Smude Mba Sem2 All Assignments

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Name Roll No Course SEMESTER Learning Centre code Subject code Subject Assignment No
: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0044 : Production and Operation Management : Assignment set 1
MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1
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Question 1 What are the components of systems productivity? Explain how CAD and CIM help in improving productivity. The system productivity is the calculation of efficiency of the system. In order to calculate the productivity, the following elements should be considered: People, Machines, Facilitating Goods, Ancillary Equipments and the Technology used. Using the productivity techniques in conjunction to the Computer Aided Design (CAD) and Computer Integrated Manufacturing (CIM) will result in significance improvement in the productivity. The CAD technology gives the designer an opportunity to prepare or alter a design on a powerful desktop computer. The designed diagram can be viewed in different angles or as assembled parts with greater accuracy. This enables the designer to visualize the product or the part as seen in the real time. The designed diagrams can be shared across concerned people and the opinions taken. The incorporation of correction in the diagram is much easier as it is in the form of electronic data. The generated plan can be applied with various parameters, like, Centre of Gravity, Deficiency under estimated load, etc, to see their effect on the product. This reduces the laborious calculations involved in the designing the diagram. The data can be stored in the database for future references. All the above-said facilities reduce the laborious manpower requirement for an efficient design, either for creating a new design or updating an existing design. In case of modification of an existing design, the designer can quickly access the existing design and update with great speed and accuracy, rather than starting it from the scratch. The CIM technology is used to tie the fully computer controlled production unit, with the required digital data. There are basically three functions involved in the CIM. i) Computer aid to the Production function Used in the production plant in converting the inputs to the products by handling the materials and resources. ii) Computer aid to design function It is used in converting the customer specifications into the product design. iii) Computer aid to Managerial function. This function is the controlling function for the plan and control of the entire production activity. In a production environment, CIMs are used in different areas like, engineering design, production planning, shop control, order processing, material control, distribution and many other areas. CIM process helps in rapid production and also reduces indirect costs. CIM uses computers to control the entire production process. This integration allows the processes to exchange information with MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1 Page 2
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each other and thus they become capable of initiating actions. As response times decrease, customer satisfaction increases resulting in better business. CIM helps in avoiding accumulation of materials resulting in better throughput and better utilization of space. Bar coded labels that accompany materials contain instructions for processing them which are read by sensing devices and display the status on monitors. This information is available to all concerned personnel responsible in planning, marketing and other activities so that they will be aware of the status of any order. If expediting is needed to meet deadlines, they will be able to seek intervention. Identifying shortages and ensuring faster deliveries become easy with CIM
Question 2 What do you understand by industry best practice? Briefly explain different types of Benchmarking. Every industry would have adapted to certain practices and processes based on experience to meet the market demand, quality requirements at a lower price. The new entrants would also adapt to these proven processes and further refining them as per the current needs. These practices and processes, which are proven, are called as industry best practice. Benchmarking is a process by which a companys efficiency by means of in depth analysis of many aspects is calculated accurately. This helps in improving the companys performance. For Benchmarking, the following metrics may be used: Number of pieces per hour Cost per unit Number of breakdowns per week Customer alienation during a week Return on investment Number of returns from customers in a month Inventory turnover
The above list is not the complete list. As per the industry needs, many other metrics may also be used. The following types of benchmarking are considered by various industries: Process Benchmarking Business Analysis Financial Benchmarking Performance Benchmarking Product Benchmarking Strategic Benchmarking
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Functional Benchmarking
Pareto Analysis like tools may be used for benchmarking any of the above mentioned categories. There are four steps involved in benchmarking: a. Planning b. Analysis c. Integration
d. Action As per Total Quality Management guru Edwards Deming, it is necessary to set the realistic targets keeping in view the availability of resources, technology, and to spread awareness about the importance of what is attempted, and how success improves the image of the company.
Question 3 List out the various automated systems for transfer of materials in the production plant. What do you understand by Line Balancing? Explain with an example. An automated flow line is set up when several automated machines are linked by transfer systems which move parts by using handling machines which are also automated. In order to establish a flow line, the sequence of operations should be determined in such a manner that after finishing operations by one machine, the semi-finished parts need to be moved to the next machine with minimal delay. When the flow line is defined with machines taking same time throughout the sequence in the flow of material, it is called as Hard Automation or Fixed Automation. This flow line will be very useful in industries where one component is manufactured using several processes and machines. In flexible flow lines, the original design is made accommodating the anticipated change in the process and time. The change in movement of materials can be achieved by programming machines. Line Balancing is a tool to ensure that machining centers are loaded, as uniformly as possible to prevent build up stocks at intermediate stages. There are four methods of line balancing proposed by Ghosh and Gagnon for Assembly Flow Lines. a. Single Model Deterministic When the automatic machines or operations have their time predictable with certainty, this model can be used. This is because this model assumes all the tasks on a product are completed on a predetermined time. b. Single Model Stochastic When the time taken by different tasks is variable, this model may be used. It is best suited where more manual processes involved in the operations. The
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purpose of this model is to determine the locations and sizes of buffer required to keep the throughput. c. Multi Model Deterministic The task times are known but having multiple products go through the line. The products are assembled in batches. d. Multi Model Stochastic The task times are variable but having multiple products go through the line. The problem of balancing such lines is more. Decomposition of the assembly into sub-assemblies, and having advanced handling equipment may help to make inventories small and keeping the flow line smooth.
Question 4 Explain the different types of Quality Control Tools with examples? How do Crosbys absolutes of quality differ from Demings principles? Flow Chart, Check sheet, Histogram, Pareto Analysis, Scatter Diagram, Control Chart, and Cause and Effect Diagram are the basic seven control tools considered for achieving quality. a) Flow Chart: Flow chart is a visual representation of process showing the various steps. It helps in locating the points at which a problem exists or an improvement is possible. Detailed data can be collected, analysed, and methods for correction can be developed using flow charts. The various steps include: Listing out the various steps or activities in a particular job Classifying them as a procedure or a decision
Each decision point generates alternatives. Criteria and consequences that go with decisions are amenable to evaluation for purposes of assessing quality. The flow chart helps in pin-pointing the exact points at which errors have crept in
OPEN
INSPECT
OPEN
INSPECT
PACK
REJECT
REJECT
b) Check Sheet: Check sheets are used to record the number of defects, types of defects, locations at which they are occurring, times at which they are occurring, and workmen by whom they are occurring. The sheet keeps a record of the frequencies of occurrence with reference to possible defect causing parameters. It helps to implement a corrective procedure at the point where the frequencies are more. MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1 Page 5
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Sample Check Sheet No. Of Defects Day 1 2 3 4 5 6 // / // // /// // /// //// ////// //// ////// //// /// /// //// /// /// /// ///// //// // // / /// // /// // // /// // 1 2 3 4 5
The above table shows that the number of defects 1 and 5 are not many as compared to defect no 2 which increased over the days and appears to be stabilising at the higher side and therefore needs to be attended immediately. The column which shows days can be changed to observed by the hour, if need be. c) Histogram Histograms are graphical distribution generally representations of used data to They record of are huge
volumes of data about a process. They reveal whether the pattern of distribution has a single peak, or many peaks and also the extent of variation around the peak value. This helps in identifying whether the problem is serious. When used in conjunction with comparable parameters, the visual patterns help us to identify the problem which should be attended to. The values shown are the number of observations made regarding a parameter. Sometimes, the percentages are shown to demonstrate the relative contribution of each of the parameters.
d) Pareto Analysis: Pareto analysis is a tool for classifying problem areas according to the degree of importance and attending to the most important. Pareto principle, also called 80-20 rule, states that 80 percent of the problems that we encounter arise out of 20 percent of items. If we find that, in a day, we have 184 assemblies having problems and there are 11 possible causes, it is observed that 80 percent of them, that is, 147 of them have been caused by just 2 or 3 of them. It will be easy to focus on these 2 or 3 and reduce the number of defects to a great extent. When the cause of these defects MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1 Page 6
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has been attended, we will observe that some other defect becomes predominantly observed and if the process is continued, we are marching toward zero defects. e) Scatter Diagram: Scatter diagram is used when we have two variables and want to know the degree of relationship between them. We can determine if there is cause and effect relationship between the variables and the degree of extent over a range in of values we of can the variables. one Sometimes, we can observe that there is no relationship, which change parameter being sure that it has no effect on the other parameter. We can see that the change in variable 2 does not have much effect on variable 1. The other interpretation can be that for a small change in variable 1, the effect on variable 2 is more. f) Control Charts: Control charts are used to verify whether a process is under control. Variables, when they remain within a range, will render the product and maintain the specifications. This is called the quality of conformance. The range of permitted deviations is determined by design parameters. Samples are taken and the mean and range of the variable of each sample (subgroup) is recorded. The mean of the means of the samples gives the control lines. Assuming normal distribution, we expect 99.97 percent of all values to lie within the Upper Control Limit (UCL) and Lower Control Limit (LCL) corresponding to 3. The graphical representation of data helps in changing settings to bring back the process closer to the target. Example 1 A shaft is to be made with a diameter of 25mm. The area required to be ground is between +0.01 and -0.02mm by a process of centre less grinding. A sample of 5 numbers is taken every hour and the observations are recorded as under. Samples Time 9 AM 10 AM 11 AM 12 NOON 2 PM 3 PM 4 PM 24.98 25.01 24.99 24.97 25.01 24.99 24.97 24.99 25.02 24.98 24.99 25.02 24.98 24.99 25.00 25.00 25.02 25.01 25.00 25.02 25.01 25.04 25.01 25.02 25.04 25.03 24.97 25.04 25.01 25.00 24.97 25.03 25.01 25.00 25.03 1 2 3 4 5
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5 PM
25.01
25.02
25.00
25.03
25.01
The method to be followed is as under. 1. Draw a line diagram taking the means of every hour 2. Draw the chart and charts and determine whether the process is under control.
The procedure to find the range for the sample readings of each hour is: 1. Find the mean of the readings of each hour, that is, 2. Add all the means calculated above and take the mean of the means. Then you will get the mean for all samples. 3. The 3 where, is the standard deviation of the means of dimensions obtained on the dimensions of samples obtained every hour. However, in drawing the control charts it is customary to range and a constant that depends on the size of the sample to calculate the UCL and LCL. The formulas are as under.
d2 values depend on the sample size Means of All Samples Samples Time 9 AM 10 AM 11 AM 12 NOON 2 PM 3 PM 4 PM 5 PM 24.98 25.01 24.99 24.97 25.01 24.99 24.97 25.01 24.99 25.02 24.98 24.99 25.02 24.98 24.99 25.02 25.00 25.00 25.02 25.01 25.00 25.02 25.01 25.00 25.04 25.01 25.02 25.04 25.03 24.97 25.04 25.03 25.01 25.00 24.97 25.03 25.01 25.00 25.03 25.01 25.02 25.00 24.99 25.00 25.01 24.99 25.00 25.01 25.00 1 2 3 4 5
Mean for all Samples
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On a graph sheet y-axis represents the dimension. The mean value is drawn as a horizontal line near the middle of the y-axis while the horizontal axis represents the serial number of the samples. Variations of the dimensions get marked on both sides of the mean line. g) Cause and Effect Diagram: Cause and effect diagram represents all the possible causes which lead to a defect on quality characteristics. These are arranged in such a way that different branches causes representing
connect the stem in the direction of the discovery of the problem. of them When is each
investigated
thoroughly
we will be able to pin-point some factors which cause the problem. We will also observe that a few of them can have cumulative effect or even a cascading effect. When we observe that we have excessive defects from a machine, we try to identify all possible sources of the causes of defects. We make a study of each of them and try to correct it. Question 5 Define project cycle, project management, and scope of project. List the various project management knowledge areas? What are the reasons for failure of a project? Project Cycle: consists of the various activities of operations, resources, and the limitations imposed on them Project Management: Management is the technique of understanding the problems, needs, and controlling the use of resources such as cost, time, manpower and materials. Scope of Project: Scope of the project refers to the various parameters that affect the project in its planning, formulation, and executions Project Knowledge Areas: The knowledge areas of project management are the following Integration management Cost management Communications management Scope management Quality management Risk management Page 9
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Time management Human management Procurement management
For a project to be successful, it is necessary to understand its relationship with other management disciplines. Other management supporting disciplines are business legal issues, strategic planning, logistics, human resource management, and domain knowledge. Project Failure: A project may fail because of one or more reasons as below:
i.
Incidence of Project Failure: It may be due to following reason(s) a. Project being initiated at random at all levels b. Project objective not in line with business objective c. Project management not observer d. Project manager with no prior experience in the related project e. Non-dedicated team f. Lack of complete support from client
ii.
Factors contributing to the Project Success not emphasized a. Project objective in alignment with business objective b. Working within the framework of project management methodology c. Effective scoping, planning, estimation, execution, controls and reviews, closure intertwined with quality d. Proactive approach towards project bottlenecks e. Communication and managing expectations effectively clients, team members and stake holders f. Prior experience of project manager in similar project
iii.
Overview of Information and Communication Technologies project a. Involve Information and communication technologies such as the World Wide Web, email, fiber-optics, and satellites b. Enable societies to produce, access, adapt and apply information in greater amounts, more rapidly at reduced costs c. Offer enormous opportunities for enhancing business and economic viability
iv.
Common Problems encountered during project a. No priotisation of project activity from an organizational position b. One or more stages in the project mishandled c. Less qualified/ non dedicated manpower d. Absence of smooth flow of communication between the involved parties.
Question 6
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Explain the various phases in project management life cycle. Explain the necessity and objectives of SCM. Project management life cycle has six phases, viz: 1. Analysis and Evaluation phase 2. Marketing Phase 3. Design Phase 4. Execution Phase 5. Control- Inspecting, testing and delivery phase 6. Closure and post completion analysis phase Analysis and Evaluation Phase: Analysis and evaluation phase is the initial phase of any project. In this phase, information is collected from the customer pertaining to the project. From the collected information, the requirements of the project are analysed. According to the customer requirement, the entire project is planned in a strategic manner. The project manager conducts the analysis of the problem and submits a detailed report to the top management. The report should consists of Details of Project justification Details on what the problem is Methods of solving the problem List of the objectives to be achieved Estimation of the project budget Success rate of completing the project Information on the project feasibility Information on the risks involved in the project
The important tasks of the Project Manager during the phase of analysis include: Specification Requirements Analysis (SRA): SRA has to be conducted to determine the essential requirements of a project in order to achieve the target. Feasibility Study: Feasibility study has to be conducted to analyse whether the project is technically, economically, and practically feasible to be undertaken. Trade-off Analysis: Trade-off analysis has to be conducted to understand and examine the various alternatives which could be considered for solving the problem. Estimation: Before starting a project, estimation has to be conducted on the project cost, effort required for the project, and the functionality of various processes in the project. System Design: According to the customer requirement, a general system design has to be chosen to fulfill the requirements.
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Project Evaluation: The project has to be evaluated in terms of expected profit, cost, and risks involved.
Marketing Phase: During this phase, a project proposal is prepared by a group of people including the project manager. The proposal should contain the strategies adopted to market the product to the customer. Design Phase: Design phase involves the study of analyzing the inputs and output requirements of various stages of the project. Input received consists of: project feasibility study, preliminary project evaluation details, project proposal, and customer interviews Outputs produced consist of: System design specifications, functional specifications of the project, design specification of the project, and project plan. Execution Phase: During this phase, the project manager and the team works towards the project objective as per the plan. At every stage during the execution, reports are prepared. Control- Inspecting, testing and delivery phase: The project manager will be tracking the project through the cost, manpower and schedule. The project manager will also ensure ways of managing the customer and marketing the future work, as well as will perform the quality control work. Closure and Post Completion Analysis: Upon satisfactory completion and delivery of the intended product or service the staff performance has to be evaluated. The project manager has to document the lessons from the project. Reports on project feedback are to be prepared and analysed. A project execution report is to be prepared. Need and Objectives of SCM Need and objectives SCM is required by an enterprise as a tool to enhance management effectiveness with the following organisational objectives: Reduction of inventory Enhancement of participation level and empowerment level Increase in functional effectiveness of existing systems like Enterprise Resource Planning (ERP), Accounting Software, and Documentation such as Financial reports/ Statements/ISO 9000 Documents Effective integration of multiple systems like ERP, communication systems, documentation system and security Design / Research & Development (R&D) systems Page 12
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Better utilisation of resources like men, material, equipment, and money Optimisation of money flow cycle within the organisation as well as from external agencies Enhancement of value of products, operations, and services. These enhancements will consequently enhance the profitability of organization
Enhancement of satisfaction level of customers and clients, supporting institutions, statutory control agencies, suppliers and vendors, employees and executives
Enhancement of flexibility in the organisation to help in easy implementation of schemes involving modernisation, expansion and diversification even divestments, mergers and acquisitions
Enhancement of coverage and accuracy of management information systems
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0044 : Production and Operation Management : Assignment set 2
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Question 1 Take an example of any product or service industry and explain the factors considered while taking the decision on plant location. For any type of industry, the factors influencing the plant location can be broadly categorized as General Factors and Special Factors. General Factors: Availability of Land: Availability of land plays an important role in determining the plant location. Many-atime, our plans, calculations and forecasts suggest a particular area as the best to start an organization. However, availability of land may be in question. In such cases, we will have to choose the second best location. Availability of Inputs: While choosing a plant location, it is very important for the organization to get the labour at the right time and raw materials at good qualities. The plant should be located: Near to the raw material source when there is no loss of weight At the market place when there is a loss of weight in the material Close to the market when universally available, so as to minimize the transportation cost
Closeness to market places: Organisations can choose to locate the plant near to the customers market or far from them, depending upon the product they produce. It is advisable to locate the plant near to the market place, when: The projection life of the product is low The transportation cost is high The products are delicate and susceptible to spoilage After sales services are promptly required very often
The advantages of locating the plant near to the market place are: Consistent supply of goods to the customers Reduction of the cost of transportation
Communication facilities: Communication facility is also an important factor which influences the location of a plant. Regions with good communication facilities viz. Postal and Tele communication links should be given priority for the selection of sites. Infrastructure: Infrastructure plays a prominent role in deciding the location. The basic infrastructure needed in any organization are:
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Power: For example, industries which run day and night require continuous power supply. So they should be located near to the power stations and should ensure continuous power supply throughout the year.
Water: For example, process industries such as, paper, chemical, and cement, requires continuous water supply in large amount. So, such process industries need to be located near to the water.
Waste disposal: For example, for process industries such as, paper and sugarcane industries facility for disposal of waste is the key factor.
Transport: Transport facility is a must for facility location and layout of location of the plant. Timely supply of raw materials to the company and supply of finished goods to the customers is an important factor. The basic modes of transportation are by Air, Road, Rail, Water, and Pipeline. The choice of location should be made depending on these basic modes. Cost of transportation is also an important criterion for plant location. Government support: The factors that demand additional attention for plant location are the policies of the state governments and local bodies concerning labour laws, building codes, and safety. Housing and recreation: Housing and recreation factors also influence the plant location. Locating a plant with the facilities of good schools, housing and recreation for employees will have a greater impact on the organization. These factor seems to be unimportant, but have a difference as they motivate the employees and hence the location decisions.
Question 2 What is Business Process? Explain with an example as to why a business process is to be modelled. Business Process is a total response that a business undertakes utilizing the resources and delivering the outputs that create a value for the customer. The business process: Has a goal Uses specific inputs Delivers specific outputs Collects resources Performs a number of activities in some order Creates value for the customer
The reasons for business process modeling are to:
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Improve the performance of the process Deliver better value to the customer Maximize earnings to the organization Keep its head above its competition from outside
The business system contains a combination of people and the applications organized to meet the business objectives. The applications are automated timely and efficiently to enable information and reporting system to be accurate. To meet the business objectives: Designers and programmers: The designers and programmers of the modeling process, together: Put together the data and processes to provide optimum benefits Put in place the architecture which is capable of addressing these needs
Architecture: The architecture should be flexible to adapt new methods, processes, and business plans. All the elements of the business process have to be structured and controlled for the purpose of analysis, evaluation, modification, implementation, and correction. Some of the elements are activities, parts, products, data, people, processes, software tools, delivery systems, and performance measurement. This is all what we are going to study under BPM. It is synonymously used even for the software tools, because of the extensive use of various software programs for all the activities seen above.
Question 3 What is Value Engineering? Explain briefly its origins and objectives. Value Engineering or Value Analysis is a methodology by which we try to find substitute for a product or an operation. Origin: The concept of value engineering originated during the Second World War. It was developed by the General Electric Corporations (GEC). Value Engineering has gained popularity due to its potential for gaining high Returns on Investment (ROI). This methodology is widely used in business re-engineering, government projects, automakers, transportation and distribution, industrial equipment, construction, assembling and machining processes, health care and environmental engineering, and many others. Value engineering process calls for a deep study of a product and the purpose for which it is used, such as, the raw materials used; the processes of transformation; the equipment needed, and many others. It also questions whether what is being used is the most appropriate and economical. This applies to all aspects of the product Objective: The objective of Value Engineering is to find a substitute for a product or a process so that any of the below specified is achieved Quality of the product or server is improved Page 4
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Cost of a specific operation is reduced One step in the process sequence is eliminated without affecting the end product or improving the quality of the end product
Increasing the product output
Question 4 Discuss the difference between work study and motion study. Explain with an example. Work practices are ways of doing any work which has been in vogue and found to be useful. These are determined by motion and time study conducted over years and found to be efficient and practiced. Any method improvement that is conducted may be adopted to change the practice, but only after trials they have shown that, they increase the comfort of the worker and get the job done faster. Work study. We say that work study is being conducted when analysis of work methods is conducted during the period when a job is done on a machine or equipment. The study helps in designing the optimum work method and standardization of the work method. This study enables the methods engineer to search for better methods for higher utilization of man and machine and accomplishment of higher productivity. The study gives an opportunity to the workmen to learn the process of study thus making them able to offer suggestions for improved methods. This encourages workmen participation and they can be permitted to make changes and report the advantages that can be derived from those. This course is in alignment with the principle of continuous improvement and helps the organization in the long run. Reward systems may be implemented for recognizing contributions from the workmen. Work study comprises of work measurement and method study. Work measurement focuses on the time element of work, while method study focuses on the methods deployed and development of better methods. Work measurement Work measurement can be defined as a systematic application of various techniques that are designed to establish the content of work involved in performing a specific task. The task is performed by a qualified worker. With this we arrive at the standard time for a task. This will be used to fix performance rating of other workers. It forms the basis of incentives, promotion, and training for workmen and assessment of capacity for the plant. Hence, training the workers is very important. (See figure 15.3) ILO defines a qualified worker as one who is accepted as having the necessary physical attributes, possessing the required intelligence and education, and having acquired the necessary skill and knowledge to carry out the work in hand to satisfactory standards of safety, quantity, and quality. Methods study Method study focus is on studying the method currently being used and developing a new method of performing the task in a better way. Operation Flow charts, Motion Charts, Flow Process charts, which are the elements of the task, are studied to find the purpose of each activity, the sequence in which they are done, and the effect of these on the work. The study may help in changing some of them and even MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2 Page 5
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eliminate some of them to effect improvements. The new method should result in saving of time, reduced motions, and simpler activities. Machine worker interaction Machine worker interaction study consists of studying the amount of time an operator spends on the machine before it is activated and the time he has nothing to do. In many modern manufacturing centres, where we have automated systems of manufacturing, the role of the worker is limited to, observing various screens, dials, indicator lamps to see that the process is going on smoothly. In some cases, his job may be to load the jobs on the machines and check the settings. What is of concern to us, is to see whether the operations permit for enabling an operator to look after two or three machines, without affecting of the performance of the machine or man. Ergonomics Ergonomics is the study of physical human factors and their functioning. We study the movements, the amount of energy that is required for certain activities, and the coordination among them. In operations management, we use these factors at two places. The first is when we design the machines which are operated, the way the operator does the tasks on the machine using different controls. Levers, wheels, switches, pedals (See figure) have to be positioned so that the operators have maximum comfort for long working hours. The other factor is the consideration given for the type of loads the body can take at various positions. When doing jobs like lifting, clamping, moving, and holding, energy is expended by different organs for which racks, tables, pallets, are positioned and designed to suit workers physical features.
Question 5 Time taken by three machines on five jobs in a factory is tabulated below in table below. Find out the optimal sequence to be followed to minimise the idle time taken by the jobs on the machines. Job Machine 1 (M1) A B C D E Steps: MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2 Page 6 6 4 5 3 4 Machine 2 (M2) 8 5 5 4 3 Machine 3 (M3) 7 3 7 6 4
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1. Take M1 and M2 and get a sequence MA 2. Combine M1 +M2 and consider it a single machine Mx and combine M2 + M3 to form a single machine My and get a sequence MB MA Job Machine 1 (M1) A B C D E 6 4 5 3 4 Machine 2 (M2) 8 5 5 4 3
The sequence of Jobs as per Johnsons algorithm is MA = DBCAE The time taken TA by sequence MA is now calculated as : Job Machine 1 (M1) Time In D B C A E 0 3 7 13 19 Time Out 3 7 13 19 23 Machine 2 (M2) Time In 3 7 12 17 25 Time Out 7 12 17 25 28 Machine 3 (M3) Time In 7 13 16 23 30 Time Out 13 16 23 30 34
The Time taken TA to complete the sequence obtained above is 34 Sequence MB Job M1 + M2 (Mx) A B C 14 9 10 M2 + M3 (My) 15 8 12
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D E
7 7
10 7
As per Johnsons algorithm, the sequence MB is MB = EDBCA The time taken TB by sequence MA is now calculated as : Job Machine 1 (M1) Time In E D B C A 0 4 7 11 16 Time Out 4 7 11 16 22 Machine 2 (M2) Time In 4 7 11 16 21 Time Out 7 11 16 21 29 Machine 3 (M3) Time In 7 11 17 20 26 Time Out 11 17 20 26 33
The Time taken TB to complete the sequence obtained above is 33 Thus we get TA = 34 and TB =33 From the above results, we found that TB is the minimum. Therefore the optimal sequence is MB = EDBCA
Question 6 List the seven principles of SCM. Discuss Bullwhip effect, its effects and countermeasures. Seven Principles of SCM are: 1. Group customer by needs: Effective SCM groups customers by distinct service needs, regardless of industry and then tailors services to those particular segments 2. Customise the logistics network: In designing their logistics network, companies need to focus on the service requirement and profit potential of the customer segments identified 3. Listen to signals of market demand and plan accordingly: Sales and operations planners must monitor the entire supply chain to detect early warning signals of changing customer demand and needs. This demand driven approach leads to more consistent forecast and optimal resource allocation 4. Differentiate the product closer to the customer: Companies today no longer can afford to stockpile inventory to compensate for possible forecasting errors. Instead, they need to postpone product MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2 Page 8
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differentiation in the manufacturing process closer to actual consumer demand. This strategy allows the supply chain to respond quickly and cost effectively to changes in customer needs 5. Strategically manage the sources of supply: By working closely with their key suppliers to reduce the overall costs of owning materials and services, SCM maximises profit margins both for themselves and their suppliers 6. Develop a supply chain wide technology strategy: As one of the cornerstones of successful SCM, information technology must be able to support multiple levels of decision making. It also should afford a clear view and ability to measure the flow of products, services, and information 7. Adopt channel spanning performance measures: Excellent supply chain performance measurement systems do more than just monitor internal functions. They apply performance criteria to every link in the supply chain criteria that embrace both service and financial metrics Bullwhip Effect An organisation will always have ups and downs. It is necessary that the managers of the organisation keep track of the market conditions and analyse the changes. They must take decisions on the resources and make necessary changes within the organisation to meet the market demands. Failing to do so may result in wild swings in the orders. This may adversely affect the functioning of the organisation resulting in lack of coordination and trust among supply chain members. The changes may affect the information and may lead to demand amplification in the supply chain. The Bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain. This has its affect on almost all the industries, poses a risk to firms that experience large variations in demand, and also those firms which are dependent on suppliers, distributors and retailers. A Bullwhip effect may arise because of: Increase in the lead time of the project due to increase in variability of demand Increase in the stocks to accommodate the increasing demand arising out of complicated demand models and forecasting techniques Reduced service levels in the organisation Inefficient allocation of resources Increased transportation cost
Counter Measure Bullwhip effect may be avoided by one or more of the following measures: Avoid multiple demand forecasting Breaking the single orders into number of batches of orders Page 9
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Stabilise the prices, avoid the risk involved in overstocking by maintaining a proper stock Reduce the variability and uncertainty in Point Of Sale (POS) and sharing information Reduce the lead time in the stages of the project Always keep analysing the past figures and track current and future levels of requirements Enhance the operational efficiency and outsourcing logistics to a capable and efficient agency
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0045 : Financial Management : Assignment set 1
MB0045 FINANCE MANAGEMENT Set 1
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Question 1 Write the short notes on Financial Management Financial Planning Capital Structure Cost of Capital Trading on Equity 1.1 Financial management Financial Management is an art and science of managing money. In traditional approach, a branch of knowledge with focus on the procurement funds is considered as financial management. Instruments of financing, formation,merger and restructuring of firms and legal and institutional frame work occupied the prime place in this traditional approach. The modern approach evolved around procurement of least cost funds and its effective utilization for maximization of share holders wealth. 1. 2. Financial planning Financial Planning is to ensure the availability of capital investments to acquire the real assets. Real assets are land and buildings, plants and equipments. Capital investments are required for establishing and running the business smoothly. 1.3. Capital structure Capital structure is a composition of Debt and Equity of an organisation. When the organisation employs debt as means of financing normally faces risk especially when its operations are exposed to high degree of business risk. In this situation, it is very important to have an effective and feasible capital structure. 1.4. Cost of capital The cost of capital is the minimum rate of return of a company, which must earn to meet the expenses of the various categories of investors who have made investment in the form of loans, debentures and equity and preference shares. 1.5. Trading on equity. Financial leverage as opposed to operating leverage relates to the financing activities of a firm and measures the effect of earnings before interest and tax (EBIT) on earnings per share (EPS) of the company. A companys sources of funds fall under two categories Those which carry a fixed financial charges like debentures, bonds and preference shares and Page 2
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Those which do not carry any fixed charges like equity shares
Debentures and bonds carry a fixed rate of interest and have to be paid off irrespective of the firms revenues. Though dividends are not contractual obligations, dividend on preference shares is a fixed charge and should be paid off before equity shareholders are paid any. The equity holders are entitled to only the residual income of the firm after all prior obligations are met. Financial leverage refers to the mix of debt and equity in the capital structure of the firm. This results from the presence of fixed financial charges in the companys income stream. Such expenses have nothing to do with the firms performance and earnings and should be paid off regardless of the amount of earnings before income and tax (EBIT). It is the firms ability to use fixed financial charges to increase the effects of changes in EBIT on the EPS. It is the use of funds obtained at fixed costswhich increase the returns on shareholders. A company earning more by the use of assets funded by fixed sources is said to be having a favourable or positive leverage. Unfavourable leverage occurs when the firm is not earning sufficiently to cover the cost of funds. Financial leverage is also referred to as Trading on Equity.
