should use short channels.
(iv) Competitive factors: The choice of Channel is also affected by the channel
selected by the competitors in the same industry.
58. (b): Public relations
59. (b): It refers to short-term incentives designed to encourage the buyers to
make immediate purchase of a product or service.
60. (a): Advertising
61. (c) Branding is the product-related decision that helps in providing a basis for
distinguishing the product of a firm with that of a competitor which in turn helps
in building customer's loyalty and in promoting its sales.
62. (c): Hariom Jewellers did sales promotion
63. (c): Customer support system consist of after sale services, repairs,
maintenance and handling grievances of consumers.
64. Personal selling can be a promotional tool as the technology is unique in
nature and can be used only by professionals. Therefore, to create awareness
about the product among hospitals and doctors, personal selling can be used.
65. The objection of advertising that is being discussed in the question is that
advertising 'confuses the buyers' by making similar claims.
66. The statement is false.
Reason: Sales Promotion refers to short term incentives which are designed to
encourage the buyers to make immediate purchase of a product.
67. The technique used for sales promotion in this case is "usable benefit"
68. 'Promotion' is the marketing function which is concerned with informing the
customers about the firm's products, its features, quality etc. and persuading
them to buy it.
69. Promotion
70. Tools used by the company to inform and persuade customers about their
product are:
(i) Sales Promotion: It refers to short-term incentives, which are designed to
encourage the buyers to make immediate purchase of a product or service.
(ii) Personal Selling: It involves oral presentation of message in the form of
conversation with one or more prospective customers for the purpose of making
sales.
(iii) Public Relations: It involves a variety of programmes designed to promote or
protect a company's image and its individual products in the eyes of the public.
71. Advertisement confuses the buyers: With continuous increase in number of
advertisement consumers are likely to get confused. Each brand claims to be
better than the other. For example, there are various advertisement for detergent
powder like Surf, Tide, Ariel, etc. Each brand claims to be the best brand. Such
similar claims confuse the buyer and it becomes very difficult for him to make
choice. Supporters of advertisement counter it by saying that advertisement only
offers alternatives and provides wide choice. Consumers are expected to make a
rational choice. In case of any confusion, they can always analyse and clarify
before taking the purchase decision.
72. Communication tool used by the marketer is personal selling.
(a) Personal Rapport: Personal selling involves direct face-to-face communication
between the seller and the buyer, which is a unique opportunity to develop a
rapport.
(b) Development of Relationship: Personal selling helps in developing personal
and friendly relationships with the prospective customers. Such a healthy
relationship helps to develop customer loyalty.
73. (a) Societal Marketing philosophies involved in the above case.
Societal Marketing Concept: With the rising awareness of social issues such as
environmental pollution, deforestation, shortage of resources, increasing
population, the scope of marketing of goods and services has changed. Ex: Now
the marketers take a long-term view of things and explain to the customer how
their product takes care or does not harm the environment etc.
(b) Advertising was used by the company as a communication tool.
Advertising is a way of marketing your business in order to increase sales or
make your audience aware of your products or services.
(c) Public Relations and Sales Promotion
74. (a) The communication tool used by the marketer in the above case to
improve its image is 'Public Relation'. It is a continuous activity and is meant for
creating and managing better relations with the public.
(b) Role of Public relation:
(i) Press Relation: Information about the organisation needs to be presented in a
positive manner in the press. The Public relations departments is in contact with
the media to present true facts and a correct picture about the company.
Otherwise, news can get distorted if taken from other sources.
(ii) Product Publicity: New products require special efforts to publicise them.
This is done by sponsoring sports and cultural events, like news conferences,
seminars and exhibitions.
(iii) Image Building: Public relation programmes help in the building of corporate
image that affects the products favourably.
(iv) Building Credibility: If news about a product comes in the media, it always
builds credibility. People believe in the product, since it is in the news and not a
paid advertisement.
75. Advertising is criticised on the following grounds:
(a) Adds to costs: Advertising adds to cost of production. As a result, the price of
the product rise which is passed on the customer.
(b) Undermines social values: It promotes materialism and breeds discontent
among people. Such as it can lead to a new life style.
(c) Creating confusion: Advertising creates confusion in the minds of people by
making similar claims, making the choice of product difficult. However, the public
should judge a product rationally and then only make a purchase.
(d) Encourages sale of inferior products: Advertising persuades people to buy
inferior and dubious products. With the help of advertising, almost anything can
be sold in the market. The supporters of advertisement proclaim that different
products of different price have different claims of quality.
 CBSE Sample Questions

1. (d): Societal Marketing concept

2. (c): Marketing is merely a post production activity.
3. (b): Grading
4. (a): Production concept
5. (b): Societal marketing concept
6. (a): Exchange mechanism
7. (d): Marketing Planning
8. (c) Marketing tools
9. (d): Gathering and analysing market information.
10. Functions of marketing, apart from the ones Choco Ltd is already performing:
(a) Gathering and analysing market information : This is necessary to identify the
needs of the customers and make various decisions for the successful marketing
of the products and services. This is important for making an analysis of the
available opportunities and threats as well as strengths and weaknesses of the
organisation and help in deciding what opportunities can best be pursued by it.
(b) Product designing and development : The design of the product contributes
to making the product attractive to the target customers. A good design can
improve performance of a product and give it a competitive advantage in the
market.
(c) Standardisation : Standardisation refers to producing goods of predetermined
specifications which help in achieving uniformity and consistency in the output.
(d) Packaging and labeling : Packaging refers to designing and developing the
package for the products. Labeling refers to designing and developing the label to
be put on the product.
(e) Transportation : Transportation involves physical movement of goods from
one place to another. As generally the users of products particularly consumer
products are wide spread and geographically separated from the place where
they are produced.
(f) Storage and warehousing : In order to maintain smooth flow of products in the
market, there is a need for proper storage of the products. Further there is need
for storage of adequate stock of goods to protect against unavoidable delays in
delivery or to meet out contingencies in the demand. Ram Kumar the CEO of
Sabarmati Enterprises in a meeting with the middle management of the company
advised that the personal goals of the people should be reconciled with the
organisational objectives for harmony in the organisation.
11. (b): Trade mark
12. (a): Marketing methods used
13. (b): Regarding the channels or using intermediaries
14. (d): Any of the above
15. (d): A-(i), B-(iii), C-(ii)
16. The marketing mix consists of various variables, which have broadly been
classified into four categories, which known as four Ps of marketing.
These are:
(i) Product,
(ii) Price,
(iii) Place and
(iv) Promotion
(i) Product : Product means goods or services or 'anything of value', which is
offered to the market for exchange. The concept of product relates to not only the
physical product as mentioned in the above examples but also the benefits
offered by it from the customer's view point (for example toothpaste is bought
for whitening teeth, strengthening gums, etc.). The concept of product also
includes the extended product or what is offered to the customers by way of after
sales services, handling complaints, availability of spare parts, etc.
(ii) Price : Price is the amount of money customers have to pay to obtain the
product. In the case of most of the products, the level of price affects the level of
their demand. The marketers have not only to decide about the objectives of price
setting but to analyse the factors determining the price and fix a price for the
firm's products.
(iii) Place : Place or Physical Distribution include activities that make firm's
products available to the target customers. Important decision areas in this
respect include selection of dealers or intermediaries to reach the customers,
providing support to the intermediaries (by way of discounts, promotional
campaigns, etc.).
(iv) Promotion : Promotion of products and services include activities that
communicate availability, features, merits, etc. of the products to the target
customers and persuade them to buy it. Most marketing organisations undertake
various promotional activities and spend a substantial amount of money on the
promotion of their goods through using a number of tools such as advertising,
personal selling and sales promotion techniques (like price discounts, free
samples, etc.).
17. (b): Trade mark
18. (c): Packaging
19. (a): Utility and demand of the product
20. (a): Rises
21. (b): Surviving in the competitive market
22. (d): Both the statements are false
23. (d): Physical distribution
24. (a): Physical distribution
25. (a): It is a personal form of communication
26. (d): Public relations
27. (c): Both statements are correct
28. Following are the points of differences between advertising and personal
selling
 Marketing & Marketing Management

1. Mark Questions

1. Why is marketing called a social process? (Delhi 2013)

Ans. Marketing is regarded as a social process, whereby people exchange goods and
services for money or something of value to them.

2. Distinguish between selling concept and marketing concept of marketing

management philosophies on the basis of main focus. (Delhi 2013)

Ans. (i) Selling concept Firms believe that aggressive selling and promotional efforts will
convince a customer to buy a product.
(ii) Marketing concept Customers’ needs and customers’ satisfaction is the key to
success of an enterprises.

3. What is meant by selling concept of marketing? (All India 2010; Delhi 2010)

Ans. Firms believe that aggressive selling and promotional efforts will convince a
customer to buy a product.

3 Marks Questions

4. Identify and explain the marketing management philosophy which implies that
products and services are bought not merely because of their quality or brand
name, but because they satisfy a specific need of a customer. (Compartment
2014)

Ans. The marketing management philosophy referred here is ‘Marketing concept’. This
concept emphasis that in the long-run, profits can be maximised by identifying and
satisfying the needs of present and potential customers. Therefore, customer
satisfaction becomes the focal point of all business decisions.

5. Nisha, a school bag manufacturer, decided to improve the product for profit
maximisation and thus, added a water bottle holder to the existing design.
(i)Identify the marketing management philosophy adopted by Nisha.
(ii)Explain this philosophy on the basis of (a) Main focus and (b) Means and
ends (HOTS; Delhi 2012)

Ans. (i) Product concept or philosophy Firms which follow the product concept,
propose that the way to realise business goals is by making high quality products.
These firms manufacture the products of superior quality. Nisha is trying to bring
improvement in quality, by corporating a new feature, i.e. adding a water bottle holder in
the bag.
(ii) (a) Main focus The main focus of this concept is to improve the quality of products.
The marketers now believed that potential exchange would be realised when the
products are of high quality. Thus, the firm now focused on making superior products
and improving them overtime.
(b) Means Product improvement.
Ends Profit through improvement in product quality.

[Link], a shoe manufacturer for school students, decided to maximise her profit
by producing and distributing at large scale and thereby reducing the Average
Cost of production.
(i)Identify the marketing management philosophy adopted by Mansi.
(ii) Explain this philosophy or concept on the basis of
(a) Main focus (b) Means and ends (All India 2012)

Ans. (i) Production concept or philosophy.

(ii) (a) Main focus Main focus of this concept is to maximise the quantity of product.
(b) Means Availability and affordability of product.
Ends Earning profits through large scale production and distribution.

7. Explain market planning, product designing and development as functions of

marketing. . (Delhi 2012)
or
Explain any three functions of marketing.(Delhi 2012)
or
Explain any two functions of marketing. (All India 2011)
or
Explain the following functions of marketing.
(i) Marketing planning (ii) Product designing and development (All India 2011)
or
Explain the following functions of marketing
(i)Gathering and analysing market information
(ii) Customer support services. (Delhi 2011 C)

Ans. The main functions of marketing are as follows:

(i) Gathering and analysing market information A marketer has to gather information
about the market. Gathering and analysing market information helps in identifying the
needs of the customers. It forms the basis for product development. It also helps in
identifying the opportunities, threats, strengths and weaknesses of the organisation.
(ii) Market planning The marketer develops appropriate marketing plans to capture or
enhance the existing market share. It provides the guidelines to achieve the marketing
objectives, e.g. a marketer of colour TVs, having 2% of current market share in the
country, aims at enhancing his market share *0 20% in the next three years.
(iii) Product designing and development Product designing and development is
concerned with anticipating customers’ needs, developing new products and improving
the existing products so as to meet the expectations of customers, e.g. when we plan to
buy any product say a motorbike, we not only see its features like cost, mileage, etc but
also the design, shape, style, etc.
(iv) Customer support services Customer is the king of modern market. So customer
satisfaction is the main motto of every business firm. Hence, a very important function of
marketing management relates to developing customer support services such as after
sale services, handling customer complaints, procuring credit services, maintenance
services, technical services, and consumer information, etc. All these services aim at
providing maximum satisfaction to the customers which is the key to success in modern
days.

8. Explain the role of marketing in a firm. (All India 2011)

Ans. By marketing orientation, the firm tries to focus on needs and wants of the
customers. Every firm wants to live longer and develop. If this happens, the purpose of
establishing the firm is fulfilled. Marketing helps in survival and growth of the firm.

9. What is meant by production concept of marketing? (Delhi 2011; All India 2010)
Ans. Production concept is based on the belief that profits could be maximised by
producing at large scale, thereby reducing the Average Cost of production. A large
number of firms believe that it is easy to exchange the products if they were widely
available at an affordable price. Thus, availability and affordability were considered the
key to success.

10. What is meant by selling concept of marketing? (Delhi 2010)

Ans. Firms believe that aggressive selling and promotional efforts will convince a
customer to buy a product. It was assumed that the customers will not buy enough,
unless they are adequately convinced and motivated to do so.

Therefore, aggressive selling and promotional efforts are made to persuade the
customers. The use of promotional techniques such as advertising, personal selling and
sales promotion were considered essential for selling of products.

11. What is meant by product concept of marketing? (All India 2010; Delhi 2010)
Ans. Consumers prefer products with superior quality, performance and features. The
companies who believe in the philosophy of product concept are of the opinion that if
the quality of goods or services is of good standard, the customers can easily be
attracted towards it. The basis of this thinking is that the customers get attracted
towards the products of good quality. On the basis of this philosophy, companies direct
their marketing efforts to increase the quality and features of their product.

4/5 Marks Questions

12. Define marketing and state any three functions of marketing. (Delhi 2010c)
or
What is meant by marketing? State any three functions of marketing. (All India
2010)

Ans. Marketing is the sum total of all those activities which move goods and services
from the producers to the consumers.
According to Philip Kotler, ‘Marketing is that social process by which individual and
groups obtain what they need and want through creating offerings and freely
exchanging products and services of value with others’.
The three main functions of marketing are :

(i) Marketing planning The marketer develops appropriate marketing plans to capture
or enhance the existing market share. It provides the guidelines to achieve the
marketing objectives, e.g. a marketer of colour TVs, having 2% of current market share
in the country, aims at enhancing his market share *0 20% in the next three years.

(ii) Production designing and development Product designing and development is

concerned with anticipating customers’ needs, developing new products and improving
the existing products so as to meet the expectations of customers, e.g. when we plan to
buy any product say a motorbike, we not only see its features like cost, mileage, etc but
also the design, shape, style, etc.

(iii) Pricing of products It refers to the amount of money which the customers have to
pay to obtain a product. Price is an important factor affecting the success or failure of a
product in the market. The demand for a product or service is related to its price.
Generally, lower the price, higher would be the demand for the product and vice-versa.