Question 2 a. Write the features of interim dividend and also write the factors influencing dividend policy? Usually, board of directors of company declares dividend in annual general meeting after finding the real net profit position. If boards of directors give dividend for current year before closing of that year, then it is called interim dividend. This dividend is declared between two annual general meetings. Before declaring interim dividend, board of directors should estimate the net profit which will be in future. They should also estimate the amount of reserves which will deduct from net profit in profit and loss appropriation account. If they think that it is sufficient for operating of business after declaring such dividend. They can issue but after completing the year, if profits are less than estimates, then they have to pay the amount of declared dividend. For this, they will have to take loan. Therefore, it is the duty of directors to deliberate with financial consultant before taking this decision.
b. What is reorder level? Reorder level or Reorder point is that inventory level at which an order needs to be placed to replenish the inventory. There are two factors need to be considered to arrive reorder level: 1. Lead Time The average time interval between the order placing and inventory receiving 2. Average Consumption It is the average consumption quantity of the inventory/ Reorder Level = Lead Time X Average Consumption
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Under certainty, reorder refers to that inventory level which will meet the consumption needs during the lead time. It is also normal to add a safety stock to the reorder level in order to compensate the delays in the lead time or over consumption. Safety Stock = [Maximum Consumption average consumption] X Lead time Reorder Level = [lead time X average consumption] + safety stock
Question 3 Sales Rs.400,000 less returns Rs 10,000, Cost of Goods Sold Rs 300,000, Administration and selling expenses Rs.20,000, Interest on loans Rs.5000, Income tax Rs.10000, preference dividend Rs. 15,000, Equity Share Capital Rs.100,000 @Rs. 10 per share. Find EPS. Sales Less: Returns 400000 10000 390000 Less: Cost of Goods Sold Contribution Less: Administration & Selling Expenses Earnings before Income and Tax (EBIT) Less: Interest on Loans EBT Less: Income Tax Earnings after tax (EAT) Less: Preference Shares Earnings holders available to equity 5000 65000 10000 55000 15000 40000 70000 300000 90000 20000
Earnings per Share =
10 = Rs. 4
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Question 4 What are the techniques of evaluation of investment? Three steps are involved in the evaluation of an investment: Estimation of cash flows Estimation of the required rate of return (the cast of capital) Application of a decision rule for decision rule for making the choice
Investment decision rule The investment decision rules may be referred to as capital budgeting techniques, or investment criteria. A sound appraisal technique should be used to measure the economic worth of an investment project. The essential property of a sound technique is that is should maximize the shareholders wealth. The following other characteristics should also be possessed by a sound investment evaluation criterion: It should consider all cash flows to determine the true profitability of then project. It should provide for an objective and unambiguous way of separate good projects from bad projects. It should help ranking of projects according to their true profitability. It should recognize the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones. It should help to choose among mutually exclusive projects that project which maximizes the shareholders wealth. It should be a criterion which is applicable to any conceivable investment project independent of others. These conditions will be clarified as we discuss the features of various investment criteria in the following posts. The methods of appraising an investment proposal can be grouped into 1. Traditional methods 2. Modern methods Traditional methods are: Payback method Accounting rate of return Modern techniques are: Net present value MB0045 FINANCE MANAGEMENT Set 1 Page 5
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Internal rate of return Modified internal rate of return Profitability index Traditional method: Payback method is defined as the length of time required to recover the initial cash outlay. Its advantages are that its simple in concept and application, recovery of initial outlay, its the best method for evaluation of projects with high uncertainty. It favors a project which is less than or equal to the standard payback set by the management. In this process early cash flows get due recognition then later cash flows. Therefore payback period could be used as a tool to deal with the ranking of projects on the basis of risk criterion. For firms with short age funds this is preferred because it measures liquidity of the project. If projects are mutually exclusive, select the project which has the least payback period. In respect of other projects, select the project which have pay-back period less than or equal to the standard payback stipulated by the management. Accounting rate of return (ARR) measures the profitability of investment using the information taken from financial statements. It is based on accounting information, simple to understand. It considers the profits of entire economic life of the project. Since it is based on accounting information, the business executives are familiar with the accounting information understand it. If any project which has an excess ARR, the minimum rate fixed by the management is accepted. If actual ARR is less than the cut-off rate then that project. When projects are to be ranked for deciding on the allocation of capital on account of the need for capital rationing, project with higher ARR are preferred to the ones with lower ARR. Discounted payback period The length in years required to recover the initial outlay on the value basis is called the discounted payback period. Discounted payback period for a project will always be higher than simple payback period. Discounted cash flow method Discounted cash flow method or time adjusted technique is an improvement over the traditional techniques. In evaluation of the projects the needs to give weight age to the timing of return is effectively considered in all DCF methods. Modern methods Net present value Net present value (NPV) method recognizes the time value of money. It correctly admits that cash flows occurring at different time periods differ in value. Therefore there is a need to find out the present values of all cash flows. NPV is the most widely used technique among the DCF method. MB0045 FINANCE MANAGEMENT Set 1 Page 6
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If Net present value is positive the project should be accepted. If NPV is negative the project should be rejected. NPV method can be used to select between mutually exclusive projects by examining whether incremental investment generate a positive net present value. Internal rate of return (IRR) Internal rate of return is the rate which makes the NPV of any project zero. IRR is the rate of interest which equates the PV of cash inflows with the PV of cash outflows. IRR is also called as yield on investment, managerial efficiency of capital, marginal productivity of capital, rate of return and time adjusted rate of return. IRR is the rate of return that a project earns. If the projects internal rate of return is greater than the firms cost of capital, accept the proposal, otherwise reject the proposal. Modified internal rate of return Modified internal rate of return (MIRR) is a distinct improvement over the IRR- internal rate of return. Managers find IRR intuitively more appealing than the rupees of NP because IRR is expressed on a percentage rate of return. Modified rate of return is a better indicator of relative profitability of the projects. Profitability Index Profitability index is also known as benefit cost index. Profitability index is the ratio of the present value of cash inflows to initial cash outlay. The discount factor based on the required rate of return is used to discount the cash inflows. P1=Present value of cash inflows/ Initial cash outlay If profitability index is 1then the management may accept the project because the sum of the present value of cash inflows is equal to the sum of present value of cash outflows
Question 5 What are the problems associated with inadequate working capital? When working capital is inadequate, a firm faces the following problems. Fixed Assets cannot efficiently and effectively be utilized on account of lack of sufficient working capital. Low liquidity position may lead to liquidation of firm. When a firm is unable to meets its debts at maturity, there is an unsound position. Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it will lose its reputation. There by, a firm may not be able to get credit facilities. It may not be able to take advantages of cash discount. Disadvantages of Redundant or Excessive Working Capital 1. Excessive Working Capital means ideal funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. 2. When there is a redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and losses. MB0045 FINANCE MANAGEMENT Set 1 Page 7
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3. Excessive working capital implies excessive debtors and defective credit policy which may cause higher incidence of bad debts. 4. It may result into overall inefficiency in the organization. 5. When there is excessive working capital, relations with banks and other financial institutions may not be maintained. 6. Due to low rate of return on investments, the value of shares may also fall. 7. The redundant working capital gives rise to speculative transactions. Disadvantages or Dangers of Inadequate Working Capital 1. A concern which has inadequate working capital cannot pay its short-term liabilities in time. Thus, it will lose its reputation and shall not be able to get good credit facilities. 2. It cannot buy its requirements in bulk and cannot avail of discounts, etc. 3. It becomes difficult for the firm to exploit favourable market conditions and undertake profitable projects due to lack of working capital. 4. The firm cannot pay day-to-day expenses of its operations and its creates inefficiencies, increases costs and reduces the profits of the business. 5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds. 6. The rate of return on investments also falls with the shortage of working capital. Disadvantages or Dangers of Inadequate or Short Working Capital Cant pay off its short-term liabilities in time. Economies of scale are not possible. Difficult for the firm to exploit favourable market situations Day-to-day liquidity worsens Improper utilization the fixed assets and ROA/ROI falls sharply
A firm must have adequate working capital, i.e.; as much as needed the firm. It should be neither excessive nor inadequate. Both situations are dangerous. Excessive working capital means the firm has idle funds which earn no profits for the firm. Inadequate working capital means the firm does not have sufficient funds for running its operations. It will be interesting to understand the relationship between working capital, risk and return. The basic objective of working capital management is to manage firms current assets and current liabilities in such a way that the satisfactory level of working capital is maintained, i.e.; neither inadequate nor excessive. Working capital sometimes is referred to as circulating capital. Operating cycle can be said to be t the heart of the need for working capital. The flow MB0045 FINANCE MANAGEMENT Set 1 Page 8
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begins with conversion of cash into raw materials which are, in turn transformed into work-in-progress and then to finished goods. With the sale finished goods turn into accounts receivable, presuming goods are sold as credit. Collection of receivables brings back the cycle to cash. The company has been effective in carrying working capital cycle with low working capital limits. It may also be observed that the PBT in absolute terms has been increasing as a year to year basis as could be seen from the above table although profit percentage turnover may be lower but in absolute terms it is increasing. In order to further increase profit margins, SSL can increase their margins by extending credit to good customers and also by paying the creditors in advance to get better rates. Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully with out an adequate amount of working capital. Working capital refers to that part of firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories. In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise. Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence. Every business needs some amount of working capital. It is needed for following purposes For the purchase of raw materials, components and spares. To pay wages and salaries. To incur day to day expenses and overhead costs such as fuel, power, and office expenses etc. To provide credit facilities to customers etc.
Question 6 What is leverage? Compare and Contrast between operating Leverage and financial leverage Leverage is the action of a lever or the mechanical advantage gained by it; it also means effectiveness or power. The common interpretation of leverage is derived from the use or manipulation of a tool or device termed as lever, which provides a substantive clue to the meaning and nature of financial leverage. When an organization is planning to raise its capital requirements (funds), these may be raised either by issuing debentures and securing long term loan 0r by issuing share- capital. Normally, a company is raising fund from both sources. When funds are raised from debts, the Co. investors will pay interest, MB0045 FINANCE MANAGEMENT Set 1 Page 9
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which is a definite liability of the company. Whether the company is earning profits or not, it has to pay interest on debts. But one benefit of raising funds from debt is that interest paid on debts is allowed as deduction for income tax. When funds are raised by issue of shares (equity), the investor are paid dividend on their investment. Dividends are paid only when the Company is having sufficient amount of profit. In case of loss, dividends are not paid. But dividend is not allowed as deduction while computing tax on the income of the Company. In this way both way of raising funds are having some advantages and disadvantages. A Company has to decide that what will be its mix of Debt and Equity, considering the liability, cost of funds and expected rate of return on investment of fund. A Company should take a proper decision about such mix otherwise it will face many financial problems. For the purpose of determination of mix of debt and equity, leverages are calculated and analyzed. In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Important examples are: A public corporation may leverage its equity by borrowing money. The more it borrows the less equity capital it needs, so any profits or losses are shared among a smaller base and are proportionately larger as a result. A business entity can leverage its revenue by buying fixed assets. This will increase the proportion of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger change in operating income. Hedge funds often leverage their assets by using derivatives. A fund might get any gains or losses on $20 million worth of crude oil by posting $1 million of cash as margin Accounting leverage has the same definition as in investments. There are several ways to define operating leverage, the most common is: Comparison between operating and financial leverage Operating leverage =Revenue-variable cost/ Revenue-variable cost-Fixed cost= Revenue- variable cost/Operating income Financial leverage is usually defined as:= Operating income/ Net income Operating leverage is an attempt to estimate the percentage change in operating income (earnings before interest and taxes or EBIT) for a one percent change in revenue. Financial leverage tries to estimate the percentage change in net income for a one percent change in operating income. The product of the two is called Total leverage, and estimates the percentage change in net income for a one percent change in revenue. There are several variants of each of these definitions, and the financial statements are usually adjusted before the values are computed. Moreover, there are industry-specific conventions that differ somewhat from the treatment above.
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Financial leverage is in contrast to operating leverage as it relates to the financial activities of a firm and measures the effect of earnings before interest and tax on earning per share of the company. A companies source of funds fall under two categories Those which carry a fixed charge like debentures, bonds and preference shares Those which do not carry a fixed charge like equity shares.
Debentures and bonds carry a fixed rate of interest and have to be paid off irrespective of the firms revenues. Dividend on preference shares have to be paid off before equity shares. Whereas equity share holders are paid the residual income of the firm after all the other obligations are met. Financial leverage refers to the mix of debt and equity in the capital structure of the firm. This results from the fixed financial charges which are present in the companys income stream. These expenses have nothing to do with the firms earnings or performance and should be paid off regardless of the amount of earnings before income and tax. It is the Firms ability to use fixed financial charges to increase the effects of changes in EBIT on the EPS. It is the use of funds obtained at fixed costs which increase the returns on shareholders. A company which earns more by use of assets funded by fixed sources is said to be having a favorable or positive leverage. Unfavorable leverage occurs when the firm is not earning sufficiently to cover the cost of funds. Financial leverage is also referred to as Trading in Equity. Operating leverage arises due to the presence of fixed operating expenses in the firms income flows. A companys operating costs can be categorized into three main sections Fixed costs Variable cost Semi variable cost
Fixed costs do not change with an increase in production or sales activities for a particular period of time. Examples are salaries to employees, rents, insurance of the firm and the accountancy cost. Variable costs are those which vary in direct proportion to output and sales. Examples cost of labor, amount of raw materials and administrative expenses. They are not fixed cost but keep on changing with change in conditions. Semi-variable cost is fixed nature up to a certain level beyond which they vary with the firms activities. Examples are production cost, wages paid to labor can shift between variable and fixed cost. The operating leverage is the firms ability to use fixed operating costs to increase the effect of changes in sales on its earnings before interest and taxes (EBIT). Operating leverage occurs anytime a firm has fixed cost. The [percentage change in profits with a change in volume of sales is more than the percentage MB0045 FINANCE MANAGEMENT Set 1 Page 11
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change in volume. An operating leverage can be favorable or unfavorable, high risks are attached to higher degrees of leverage. A larger amount of fixed expenses increases the operating risks of the company and hence a higher degree of operating leverage. Both operating and financial leverage result in the magnification of changes to earnings due to the presence of fixed costs in a company's cost structure. The difference is only the part of the income statement we are looking at. Operating leverage is the magnification on the top half of the income statement. how EBIT changes in response to changes in sales; the relevant fixed cost is the fixed cost of operating the business. Financial leverage is the magnification on the bottom half of the income statement. How earnings per share changes in response to changes in EBIT; the relevant fixed cost is the fixed cost of financing, in particular interest. Operating leverage is the name given to the impact on operating income of a change in the level of output. Financial leverage is the name given to the impact on returns of a change in the extent to which the firms assets are financed with borrowed money.
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0045 : Financial Management : Assignment set 2
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Question 1 Discuss the three broad areas of Financial Decision Making Three broad areas of financial decision making are: 1. Investment decisions Investment decisions are made by investors and managers. Investors commonly perform investment analysis by making use of fundamental analysis, technical analysis and feel. Investment decisions are often supported by decision tools. The portfolio theory is often applied to help the investor achieve a satisfactory return compared to the risk taken One of the most important long term decisions for any business relates to investment. Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to purchase a machine/ building or other asset, which will then yield returns to an organization over a period of time. Key considerations in making investment decisions are: 1. What is the scale of the investment - can the company afford it? 2. How long will it be before the investment starts to yield returns? 3. How long will it take to pay back the investment? 4. What are the expected profits from the investment? 5. Could the money that is being ploughed into the investment yield higher returns elsewhere? Hazlewood Sandwiches invested 25m in a new purpose built plant at Manton Woods. In weighing up the investment they had to consider the questions outlined above. One of the approaches they used was the payback period. The payback period is the amount of time required for a project to repay its initial cost. The calculation is based on cash flows and not on profits. An investment project costs 24m. The projected cash flows back into the business are: Year 1 - Net cash inflow 6m Year 2 - Net cash inflow 6m Year 3 - Net cash inflow 6m Year 4 - Net cash inflow 6m Cash inflow You can see from the illustration above that the cumulative net cash inflow will pay back the investment at the end of the fourth year. Projects with the shortest payback periods are preferred as longer payback periods increase the risk of unforeseen circumstances arising. However, the problem of payback is that it gives no indication of the profitability of the project. An alternative method that can be employed therefore
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to weigh up the investment is the Accounting rate of return method. This is calculated in the following way: Where there are several projects under consideration, the project with the highest rate of return is the preferred project. The main problem with the techniques described so far is that they fail to account fully for the timing of cash flows. Instinctively we all know that Rs. 50 in the hand today is worth more than a promised Rs50 for receipts on some future date. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, short term decisions deal with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers. Decisions are based on several inter-related criteria. (1) Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. (2) These projects must also be financed appropriately. (3) If no such opportunities exist, maximizing shareholder value dictates that management must return excess cash to shareholders (i.e., distribution via dividends). Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision. Management must allocate limited resources between competing opportunities (projects) in a process known as capital budgeting. Making this investment, or capital allocation, decision requires estimating the value of each opportunity or project, which is a function of the size, timing and predictability of future cash flows. Capital budgeting decisions demand considerable time, attention and energy of the management. They are strategic in nature as the success or failure of an organization is directly attributable to the execution of capital budgeting decisions taken. Investment decisions are also known as capital Budgeting decisions and hence lead to investments in real assets 2. Financing decision Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix can impact the valuation. Management must therefore identify the "optimal mix" of financingthe capital structure that results in maximum value. The sources of financing will, generically, comprise some combination of debt and equity financing. Financing a project through debt results in a liability or obligation that must be serviced, thus entailing cash flow implications independent of the project's degree of success. Equity financing is less risky with respect to cash flow commitments, but results in a dilution of ownership, control and earnings. The cost of
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equity is also typically higher than the cost of debt (see CAPM and WACC), and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk. Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows. One of the main theories of how firms make their financing decisions is the Pecking Order Theory, which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates. Another major theory is the Trade-Off Theory in which firms are assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when making their decisions. An emerging area in finance theory is rightfinancing whereby investment banks and corporations can enhance investment return and company value over time by determining the right investment objectives, policy framework, institutional structure, source of financing (debt or equity) and expenditure framework within a given economy and under given market conditions. One last theory about this decision is the Market timing hypothesis which states that firms look for the cheaper type of financing regardless of their current levels of internal resources, debt and equity. 3. The Dividend Decision is a decision made by the directors of a company. It relates to the amount and timing of any cash payments made to the company's stockholders. The decision is an important one for the firm as it may influence its capital structure and stock price. In addition, the decision may determine the amount of taxation that stockholders pay. There are three main factors that may influence a firm's dividend decision: Free-cash flow Dividend clienteles Information signaling
The firm simply pays out, as dividends, any cash that is surplus after it invests in all available positive net present value projects. Most companies pay relatively consistent dividends from one year to the next and managers tend to prefer to pay a steadily increasing dividend rather than paying a dividend that fluctuates dramatically from one year to the next. A particular pattern of dividend payments may suit one type of stock holder more than another. A retiree may prefer to invest in a firm that provides a consistently high dividend yield, whereas a person with a high income from employment may prefer to avoid dividends due to their high marginal tax rate on income. If clienteles exist for particular patterns of dividend payments, a firm may be able to maximize its stock price and minimize its cost of capital by catering to a particular clientele. This model may help to explain the relatively consistent dividend policies followed by most listed companies.
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Dividend clienteles is that investors do not need to rely upon the firm to provide the pattern of cash flows that they desire. An investor who would like to receive some cash from their investment always has the option of selling a portion of their holding. This argument is even more cogent in recent times, with the advent of very low-cost discount stockbrokers. It remains possible that there are taxation-based clienteles for certain types of dividend policies. A model developed by Merton Miller and Kevin Rock in 1985 suggests that dividend announcements convey information to investors regarding the firm's future prospects. Many earlier studies had shown that stock prices tend to increase when an increase in dividends is announced and tend to decrease when a decrease or omission is announced. Miller and Rock pointed out that this is likely due to the information content of dividends. When investors have incomplete information about the firm (perhaps due to opaque accounting practices) they will look for other information that may provide a clue as to the firm's future prospects. Managers have more information than investors about the firm, and such information may inform their dividend decisions. When managers lack confidence in the firm's ability to generate cash flows in the future they may keep dividends constant, or possibly even reduce the amount of dividends paid out. Conversely, managers that have access to information that indicates very good future prospects for the firm (e.g. a full order book) are more likely to increase dividends. Investors can use this knowledge about managers' behavior to inform their decision to buy or sell the firm's stock, bidding the price up in the case of a positive dividend surprise, or selling it down when dividends do not meet expectations. This, in turn, may influence the dividend decision as managers know that stock holders closely watch dividend announcements looking for good or bad news. As managers tend to avoid sending a negative signal to the market about the future prospects of their firm, this also tends to lead to a dividend policy of a steady, gradually increasing payment. In a fully informed, efficient market with no taxes and no transaction costs, the free cash flow model of the dividend decision would prevail and firms would simply pay as a dividend any excess cash available. The observed behaviors of firm differ markedly from such a pattern. Most firms pay a dividend that is relatively constant over time. This pattern of behavior is likely explained by the existence of clienteles for certain dividend policies and the information effects of announcements of changes to dividends. The dividend decision is usually taken by considering at least the three questions of: how much excess cash is available? What do our investors prefer? And What will be the effect on our stock price of announcing the amount of the dividend? The result for most firms tends to be a payment that steadily increases over time, as opposed to varying wildly with year-to-year changes in free cash flow.
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Question 2 What is the future value of an annuity and state the formulae for future value of an annuity The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money concepts such as interest rate and future value. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments and monthly insurance payments. Annuities are classified by payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other interval of time Future Value of Annuities An annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the begin n in g of each period for an annuity due. Future Value of an Ordinary Annuity The Future Value of an Ordinary Annuity (FVoa) is the value that a stream of expected or promised future payments will grow to after a given number of periods at a specific compounded interest. The Future Value of an Ordinary Annuity could be solved by calculating the future value of each individual payment in the series using the future value formula and then summing the results. A more direct formula is: FVoa = PMT [((1 + i)n - 1) / i] Where: FVoa = Future Value of an Ordinary Annuity PMT = Amount of each payment i = Interest Rate Per Period n = Number of Periods
Question 3 The equity stock of ABC Ltd is currently selling for Rs 30 per share. The dividend expected next year is Rs 2.00. the investors required rate of return on this stock is 15 per cent. If the constant growth model applies to ABC Ltd, What is the expected growth rate? Po=D1/ Ke-g
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Where Po= current market price of the share D1= expected dividend after one year Ke= required rate of return on the equity share Where, g stands for growth rate Po=D1/Ke-g 30 =
.
30 (0.15-g) =2 0.15-g= 0.15-g=0.067 g=8.37%=8% Hence the expected growth is 8%
Question 4 State the assumptions underlying the CAPM model and MM model The assumptions underlying the CAPM model are given below: All investors: 1. Aim to maximize economic utilities. 2. Are rational and risk-averse. 3. Are broadly diversified across a range of investments. 4. Are price takers, i.e., they cannot influence prices. 5. Can lend and borrow unlimited amounts under the risk free rate of interest. 6. Trade without transaction or taxation costs. 7. Deal with securities that are all highly divisible into small parcels. 8. Assume all information is available at the same time to all investors. The model assumes that either asset returns are (jointly) normally distributed random variables or that investors employ a quadratic form of utility. It is however frequently observed that returns in equity and other markets are not normally distributed. As a result, large swings (3 to 6 standard
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deviations from the mean) occur in the market more frequently than the normal distribution assumption would expect The model assumes that the variance of returns is an adequate measurement of risk. This might be justified under the assumption of normally distributed returns, but for general return distributions other risk measures (like coherent risk measures) will likely reflect the investors' preferences more adequately. Indeed risk in financial investments is not variance in itself; rather it is the probability of losing: it is asymmetric in nature. The model assumes that all investors have access to the same information and agree about the risk and expected return of all assets (homogeneous expectations assumption). The model assumes that the probability beliefs of investors match the true distribution of returns. A different possibility is that investors' expectations are biased, causing market prices to be informational inefficient. This possibility is studied in the field of behavioral finance, which uses psychological assumptions to provide alternatives to the CAPM such as the overconfidencebased asset pricing model of Kent Daniel, David Hirshleifer, and Avanidhar Subrahmanyam (2001). The model does not appear to adequately explain the variation in stock returns. Empirical studies show that low beta stocks may offer higher returns than the model would predict. Some data to this effect was presented as early as a 1969 conference in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes. Either that fact is itself rational (which saves the efficient- market hypothesis but makes CAPM wrong), or it is irrational (which saves CAPM, but makes the EMH wrong indeed, this possibility makes volatility arbitrage a strategy for reliably beating the market). The model assumes that given a certain expected return investors will prefer lower risk (lower variance) to higher risk and conversely given a certain level of risk will prefer higher returns to lower ones. It does not allow for investors who will accept lower returns for higher risk. Casino gamblers clearly pay for risk, and it is possible that some stock traders will pay for risk as well. The model assumes that there are no taxes or transaction costs, although this assumption may be relaxed with more complicated versions of the model. The market portfolio consists of all assets in all markets, where each asset is weighted by its market capitalization. This assumes no preference between markets and assets for individual investors, and that investors choose assets solely as a function of their risk-return profile. It also assumes that all assets are infinitely divisible as to the amount which may be held or transacted The market portfolio should in theory include all types of assets that are held by anyone as an investment (including works of art, real estate, human capital...) in practice, such a market
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portfolio is unobservable and people usually substitute a stock index as a proxy for the true market portfolio. Unfortunately, it has been shown that this substitution is not innocuous and can lead to false inferences as to the validity of the CAPM, and it has been said that due to the inobservability of the true market portfolio, the CAPM might not be empirically testable. This was presented in greater depth in a paper by Richard Roll in 1977, and is generally referred to as Roll's critique. The model assumes just two dates, so that there is no opportunity to consume and rebalance portfolios repeatedly over time. The basic insights of the model are extended and generalized in the intertemporal CAPM (ICAPM) of Robert Merton, and the consumption CAPM (CCAPM) of Douglas Breeden and Mark Rubinstein. CAPM assumes that all investors will consider all of their assets and optimize one portfolio. This is in sharp contradiction with portfolios that are held by individual investors: humans tend to have fragmented portfolios or, rather, multiple portfolios: for each goal one portfolio see behavioral portfolio theory and Maslowian Portfolio Theory. ASSUMPTIONS OF MODIGLIANI & MILLER APPROACH 1. The capital markets are assumed to be perfect. This means that investors are free to buy and sell securities. They are well informed about the risk-return on all type of securities. These are no transaction costs. The investors behave rationally. They can borrow without restrictions on the same terms as the firms do. 2. The firms can be classified into homogeneous risk classes. They belong to this class if their expected earnings is having identical risk characteristics. 3. All investors have the same expectations from a firms net operating income (EBIT) which are necessary to evaluate the value of a firm. 4. The dividend payment ratio is 100%. In other words, there are no retained earnings. 5. There are no corporate taxes. However this assumption has been removed later. Modigliani and Miller agree that while companies in different industries face different risks which will result in their earnings being capitalized at different rates, it is not possible for these companies to affect their market values, and therefore their overall capitalization rate by use of leverage. That is, for a company in a particular risk class, the total market value must be same irrespective of proportion of debt in companys capital structure. The support for this hypothesis lies in the presence of arbitrage in the capital market. They contend that arbitrage will substitute personal leverage for corporate leverage. This is illustrated below: Suppose there are two companies A & B in the same risk class. Company A is financed by equity and company B has a capital structure which includes debt. If market price of share of company B is higher MB0045 FINANCE MANAGEMENT Set 2 Page 9
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than company A, market participants would take advantage of difference by selling equity shares of company B, borrowing money to equate there personal leverage to the degree of corporate leverage in company B, and use these funds to invest in company A. The sale of Company B share will bring down its price until the market value of company B debt and equity equals the market value of the company financed only by equity capital
Question 5 Write the cash flow analysis? Cash flow is essentially the movement of money into and out of your business; it's the cycle of cash inflows and cash outflows that determine your business' solvency. Cash flow analysis is the study of the cycle of your business' cash inflows and outflows, with the purpose of maintaining an adequate cash flow for your business, and to provide the basis for cash flow management. Cash flow analysis involves examining the components of your business that affect cash flow, such as accounts receivable, inventory, accounts payable, and credit terms. By performing a cash flow analysis on these separate components, you'll be able to more easily identify cash flow problems and find ways to improve your cash flow. A quick and easy way to perform a cash flow analysis is to compare the total unpaid purchases to the total sales due at the end of each month. If the total unpaid purchases are greater than the total sales due, you'll need to spend more cash than you receive in the next month, indicating a potential cash flow problem 1. This type of cash flow analysis is called cash budgeting analysis. It is part of your firm's financial forecasting plan. Determine the amount of cash that will flow into your firm during the month. If you are just starting your business, you should include the beginning balance in cash that you want to have available every month. There would also be the amount of sales you have during the first month. Sales would include both cash sales and sales that you make to your customers who pay on credit. Here's an example you can follow to develop your Schedule of Cash Receipts (Sales Receipts). 2. Determine the amount of cash that will flow out of your firm during the month. You will have expenses. You will probably have to buy office supplies. Other monthly expenses may include advertising, vehicle expenses, payroll expenses, just to name a few. You will have some quarterly expenses, such as taxes. You may have expenses that just occur occasionally, like purchases of computer equipment, vehicles, or other larger expenses. Here is an example of a Schedule of Cash Payments that is the second step of the cash budget.
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3. You want the cash that will flow into your firm (Step 1) to be greater than the cash that will flow out of your firm (Step 2). This means that your monthly cash inflow needs to be greater than your monthly cash outflow so you will have sufficient cash to operate your firm. Here's a blank worksheet you can use to calculate your cash inflow or cash receipts and another worksheet you can use to calculate your cash payments. 4. Your ending balance for the first month becomes the beginning balance for the second month. You do the same type of analysis. Each month, you may have to add more items to your cash flow analysis as your business grows. You need to decide what the minimum ending cash balance is that you find acceptable for your firm and aim toward that figure each month. 5. If your cash flow turns negative for any one month, you will have to borrow money for that month from family or friends, investors, or from a bank or other financial institutions. Then, if your cash flow is positive the next month, you can repay that loan. 6. Keep on doing this each month for your forecasting period. Try to keep your borrowing to a minimum and your cash inflow greater than your outflows. Remember that this cash budget is a financial forecasting document but try to follow it as closely as possible. Here is an example of a completed Cash Budget, based on the schedules already completed, that you can look at. Here is a blank worksheet you can use for your own company. Measurement of cash flow can be used To determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return, and net present value. To determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable. As an alternate measure of a business's profits when it is believed that accrual accounting concepts do not represent economic realities. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares, or raising additional debt finance Cash flow can be used to evaluate the 'quality' of Income generated by accrual accounting. When Net Income is composed of large non-cash items it is considered low quality. to evaluate the risks within a financial product. E.g. matching cash requirements, evaluating default risk, re-investment requirements, etc.
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Question 6 The following two projects A and B requires an investment of Rs 2, 00,000 each. The income returns after tax for these projects are as follows: Year 1 2 3 4 5 6 Using the following criteria determine which of the project is preferable? Project A Year 1 2 3 4 Income 80000 80000 40000 20000 PVIF@10% 0.909 0.826 0.751 0.683 PVCI PVCI 72720 66080 30040 13660 182500 Project A Rs. 80,000 Rs. 80,000 Rs. 40,000 Rs. 20,000 Project B Rs. 20,000 Rs. 40,000 Rs. 40,000 Rs. 40,000 Rs. 60,000 Rs. 60,000
PVCI - NPV 182500 -200000 =17500
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Project B Year IncomePVIF@10% PVCI Year 1 2 3 4 5 6 Income 20000 40000 40000 40000 60000 60000 PVIF@10% 0.909 0.826 0.751 0.683 0.621 0.564 PVCI PVCI - NPV 179680 - 200000 =20320 As Project A is preferable option as it has minimal losses PVCI 18180 33040 30040 27320 37260 33840 179680
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Name Roll No Course SEMESTER Learning Centre code Subject Code Subject Assignment No
: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0046 : Marketing Management : Assignment set 1
MB0046 MARKETING MANAGEMENT Set 1
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Question 1 a. Explain the different micro-environmental forces with examples. Marketing department alone cannot satisfy all the needs of customer. Therefore it is essential to integrate the functions of suppliers, publics, internal departments and intermediaries in creating the value to the customer. These forces are known as organizations micro environment. Microenvironment: The forces which are very close to company and have impact on value creation and customer service. Forces in the Micro Environment The Company The plans of the Marketing department should be supported by other functional departments also. This can be explained by taking the Safe Express as an example. The company plans to expand its service area in the coming months. In order to meet the targets of the marketing plan, other departments of Safe express also expanding their horizon. The Company is coming out with logistics parks in different cities; plans to hold seven million square feet of warehousing capacity in the next three years and invest Rs 10 billion in three years to meet those targets Intermediaries These are firms which distribute and sell the goods of the company to the consumer. Marketing intermediaries play an important role in the distribution, selling and promoting the goods and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer are some of the major functions carried out by the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward agents are few of the intermediaries. Retailers are final link between the company and the customers. Their role in the marketing of product is increasing every day Publics - These are microenvironment groups, which help a company to generate the financial resources, creating the image, examining the companies policy and developing the attitude towards the product. We can identify six types of publics 1. Financial publics influence the companys ability to obtain funds. For example, Banks, investment houses and stockholders are the major financial publics. 2. Media publics carry news and features about the company e.g. Deccan Herald 3. Advertisement regulation agencies, telecom regulation agency (TRAI), and insurance regulation agency (IRDA) of the government 4. Citizen action groups: Formed by the consumer or environmental groups. For example, people for ethical treatment of animals (PETA) or Greenpeace. 5. General publics: a company should be concerned towards general publics attitude towards its products and services. MB0046 MARKETING MANAGEMENT Set 1 Page 2
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6. Internal publics: Employees who help in creating proper image for the company through word of mouth. Competitors - A company should monitor its immediate competitors as its sale will be affected by the nature and intensity of the competitors. The sale of Coca cola will be affected by Pepsi cola, or Britannia cheese by Amul cheese. Michael Porter, the author of Competitive Advantage of Nations suggested that, in addition to direct competition, companies should also consider competition from substitutes. In addition to existing competitors, the potential competitors should also be anticipated. Competition may arise from Small firms with low overheads producing duplicates. Firms which diversify into certain products by merely being in the particular industry for e.g. Pepsi entered the snacks sector competing with pure snack producers like Haldiram. Firms which expand in the same vertical for e.g. Godrej which manufactured office furniture and steel cupboards went on to the entire range of home furniture thereby giving competition to pure home furniture makers. A simple step to handle the above situations could be that the product should be positioned differently and the company should be able to provide better services. Suppliers- There are many kinds of suppliers to an enterprise or an institution. There are typically, raw material suppliers, energy and fuel suppliers, labour suppliers, office item suppliers and so on. Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relation management system to manage them well. Suppliers are a source of competition to firms today. For a large retail store like Reliance Retail or Big Bazaar the suppliers play the most significant role in both cost and time. Timely supplies reduce stocking of goods and blocking of space, at the same time meet customer requirements. In a globalised scenario suppliers are even more important as competition goes up manifold! The Tamil Nadu State Electricity Board imports coal from New Zealand despite huge coal reserves in India. For Volvo, India is a manufacturing hub. Customers - A company may sell their products directly to the customer or use marketing intermediaries to reach them. Direct or indirect marketing depends on what type of markets Company serves. Generally we can divide the markets into five different categories. They are Consumer market. Business market Reseller market Government market and
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International market
You will come to know about these five different markets from the following example. MRF, a tyre company sells its product directly to consumer (in case of urgency, customer purchases directly from showroom) i.e. operates in consumer market. It operates in business markets by selling tyres to companies like Maruti Udyog limited. MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyres in African or American countries then it is operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumer at a profit then company is operating in the reseller market.
b. Mention the different ad appeals with suitable examples. The different ad appealsA) Emotional appeal: Positive emotional appeal or negative emotional appeals are strong tools used to intensify the purchasing activity of the customer. Positive emotions like love, pride, joy and humor are used in the message. Following are the advertisement where such attributes of positive emotions used. e.g. BMW fastest saloon car in the world- pride e.g. Fevicol humor e.g. Wheel- love. The negative emotions like fear guilt and shame are also used in the advertisement to attract the customer e.g. NIIT- if you are not studying at NIIT you are missing something- guilt e.g. Rexona deodorant shame B) Rational appeals: The rational appeals highlight on the desired benefits about the products. They highlight quality, economy value or performance of the product. e.g. Dabur Amla value appeal ( long Hair) e.g. Lakme brilliance- Quality products. e.g. Reliance India mobile- performance( works even in flood situations) e.g. Reliance Infocom- Like the first three, the mobile phone must come to me as a necessity and not as a luxury- economy
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C) Moral appeal: These are concerned towards public health or environment or social responsibility. e.g. Shell lubricants show its commitment towards environment in their advertisements
Question 2 What are the different market entry strategies if a company wants to enter international markets? International Market Entry Strategies Organizations that plan to go for international marketing should know the answers for some basic questions like a. In how many countries would the company like to operate? b. What are the types of countries it plans to enter? Thats why companies evaluate each country against the market size, market growth, and cost of doing business, competitive advantage and risk level. Checklist for country evaluation The Characteristics, weight ages and score should be checked. 1. Political rights. 2. Civil liberties. 3. Control of corruption. 4. Government effectiveness. 5. Rule of law or legal issues. 6. Health expenditure 7. Education expenditure. 8. Regulatory quality. 9. Cost of starting a business. 10. Days to start a business. 11. Trade policy. 12. Inflation. 13. Fiscal policy 14. Consumption patterns. 15. Competition.
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Once the market is found to be attractive, companies should decide how to enter this market. Companies can enter the international market by adopting any one of the following strategies. They are a. Exporting b. Licensing c. Contract manufacturing
d. Management contract e. Joint ownership f. Direct investment
Exporting is the technique of selling the goods produced in the domestic country in a foreign country with some modifications. For example, Gokaldas textiles export the cloth to different countries from India. Exporting may be indirect or direct. In case of indirect exporting, company works with independent international marketing intermediaries. This is cost effective and less risky too. Direct exporting is the technique in which organization exports the goods on its own by taking all the risks. Maruti Udyog Limited, Indias leading car manufacturer exports its cars on its own. Company can also set up overseas branches to sell their products. Adani Exports, another leading exporter from India has international office in Singapore. Licensing: According to Philip Kotler, licensing is a method of entering a foreign market in which the company enters into an agreement with a license in the foreign market, offering the right to use a manufacturing process, trademark, patent, or other item of value for a fee or royalty. For example, Torrent Pharmaceuticals has license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may cause some problems to the parent company. Licensee may violate the agreement and can use the technology of the parent company. Contract manufacturing: Company enters the international market with a tie up between manufacturer to produce the product or the service. For example, Gigabyte Technology has contract manufacturing agreement with D- link India to produce and sell their mother boards. Another significant manufacturer is TVS Electronics; it produces key boards in its own name as well as for other companies too. Management contracting: In this case, a company enters the international market by providing the know how of the product to the domestic manufacturer. The capital, marketing and other activities are carried out by the local manufacturer, hence it is less risky too. Joint ownership: A form of joint venture in which an international company invests equally with a domestic manufacturer. Therefore it also has equal right in the controlling operations. For example, Barbara, a lingerie manufacturer has joint venture with Gokaldas Images in India.
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Direct Investment: In this method of international market entry, Company invests in manufacturing or assembling. The company may enjoy the low cost advantages of that country. Many manufacturing firms invested directly in the Chinese market to get its low cost advantage. Some governments provide incentives and tax benefits to the company which manufactures the product in their country. There is government restriction in some countries to opt only for direct investment, as it produces the jobs to the local people. This mode also depends on the country attractiveness. It may become risky if the market matures or unstable government exists.
Question 3 a. State the meaning of Product life cycle and explain the different stages involved in it. Meaning of Product Life Cycle: It means a product has to go through the various stages since its inception and till it completely fades out from the market. The following graph represents the PLC curve and the 5 stages that it has to undergo.
The product which is introduced into the market will undergo some modifications over the period. Its sales also fluctuate. Therefore a marketer will be interested in finding out how sales changes over a period and what strategies are best suited at that point. A product life cycle can be graphed by plotting aggregate sales volume for a product category over time. Generally the curve resembles a bell shaped curve. We can obtain style, fashion or fad style of product life cycles also. According to this type of cycle a product passes through five stages: 1. Product development stage: In this stage company identifies the viable idea and develops it. Sales in this stage are zero but require huge research and development budget. Therefore company incurs losses at this stage.
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2. Introduction stage: Company introduces the product into the market. As the product is new to the market, awareness is usually very low. Here company adopts heavy sales promotion and product awareness programs. The cost of product is very high and a sale is very low. At this juncture company charges high price to the customer. 3. Growth stage: Company gets experience over the period and now tries to get the maximum market share (take first mover advantage). Sales will grow rapidly resulting in lesser cost and better profit. Company reduces the price of the product and offers varieties and values in it. It focuses on building better distribution network and pushes the product through it. Therefore company needs less sales promotion. Number of competitors will grow and it forces company to keep tab on them. 4. Maturity stage: a. Peak sales. b. Low cost per customer. c. High profits. d. Competition based pricing e. Communicating the product differentiation to consumer. f. Improving supply chain efficiency. g. Defend the market share h. Industry experiences the consolidation.5. Decline stage: In this stage, product sales and profit declines. Company should phase out weak items from their product mix. The advertisement budget of the company also comes down. Other product life cycles: Style: A style is a basic and distinctive mode of expression appears in the field of human behavior. For example, style appears in homes, art, and clothing. Once the style is invented it will lost for longer period. Fashion: currently accepted or popular style in a given field for example, cargo jeans are now fashion with college going students. Fad: a fashion that enters quickly, adopted with great zeal, peaks early, and decline every fast for example, when the pager is introduced, everybody would like to have the product. But when people found mobile as alternatives the demand for the product went down drastically.
b. Define Customer Relationship Management. The following are few definitions of Customer Relationship Management:
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1. Berry defines CRMS as attracting, maintaining and in multi-service organizations enhancing customer relationships. 2. Berry and Parasuraman define CRMS as attracting, developing and retaining customer relationships. 3. In industrial marketing, Jackson defines CRMS as marketing oriented toward strong, lasting relationships with individual accounts. 4. Doyle and Roth define CRMS as the goal of relationship selling is to earn the position of preferred supplier by developing trust in key accounts over a period of time 5. Christopher considers relationship marketing as a tool to turn current and new customers into regularly purchasing clients and then progressively moving them through being strong supporters of the company and its products to finally being active and vocal advocates for the company. 6. Relationship marketing is in essence selling by using psychological rather than economic inducements to attract and retain customers. It seeks to personalize and appeal to the hearts, minds and purses of the mass consumers.- James J. Lynch 7. Customer Relationship Management is about acquiring, developing and retaining satisfied loyal customer; achieving profitable growth, and creating economic value in companys brand, Thus it can be concluded from the above definitions, that Customer Relationship Management refers to all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, win-win, beneficial and successful relational exchanges between the focal firm and all its supporting key stakeholders.
Question 4 a. You are a sales manager in ABC firm. You have taken some interviews and shortlisted a few candidates. How will you select the right candidate for the sales job? Being the sales manager of ABC firm, the steps I will follow to select the right candidate for the sales job: a) Application Blank: Necessary information about the applicant is required to be considered for appointment. Generally, the candidates are asked to apply on companys application form, sent directly to applicants against a requisition or an application is known as application blank given in the advertisement itself. This is with a view to gather only the necessary details of the applicants. It contains a number of questions, when filled in, gives a clear idea about the candidate. Generally, it may contain the name, sex, qualification, age, experience, health, social activities, references etc b) Screening: All applications will not be considered. Screening is a process by which applications are to be screened out (rejected) from further consideration, on the basis of unsuitability. The remaining MB0046 MARKETING MANAGEMENT Set 1 Page 9
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applications are formally considered for appointment, subject to further formalities. By rejecting the applications of unqualified applicants, much time and energy can be saved in further processing c) Reference: Generally, it is a common practice to ask the applicant to mention the names of two references or referees, to whom the sales manager can make enquiries about the integrity, general character and ability of the applicant concerned. The qualities are checked with care and caution by the sales manager, by contacting the referees. If the opinions are favorable, the applications pass on to the next stage; and in case the referee gives unfavorable comment, the application is rejected at this stage. Personal contact is necessary and it is better, because people are straight forward in tongue better than in pen. This is one-sided, but the effectiveness of such opinion is doubted, as there may be chances of telling only the good qualities of applicants. Moreover, only the names of such favorable persons are mentioned in reference, with pre-intimation. To overcome this, personal interview is essential. d) Personal Interview: This is an important step in the process of selection. Only the screened applications are considered for selection and the firm sends out interview letters. Personal interview is a must. By this interview, the sales manager can understand the positive and negative qualities of the applicant, with reference to the job duties. A good interviewer must be unbiased, able to discover facts and be a keen observer of the interviewee. Interviews are also of two types: (a) Patterned and nonpatterned. Under patterned interview, questions are designed and the same questions are asked to all, which is easy for comparison purposes. (b) In non-patterned interview, no standardized questions are asked. The applicant is allowed to talk freely. A few direct questions are asked. By this type of interview, the applicant gets a chance of speaking about his attitude and interest freely. The interviewer must be able to make an easy evaluation of the interview. e) Tests: Test is an additional tool, with which the applicants are further tested to determine their suitability to the job. Generally, following are the important types of psychological tests conducted: (i) Ability Test: This test is devised to ascertain the capacity to grasp things, and is a measure to know how well a person performs a particular task with motivation. This can also be called a mental ability or intelligence test. Such tests determine the suitability of a candidate for a particular job.(ii)Habitual Characteristic Test: A man may be intelligent but may hesitate to take a decision. This test is aimed to know ones aptitude and interest on normal, daily work, irrespective of the best behavior occasionally.(iii)Achievement Test: This test is designed to know what knowledge a man has gained from his education or training. By all these psychological tests, the ability and suitability of a candidate can be verified. One can aim to evaluate the honesty, cheerfulness, leadership quality, assertiveness, cooperation, supervision capacity, emotional stability, determination, ability etc., of the personnel. The effectiveness and reliability of these tests are questionable, as the qualities cannot be measured exactly and the circumstances to be faced by salesman are also different.
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f) Medical Examination: The important thing about any person, apart from all qualities and eligibility, is that he must be physically fit for the job. Diseases and physical deficiencies of the salesmen will affect the business. As such, selected applicants have to undergo medical examination. g) Final Interview and Appointment: The selected applicant is probably, called for a final interview and his suitability is measured through different tests, physical reports etc. The job must be explained to him along with all relevant details, which are required to perform the duties efficiently. If everything is in favor of the applicant, an agreement must be executed by him. Generally the agreement contains duties and authorities, sales quota, sales territory allotted, salary and conditions of resigning. It is followed by an appointment order, which contains designation, jobs to be performed, salary and other financial benefits etc. b. As a consumer, what are the steps you will undertake before you decide to buy a car? In general Consumer passes through five different stages while purchasing the product.
Need Recognition
Information Search
Evaluation of Alternatives
Purchase Decision Post Purchase Decision
1. Need recognition: Customer posses two type of stimuli at this juncture. One is driven by the internal stimuli and another is external stimuli. The examples of internal stimuli are customers desire, attitude or perception and external stimuli are advertising etcFrom both stimuli customer understand the need for the product. Here marketer should understand what customers needs have that drew customers towards the product and should highlight those in the communication strateg
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2. Information search: In this stage customer wants to find out the information about the product, place, price and point of purchase. Customer collects the information from different sources like a. Personal sources: Family, friends and neighbors b. Commercial sources: Advertising, sales people, dealers, packaging and displays. c. Public sources: mass media and consumer rating agencies. d. Experiential sources: Demonstration, examining the product. In this stage marketer should give detailed information about the product. The communication should highlight the attributes and advantages of the product in this stage so that he created the positive image about the product. 3. Evaluation of alternatives: After collecting the information, consumers arrive at some conclusion about the product. In this stage he will compare different brands on set parameters which he or she thinks required in the product. The evaluation process varies from person to person. In general Indian consumer evaluates on the following parameters a. Price b. Features c. Availability d. Quality e. Durability. At this stage marketer should provide comparative advertisements to evaluate the different brands. The advertisement should be different for different segments and highlight the attribute according to the segment. 4. Purchase decision In this stage consumer buy the most preferred brand. In India affordability plays an important role at this stage. Organizations bring many varieties of the products to cater to the needs of customers. 5. Post purchase behavior: After purchasing the product the consumer will experience some level of satisfaction and dissatisfaction. The consumer will also engage in post purchase actions and product uses of interest to the marketer. The marketers job does not end when the product is bought but continues into the post purchase period. Customer would like to see the performance of the product as he perceived before purchase. If the performance of the product is not as he expected then he develops dissatisfactions. Marketer should keep an eye on how consumer uses and disposes the product. In some durable goods Indian consumer want resale value also. Many automobile brands that not able to get resale value lost their market positions. As a consumer the steps I will undertake before buying a car: a. Firstly, I will analyze the desire, attitude or perception in me regarding car .I will chart out my needs which have the top priority. I will possibly go through the advertisement which gives information regarding cars. I will shortlist cars which satisfies my needs. b. My second step will be to collect information regarding the car, place, price and point of purchase form sources like family, friends, neighbors, advertising, sales people, media etc c. After collection of information regarding various brands of cars, I will compare different brands based on my needs and priorities. d. I will select the most suitable brand satisfying my needs and take a purchasing decision. MB0046 MARKETING MANAGEMENT Set 1 Page 12
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e. After purchasing the car, I will put my decision of buying a particular brand of car to test. Be it a satisfying or dissatisfying experience, I will make sure that the manufacturers of the product are updated with my experiences Question 5 a. What are the features of Business markets? How is it different from consumer markets? Following are some of the unique features of business markets where large establishments purchase the required goods and services from other businesses: 1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For example, major airlines buy the necessary equipments from the aircraft manufacturers 2. Geographical concentration of buyers: Buyers are geographically concentrated. For example, shipping industries are located on the east and west coasts of India than in any other places. 3. Variable demand: The nature of demand is fluctuating because the demand is basically a derived one. Based on the requirements of the consumer markets, organizations buy the goods and make the finished goods available in the market for final consumption. Larger the consumer demand, larger will be the organizational buying. For example, mobiles are being used by a large population and so cellular companies have to meet this rising demand. 4. Inelastic demand: The demand is also inelastic because organizations cannot make rapid changes in the production structure and so prices remain constant in the short-term. For example, Shoe manufacturers will not buy much leather if the price of leather is less neither will they buy less leather if the price increases. 5. Systematic purchasing: The purchasing activity is directly between the buyer and supplier organization which means there are no or very few middlemen involved. Purchasing activity is usually undertaken by purchase departments based on a proper structure and through various mechanisms like having purchase requisitions from other sections, inviting tenders and sending invoices from the suppliers, purchasing agreements or contracts with the key suppliers, renewing agreements etc. For example, Reliance Fresh has regular contracts with the agricultural producers for smooth supply of fresh fruits and vegetables. 6. Multiple buying influences: there will be several parties involved in deciding about the purchases because organizations will have several departments and units functioning under it with different requirements. So, unless they have the proper resources to work with there will be problems in the departments. For example, purchase department in a Hospital must be aware about the specific requirements in the clinical wards, operation theaters, labs, etc.. 7. Reciprocation: This means that when an organization buys goods from another organization then the supplier organization also might need certain other goods that are produced by the buyer MB0046 MARKETING MANAGEMENT Set 1 Page 13
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organization. For example, a stationery supplier will supply the necessary stationeries to the paper manufacturer who in turn provides papers to the supplier. 8. Lease agreements: Most organizations take on lease the expensive equipments required by them rather than buy it. So, in this way, they reduce cost, get better service and the lesser or one who provides the equipments will also profit from the rent or lease charges. For example, TATA provides the transport trucks to other organizations on lease. Differences between Consumer and Business markets are as follows: Characteristics 1. Demand 2. No. Of Customers 3. Location 4. Nature of Buy 5. No. of Buying roles 6. Negotiations 7. Promotions Consumer Market Direct Large Dispersed Personal Few Easy Advertising Business Market Derived Few Concentrated Professional Many Complex Personal Selling
b. List out the 5 important requisites of an effective segmentation by giving suitable examples. Requisites of Effective Segmentation Segmentation of market must exhibit some characteristics that are as follows: 1. Measurable and Obtainable: The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data. If the information is not obtainable, no segmentation can be carried out. For example, Census of India provides the data on migration and education level, but do not specifies how many of the migrated employees are educated and if educated how many are there in white color jobs. If a company wants to target white color employees who are migrated to particular city, will not able to measure due to non availability of data. 2. Substantial: The segment should be large enough to be profitable. For consumer markets, the small segment might disproportionably increase the cost and hence products are priced too high. For example, when the cellular services started in India cost of the incoming calls and outgoing calls were charged at Rs 12/minute. As the number of subscribers grew, incoming calls became free. Further growth of subscribers resulted in lowering tariffs to the lowest level in the world.
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3. Accessible: The segment should be accessible through existing network of people at a affordable cost. For example, Majority of the rural population still not able to access the internet due to high cost and unavailability of connections and bandwidth. 4. Differentiable: The segments are different from each other and require different 4Ps and programs. For example, Life Insurance Corporation of India needs separate marketing programs to sell their insurance plans, unit plans, pension plans and group schemes 5. Actionable: The segments which a company wishes to pursue must be actionable in the sense that there should be sufficient finance, personnel, and capability to take the mall. Question 6 Explain briefly what are the several processes involved in new product development. New products are essential for existing firms to keep the momentum and for new firms they provide the differentiation. New product doesnt mean that absolutely new to the world. It may be modification, or offered in the new market, or differentiate from existing products. Therefore it is necessary to understand what are new products? Meanings of New Products are: a. They are really innovative: Googles Orkut a networking site which revolutionized social networking. In this site people can meet like minded people; they can form their own groups and many more. b. They are very different from the others: Haier launches path-breaking 4-Door Refrigerators First time in India c. They are imitative; these products are not new to the market but new to the company. For example, cavin Kare launched ruche pickles. This product is new to cavin kare but not to the market. New product development process: Stage 1: Idea generation: New product idea can be generated either from the internal sources or external sources. The internal sources include employees of the organization and data collected from the market. The external source includes customers, competitors and supply chain members. For example, Ingersoll rand welcomes new ideas from the General public. Stage 2: Idea screening: Organization may have various ideas but it should find out which of these ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many changes from the basic version. He told that he wanted to develop car with scooter engine, plastic doors etc But when he unveiled the car so many change were there in the product. This shows that initial idea will be changed on the basis of market requirements.
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Stage 3: Concept development: The main feature that it caters to or the basic appeal of the product is created or designed in the concept development. Example: Concepts used for Tata Nano car are: Concept 1: low-end rural car, probably without doors or windows and with plastic curtains that rolled down, a four-wheel version of the auto-rickshaw Concept 2: a car made by engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding. Concept 3: Indigenous, in-house car which meets all the environment standards Stage 4: Concept testing: At this stage concept was tested with the group of target customers. Stage 5: Marketing strategy development: The marketing strategy development involves three parts. The first part focuses on target market, sales, market share and profit goals. TATAs initial business plan consisted sales of 2 Lakh cars per annum. The second part involves product price, distribution and marketing budget strategies. TATAs fixed Rs 1 Lakh as the car price, and finding self employed person who works like agent to distribute the cars. The final part contains marketing mix strategy and profit goals. Stage 6: Business analysis: It is the analysis of sales, costs and profit estimated for anew product to find out whether these align with company mission and objectives. Stage 7: Product development: During this stage, product is made to undergo further improvement; new features are added to the product. There is also scope for innovation and using the latest technology into the product. Example: TATA Nano car development 1. Tried to outsource the product from all over the world. 2. Development of mule or prototype with 20bhp. 3. Designing the small engine 4. Thermodynamic simulations and final engine 5. Development of MPFI with help of Bosch. 6. Cost reduction and negotiating with vendors. 7. Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cutting weight. Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres to bear extra weight on rear wheels. Stage 8: Test marketing: 1. The product is introduced into the realistic market 2. The 4Ps of marketing are tested. 3. The cost of test marketing varies with the type of product.
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Stage 9: Commercialization: In this stage product is completely placed in the market and aggressive communication program is carried out to support it.
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0046 : Marketing Management : Assignment set 2
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Question 1 Highlight the importance of Distribution channel and marketing intermediaries in carrying out the marketing function. Marketing channels are set of independent organizations involved in the distribution of the goods or services to the consumer from the factory at right time, and right place. E.g. Haldiram a company which produces snacks, chats and sweets have two manufacturing locations at Delhi and Nagpur. The products from Delhi will be sent to 25C&F agents. These C&F agents distribute the goods to 700 distributors, who in turn sell to 0.4 million retail outlets. In the same way, goods reach to 0.2 million retailers from Nagpur plant via 25 C&Fs and 375 distributors. Consumer buys Haldiram snacks throughout India through these 0.6 million retailers. Marketing channels include retailers, wholesalers, agents, brokers etc. Some companies do not use these channels. They directly market their products to consumer. For example, Dell computers ask its customers to login to the website, configure their product, and order the same on the internet. Then generally a question comes to the mind, why many companies use marketing channels and some do not. To answer the question we need to understand what are the functions marketing channels do and how they are advantageous than direct marketing. Functions of marketing channels 1. Physical distribution: transporting and storing goods. 2. Communication: Marketing intermediaries promotes the companys products. Here channel member provide the information regarding the product and pushes it to customer. 3. Information: retailers and wholesalers collect the information from the customer and provide the same to the company. 4. Title transforming: Marketing intermediaries purchases the goods from the company and transform the title of goods to next intermediary or customer. 5. Relationship management: Here marketing intermediaries try to understand the needs of consumer, try to match his needs and satisfy them. Retailers and Wholesalers are one of the most important market intermediaries: Functions of retailing 1. Sorting: Retailers arrange the items in proper order so that customer can easily identify his goods or services. 2. Breaking bulk: the process of unpacking big packets into small packets. Retailer will perform this function as customer may not be able to purchase large quantity of goods and services. 3. Holding stock: Retailer works as storage facility to organizations. Retailer holds inventory to meet the day to day needs of consumer. MB0046 MARKETING MANAGEMENT Set 2 Page 2
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4. Channels of communication: Retailer promotes the company product through word of mouth communication. The retailer location is also used for point of purchase display. 5. Transportation: Retailer undertakes door delivery order in case of durable goods. This feature is now adopted by the small grocery stores. Functions of wholesaler 1. Selling: Wholesalers have well defined network of retailers. Hence, they can sell the company product in the large area. 2. Bulk breaking: wholesalers buy the product in large quantities and send in small quantities to retailers. 3. Warehousing: Wholesalers have huge space to store the goods. They help in reducing the inventory cost to the company. 4. Transportation: Some companies have agreements with wholesalers on transporting the goods to retailers. 5. Credit and risk taking: wholesalers provide credit to the retailers. By doing this they take the risk of finance as well as products. 6. Information: Wholesalers provide the information to company on retailers purchase, retail market characteristics
Question 2 a. Explain the different product mix pricing strategies. 1. Product Line pricing: strategy of setting the price for entire product line. Marketer differentiate the price according to the range of products i.e. suppose the company is having three products in low, middle and high end segment and prices the three products say Rs 10 Rs 20 and Rs 30 respectively Example: Nokia mobile phones Nokia 1110 is priced @ Rs 1349, Nokia 7610priced @Rs 6249 and Nokia E90 priced @ Rs 34599. All the three products cater to the different segments Low, middle and high income group respectively. The three levels of differentiation create three price points in the mind of consumer. The task of marketer is to establish the perceived quality among the three segments. If the customers do not find much difference between the three brands, he/she may opt for low end products. 2. Optional Product pricing: Strategy is used to set the price of optional or accessory products along with a main product. Maruti Suzuki will not add above accessories to its product Swift but all these are optional customer has to pay different prices as mentioned in the picture for different products. Organizations separate these products from main product so that customer should not MB0046 MARKETING MANAGEMENT Set 2 Page 3
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perceive products are costly. Once the customer comes to the show room, organization explains the advantages of buying these products. 3. Captive product pricing: Setting a price for a product that must be used along with a main product. For example, Gillette sells low priced razors but make money on there placement cartridges. 4. By product pricing: Is determining the price for by products in order to make the main products price more attractive. For example, L.T. Overseas manufacturers of Dawaat basmati rice, found that processing of rice results in two by products i.e. rice husk and rice brain oil. If the company sells husk and brain oil to other consumers, then company 5. Product bundle: pricing is offering companies several products together at the reduced price. This strategy helps companies to generate more volume, get rid of the unused products and attract the price conscious consumer. This also helps in locking the customer from purchasing the competitors products. For example, Anchor toothpaste and brush are offered together at lower prices b. Give a note on marketing concepts. The Marketing Concept The Marketing Concept proposes that a companys task is to create, communicate and deliver a better value proposition through its marketing offer, in comparison to its competitors; to its target segment and that this customer oriented approach only can lead to success in the marketplace. Today, marketing function is seen as one of the most important function in the organization. Many marketers put the customers at the centre of the company and argue in favor of such a customer orientation where all functions work together to respond, serve and satisfy the customer. Many successful and well known multinational companies have adopted marketing concept as their business and marketing philosophies. Many Indian companies in the banking and other service sectors follow customer orientation and service as their motto. According to this concept, target market. a companys marketing effort must start right from identifying, through Market Research, exact needs & wants of the