13. Define marketing management. State any three objectives of marketing

management. (All India 2010)

Ans. According to Philip Kotler, ‘Marketing management is an art and science of

choosing target markets and getting, keeping and growing customers through creating,
delivering and communicating superior customer values of management’. It refers to
planning, organising, directing and control of the activities which facilitate exchange of
goods and services between producers and consumers of products and services.
The three main objectives of marketing management are as follows:

(i) Creation of demand The marketing manager always tries to create the demand not
by unfair means but by analysing the needs and wants of the customers and then
producing the products, which satisfies the customer’s need.

(ii) Market share Every business firm wants to capture a larger share of the market.
Therefore, marketing techniques adopted by marketing manager help to get a big share
in the market.

(iii) Goodwill and reputation Marketing management helps a firm in building the image
for its products through advertising high quality, caring for customer satisfaction, after
sale service, smooth supply, etc.
14.’Bending the customer according to the product’ and ‘development of the
product according to customer needs’ are two important concepts of marketing
management’. Identify the concepts and differentiate between the two. (Delhi
2009; All India 2009)
or
‘Find wants and fill them ‘and’ create products and sell them’ are the two
important concepts of marketing. Identify and differentiate between these two
concepts.(HOTS; Delhi 2009 C)

Ans. ‘Bending the customer according to the product’ refers to ‘selling concept’ and
‘developing the product according to the customer needs’ refers to ‘marketing concept’
of marketing management.

6 Marks Question

15. Explain the following functions of marketing

(i)Gathering and Analysing market information
(ii)Product designing and development
(iii)Market planning
(iv) Customer support services.(Delhi 2008)

Ans. The main functions of marketing are as follows:

(i) Gathering and analysing market information A marketer has to gather information
about the market. Gathering and analysing market information helps in identifying the
needs of the customers. It forms the basis for product development. It also helps in
identifying the opportunities, threats, strengths and weaknesses of the organisation.

(ii) Market planning The marketer develops appropriate marketing plans to capture or
enhance the existing market share. It provides the guidelines to achieve the marketing
objectives, e.g. a marketer of colour TVs, having 2% of current market share in the
country, aims at enhancing his market share *0 20% in the next three years.

(iii) Product designing and development Product designing and development is

concerned with anticipating customers’ needs, developing new products and improving
the existing products so as to meet the expectations of customers, e.g. when we plan to
buy any product say a motorbike, we not only see its features like cost, mileage, etc but
also the design, shape, style, etc.

(iv) Customer support services Customer is the king of modern market. So customer
satisfaction is the main motto of every business firm. Hence, a very important function of
marketing management relates to developing customer support services such as after
sale services, handling customer complaints, procuring credit services, maintenance
services, technical services, and consumer information, etc. All these services aim at
providing maximum satisfaction to the customers which is the key to success in modern
days.
 Marketing & Selling

3 Marks Question

1. Differentiate between marketing and selling on any three basis. (Delhi 2011)
or
Distinguish between marketing and selling on the basis of the following
(i)Part of the process (ii) Transfer of title

Ans.

4/5 Marks Question

2. Differentiate between marketing and selling on any five basis.(Delhi 2012,2008;

All India 2012)
or
The aim of marketing and selling is to maximise profit yet they differ in their
approach. Differentiate between the two by giving any six differences. (All India
2008)

Ans. (i) Selling concept Firms believe that aggressive selling and promotional efforts
will convince a customer to buy a product.
(ii) Marketing concept Customers’ needs and customers’ satisfaction is the key to
success of an enterprises.

6 Marks Question

3. Explain the following functions of marketing : (Compartment 2014)

(i) Marketing planning
(ii) Product designing and development
(iii) Pricing of products
(iv) Standardisation and grading

Ans. (i) Marketing planning After market research, the marketer has to develop an
appropriate marketing plan to achieve the marketing objective of the organisation. It
involves taking decisions as to what activities will have to be undertaken to achieve a
marketing objective.

(ii) Product designing and development The design of a product not only helps to
make it attractive, but also helps in improving its performance, providing it a competitive
advantage over the other products present in the market.

(iii) Pricing of products Pricing refers to the process of determining the price of a
product. Price of a product refers to the amount of money that the customer has to pay
in order to obtain a product from the market.
The marketers have to analyse a number of factors such as pricing objectives, pricing
strategies, demand, cost, competition, etc to decide the price of a product. Generally,
lower the price, higher would be demand of the product. Therefore, it is considered as
one of the most crucial decision in marketing. •

(iv) Standardisation It refers to the process of setting standards regarding quality,

price, packaging, technology, equipment, etc for the production of a product. This
ensures uniformity and consistency in output and reduces the need for inspection,
testing and evaluation of the products.

Grading It is the process of classifying the products into different groups, on the basis
of quality, size, features, etc. It is necessary for such goods which are not produced
according to predetermined specifications, such as agricultural goods. Grading ensures
that the goods belong to a particular quality and helps the marketer to fix prices easily.
 Marketing Mix, Product Mix & Price Mix
1 Mark Questions

1. State the meaning of product identification function of packaging. (All India

2013)

Ans. In recent years due to increasing competition and growing use of open display and
self-service of goods, the need of packaging has arisen. It helps in identifying the
product by indicating its nature and content, e.g. a customer can easily identify Ponds
cream with its unique jar.

2. What is the advantage of registering trademark? (All India 2013)

Ans. The firm which got its brand registered, gets the exclusive right for its use. In that
case, no other firm can use such name or mark in the country.

3 Mark Questions

3. Crackers Ltd, a fire-cracker manufacturing company launched some new

products on the eve of Diwali in the market, which attracted many buyers. To
meet the. Increased demand the company employed children from nearby
villages. Although the products were in great demand, appropriate safety
warnings for use were not mentioned on the labels, which led to many accidents.

Ans. (i)Identify and explain the important product related decision that was not taken
into consideration by the company.
(ii) Also, state any two values which were violated by the company. (Compartment
2014) (/’) An important product-related decision not taken into consideration by the
company is labelling’. It refers to designing and developing the label to be put on the
package. A label is a carrier of information. It may be a simple tag or a complex graphic
stating the contents, price, quantity, expiry date etc of the product.
(ii) The two values ignored by the company are:
(a)Child labour and their exploitation .
(b)Consumer protection and safeguarding their interest.

4.‘Though branding adds to the cost, it provides several advantages to the

consumers’. In the light of the statement, state any three advantages of branding
to customers. (Delhi 2013)

Ans. The three advantages of branding to customers are as follows:

(i) Product identification Branding helps the customers in identifying the product, e.g. a
customer, who is satisfied with ‘Lux’ soap need not buy any other product. Thus,
branding facilitates repetitive purchase and reduces the time and efforts involved
therein.
(ii) Ensures quality Branding ensures a specific level of quality to customers. This builds
up confidence of customers and increases their level of satisfaction. Branded products
are well packed to prevent adulteration.
(iii) Status symbol Some brands become status symbols due to their quality. The
consumers of these brands feel proud and enjoy status by using them.

5. Packaging has acquired great significance in the marketing of goods. In the

light of
this statement, state any three functions of packaging. (Delhi 2013)
or
Explain any three functions of packaging. (Delhi 2008)

Ans. Packaging refers to the act of designing and producing the container or wrapper of
a product. The three main functions of packaging are as follows: (Any three)

(i) Product identification Packaging helps a product to be easily identified by the

customer, e.g. Maggi noodles in yellow colour, Lays in blue, green and red colour can
be identified easily.

(ii) Product protection Packaging protects the contents of a product from spoilage,
breakage, leakage, damage, etc. e.g. air tight containers and packets are used for
biscuits, tea, etc.

(iii) Product promotion Packaging promotes the sales of the product. Package is the
buyer’s first encounter with the product and is capable in turning the buyer on or off. The
colourful attractive packing of the product attracts the customers to buy it e.g. Ferrero
Rocher chocolates, Calcium Sandoz, etc.

(iv) Facilitating use of product The size and shape of the package should be such that it
should be convenient to open, handle and use for the consumers, e.g. toothpastes, face
wash, etc.

6. Explain any three elements of marketing mix. (Delhi 2010,2008C)

Ans. Marketing mix refers to the combination of four basic elements known as four P’s-
product, price, promotion and physical distribution. The various components of
marketing mix are: (Any three)

(i) Product mix The product mix refers to important decisions related to the products.
Product mix involves product planning and development. Decisions are to be taken
regarding product, range, quality, size, features, packaging, after sale services,
branding, warranties etc. Production must satisfy consumer needs and expectations.
These decisions play an important role in attracting the customers to the product.

(ii) Price mix It refers to important decisions related to price levels, pricing strategy and
price policies of an organisation.
Price is the money paid by a buyer (or received by a seller) in consideration of the
purchase of a product or a service. It plays an important role in the marketing of goods.
It is often used as a regulator of product’s demand and act as effective tool during stiff
competition. Price affects the revenue and profits of a firm. .

(iii)Promotion mix It refers to informing the customers about the product and persuading
them to purchase these products. This job is done by the company through the medium
of advertisement, personal selling, sales promotion and public relations. Decisions with
regard to all these factors directly influence the sale of the product.

(iv) Place mix (Physical distribution) It includes decisions about channels of distribution,
means of transportation, warehousing, inventory control, etc. Place mix is concerned
with linking the sellers and buyers. The choice of channels of distribution depends on
nature of product, competition, willingness of middle men and producer’s financial
resources.

7. Explain the three major categories into which the industrial products can be
Classified. (All India 2010)
Ans. Industrial products can be classified into the following major categories:
(i) Materials and parts These include goods that enter the manufacture’s products
completely. Such goods are of two types:

 Raw materials
 Manufactured materials and parts

(ii) Capital items These are long-lasting goods that facilitate developing or managing the
finished products. These include:

 Installations
 Equipments ‘

(iii) Supplies and business services These are short lasting goods and services that
facilitate developing or managing the finished products. These include:

 Maintenance and repair items like paint, etc.

 Operating supplies like lubricant, writing paper, etc.

8.’Demand for wood will be derived from demand for furniture and other
wooden items in the market.’ This is an example stating the characteristic of one
of the categories of products. Name the category and state two other
characteristic of this category of products.(All India 2009 c)
or
‘Demand for leather will be derived from demand for leather purses and other
leather items in the market’. This is an example stating the characteristic of one
of the categories of products. Name the category and state two other
characteristics of this category of products. (Hots; All India 2008 C)
Ans. Industrial products. The two main characteristics of industrial products are:
(i) Few buyers Buyers of industrial products are limited as compared to consumer
products, e.g. buyers of sugarcane are few as compared to buyers of sugar.
(ii) Complex products These products are complex. Therefore, technical consideration
assumes greater significance in their purchase decision.

9. Explain any three advantages of labelling. (Delhi 2008)

or
Explain any three functions of labelling.(Delhi 2008)

Ans. Labelling facilitates the marketing of products and satisfy various legal
requirements.
Advantages/ functions of labelling are: (Any three)

(i) Identification of product/brand It helps in identifying the product or brand, e.g. the
name stamped on a cold drink identifies it as Pepsi, Coke, Fanta, etc.

(ii) Helps in promotion of products A carefully designed label can attract attention and
give reason to purchase. Labels play an important role in sales promotional schemes
launched by companies, e.g. the label on the package of a shaving cream mentions
‘40% extra free’ or package of a toothpaste mentioning, ‘free tooth brush inside or save
Rs 15’.

(iii) Providing information required by law Labelling provides information required by

law e.g. the statutory warning on the package of cigarette ‘Smoking is injurious to
health’.

(iv) Grading of products It also helps in grading the products into different categories.
Different types of tea is sold by same brand under the category of yellow, red and green
label.

10. Explain any three merits or qualities of packaging.(All India 2008)

Ans. Following are the three main merits of packaging of a consumer product
(i) Rising standards of health and sanitation As the people are becoming health
conscious, they like to buy packed goods. The reason is that the chances of
adulteration in such goods are minimised.

(ii) Self-service outlets Now-a-days self-service retail shops are becoming very popular,
particularly in big cities because of the role assigned to sales assistant for promotion.
11. Explain any three advantages of branding to the marketer. (Delhi 2008)

Ans. The three main advantages of branding to the marketer are as follows:

(i) Product differentiation Branding helps to give a separate identity to the product.
This enables the firm to secure and control the market for its product.

(ii) Helps in advertising and display programmes A brand aids a firm in its
advertising and display programmes. Without a brand name, the advertiser can only be
aware of the generic product and can never be sure of the sale of his product.

(iii) Differential pricing Branding enables a firm to charge different price for its products
than that charged by its competitors. This is possible because if customer likes a brand
and becomes habitual of it, they do not mind paying a little higher for it.

12. Explain any three qualities of a good brand name. (All India 2008)

Ans. Qualities of a good brand name are:

(i) Suggestive A brand name should suggest something about a product’s benefits, its
use, quality, product’s nature, purpose, performance or action.
e.g. Lijjat papad, Clean and Clear face wash, Amul milk etc.

(ii) Short and Easy The name should be short, simple, easy to pronounce, to spell,
recognise and remember e.g. VIP, Rin, Vim, NIP,
etc. (iii) Distinct A brand
name should be distinctive, e.g. Liril, Sprite, Safari, Zodiac, etc.
13. Differentiate between the concepts of ‘packaging’ and’labelling’. (All India
2008 C)

Ans. Labelling It refers to the process of designing and creating a label for a product. A
label is an important feature of a product as it provides useful information about the
product and its producer. The label may be simple tag attached to the product or an
elaborately designed graphic that is a part of the packages. It is used to communicate
the brand, grade or other information about the product. Finally, the label might promote
the product through its attractive graphics.
Packaging It may be defined as an act of designing and producing the wrapper or
container for a product. It is concerned with putting the goods in bottles, boxes,
containers, cans, bags, etc. of such convenient size as which provides protection
against spoilage, breakage, leakage and pilferage and can easily be handled by buyers.
Keeping in mind the needs of wholesalers as well as retailers in today’s marketing
system, the importance of packaging has increased considerably because of high
competition and rise in the standard of living of people. Therefore, a good packages
should be convenient, attractive, safe and economical. Packaging provides useful
information about the product. It helps in identification of products and their
manufacturers.

4/5 Marks Questions.

14. State any five functions of labelling (Compartment 2014)

or
What is meant by labelling? State any four functions of labelling.(All India 2011,
2009; Delhi 2010,2009 C)

Ans. Labelling Label may be a simple tag attached to the product (in case of local
unbranded products) to complex graphics that are part of the package (like in branded
products). Labels are useful in providing detailed information about the product like its
content, method of use, etc.

Functions of labelling Labelling facilitates the marketing of products and satisfy

various legal requirements.
Advantages/ functions of labelling are: (Any three)

(i) Identification of product/brand It helps in identifying the product or brand, e.g. the
name stamped on a cold drink identifies it as Pepsi, Coke, Fanta, etc.

(ii) Helps in promotion of products A carefully designed label can attract attention and
give reason to purchase. Labels play an important role in sales promotional schemes
launched by companies, e.g. the label on the package of a shaving cream mentions
‘40% extra free’ or package of a toothpaste mentioning, ‘free tooth brush inside or save
Rs 15’.