Question 3 a. What are the features of business markets? Following are some of the unique features of business markets where large establishments purchase the required goods and services from other businesses. Such B2B operations determine the organizations as buyers and those organizations who supply the various requirements will be the sellers or suppliers or service providers. MB0046 MARKETING MANAGEMENT Set 2 Page 4
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1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For example, major airlines buy the necessary equipments from the aircraft manufacturers 2. Geographical concentration of buyers: Buyers are geographically concentrated. For example, shipping industries are located on the east and west coasts of India than in any other places 3. Variable demand: The nature of demand is fluctuating because the demand is basically a derived one. Based on the requirements of the consumer markets, organizations buy the goods and make the finished goods available in the market for final consumption. Larger the consumer demand, larger will be the organizational buying. For example, mobiles are being used by a large population and so cellular companies have to meet this rising demand. 4. Inelastic demand: The demand is also inelastic because organizations cannot make rapid changes in the production structure and so prices remain constant in the short-term. For example, Shoe manufacturers will not buy much leather if the price of leather is less neither will they buy less leather if the price increases. 5. Systematic purchasing: The purchasing activity is directly between the buyer and supplier organization which means there are no or very few middlemen involved. Purchasing activity is usually undertaken by purchase departments based on a proper structure and through various mechanisms like having purchase requisitions from other sections, inviting tenders and sending invoices from the suppliers, purchasing agreements or contracts with the key suppliers, renewing agreements etc. For example, Reliance Fresh has regular contracts with the agricultural producers for smooth supply of fresh fruits and vegetables. 6. Multiple buying influences: there will be several parties involved in deciding about the purchases because organizations will have several departments and units functioning under it with different requirements. So, unless they have the proper resources to work with there will be problems in the departments. For example, purchase department in a Hospital must be aware about the specific requirements in the clinical wards, operation theaters, labs, etc. 7. Reciprocation: This means that when an organization buys goods from another organization then the supplier organization also might need certain other goods that are produced by the buyer organization. For example, a stationery supplier will supply the necessary stationeries to the paper manufacturer who in turn provides papers to the supplier. 8. Lease agreements: Most organizations take on lease the expensive equipments required by them rather than buy it. So, in this way, they reduce cost, get better service and the lessor or one who provides the equipments will also profit from the rent or lease charges. For example, TATA provides the transport trucks to other organizations on lease
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b. Write a short note on product line and product mix. Product line: The group of related products which uses same marketing effort to reach the consumer. The product line identifies profitable and unprofitable products and helps in allocation of resources according to that. The product line understanding helps the marketer to take line extension, line pruning and line filling strategies of the company. The major product line decisions are: a. Product line length b. Product line stretching c. Product line filling
d. Product line pruning. a. Product line length: The number of items in the product line is called the product line length. b. Product line stretching: Company lengthens its products line either by stretching upwards or downwards or both ways. c. Product line filling: Adding more items in the present line
d. Product line pruning: removing the unprofitable products from the product line. Product mix: The number of product line and items offered by marketer to the consumer. A companys product mix has four different dimensions. They are product mix width, product mix length, and product mix depth and product mix consistency. i. ii. iii. iv. Product mix width: The total number of product line that company offers to the consumers Product mix length: The total number of items that company carries within its product line. Product line depth: The number of versions offered of each product in the line Product mix consistency: If companys product lines usage, production and marketing are related then product mix is consistent else it is unrelated
Question 4 a. Select any deodorant brand and evaluate its positioning strengths or weakness in terms of attributes, benefits, values, brand name and brand equity. REXONA DEODARANT has positioned itself in the following way: 1. Product Attributes: Rexona explains its attributes in the following way:
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It happens every day. Those unexpected moments when the adrenalin starts to pump and the sweat starts to flow. With Rexona's unique body-responsive technology, which releases extra protection as you need it, you'll know that your deodorant won't let you down. Better still, everyone can enjoy this peace of mind as Rexona is the only deodorant tailored to the needs of both sexes, with separate product ranges for each. 2. Benefits as explained are as follows: Now that we've established ourselves as a truly dual-gender brand with tailored solutions for men and women, we're extending our 'won't let you down' promise . 3. Values projected are: Pioneering bigger, better results. 4. The importance given by the company for Safety and Care are given as follows: i. Our Rexona 50ml roll-on deodorant is one of the most environmentally friendly on the market. The molding, assembly and packaging processes were streamlined and energy efficiency improved, with the resulting roll-on weighing an average 8% less. The new offering uses 1 000 tonnes less plastic a year than the old 50ml roll-on. ii. In addition to our proprietary body-responsive technology, we've also been the first company to introduce Rexona Crystal, a product that eliminates the unsightly white deposits on dark garments commonly associated with aerosols and sticks. Rexona is now present in Europe, North America and Latin America. And the revolutionary new Rexona for Men range addresses men's very particular physiological needs. iii. Affordable for everyone: We're enabling millions of people in low-income markets, such as Asia, to enjoy the brand's benefits via affordable mini-sticks, mini-roll-ons and sachets of deodorant lotions, supported by personal hygiene education programs. 5. Brand Equity: Rexona deodorant is a product of one of the largest FMCG Company HUL Ltd. This itself brings in the faith of the consumer in the brand. Thus Rexona achieves the following to a large extent: 1. Brand loyalty 2. Brand awareness 3. Perceived quality
4. Brand associations Thus Brand name is very strong for Rexona Deodorant. Due to its already established distribution network HUL is able to deliver its product far and wide into remote parts of India. The Rexona has a wide range of product line.
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b. You are a research expert in the field of marketing footwear products. What are the various research approaches you would consider before making a consumer survey regarding footwear? The various research approaches that I would consider before making a consumer survey are as follows: 1. Observational Approach: I would try to collect fresh data on footwear by observing various situations and people in various situations. E.g. People in rainy season. 2. Focus Group Research: I would consider method of discussion, in which I would invite
knowledgeable persons connected with marketing footwears, consumers to carry out a healthy discussion in the presence of a moderator to identify various facets of footwear market. Subsequently I would analyze the recorded tape to understand the consumer attitudes, beliefs and behavior. 3. Survey Research: I would take the help of questionnaire to learn about peoples knowledge,
beliefs and preferences. 4. Behavioral Research: I would try to learn customers purchases reflecting their preferences 5. Experimental Research: on various types of skin I would arrange for experiments by selecting matched groups of actual behavior in terms of actual
subjects, who would be subjected to different treatments. E.g. What effect as product of footwear
Question 5 a. What advice would you give a company that has facing bad publicity? What steps would you tell the company to improve its reputation? The advice I would give a company facing bad publicity are as follows: 1. The media should be handled effectively. 2. Bring in professional advice, in the form of a PR firm, and commit resources and senior managements time in drafting and implementing a media strategy. 3. The PR firm should be used in making the help your business grow. 4. Bad news should be dealt with quickly. 5. Ensure that companys side of the story is heard instead of burying ones head in sand. senior management understand how the media
works, demolishing negative misconceptions and building understanding of how the media can
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6. Promote positive news regarding the organization. 7. Harness the medias power to communicate to wide audiences will help protect and grow the reputation of the firm. The steps that the company needs to improve its reputation: 1. Provide people with the accurate information and giving clarifications if needed either through press release, media interview, websites, public messages, advertising etc. 2. Companys top management or spokesman can give a public statement or comment in the various media. 3. Improvising Public Relations and designing good publicity message to erase the effects of bad publicity. 4. Continuing to provide quality products and services to the consumers. 5. Involving in community work or environmental protection campaigns or any such activity for a good cause. b. As a brand manager, what are the ways in which you will select a brand name for your productwatches and how will you position it in the market? In selecting a brand name for a watch I would the following ways: 1. I would suggest a name that highlights the product benefits and qualities: e.g. Celebrations, which highlights that watch would be the right pick for happy occasions. 2. 3. The name Celebration is also easy to pronounce, recognize and remember. The selected name can easily be translated into different languages of India as well as in foreign languages. Everyone can connect themselves with it. 4. I will ensure that it is capable of registration and legal protection.
Brand Positioning: 1. Product attributes: Celebration for you, with you throughout life I will use the above caption to speak that watch is all special occasions, their remembrance and the technology used for the long life or durability of the watch. Thus I will position the watch brand Celebrations by Product attribute strategy.
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Question 6 a. What is MIS? What are its benefits? MIS can be defined as a system that consists of people ,equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers. Characteristics of MIS are as follows: 1. It is a planned system developed to facilitate smooth and continuous flow of information. 2. It provides pertinent information, collected from sources both internal and external to the company, for use as the basis of marketing decision making. 3. It provides right information at the right time to the right person. Benefits of MIS are as follows: 1. It allows marketing managers to carry out their analysis, planning implementation and control responsibilities more effectively. 2. It ensures effective tapping of marketing opportunities and enables the company to develop effective safeguard against emerging marketing threats. 3. It provides marketing intelligence to the firm and helps in early spotting of changing trends. 4. It helps the firm adapt its products and services to the needs and tastes of the customers. 5. By providing quality marketing information to the decision maker, MIS helps in improving the quality of decision making.
b. How is rural marketing different from urban markets? The urban marketing strategies cannot be modified and applied to a rural market. The marketing environment of a urban area and a rural area are totally different. Due to different marketing environment in rural areas, thrust needs to be given to develop products to meet the needs of the rural sector and reaching it across as per the specific characteristics of the rural environment. Rural marketing is different due to the following reasons: 1. Accessibility and mobility: The movement of the people is restricted by the lack of surface roads and the mode of transport. There are restrictions by way of visibility during night. This becomes a problem for the supplier as well as consumer. 2. Average income level of consumers: The average wage earners are characterized by lower per capita income and disposable income in comparison to the urban consumers. 3. Geographical distances: The living quarters are separated more than the yare in the urban areas. The cluster of villages is also segregated by distances. 4. Literacy Level: On an average the literacy level in the rural sector is lower in comparison to the urban sector. Other issues also exist specific to the rural sector. These force marketers to take a MB0046 MARKETING MANAGEMENT Set 2 Page 10
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different approach for the entire marketing process or at least some of them against the urban sector.
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0047 : Management Information System : Assignment set 1
MB0047 Management Information System Set 1
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Question 1 What is MIS? Define the characteristics of MIS? What are the basic Functions of MIS? Give some Disadvantage of MIS? MIS systems are extensively used in generating statistical report of any organization which can be used to study management by behavior. They set objectives to their employees using ratio analysis. Management also uses MIS for decision making from the low level management to top level management. In order to perform task using Information systems use of technical support is required. So it is the combination of 3 components i.e. organization, technology and management. MIS characteristics It supports transaction handling and record keeping. It is also called as integrated database Management System which supports in major functional areas. It provides operational, tactical, and strategic level managers with easy access to timely but, for the most, structured information. It supports decision making function which is a vital role of MIS. It is flexible which is needed to adapt to the changing needs of the organization. It promotes security system by providing only access to authorized users. MIS not only provides statistical and data analysis but also works on the basis on MBO (management by objectives). MIS is successfully used for measuring performance and making necessary change in the organizational plans and procedures. It helps to build relevant and measurable objectives, monitor results, and send alerts. Basic Function of MIS The main functions of MIS are: Data Processing: Gathering, storage, transmission, processing and getting output of the data. Making the data into information is a major task. Prediction: Prediction is based on the historical data by applying the prior knowledge methodology by using modern mathematics, statistics or simulation. Prior knowledge varies on the application and with different departments. Planning: Planning reports are produced based on the enterprise restriction on the companies and helps in planning each functional department to work reasonably.
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Control: MIS helps in monitoring the operations and inspects the plans. It consists of differences between operation and plan with respect to data belonging to different functional department. It controls the timely action of the plans and analyzes the reasons for the differences between the operations and plan. Thereby helps managers to accomplish their decision making task successfully.
Assistance: It stores the related problems and frequently used information to apply them for relative economic benefits. Through this it can derive instant answers of the related problem.
Disadvantages of MIS The following are some of the disadvantages of MIS: MIS is highly sensitive: MIS is very helpful in maintaining logging information of an authorized user. This needs to monitor constantly. Quality of outputs is governed by quality of inputs. MIS budgeting: There is difficulty in maintaining indirect cost and overheads. Capturing the actual cost needs to have an accrual system having true costs of outputs which is extremely difficult. It has been difficult to establish definite findings. MIS is not flexible to update itself for the changes. The changes in the decision of top level management decrease its effectiveness. Information accountability is based on the qualitative factors and the factors like morality, confidence or attitude will not have any base.
Question 2 Explain Knowledge based system? Explain DSS and OLAP with example? Knowledge Based System (KBS) KBS are the systems based on knowledge base. Knowledge base is the database maintained for knowledge management which provides the means of data collections, organization and retrieval of knowledge. The knowledge management manages the domain where it creates and enables organization for adoption of insights and experiences. There are two types of knowledge bases. a. Machine readable knowledge bases: The knowledge base helps the computer to process through. It makes the data in the computer readable code which makes the operator to perform easier. Such information is used by semantic web. Semantic web is a web that will make a description of the system that a system can understand.
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b. Human readable knowledge bases: They are designed to help people to retrieve knowledge. The information need to be processed by the reader. The reader can access the information and synthesize their own. KBS refers to a system of data and information used for decision making. The system is automated to work on the knowledge based data and information required in a particular domain of management activity. The processing is done based on the past decisions taken under suitable conditions. Decision making is based on the fact that the condition is similar to the past situation hence the decision is also is similar. Examples of KBS are intelligent systems, robotics, neural networks etc. Online Analytical Processing (OLAP): OLAP refers to a system in which there are predefined multiple instances of various modules used in business applications. Any input to such a system results in verification of the facts with respect to the available instances. A nearest match is found analytically and the results displayed form the database. The output is sent only after thorough verification of the input facts fed to the system. The system goes through a series of multiple checks of the various parameters used in business decision making. OLAP is also referred to as a multi dimensional analytical model. Many big companies use OLAP to get good returns in business. The querying process of the OLAP is very strong. It helps the management take decisions like which month would be appropriate to launch a product in the market, what should be the production quantity to maximize the returns, what should be the stocking policy in order to minimize the wastage etc. A model of OLAP may be well represented in the form of a 3D box. There are six faces of the box. Each adjoining faces with common vertex may be considered to represent the various parameter of the business situation under consideration. E.g.: Region, Sales & demand, Product etc.
Model of OLAP Decision Support Systems (DSS): DSS is an interactive computer based system designed to help the decision makers to use all l the resources available and make use in the decision making. In management many a time problems arise out of situations for which simple solution may not be possible. To solve such problems you may have to use complex theories. The models that would be required to solve such problems may have to be identified. DSS requires a lot of managerial abilities and managers judgment.
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The following information may be gathered and presented by using decision support application: Accessing all of your current information assets, including legacy and relational data sources, cubes, data warehouses, and data marts.
Comparative sales figures between one week and the next Projected revenue figures based on new product sales assumptions. The consequences of different decision alternatives, given past experience in a context that is described.
Manager may sometimes find it difficult to solve such problems. E.g. In a sales problem if there is multiple decision variables modeled as a simple linear problem but having multiple optima, it becomes difficult to take a decision. Since any of the multiple optima would give optimum results. But the strategy to select the one most suitable under conditions prevailing in the market, requires skills beyond the model. It would take some trials to select a best strategy. Under such circumstances it would be easy to take decision if a ready system of databases of various market conditions and corresponding appropriate decision is available. A system which consists of database pertaining to decision making based on certain rules is known as decision support system. It is a flexible system which can be customized to suit the organization needs. It can work in the interactive mode in order to enable managers to take quick decisions. You can consider decision support systems as the best when it includes high-level summary reports or charts and allow the user to drill down for more detailed information. A DSS has the capability to update its decision database. Whenever manager feels that a particular decision is unique and not available in the system, the manager can chose to update the database with such decisions. This will strengthen the DSS to take decisions in future. There is no scope for errors in decision making when such systems are used as aid to decision making. DSS is a consistent decision making system. It can be used to generate reports of various lever management activities. It is capable of performing mathematical calculations and logical calculation depending upon the model adopted to solve the problem. The benefits of DSS are as following: Improves personal efficiency Expedites problem solving Facilitates interpersonal communication Promotes learning or training Increases organizational control Generates new evidence in support of a decision Creates a competitive advantage over competition Encourages exploration and discovery on the part of the decision maker Reveals new approaches to thinking about the problem space
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Question 3 What are Value Chain Analysis & describe its significance in MIS? Explain what is meant by BPR? What is its significance? How Data warehousing & Data Mining is useful in terms of MIS? Value Chain Analysis: The activities performed by a particular enterprise can be analyzed into primary activities, which directly add value to the enterprises factors of production, which are together referred to as the value chain, and supporting activities
Porters enterprise value-chain Value-addition activities like production, marketing delivery, and servicing of the product. These activities are connected in a chain. Support activities include those providing purchased inputs, technology, human resources, or overall infrastructure functions to support the primary activities. It is possible to reduce the transaction cost by proper coordination of all the activities. It should be possible to gather better information for various controls and also replace the same by less costlier activities. It will also be possible to reduce the overall time required to complete an activity. Therefore coordination is very important to achieve competitive advantage. For this it is necessary to manage the value chain as a system rather than as separate parts. An enterprises value chain for competing in a particular industry is embedded in a larger stream of activities. What Porter termed as value system, may be referred to as the industry value-chain. This chain consists of mainly the suppliers and distribution channels. Any activity of an organization is subjected to one or more of the following New technologies: Newer technologies change the direction of the value chain. Shifting buyer needs: The buyers have been increasing their demands to satisfy their needs in the form convenience and better price and features. This demand influences a change in the related market segments; Variation in industry segmentation: The value system undergoes a change depending upon the existence of old and new systems and its components in the value chain. Organizations, which fail to adjust, will have to close down their business. Changes in the costs: It is possible to gain competitive advantage by optimizing the activities based on present conditions. Enterprises which continue to work on the older approaches in outdated modes of operation suffer.
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Changes in government regulations: If there is a change in the standards of the product of the enterprise, with respect to the environmental controls, restrictions on entry to the market, and trade barriers then it affect the performance of the enterprise.
BPR The existing system in the organization is totally reexamined and radically modified for incorporating the latest technology. This process of change for the betterment of the organization is called as Business process re-engineering. This process is mainly used to modernize and make the organizations efficient. BPR directly affects the performance. It is used to gain an understanding of the process of business and to understand the process to make it better and re-designing and thereby improving the system. BPR is mainly used for change in the work process. Latest software is used and accordingly the business procedures are modified, so that documents are worked upon more easily and efficiently. This is known as workflow management. Signification of BPR Business process are a group of activities performed by various departments, various organizations or between individuals that is mainly used for transactions in business. There may be people who do this transaction or tools. We all do them at one point or another either as a supplier or customer. The process is called the check-out process. It is called process because uniform standard system has been maintained to undertake such a task. The system starts with forming a queue, receiving the needed item form the shop, getting it billed, payment which involves billing, paying amount and receiving the receipt of purchase and the process ends up with the exit from the store. It is the transaction between customer and supplier. Data Warehousing: Data Warehouse is defined as collection of database which is referred as relational database for the purpose of querying and analysis rather than just transaction processing. Data warehouse is usually maintained to store heuristic data for future use. Data warehousing is usually used to generate reports. Integration and separation of data are the two basic features need to be kept in mind while creating a data warehousing. The main outputs from data warehouse systems are either Tabular listings (queries) with minimal formatting or Highly formatted "formal" reports on business activities.
This becomes a convenient way to handle the information being generated by various processes. Data warehouse is an archive of information collected from wide multiple sources, stored under a unified scheme, at a single site. This data is stored for a long time permitting the user an access to archived data for years. The data stored and the subsequent report generated out of a querying process enables decision making quickly. This concept is useful for big companies having plenty of data on their business
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processes. Big companies have bigger problems and complex problems. Decision makers require access to information from all sources. Setting up queries on individual processes may be tedious and inefficient. Data Mining: Data mining is primarily used as a part of information system today, by companies with a strong consumer focus - retail, financial, communication, and marketing organizations. It enables these companies to determine relationships among "internal" factors such as price, product positioning, or staff skills, and "external" factors such as economic indicators, competition, and customer demographics. And it enables them to determine the impact on sales, customer satisfaction, and corporate profits. Finally, it enables them to "drill down" into summary information to view detail transactional data. With data mining, a retailer could use point-of-sale records of customer purchases to send targeted promotions based on an individual's purchase history. By mining demographic data from comment or warranty cards, the retailer could develop products and promotions to appeal to specific customer segments.
Question 4 Explain DFD & Data Dictionary? Explain in detail how the information requirement is determined for an organization? DFD Data flow diagrams represent the logical flow of data within the system. DFD do not explain how the processes convert the input data into output. They do not explain how the processing takes place. DFD uses few symbols like circles and rectangles connected by arrows to represent data flows. DFD can easily illustrate relationships among data, flows, external entities stores. DFD can also be drawn in increasing levels of detail, starting with a summary high level view and proceeding o more detailed lower level views. Rounded rectangles represent processes that transform flow of data or work to be done. Rectangle represents external agents- the boundary of the system. It is source or destination of data. The open-ended boxes represent data stores, sometimes called files or databases. These data stores correspond to all instances of a single entity in a data model. Arrow represents data flows, inputs and outputs to end from the processes. A number of guideline should be used in DFD Choose meaningful names for the symbols on the diagram. Number the processes consistently. The numbers do not imply the sequence. Avoid over complex DFD. Make sure the diagrams are balanced
Data Dictionary MB0047 Management Information System Set 1 Page 8
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The data dictionary is used to create and store definitions of data, location, format for storage and other characteristics. The data dictionary can be used to retrieve the definition of data that has already been used in an application. The data dictionary also stores some of the description of data structures, such as entities, attributes and relationships. It can also have software to update itself and to produce reports on its contents and to answer some of the queries. Determining the Information Requirement The sole purpose of the MIS is to produce such information which will reduce uncertainty risk in a given situation. The difficulty to determine a correct and complete set of information is on account of the factors given below: 1. The capability constraint of the human being as an information processor, a problem solver and a decision-maker. 2. The nature and the variety of information in precise terms. 3. Reluctance of decision-makers to spell out the information for the political and the behavioral reasons. 4. The ability of the decision-makers to specify the information. In spite of these difficulties, methods are evolved based on the uncertainty scale, starting from the low to the high level of uncertainty. If the uncertainty is low, seeking information requirement or needs is easy as against a very high level of uncertainty. There are four methods of determining the information requirements. They are: 1. Asking or interviewing 2. Determining from the existing system 3. Analysing the critical success factors 4. Experimentation and modeling. Asking or Interviewing In this method a designer of the MIS puts questions or converses with the user of the information and determines the information requirements. Putting the questions is an art and it should be used properly to seek information. When the user has to select one answer from a finite set of answers a closed question should be asked. For example, "Which are the raw materials used for making a product?" But an open question is put, when the user has no precise knowledge but has an ability to determine all answers to select one out of them? For example, "Which are the raw materials which can be used in a product?" In open questions, the answers may not be immediate but can be obtained by surveying the domain knowledge of the user.
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When multiple users or several decision-makers in similar functions or positions are involved, a brain storming session is performed to cover all possible answers to the questions. When several users are involved, group consensus can be sought to get the most feasible set of answers. The experts or experienced users are asked to give their best answers this approach is called the Delphi method. In all these methods, the system designer has to test the validity of all the answers independently. An experienced designer is able to analyse critically the answers given to the questions and determine the correct information requirement. Determining from the Existing System In a number of cases the existing system, which has been evolved after a number of years, and has been designed out of experience gives straightaway the requirement of information. In any situations, systems from other companies can give additional information requirements. The fund of knowledge is available from the textbooks, handbooks, research studies which can determine the information requirement. For example, systems such as the accounts receivables, the accounts payables, the pay roll, the inventory control, the financial accounting, etc., have a well determined, information requirement. Irrespective of the type of organisation and business, ninety per cent of the information requirement is common and the balance ten per cent may be typical to the organisation or the business, which needs to be determined separately. The managers in the operations and the middle management use the existing systems as a reference for determining the information requirements. This method is adopted when the rules and decision methods are outside the purview of the decisionmaker. They are determined or imposed by external sources such as the Government, the Authority, the principles, etc. For example, the information required to manage shares of the company are determined through the rules and regulations laid down by the Company Law Board. The manager of the shares department has very little additional information need. In all such functions, the manager determines the information needs and the designer of the MIS can always fall back on the prescribed law books, manuals, theory and textbooks, hand books, etc to confirm the information needs. Analysing the Critical Success Factors Every business organisation performs successfully on efficient management of certain critical success factors. Other factors are important and play a support role in the functioning of the organisation. Many times a function is singularly critical to the successful functioning of a business organisation. For example, in a high technology business, the management of the technology becomes the critical function. Or in a service organisation, the management of service becomes a critical factor. In a consumer industry, marketing and service becomes the critical function. The information requirements of such MB0047 Management Information System Set 1 Page 10
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organisations largely relate to these critical factors. The analysis of these functions or factors will determine the information requirements. Experimentation and Modeling When there is total uncertainty, the designer and the user of the information resort to this method for determining the information requirement. The experimentation would decide the methodology for handling the complex situation. If the method is finalised, the information needs are determined as they have been evolved through the experimentation. Test marketing of a product is an approach of the experimentation to decide the correct marketing strategy. Sometimes models are used for deciding the initial information needs and they are modified during the implementation stage. The information requirements determined through such methods undergo a qualitative change as the users get the benefit of learning and experience and the needs may undergo a change or get replaced completely.
Question 5 What is ERP? Explain its existence before and its future after? What are the advantages & Disadvantages of ERP? What is Artificial Intelligence? How is it different from Neural Networks? ERP Manufacturing management systems have evolved in stages over the few decades from a simple means of calculating materials requirements to the automation of an entire enterprise. Around 1980, overfrequent changes in sales forecasts, entailing continual readjustments in production, as well as the unsuitability of the parameters fixed by the system, ledMRP (Material Requirement Planning) to evolve into a new concept: Manufacturing Resource Planning (or MRP2) and finally the generic concept Enterprise Resource Planning (ERP) The initials ERP originated as an extension of MRP (material requirements planning then manufacturing resource planning). ERP systems now attempt to cover all basic functions of an enterprise, regardless of the organizations business or charter. Non-manufacturing businesses, non-profit organizations and governments now all utilize ERP systems. To be considered an ERP system, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package. However, the term is typically reserved for larger, more broadly based applications. The introduction of an ERP system to replace two or more independent applications eliminates the need for external interfaces previously required between systems, and provides additional benefits that range from standardization and lower maintenance to easier and/or greater reporting capabilities. MB0047 Management Information System Set 1 Page 11
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Examples of modules in an ERP which formerly would have been stand-alone applications include: Manufacturing, Supply Chain, Financials, Customer Relationship Management (CRM), Human Resources, Warehouse Management and Decision Support System. ERP Before and After Before Prior to the concept of ERP systems, departments within an organization (for example, the human resources (HR)) department, the payroll department, and the financial department) would have their own computer systems. The HR computer system (often called HRMS or HRIS) would typically contain information on the department, reporting structure, and personal details of employees. The payroll department would typically calculate and store paycheck information. The financial department would typically store financial transactions for the organization. Each system would have to rely on a set of common data to communicate with each other. For the HRIS to send salary information to the payroll system, an employee number would need to be assigned and remain static between the two systems to accurately identify an employee. The financial system was not interested in the employee-level data, but only in the payouts made by the payroll systems, such as the tax payments to various authorities, payments for employee benefits to providers, and so on. This provided complications. For instance, a person could not be paid in the payroll system without an employee number. After ERP software, among other things, combined the data of formerly separate applications. This made the worry of keeping numbers in synchronization across multiple systems disappears. It standardized and reduced the number of software specialties required within larger organizations. Advantages and Disadvantages of ERP Advantages - In the absence of an ERP system, a large manufacturer may find itself with many software applications that do not talk to each other and do not effectively interface. Tasks that need to interface with one another may involve: A totally integrated system The ability to streamline different processes and workflows The ability to easily share data across various departments in an organization Improved efficiency and productivity levels Better tracking and forecasting Lower costs Improved customer service
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Disadvantages - Many problems organizations have with ERP systems are due to inadequate investment in ongoing training for involved personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used. While advantages usually outweigh disadvantages for most organizations implementing an ERP system, here are some of the most common obstacles experienced. Usually many obstacles can be prevented if adequate investment is made and adequate training is involved, however, success does depend on skills and the experience of the workforce to quickly adapt to the new system. Customization in many situations is limited The need to reengineer business processes ERP systems can be cost prohibitive to install and run Technical support can be shoddy ERP's may be too rigid for specific organizations that are either new or want to move in a new direction in the near future. Artificial Intelligence Artificial Intelligence is the science and technology based on various functions to develop a system that can think and work like a human being. It can reason, analyze, learn, conclude and solve problems. The systems which use this type of intelligence are known as artificial intelligent systems and their intelligence is referred to as artificial intelligence. It was said that the computer dont have common sense. Here in AI, the main idea is to make the computer think like human beings, so that it can be then said that computers also have common sense. More precisely the aim is to obtain a knowledge based computer system that will help managers to take quick decisions in business. Artificial Intelligence and Neural Networks Artificial intelligence is a field of science and technology based on disciplines such as computer science, biology, psychology, linguistics, mathematics and engineering. The goal of AI is to develop computers that can simulate the ability to think, see, hear, walk, talk and feel. In other words, simulation of computer functions normally associated with human intelligence, such as reasoning, learning and problem solving. AI can be grouped under three major areas: cognitive science, robotics and natural interfaces. Cognitive science focuses on researching on how the human brain works and how humans think and learn. Applications in the cognitive science area of AI include the development of expert systems and other knowledge-based systems that add a knowledge base and some reasoning capability to information systems. Also included are adaptive learning systems that can modify their behavior based on information they acquire as they operate. Chess-playing systems are some examples of such systems.
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Fussy logic systems can process data that are incomplete or ambiguous. Thus, they can solve semistructured problems with incomplete knowledge by developing approximate inferences and answers, as humans do. Neural network software can learn by processing sample problems and their solutions. As neural nets start to recognize patterns, they can begin to program themselves to solve such problems on their own. Neural networks are computing systems modeled after the human brains mesh like network of interconnected processing elements, called neurons. The human brain is estimated to have over 100 billion neuron brain cells. The neural networks are lot simpler in architecture. Like the brain, the interconnected processors in a neural network operate in parallel and interact dynamically with each other. This enables the network to operate and learn from the data it processes, similar to the human brain. That is, it learns to recognize patterns and relationships in the data. The more data examples it receives as input, the better it can learn to duplicate the results of the examples it processes. Thus, the neural networks will change the strengths of the interconnections between the processing elements in response to changing patterns in the data it receives and results that occur
Question 6 Distinguish between closed decision making system & open decision making system? What is What if analysis? Why is more time spend in problem analysis & problem definition as compared to the time spends on decision analysis? Closed decision making system & Open decision making system The decision-making systems can be classified in a number of ways. There are two types of systems based on the managers knowledge about the environment. If the manager operates in a known environment then it is a closed decision-making system. The conditions of the closed decision-making system are: a. The manager has a known set of decision alternatives and knows their outcomes fully in terms of value, if implemented. b. The manager has a model, a method or a rule whereby the decision alternatives can be generated, tested, and ranked for selection. c. The manager can choose one of them, based on some goal or objective criterion.
Few examples are a product mix problem, an examination system to declare pass or fail, or an acceptance of the fixed deposits.
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If the manager operates in an environment not known to him, then the decision-making system is termed as an open decision-making system. The conditions of this system in contrast closed decision-making system are: a. The manager does not know all the decision alternatives. b. The outcome of the decision is also not known fully. The knowledge of the outcome may be a probabilistic one. c. No method, rule or model is available to study and finalise one decision among the set of decision alternatives. d. It is difficult to decide an objective or a goal and, therefore, the manager resorts to that decision, where his aspirations or desires are met best. Deciding on the possible product diversification lines, the pricing of a new product, and the plant location, are some decision-making situations which fall in the category of the open decision-making systems. The MIS tries to convert every open system to a closed decision-making system by providing information support for the best decision. The MIS gives the information support, whereby the manager knows more and more about environment and the outcomes, he is able to generate the decision alternatives, test them and select one of them. A good MIS achieves this. What if analysis Decisions are made using a model of the problem for developing various solution alternatives and testing them for best choice. The model is built with some variables and relationship between variables considered values of variables or relationship in the model may not hold good and therefore solution needs to be tested for an outcome, if the considered values of variables or relationship change. This method of analysis is called 'what if analysis.' For example, in decision-making problem about determining inventory control parameters (EOQ, Safety Stock, Maximum Stock, Minimum Stock, Reorder level) lead time is assumed fairly constant and stable for a planning period. Based on this, the inventory parameters are calculated. Inventory manager wants to know how the cost of holding inventory will be affected if lead time is reduced by one week or increased by one week. The model with changed lead time would compute the cost of holding inventory under new conditions. Such type of analysis can be done for purchase price change, demand forecast variations and so on. Such analysis helps a manager to take more learned decisions. What if analysis creates confidence in decision-making model by painting a picture of outcomes under different conditions? Why is more time spend in problem analysis & problem definition as compared to the time spends on decision analysis? The manager, being a human being, behaves in a peculiar way in a given situation. The response of one manager may not be the same as that of the two other managers, as they differ on the behavioural
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platform. Even though tools, methods and procedures are evolved, the decision is many a times influenced by personal factors such as behaviour. The managers differ in their approach towards decision-making in the organisation, and, therefore, they can be classified into two categories, viz., the achievement-oriented, i.e., looking for excellence and the task-oriented, i.e., looking for the completion of the task somehow. The achievement-oriented manager will always opt for the best and, therefore, will be enterprising in every aspect of the decision-making. He will endeavour to develop all the possible alternatives. He would be scientific, and therefore, more rational. He would weigh all the pros and cons properly and then conclude. The managers personal values will definitely influence ultimately. Some of the managers show a nature of risk avoidance. Their behaviour shows a distinct pattern indicating a conservative approach to decision-making a path of low risk or no risk. Further, even though decision- making tools are available, the choice of the tools may differ depending on the motives of the manager. The motives are not apparent, and hence, are difficult to understand. A rational decision in the normal course may turn out to be different on account of the motives of the manager. The behaviour of the manager is also influenced by the position he holds in the organisation. The behaviour is influenced by a fear and an anxiety that the personal image may be tarnished and the career prospects in the organisation may be spoiled due to a defeat or a failure. The managerial behaviour, therefore, is a complex mix of the personal values, the atmosphere in the organisation, the motives and the motivation, and the resistance to change. Such behaviour sometimes overrides normal decisions based on business and economic principles. The interplay of different decision-making of all the managers in the organisation shapes up the organisational decision-making. The rationale of the business decision will largely depend upon the individuals, their positions in the organisation and their inter-relationship with other managers. If two managers are placed in two decision-making situations, and if their objectives are in conflict, the managers will arrive at a decision objectively, satisfying individual goals. Many a times, they may make a conscious decision, disregarding organisations objective to meet their personal goals and to satisfy their personal values. If the manager is enterprising, he will make objectively rational decisions. But if the manager is averse to taking risk, he will make a decision which will be subjectively rational as he would act with limited knowledge and also be influenced by the risk averseness. Thus, it is clear that if the attitudes and the motives are not consistent across the organisation, the decision-making process slows down in the organisation.
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0047 : Management Information System : Assignment set 2
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Question 1 How hardware & software support in various MIS activities of the organization? Explain the transaction stages from manual system to automated systems? Hardware support for MIS Generally hardware in the form of personal computers and peripherals like printers, fax machines, copier, scanners etc are used in organization to support various MIS activities of the organization. Advantages of a PC: Advantages a personal computer offers are a. Speed - A PC can process data at a very high speed. It can process millions of instructions within fraction of seconds. b. Storage - A PC can store large quantity of data in a small space. It eliminates the need of storing the conventional office flat files and box files which requires lots of space. The storage system in a PC is such that the information can be transferred from place to another place in electronic form. c. Communication - A PC on the network can offer great support as a communicator in communicating information in the forms of text and images. Today a PC with internet is used as a powerful tool of communication for every business activity. d. Accuracy - A PC is highly reliable in the sense that it could be used to perform calculations continuously for hours with a great degree of accuracy. It is possible to obtain mathematical results correct up to a great degree of accuracy. e. Conferencing - A PC with internet offers facility of video conferencing worldwide. Business people across the globe travel a lot to meet their business partner, colleagues, and customers etc to discuss about business activities. By video conferencing inconvenience of traveling can be avoided. A block diagram of a computer may be represented as Input unit is used to give input to the processor. Examples of input unit: Keyboard, scanner, mouse, bar code reader etc.
INPUT UNIT
PROCESSOR
OUTPUT UNIT
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A processor refers to unit which processes the input received the way it has been instructed. In a computer the processor is the CPU - Central Processing Unit. It does all mathematical calculations, logical tasks, storing details in the memory etc. Output unit is used to give output s from the computer. Examples of output unit are Monitor, printer, speakers etc. Organization of Business in an E-Enterprise Software Applications in MIS Internet technology is creating a universal bench or platform for buying and selling of goods, commodities and services. Essentially Internet and networks enable integration of information, facilitate communication, and provide access to everybody from anywhere. And software solutions make them faster and self-reliant as they can analyze data information, interpret and use rules and guidelines for decision-making. These enabling capabilities of technology have given rise to four business models that together work in an E enterprise organization. They are: E business E communication E commerce E collaboration
These models work successfully because Internet technology provides the infrastructure for running the entire business process of any length. It also provides email and other communication capabilities to plan, track, monitor and control the business operations through the workers located anywhere. It is capable of linking to disparate systems such as logistics, data acquisition and radio frequency used systems and so on. Low cost connectivity physical, virtual and universal standards of Internet technology make it a driving force to change conventional business model to E business enterprise model. Internet has enabled organizations to change their business process and practices. It has dramatically reduced cost of data and information processing, its sending and storing. Information and information products are available in electronic media, and is a resident on the network. Once everyone is connected electronically, information can flow seamlessly from any location to any other location. For example, product information is available on an organization website which also has a feature of order placement. An order placed is processed at the backend and status of acceptance, rejection is communicated instantaneously to the customer. Such order is then placed directly on the order board for scheduling and execution. These basic capabilities of Internet have given rise to number of business models. Some of them are given in Table Business Model Virtual Store Description Provides information about product, and sells and delivers Example amazon.com, rediff.com,
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directly to customer or business organization. Information Store Provides information of interest and earns revenue from sharing and advertising.
ebay.com.
yahoo.com, msn.com rediff.com, satyaminfoway.com
Transaction Process
Processes bills for payment, telephone, electricity, money transfer & banking transactions, membership for club registration.
icici.com billjunction.com seekandsource.com eauction.com seekandsource.com
Online Marketing
Provides a marketing platform where buyers and sellers can meet to exchange information, negotiate and place order for delivery. Examples are shoes, commodities.
Content Selling
News, music, photos, articles, pictures, greetings are stored and sold at a price.
timesofindia.com gartner.com aberdeen.com
Online Service
Offers services to individuals and business at large and generates revenue. Examples: Tours and travels, manpower recruiting and maintenance services.
Railway, restaurant, airlines booking. Online maintenance service. Online examination.
Virtual Communities
Provides platform to meet people of common interests. Software user groups, professional groups like doctors, managers, user groups.
Linux Group New Groups Application Package User Groups Community Groups
E-Learning
Provides contents. E-books, CDs, lessons, conducts test and offers certification.
sifyelearning.com
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The Internet and networks provide platform and various capabilities whereby communication, collaboration, and conversion has become significantly faster, transparent and cheaper. These technologies help to save time, resource and enable faster decision making. The technology adds speed and intelligence in the business process improving quality of service to the customer. The business process of serving the customer to offer goods, products or services is made up of the following components. Enquiry processing Order preparation Order placement Order confirmation Order planning Order scheduling Order manufacturing Order status monitoring Order dispatching Order billing Order receivable accounting Order payment processing
The entire process in parts or full can be handled through these technologies and software solutions. It provides important strategic, competitive advantage. Further, the technology is flexible and capable of handling any business models such as: Retailing, Trading, Auctioning Manufacturing, Distribution & Selling Outsourcing, Subcontracting Servicing, Training, Learning, Consulting
The resultant effect is the reduction in cost of business operations, improved customer loyalty and retention and better quality offer to the customer. Four major applications mentioned earlier make this achievement possible. We go into details of each one of them. Transformation stage manual systems to automated systems
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The manual system which was prevalent in the organizations before industrial revolution was slowly transformed into digital form by means of computer and related electronic instruments. A transformation had to necessarily go through the following stages a. Appraisal of the procedures b. Types of documents c. Storage systems
d. Formulations and coding e. Verification and validation f. Review
g. Documentation
Question 2 Explain the various behavioral factors of management organization? As per Porter, how can performance of individual corporations be determined? Management organizations: An organization is a structure that uses the resources from the environment like manpower, raw materials, capital and returns the output like products and services to the environment. It constitutes the rules, policies, responsibilities and procedures that are adopted by the organization. Behavioral factors The implementation of computer based information systems in general and MSS in particular is affected by the way people perceive these systems and by how they behave in accepting them. User resistance is a major behavioral factor associated with the adoption of new systems. The following are compiled by Jiang et al. (2000). Reasons that employees resist new systems: 1. Change in job content 2. Loss of status 3. Change in interpersonal relationships 4. Loss of power 5. Change in decision making approach 6. Uncertainty or unfamiliarity or misinformation 7. Job security
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The major behavioral factors are a. Decision styles symbolic processing of AI is heuristic; DSS and ANN are analytic b. Need for explanation - ES provides explanation, ANN does not, DSS may provide partial explanation. Explanation can reduce resistance to change c. Organizational climate some organizations lead and support innovations and new technologies whereas other wait and lag behind in making changes d. Organizational expectations - over expectation can result in disappointments and termination of innovation. Over expectation was observed in most early intelligent systems. e. Resistance to change - can be strong in MSS because the impacts may be significant. Performance of individual corporations: Out of many possible interpretations of a strategy an organization adopts in business, it is found that a majority is concerned with competition between corporations. Competition means cultivating unique strengths and capabilities, and defending them against imitation by other firms. Another alternative sees competition as a process linked to innovation in product, market, or technology. Strategic information systems theory is concerned with the use of information technology to support or sharpen an enterprise's competitive strategy. Competitive strategy is an enterprise's plan for achieving sustainable competitive advantage over, or reducing the edge of, its adversaries. The performance of individual corporations is determined by the extent to which they manage the following (as given by Porter) a. The bargaining power of suppliers b. The bargaining power of buyer c. The threat of new entrants
d. The threat of substitute products; And e. Rivalry among existing firms. Porter's classic diagram representing these forces is indicated below.
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There are two basic factors which may be considered to be adopted by organization in their strategies: a. low cost b. product differentiation Enterprise can succeed relative to their competitors if they possess sustainable competitive advantage in either of these two. Another important consideration in positioning is 'competitive scope', or the breadth of the enterprise's target markets within its industry, i.e. the range of product varieties it offers, the distribution channels it employs, the types of buyers it serves, the geographic areas in which it sells, and the array of related industries in which it competes. Under Porter's framework, enterprises have four generic strategies available to them whereby they can attain above average performance. They are: a. Cost leadership b. Differentiation c. Cost focus; and
d. Focused differentiation. Porter's representation of them is indicated on the right side. According to Porter, competitive advantage grows out of the way an enterprise organizes and performs discrete activities. The operations of any enterprise can be divided into a series of activities such as MB0047 Management Information System Set 2 Page 8
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salespeople making sales calls, service technicians performing repairs, scientists in the laboratory designing products or processes, and treasurers raising capital. By performing these activities, enterprises create value for their customers. The ultimate value an enterprise creates is measured by the amount customers are willing to pay for its product or services. A firm is profitable if this value exceeds the collective cost of performing all of the required activities. To gain competitive advantage over its rivals, a firm must either provide comparable value to the customer, but perform activities more efficiently than its competitors (lower cost), or perform activities in a unique way that creates greater buyer value and commands a premium price (differentiation).As per Borden 1964, quoted in Wiseman 1988many differentiation bases can be classified as 4 Ps as given below: 1. Product (quality, features, options, style, brand name, packaging, sizes, services, warranties, returns) 2. Price (list, discounts, allowances, payment period, credit terms) 3. Place (channels, coverage, locations, inventory, transport) 4. Promotion (advertising, personal selling, sales promotion, publicity). The various attributes listed above can be sharpened the firms product by the support of a suitable information technology.
Question 3 Compare various types of development aspect of Information System? Explain the various stages of SDLC? Development of Information Systems a) Development and Implementation of the MIS Once the plan of MIS is made, the development of the MIS calls for determining the strategy of development. As discussed earlier, the plan consists of various systems and subsystems. The development strategy determines where to begin and in what sequence the development can take place with the sole objective of assuring the information support. The choice of the system or the subsystem depends on its position in the total MIS plan, the size of the system, the user's understanding of the systems and the complexity and its interface with other systems. The designer first develops systems independently and starts integrating them with other systems, enlarging the system scope and meeting the varying information needs. Determining the position of the system in the MIS is easy. The real problem is the degree of structure, and formalization in the system and procedures which determine the timing and duration of development of the system. Higher the degree of structuredness and formalization,
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greater is the stabilization of the rules, the procedures, decision making and the understanding of the overall business activity. Here, it is observed that the user's and the designer's interaction is smooth, and their needs are clearly understood and respected mutually. The development becomes a method of approach with certainty in input process and outputs. b) Prototype Approach When the system is complex, the development strategy is Prototyping of the System. Prototyping is a process of progressively ascertaining the information needs, developing methodology, trying it out on a smaller scale with respect to the data and the complexity, ensuring that it satisfies the needs of the users, and assess the problems of development and implementation. This process, therefore, identifies the problem areas, inadequacies in the prototype visvis fulfillment of the information needs. The designer then takes steps to remove the inadequacies. This may call upon changing the prototype of the system, questioning the information needs, streamlining the operational systems and procedures and move user interaction. In the prototyping approach, the designer's task becomes difficult, when there are multiple users of the same system and the inputs they use are used by some other users as well. For example, a lot of input data comes from the purchase department, which is used in accounts and inventory management. The attitudes of various users and their role as the originators of the data need to be developed with a high degree of positivism. It requires, of all personnel, to appreciate that the information is a corporate resource, and all have to contribute as per the designated role by the designer to fulfill the corporate information needs. When it comes to information the functional, the departmental, the personal boundaries do not exist. This calls upon each individual to comply with the design needs and provide without fail the necessary data inputs whenever required as per the specification discussed and finalised by the designer. Bringing the multiple users on the same platform and changing their attitudes toward information, as a corporate resource, is the managerial task of the system designer. The qualification, experience, knowledge, of the state of art, and an understanding of the corporate business, helps considerably, in overcoming the problem of changing the attitudes of the multiple users and the originators of the data. c) Life Cycle Approach There are many systems or subsystems in the MIS which have a life cycle, that is, they have birth and death. Their emergence may be sudden or may be a part of the business need, and they are very much structured and rule based. They have 100% clarity of inputs and their sources, a definite set of outputs in terms of the contents and formats. These details more or less remain static from the day the system emerges and remains in that static mode for a long time. Minor MB0047 Management Information System Set 2 Page 10
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modifications or changes do occur but they are not significant in terms of handling either by the designer or the user of the system. Such systems, therefore, have a life and they can be developed in a systematic manner, and can be reviewed after a year or two, for significant modification, if any. Examples of such systems are pay roll, share accounting, basic financial accounting, finished goods accounting and dispatching, order processing, and so on. These systems have a fairly long duration of survival and they contribute in a big way as sources of data to the Corporate MIS. Therefore, their role is important and needs to be designed from the view point as an interface to the Corporate MIS. Table below shows the difference between the two approaches helping the designer select an approach. Prototype Approach Open system with a high degree of uncertainty about the information needs. Necessary to try out the ideas, application and efficiency of the information as a decision support. Necessary to control the cost of the design and development before the scope of the system and its application is fully determined. Experimentation is necessary. User of the system wants to tryout the system before he commits the specification and the information requirements. The system and application is highly custom oriented. Life Cycle Approach Closed systems with little or no uncertainty about the information needs. The system remains valid for a long time with no significant change. The design would remain stable. No need to try out the application of the information as it is already proven. Scope of the design and the application is fully determined with clarity and experimentation is not necessary. The user is confident and confirms the specifications and the information needs. The system and application is universal and governed by the principles and practices.
d) Implementation of the Management Information System The implementation of the system is a management process. It brings about organizational change it affects people and changes their work style. The process evokes a behavior response which could be either favorable or unfavorable depending upon the strategy of system implementation. In the process of implementation, the system designer acts as a change agent or a catalyst. For a successful implementation he has to handle the human factors carefully. The user of the system has a certain fear complex when a certain cultural work change is occurring. The first and the foremost fear is about the security to the person if the changeover from the old to new is not a smooth one. Care has to be taken to assure the user that such fears are baseless and the responsibility, therefore, rests with the designer. The second fear is about the role played by the person in the organization and how the change affects him. On many occasions, the new role may reduce his importance in the organization, the MB0047 Management Information System Set 2 Page 11
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work design may make the new job impersonal, and a fear complex may get reinforced that the career prospects may be affected. There are certain guidelines for the systems designer for successful implementation of the system. The system designer should not question beyond a limit the information need of the user. 1. Not to forget that his role is to offer a service and not to demand terms. 2. Remember that the system design is for the use of the user and it is not the designer's prerogative to dictate the design features. In short, the designer should respect the demands of the user. 3. Not to mix up technical needs with the information needs. He should try to develop suitable design with appropriate technology to meet the information needs. The designer should not recommend modifications of the needs, unless technically infeasible. 4. Impress upon the user the global nature of the system design which is required to meet the current and prospective information need. 5. Not to challenge the application of the information in decision making. It is the sole right of the user to use the information the way he thinks proper. 6. Impress upon the user that the quality of information depends on the quality of input. 7. Impress upon the user that you are one of the users in the organization and that the information is a corporate resource and he is expected to contribute to the development of the MIS. 8. Ensure that the user makes commitment to all the requirements of the system design specifications. Ensure that he appreciates that his commitments contribute largely to the quality of the information and successful implementation of the system. 9. Ensure that the overall system effort has the management's acceptance. 10. Enlist the user's participation from time to time, so that he is emotionally involved in the process of development. 11. Realize that through serving the user, he is his best guide on the complex path of development. 12. Not to expect perfect understanding and knowledge from the user as he may be the user of a non computerized system. Hence, the designer should be prepared to change the system specifications or even the design during the course of development. 13. Impress upon the user that the change, which is easily possible in manual system, is not as easy in the computer system as it calls for changes in the programs at cost. 14. Impress upon the user that perfect information is nonexistent; His role therefore still has an importance in the organization.
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15. Ensure that the other organization problems are resolved first before the MIS is taken for development. 16. Conduct periodical user meetings on systems where you get the opportunity to know the ongoing difficulties of the users. 17. Train the user in computer appreciation and systems analysis as his perception of the computerized information system will fall short of the designer's expectation. Implementation of the MIS in an organization is a process where organizational transformation takes place. This change can occur in a number of ways. The Lewin's model suggests three steps in this process. The first step is unfreezing the organization to make the people more receptive and interested in the change. The second step is choosing a Course of action where the process begins and reaches the desired level of stability, and the third step is Refreezing, where the change is consolidated and equilibrium is reinforced. Many a times, This process is implemented through an external change agent, such as a consultant playing the role of a catalyst. The significant problem in this task is the resistance to change. The resistance can occur due to three reasons, viz., the factors internal to the users of information, the factors inherent in the design of the system and the factors arising out of the interaction between the system and its users. The problem of resistance can be handled through education, persuasion, and participation. This itself can be achieved by improving the human factors, and providing incentives to the users, and eliminating the organizational problems before implementing the system. SDLC System development cycle stages are sometimes known as system study. System concepts which are important in developing business information systems expedite problem solving and improve the quality of decision making. The system analyst has to do a lot in this connection. They are confronted with the challenging task of creating new systems and planning major changes in the organization. The system analyst gives a system development project, meaning and direction. The typical breakdown of an information systems life cycle includes a feasibility study, requirements, collection and analysis, design, prototyping, implementation, validation, testing and operation. It may be represented in the form of a block diagram as shown below:
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Feasibility Study
Requirement Collection and Analysis
Design
Implementation Prototyping Validation and Testing
Operation
a) Feasibility study - It is concerned with determining the cost effectiveness of various alternatives in the designs of the information system and the priorities among the various system components. b) Requirements, collection and analysis - It is concerned with understanding the mission of the information systems, that is, the application areas of the system within the enterprise and the problems that the system should solve. c) Design - It is concerned with the specification of the information systems structure. There are two types of design: database design and application design. The database design is the design of the database design and the application design is the design of the application programs. d) Prototyping - A prototype is a simplified implementation that is produced in order to verify in practice that the previous phases of the design were well conducted. e) Implementation - It is concerned with the programming of the final operational version of the information system. Implementation alternatives are carefully verifies and compared. f) Validation and testing - It is the process of assuring that each phase of the development process is of acceptable quality and is an accurate transformation from the previous phase.
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Question 4 Compare & Contrast E-enterprise business model with traditional business organization model? Explain how in E-enterprise manager role & responsibilities are changed? Explain how manager is a knowledge worker in E-enterprise? Managing the E enterprise Due to Internet capabilities and web technology, traditional business organization definition has undergone a change where scope of the enterprise now includes other company locations, business partners, customers and vendors. It has no geographic boundaries as it can extend its operations where Internet works. All this is possible due to Internet and web moving traditional paper driven organization to information driven Internet enabled E business enterprise. E business enterprise is open twenty four hours, and being independent, managers, vendors; customers transact business anytime from anywhere. Internet capabilities have given E business enterprise a cutting edge capability advantage to increase the business value. It has opened new channels of business as buying and selling can be done on Internet. It enables to reach new markets across the world anywhere due to communication capabilities. It has empowered customers and vendors / suppliers through secured access to information to act, wherever necessary. The cost of business operations has come down significantly due to the elimination of paper driven processes, faster communication and effective collaborative working. The effect of these radical changes is the reduction in administrative and management overheads, reduction in inventory, faster delivery of goods and services to the customers. In E business enterprise traditional people organization based on 'Command Control' principle is absent. It is replaced by people organization that is empowered by information and knowledge to perform their role. They are supported by information systems, application packages, and decision support systems. It is no longer functional, product, and project or matrix organization of people but E organization where people work in network environment as a team or work group in virtual mode. E business enterprise is more process driven; Technology enabled and uses its own information and knowledge to perform. It is lean in number, flat in structure, broad in scope and a learning organization. In E business enterprise, most of the things are electronic, use digital technologies and work on databases, knowledge bases, directories and document repositories. The business processes are conducted through enterprise software like ERP, SCM, and CRM supported by data warehouse, decision support, and knowledge management systems. Today most of the business organizations are using Internet technology, network, and wireless technology for improving the business performance measured in terms of cost, efficiency, competitiveness and profitability. They are using E business, Ecommerce Solutions to reach far away locations to deliver product and services. The enterprise solutions like ERP, SCM, and CRM run on Internet (Internet / Extranet) & Wide Area Network (WAN). The business MB0047 Management Information System Set 2 Page 15
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processes across the organization and outside run on E technology platform using digital technology. Hence today's business firm is also called E enterprise or Digital firm. The paradigm shift to E enterprise Has brought four transformations, namely: Domestic business to global business. Industrial manufacturing economy to knowledge based service economy. Enterprise Resource Management to Enterprise Network Management. Manual document driven business process to paperless, automated, electronically transacted business process. These transformations have made conventional organization design obsolete. The basis of conventional organization design is command & control which is now collaborates & control. This Change has affected the organization structure, scope of operations, reporting mechanisms, work practices, workflows, and business processes at large. The comparison between conventional Organization design and E enterprise is summarized in Table.
Conventional Organisation Design Top heavy organization structure Work & work place location at one place Manual & document-based work flows High administrative & management overheads Inflexible, rigid and longer business process cycles Private business process systems for self use. They are barred for usage to customers, vendors and business partners Low usage of technology
E Enterprise Flat organization structure Separation of work from work place location Paperless work flows Low overheads Flexible agile and responsive process cycles Public business processes and systems for use by customers, vendors and business partners
Use internet, wireless and network technologies
Comparison between Conventional Design and E Organization In E enterprise, business is conducted electronically. Buyers and sellers through Internet drive the market and Internet based web systems. Buying and selling is possible on Internet. Books, CDs, computer, white goods and many such goods are bought and sold on Internet. The new channel of business is well known as Ecommerce. On the same lines, banking, insurance, healthcare are being managed through Internet E banking, E billing, E audit, & use of Credit cards, Smart card, ATM, E money are the examples of the MB0047 Management Information System Set 2 Page 16
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Ecommerce application. The digital firm, which uses Internet and web technology and uses E business And Ecommerce solutions, is a reality and is going to increase in number. MIS for E business is different compared to conventional MIS design of an organization. The role of MIS in E business organization is to deal with changes in global market and enterprises. MIS produces more knowledge based products. Knowledge management system is formally recognized as a part of MIS. It is effectively used for strategic planning for survival and growth, increase in profit and productivity and so on. To achieve the said benefits of E business organization, it is necessary to redesign the organization to realize the benefits of digital firm. The organization structure should be lean and flat. Get rid of rigid established infrastructure such as branch office or zonal office. Allow people to work from anywhere. Automate processes after reengineering the process to cut down process cycle time. Make use of groupware technology on Internet platform for faster response processing. Another challenge is to convert domestic process design to work for international process, where integration of multinational information systems using different communication standards, country specific accounting practices, and laws of security are to be adhered strictly. Internet and networking technology has thrown another challenge to enlarge the scope of Organization where customers and vendors become part of the organization. This technology offers a solution to communicate, coordinate, and collaborate with customers, vendors and business partners. This is just not a technical change in business operations but a cultural change in the mindset of managers and workers to look beyond the conventional organization. It means changing the organization behavior to take competitive advantage of the E business technology. The last but not the least important is the challenge to organize and implement information architecture and information technology platforms, considering multiple locations and multiple information needs arising due to global operations of the business into a comprehensive MIS.
Question 5 What do you understand by service level Agreements (SLAs)? Why are they needed? What is the role of CIO in drafting these? Explain the various security hazards faced by an IS? A service level agreement (frequently abbreviated as SLA) is a part of a service contract where the level of service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service) or performance. As an example, internet service providers will commonly include service level agreements within the terms of their contracts with customers to define the level(s) of service being sold in plain language terms (typically the (SLA) will in this case have a technical definition in terms of MTTF, MTTR, various data rates, etc.) A service level agreement (SLA) is a negotiated agreement between two parties where one is the customer and the other is the service provider. This can be a legally binding formal or informal "contract" (see internal department relationships).Contracts between the service provider and other third parties are MB0047 Management Information System Set 2 Page 17