(iii) Providing information required by law Labelling provides information required by

law e.g. the statutory warning on the package of cigarette ‘Smoking is injurious to
health’.
(iv) Grading of products It also helps in grading the products into different categories.
Different types of tea is sold by same brand under the category of yellow, red and green
label.

15. What is meant by packaging? State any four functions of packaging?(All India
2011; Delhi 2011)

Ans. Packaging refers to the act of designing and producing the container or wrapper of
a product. It is concerned with the determination of convenient size in which the product
is to be put in the market and the creation of proper packages for different sizes in order
to avoid spoilage leakage breakage and pilferage of the product.

Functions of Packaging Packaging refers to the act of designing and producing the
container or wrapper of a product.
The three main functions of packaging are as follows: (Any three)

(i) Product identification Packaging helps a product to be easily identified by the

customer, e.g. Maggi noodles in yellow colour, Lays in blue, green and red colour can
be identified easily.

(ii) Product protection Packaging protects the contents of a product from spoilage,
breakage, leakage, damage, etc. e.g. air tight containers and packets are used for
biscuits, tea, etc.

(iii) Product promotion Packaging promotes the sales of the product. Package is the
buyer’s first encounter with the product and is capable in turning the buyer on or off. The
colourful attractive packing of the product attracts the customers to buy it e.g. Ferrero
Rocher chocolates, Calcium Sandoz, etc.

(iv) Facilitating use of product The size and shape of the package should be such that
it should be convenient to open, handle and use for the consumers, e.g. toothpastes,
face wash, etc.

16. Give the meaning of ‘price’ as an element of ‘marketing mix’. State any three
factors which affect the price determination of a product. (Delhi 2011 c)

Ans. Price may be defined as the amount of money paid by a buyer in consideration of
the purchase of a product or a service. Pricing involves determination of price of the
product. Pricing plays an important role in the marketing of goods and services. It is
often used as a regulatory of product’s demand. Pricing also affects the revenue and
profits of a firm.
The three factors which affect the price determination of a product are as follows: (Any
three)
(i) Objective of pricing Firms may include profit maximisation, obtaining market share
leadership, surviving in a competitive market and attaining product quality leadership.

(ii) Cost Price charged must enable the businessman to cover his cost including a
reasonable margin of profit.

(iii) Competition It is necessary to take into consideration prices of the products of the
competing firms prior to fixing the price. In case of cut-throat competition, it is desirable
to keep the price low.

(iv) Demand for product Intensive study of demand for products and services in the
market should be undertaken before price fixation. If demand is relatively more than
supply, higher price can be fixed.

17.’An important task in the marketing of goods relates to designing the label as
it provides useful and detailed information about the product.’ In the light of the
above statement, draw a label for a packet of juice and highlight the important
information to be provided on it. (hots; ah India 2010)

Ans. A simple looking but important task in the marketing of goods relates to designing
the label to be put on the package. The label may vary from a simple tag attached to the
product to complex graphics containing essential information such as price, quantity,
expiry date, etc.

Label for the Packet of Juice

(i) Describe the Product and Specify its Contents

 Orange Juice with extra calcium and low fat. It gives you extra energy.
 Contains sugar, orange, no added flavour, etc.

(ii) Identification of Product or Brand

 Helps to identify from other brand.

 Real orange juice.
 Real manufacturer-Jaipur or Delhi.
 Net weight 150 ml, 250 ml, 500 ml, etc.
 Retail price Rs 15, 20, 30, etc.
 Batch no XYZ

(iii) Grading of Product

 Real orange juice for women, children and old people.

(iv) Helps in Promotion of Product

  Real juice piyo khushiya manao.
 40% extra with 1 litre pack.

(v)Providing information required by law

 Best before six months from the date of manufacturing.

18.’An important task in the marketing of goods relates to designing the label as
it provides useful and detailed information about the product’. In the light of the
above statement, draw a label for a liquid soap and highlight the important
information to be provided on it. (Delhi 2010)

Ans. A label contains essential information about a product. Therefore, following are the
important information to be be provided on the label of liquid soap.

[Link] products have certain unique features. They attract a significant groups
of buyers. Identify the kind of product and list its features. (Delhi 2008)

Ans. Such products are known as ‘speciality products’.

The features of speciality product are as follows:
(i) The demand for speciality product is limited as relatively small number of people buy
these products. ‘ •
(ii) These products are generally costly and their unit price is very high.
(iii) These products are available for sale at few places as the number of customers is
small and are willing to take extra efforts to purchase these products.
(iv) Special promotional efforts are required for the sale of such products.
(v) After sales services are very important for many of the speciality products.
6 Marks Questions

20. There are a number of factors that affect the fixation of price of a product.
State any five such factors. (Compartment 2014)
or
Explain any four factors, which affect the determination of the price of a product.
(Delhi 2013)
or
‘Pricing of a product is an important and effective competitive weapon in
marketing, which depends upon various factors’. Explain any three such factors.
(All India 2013)
or
‘Price of a product is influenced by many factors.’ Explain any five factors
influencing pricing. (Delhi 2010)
or
You are a toothpaste manufacturer and you have introduced a new brand
toothpaste in the market. How will you determine the price of your product?
Explain by giving any three points. (Hots; All India 2010)
or
Name that element of marketing mix which affects the revenue and profits of a
firm. Explain any six factors which help in determining this element.
(HOTS; Delhi 2010; All India 2010)

Ans. Pricing of a product is influenced by many factors. Some of them are as follows:
(i) Pricing objective Firms may include profit maximisation, obtaining market share
leadership, surviving in a competitive market and attaining product quality leadership.
While deciding upon the price of a product a firm has to see, which of the above
mentioned pricing objective, it would consider and fixes the price of its product
accordingly.

(ii) Product cost It includes the cost of procuring, distributing and selling the product. It is
important that the price should recover Total Costs (Fixed Costs + Variable Costs) in the
long-run including a profit margin over and above the costs.

(iii) Extent of competition in the market Competition is another important consideration

while pricing a product. Under monopoly situation, a firm can enjoy complete freedom in
fixing the price of its product. But in case of intense competition, a firm should fix lower
price of its product to capture a large market share.

(iv) Government and legal regulations In order to protect the interest of public against
unfair practices, government fixes the price of essential commodities, e.g. medicines,
petrol, sugar, etc. A firm should not charge a higher price, otherwise it would invite
government action.

(v) Demand and supply conditions whether the price of the product should be high or
low, depend on the demand and supply conditions.
(vi) Marketing method use The price of the product also gets affected by the methods of
marketing used by a firm to promote the products. If a firm is using intensive advertising
to promote the sale of a product then it will charge a higher price for
it.

21. Explain the four important elements of marketing mix. (Compartment 2014)

Ans. Elements of marketing mix Marketing mix refers to the combination of four
basic elements known as four P’s-product, price, promotion and physical distribution.
The various components of marketing mix are: (Any three)

(i) Product mix The product mix refers to important decisions related to the products.
Product mix involves product planning and development. Decisions are to be taken
regarding product, range, quality, size, features, packaging, after sale services,
branding, warranties etc. Production must satisfy consumer needs and expectations.
These decisions play an important role in attracting the customers to the product.

(ii) Price mix It refers to important decisions related to price levels, pricing strategy and
price policies of an organisation.
Price is the money paid by a buyer (or received by a seller) in consideration of the
purchase of a product or a service. It plays an important role in the marketing of goods.
It is often used as a regulator of product’s demand and act as effective tool during stiff
competition. Price affects the revenue and profits of a firm. .

(iii)Promotion mix It refers to informing the customers about the product and
persuading them to purchase these products. This job is done by the company through
the medium of advertisement, personal selling, sales promotion and public relations.
Decisions with regard to all these factors directly influence the sale of the product.

(iv) Place mix (Physical distribution) It includes decisions about channels of distribution,
means of transportation, warehousing, inventory control, etc. Place mix is concerned
with linking the sellers and buyers. The choice of channels of distribution depends on
nature of product, competition, willingness of middle men and producer’s financial
resources.

22. Consumer products are classified on different basis.’Shopping efforts

involved ‘is !
One of them. Explain any three types of products in this category. (Delhi 2012)

Ans. Consumer products classified on the basis of ‘shopping efforts involved’ are as
follows :

(i) Convenience products Those consumer products which are purchased frequently,
immediately and with least time and efforts are known as convenience goods, e.g.
cigarettes, ice-creams , medicines, newspaper, etc. These products have low unit value
have a regular demand and are bought in small quantities.
(ii) Shopping products These are those consumer goods in the purchasing of which
buyers devote considerable time, to compare the quality, price, style, suitability,
etc at several stores before making the final purchase, e.g. clothes, shoes,
jewellery, furniture, radio, television etc.

(iii) Speciality products These products are those consumer goods which have certain
special features because of which people make special efforts in their purchase.
These products are of high value and manufactured by reputed firms. For such
products, the buyers have brand preference and insistence. Hence, the
consumer may wait or suffer inconveniences to get the desired goods, e.g. art
and artifacts, Rolex watches, etc.

23. Consumer products are classified on different basis, ‘durability of the

product’ is one of them. Explain any three types of products in this category. (All
India 2012)

Ans. On the basis of durability of products, consumer products are classified as follows:
(i) Non-durable products The consumer products which are normally consumed in one
or few uses are called non-durable products, e.g. toothpaste, detergents, bathing soap
and stationery products, etc.
(ii) Durable products Those tangible consumer products which normally survive many
uses. e.g. TV, radio, refrigerator, bicycle, sewing machine and kitchen gadgets, are
referred to as durable products. These products are generally used for a longer period.
(iii) Services Services are intangible in form by services, we mean those activities,
benefits or satisfactions that are offered for sale. e.g. dry cleaning, watch repairs, hair
cutting, postal services, services offered by a doctor and a lawyer.
Following are the important features of services:

 Services are intangible.

 A service is inseparable from its source.
 Services can not be stored.
 Services are highly variable as their type and quality depend on the person
providing them.

24. What is meant by brand name? State any five characteristics of a good brand
name. (Delhi 2011)
or
What are the characteristics of a good brand name? Explain. (Delhi 2009)

Ans. Brand name is the verbal component of a brand, e.g. Asian Paints, Safola, Maggi
and Uncle Chips are the brand
names. Characteristics ofa good brand name
are:
(i) Suggestive A brand name should suggest something about a product’s benefits, its
use, quality, product nature, purpose, performance, etc.
(ii) Short and easy The name should be short, simple, easy to pronounce, recognise
and remember e.g. Ponds, VIP, Rin, Vim, etc.

(iii) Capable of registration It should be capable of being registered and protected

legally under the legislation.

(iv) Distinct A brand name should be unique, attractive and distinctive e.g. Sun Light,
Fair and Glow, Gold Flake, etc.

(v) Adaptable The brand name should be adaptable to packaging or labelling

requirements, to different advertising media and different languages.

25. What is meant by packaging? Give any five points explaining why packaging
is important. (All India 2009)

Ans. Packaging refers to the act of designing and producing the container or wrapper of
a product. It is concerned with the determination of convenient size lots in which the
product is lo be put in the market and the creation of proper packages for different lot of
sizes, in order to avoid spoilage, leakage, breakage and pilferage of the product.
Importance of packaging are as follows: In the present age of consumer oriented
marketing approach (i.e. buyers market), packaging has
gained unique importance and provides several benefits in the marketing of goods.

(i) Protection A good package protects the product from damage, spoilage, breakage,
leakage, etc., during transportation and storage.

(ii) Product identification The package helps to identify the product by indicating its
nature and content. It is one of the important means for creating product differentiation.

(iii) Silent salesman Packaging helps to increase sales and obtain high prices. It acts
as a silent but forceful salesman at the point of purchase and stimulates impulsive
buying.

(iv) Reduces cost Packaging reduces the cost of transportation and storage and
widens the market.

(v) Sales promotion Packaging itself is a device of sales promotion. A customer will
pay more just to get the special package of the product.
 Place/Physical Distribution Concept
Channels of Distribution

3 Marks Questions

[Link] was appointed as the marketing head of ‘Alfa Enterprise’, manufacturer of

toothpaste and toothbrushes. His target sale was 2000 units a month. Apart from
thinking about various channels of distribution to achieve the target, he himself
started visiting schools in backward areas. He found that even after taking
various steps and counselling, some school children had not started brushing
their teeth. He investigated and found that they could not afford to buy
toothbrush and toothpaste. So, with due permission, he started donating 200
toothbrushes and toothpastes every month to such schools. .
(i)Identify the channel of distribution Ajay would adopt for distribution of
toothpaste and toothbrushes and justify it by giving one reason.
(ii)State any two values, which Ajay wants to communicate to the society.(HOTS;
VBQ; Delhi 2013)

Ans. The company would like to develop a direct contact with the children, as the
geographic area is concentrated at one place. The units to be distributed are small in
number. These factors will help in deciding the channel used
(i) Ajay, marketing head of Alfa Enterprise, adopted the zero level channel in order to
distribute the toothpaste and toothbrushes. By this mode of distribution, goods are
made directly available to the customer without involving any intermediary.
Channel adopted by Ajay is justifiable as this will help in creating straight and direct
relation with customer and this will help to achieve the target.
Direct Channel (Zero level)

(ii) Ajay communicated the following values:

 By donating toothbrushes and toothpastes, he is satisfying the social responsibility

of business.
 Secondly, he is promoting the concept of healthy lifestyle among the children.

[Link] is meant by ‘direct channels of distribution’? List any four methods of

direct distribution. (Delhi 2009; All India 2009)

Ans. When goods are made directly available by the manufacturer to the consumer, it is
known as direct channel or zero level channel. No intermediary is involved in the
transaction, e.g. selling through internet, non-retail outlets, mail order selling, selling
through own work force, etc.
Methods of direct distribution are: (Any four)
(i) Tele marketing
(ii) Internet selling
(iii) Mail order selling
(iv) Selling through own workforce
(v) Door-to-door selling

3. What is meant by ‘indirect channels of distribution’? Explain any two indirect

Channels Of distribution. (Delhi 2009; All India 2009)

Ans. Indirect channels of distribution means making goods available from the point of
production to the point of consumption by employing one or more intermediaries.
Two Indirect channels of distribution are:
(i) One level channel (Manufacturer-> Retailer-> Consumer) In this form of
arrangement, one intermediary i.e. retailers is used between the manufacturers and the
customers. That is, goods pass from the manufacturer to the retailers who in turn sell
them to the final users.
(ii) Two level channel (Manufacturer -> Wholesaler-> Retailer-> Consumer) This is the
most popular distribution network for consumer goods like soaps, oil, clothes, rice,
sugar and pulses. Here, the wholesaler and retailer functions as connecting links
between the manufacturer and consumer.

4. What is meant by channels of distribution? Explain the types of channels

of distribution. (All India 2009)

Ans. Channels of distribution means the path through which the ownership as well as
possession of goods transfer to the consumer from the producer. There are two types of
channels of distribution
(i) Direct channel When goods are made directly available by the manufacturer to the
consumer, it is known as direct channel or zero level channel. No intermediary is
involved in the transaction, e.g., selling through non retail outlets, mail order selling,
selling through own work force, etc.
(ii)Indirect channel When a manufacturer employees one or more intermediary to
move goods from the point of production to the point of consumption. The distribution
network is called indirect. This may take any of the following forms:

 One-level channel Manufacturer->Retailer-> Consumer.

 Two-level channel Manufacturer-> Wholesaler-> Retailer->Consumer.
 Three-level channel Manufacturer->Agent->Wholesaler-> Retailer Consumer.

4/5 Marks Questions

5. What is meant by physical distribution? Explain its major components.

(Compartment 2014)
or
What is meant by physical distribution of goods? State any three components of
physical distribution of goods. (All India 2011 c)

Ans. Physical distribution of goods is concerned with making the goods and services
available at the right place, so that people can purchase the same. Components of
physical distribution of goods are: (Any three)
(i) Order processing A good physical distribution system ensures an accurate and
speedy processing of order. Processing of orders involves several steps viz receiving
the orders, dispatch of goods, recording it in books, billing, collection of payment, etc.
(ii) Transportation It is the means of carrying goods from manufacturers to consumers. It
is one of the ‘ major elements of physical distribution. It is important because unless the
goods are physically made available, at various places the sale cannot be completed.
(iii) Warehousing It refers to the act of storing and assorting products in order to create
time utility in them. Need for warehousing arise due to time gap between the production
and consumption of goods.
(iv) Inventory control It is an important decision in physical distribution in respect of
deciding the level of inventory. High level of inventory ensures product availability when
demand arises but increases the cost of carrying the inventory. Thus, a balance has to
be maintained between the cost and consumer satisfaction. The level of inventory
depends upon estimated demand, sales forecasts, cost of inventory.

6. State the factors determining the choice of channels of distribution. (Foreign

2014)
or
What are the channels of distribution? Explain any two factors determining the
choice of channels of distribution. (All India 2008 C)

Ans. Channel of distribution is the path through which ownership as well as possession
of goods passes from producers to
consumers. Factors determining the choice of
channels of distribution are as follows:

(i) Marketing related factors The choice of channels is affected by many market
related factors. These are:
(a)Size of market The number of channel constituents depends largely on the customer
base for the products. Larger markets require indirect channels, and vice-versa.
(b)Quantum of trade Direct channels of distribution are used where the quantity of
purchase is big. Indirect channels of distribution are used mainly where the size of
purchase is small and widely spread.
(ii)Product related factors Before deciding channel of distribution for a product, various
product related factors are to he considered. These are:
(a)Nature of the product Customised products require direct marketing as they involve
interactions between the buyer and the seller. Whereas, standardised products are sold
through a number of efforts. Similarly consumer goods require indirect channels while
industrial goods require direct distributions.
(b)Product complexities Technologically complex products are sold directly whereas,
to sell simple products, indirect channels may be employed.
(c)Perishability of the product Zero or one level channels are preferred for perishable
products to avoid the delay in delivery as compared to non-perishable products.
(d)Price of the product High priced products are mostly sold directly whereas, cheap
or inexpensive products are sold with the help of a large number of intermediaries.

[Link] the meaning of channels, of distribution. State any three functions of

channels of distribution. (Delhi 2011 C; All India 2011 C)

Ans. Channels of distribution It refers to the path through which the ownership as well
as possession of goods transfer to the consumers from the producers. The
three main functions of channels of distribution are as follows:
(i) Sorting Middlemen procure goods of different nature, size and quality from several
sources. They sort these goods into homogeneous groups on the basis of size and
quality.
(ii) Accumulation Middlemen build up a stock of products for maintaining continuous
flow of supply to customers.
(iii)Allocation It involves breaking homogeneous stock into smaller marketable lots.

[Link] is meant by ‘indirect channels of distribution’? Explain which indirect

channel of distribution would you adopt for consumer goods and why? (Delhi
2008 C)

Ans. Indirect channels When a manufacturer employs one or more intermediary to

move goods from the point of production to the point of consumption, the distribution
network is called indirect channels.

Channels of distribution for consumer goods

(i) Consumer products are usually standardised, less expensive, less bulky, non-
technical bought products. These can be better distributed by long network of channels,
involving many middlemen.
The life of consumer goods is perishable. If the products are perishable (e.g. fruits,
vegetable, dairy products), their life is short. Therefore, either direct selling or shorter
channels are suitable for such products
(ii) Non-perishable products like toiletry products (e.g. soap, toothpaste, hair oil, etc.)
groceries (vegetable oil, tea leaf, etc), fabrics require longer channels to reach
widespread customers.
(iii)For costly goods, shorter channels are preferred while products of small value can
be sold through long channels.
(iv)Products may be simple or complex. Simple products can be sold by a normal seller
but to sell a technically complex product, a qualified and trained salesman is required
who can give expert
(v)advice and counsel customers at the point of sale. Therefore, direct or short channels
are preferred.
6 Marks Questions

9.’Choice of an appropriate channel of distribution is a very important marketing

decision, which depends on various factors’. Explain any three such factors.(All
India 2013)
or
‘Choice of channels of distribution depends on various factors.’ Explain any four
factors which affect the choice of channels of distribution. (All India 2013; Delhi
2012c)

Ans. Factors which affects the choice of channel of distribution are as follows:

(i) Marketing related factors

The choice of channels is affected by many market related factors. These are:
(a)Size of market The number of channel constituents depends largely on the customer
base for the products. Larger markets require indirect channels, and vice-versa.
(b)Quantum of trade Direct channels of distribution are used where the quantity of
purchase is big. Indirect channels of distribution are used mainly where the size of
purchase is small and widely spread.

(ii) Product related factors

Before deciding channel of distribution for a product, various product related factors are
to he considered. These are:

(a)Nature of the product Customised products require direct marketing as they involve
interactions between the buyer and the seller. Whereas, standardised products are sold
through a number of efforts. Similarly consumer goods require indirect channels while
industrial goods require direct distributions.
(b)Product complexities Technologically complex products are sold directly whereas,
to sell simple products, indirect channels may be employed.
(c)Perishability of the product Zero or one level channels are preferred for perishable
products to avoid the delay in delivery as compared to non-perishable products.
(d)Price of the product High priced products are mostly sold directly whereas, cheap
or inexpensive products are sold with the help of a large number of intermediaries.

(iii) Company characteristics The important company characteristics affecting the

choice of channels of distribution include the financial strength of the company and the
degree of control, it wants to hold on other channel members.
(a)Degree of control Manufacturers ambition to control the channel of distribution
affects its selection. Consumers should be approached directly by such type of
manufacturer, e.g. electronic goods sector with a motive to control the factors service
levels provided to the customer at the point of sale are resorting to company owned
retail counters.
(b)Financial strength A company which has strong financial base can evolve its own
channels. On the other hand, financially weak companies would have to depend upon
middlemen.
Company desiring control on distribution of goods and services should use short
channels.
(iv) Competitive factors The choice of channel is also affected by the channel selected
by the competitors in the same industry.

10.’Physical distribution includes some components for physically moving the

goods from manufacturers to the customers.’ Explain these components.
(AllIndia2012)
Ans. Components of physical distribution Physical distribution of goods is
concerned with making the goods and services available at the right place, so that
people can purchase the same. Components of physical distribution of goods are: (Any
three)
(i) Order processing A good physical distribution system ensures an accurate and
speedy processing of order. Processing of orders involves several steps viz receiving
the orders, dispatch of goods, recording it in books, billing, collection of payment, etc.
(ii) Transportation It is the means of carrying goods from manufacturers to consumers. It
is one of the major elements of physical distribution. It is important because unless the
goods are physically made available, at various places the sale cannot be completed.
(iii) Warehousing It refers to the act of storing and assorting products in order to create
time utility in them. Need for warehousing arise due to time gap between the production
and consumption of goods.
(iv) Inventory control It is an important decision in physical distribution in respect of
deciding the level of inventory. High level of inventory ensures product availability when
demand arises but increases the cost of carrying the inventory. Thus, a balance has to
be maintained between the cost and consumer satisfaction. The level of inventory
depends upon estimated demand, sales forecasts, cost of inventory.

11. Name the element of marketing mix in which a set of firms and individuals
creates possession, place and time utility and helps in market offering. Also
explain any five important functions performed by this element. (hots; Delhi 2011;
All India 2011)
Ans. Place Mix/Physical Distribution Functions performed by this elements are:
(i) Sorting Middlemen procure supplies of goods from a variety of sources, which is
often not of the same quality, nature and size. They sort these goods into homogeneous
groups.
(ii) Accumulation This function involves accumulation of goods into larger
homogeneous stocks for continuous flow of supply.
(iii) Allocation It involves breaking homogeneous stock into smaller marketable lots e.g.
once cashew nuts are graded and large quantities are built, these are divided into
convenient packs of say 1kg, 500gms, to sell them to different types of buyers.
(iv) Assorting Middlemen build assortment of products for resale. There is usually a
difference between the product lines made by manufacturer and the assortment or
combinations desired by the users, e.g. a cricket player may need a bat, a ball, wickets,
gloves, helmet, a t-shirt and a pair of shoes.
(iv)Product promotion Mostly advertising and other sales promotion activities are
performed by manufacturers. Middlemen also participate in certain activities such as
demonstrations, special displays, contests, etc. for increasing the sale of products.
 Major Tools of Promotion i.e Advertising, Personal
Selling & Sales Promotion

4/5 Marks Questions

1. What is meant by advertising? State the role of advertising in

marketing. (Compartment 2014)

Ans. Advertising It is an impersonal form of communication, which is paid for by the

marketers (sponsors) to promote some goods or services. Most common modes of
advertising are newspaper, television and radio. –
Advantages to manufacturers are as follows:

(i) Provides economies of scale Large and steady demand enables a manufacturer to
sell more and to produce goods on large scale. Mass production on regular basis helps
to reduce the costs of production and distribution.

(ii) Reduces dependence on middlemen Advertising helps to establish a direct

contact between manufacturers and consumers. It is easy to find consumers, as they
are made aware of the availability and usefulness of goods.

2. Describe the role of public relations in the promotion of products and services.
(Compartment 2014)
or
Explain the role of ‘public relations’ in marketing management. (All India 2013)

Ans. Public relations The concept of public relations involves a variety of programmes
to promote and protect a company’s image or its products. It is the sustained and
planned effort to influence public opinion and to establish and maintain mutual
understanding between an organisation and the public.

Role of Public Relations

The public relations department performs the following functions :

 Press relations, in order to present true facts and a correct picture about the
company.
 Product publicity, by organising events like seminars and exhibitions.
 Corporate communication, by communicating with the public and employees of
the organisation.
 Lobbying, by maintaining healthy relationship with the government, ministers,
associations of commerce etc.
 Counselling, by advising the management on building goodwill by contributing to
causes like environment, wildlife etc.
3. Though advertising is one of the most frequently used media of promotion of
goods and services, yet it attracts lot of objections.’ Explain any four such
objections.(Compartment 2014)
or
‘Advertisement is a social waste as it adds to cost, undermines social values and
confuses the buyer’. Explain how? (All India 2008)
or
‘Advertisement is unnecessary and wasteful’. Do you agree? Give reasons in
support of your answer. (Delhi 2008 C)

Ans. Objections of advertising are as follows: (Any four)

(i) Undermines social values Advertisement sometimes compels to use those

commodities which we do not require. In this way, our wants are unnecessarily
increased. If wants remain unsatisfied, we feel discontented. Desire to have more and
more things is multiplying and life style is badly affected. Some advertisements show
new life styles, which cannot be socially approved.

(ii) Encourage sale of Inferior goods Advertisement generally speaks very high of the
products. Sometimes products advertised are defective and adulterated. In this way,
consumers are misled and suffer losses with the use of commodities instead of benefits.

(iii) Adds to cost Advertising adds to the cost of product and the price of the commodity
unnecessarily increases. The consumers pay for advertised commodity more than what
they would have paid for the same unadvertised commodity.

(iv) Confuses the buyer There are so many advertisements of certain products such as
TV, detergents, etc which confuses the consumer as which products should be
purchased and which is better.

(v) Some advertisements are bad in taste Some advertisements show something
which is not approved by the society. They may cause something objectionable and
may cause distortion of certain relationships.
4. Differentiate between advertising and personal selling on any five basis.(All
India 2012)

6 Marks Questions

5. Explain the concept of personal selling and any four qualities of a good
salesman.(Delhi 2013)

Ans. Personal selling refers to the oral presentation of message in the form of
conversation with one or more prospective customers for the purpose of making
sales. Quality of good salesman are as follows:

(i) Physical qualities Good looking, healthy.

(ii) Psychological qualities Should be sweet natured, possess good behaviour, should
be mentally healthy, intelligent and creative.

(iii) Technical quality Should be fully conversant with technical knowledge of the
product.

(iv) Communication skills Should be pleasing, polite and courteous. He should have
good oratory skills and he should also be a good listener.

6. Explain the role of ‘advertising’ in marketing management. (All India 2013)

Ans. Advertising is an impersonal form of communication, which is paid for by the

marketers (sponsors) to promote some goods or services. Most common modes of
advertising are newspaper, television and radio.
Advantages to manufacturers are as follows:

(i) Provides economies of scale Large and steady demand enables a manufacturer to
sell more and to produce goods on large scale. Mass production on regular basis helps
to reduce the costs of production and distribution.
(ii) Reduces dependence on middlemen Advertising helps to establish a direct
contact between manufacturers and consumers. It is easy to find consumers, as they
are made aware of the availability and usefulness of goods. Advantages to consumers
are as follows:

(i) Educates consumers Advertising provides useful information to consumers about

products and their uses. It helps them to develop better habits and good lifestyle, e.g.
advertisements remind children to regularly brush their teeth, housewives to use better
detergents and managers to use personal computers.

(ii) Consumer’s surplus Advertising makes goods available to consumers at lower

prices by expanding sales and production. It also helps to eliminate cost of middlemen.
In order to support advertising, manufacturers maintain quality of their products.
Consumers get surplus in the form of lower prices and better quality.
Advantages to society are as follows:

(i) Generates employment Advertising provides direct employment to a large number

of people engaged in designing, writing and issuing advertisements. Indirectly,
advertising creates employment opportunities by increasing the volume of sales and
production.

(ii) Improves standard of living Advertising helps people in improving their lifestyles. It
provides knowledge about new and better things. Such education facilitates progress of
civilisation

7. Identify and explain the promotional tool of marketing mix which plays a
persuasive, service and informative role and thereby link a business firm to its
customers. Also explain by giving any four reasons how this tool helps in
increasing the sales of businessmen. (Delhi 2011)

Ans. Personal selling Personal selling refers to the oral presentation of message in the
form of conversation with one or more prospective customers for the purpose of making
sales. Companies appoint sales persons to contact prospective buyers and create
awareness about the product and develop product preferences with the aim of making
sale.