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often (incorrectly) called SLAs - as the level of service has been set by the (principal) customer, there can be no "agreement" between third parties (these agreements are simply a "contract"). Operating Level Agreements or OLA(s), however, may be used by internal groups to support SLA(s). The SLA records a common understanding about services, priorities, responsibilities, guarantees, and warranties. Each area of service scope should have the "level of service" defined. The SLA may specify the levels of availability, serviceability, performance, operation, or other attributes of the service, such as billing. The "level of service" can also be specified as "target" and "minimum," which allows customers to be informed what to expect (the minimum), whilst providing a measurable (average) target value that shows the level of organization performance. In some contracts, penalties may be agreed upon in the case of non-compliance of the SLA (but see "internal" customers below). It is important to note that the "agreement" relates to the services the customer receives, and not how the service provider delivers that service. SLAs have been used since late 1980s by fixed line telecom operators as part of their contracts with their corporate customers. This practice has spread such that now it is common for a customer to engage a service provider by including a service-level agreement in a wide range of service contracts in practically all industries and markets. Internal departments (such as IT, HR, and Real Estate) in larger organization have adopted the idea of using service-level agreements with their "internal" customers - users in other departments within the same organization. One benefit of this can be to enable the quality of service to be benchmarked with that agreed to across multiple locations or between different business units. This internal benchmarking can also be used to market test and provide a value comparison between an inhouse department and an external service provider. Service-level agreements are, by their nature, "output" based - the result of the service as received by the customer is the subject of the "agreement." The (expert) service provider can demonstrate their value by organizing themselves with ingenuity, capability, and knowledge to deliver the service required, perhaps in an innovative way. Organizations can also specify the way the service is to be delivered, through a specification (a service-level specification) and using subordinate "objectives" other than those related to the level of service. This type of agreement is known as an "input" SLA. This latter type of requirement is becoming obsolete as organizations become more demanding and shift the delivery methodology risk on to the service provider. Role of CIO in drafting SLAS One of the major responsibilities of the CIO is to establish the credibility of the systems organization. The systems department should not only focus on providing better service to the various lines of business but also help businesses operate better. If the CIO wants to be taken seriously, he needs to do what other executives do and have his own business metrics and performance measurements, so that he can effectively measure his internal business performance. Other business departments have them, but CIOs generally do not because IT has always been viewed as a cost center. Measurements in IT tend to be MB0047 Management Information System Set 2 Page 18
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vague and lacking in context. For example, 'I had 14 projects last year, and I did them well.' But there is no real business measurement there. How many projects should the manager have had? Did he really have the capacity to handle 14 projects? A CIO should explore running their area more like a service operation rather than a cost center, and develop metrics that track the performance of the information systems staff, as well as the equipment comprising the applications, infrastructure, and networks under the CIO's control. The first step, they say, is to implement service level agreements (SLAs) with business units. It sets the expectation on the technical areas of the CIO's operations. At a minimum, they should set up what is expected and what levels of service the equipment will provide. The underlying SLAs should be some sort of a chargeback system with business units, particularly when it comes to apportioning staff time. If information systems are now providing a service, the staff needs to understand where the service is being used to be properly remunerated or to demonstrate where the value is. The second part of the IT operations equation is computer equipment, and CIOs must have a firm handle on how that equipment is being used. There are softwares to help with the people picture, and there are other products that can monitor hardware performance, such as network and server uptime. One of the major roles of the CIO is to make the organization information systems savvy and increase the technological maturity of the information systems organization. A major part of the CIO's job is to make the users aware of the opportunities arising as a result of technical innovations, how this can help them perform better, and familiarizing them with computers and information systems applications. The information systems management also has the job of helping the end users adapt to the changes caused by information systems, and to encourage their use. Finally, CIOs need to institute life cycle management with their applications and computer equipment. Most IT organizations do not have any idea of the life cycle of an application - how long they want it to last, and when it needs to be refurbished, replaced, or disposed of. Lacking this knowledge, it is easy for applications to linger long after they should be gone, and for companies to spend far too much money on maintaining ailing applications. Security Hazards faced by an Information system: Security of the information system can be broken because of the following reasons: i) Malfunctions: In this type of security hazard, all the components of a system are involved. People, software and hardware errors course the biggest problem. More dangerous are the problems which are created by human beings due to the omission, neglect and incompetence. ii) Fraud and unauthorized access: This hazard is due to dishonesty, cheating or deceit. This can be done through a. Infiltration and industrial espionage b. Tapping data from communication lines c. Unauthorized browsing through lines by online terminals, etc. Page 19
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iii)
Power and communication failure: In some locations they are the most frequent hazards than any other else because availability of both of them depends upon the location. Sometimes communication channel are busy or noisy. There are power cuts and sometimes high voltage serge destroys a sensitive component of the computer.
iv) v)
Fire hazard: it can happen because of electrical short circuits, flammable liquids etc. Sabotage and riots: sometimes the employees destroy the computer centre in case of strike, lockout or there may be chances of riots in the area.
vi)
Natural Disasters: Natural disasters are not controllable. They are not frequent hazards but if they happen they destroy the things or ruin them. Examples are earthquake, floods, tornadoes and lightening.
vii)
General hazards: this category covers many more hazards which are not covered anywhere and difficult to define and come spontaneously.
Question 6 Case Study: Information system in a restaurant. Case Summary: A waiter takes an order at a table, and then enters it online via one of the six terminals located in the restaurant dining room. The order is routed to a printer in the appropriate preparation area: the cold item printer if it is a salad, the hot-item printer if it is a hot sandwich or the bar printer if it is a drink. A customers meal check-listing (bill) the items ordered and the respective prices are automatically generated. This ordering system eliminates the old three-carbon-copy guest check system as well as any problems caused by a waiters handwriting. When the kitchen runs out of a food item, the cooks send out an out of stock message, which will be displayed on the dining room terminals when waiters try to order that item. This gives the waiters faster feedback, enabling them to give better service to the customers. Other system features aid management in the planning and control of their restaurant business. The system provides up-to-the-minute information on the food items ordered and breaks out percentages showing sales of each item versus total sales. This helps management plan menus according to customers tastes. The system also compares the weekly sales totals versus food costs, allowing planning for tighter cost controls. In addition, whenever an order is voided, the reasons for the void are keyed in. This may help later in management decisions, especially if the voids consistently related to food or service. Acceptance of the system by the users is exceptionally high since the waiters and waitresses were involved in the selection and design process. All potential users were asked to give their impressions and ideas about the various systems available before one was chosen.
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Questions to be analysed: 1. In the light of the system, describe the decisions to be made in the area of strategic planning, managerial control and operational control? What information would you require to make such decisions? 2. What would make the system a more complete MIS rather than just doing transaction process? 3. Explain the probable effects that making the system more formal would have on the customers and the management. Solution: 1. A management information system (MIS) is an organized combination of people, hardware, communication networks and data sources that collects, transforms and distributes information in an organization. An MIS helps decision making by providing timely, relevant and accurate information to managers. The physical components of an MIS include hardware, software, database, personnel and procedures. Management information is an important input for efficient performance of various managerial functions at different organization levels. The information system facilitates decision making. Management functions include planning, controlling and decision making. Decision making is the core of management and aims at selecting the best alternative to achieve an objective. The decisions may be strategic, tactical or technical. Strategic decisions are characterized by uncertainty. They are future oriented and relate directly to planning activity. Tactical decisions cover both planning and controlling. Technical decisions pertain to implementation of specific tasks through appropriate technology. Sales region analysis, cost analysis, annual budgeting, and relocation analysis are examples of decision-support systems and management information systems. There are 3 areas in the organization. They are strategic, managerial and operational control. Strategic decisions are characterized by uncertainty. The decisions to be made in the area of strategic planning are future oriented and relate directly to planning activity. Here basically planning for future that is budgets, target markets, policies, objectives etc. is done. This is basically a top level where up-to-the minute information on the food items ordered and breaks out percentages showing sales of each item versus total sales is provided. The top level where strategic planning is done compares the weekly sales totals versus food costs, allowing planning for tighter cost controls. Executive support systems function at the strategic level, support unstructured decision making, and use advanced graphics and communications. Examples of executive support systems include sales trend forecasting, budget forecasting, operating plan development, budget forecasting, profit planning, and manpower planning.
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The decisions to be made in the area of managerial control are largely dependent upon the information available to the decision makers. It is basically a middle level where planning of menus is done and whenever an order is voided, the reasons for the void are keyed in which later helps in management decisions, especially if the voids are related to food or service. The managerial control that is middle level also gets customer feedback and is responsible for customer satisfaction. The decisions to be made in the area of operational control pertain to implementation of specific tasks through appropriate technology. This is basically a lower level where the waiter takes the order and enters it online via one of the six terminals located in the restaurant dining room and the order is routed to a printer in the appropriate preparation area. The items ordered list and the respective prices are automatically generated. The cooks send out of stock message when the kitchen runs out of a food item, which is basically displayed on the dining room terminals when waiter tries to order that item. This basically gives the waiters faster feedback, enabling them to give better service to the customers. Transaction processing systems function at the operational level of the organization. Examples of transaction processing systems include order tracking, order processing, machine control, plant scheduling, compensation, and securities trading. The information required to make such decision must be such that it highlights the trouble spots and shows the interconnections with the other functions. It must summarize all information relating to the span of control of the manager. The information required to make these decisions can be strategic, tactical or operational information. Advantages of an online computer system: 1. Eliminates carbon copies 2. Waiters handwriting issues 3. Out-of-stock message 4. Faster feedback helps waiters to service the customers Advantages to management: 1. Sales figures and percentages item-wise 2. Helps in planning the menu 3. Cost accounting details 2. If the management provides sufficient incentive for efficiency and results to their customers, it would make the system a more complete MIS and so the MIS should support this culture by providing such information which will aid the promotion of efficiency in the management services and operational system. It is also necessary to study the keys to successful Executive Information System (EIS) development and operation. Decision support systems would also make the system MB0047 Management Information System Set 2 Page 22
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a complete MIS as it constitutes a class of computer-based information systems including knowledge-based systems that support decision-making activities. DSSs serve the management level of the organization and help to take decisions, which may be rapidly changing and not easily specified in advance. Improving personal efficiency, expediting problem solving (speed up the progress of problems solving in an organization), facilitating interpersonal communication, promoting learning and training, increasing organizational control, generating new evidence in support of a decision, creating a competitive advantage over competition, encouraging exploration and discovery on the part of the decision maker, revealing new approaches to thinking about the problem space and helping automate the managerial processes would make the system a complete MIS rather than just doing transaction processing. 3. The management system should be an open system and MIS should be so designed that it highlights the critical business, operational, technological and environmental changes to the concerned level in the management, so that the action can be taken to correct the situation. To make the system a success, knowledge will have to be formalized so that machines worldwide have a shared and common understanding of the information provided. The systems developed will have to be able to handle enormous amounts of information very fast. An organization operates in an ever-increasing competitive, global environment. Operating in a global environment requires an organization to focus on the efficient execution of its processes, customer service, and speed to market. To accomplish these goals, the organization must exchange valuable information across different functions, levels, and business units. By making the system more formal, the organization can more efficiently exchange information among its functional areas, business units, suppliers, and customers. As the transactions are taking place every day, the system stores all the data which can be used later on when the hotel is in need of some financial help from financial institutes or banks. As the inventory is always entered into the system, any frauds can be easily taken care of and if anything goes missing then it can be detected through the system.
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0048 : OPERATIONS RESEARCH : Assignment set 1
MB0048 OPERATIONS RESEARCH Set 1
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Question 1 a) Operation Techniques is a bunch of mathematical techniques. Comment. Operations Research is an interdisciplinary branch of applied mathematics and formal science that uses methods such as mathematical modelling, statistics, and algorithms to arrive at optimal or near optimal solutions to complex problems. It is typically concerned with optimizing the maxima (profit, assembly line performance, crop yield, bandwidth, etc) or minima (loss, risk, etc.) of some objective function. Operations research helps management achieve its goals using scientific methods. The terms operations research and management science are often used synonymously. When a distinction is drawn, management science generally implies a closer relationship to the problems of business management. The field of operations research is closely related to Industrial engineering. Industrial engineers typically consider Operations Research (OR) techniques to be a major part of their toolset. Some of the primary tools used by operations researchers are statistics, optimization, probability theory, queuing theory, game theory, graph theory, decision analysis, and simulation. Because of the computational nature of these fields, OR also has ties to computer science, and operations researchers use custom-written and off-the-shelf software. Operations research is distinguished by its frequent use to examine an entire management information system, rather than concentrating only on specific elements (though this is often done as well). An operations researcher faced with a new problem is expected to determine which techniques are most appropriate given the nature of the system, the goals for improvement, and constraints on time and computing power. For this and other reasons, the human element of OR is vital. Like any other tools, OR techniques cannot solve problems by themselves. Scope of operation Research: Examples of applications in which operations research is currently used include: 1. Critical path analysis or project planning: identifying those processes in a complex project which affect the overall duration of the project. 2. Designing the layout of a factory for efficient flow of materials. 3. Constructing a telecommunications network at low cost while still guaranteeing QoS (quality of service) or QoS (Quality of Experience) if particular connections become very busy or get damaged. 4. Road traffic management and 'one way' street allocations i.e. allocation problems. 5. Determining the routes of school buses (or city buses) so that as few buses are needed as possible. 6. Designing the layout of a computer chip to reduce manufacturing time (therefore reducing cost) Managing the flow of raw materials and products in a supply chain based on uncertain demand for the finished products. 7. Efficient messaging and customer response tactics. 8. Robotizing or automating human-driven operations processes.
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9. Globalizing operations processes in order to take advantage of cheaper materials, labour, land or other productivity inputs Managing freight transportation and delivery systems (Examples: LTL Shipping, intermodal freight transport). 10. Scheduling. 11. Personnel staffing. 12. Manufacturing steps. 13. Project tasks. 14. Network data traffic: these are known as queuing models or queuing systems. 15. Sports events and their television coverage blending of raw materials in oil. 16. Refineries determining optimal prices, in many retail and B2B settings, within the disciplines of pricing science. Operations research is also used extensively in government where evidence-based policy is used. b) Operation Research is an aid for the executive in making his decisions based on scientific methods analysis. Discuss the above statement in brief. Operation Research is a scientific method of providing executive departments with a quantitative basis for decisions regarding the operations under their control. Morse & Kimball Operations research is a scientific approach to problem solving for executive management. H.M. Wagner Operations research is an aid for the executive in making these decisions by providing him with the needed quantitative information based on the scientific method of analysis. The mission of Operations Research is to serve the entire Operations Research (OR) community, including practitioners, researchers, educators, and students. Operations Research, as the flagship journal of our profession, strives to publish results that are truly insightful. Each issue of Operations Research attempts to provide a balance of well-written articles that span the wide array of creative activities in OR. Thus, the major criteria for acceptance of a paper in Operations Research are that the paper is important to more than a small subset of the OR community, contains important insights, and makes a substantial contribution to the field that will stand the test of time. Operational research, also known as operations research, is an interdisciplinary branch of applied mathematics and formal science that uses advanced analytical methods such as mathematical modelling, statistical analysis, and mathematical optimization to arrive at optimal or near-optimal solutions to complex decision-making problems. It is often concerned with determining the maximum (of profit, performance, or yield) or minimum (of loss, risk, or cost) of some real-world objective. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries. Operational research, also known as OR, is an interdisciplinary branch of applied mathematics and formal science that uses advanced analytical methods such as mathematical modelling, statistical analysis, and mathematical optimization to arrive at optimal or near-optimal solutions to complex decision-making problems. It is often concerned with determining the maximum (of profit, performance, or yield) or
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minimum (of loss, risk, or cost) of some real world objective. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries. Operational research encompasses a wide range of problem-solving techniques and methods applied in the pursuit of improved decision-making and efficiency. Some of the tools used by operational researchers are statistics, optimization, probability theory, queuing theory, game theory, graph theory, decision analysis, mathematical modeling and simulation. Because of the computational nature of these fields, OR also has strong ties to computer science. Operational researchers faced with a new problem must determine which of these techniques are most appropriate given the nature of the system, the goals for improvement, and constraints on time and computing power. Work in operational research and management science may be characterized as one of three categories: Fundamental or foundational work takes place in three mathematical disciplines: probability, optimization, and dynamical systems theory. Modelling work is concerned with the construction of models, analyzing them mathematically, implementing them on computers, solving them using software tools, and assessing their effectiveness with data. This level is mainly instrumental, and driven mainly by statistics and econometrics. Application work in operational research, like other engineering and economics' disciplines, attempts to use models to make a practical impact on real-world problems. The major sub disciplines in modern operational research, as identified by the journal Operations Research, are: Computing and information technologies Decision analysis Environment, energy, and natural resources Financial engineering Manufacturing, service sciences, and supply chain management Policy modelling and public sector work Revenue management Simulation Stochastic models Transportation
Question 2 Comment on the following statements: a) Operation Research advocates a system approach and is concerned with optimization. 1. Systems approach: The term system approach implies that each problem should be examined in its entirely to the extent possible and economically feasible from the point of view of the overall system of which the problem under consideration is one part. Under those approaches a manager makes conscious attempt to understand the relationships among various parts of the MB0048 OPERATIONS RESEARCH Set 1 Page 4
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organisation and their role in supporting the overall performance of the organisation. Operations objective of operations research is to provide managers of the organisation with a scientific basis for solving problems involving the interaction of components of the organisation as a whole. The decision which is best for the organisation as a whole is called an optimal decision. Operations research tries to find the best decision relative to a large portion of the total organisation. Hence in operations research every problem is considered in its totality, i.e. O.R. adopts systems approach for solving the problem. In other words, Operations Research is the scientific study of large systems with a view to identify problem areas and provide the mangers with a quantitative basis for decisions which will enhance their effectiveness in achieving the specified objectives. 2. Inter-disciplinary Team Approach: It is an important characteristic of O.R. According to this characteristic, no single individual can be an expert on all aspects of a problem under consideration. Thus, O.R. utilizes the inter disciplinary team approach. Under this approach, a team comprising experts from different disciplines such as mathematics, statistics, economics, management, computer science, engineering and psychology, etc. is constituted. Such a team when confronted with a problem determines its solution by utilizing the diverse background and skills of the teammates. Every expert of the team, while solving the problem, tries to abstract the essence of the problem and then determines whether a similar type of problem has been dealt by his team or not. If the answer is yes, then it is solution of the current problem. In this way, each member of the team, by utilizing his experience and expertise, may be in a position to suggest an approach to overcome a problem that otherwise may not be possible for an individual to tackle. 3. Methodological Approach: O.R. utilizes scientific methods for solving a problem. Specifically, the process begins with the careful observation and formulation of the problem. The next step is to construct a scientific model (typically a mathematical model) that attempts to abstract the essence of the real problem. From this model, conclusions or solutions are obtained which are also valid for the real problem. In an interactive fashion, the model is then verified through appropriate experiments to determine the best or optional solution to the problem under consideration. 4. Operations economy: O.R. is a problem solving and a decision making science. Whenever we have conflicts, uncertainty and complexity in any situation, O.R. can help in the end to reduce costs and improve profits and effects substantial Operations Economy. Once the old approach of management by intuit is buried, a scientific approach to decision making is bound to help. Often the conflicts are so tangled that they defy any intuitive solution, viz., the marketing function frequently caught up in recoiling the following conflicting objectives: i) product innovation, ii) high scale volume, iii) increasing market share, iv) flexibility in the market place, and v)entry into new markets and revenue markets. It is here that O.R. is likely to convincingly optimize the total effectiveness. From all above areas of applications, one may conclude that operations research can be widely advocate a systems approach for making timely management decisions and also used as a corrective measure. O.R.
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encourages systems approach which concerned with the cost optimization, and hence we can say: Operation Research advocates a system approach and is concerned with optimization.
b). Operation Research replaces management by personality. Comment. Operations research is today recognised as an applied science concerned with large number of diverse human activities. To be precise an operation uses some valuable resources like men, money, machines, time, effort, etc. The outcome of the operation has also some value. An operations research worker is required: i) ii) to minimize the input value for a specific output, or /and to maximize the output value for a specific input, or /and input values) or return-on-investment function (ratio of output and input values), etc. Some of the areas of management where techniques of operations research are applied are listed below: 1. Finance, Budgeting and Investments: a) Cash flow analysis, long range capital requirements, investment portfolios, dividend policies, etc. b) Credit policies, credit risks and delinquent account procedures. c) Claim and complaint procedures. d) Dividend policies, investment and portfolio management, balance sheet and cash flow analysis. 2. Purchasing, procurement and Exploration: a) Determining the quality and timing of purchase of raw materials, machinery, etc. b) Rules for buying and supplies under varying prices. c) Bidding policies. d) Equipment replacement policies. e) Determination of quantities and timings of purchases. f) Strategies for exploration and exploitation of new material source. 3. Production Management: a) Product planning: i) ii) i) ii) Location and size of warehouses, distribution centres, retail outlets, etc. Distribution policy Production scheduling and sequencing Product scheduling and allocation of resources
iii) maximize some function of these values, e. g. the profit function (difference between output &
b) Manufacturing & facility planning:
iii) Selection & location of factories, warehouses and their sizes iv) Determining the optimal production mix. v) Maintenance policies & preventive maintenance. vi) Scheduling & sequencing the production run by proper allocation of machines. 4. Marketing Management:
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a) Product selection, timing, competitive actions. b) Advertising strategy & choice of different media of advertising. c) Number of salesman, frequency of calling of accounts, etc. d) Effectiveness of market research. e) Size of the stock to meet the future demand. 5. Personnel Management: Recruitment policies & assignment of jobs. Selection of suitable personnel with due consideration for age and skills, etc. Establishing equitable bonus systems.
6. Research & Development: a) Determination of areas of concentration of research and development. b) Reliability & evaluation of alternative designs. c) Control of development projects. d) Coordination of multiple research projects. e) Determination of time & cost requirements. From all above areas of applications, one may conclude that operations research can be widely used in taking timely management decisions and also used as a corrective measure. The application of this tool involves certain data and not merely a personality of decision maker, and hence we can say: Operations Research has replaced management by personality.
Question 3 Explain how the profit maximization transportation problem can be converted to an equivalent cost minimization transportation problem. How to convert profit maximization transportation problem to an equivalent cost minimization transportation problem can be understood by following Illustration as: A firm has three factories located in city A, B & C and supplies goods to four dealers, dealer 1, 2, 3 & 4, spread all over the country. The production capacities of these factories are 1000, 700 & 900 units per month respectively. The monthly orders from the dealers are 900, 800, 500 & 400 units respectively. Per unit returns (excluding transportation costs) are Rs. 8, 7 & 9 at the three factories. Unit transportation costs from the dealers are given below: Factory Dealers 1 City A City B City C 2 3 4 2 2 5 3 3 2 3 2 4 4 2 1
Optimal distribution system to maximize the total return to be determined. From the given data, we compute a matrix of net returns as done in table below; MB0048 OPERATIONS RESEARCH Set 1 Page 7
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(Transportation matrix (Net return) for the Maximization problem) Factory Dealers 1 City A City B City C 6 4 5 2 6 2 6 3 6 4 7 4 4 5 8 Factory Capacity 1000 700 900
To convert the given maximization problem to an equivalent minimization problem, we identify the cell (element) which has the highest contribution per unit (in this problem C- 4 has highest per unit contribution, Rs.8), and subtract all elements from this highest element. The resultant matrix is a transportation problem with minimizing objective function. This has been given in the following table. (Transportation matrix for the Minimization problem) Factory Dealers 1 City A City B City C Dealer requirement The minimization problem is solved as a usual transportation problem. The resulting optimal solution is also the optimal solution to the original (maximization) problem. The value of the objective function is computed by referring the matrix of the maximization problem. It should be noted that the converted minimization problem will have at least one element with zero value. 2 4 3 900 2 2 6 2 800 3 2 4 1 500 4 4 3 0 400 Factory Capacity 1000 700 900 2600
Question 4 Write the difference in the simplex solution procedure for a maximization problem and a minimization problem of linear programming. The difference in the simplex solution procedure for a maximization problem and a minimization problem of linear programming can be explained by the steps followed to solve the minimization/ minimization problem as follows; 1. Introduce stack variables (Sis) for type of constraint. 2. Introduce surplus variables (Sis) and artificial variables (Ai) for 3 type of constraint. 3. Introduce only Artificial variable for = type of constraint. 4. Cost (Cj) of slack and surplus variables will be zero and that of artificial variable will be M 5. Find Zj Cj for each variable. 6. Slack and artificial variables will form basic variable for the first simplex table. Surplus variable will never become basic variable for the first simplex table.
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7. Zj = sum of [cost of variable x its coefficients in the constraints Profit or cost coefficient of the variable]. 8. Select the most negative value of Zj Cj. That column is called key column. The variable corresponding to the column will become basic variable for the next table. 9. Divide the quantities by the corresponding values of the key column to get ratios; select the minimum ratio. This becomes the key row. The basic variable corresponding to this row will be replaced by the variable found in step 6. 10. The element that lies both on key column and key row is called Pivotal element. 11. Ratios with negative and a value are not considered for determining key row. 12. Once an artificial variable is removed as basic variable, its column will be deleted from next iteration. 13. For maximisation problems, decision variables coefficient will be same as in the objective function.For minimisation problems, decision variables coefficients will have opposite signs as compared to objective function. 14. Values of artificial variables will always is M for both maximisation and minimisation problems. 15. The process is continued till all Zj Cj 0.
Question 5 What do you mean by the two-phase method for solving a given LPP? Why is it used? Every linear programming problem (LPP) is associated with another linear programming problem involving the same data and optimal solutions. Such two problems are said to be duals of each other. One problem is called the primal, while the other problem is called the dual. The dual formulation is derived from the same data and solved in a manner similar to the original 'primal' formulation. In other words, you can say that dual is the 'inverse' of the primal formulation because of the following reasons. If the primal objective function is 'maximisation' function, then the dual objective function is 'minimisation' function and vice-versa. The column co-efficient in the primal constraint is the row co-efficient in the dual constraint. The co-efficients in the primal objective function are the RHS constraint in the dual constraint. The RHS column of constants of the primal constraints becomes the row of coefficient of the dual objective function. The concept of duality is useful to obtain additional information about the variation in the optimal solution. These changes could be effected in the constraint co-efficient, in resource availabilities and/or objective function co-efficient. This effect is termed as post optimality or sensitivity analysis. Characteristics of dual solutions If the primal problem possesses a unique non-degenerate, optimal solution, then the optimal solution to the dual is unique. However, dual solutions arise under a number of other conditions. Several of the cases which can arise are:
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When the primal problem has a degenerate optimal solution, the dual has multiple optimal solutions.
When the primal problem has multiple optimal solutions, the optimal dual solution is degenerate. When the primal problem is unbounded, the dual is infeasible. When the primal problem is infeasible, the dual is unbounded or infeasible.
Formulation of Dual Concepts Consider the following LPP Maximise Z = c1x1 +c2x2 + . . .+ cnxn Subject to the constraints a11 x1 + a12 x2 + . . . + a1n xn b1 a21 x1 + a22 x2 + . . . + a2n xn b2 am1 x1 + am2 x2 + . . . + amn xn bm x1, x2, . . ., xn 0 To construct a dual problem, you must adopt the following guidelines: i. The maximisation problem in the primal becomes a minimisation problem in the dual and vice versa ii. () type of constraints in the primal become () type of constraints in the dual and vice versa. iii. The coefficients c1, c2, . . .,cn in the objective function of the primal become b1, b2,,bm in the objective function of the dual. iv. The constants b1, b2,,bm in the constraints of the primal become c1, c2, . . .,cn in the constraints of the dual v. If the primal has n variables and m constraints the dual will have m variables and n constraints vi. The variables in both the primal and dual are non-negative Thus the dual problem will be Minimise W = b1 y1 + b2 y2 + . . . +bm ym Subject to the constraints a11 y1 + a21 y2 + . . . + am1 ym c1 a12 y1 + a22 y2 + . . . + am2 ym c2 a1n y1 + a2n y2 + . . . + amn ym cn y1, y2, . . ., ym 0 Formation of dual LPP is easier when the standard form of LPP for maximization problem must contain type of constraints, while for minimisation problem, it must contain type of constraints. Two Phase Method: Two-phase method for solving a given LPP can be divided in the two phases as mentioned below: Phase I: Formulate the new problem. Start by eliminating the original objective function by the sum of the artificial variables for a minimisation problem and the negative of the sum of the artificial variables for a maximisation problem. The Simplex method optimizes the ensuing objective with the constraints of the original problem. If a feasible solution is arrived, the optimal value of the new objective function is zero MB0048 OPERATIONS RESEARCH Set 1 Page 10
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(suggestive of all artificial variables being zero). Subsequently proceed to phase -II. If the optimal value of the new objective function is non-zero, it means there is no solution to the problem and the method terminates. Phase II: Start phase II using the optimum solution of phase I as the base. Then take the objective function without the artificial variables and solve the problem using the Simplex method. Why is it used? The drawback of the penalty cost method is the possible computational error resulting from assigning a very large value to the constant M. To overcome this difficulty, two - Phase Simplex method is considered where the use of M is eliminated by solving the problem in two phases.
Question 6 Indicate any four shortcomings of taking a simulation approach to solve an O.R. problem. Shortcomings of taking a simulation approach to solve an O.R. problem The range of application of simulation in business is extremely wide. Unlike other mathematical models, simulation can be easily understood by the users and thereby facilitates their active involvement. This makes the results more reliable and also ensures easy acceptance for implementation. The degree to which a simulation model can be made close to reality is dependent upon the ingenuity of the OR team who identifies the relevant variables as well as their behavior. In case of other OR models, simulation helps the manager to strike a balance between opposing costs of providing facilities (usually meaning long term commitment of funds) and the opportunity and costs of not providing them. The simulation approach is recognised as a powerful tool for management decision making. Shortcoming of taking a simulation approach to solve an O. R. problems are as follows; 1. It does not produce optimal results. Solutions are approximate, and it is some less than formal but satisfactory approach to problem-solving only. 2. To be able to simulate systems, a fairly good knowledge of the parts or components of the system and their characteristics is required. The desire is to understand, explain and predict the dynamic behavior of the system or the sum total of these parts. Adequate knowledge of the system behavior. 3. Each simulation run like a single experiment conducted under a given set of conditions as defined by a set of values for the input solution. A number of simulation runs will be necessary and thus can be time consuming. As the number of variables increases in terms of input, the difficulty in finding the optimum values increases considerably. 4. Since simulation involves repetitions of the experiment, it is a time consuming task when manually done. 5. As a number of parameters, increase, the difficulty in finding the optimum values increases to a considerable extent. MB0048 OPERATIONS RESEARCH Set 1 Page 11