Importance of personal selling to a business Personal selling is an effective tool of

promotion mix. Its importance to business is judged by the following factors:

(i) Flexible tool It is personal in nature and offers the sales person an advantage of
adjusting as per the needs of the customer.

(ii) Link with customers There is a direct contact between the salesman and the
prospects, which reduces chances of diffusion and distortion in the desired message.

(iii) Feedback It enables the businesses to obtain the feedback from the customers and
accordingly prepare the strategies for the future.
(iv) Role in introduction stage It is an effective tool to launch products in the
introductory stage of a product life cycle.

8. Identify and explain the promotional tool of marketing mix which is an

impersonal form of communication and is paid for by the marketer. Also explain
any three benefits of this tool. (Delhi 2011C; All India 2011)

Ans. Advertising is an impersonal form of communication, which is paid for, by the

marketers (sponsors) to promote some goods or service. The most common modes of
advertising are ‘newspapers’, ‘magazines’, ‘television’ and ‘radio’. As it is an impersonal
method, it creates monologue and not a dialogue. Advertising can be easily identified by
its sponsor. Benefits of advertising are as follows: ,

(i) Mass communication Advertising is a medium of mass communication. It reaches a

large number of people spread over a large geographical area.

(ii) Helps in building the image of the firm Advertising helps to build the image of the
firm and its products in the minds of buyers who begin to patronise the products. It also
helps in building confidence among the prospective buyers about the quality of the
products.

(iii)Creation of demand Advertising helps in introducing new products and new uses of
existing articles or services to create and maintain demand. Demand for the product is
created through arising interest and awareness among the prospective buyers, and
thereby increasing sales and profits of the organisation.

9. Identify and explain the promotional tool of marketing mix which involves
oral presentation of message with one or more prospective customers for the
purpose of making sales. Also explain any three benefits of this tool in the
economic progress of a society. (Delhi 2011 c)

Ans. Personal selling Personal selling refers to the oral presentation of message in the
form of conversation with one or more prospective customers for the purpose of making
sales. Companies appoint sales persons to contact prospective buyers and create
awareness about the product and develop product preferences with the aim of making
sale.

Importance of personal selling to a business Personal selling is an effective tool of

promotion mix. Its importance to business is judged by the following factors:

(i) Flexible tool It is personal in nature and offers the sales person an advantage of
adjusting as per the needs of the customer.

(ii) Link with customers There is a direct contact between the salesman and the
prospects, which reduces chances of diffusion and distortion in the desired message.
(iii) Feedback It enables the businesses to obtain the feedback from the customers and
accordingly prepare the strategies for the future.

(iv) Role in introduction stage It is an effective tool to launch products in the

introductory stage of a product life cycle.
Benefits of personal selling in the economic progress of a society are as follows:

(i) Converts latest demand Personal selling converts latest demand into effective
demand, which leads to economic activity in the society, leading to more jobs, more
income and higher production. This cycle leads to economic progress of the society.

(ii) Employment opportunities Personal selling offers employment opportunities to the

unemployed youth in the society.

(iii)Product standardisation Personal selling increases product standardisation and

uniformity in consumption pattern in a diverse society.

10. Describe any three points of importance of personal selling each to

businessmen
and society. (All India 2011)

Ans. Importance of Personal Selling for Businessmen Personal selling refers to the
oral presentation of message in the form of conversation with one or more prospective
customers for the purpose of making sales. Companies appoint sales persons to
contact prospective buyers and create awareness about the product and develop
product preferences with the aim of making sale.

Importance of personal selling to a business Personal selling is an effective tool of

promotion mix. Its importance to business is judged by the following factors:

(i) Flexible tool It is personal in nature and offers the sales person an advantage of
adjusting as per the needs of the customer.

(ii) Link with customers There is a direct contact between the salesman and the
prospects, which reduces chances of diffusion and distortion in the desired message.

(iii) Feedback It enables the businesses to obtain the feedback from the customers and
accordingly prepare the strategies for the future.

(iv) Role in introduction stage It is an effective tool to launch products in the

introductory stage of a product life cycle.

Importance of Personal Selling to Society

Personal selling refers to the oral presentation of message in the form of conversation
with one or more prospective customers for the purpose of making sales. Companies
appoint sales persons to contact prospective buyers and create awareness about the
product and develop product preferences with the aim of making sale.

Importance of personal selling to a business Personal selling is an effective tool of

promotion mix. Its importance to business is judged by the following factors:

(i) Flexible tool It is personal in nature and offers the sales person an advantage of
adjusting as per the needs of the customer.

(ii) Link with customers There is a direct contact between the salesman and the
prospects, which reduces chances of diffusion and distortion in the desired message.

(iii) Feedback It enables the businesses to obtain the feedback from the customers and
accordingly prepare the strategies for the future.

(iv) Role in introduction stage It is an effective tool to launch products in the

introductory stage of a product life cycle.
Benefits of personal selling in the economic progress of a society are as follows:

(i) Converts latest demand Personal selling converts latest demand into effective
demand, which leads to economic activity in the society, leading to more jobs, more
income and higher production. This cycle leads to economic progress of the society.

(ii) Employment opportunities Personal selling offers employment opportunities to the

unemployed youth in the society.

(iii)Product standardisation Personal selling increases product standardisation and

uniformity in consumption pattern in a diverse society.

11. Explain the following sales promotion activities

(i) Discount
(ii) Product combination
(iii) Financing
(iv) Lucky draw (Delhi 2009)

Ans. (i) Discount It refers to offering products at less than the list price e.g. a shoe
company’s offer discount @ 50%.

(ii) Product combination It refers to offering another product along with the purchase
of a product, say offer of a pack of half kilogram of rice with the purchase of a bag of
aatta. (wheat flour).

(iii) Financing It refers to offering easy financing schemes, e.g. 24 easy instalments or
the amount to be paid as post dated cheques.

(iv) Lucky draw It refers to taking out a draw on purchase of product and giving gift to
the winner, e.g. lucky draw coupon for free petrol on purchase of certain quantity of
petrol from given petrol pump.

[Link] the following sales promotion activities

(i)Refund
(ii)Instant draw and assigned gifts
(iii)Full finance at 0%
(iv)Sampling (All India 2009)

Ans. (i) Refund Refunding is a part of price paid by customer on some proof of
purchase , say return of empty foils or wrapper. This is commonly used by food product
companies to boost their sales.

(ii)Instant draw and assigned gifts The customer may a get gift on scratching a card
or drawing a number carrying the assured prize.

(iii)Full finance at 0% Many marketers offer 0% interest on financing of consumer

durable products like washing machine, TV, etc, e.g. 24 instalments in which 6 paid as
first payment (down payment) and remaining 18 with postdated cheques. In these types
of schemes, customer should be careful about the file charges, rate of interest, etc.

(iv)Sampling It refers to distribution of free samples of the product to the customers.

These are distributed when the seller wants the customers to try the product. Generally,
when a new product is launched such samples are distributed.

13.A salesman approaches you to promote the sales of a ‘water purifier’.

Which communication tool the marketer is using by sending a salesman at your
door step? Explain the role of this tool to a businessman. (Delhi 2009 C; All India
2009)

Ans. The marketer is using the tools of personal form of communication or personal
selling or salesmanship. It involves face to face communication between a seller and a
buyer. In this technique of promotion, sales person can make oral presentation to one or
more customers for the purpose of making sales.
Importance to businessman are as follows: (Any five)

(i) Effective promotion tool Personal selling is an effective tool to increase the sale of
product. Salesman explains the merits of products to customers.

(ii)Flexible tool Personal selling efforts can be changed according to the type of
customer that the salesmen are attending.

(iii)Consumer attention Through personal selling, it is easy to get the attention of

customer, as there is face to face interaction between customers and salesman.

(iv) Relationship Personal selling helps to create lasting relationship between

customers and sellers, which helps in increasing sale.
(v) Minimum wastage of efforts As compared to other methods of promotion in
personal selling, the wastage of efforts is minimum.

(vi) Personal rapport Through personal selling, salesman can create personal rapport
with the customers.

14.’Explain the concept of personal selling’. How does it act as a powerful tool
for creating demand and increasing sale of a firm’s products? (Delhi 2009)

Ans. Concept and importance of personal selling

Personal selling refers to the oral presentation of message in the form of conversation
with one or more prospective customers for the purpose of making sales. Companies
appoint sales persons to contact prospective buyers and create awareness about the
product and develop product preferences with the aim of making sale.

Importance of personal selling to a business Personal selling is an effective tool of

promotion mix. Its importance to business is judged by the following factors:

(i) Flexible tool It is personal in nature and offers the sales person an advantage of
adjusting as per the needs of the customer.

(ii) Link with customers There is a direct contact between the salesman and the
prospects, which reduces chances of diffusion and distortion in the desired message.

(iii) Feedback It enables the businesses to obtain the feedback from the customers and
accordingly prepare the strategies for the future.

(iv) Role in introduction stage It is an effective tool to launch products in the

introductory stage of a product life cycle.

15.’Money spent on advertisement is not a waste but an investment’. Do you

agree with this view? Give reasons in support of your answer. (hots; ah India
2008)

Ans. It is true that money spent on advertisement is not a waste but an investment.
The benefits of advertising to the manufacturers or producers are as follows:

(i) Increasing sales A good advertisement campaign keeps the existence of a product
alive in the market. It helps in generating more sales for the manufacturer. It expands
the market by influencing more people to buy the products and services.

(ii) Creating demand for new product It helps in launching a new product by
introducing it to the people.

(iii) Reducing cost of production Advertisement promotes increased sales. It reduces

the cost of producing by making large scale production possible through the creation of
demand.
(iv) Increase in profit Increase in sale and reduction in cost enhances the profitability of
the organisation.

(v) Goodwill Frequent advertisement and good marketing improves the goodwill of the
organisation. It boosts the image of the organisation in the business world.

(vi) Steady market Customer’s confidence is created by regular advertisement about

the quality, use and availability of the product.
 Consumer Protection

1. Read the following statements : Assertion (A) and Reason (R). Choose the
correct alternative from the options given below : (2024)
Assertion (A) : Many enlightened business firms have set up their own consumer
service and grievance cells.
Reason (R) : The consumer has a right to file a complaint and to be heard in case
of dissatisfaction with a good or service.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Ans. (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A).
2. Ayush and Rhea were passionate about sustainable agriculture and healthy
living. They wanted to start a business selling organic produce. They had a small
farm in a rural area where they began growing fresh organic produce and herbs.
In the beginning, they faced challenges in marketing their organic products. They
realized that their high quality produce needed better presentation and a strong
identity to stand out in a competitive market.
They named the business ‘Earthy Store’ which indicated the products’ benefits
and qualities and reflected the values of the business - sustainablility and health.
They chose a ‘logo’ that incorporated elements of nature and used earthy colours
to convey their organic commitment. They designed and developed eco-friendly
biodegradable bags and reusable containers to courier their products to the
customers. They also added personal touch by including handwritten notes in
each bag.
They also designed and developed product stickers with detailed information
about organic certification, nutritional benefits, date of manufacture, date of
expiry, etc. The stickers so developed were put on the bags and reusable
containers for customers convenience.
‘Earthy Store’ created a user-friendly website and established strong media
presence to inform potential customers about their products and persuading
them to buy the same. Within a couple of months, they had built a loyal customer
base which made them earn profits even in a competitive environment. In a year,
they were able to secure contracts with local grocery stores and restaurants.
Quoting lines from the above paragraph, identify and explain the three functions
of marketing discussed in the above case. (2024)
Ans. Functions of marketing:
(i) Branding:
• Branding is the process of giving a name, term, sign, symbol, design or some
combination of them, to the product.
“They chose a 'logo' that incorporated elements of nature and used earthy
colours to convey their organic commitment.”
OR
“They named the business ‘Earthy Store' which indicated the products' benefits
and qualities and reflected the values of the business - sustainablility and health”.
(ii) Packaging and Labelling:
• Packaging refers to the act of designing and producing the container or wrapper
of a product.
• Labelling refers to designing and developing the label to be put on the package.
It may vary from a simple tag to complex graphics.
“They designed and developed eco-friendly biodegradable bags and reusable
containers to courier their products to the customers”
OR
“They also designed and developed product stickers with detailed information
about organic certification, nutritional benefits, date of manufacture, date of
expiry, etc.”
(iii) Promotion:
• Promotion refers to informing the customers about the firm’s product, its
features, etc. and persuading them to purchase these products.
“Earthy Store' created a user-friendly website and established strong media
presence to inform potential customers about their products and persuading
them to buy the same.”
 Previous Years' CBSE Board Questions
12.1 Concept and Importance of Consumer Protection
VSA (1 mark)
1. On which type of products is ISI mark used?
(Al 2014 C)
2. 'The consumer has a right to acquire knowledge and to be a well-informed
consumer throughout life. State what type of knowledge is required by the
consumer in the above stated 'Right'.
(AI 2014 C)
SA II (4 marks)
3. What is meant by Consumer Protection? Explain any two points of importance
of consumer protection from the consumers' point of view.
(2023)
4. Explain any four points of importance of consumer protection from the point of
view of business.
(NCERT, AI 2015)
12.2 Consumer Protection Act 2019: Meaning of Consumer, Rights and
Responsibilities of Consumers, Who Can File a Complaint?, Redressal Machinery,
Remedies Available.
MCQ
5. Who among the following is not considered a consumer under the Consumer
Protection Act, 1986?
(a) A person who buys any goods for a consideration which has been paid.
(b) A person who avails of any service for a consideration which has been
promised.
(c) A person who avails of a service for a commercial purpose.
(d) Any user of goods when such use is made with the approval of the buyer.
(2020 C)
6. Aarushi purchased a pack of biscuits. When she opened it, she felt the biscuits
were stale. She carefully read the label on the pack of biscuits which mentioned:
"If you are not satisfied with the product quality, write to our Customer Care Cell
at Bell Foods Pvt. Ltd. B/321, Jalandhar, Punjab." The biscuit company has set up
its own consumer service and grievance cell to promote and protect the following
right:
(a) Right to Safety (b) Right to be Heard
(c) Right to be Informed (d) Right to Consumer Education
(2020 C)
7. The package of KRM Rawa Idli Mix describes the procedure of cooking idlis in
three easy steps. It also specifies its ingredients, instructions for storage and
serving.
The function performed by the label in the above case is:
(a) Describing the product and specifies its contents.
(b) Identification of the product or brand.
(c) Helping in promotion of products.
(d) Providing information required by law.
(2020 C)
VSA (1/2 mark)
8. Vivek purchased a bike from Samath Automobiles with a written guarantee to
repair or replace, if necessary, within six months or 5,000 kms of distance
travelled whichever is earlier. After covering the distance of 400 kms in two
months, the gears of the bike started giving problems. Vivek took the bike to the
dealer who refused to listen to his complaint. He was confused about what he
should do.
Suggest the rights that Vivek may exercise in the above case.
(Term-11, 2021-22)
9. State any two reliefs available to the consumer if the consumer court is
satisfied about the genuineness of the complaint.
(Delhi 2019)
10. Give the constitution of the District Consumer Disputes Redressal Forum
under the Consumer Protection Act, 2019.
(Al 2018)
11. Manuj bought a packet of chips from a local shopkeeper and found that the
ingredients given on the label were not legible. He complained about it to the
company. The company sent a written apology stating that, they will make sure
that existing packets are withdrawn from the market and new packets with
legible labels are soon made available.
State the consumer right which Manuj exercised.
(Delhi 2016, Al 2016)
12. On Sonika's birthday her mother gave her a pair of gold ear-rings. After one
month, Sonika observed that the ear-rings are losing their shine. She checked the
mark on the ear-ring and found that it was not a proper Hallmark and her mother
had been cheated by the shopkeeper. So, she filed a complaint in the district
forum which rejected it. Not satisfied by the decision of district forum, she was
very much disturbed and after two months decided to appeal further.
Can Sonika appeal against the decision of the district forum? Give reason in
support of your answer.
(Delhi 2015)
13. Himanshu purchased a new car from 'Galaxy Motors' for 25 lakh. He was
offered free insurance for the first year and three free servicing to be availed after
the car had covered 5,000 km, 10,000 km and 15,000 km respectively. When
Himanshu took the car for the first free servicing, he was told that the car was not
new and first service had already been availed on this car. He felt cheated and
filed a complaint in the state commission. Being not satisfied with the decision of
the state commission, after two months he decided to file an appeal against it.
Can Himanshu appeal against the decision of the state commission? Give reason
in support of your answer.
(AI 2015)
14. On the eve of Diwali, Ravi purchased two kilograms of sweets from Nandan
Sweets. On consumption of sweets, his wife fell sick and had to be hospitalised.
Ravi wanted to file a case in the consumer forum but could not do so because he
did not have any proof of buying the sweets from Nandan Sweets. Name the
document that Ravi could have obtained for filing the complaint in the consumer
forum. (Delhi
2015 C)
15. On the eve of Diwali, Kalpana purchased two kilograms of sweets from Koyal
sweets. On consumption of sweets, her two children and husband fell sick and
were to be hospitalised. Kalpana wanted to file a case in the consumer forum but
could not do so because she did not have any proof of buying sweets from Koyal
sweets. What proof could Kalpana have obtained for filing the claim in the
consumer court?
(Al 2015 C)
16. How many members are required to constitute 'District Consumer Dispute
Redressal Forum?
(Delhi 2014 C)
17. Beside a 'consumer' name any two parties who can file a complaint before the
appropriate consumer forum.
(Delhi 2014 C)
SA II (4 marks)
18. Explain the following rights of a consumer:
(i) Right to choose
(ii) Right to safety.
(2023)
19. Sameeksha is a Class-XII student having Business Studies as one of her
subjects. After studying 'Consumer Protection' as one of the chapters in Business-
Studies, she tried to apply the acquired knowledge while purchasing and using
the goods. She is very fond of cooking and always tries new recipes. This time she
wants to purchase a 'Bread Maker' to prepare home-made bread. She checked
online about the various brands of 'Bread Maker' available in the market and
compared their price, so that an intelligent and wise choice can be made. Then
she went to a nearby market to buy it. Being an informed consumer, she looked
for the Standardization Mark, negotiated the price printed on the label, checked
the date of manufacturing and asked for guarantee or warranty of the product.
After satisfying with all the concerned information she purchased the 'Bread
Maker' and as a responsible consumer asked for the cash-memo. After coming
back home she opened the packaging of the 'Bread Maker' and found an
instruction booklet inside. She carefully read all the instructions and operated the
Bread Maker step-by-step and succeeded in making nice 'Atta Bread' for her
family.
Sameeksha has fulfilled many responsibilities of a consumer while purchasing
and using the 'Bread Maker'. State any four responsibilities fulfilled by
Sameeksha besides asking for a cash-memo.
(2023)
20. Explain the following rights of consumers as per the Consumer Protection
Act, 1986:
(a) Right to be informed
(b) Right to seek redressal.
 (2021 C)
21. Sumit purchased an ISI marked washing machine of a famous brand 'MG'
from TG Electronics Ltd. The shopkeeper asked him to wait for two days for
installation of the machine. His friend, Vivek, was very fond of experimenting
with new electronic products. He told Sumit that there is no need to wait for the
company's representative to install the machine and that he could do it. So, both
of them, installed the machine without following the manufacturer's instructions.
Initially, the machine worked effectively and the wash was good. But after two
days, the machine stated stopping in between the wash cycle. Sumit and Vivek
tried their best to start the machine but failed in their efforts. Sumit, therefore,
approached TG Electronics Ltd., which refused to provide any service on the plea
that the installation of the machine was not done by the company.
(a) State the responsibility which Sumit had to fulfill as an aware consumer to get
the services of the company.
(b) Explain briefly any two rights which Sumit could have exercised; had he
fulfilled his responsibility identified in part (a).
(Al 2018)
22. What is meant by a 'consumer' as per the provisions of Consumer Protection
Act, 2019?
(AI 2016)
23. Explain the following rights of a consumer:
(a) Right to Choose and
(b) Right to Consumer Education.
(Delhi 2015)
24. State any six reliefs available to a consumer under the Consumer Protection
Act, 2019. (AI 2014)
LA (5 marks)
25. Explain the following rights of a consumer as per Consumer Protection Act,
2019:
(i) Right to Safety
(ii) Right to Consumer Education.
(Term-11, 2021-22)
26. Explain how the 'District Commission' helps the consumers in redressing
their grievances.
(Term-II, 2021-22 C)
27. State any five responsibilities of a consumer as per the Consumer Protection
Act, 2019.
(Term-II, 2021-22 C)
28. Indian Youth Organisation (IYO) organised a visit of its members to an old age
home to inculcate the habit of social work among them. The visit revealed that
the living conditions of the inmates of the old age home were not hygienic. So, the
IYO members decided to clean the premises. During their cleanliness drive, they
realised that the old age home also required pest control. But some of the inmates
of old age home were reluctant for it because they believed that the pest control
may create health problems for them. IYO, therefore decided to provide ethical,
safe and odourless pest control. They showed to the inmates of old age home a
pamphlet of the proposed pest control product which promised easy, inexpensive
and long-lasting pest control. The inmates happily agreed and the pest control
was carried out. It worked for a fortnight but to their dismay the effect started
wearing off. IYO contacted the pest control company which kept on postponing
their visit. After waiting for a month, IYO filed a case in the consumer court. The
consumer court was satisfied about the genuineness of the complaint and issued
necessary directions to the pest control company.
(a) State any six directions that might have been issued by the court.
(b) Also, identify any two values that are being communicated by IYO to the
society. (Delhi 2017)
ET (6 marks)
29. Explain the three tier machinery under the Consumer Protection Act for
redressal of consumers grievances.
(AI 2015 C)
12.3 Consumer Awareness - Role of Consumer Organisations and Non-
Governmental Organisations (NGOs)
SA I (3 marks)
30. State any three functions performed by Non-Governmental Organisations for
consumer protection.
(NCERT, Delhi 2016)
SA II (4 marks)
31. Gopal, Mohan and Shyam are three friends having their separate small
manufacturing units in an industrial estate. They are hard-working and honest
and undertake their respective production activities following the good practices
of business. They use good quality raw materials and adopt standardised process.
They fix the prices of their products with a reasonable profit margin. But all of
them are worried about the malpractices like manufacturing sub-standard,
duplicate and defective goods by the fellow manufacturers. Therefore, they
decided to form an organisation with a constitution of its own which is free from
government interference. This organisation would encourage consumers to
strongly protest and take action against unscrupulous, exploitative and unfair
trade practices of sellers.
State three other functions which may be performed by the organisation in
addition to those mentioned above. (AI 2019)
LA (5 marks)
32. State any five reliefs available to a customer if the consumer court is satisfied
about the genuineness of the complaint. (Term-11,2021-22)

CBSE Sample Questions

12.2 Consumer Protection Act 219: Meaning of Consumer, Rights and
Responsibilities of Consumers, Who Can File a Complaint?, Redressal Machinery,
Remedies Available.
SA II (4 marks)
1. Mayank purchased a pack of chocolates of a renowned brand for his daughter
from a shop in the nearby market. After consuming the chocolates, his daughter
fell sick. He filed a case with the district forum against the renowned brand. He
lost the case because of a mistake that he could not provide proof of purchase.
What should be kept in mind by a consumer while purchasing, using and
consuming goods and services apart from avoiding the mistake committed by
Mayank, in order to enable him/her to achieve the objective of consumer
protection? Enumerate any four points.(2022-23)
2. Explain the following rights of consumers provided by Consumer Protection
Act, 2019:
(a) Right to Safety (b) Right to Consumer Education. (2020-21)
LA (5 marks)
3. Enumerate any five rights of a consumer under the Consumer Protection Act,
2019. (Term-II, 2021-22)
4. Enumerate any five responsibilities of a Consumer Protection Act, 2019.
(Term-11, 2021-22)
 ANSWERS
Previous Years' CBSE Board Questions

1. ISI marks are used on Industrial products.

2. Right to consumer education: Consumer must know the rights and reliefs
available to him in case, a product falls short of his expectations.
3. The concept of consumer protection stands for educating the consumer of their
rights, safeguarding the interests and the rights of the consumer.
Importance of Consumer Protection from Consumers' point of view:
(i) Consumer ignorance: It has been seen that a large section of our population
that includes even the educated are ignorant to their consumer rights and reliefs
available to them. It is necessary to educate them.
(ii) Unorganised consumers: Consumers need to be organised in the form of
consumer organisations which would take care of their interests. The consumer
organisations need to be empowered with authority so that they are more
effective.
(iii) Widespread exploitation of consumers: Consumers face unscrupulous,
exploitative and unfair trade practices like defective and unsafe products,
adulteration, false and misleading advertisement, hoarding, black-marketing etc.
Consumers need protection against such malpractices.
4. Importance of consumer protection from the point of view of business:
(i) Long-term interest: It is in the long-term interest of business to satisfy their
customers. Satisfied consumers ensure repeat sales and good feedback to
prospective customers. Thus, increasing customer base and long-term profits.
(ii) Business uses society's resources: Firms use resources that belong to the
society. So, business has the responsibility towards the society to provide such
products and services which are in public interest.
(iii) Social responsibility: A business has social responsibilities towards the
various interest groups. Consumers are the most important of them. Thus, the
business has a social responsibility of making available good quality products at a
reasonable price to the consumers.
(iv) Moral justification: It is the moral duty of every business to take care of
consumer's interests and not to exploit them.
5. (c): A person who avails of a service for a commercial purpose.
6. (b): Right to be Heard
7. (a): Describing the product and specifies its contents.
8. The right that Vivek may exercise when the dealer of his bike refused to listen
to his complaint is:
(a) Right to be Heard
(b) Right to Seek Redressal.
9. Two reliefs available to the consumer if the consumer court is satisfied about
the genuineness of the complaint are:
(i) Repair the defective goods or remove the deficiency in service.
(ii) Refund the price that was paid by the consumer for the good or service.
10. The district consumer disputes Redressal forum under the Consumer
Protection Act, 2019 consists of a President and two other members, one of
whom should be a woman, all appointed by the state government.
11. Right to seek redressal According to this right, consumer has a right to get
relief in case of defective goods or services. The consumer protection Act, 2019,
provides a number of reliefs including removal of defect, replacement of product,
etc.
12. No, Sonika cannot appeal now as the appeal has to be filed within 30 days of
passing of the order by the District Forum.
13. No, Himanshu cannot appeal now, as the appeal has to be filed within 30 days
of passing of the order by the State Commission.
14. Ravi should have obtained cash memo for filing the complaint in the
consumer forum.
15. Kalpana should have obtained cash memo for filing the claim in consumer
court.
16. 'District consumer dispute Redressal forum' consists of a president and two
other members, one of whom should be a woman.
17. (i) Any registered Consumer's Association.
(ii) The Central Government or any State Government.
18. (i) Right to choose: The right to choose provides freedom to the consumer to
choose the products of this own choice. A variety of products are available in the
market at competitive prices. The manufacturer or trader should not use
aggressive selling techniques to sell a particular product without giving the
consumer a chance to choose from alternative products available.
(ii) Right to Safety: The consumer has a right to be protected against goods and
services which are hazardous to life, health and property. For example, electrical
appliances which are manufactured with substandard products or do not
conform to the safety norms might cause serious injury. Thus, consumers are
educated that they should use electrical appliances which are ISI marked as this
would be an assurance of such products meeting quality specifications.
19. (i) Sameeksha read labels carefully so that she gets information about prices,
net weight, manufacturing and expiry date etc.
(ii) She bought standardised good as they provide quality assurance.
(iii) She was are about various goods available in the market so that an intelligent
and wise choice can be made.
(iv) She asserted herself to ensure that she get a fair deal.
20. (a) Right to be informed: The consumer has a right to have complete
information about the product he intends to buy such as, ingredients, date of
manufacture, price, quantity etc. It is because of this reason that the legal
framework in India requires the manufacturers to provide such information on
the package and label of the product.
(b) Right to seek redressal : The consumer has a right to get relief in case the
product or service falls short of his expectations. The Consumer Protection Act
provides relief to customers such as replacement of product, removal of defect in
the product, compensation for any loss or injury suffered by the consumer.
21. (a) As an aware consumer, Sumit should have fulfilled the responsibility of
following manufacturer's instructions. As in this case, washing machine needs to
be installed by company representative but Sumit and his friend Vivek installed it
on their own.
(b) Rights which Sumit could have exercised, he had, fulfilled his responsibility of
following manufacturer's instructions:
(i) Right to be Heard: Consumer has a right to file complaint and to be heard in
case of a dissatisfaction with goods or services.
(ii) Right to seek redressal : The consumer has a right to get relief, in case, the
product or service falls short of his expectations.
22. According to the consumer protection Act 2019: A consumer is:
(i) A person who buys any goods for a consideration also it includes any user of
such goods, when such use is made with the approval of the seller.
(ii) A person who hires or avails any service for a consideration it includes any
beneficiary of such services when availed with the approval of the seller.
'Consideration' here means that the goods or services are either fully paid or
promised, or partly paid, or under a scheme of deferred payment (installment
scheme). It does not include a person who obtains goods or avails services for
resale for commercial purpose.
23. (a) Right to Choose - Consumers have the right to choose from a variety of
goods and services at competitive prices as per their own wishes, tastes and
preferences. Accordingly, the retailer or the supplier should offer a wide variety
of products to them in terms of quality, brand, price, etc. In addition, they should
not induce the consumers towards buying one particular product or service.
(b) Right to Consumer Education: A consumer has the right to education and
awareness of his rights and the available remedies in case of exploitation. Many
governments and non-government organisations (NGOs) work actively in this
regard.
24. Following reliefs are available to consumer under the Consumer Protection
Act, 2019:
(a) Removal of defects from the goods.
(b) Replacement of the good with a new one without defect.
(c) Refund of the price paid.
(d) Compensation of loss or injury suffered.
(e) Removal of deficiency in service.
(f) Discontinuance of unfair trade practices.
(g) Stopping the sale of hazardous goods.
(h) To pay any amount (not less than 5% of the value of the defective goods or
deficient services provided) to be credited to consumer welfare fund or any other
organisation designated for it.
25.
26. District Commission' helps the consumers in redressing their grievances in
the following manner:
(i) District commission has a jurisdiction to entertain complaints where value of
goods or services paid as consideration does not exceed one crore rupees.
(ii) It may direct the parties to give their consent for settlement of dispute
through mediation within five days. In case the parties agree for settlement by
mediation and give written consent, the District Commission refers the matter for
mediation and the provisions relating to mediation shall apply. In the event of
failure of settlement by mediation, it proceeds with the complaint. If the
complaint alleges defect in goods which cannot be determined without proper
analysis or test of goods, the commission obtains the sample of goods, seal it and
refer to the appropriate authority for analysis. In case of services, the dispute is
settled on the basis of evidence brought to its notice by the complainant and can
ask for any required information document or records from the service provider
for settlement.
27. Responsibilities of a consumer as per the Consumer Protection Act, 2019:
(i) Be aware about the various goods and services available in the market, so that
intelligent and wise choice can be made.
(ii) Buy only standardized goods as they provide quality assurance.
(iii) Learn about the risk associated with products and services, follow
manufacturers' instructions and use the products safely.
(iv) Read labels carefully to have information about prices, net weight,
manufacturing and expiry dates etc.
(v) Assert yourself to ensure that you get a fair deal.
(vi) Be honest in your dealings and choose only from legal goods and services
and discourage unscrupulous practices.
(vii) Ask for a cash memo on purchase of goods and services as this would serve
as a proof of the purchase made.
(viii) File a complaint in an appropriate consumer forum in case of a shortcoming
in the quality of goods purchased or services availed.
(ix) Form consumer societies which would play an active part in educating
consumers and safeguarding their interests.
28. (a) The six directions that the consumer court might have issued against the
company are:
(i) To refund the price paid for the product, or then charges paid for the service.
(ii) To pay a reasonable amount of compensation for any loss or injury suffered
by the consumer due to the negligence.
(iii) To pay punitive damages in appropriate circumstances.
(iv) To discontinue the unfair/ restrictive trade practices and not to repeat it in
the future.
(v) To cease manufacture of hazardous goods and to desist from offering
hazardous services.
(vi) To pay adequate costs to the appropriate party.
(b) The values communicated to the society by IYO are: Responsibility towards
disadvantaged sections of society and Rights of the customer and social
responsibility.
29. For the redressal of consumer grievances, the Consumer Protection Act. has
set up three tier machinery District forum, State commission and National
Commission.
30. Function performed by Non-Government Organisations for consumer
protection are:
(a) Educating the general public about consumer rights by organising training
programmes, seminars and workshops.
(b) Providing legal assistance to consumers by way of providing legal aids, legal
aids, legal advice etc. in seeking remedy.
(c) Carrying out testing of consumer products in accredited laboratories to test
qualities of competing brands and publishing the test result for the benefits of the
consumers.
(d) Encouraging consumers to strongly protest and take action against
unscrupulous, exploitative and unfair trade practices of sellers.
(e) Filing complaints in appropriate consumer courts on behalf of the individual
consumer and general public.
(f) Publishing periodicals and other publications to impart knowledge about
consumer problems, relief available.
31. (i) Publish Journals: They regularly publish journals and periodicals to spread
knowledge and awareness about various consumer problems, legal remedies
available and other such matters.
(ii) Consumer Education: NGOs and consumer organisations conduct various
training programmes and workshops to educate the consumers about their rights
and responsibilities.
(iii) Legal Assistance: They also provide legal assistance to the consumers and
help them in seeking suitable redressal.
(iv) Assistance in Filing Complaints: These organisations not only assist
consumers in filing complaints in appropriate forums, but also file complaints on
consumers' behalf.
32. Reliefs available to a consumer under the provisions of Consumer Protection
Act 1986.
(i) To remove the defect in goods or the deficiency in service.
(ii) To replace the defective product with a new one free from any defect.
(iii) To refund the price paid for the product.
(iv) To pay a reasonable amount of compensation for any loss or injury suffered
by the consumer due to negligence of the opposite party.
(v) To pay punitive damages in appropriate circumstances.
(vi) To discontinue the unfair/restrictive trade practice and not to repeat the
same in future.
(vii) Not to offer hazardous goods for sale.
(viii) To withdraw hazardous goods from sale.
(ix) To cease manufacturing of hazardous goods.
(x) To pay any amount not less than 5% of the value of the defective goods to be
credited to the Consumer Welfare Fund or any other organisation/person to be
utilized in the prescribed manner
(xi) To issue corrective advertisement to neutralize the effect of misleading
advertisement.
CBSE Sample Questions