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6. Because of the simplicity in adoption of simulation process, one may develop to rely on this technique too often, although mathematical model is more suitable to the situation. 7. One should not ignore the cost associated with a simulation study for data collection, formation of the model. A good simulation model may be very expensive. Often it takes years to develop a usable corporate planning model. 8. The computer time as it is fairly significant. 9. A simulation application is based on the premise that the behaviour pattern of relevant variables is known, and this very premise sometimes becomes questionable. 10. Not always can the probabilities be estimated with ease or desired reliability. The results of simulation should always be compared with solutions obtained by other methods wherever possible, and tempered with managerial judgment
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0048 : OPERATIONS RESEARCH : Assignment set 2
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Question 1 Explain how to transform an unbalanced transportation problem into a balanced transportation problem where the demand of warehouses is satisfied by the supply of factories. If the total supply is more than the total demand, we introduce an additional column, which will indicate the surplus supply with transportation cost zero. Similarly, if the total demand is more than the total supply, an additional row is introduced in the table, which represents unsatisfied demand with transportation cost zero. The balancing of an unbalanced transportation problem is illustrated in the following example: Plant Warehouses W1 A B Demand Solution: The total demand is 1000, whereas the total supply is 800 28 19 250 W2 17 12 250 W3 26 16 500 500 300 Supply
Total supply < total demand. To solve the problem, we introduce an additional row with transportation cost zero indicating the unsatisfied demand.
Plant
Warehouses W1 W2 17 12 0 W3 26 16 0
Supply
A B Unsatisfied Demand Demand
28 19 0
500 300 200
250
250
500
Using matrix maximum method, we get the following allocations.
Initial basic feasible solution 50 X 28 + 450 X 26 + 250 X 12 + 50 X 16 + 200 X 0= 16900
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Question 2 Explain how the profit maximization transportation problem into a Balanced transportation problem where the demand of warehouses is Satisfied by the supply of factories. A fictive corporation A has a contract to supply motors for all tractors produced by a fictive corporation B. Corporation B manufactures the tractors at four locations around Central Europe: Prague, Warsaw, Budapest and Vienna. Plans call for the following numbers of tractors to be produced at each location: Prague 9 000 Warsaw 12 000 Budapest 9 000 Corporation A has three plants that can produce the motors. The plants and production capacities are Hamburg 8 000 Munich 7 000 Leipzig 10 000 Dresden 5 000 Due to varying production and transportation costs, the profit earns on each motor depends on where they were produced and where they were shipped. The following transportation table (Table 7.9) gives the accounting department estimates of the euro profit per unit (motor).
"Highest - Profit Assignment" Applying the Stepping Stone method (modified for maximization purposes) to the initial solution we can see that no other transportation schedule can increase the profit and so the Highest Profit initial allocation is also an optimal solution of this transportation problem. Stepping Stone Method Step 1: Pick any empty cell and identify the closed path leading to that cell. A closed path consists of horizontal and vertical lines leading from an empty cell back to itself (If assignments have been made correctly, the matrix has only one closed path for each empty cell.) In the closed path there can only be one empty cell that we are examining. The 90-degree turns must therefore occur at those places that
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meet this requirement. Two closed paths are identified. Closed path a is required to evaluate empty cell A-E; closed path b is required to evaluate empty cell A-F Step 2: Move one unit into the empty cell from a filled cell at a corner of the closed path and modify the remaining filled cells at the other comers of the closed path to reflect this move. (More than one unit could be used to test the desirability of a shift. However, since the problem is linear, if it is desirable to shift one unit, it is desirable to shift more than one, and vice versa.) Modifying entails adding to and subtracting from filled cells in such a way that supply and demand constraints are not violated. This requires that one unit always be subtracted in a given row or column for each unit added to that row or column. Thus, the following additions and subtractions would be required : For the path a: Add one unit to A-E (the empty cell). Subtract one unit from A-H. Add one unit to C-H. Subtract one unit from C-E.
For the path b, Add one unit to A-F (the empty cell). Subtract one unit from A-H. Add one unit to C-H. Subtract one unit from C-G. Add one unit to D-G. Subtract one unit from D-F.
Step 3: Determine desirability of the move. This is easily done by (1) summing the cost values for the cell to which a unit has been added, (2) summing the cost values of the cells from which a unit has been subtracted, and (3) taking the difference between the two sums to determine if there is a cost reduction. If the cost is reduced by making the move, as many units as possible should be shifted out of the evaluated filled cells into the empty cell. If the cost is increased, no move should be made and the empty cell should be crossed. For cell A-E, the pluses and minuses are
Question 3 Illustrate graphically the following special cases of Linear programming problems: i) Multiple optimal solutions, ii) No feasible solution, iii) Unbounded problem Solving a LPP with 2 decision variables x1 and x2 through graphical representation is easy. Consider x1 x2 the plane, where you plot the solution space enclosed by the constraints. The solution space is a convex set bounded by a polygon; since a linear function attains extreme (maximum or minimum) values only on the boundary of the region. You can consider the vertices of the polygon and find the value of the MB0048 OPERATIONS RESEARCH Set 2 Page 4
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objective function in these vertices. Compare the vertices of the objective function at these vertices to obtain the optimal solution of the problem. Working rule The method of solving a LPP on the basis of the above analysis is known as the graphical method. The working rule for the method is as follows. Step 1: Write down the equations by replacing the inequality symbols by the equality symbols in the given constraints. Step 2: Plot the straight lines represented by the equations obtained in step I. Step 3: Identify the convex polygon region relevant to the problem. Decide on which side of the line, the half-plane is located. Step 4: Determine the vertices of the polygon and find the values of the given objective function Z at each of these vertices. Identify the greatest and least of these values. These are respectively the maximum and minimum value of Z. Step 5: Identify the values of (x1, x2) which correspond to the desired extreme value of Z. This is an optimal solution of the problem We can analyse linear programming with 2 decision variables graphically. Example Lets look at the following illustration. Maximise Z = 700 x1+500 x2 Subject to 4x1+3x2 210 2x1+x2 90 and x1 0, x2 0 Let the horizontal axis represent x1 and the vertical axis x2. First, draw the line 4x1 + 3x2 = 210, (by replacing the inequality symbols by the equality) which meets the x1-axis at the point A (52.50, 0) (put x2 = 0 and solve for x1 in 4x1 + 3x2 = 210) and the x2 axis at the point B (0, 70) (put x1 = 0 in 4x1 + 3x2 = 210 and solve for x2). Suppose a linear programming problem has an unbounded feasible solution space. If the set of all values of the objective function at different feasible solutions is not bounded above (respectively, bounded below), and if the problem is a maximization (respectively, minimisation) problem, then we say that the given problem has an unbounded solution
Question 4 How would you deal with the Assignment problems, where a) the objective function is to be maximized? b) Some Assignments are prohibited? Lets say there are n jobs in a factory having n machines to process the jobs. A job i (=1 n), when
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processed by machine j (=1 n) is assumed to incur a cost Cij. The assignment is to be made in such a way that each job can associate with one and only one machine. You can then determine an assignment of jobs to the machines to minimise the overall cost. The cost data is given as a matrix where rows correspond to jobs and columns to machines and there are as many rows as the number of columns. The number of jobs and number of machines should be equal. Assignment becomes a problem because each job requires different skills and the capacity or efficiency of each person with respect to these jobs can be different. This gives rise to cost differences. If each person is able to do all jobs with same efficiency then all costs will be the same and each job can be assigned to any person. When assignment is a problem it becomes a typical optimization problem. Therefore, you can compare an assignment problem to a transportation problem. The cost element is given and is a square matrix and requirement at each destination is one and availability at each origin is also one. Additionally, you have number of origins, which equal the number of destinations. Therefore, the total demand is equal to the total supply. There is only one assignment in each row and each column. However if you compare this to a transportation problem, you will find that a general transportation problem does not have the above mentioned limitations. These limitations are peculiar to assignment problems only. An assignment problem can be either balanced or unbalanced. Lets first focus on a balanced assignment problem. A balanced assignment problem is one where the number of rows = the number of columns (comparable to a balanced transportation problem where total demand =total supply). Balanced assignment problem: No. of rows = No. of columns Let xij be a variable defined by 0
xij
Since only one job is assigned to each machine, you have
Hence the total assignment cost is given by
Thus the assignment problem takes the following mathematical form. Determine xij 0, (i, j=1n) Minimise
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Subject to constraints
With xij = 0 or 1 Note: In an assignment problem, if you add or subtract a real number to or from each element of a row or column of the cost matrix, then the optimum assignment for the modified matrix is also optimum for the original one. A:- the objective function is to be maximized :Some assignment problems are phrased in terms of maximizing the profit or effectiveness or payoff of an assignment of people to tasks or of jobs to machines. We cannot apply the Hungarian method to such maximization problems. Therefore, we need to reduce it to a minimization problem. It is easy to obtain an equivalent minimization problem by converting every number in the table to an opportunity loss. To do so, we need to subtract every value from the highest value of the matrix and then proceed as usual. We will notice that minimizing the opportunity loss produces the same assignment solution as the original maximization problem. B:- b Some Assignments are prohibited Infeasible assignments It is sometimes possible that a particular person is incapable of doing certain work or a specific a specific job cannot be performed on a particular machine. The solution of the assignment problem should take into account these restrictions so that the infeasible assignment can be avoided. This can be achieved by assigning a very high cost (say or M) to the cells where assignments are prohibited, thereby, restricting the entry of this pair of job machine or resource activity into the final solution. After inserting a high value at the cell we need to apply Hungarian method to solve the problem.
Territory T1 T2
P1 20 15
P2 20
P3 32 17
P4 27 18
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T3 T4
16 -
18 20
18
20 24
Solution: Introduction at dashes places and applying Hungarian method, we have Territory T1 T2 T3 T4 P1 20 15 16 P2 20 18 20 P3 32 17 18 P4 27 18 20 24
Territory T1 T2 T3 T4 Column reduced matrix
P1 0 0 0
P2 5 2 2
P3 12 2 0
P4 7 3 4 6
P1 T1 T2 T3 T4 T1 to P1 T2 to P4 T3 to P2 T4 to P3 20 18 18 18 74 Total Cost 0 X x
P2 3 0 X
P3 12 2 0
P4 4 0 1 3
Therefore, the optimum assignment schedule is T1 to P1, T2 to P4, T3 to P2 and T4 to P3
Question 5 Simulation is an especially valuable tool in a situation where the mathematics needed to describe a system realistically is too complex to yield analytical solutions. Elucidate. Simulation is the imitation of some real thing, state of affairs, or process. The act of simulating something generally entails representing certain key characteristics or behaviours of a selected physical or abstract system. Simulation is used in many contexts, such as simulation of technology for performance optimization, safety engineering, testing, training, education, and video games. Training simulators MB0048 OPERATIONS RESEARCH Set 2 Page 8
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include flight simulators for training aircraft pilots. Simulation is also used for scientific modeling of natural systems or human systems in order to gain insight into their functioning. Simulation can be used to show the eventual real effects of alternative conditions and courses of action. Simulation is also used when the real system cannot be engaged, because it may not be accessible, or it may be dangerous or unacceptable to engage, or it is being designed but not yet built, or it may simply not exist. Simulation can be used when the problem is too complex for analytical solution and too dangerous for actual experimentation. Key issues in simulation include acquisition of valid source information about the relevant selection of key characteristics and behaviours, the use of simplifying approximations and assumptions within the simulation, and fidelity and validity of the simulation outcomes.
Question 6. Describe Gomorys method of solving an all-integer programming problem. An optimum solution to an IPP is obtained by using the simplex method, ignoring the restriction of integral values. In the optimum solution, if all the variables have integer values, the current solution will be the required optimum integer solution. Otherwise, the given IPP is modified by inserting a new constraint called Gomorys constraint or secondary constraint. This constraint represents necessary conditions for integration and eliminates some non-integer solution without losing any integral solution. On addition of the secondary constraint, the problem is solved using dual simplex method to obtain an optimum integral solution. If all the values of the variables in the solution are integers, then an optimum inter-solution is obtained, or else a new constraint is added to the modified LPP and the procedure is repeated till the optimum solution is derived. An optimum integer solution will be reached eventually after introducing enough new constraints to eliminate all the superior non-integer solutions. The construction of additional constraints, called secondary or Gomorys constraints is important and needs special attention. Construction of Gomorys constraints Consider a LPP or an optimum noninteger basic feasible solution. With the usual notations, let the solution be displayed in the following simplex. Y8 Y2 Y3 X8 Y10 Y20 Y00 Y1 Y11 Y21 Y01 Y2 Y12 Y22 Y02 Y3 Y13 Y23 Y03 Y4 Y14 Y24 Y04
The optimum basic feasible solution is given by xB = [x2, x3 ] = [y10, y20]; max z = y00 Since xB is a non-integer solution, we can assume that y10 is fractional. The constraint equation is y10 = y11 x1 + y12 x2 + y13 x3+ y14 x4 0xx4 1 It reduces to
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y10 = y11 x1 + x2 + y14 x4 _____ (1) 0xx4 1 Because x2 and x3 are basic variables (which implies that y12 = 1 and y13 = 0). The above equation can be rewritten as x2 = y10 - y11 x1 - y14 x4 This is a linear combination of non-basic variables. Now, since y10 0 the fractional part of y10 must also be non-negative. We can split each of yij in (1) into an integral part Iij , and a non-negative fractional part, f1j for j = 0,1,2,3,4. After the breakup (1) above, you can write it as: I10 + f10 = (I11 + f11) x2 + (I14 + f14) x4 Or f10 - f11 x2 - f14 x4 = x2 + I11 x1 + I14x4 - I10 _ If we compare (1) and (2), you will see that if we add an additional constraint in such a way that the lefthand side of (2) is an integer; then you will be forcing the non-integer y10 towards an integer. The desired Gomorys constraint is f10 f11 x1 f11 x4 0 It is possible to have f10 f11 x1 f11 x4 = h where h > 0 is an integer. Then f10 = h + f11 x1 + f14 x4 is greater than one. This contradicts that 0 < fij < 1 for j = 0, 1, 2, 3, 4. Thus Gomorys constraint is 10 sla 4 ,1j j ij 4 , 1j 10 j ij 4 , 1j j ig f ) 1(G x f or f x . f or f x f 10 Where Gsla (1) is a slack variable in the above first Gomorys constraint The additional constraint to be included in the given LPP is towards obtaining an optimum all integer solution. After adding the constraint, the optimum simplex table looks like given below. Yb Y1 Y2 Gsla(1) Xb Y10 Y20 -f10 Y00 Y1 Y11 Y21 -f11 Y01 Y2 Y12 Y22 0 Y02 Y3 Y13 Y23 0 Y03 Y4 Y14 Y24 -f14 Y04 Gsla(1) 0 0 1 Y05
Since f10 is negative, the optimal solution is unfeasible. Thus the dual simplex method is to be applied for obtaining an optimum feasible solution. After obtaining this solution, the above referred procedure is applied for constructing second Gomorys constraint. The process is to be continued till all the integer solutions have been obtained.
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0049 : PROJECT MANAGEMENT : Assignment set 1
MB0049 Project Management Set 1
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Question 1 Comment on the following a. Importance of DMAIS in project management cycle The projectised mantras of production management can be broadly identified as - Define Measure, Analyze, Improve, Standardize (DMAIS). These projectised mantras help in identifying, evaluating, and selecting the right improvement solutions for managing a project. The mantras also help in identifying the critical issues thus assisting the organization to adapt to the changes introduced through the implementation of different solutions. The phases associated with each projectised mantra of production management are: 1. Define: benchmark, customer requirement, process flow map, quality function deployment, project management plan 2. Measure: data collection, defect metrics, sampling 3. Analysis: cause and effect, failure modes and effect analysis, decision and risk analysis, root cause analysis, reliability analysis 4. Improve: design of experiments, modeling, and robust design 5. Standardize: control charts, time series, procedural adherence, performance management, preventive activities displays the various phases of DMIAS.
b. Knowledge areas of project management There are nine knowledge areas in Project Management: 1. Project Integration Management 2. Project Scope Management 3. Project Time Management 4. Project Cost Management 5. Project Quality Management 6. Project Human Resource Management 7. Project Communications Management 8. Project Risk Management 9. Project Procurement Management Each of the nine knowledge areas contains the processes that need to be accomplished within its discipline in order to achieve an effective project management program. Each of these processes also
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falls into one of the five basic process groups, creating a matrix structure such that every process can be related to one knowledge area and one process group.
Question 2 Write few words on: a. Project Characteristics The word PROJECT comes from the Latin word PROJECTUM from the Latin verb PROICERE; which means to throw something forwards which in turn comes from PRO-, which denotes something that precedes the action of the next part of the word in time and ICERE, to throw. The word PROJECT thus actually originally meant something that comes before anything else happens. A project in business and science is a temporary endeavor undertaken to create a unique product, service, or result. Basically, it is planned to achieve a particular aim. The aim of a project is to attain its objective and then terminate. Some of the reasons to start a project can be: A customer request or market demand An organizational need A customer request A technological advance A legal requirement
Projects and operations differ primarily in that operations are ongoing and repetitive, while projects are temporary and unique. Generally, a project is a means of organizing some activities that cannot be addressed within the normal operational limits. Project characteristics: It is temporary temporary means that every project has a definite beginning and a definite end. Project always has a definitive time frame. b. WBS A work breakdown structure (WBS) in project management and systems engineering, is a tool used to define and group a project's discrete work elements in a way that helps organize and define the total work scope of the project. A project creates unique deliverables, which are products, services, or results. A project creates a capability to perform a service. Project is always developed in steps and continuing by increments Progressive Elaboration.
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A work breakdown structure element may be a product, data, a service, or any combination. A WBS also provides the necessary framework for detailed cost estimating and control along with providing guidance for schedule development and control. Additionally the WBS is a dynamic tool and can be revised and updated as needed by the project manager. The Work Breakdown Structure is a tree structure, which shows a subdivision of effort required to achieve an objective; for example a program, project, and contract. In a project or contract, the WBS is developed by starting with the end objective and successively subdividing it into manageable components in terms of size, duration, and responsibility (e.g., systems, subsystems, components, tasks, subtasks, and work packages) which include all steps necessary to achieve the objective. The Work Breakdown Structure provides a common framework for the natural development of the overall planning and control of a contract and is the basis for dividing work into definable increments from which the statement of work can be developed and technical, schedule, cost, and labor hour reporting can be established. A work breakdown structure permits summing of subordinate costs for tasks, materials, etc., into their successively higher level parent tasks, materials, etc. For each element of the work breakdown structure, a description of the task to be performed is generated. This technique (sometimes called a System Breakdown Structure) is used to define and organize the total scope of a project. The WBS is organised around the primary products of the project (or planned outcomes) instead of the work needed to produce the products (planned actions). Since the planned outcomes are the desired ends of the project, they form a relatively stable set of categories in which the costs of the planned actions needed to achieve them can be collected. A well-designed WBS makes it easy to assign each project activity to one and only one terminal element of the WBS. In addition to its function in cost accounting, the WBS also helps map requirements from one level of system specification to another, for example a requirements cross reference matrix mapping functional requirements to high level or low level design documents. c. PMIS Project Management Information System (PMIS) are system tools and techniques used in project management to deliver information. Project managers use the techniques and tools to collect, combine and distribute information through electronic and manual means. Project Management Information System (PMIS) is used by upper and lower management to communicate with each other. Project Management Information System (PMIS) help plan, execute and close project management goals. During the planning process, project managers use PMIS for budget framework such as estimating costs. The Project Management Information System is also used to create a specific schedule and define the scope baseline. At the execution of the project management goals, the project management team collects information into one database. The PMIS is used to compare the baseline with the actual MB0049 Project Management Set 1 Page 4
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accomplishment of each activity, manage materials, collect financial data, and keep a record for reporting purposes. During the close of the project, the Project Management Information System is used to review the goals to check if the tasks were accomplished. Then, it is used to create a final report of the project close. To conclude, the project management information system (PMIS) is used to plan schedules, budget and execute work to be accomplished in project management. d. Project Management strategies-Internal & external Effective Internal Project Management Strategies Projects fail for many internal reasons, some of them technical, some of them managerial. However, even the technical failures can often be traced back to a failure on the part of the project's executive management to recognize and deal with these inherent managerial risks. On the other hand, probably the majority of apparently successful projects do not reflect their optimum potential either. As a matter of project experience, a number of prerequisites have been identified with the successful project. While these prerequisites do not necessarily guarantee success of future projects, their absence may well lead to sub-optimal success, if not outright failure. The Project's Executive has a vital role to play in achieving project success and should therefore insist on the following: Executive Support - The Executive must clearly demonstrate support for the project management concept by active sponsorship and control. External Authority - The project manager must be seen as the authoritative agent in dealing with all parties, and be the responsible and single formal contact with them. Internal Authority - The project manager must have the necessary managerial authority within his organization to ensure response to his requirements. Commitment Authority - The project manager must have the responsibility and authority to control the commitment of resources, including funds, within prescribed limits. The results of these decisions must be both accountable and visible. Project Manager Involved in All Major Decisions - No major technical, cost, schedule, or performance decisions should be made without the project manager's participation. Competence - The project manager and his team members must be competent. Other functional personnel assigned to the project must also be competent. Project Team - The project manager should have a say in the assembly of his project team, which will help him to obtain their personal commitment, support and required quality of service. Management Information Systems - Effective project management information and control systems must be in place. Effective External Project Management Strategies Prerequisites for avoiding internal project failure, or at least sub-optimal results, were discussed earlier. However, it has also been noted earlier that external conditions and events also represent uncertainty MB0049 Project Management Set 1 Page 5
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and risk to the successful accomplishment of the project. These conditions have been linked to the external stakeholders of the project. Therefore, it is essential to develop a sound stakeholder environment. Developing a Sound Stakeholder Environment Just as the means of influencing the project's cultural environment, as described above, was one of developing the right attitude, so it is with developing a sound stakeholder environment. Perhaps this attitude is best reflected by adopting a mindset that reverses the traditional organization chart hierarchy. In other words, place the project stakeholders at the top of the chart, followed by the front-line project team members, and on down to the project manager at the bottom. Perhaps the project team will then be better visualized as a truly service organization, designed to serve the best interests of a successful project outcome, both perceived and in reality. Some suggested steps in this process include: Learn how to understand the role of the various stakeholders, and how this information may be used as an opportunity to improve both the perception and reception of the project Identify the real nature of each stakeholder group's business and their consequent interest in the project Understand their behavior and motivation Assess how they may react to various approaches Pinpoint the characteristics of the stakeholders' environment and develop appropriate responses to facilitate a good relationship Learn project management's role in responding to the stakeholders drive behind the project Determine the key areas which will have the most impact on the successful reception of the project Remember always that even a minor stakeholder group may discover the "fatal flaw" in the project and which could bring the project to a standstill!
Question 3 What are the various SCMo software available in project management? Explain each in brief. The process documentation system is intranet based to provide immediate access to current, up-to-date process documentation. The system allows users to navigate through graphical structures to relevant documentation and processes which were created with the ARIS-Toolset. The content of the process documentation system includes the area supply chain management from the Odette Supply Chain Management Group. The system includes graphical process documentation, in the form of process chains, as well as the entire range of documentation related to the processes. The MB0049 Project Management Set 1 Page 6
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Process Documentation System gives, according to its objectives, an overview and a detailed view of the relevant processes for SCMo. The entry point in the documentations system is the model Process Overview SCMo. This model is the starting point for the navigation to other models. The navigation between models is done via the assignment symbol. The assignment symbol of a function / process Interface indicates that there is a link to another model. The linked /assigned models can be opened by double-clicking on the assignment symbol. This can be classified into two different navigations as shown in figure.
SUPPLY CHAIN MODELING
VERTICAL NAVIGATION
HORIZONTAL NAVIGATION
Vertical Navigation: The vertical navigation is the navigation on different levels. Starting on the work package level and going downwards into more detail, the first models of processes are found on the sub-process level. In the model Process Overview SCMo those processes are assigned to the functions on Level 2. In the models there can be assignments for some functions, e.g. for a Function Allocation Diagram or a sub-process that describes that function. These two examples are currently the models on the lowest level.
Horizontal Navigation: The horizontal navigation is on the same level. Some processes have a link to other processes, which can be at the start or end or even in the process itself, when another process is imbedded in the process. Those links are represented by Process Interfaces. Microsoft has a team project management solution that enables project managers and their teams to collaborate on projects. The Microsoft Project 2002 products in these solutions are: Microsoft Project Standard 2002 Microsoft Project Server 2002 Microsoft Project Server Client Access License (CAL) 2002.
Support Software Having learnt the basics of application software, you would have a fair idea of how and to what extent project management processes could be automated. However, the challenge of making things work
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remains unchanged. While software vendors are confident of making it work, two yawning gaps still remain: 1. Business processes which are not covered in such software 2. Integration of multi vendor supported software applications The enterprise is normally in a dilemma whether to look at the same vendors to support such customization or not. This normally works out too expensive for their comfort or within their tight budgets. Several software vendors have seized the opportunity with offerings that substantially fill these gaps effectively at a fraction of the costs quoted by the major vendors. The other carrot which these vendors offer is a unilateral transfer of the facility to customize themselves which is seen as a huge advantage. The various support software that may be used for managing projects are: ARROW FEDORA VITAL PILIN MS EXCHANGE SERVER 2003
The ARROW Project It is a consortia of institutional repository solution, combining open source and proprietary Software .Arrow is preferred support software because it: Provides a platform for promoting research output in the ARROW context Safeguards digital information Gathers an institutions research output into one place Provides consistent ways of finding similar objects Allows information to be preserved over the long term Allows information from many repositories to be gathered and searched in one step Enables resources to be shared, while respecting access constraints Enables effective communication and collaboration between researchers
The vision of project ARROW: The ARROW project will identify and test software or solutions to support best practice institutional digital repositories comprising e-prints, digital theses and electronic publishing. ARROW project wanted to be a solution for storing any digital output. Their initial focus was on print equivalents such as thesis and journal articles among others. It provided solution that could offer on-going technical support and development past the end of the funding period of the project.
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Fedora ARROW wanted a robust, well architected underlying platform and a flexible object-oriented data model to be able to have persistent identifiers down to the level of individual data streams. It accommodates the content model to be able to be version independent. Since the beginning of the project ARROW has worked actively and closely with Fedora and the Fedora Community. The ARROW projects Technical Architect is a member of Fedora Advisory Board and sits on Fedora Development Group. This association is reinforced by VTLS Inc. VTLS President is a member of Fedora Advisory Board and VITAL Lead Developer sits on Fedora Development Group VITAL VITAL refers to ARROW specified software created and fully supported by VTLS Inc. built on top of Fedora. It currently provides: 1. VITAL Manager 2. VITAL Portal 3. VITAL Access Portal 4. VALET Web Self-Submission Tool 5. Batch Loader Tool 6. Handles Server (CNRI) 7. Google Indexing and Exposure 8. SRU / SRW Support 9. VITAL architecture overview VITAL is part of creative development of ARROW institutional repositories. VITAL has the following features: 1. Inclusion of multimedia and creative works produced in Australian universities 2. Limited exposure nationally or internationally 3. Addition of annotation capability 4. Inclusion of datasets and other research output not easily provided in any other publishing channel 5. Being developed in conjunction with the DART (ARCHER) Project 6. Exploration of the research-teaching nexus tools that will allow value added services for repositories 7. Integration with or development of new tools that will allow value added services for repositories (for instance the creation of e-portfolios or CVs of research output of individual academics)
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PILIN Persistent Identifiers and Linking Infrastructure There has been a growing realisation that sustainable identifier infrastructure is required to deal with the vast amount of digital assets being produced and stored within universities. PILIN is a particular challenge for e-research communities where massive amounts of data are being generated without any means of managing this data over any length of time. The broad objectives are to: 1. Support adoption and use of persistent identifiers and shared persistent identifier management services by the project stakeholders 2. Plan for a sustainable, shared identifier management infrastructure that enables persistence of identifiers and associated services over archival lengths of time 3. Deploy a Worldwide Site Consolidation Solution for Exchange Server 2003 at Microsoft 4. Add Picture 5. Use Microsoft Exchange Server 2003 to consolidate more than 70 messaging sites worldwide into seven physical locations In this context, let us look at Microsoft Model Enterprises (MME). Microsoft Model Enterprises (MME) Objectives Maximising the number of management tasks performed centrally Decreasing the number of sites through the consolidation of the smaller locations into a smaller number of RDCs Reducing the total number of infrastructure and application servers Standardising infrastructure and devices worldwide
Solution Consolidation of 75 tail sites into 6 regional data centers (RDCs) using local storage area networks (SANs) Key Focus Areas Proactive, detailed monitoring and analysis of WAN bandwidth utilisation and latency Effective but flexible approach to project planning, scheduling, and cross-group coordination Coordination and control of deployment of successive pre-release versions of Office System 2003 (including Outlook 2003) Business Benefits Four percent overall direct cost savings Key enabler of the Microsoft ME initiative which through fiscal year 2003 has produced millions in overall consolidation savings including USE
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IT Benefits Improved server utilisation Improved server management Strengthened security Increased reliability
Question 4 List the various steps for Risk management. Also explain GDM and its key features. Risk management may be classified and categorized as: 1. Risk assessment and identification- The assessment and identification focuses on numerating possible risks to the project. Methods that can aid risk identification include checklists of possible risks, surveys, meetings and brainstorming and reviews of plans, process and work products. The project manager can also use the process database to get information about risks and risk management on similar projects. 2. Risk prioritization focus on the highest risk. Prioritization requires analyzing the possible effects of the risk event in case it actually occurs. This approach requires a quantitative assessment of the risk probability and the risk consequences. For each risk rate the probability of its happening as low, medium or high. If necessary, assign probability values in the ranges given for each rating. For each risk, assess its impact on the project as low, medium, high or very high. Rank the risk based on the probability. Select the top few risk items for mitigation and tracking. 3. Risk Control: The main task is to identify the actions needed to minimize the risk consequences, generally called risk mitigation steps. Refer to a list of commonly used risk mitigation steps for various risks from the previous risk logs maintained by the PM and select a suitable risk mitigation step. The risk mitigation step must be properly executed by incorporating them into the project schedule. In addition to monitoring the progress of the planned risk mitigation steps periodically revisit project. The results of this review are reported in each milestone analysis report. To prepare this report, make fresh risk analysis to determine whether the priorities have Risk Analysis The first step in risk analysis is to make each risk item more specific. Risks such as, Lack of Management buy in, and people might leave, are a little ambiguous. In these cases the group might decide to split the risk into smaller specific risks, such as, manager Jane decides that the project is not beneficial, Database expert might leave, and Webmaster might get pulled off the project. The next step is to set priorities and determine where to focus risk mitigation efforts. Some of the identified risks are unlikely to occur, and others might not be serious enough to worry about. During the analysis, discuss
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with the team members, each risk item to understand how devastating it would be if it did occur, and how likely it is to occur. For example, if you had a risk of a key person leaving, you might decide that it would have a large impact on the project, but that it is not very likely. In the process below, we have the group agree on how likely it thinks each risk item is to occur, using a simple scale from 1 to 10 (where 1 is very unlikely and 10 is very likely). The group then rates how serious the impact would be if the risk did occur, using a simple scale from 1 to 10 (where 1is little impact and 10 is very large). To use this numbering scheme, first pick out the items that rate 1 and 10, respectively. Then rate the other items relative to these boundaries. To determine the priority of each risk item, calculate the product of the two values, likelihood and impact. This priority scheme helps push the big risks to the top of the list, and the small risks to the bottom. It is a usual practice to analyze risk either by sensitivity analysis or by probabilistic analysis. In sensitivity analysis a study is done to analyse the changes in the variable values because of a change in one or more of the decision criteria. In the probability analysis, the frequency of a particular event occurring is determined, based on which it average weighted average value is calculated. Each outcome of an event resulting in a risk situation in a risk analysis process is expressed as a probability. Risk analysis can be performed by calculating the expected value of each alternative and selecting the best alternative. Ex: Now that the group has assigned a priority to each risk, it is ready to select the items to mange. Some projects select a subset to take action upon, while others choose to work on all of Project the items. To get started, you might select the top 3 risks, or the top 20%, based on the priority calculation. GDM The Global Delivery Model (GDM) is adopted by an Industry or Business such that it has a capability to plan design, deliver and serve to any Customers or Clients Worldwide with Speed, Accuracy, Economy and Reliability. The key Features of GDM are Standardization Modularization Minimum Customization Maximum Micro structure
Adoption of a Combination of the Greatest Common Multiple and the Least Common Factor of a Large Mass of Microbial Component a. Standardization - Ingenious Design and Development of Components and Features which are like to be accepted by 90% of Worldwide Customers. Global Standards of Design focusing on highly standardized Methods and Processes of manufacture or Development. Adopt Plug and socket Concepts with minimum adaptable joints or Connections.