1. A consumer should keep in mind the following responsibilities while

purchasing, using and consuming goods and services:
(i) Be aware about various goods and services available in the market so that an
intelligent and wise choice can be made.
(ii) Buy only standardised goods as they provide quality assurance. Thus, look for
ISI mark on electrical goods, FPO mark on food products, Hallmark on jewelry,
etc.
(iii) Learn about the risks associated with products and services, follow
manufacturer's instructions and use the products safely.
(iv) Read labels carefully so as to have information about prices, net weight,
manufacturing and expiry dates, etc.
(v) Assert yourself to ensure that you get a fair deal.
(vi) Be honest in your dealings. Choose only from legal goods and services and
discourage unscrupulous practices like black-marketing, hoarding, etc.
(vii) File a complaint in an appropriate consumer forum in case of a shortcoming
in the quality of goods purchased or services availed. Do not fail to take an action
even when the amount involved is small.
(viii) Form consumer societies which would play an active part in educating
consumers and safeguarding their interests.
(ix) Respect the environment. Avoid waste, littering and contributing to pollution.
2. (a) Right to safety: The consumer has a right to be protected against goods and
services which are hazardous to life and health. For instance, electrical appliances
which are manufactured with substandard products or do not conform to the
safety norms might cause serious injury. Thus, consumers are educated that they
should use electrical appliances which are ISI marked as this would be an
assurance of such products meeting quality specifications.
(b) Right to Consumer Education: The consumer has a right to acquire
knowledge and to be a well-informed consumer throughout life. He should be
aware about his rights and the reliefs available to him in case of a product or
service falling short of his expectations.
3. Rights of a Consumer under the Consumer Protection Act, 2019:
(i) Right to safety: The consumer has a right to be protected against goods and
services which are hazardous to life, health and property.
(ii) Right to be informed: The consumer has a right to have complete information
about the product he intends to buy including its ingredients, date of
manufacture, price, quantity, directions for use, etc.
(iii) Right to be assured: The consumer has the freedom to assess a variety of
products at competitive prices.
(iv) Right to be heard: The consumer has a right to file a complaint and to be
heard in case of dissatisfaction with a good or a service.
(v) Right to seek redressal : The consumer has a right to get relief against unfair
trade practices of restrictive trade practices or unscrupulous exploitation, in case,
the product or a service falls short of his expectation.
4. Responsibilities of a Consumer under the Consumer Protection Act, 2019:
(a) Be aware of various goods and services available in the market so that an
intelligent and wise choice can be made.
(b) Buy only standardised goods as they provide quality assurance.
(c) Learn about the risks associated with products and services, follow
manufacturer's instructions and use the products safely.
(d) Read labels carefully so as to have information about prices, net weight,
manufacturing and expiry dates, etc.
(e) Assert yourself to ensure that you get a fair deal.
(f) Be honest in your dealings. Choose only from legal goods and services and
discourage unscrupulous practices.
 Concepts, Importance of Consumer Protection &
Framework for Consumer Protection in India

3 Marks Question

9. State any three points of importance of consumer protection from the point of
view of business. (Compartment 2014)

Ans. A business must lay emphasis on consumer protection because of the following
reasons:

(i) Long-term interest of business It is in the long-term interest of business to satisfy

their customers.
Satisfied customers not only leads to repeated sales, but also helps in increasing the
customer base.

(ii) Social responsibility It is the social responsibility of every business to take care of
the interest and protection of its consumers.

(iii) Moral justification It is the moral duty of any business to take care of consumer’s
interest and avoid any form of their exploitation.

4/5 Marks Questions

10. State with the help of any four points, why is it important for a business to lay
emphasis on consumer protection. (Compartment 2014)

Ans. A business must lay emphasis on consumer protection because of the following
reasons:

(i) Long-term interest of business It is in the long-term interest of business to satisfy

their customers.
Satisfied customers not only leads to repeated sales, but also helps in increasing the
customer base.

(ii) Social responsibility It is the social responsibility of every business to take care of
the interest and protection of its consumers.

(iii) Moral justification It is the moral duty of any business to take care of consumer’s
interest and avoid any form of their exploitation.

(iv) Government intervention A business engaged in any form of exploitation would

invite government intervention or action.
11. What is meant by consumer protection? Also state how consumer protection
is important from the point of view of consumers. (Compartment 2014)
or
What is meant by consumer protection? State any three points of importance of
the consumer protection from the consumers’ point of view. (All India 2010)

Ans. Consumer protection is a very wide term. It includes providing information to the
consumers about their rights and responsibilities and helps in getting their grievances
redressed. Consumer is treated as a king in the market, therefore, producers produce
goods as per their need and want. (1) Importance of consumer protection from
consumer’s point of view are:

(i) Consumer ignorance Due to widespread ignorance of consumers about their rights
and reliefs available to them, they need to be made aware in this regard. Consumer
protection provides information to the ignorant consumers regarding their rights and
reliefs available to them.

(ii) Unorganised consumers Consumers need to be organised for safeguarding their

interests. In developing countries like India, consumers are not organised. There are
very few consumer organisations which are working to protect the interests of
consumers. Consumer protection encourages establishment of more consumer
organisations.

(iii) Widespread exploitation of consumers Consumers are exploited by

unscrupulous, exploitative and unfair trade practices of sellers. They might be exploited
by unfair trade practices like defective and unsafe products, adulteration, hoarding,
black marketing, etc. Consumers need protection, against such unfair trade practices.
 Consumer Rights & Responsibilities as per CPA, 1986

1 Mark Questions

1. ’The consumer has a right to acquire knowledge and be a well-informed

consumer throughout life’. State what type of knowledge is required by the
consumer in the above Stated right. (Compartment 2014)

Ans. The consumer has a right to acquire knowledge about his rights, responsibilities
and the reliefs available to him in case of a product or service falling short of his
expectations.

2. Give any one responsibility of a consumer in addition to obtaining a cash

receipt while purchasing a washing machine. (All India 2012)

Ans. Buy only ISI certified washing machine as it provides quality assurance.

3. State what is to be informed to the consumer under right to be informed. (Delhi

2011c)

Ans. Right to be Informed Every consumer has a right to be informed about the
ingredients, date of manufacture, expiry date, directions for use, quantity, etc, to be put
on the label of product. The right provides complete information to consumer about the
product he intends to buy. The legal framework in India requires such information on the
package and label of the product.

4. Why should a consumer look for ISI mark on electrical goods? (Delhi 2010)

Ans. The consumer should look for ISI mark on electrical goods because it gives an
assurance that the product meets quality certifications.

[Link] a responsible consumer, how will you ensure about the quality of a juice
packet purchased by you? (Hots; Delhi 2010c)
or
Rita wants to buy a packet of juice. As an aware customer, how can she be sure
about the quality of juice she plans to buy? (HOTS; All India 2008)

Ans. A person can check for FPO mark/standardisation mark which is granted to the
processed food products which satisfy the specification and quality control
requirements. Secondly, he/she can also check expiry date and storage condition of the
juice packet.

6. What is meant by right to be heard to a consumer? (Delhi 2009)

Ans. Right to be heard means a consumer has a right to file a complaint and to be
heard in case of dissatisfaction with regard to a good or a service. Even business firms
have set up their own grievance cell to impart this right to consumers.

[Link] is meant by right to choose to a consumer? (All India 2009)

Ans. A right to choose means that a consumer has a right to choose from a variety of
goods and services at competitive prices available in the market.

8. Ahmad wants to buy an iron. As an aware customer, how can he be sure about
the quality of iron? (Hots; Delhi 2008)

Ans. He should buy an ISI mark iron.

9. Mention when as a consumer, you are not in a position to resolve your

grievances under Consumer Protection Act. (Hots; All India 2008)

Ans. If we do not have cash memo regarding purchase of goods or services, we are not
in a position to solve our grievances because cash memo serves as a proof of the
purchase made. Another aspect in this regard is that the complaint should be genuine.

4/5 Marks Questions

10. Explain the following rights of consumers.

(i) Right to Safety
(ii) Right to Consumer Education (Delhi 2012,2008; All India 2008)

Ans. (i) Right to Safety A consumer has a right to be protected against goods and
services which are hazardous to life and health. For instance, electrical appliances
which are manufactured with sub-standard products do not confirm to the safety norms,
might cause serious injury. Thus, consumers are educated that they should use
electrical appliances which are ISI marked, as this would be an assurance of such
products meeting quality specifications.

(ii) Right to Consumer Education The consumer has a right to acquire knowledge and
to be a well-informed consumer throughout life. Many consumer organisations and
some business are actively educating consumer. He should be aware about his rights
and the reliefs available to him in case of a product or service falls short of his
expectations.

11. Explain the following Rights of Consumers

(i) Right to be Informed
(ii) Right to Seek Redressal (Delhi 2012)

Ans. (i) Right to be Informed The consumer has a right to have complete information
about the product, he intends to buy including its ingredients, date of manufacture,
price, quality, quantity, directions for use, etc.

(ii) Right to Seek Redressal The consumer has a right to get relief in case the product
or service falls short of his expectations. The consumer protection provides a number of
reliefs to the consumers including replacement of the product, removal of defect in the
product, compensation paid for any loss or injury suffered by the consumer, etc.

[Link] the following Rights of Consumers

(i)Right to Choose
(ii)Right to be Heard (Delhi 2010,2008; All India 2008)

Ans. (i) Right to Choose A consumer has a right to choose from a wide variety of
products at competitive prices. This implies that the marketers should offer a wide
variety of products in terms of quality, brand, prices size, etc and allow the consumer to
make a choice amongst them.

(ii) Right to be Heard A consumer has a right to file a complaint and to be heard in
case of dissatisfaction with regard to a good or a service. It is because of this reason
that many enlightened business firms have set up their own consumer service centres
and grievance cells. Many consumer organisations are also working towards this
direction and helping consumers in redressal of their grievances.

13. Explain any four responsibilities of the consumer to safeguard his interests.
(All India 2009)
or
What precautions should a consumer take while buying a product or service?
Explain. (HOTS; Delhi 2009)

Ans. Consumer Responsibilities are: (Any four)

(i) Consumer must exercise his rights Consumers must be aware of following rights
with regard to the products or services they buy from markets

 Right to Safety
 Right to Choose
 Right to be Heard, etc

(ii) Cautious consumers Before purchasing, consumer must insist on getting all
information on the quality, quantity, price, utility, etc of the goods/services. This will
ensure a better purchase as he will not depend entirely on a seller.

(iii) Filing complaint Sometimes, consumers ignore the deception of traders believing
that the loss is small but this attitude encourages corrupt business practices to continue.
On the other hand, some consumers also make excessive claims for compensation on
small defects in goods which are not justified.

(iv) Quality conscious This is the only way to eradicate the problems of adulteration
and spurious goods. While making purchases, consumers must look for standard quality
certification marks like ISI, Agmark, FPO, Wool mark, etc.
(v)Insist on cash memo Ask for a cash memo on purchase of goods or services. This
would serve as a proof of the purchase.

[Link] any four rights available to a consumer under the Consumer

Protection Act, 1986. (All India 2008)

Ans. (i) Right to Safety A consumer has a right to be protected against goods and
services which are hazardous to life and health. For instance, electrical appliances
which are manufactured with sub-standard products do not confirm to the safety norms,
might cause serious injury. Thus, consumers are educated that they should use
electrical appliances which are ISI marked, as this would be an assurance of such
products meeting quality specifications.

(ii) Right to Consumer Education The consumer has a right to acquire knowledge and
to be a well informed consumer throughout life. Many consumer organisations and
some business are actively educating consumer. He should be aware about his rights
and the reliefs available to him in case of a product or service falls short of his
expectations.

(iii) Right to be Informed The consumer has a right to have complete information about
the product, he intends to buy including its ingredients, date of manufacture, price,
quality, quantity, directions for use, etc.

(iv) Right to Seek Redressal The consumer has a right to get relief in case the product
or service falls short of his expectations. The consumer protection provides a number of
reliefs to the consumers including replacement of the product, removal of defect in the
product, compensation paid for any loss or injury suffered by the consumer, etc.

(v) Right to Choose A consumer has a right to choose from a wide variety of products
at competitive prices. This implies that the marketers should offer a wide variety of
products in terms of quality, brand, prices size, etc and allow the consumer to make a
choice amongst them.

(vi) Right to be Heard A consumer has a right to file a complaint and to be heard in
case of dissatisfaction with regard to a good or a service. It is because of this reason
that many enlightened business firms have set up their own consumer service centres
and grievance cells. Many consumer organisations are also working towards this
direction and helping consumers in redressal of their grievances.
 Ways & Means of Consumer Protection, Redressal
Agencies under Consumer Protection Act, 1986

1 Mark Questions

1. Besides a ‘consumer’, name any two parties who can file a .complaint before
the appropriate consumer forum. (Compartment 2014)
or
Who can file a complaint under the Consumer Protection Act, 1986? (Delhi 2009)

Ans. A complaint under Consumer Protection Act, 1986 can be made by: (Any two)
(i) Any consumer.
(ii) Any registered consumers’ association.
(iii) The Central Government or any State Government.
(iv) One or more consumers, on behalf of numerous consumers having the same
interest.
(v) A legal heir or representative of a deceased consumer.

2. How many members are required to constitute ‘District consumer dispute

redressal forum’? (Compartment 2014)

Ans. The District Forum consists of a President and two other members, one of whom
should be a woman:

3. How can Business Associations act as a means of consumer protection?

State.(Delhi 2012)

Ans. Business Associations act as a means of consumer protection as they lay down
guidelines for their members in dealings with the customers.

4. Give any one relief available to a consumer who suffers due to consumption of
an expired date medicine. (Delhi 2012)

Ans. Relief available to consumer: (Any one)

(i) To refund the price paid for the medicine.
(ii) To pay a reasonable amount of compensation for any loss or injury suffered by the
consumer.
(iii) To withdraw the defective good from sale.

5. State how self-regulation by business acts as a means of consumer protection.

(All India 2012, 2009; Delhi 2009 C)

Ans. Self-regulation by business acts as a means of consumer protection by

(i) Establishing ethical standards and practices in dealing with their consumers.
(ii) Setting up their customer service and grievance cells to redress the problems and
grievances of their consumers.

6. When can a consumer get more than one relief for a complaint? (All India 2011)

Ans. If the Consumer Court is satisfied about the genuineness of the complaint, a
consumer can get more than one relief for a complaint.

7. Which kind of cases can be filed in the State Commission under the
Consumer Protection Act, 1986? (Delhi 2010 c)

Ans. Those cases can be filed in the State Commission under the Consumer Protection
Act, 1986 in which compensation claimed exceeds Rs 20 lakh but does not exceed
Rs1crore.

8. Which cases can be filed in the National Commission under Consumer

Protection Act, 1986. (All India 2010)

Ans. Those cases can be filed in the National Commission under Consumer Protection
Act, 1986 in which the value of the goods or services in question, along with the
compensation claimed, exceed? 1 crore.

9. Which claims can be appealable bore the Supreme Court under Consumer
Protection Act? (All India 2009)

Ans. An order passed by the National Commission in a matter of its original jurisdiction
is appealable before the Supreme Court. It means only those appeals where the value
of goods and services in question, along with the compensation claimed exceed ? 1
crore and where the aggrieved party was not satisfied with the order of the National
Commission can be taken to the Supreme Court.

10. Who can file a complaint on behalf of a deceased consumer? (Delhi 2009 c)

Ans. A legal heir or representative of a deceased consumer.

11. Is self-regulation by business necessary for consumer protection? How?

(Delhi 2008C)

Ans. Yes, self-regulation by business is necessary for consumer protection because it

is in their long-term interest to serve the customers well.

12. Mohit filed a case against Domestic Collings Ltd in the District Forum, but he
was not satisfied with the orders of the district forum. Where can he appeal
further against the decisions of district forum? (Hots; Delhi 2008)
Ans. Mohit can further appeal at the State Commission against the decision of the
District Forum.

13. Amrit filed a case against Volvo Ltd in the State Commission but he was
not satisfied with the orders of the State Commission. Name the authority to
which he can appeal against the decisions of State Commission. (hots; All India
2008)

Ans. Amrit can approach National Commission to appeal against the decision of the
State Commission.

14. How does a business use self-regulations for consumer protection?

Ans. Enlightened business firms realise that it is in their long-term interest to serve the
customers well. Socially responsible firms follow ethical standards and practices in
dealing with their customers. Many firms have set up their customer service centres and
grievance cells to redress the problems and grievances of their customers.

3 Marks Questions

15. How are consumer grievances redressed by the three-tier machinery under
CPA, 1986? Explain. (Foreign 2014)

Ans. The three-tier-machinery under CPA, 1986 consist of District Forum, State
Commission and the National Commission. A consumer can file a case in District Forum
if the value of goods and services along with the compensation claimed, does not
exceed Rs 20 lakh, in the State Commission if the value of goods and services along
with the compensation claimed is over Rs 20 lakh but less than rs 1 crore, and in the
National commission, if the value of goods and services along with the compensation
claimed is above Rs 1 crore. On receiving the complaint, the District Forum/State
Commission/National Commission shall refer the complaint to the party against whom
the complaint is filed. If required, the goods or a sample, thereof, shall be sent for
testing in a laboratory. The court shall pass an order after considering the test report
and hearing to the party against whom the complaint is filed.

16. Give the definition of ‘Consumer’ as per CPA, 1986. (Compartment 2014)

Ans. Under the Consumer Protection Act, 1986, the term ‘consumer’ has been defined
as any person who buys goods or hires or avail any service for a consideration which
has been paid or promised or partly paid and partly promised or under any system of
deferred payment. It also includes any user of such goods with the approval of the
buyer or any beneficiary of services when such goods or services are availed of with the
approval of the person concerned but does not include a person who avails such
services for any commercial purpose.
4/5 Marks Questions

17. State any eight reliefs available to a consumer under the provision of CPA,
1986. (Compartment 2014)

Ans. The reliefs available to a consumer under the CPA, 1986 are:
(i) To remove the defects in goods or deficiency in services.
(ii) To replace the defective product with a new one, free from any defect.
(iii)To refund the price paid for the product.
(iv) To pay a reasonable amount of compensation for any loss suffered.
(v)To pay punitive damages in appropriate circumstances.
(vi) Not to offer hazardous goods for sale.
(vii)To withdraw the hazardous goods from sale.
(viii) To cease the manufacture of hazardous goods.

18. Anita purchased a book from Satish book stores. While reading the book, she
found that ten pages were missing. She approached the book seller and
complained about the missing pages. The seller promised that if the publisher
was ready to change the book, he would change the same. After one week, the
seller informed Anita that the publisher had refused to change the book.
Where can Anita file a complaint against the seller of the book? Give reason in
support of your answer. Also, explain who is a consumer as per Consumer
Protection Act, 1986. (hots; Delhi 2011 c)

Ans. Anita can file a complaint against the seller of the book in the District Forum.
District Forum is established by the State Government in each district. In District Forum,
only such complaints can be filed in which the value of goods or services and the
compensation claimed is not more than Rs 20 lakhs. Consumer as per CPA,
1986 Under the Consumer Protection Act, 1986, the term ‘consumer’ has been defined
as any person who buys goods or hires or avail any service for a consideration which
has been paid or promised or partly paid and partly promised or under any system of
deferred payment. It also includes any user of such goods with the approval of the
buyer or any beneficiary of services when such goods or services are availed of with the
approval of the person concerned but does not include a person who avails such
services for any commercial purpose.

19. Harish purchased a medicine from Bhatia Medical Stores for his son, who had
high fever. Even after giving the medicine his son’s condition did not improve
and he had to be hospitalised. Doctor informed Harish that medicine given to his
son was spurious. Harish complained about this to Bhatia Medical Stores. As-a
result, Bhatia Medical Stores decided to file a complaint against the manufacturer
in the consumer court. Can Bhatia Medical Stores do this? Give reason in support
of your answer. Also, explain who is a consumer as per Consumer Protection Act,
1986. (HOTS; Delhi 2011 C)

Ans. ‘Bhatia Medical Stores’ cannot file a complaint against the manufacturer in the
consumer court because Bhatia Medical Stores is not a consumer in this case. He is not
a user but has obtained medicine for resale purpose/commercial purpose.

Meaning of Consumer as per Consumer Protection Act, 1986 Anita can file a
complaint against the seller of the book in the District Forum. District Forum is
established by the State Government in each district. In District Forum, only such
complaints can be filed in which the value of goods or services and the compensation
claimed is not more than Rs 20 lakhs.

Consumer as per CPA, 1986 Under the Consumer Protection Act, 1986, the term
‘consumer’ has been defined as any person who buys goods or hires or avail any
service for a consideration which has been paid or promised or partly paid and partly
promised or under any system of deferred payment. It also includes any user of such
goods with the approval of the buyer or any beneficiary of services when such goods or
services are availed of with the approval of the person concerned but does not include a
person who avails such services for any commercial purpose.

20. Explain the following as ways and means of consumer protection

(i)Consumer awareness
(ii)Government (Delhi 2008)

Ans. (i) Consumer awareness A well informed consumer will safeguard himself from
unfair trade practices. A consumer should be well informed about his rights, duties and
reliefs available to him. Only then, he would be in a position to raise his voice against
unfair trade practices and safeguard his interests. In addition to this, an understanding
of his responsibilities would also enable a consumer to safeguard his interest.

(ii) Government The government can protect the interest of the consumers by enacting
various legislations. CPA is one of them which provides 3-tier system of redressal to the
aggrieved consumers. The legal framework in India encompasses various legislations
which provide protection to consumers.

6 Marks Questions

21. Reena purchased one litre of pure desi ghee from a shopkeeper. After using it,
she had a doubt that it is adulterated. She sent it for a laboratory test which
confirmed that the ghee is adulterated. State any six reliefs available to Reena, if
she complains and the consumer court is satisfied about the genuineness of the
complaint. (HOTS; All India 2011; Delhi 2011)

Ans. Reliefs available to Reena are:

(i) To replace the adulterated ghee.
(ii) To refund the price paid for the product.
(iii) To pay a reasonable amount of compensation for any loss or injury/sickness
suffered by her due to the negligence of the manufacturer.
(iv) To pay punitive damages in appropriate circumstances.
(v)To withdraw the adulterated ghee from sale.
(vi)To cease manufacture of adulterated ghee.

22. Prakhar purchased an ISI mark electric iron from Bharat Electricals. While
using, he found that it was not working properly. He approached the seller and
complained for the same. The seller satisfies Prakhar by saying that he will ask
the manufacturer to replace this iron. The manufacturer refused to replace and
Bharat Electricals decided to file a complaint in the consumer court. Can Bharat
Electricals do this. Why? Also explain who is a consumer as per Consumer
Protection Act, 1986. (HOTS; All India 2011; Delhi 2011)

Ans. Bharat Electricals cannot file a complaint. This is because Bharat Electricals is not
a consumer as per Consumer Protection Act, 1986 because they bought the goods for
resale or for commercial purpose. Under the Consumer Protection Act, a consumer is
defined as:

(i) A person who buys goods for consideration which has been paid promised, or partly
paid and partly promised or under any scheme of deferred payment. It includes any
user of such goods, when such use is made with the approval of the buyer but does not
include a person who obtains goods for resale or any commercial purpose.

(ii) Any person who hires or avails any service for consideration which has been paid or
promised or partly paid and partly promised or under any system of deferred payment. It
includes any beneficiary of services when such services are availed of with the approval
of the person concerned but does not include a person who avails of such services for
any commercial purpose.
 Role of Consumer Organisations & NGOs

1 Mark Question

1. Name any two Non-Governmental Organisations (NGOs) which are working in

India to protect and promote the consumer interests. (All India 2010)

Ans. (i) Consumer Guidance Society of India (CGSI), Mumbai.

(ii) Voluntary Organisation in Interest of Consumer Education (VOICE), Delhi.

4/5 Marks Question

2. Explain any four functions of consumer organisation and Non-Government

Organisations (NGOs) for protecting and promoting the interest of consumers.
(Delhi 2009)

Ans. Consumer organisations and NGO’s perform several functions for the protection
and promotion of interest of consumers. These include

(i) Educating the general public about consumer rights by organising training
programmes, seminars and workshops.

(ii) Publishing periodicals and other publications to impart knowledge about consumer
problems, legal reporting, reliefs available and other matters of interest.

(iii) Carrying out comparative testing of products and publish results for consumer
welfare.

(iv) Encouraging consumers to strongly protest and take an action against

unscrupulous, exploitative and unfair trade practices of sellers.