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b. Modularization - Product or Solution split up into smallest possible individual Identifiable Entities, with limited Individual Functioning Capability but powerful and robust in Combination with other Modules. c. Minimum Customization - Minimum Changes or Modifications to suit Individual Customers. identifiable more through characteristics rather than application Features. Approach through Standardization of these Microbial Entities even across Multiple Modules. Application of these Microbial Entities to rest within multiple Projects or Products or even as add-ons suit belated Customer Needs. Special Features of GDM Some of the special features of GDM are Cuts across Geographical and Time Zone Barriers Unimaginable Speeds of Response and Introduction. Common Pool of Microbial Components Largely Independent of Skill Sets required at Delivery Stages Highly automated Processes Quality Assurance as a Concurrent rather than a Control Process Near Shore Development, Manufacture and Delivery for better Logistics Mapping of Economical Zones rather than Geographic Zones Continuous Floating virtual Inventory to save Time and Efforts. d. Maximum micro structuring - Splitting of the Product Modules further into much smaller entity
Question 5 Answer the two parts: a. Importance of data management in project management-Comment. The Role of Effective Data Management in the Success of Project Management Data management consists of conducting activities which facilitate acquiring data, processing it and distributing it. Acquisition of data is the primary function. To be useful, data should have three important characteristics timeliness, sufficiency and relevancy. Management of acquisition lies in ensuring that these are satisfied before they are stored for processing and decisions taken on the analysis. There should be data about customers, suppliers, market conditions, new technology, opportunities, human resources, economic activities, government regulations, political upheavals, all of which affect the
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way you function. Most of the data go on changing because the aforesaid sources have uncertainty inherent in them. So updating data is a very important aspect of their management. Storing what is relevant in a form that is available to concerned persons is also important. When a project is underway dataflow from all members of the team will be flowing with the progress of activities. The data may be about some shortfalls for which the member is seeking instructions. A project manager will have to analyse them, discover further data from other sources and see how he can use them and take decisions. Many times he will have to inform and seek sanction from top management. The management will have to study the impact on the overall organisational goals and strategies and convey their decisions to the manager for implementation. For example, Bill of Materials is a very important document in Project Management. It contains details about all materials that go into the project at various stages and has to be continuously updated as all members of the project depend upon it for providing materials for their apportioned areas of execution. Since information is shared by all members, there is an opportunity for utilising some of them when others do not need them. To ascertain availability at some future point of time, information about orders placed, backlogs, lead times are important for all the members. A proper MIS will take care of all these aspects. ERP packages too help in integrating data from all sources and present them to individual members in the way they require. When all these are done efficiently the project will have no hold ups an assure success. b. What is the significance of reviewing ROI? ROI - Return on Investment (ROI) is the calculated benefit that an organization is projected to receive in return for investing money (resources) in a project. Within the context of the Review Process, the investment would be in an information system development or enhancement project. ROI information is used to assess the status of the business viability of the project at key checkpoints throughout the projects lifecycle. ROI may include the benefits associated with improved mission performance, reduced cost, increased quality, speed, or flexibility, and increased customer and employee satisfaction. ROI should reflect such risk factors as the projects technical complexity, the agencys management capacity, the likelihood of cost overruns, and the consequences of under or nonperformance. Where appropriate, ROI should reflect actual returns observed through pilot projects and prototypes. ROI should be quantified in terms of dollars and should include a calculation of the breakeven point (BEP), which is the date when the investment begins to generate a positive return. ROI should be recalculated at every major checkpoint of a project to see if the BEP is still on schedule, based on project spending and accomplishments to date. If the project is behind schedule or over budget, the BEP may move out in time; if the project is ahead of schedule or under budget the BEP may occur earlier. In either case, the information is important for decision making based on the value of the investment throughout
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the project lifecycle. Any project that has developed a business case is expected to refresh the ROI at each key project decision point (i.e., stage exit) or at least yearly. Exclusions If the detailed data collection, calculation of benefits and costs, and capitalization data from which Return on Investment (ROI) is derived was not required for a particular project, then it may not be realistic or practical to require the retrofit calculation of ROI once the project is added to the Review portfolio. In such a case, it is recommended that a memorandum of record be developed as a substitute for ROI. The memorandum should provide a brief history of the program, a description of the major benefits realized to date with as much quantitative data as possible, and a summary of the process used to identify and select system enhancements. Some of the major benefits experienced by sites that installed the information system that would be important to include in the memorandum are: a) Decommissioning of mainframe computers b) Reduction/redirection of labour c) Elimination of redundant systems d) Ability to more cost effectively upgrades all sites with one standard upgrade package. In each case above, identify the specific site, systems, and labour involved in determining the cited benefit. Identify any costs or dollar savings that are known or have been estimated. The memorandum will be used as tool for responding to any future audit inquiries on project ROI. For the Project Management Review, it is recommended that the project leader replace the text on the ROI document through 1) a note stating which stage of its cycle the project is in 2) A bulleted list of the most important points from the memorandum of record; and 3) A copy of the memorandum of record for the Review repository. In subsequent Reviews of the information system, the ROI slide can be eliminated from the package. There is one notable exception to this guidance. Any internal use software project in the maintenance phase of its lifecycle that adds a new site or undertakes an enhancement or technology refresh that reaches the cost threshold established by Standard will need to satisfy capitalization requirements. It requires all agencies to capitalize items acquired or developed for internal use if the expected service life is two or more years and its cost meets or exceeds the agencys threshold for internal use software. The standard requires capitalization of direct and indirect costs, including employee salaries and benefits for both Federal and Contractor employees who materially participate in the Software project. Program managers are considered to be the source of cost information for internal use software projects. If capitalization data is collected for the project in the future, the project would be expected to calculate and track its ROI. MB0049 Project Management Set 1 Page 15
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Question 6 XYZ Company implements CMMI level-03. To make further changes it decides on starting a new division in the organization. It decides to advance the existing project management. What are the steps to be followed by the organization to drive project management to a new horizon? Capability Maturity Model Integration (CMMI) is a process improvement approach that helps organizations improves their performance. CMMI can be used to guide process improvement across a project, a division, or an entire organization. CMMI in software engineering and organizational development is a process improvement approach that provides organizations with the essential elements for effective process improvement. CMMI is a trademark owned by Software Engineering Institute of Carnegie Mellon University. According to the Software Engineering Institute (SEI, 2008), CMMI helps "integrate traditionally separate organizational functions, set process improvement goals and priorities, provide guidance for quality processes, and provide a point of reference for appraising current processes." CMMI currently addresses three areas of interest: 1. Product and service development CMMI for Development (CMMI-DEV), 2. Service establishment, management, and delivery CMMI for Services (CMMISVC), and 3. Product and service acquisition CMMI for Acquisition (CMMI-ACQ). CMMI was developed by a group of experts from industry, government, and the Software Engineering Institute (SEI) at Carnegie Mellon University. CMMI models provide guidance for developing or improving processes that meet the business goals of an organization. A CMMI model may also be used as a framework for appraising the process maturity of the organization. CMMI originated in software engineering but has been highly generalised over the years to embrace other areas of interest, such as the development of hardware products, the delivery of all kinds of services, and the acquisition of products and services. The word "software" does not appear in definitions of CMMI. This generalization of improvement concepts makes CMMI extremely abstract. It is not as specific to software engineering as its predecessor, the Software CMM. CMMI was developed by the CMMI project, which aimed to improve the usability of maturity models by integrating many different models into one framework. The project consisted of members of industry, government and the Carnegie Mellon Software Engineering Institute (SEI). The main sponsors included the Office of the Secretary of Defense (OSD) and the National Defense Industrial Association. CMMI is the successor of the capability maturity model (CMM) or software CMM. The CMM was developed from 1987 until 1997. In 2002, CMMI Version 1.1 was released.Version 1.2 followed in August 2006. MB0049 Project Management Set 1 Page 16
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CMMI representation CMMI exists in two representations: continuous and staged. The continuous representation is designed to allow the user to focus on the specific processes that are considered important for the organization's immediate business objectives, or those to which the organization assigns a high degree of risk. The staged representation is designed to provide a standard sequence of improvements, and can serve as a basis for comparing the maturity of different projects and organizations. The staged representation also provides for an easy migration from the SW-CMM to CMMI. CMMI model framework Depending on the CMMI constellation (acquisition, services, and development) used, the process areas it contains will vary. Key process areas are the areas that will be covered by the organization's processes. The table below lists the process areas that are present in all CMMI constellations. This collection of eight process areas is called the CMMI Model Framework, or CMF.
Capability Maturity Model Integration (CMMI) Model Framework (CMF) Abbreviation REQM PMC Name Requirement Management Project Control PP CM MA PPQA Project Planning Configuration Management Measurement & Analysis Process & Product Quality Assurance OPD Organisational Definition CAR Casual Analysis Process Process Management Support 5 3 Project Management Support Support Support 2 2 2 2 Monitoring & Area Engineering Project Management Maturity Level 2 2
Maturity Levels There are Five maturity levels. However, maturity level ratings are awarded for levels 2 through 5. Maturity Level 2 - Managed 1. CM - Configuration Management MB0049 Project Management Set 1 Page 17
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2. MA - Measurement and Analysis 3. PMC - Project Monitoring and Control 4. PP - Project Planning 5. PPQA - Process and Product Quality Assurance 6. REQM - Requirements Management 7. SAM - Supplier Agreement Management Maturity Level 3 - Defined DAR - Decision Analysis and Resolution IPM - Integrated Project Management +IPPD OPD - Organizational Process Definition +IPPD OPF - Organizational Process Focus OT - Organizational Training PI - Product Integration RD - Requirements Development RSKM - Risk Management TS - Technical Solution VAL - Validation VER - Verification
Maturity Level 4 - Quantitatively Managed QPM - Quantitative Project Management OPP - Organizational Process Performance
Maturity Level 5 - Optimizing CAR - Causal Analysis and Resolution OID - Organizational Innovation and Deployment
CMMI models CMMI best practices are published in documents called models, each of which addresses a different area of interest. The current release of CMMI, version 1.2, provides models for three areas of interest: development, acquisition, and services. CMMI for Development (CMMI-DEV), v1.2 was released in August 2006. It addresses product and service development processes. CMMI for Acquisition (CMMI-ACQ), v1.2 was released in November 2007. It addresses supply chain management, acquisition, and outsourcing processes in government and industry. CMMI for Services (CMMI-SVC), v1.2 was released in February 2009. It addresses guidance for delivering services within an organization and to external customers. MB0049 Project Management Set 1 Page 18
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CMMI Product Suite (includes Development, Acquisition, and Services), v1.3 is expected to be released in 2010. CMMI Version 1.3Plans for the Next Version
Regardless of which model an organization chooses, CMMI best practices should be adapted by an organization according to its business objectives. Appraisal An organization cannot be certified in CMMI; instead, an organization is appraised. Depending on the type of appraisal, the organization can be awarded a maturity level rating (1-5) or a capability level achievement profile. Many organizations find value in measuring their progress by conducting an appraisal. Appraisals are typically conducted for one or more of the following reasons: 1. To determine how well the organizations processes compare to CMMI best practices, and to identify areas where improvement can be made 2. To inform external customers and suppliers of how well the organizations processes compare to CMMI best practices 3. To meet the contractual requirements of one or more customers Appraisals of organizations using a CMMI model must conform to the requirements defined in the Appraisal Requirements for CMMI (ARC) document. There are three classes of appraisals, A, B and C, which focus on identifying improvement opportunities and comparing the organizations processes to CMMI best practices. Appraisal teams use a CMMI model and ARC-conformant appraisal method to guide their evaluation of the organization and their reporting of conclusions. The appraisal results can then be used (e.g., by a process group) to plan improvements for the organization. The Standard CMMI Appraisal Method for Process Improvement (SCAMPI) is an appraisal method that meets all of the ARC requirements. A class A appraisal is more formal and is the only one that can result in a level rating. Results of an appraisal may be published (if the appraised organization approves) on the CMMI Web site of the SEI: Published SCAMPI Appraisal Results. SCAMPI also supports the conduct of ISO/IEC 15504, also known as SPICE (Software Process Improvement and Capability Determination), assessments etc. Achieving CMMI compliance The traditional approach that organizations often adopt to achieve compliance with the CMMI involves the establishment of an Engineering Process Group (EPG) and Process Action Teams (PATs).This approach requires that members of the EPG and PATs be trained in the CMMI that an informal (SCAMPI C) appraisal be performed, and that process areas be prioritized for improvement. More modern approaches that involve the deployment of commercially available, CMMI-compliant processes can significantly reduce the time to achieve compliance. SEI has maintained statistics on the "time to move up" for MB0049 Project Management Set 1 Page 19
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organizations adopting the earlier Software CMM and primarily using the traditional approach.[6] These statistics indicate that, since 1987, the median times to move from Level 1 to Level 2 is 23 months, and from Level 2 to Level 3 is an additional 20 months. These statistics have not been updated for the CMMI. The Software Engineering Institutes (SEI) Team Software Process methodology and the Capability Maturity Modeling framework can be used to raise the maturity level. Applications The SEI published that 60 organizations measured increases of performance in the categories of cost, schedule, productivity, quality and customer satisfaction. The median increase in performance varied between 14% (customer satisfaction) and 62% (productivity). However, the CMMI model mostly deals with what processes should be implemented, and not so much with how they can be implemented. These results do not guarantee that applying CMMI will increase performance in every organization. A small company with few resources may be less likely to benefit from CMMI; this view is supported by the process maturity profile (page 10). Of the small organizations (<25 employees), 70.5% are assessed at level 2: Managed, while 52.8% of the organizations with 10012000 employees are rated at the highest level (5: Optimizing). Interestingly, Turner & Jain (2002) argue that although it is obvious there are large differences between CMMI and agile methods, both approaches have much in common. They believe neither way is the 'right' way to develop software, but that there are phases in a project where one of the two is better suited. They suggest one should combine the different fragments of the methods into a new hybrid method. Sutherland et al. (2007) assert that a combination of Scrum and CMMI brings more adaptability and predictability than either one alone. David J. Anderson (2005) gives hints on how to interpret CMMI in an agile manner. Other viewpoints about using CMMI and Agile development are available on the SEI Web site. The combination of the project management technique earned value management (EVM) with CMMI has been described (Solomon, 2002). To conclude with a similar use of CMMI, Extreme Programming (XP), a software engineering method, has been evaluated with CMM/CMMI (Nawrocki et al., 2002). For example, the XP requirements management approach, which relies on oral communication, was evaluated as not compliant with CMMI. CMMI can be appraised using two different approaches: staged and continuous. The staged approach yields appraisal results as one of five maturity levels. The continuous approach yields one of six capability levels. The differences in these approaches are felt only in the appraisal; the best practices are equivalent and result in equivalent process improvement results
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: ASHOK BABU B : 511030706 : MBAHCS : SECOND : 02851 : MB0049 : PROJECT MANAGEMENT : Assignment set 2
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Question 1 Providing adequate resources are key to productivity comment. Key elements of a Productivity Improvement Program: 1. Obtain Upper Management Support. Without top management support, experience shows a PIP likely will fail. The Chief Executive Officer should issue a clear, comprehensive policy statement. The statement should be communicated to everyone in the company. Top management also must be willing to allocate adequate resources to permit success. 2. Create New Organizational Components. A Steering Committee to oversee the PIP and Productivity Managers to implement it are essential. The Committee should be staffed by top departmental executives with the responsibilities of goal setting, guidance, advice, and general control. The Productivity Managers are responsible for the day-to-day activities of measurement and analysis. The responsibilities of all organizational components must be clear and well established. 3. Plan Systematically. Success doesn't just happen. Goals and objectives should be set, problems targeted and rank ordered, reporting and monitoring requirements developed, and feedback channels established. 4. Open Communications. Increasing productivity means changing the way things are done. Desired changes must be communicated. Communication should flow up and down the business organization. Through publications, meetings, and films, employees must be told what is going on and how they will benefit. 5. Involve Employees. This is a very broad element encompassing the quality of work life, worker motivation, training, worker attitudes, job enrichment, quality circles, incentive systems and much more. Studies show a characteristic of successful, growing businesses is that they develop a "corporate culture" where employees strongly identify with and are an important part of company life. This sense of belonging is not easy to engender. Through basic fairness, employee involvement, and equitable incentives, the corporate culture and productivity both can grow. 6. Measure and Analyze. This is the technical key to success for a PIP. Productivity must be defined, formulas and worksheets developed, sources of data identified, benchmark studies performed, and personnel assigned. Measuring productivity can be a highly complex task. The goal, however, is to keep it as simple as possible without distorting and depreciating the data. Measurement is so critical to success, a more detailed analysis is helpful
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Question 2 Compare the following: Traditional Vs. Projectised Organization. Comparison between traditional and projectised organization Traditional Organisation They have the formal organization structure, with departments, functions, sections having a hierarchy of managers and their assistants. All of the managers function on a continuous basis catering to a series of requirements issued by the planning department. An assembly of various units of their production forms a products and a variety of such products make up the business of the company. No particular member or a department or a team is responsible for the completion of any particular product. Their creativity and innovation is in particular respect of their jobs. Most of the members do not get exposed to other areas of operations in the organisation. They become specialists and insular. It is found that a sense of ownership of the project motivates cooperative productivity. team members them to to be creative, high among achieve There is greater accountability among team They have a time schedule within which all the elements of the projects have to be completed. Projected Organisation They have teams comprising members who are responsible for completing one entire deliverable product. The teams will have all the resources required to finish the jobs.
members and everyone is responsible for the delivery.
Question 3 List out the macro issues in project management and explain each. The macro issues in project management: a. Evolving key success factors (KSF) upfront: In order to provide complete stability to fulfillment of goals, one need to constantly evaluate from time to time, the consideration of what will constitute the success of completing a project and assessing its success before completion. The KSF should be evolved based on a basic consensus document (BCD). KSF will also provide an input to effective exit strategy (EES). Exit here does not mean exit from the project but from any of the drilled down elemental activities which may prove to be hurdles rather than contributors
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B) Empowerment Title (ET): ET reflects the relative importance of members of the organization at three levels. i. Team members empowered to work within limits of their respective allocated responsibilities the major change from bureaucratic systems is an expectation from theses members to innovate and contribute to tome and cost. ii. iii. Group leaders are empowered additionally to act independently towards client expectation and are also vested with some limited financial powers. Managers are empowered further to act independently but to maintain a scientific balance among time, cost, expectation and perception, apart from being a virtual advisor to the top management. Partnering Decision making (PDM): PDM is a substitute to monitoring and control a senior with better decision making process with work closely with the project managers as well as members to plan what based can be done to manage the future better from past experience. The key here is the active participation of members in the decision making process. The ownership is distributed among all irrespective of levels the term equally should be avoided here since ownership is not quantifiable. The right feeling of ownership is important. The PD process is made scientific through: Earned Value management system (EVMS) Budgeted Cost of work scheduled (BCWS) Budgeted cost of work performed (BCWP) Actual cost of work performed (ACWP)
a) Management by exception (MBE): No news is good news. If a member wants help he or she located a source and proposed to the manager only if such help is not accessible for free. Similarly a member should believe that a team leaders silence is a sign of approval should not provoke comments through excessive seeking of opinions. In short leave people alone and let situation perform the demanding act. The bond limit of MBE can be evolved depending on the sensitivity of the nature and size of the project.
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Question 4 Describe the traits of a professional manager in details? The following list contains traits you should exemplify if you are a leader. Reference this list as needed when fulfilling your leadership responsibilities. Motivating: The inner drive that motivates followers to achieve goals is an important aspect of leadership. You need to possess the ability to inspire followers and compel them to reach their goals. Unless you can motivate them, any attempts to reach goals will fail. Optimistic: Demonstrating a good attitude goes a long way toward goal achievement. If you adopt a positive attitude, you will become a source of motivation and an asset to the entire team. An optimistic outlook is contagious-if you are optimistic, your followers will tend to assume the same attitude, which is beneficial for the group as they strive to reach goals. Set a solid example for followers by always maintaining a positive demeanor. Supportive: Expressing confidence in your followers' abilities is vital to successful leadership. Followers will be more committed to accomplishing goals if they know they have your full support. You should also be willing to demonstrate support by making personal sacrifices for your followers' well being. Your followers' needs should always be a top priority. When you show that you support their needs, your followers will appreciate your concern and respond with mutual support. Knowledgeable: Knowledge is crucial to successful leadership. You need to be knowledgeable in order to recognize and understand all the possibilities available in a situation and to make the best possible decisions. You should also make an effort to continually learn new information--the more knowledge you possess, the more capable you will be to make sound decisions. Flexible: Being rigid and narrow-minded can be a leader's downfall. If you are flexible and open to new ideas, followers will feel encouraged to contribute their expertise. This communication will help you achieve goals, since others may have suggestions that you had never considered. Being flexible also requires you to change set courses of action when needed. You must be able to make modifications to decisions when necessary, and not merely stick to a set plan of action for the sake of continuity.
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Empowering: You must be willing to grant responsibilities to your followers. Followers appreciate being trusted and will be more motivated to perform well when given the opportunity to complete tasks on their own. To successfully empower your followers, you need to accurately assess their skills and personalities. By understanding the potential of your followers, you will be able to allot each follower an appropriate amount of responsibility. Otherwise, you risk assigning tasks that are either too difficult or too simple for followers to complete. Trustworthy: As a leader, you must create a high level of mutual trust with your followers. You build trust through your actions, by demonstrating fairness, integrity, and dependability. Without the presence of trust, it will be difficult to establish the positive leader-follower relationships necessary for the achievement of goals. Encourages growth: A certain level of excellence needs to be established in order to encourage your followers to improve their performance. Measure the performance levels of your followers by setting standards that will drive them to grow professionally. Efficient: Since you are responsible for coordinating the efforts of any number of followers, it is essential that you utilize solid time management skills. Organization is the key to successfully accomplishing goals in an allotted amount of time. You will need to organize your own efforts, as well as those of your followers, to ensure that all tasks are completed by the set deadlines. Communicates clearly: In order to lead successfully, you must maintain an open channel of communication with your followers. Open communication requires you to clearly specify your thoughts and concerns, as well as encourage and recognize feedback from followers. A relationship that fosters open communication will be beneficial to both you and your followers. Confusion regarding what is expected from one another will be minimized, and conflicts will be easier to resolve when they arise. Fosters relationships: Being a good leader requires that you develop and utilize strong interpersonal skills. Treat your followers with respect and courtesy to help promote positive interactions. Building a solid relationship with followers will encourage them to become more comfortable working with you. Maintaining the leader-follower relationship is critical, since its status influences the achievement of goals.
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Question 5 List the major participants of project review process. Also highlight roles and responsibilities of each. This Project Review defines a process for conducting a cross-functional, project-level review of a team's implementation of the Software Development Life Cycle (SDLC). A Project Review Report documents learning points for future development teams and SDLC improvement. The Software Development Life Cycle and the Project Review information contained in this document apply to all cross-functional product development projects. It may apply to a single project of five to nine team members or a full cross functional product line involving 50 to 70 group members. A commitment of one or two hours for each meeting is needed. Meetings may be held separately or in parallel as part of a large group workshop. This Project Review Process uses a three-stage model based on a search for common ground and building a shared vision of the future. The process stages are: 1. Examine the past to determine what went well and what could have been better. Everyone votes on the three most important items in each list. 2. Determine current positive and negative forces . Everyone votes on top three. 3. Build a shared action plan for future improvements. Everyone votes on the top three priorities. The outcome expected of this process is a prioritized list of improvement actions based on a common vision and a shared commitment. The process is designed to (stage one) let go of past difficulties and build energy from past strengths while (stage two) seeking alignment with current positive forces for success. The visioning (stage three) explores new methods, work simplification, and/or technology opportunities to improve project performance Project Review Project Review Meetings provide an opportunity to analyze and document project successes and difficulties, thereby providing a better foundation for future development teams. A final review of all development phases must be completed prior to disbanding of the team. Each functional unit prepares a summary of learning points relevant to their functional area, and conducts one or more "public" meetings to review findings and teach others. Meeting minutes documenting discussion and summarize learning points are published within one (1) week after each Project Review Meeting. A final Project Review Report combines all review meeting
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minutes and functional reports into a single document for review by future teams. Software Development Life Cycle (SDLC) changes will be submitted to the Process team to initiate changes to the SDLC. Scheduling: The Project Review Meeting is part of the lessons learned and improvement recommendation activity. Despite being a deliverable late in the product development process, the team is encouraged to hold one or more Project Review Meetings during earlier phases of development. The final Project Review Meeting occurs after the system is operational. A meeting announcement memo for each Project Review Meeting will be distributed to all potential attendees a minimum of two (2) weeks prior to the meeting Responsibility: The responsible executive or designate (usually the process team leader) will be responsible for scheduling, moderating, note-taking, meeting minutes, summarizing learning points, and preparing a final Project Review Report. Team members and functional representatives may be called upon to lead portions of the presentation/discussion and may be asked by the responsible executive to assist in the preparation of meeting minutes or the final Project Review Report. Roles and responsibility of project review process Program Charter provides an overall vision of the program goals and objectives to the team members; Work Plans lay down detailed schedules of activities, milestones, and deliverables of the project team, and identifies the resources available; Governance Plan identifies the roles and responsibilities of each member of the project team; Work Breakdown Structure defines the specific deliverables due from each team member, at each stage of the project; Communication Plan establishes the protocol, procedure, and methods to communicate project information and issues among members of the team; Forms and Templates simplify communication, record-keeping and reporting; Risk Analysis lists out potential problems and chances of deviance from the project methodology, the probability of such occurrences, the possible impact, and possible solutions.
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Question 6 ABC organization has been in software business since last 20 years. The senior management feels that although they are making profits, but the profit on an average is the same each year. They decide that they would make some additions to the business and decided to go ahead with development of some high technology for better profits. Can you suggest some guidelines, which the management should follow in this venture? Every business aims to commence its activities in the foreign market. The foreign market provides with both opportunities and risks. Therefore some prefer to enter in to strategic relationships and one such is the Joint Ventures. A Joint Venture is an entity formed between two or more parties to undertake economic activity together. The JV parties agree to create, for a finite time, a new entity and new assets by contributing equity. They then share in the revenues, expenses, and assets and the control of the enterprise. Therefore the basic characteristics of joint venture can be summed up as: 1) Based on a Contractual Agreement. 2) Specific limited purpose and duration. 3) Joint Property Interest 4) Common Financial and Intangible goals and objectives. 5) Shared profits, losses, management and control. Reasons for setting Joint Ventures abroad The reasons for setting up joint ventures can be contributed to three main factors and they are: 1. Internal Reasons. 2. Competitive Goals. 3. Strategic Goals. 1. The Internal reasons are as follows: a. Building on companys strength. b. Spreading on costs and risks. c. Improving access to financial resources. d. Economies of scale and advantages of size. e. Access to new technologies and customers. f. Access to innovative managerial practices. 2. The Competitive Goals are as follows: a. Influencing structural evolution of the industry. b. Defensive response to blurring industry boundaries. c. Creation of stronger competitive units. d. Speed to market. MB0049 Project Management Set 2 Page 9
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e. Improved Agility. 3. The Strategic Goals are as follows: a. Diversification b. Synergies. c. Transfer of technology/skill
Indian Joint Ventures Abroad India started opening its economy a decade ago to integrate with global economy. The business ventures abroad are not a new phenomenon in the independent India. The initiatives were taken way back in the 1960s with the first ventures of Birlas in Ethopia in the year 1964. However, it has assumed specific significance after the Indian government started economic reforms in the year 1991, making globalization of Indian business an integral part of economic reforms. Significance of Indian Joint Ventures Abroad International trade is considered to be imperative for economic development. Economic borders of various countries have been opened on this premise under the aegis of world trade organization. In countries, whose economy has moved from the level of necessity to comforts and luxuries levels, there are increasing pressures for newer, better and superior products with consistent quality, high reliability and attractive finish etc. Further, with the labour becoming increasingly costly, the firms have to go for development of capital intensive technologies. The huge investments in new product and technology development demands higher levels of production to ensure operations of the firms above the breakeven point. The scale of operations required over a period of time reaches a level that is well above the entire domestic demand in most of the developed countries, which generally have small population. The firms thus face the problem of searching new markets and cheaper sources of raw material, labour and other resources. Their growth and development, thus, depends upon internationalization of the business. Advantages and Disadvantages A business while deciding upon whether to go for a joint venture should make a thorough analysis on its business goals. Advantages Financial resources can be shared. Allows for Investor diversification. Reduces local Friction. Reduce Fixed costs per product. Direct management of business activities. Competitive strengths of two parties can be combined. Page 10
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A local JV partner knows the market. Economic incentives add value to JVs.
Disadvantages JV profits are shared. Shared technologies can be used beyond JV. Local Management of a JV can be unknown
Broadly there are two schemes under which an Indian Party can set up a JV abroad, namely the Automatic Route and the Normal Route/Approval Route. Automatic Route Under the Automatic Route, an Indian Party does not require any prior approval from the Reserve Bank for setting up a JV abroad (in case of investment in the financial sector, however, prior approval is required from the concerned regulatory authority both in India and abroad). The criteria for direct investment under the Automatic Route are as under: The total financial commitment of the Indian Party in JVs in any country other than Nepal, Bhutan and Pakistan is up to 100% of its net worth and the investment is in a lawful activity permitted by the host country The Indian Party is not on the Reserve Banks exporters caution list / list of defaulters to the banking system published/ circulated by the Credit Information Bureau of India Ltd. (CIBIL)/RBI or under investigation by the Enforcement Directorate or any investigative agency or regulatory authority; The Indian Party routes all the transactions relating to the investment in a JV through only one branch of an authorized dealer to be designated by it. Normal Route Proposals not covered by the conditions under the automatic route require the prior clearance of the Reserve Bank for which a specific application in form ODI with the documents prescribed therein is required to be made to RBI. Requests under the normal route are considered by taking into account inter alias the prima facie viability of the proposal, business track record of the promoters, experience and expertise of the promoters, benefits to the country, etc
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ASHOK BABU B

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

Mean for all Samples

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

Time management Human management Procurement management

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

Enhancement of coverage and accuracy of management information systems

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 1

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

The reasons for business process modeling are to:

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

Increasing the product output

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

MB0044 PRODUCTION AND OPERATION MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 1

MB0045 FINANCE MANAGEMENT Set 1

MB0045 FINANCE MANAGEMENT Set 1

Earnings per Share =

MB0045 FINANCE MANAGEMENT Set 1

MB0045 FINANCE MANAGEMENT Set 1

MB0045 FINANCE MANAGEMENT Set 1

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

30 (0.15-g) =2 0.15-g= 0.15-g=0.067 g=8.37%=8% Hence the expected growth is 8%

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

PVCI - NPV 182500 -200000 =17500

MB0045 FINANCE MANAGEMENT Set 2

MB0045 FINANCE MANAGEMENT Set 2

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

d. Management contract e. Joint ownership f. Direct investment

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

Purchase Decision Post Purchase Decision

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 1

MB0046 MARKETING MANAGEMENT Set 2

MB0046 MARKETING MANAGEMENT Set 2

MB0046 MARKETING MANAGEMENT Set 2

MB0046 MARKETING MANAGEMENT Set 2