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CBSE Class 12 Business Studies Solved Question Paper 2019 Code (66-2-1)

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Business Studies
(Code No.  66/2/1)

Time allowed: 3 hours
Maximum Marks: 80
General Instructions:

Read the following instructions very carefully and strictly follow them:

(i) This question paper contains five Sections – A, B, C, D and E.

(ii) Section – A contains questions 1 to 8 carrying one mark each. Answer to these questions may be given in one word or a sentence.

(iii) Section – B contains questions 9 to 13 carrying three marks each, answers to these questions may be in 50 to 75 words.

(iv) Section – C contains questions 14 to 19 carrying four marks each. Answers to these questions may be in about 120 words.

(v) Section – D contains questions 20 to 22 carrying five marks each. Answers to these questions may be in about 150 words.

(vi) Section – E contains questions 23 to 25 carrying six marks each. Answer to these questions may be in about 200 words.

(vii) There is no over-all-choice in the question paper, however an internal choice has been provided in 3 questions of one mark, 2 questions of three marks, 2 questions of four marks, 1 question of five marks and 1 question of six marks. You have to attempt only one of the choices in such questions. 


Question 1. Das is the Managing Director of ‘Gamut Ltd.’, manufacturing different varieties of cheese. He has an efficient team working under him consisting of Rajat – the Production manager, Vinay – the Marketing manager and Adit – the Finance manager. They understand and interpret the policies made by Das, ensure that their departments have adequate manpower, assign them the necessary duties and motivate them to achieve the desired objectives. 
State one more function other than those mentioned above, that this team may perform at the level they are working. 

Answer: The team is working at the intermediate level, and the team’s function other than those mentioned is to : Cooperate with other departments to ensure the smooth operation of the organisation. 

Question 2. Differentiate between ‘Authority’ and ‘Responsibility’ on the basis of ‘flow’. 

Answer: On the basis of flow:

At the corporate level, Authority flows downward from superior to subordinate, but Responsibility flows upward from subordinate to superior.


Distinguish between ‘Responsibility’ and ‘Accountability’ on the basis of ‘meaning’.

Answer: On the basis of meaning: 

Responsibility is the state of performing whatever it takes to fulfil a task. On the other hand, Accountability is the condition under which a person is expected to take ownership for his or her actions or decisions.

Question 3: What is meant by ‘Rule’? 

Answer: Rules are specific statements that inform what must and must not be done. The main aim is to achieve order and discipline. There are penalties in case of violation of rules. They are rigid with no scope for deviation. They are applied to humans in order to achieve discipline and order.


Define ‘Organising’. 

Answer: Organising is a process that entails a series of processes for identifying and grouping diverse tasks, collecting or assembling various resources, and establishing authority connections with responsibility among job roles. It may be defined as collecting and utilizing human and non-human resources in order to carry out plans in a highly effective and efficient manner. Its goal is to achieve the organization’s ultimate plan.

Question 4: State any two characteristics of ‘Directing’?

Answer: The process of instructing, guiding, counselling, motivating, and leading people in an organisation to achieve the organisational goals is known as Directing.

Directing not only includes order and instructions by a superior to the subordinates but also includes guiding and inspiring them. It encompassed many elements like motivation, leadership, supervision, besides communication. It is a managerial function which is performed throughout the life of an organisation.

Two characteristics of Directing:

  1. Directing initiates action: The other functions of management, i.e., planning, organising, staffing, etc., create conditions for managers to take appropriate actions, whereas directing function initiates actions in an organisation. It converts plans into action. It is the key managerial function performed by the managers.
  2. Directing is pervasive: It is pervasive as it takes place at every level of management. It takes place wherever superior-subordinate relations exist. Every manager has a subordinate who works under him and is responsible for getting things done.
  3. Directing is a continuous process: Directing is an ongoing activity. It takes place throughout the life of an organisation, irrespective of the people in the organisation. Managers give orders to their subordinates, motivate them, and guide them on a continuous basis.


Give the meaning of ‘Management by Exception’.

Answer: Management by Exception is based on the idea that “if you try to control everything, you may end up controlling nothing,” and asserts that an organization’s management should focus on significant deviations that exceed the set deviation limit. Managers should establish a set of deviations for performance, and any variation that exceeds the specified range should be handled.

Question 5: Kamal is working as a gang boss in the assembly unit of ‘Sokia Ltd.’, a  laptop manufacturing company. He supervises the work of ten trained workers who perform the various activities related to the assembly of the laptops. One day when he was supervising the work of his workers, he told Ashok, a worker that his work could be improved. Ashok interpreted the comments of Kamal as that his work was not good.  

Identify the type of barrier to effective communication in this case.

Answer: The type of barrier to effective communication in this case is Semantic barriers

Semantic Barriers: The branch of science that deals with the meaning of words and sentences is known as Semantic. The problems and obstructions in the process of encoding and decoding message into words or impressions is known as Semantic barriers. This barrier arises because different words mean different things to different people. A breakdown in communication can occur when two individuals attach different meanings to a word. For example, for organisations, ‘Profits’ may mean growth and efficiency, but for employees, it may mean excess funds generated by paying inadequate wages and benefits. 

Question 6: This market helps to save time, effort and money that both buyers and sellers of a financial asset would have to otherwise spend to try and find each other. Name the market and identify the function being referred to.

Answer: The market is Financial Market 

The function is Reduction in transaction cost:

Reduction of the Cost of Transaction: Investors and companies have to collect information regarding financial securities before investing in them, which can be very time-consuming. The financial markets help these investors and companies by providing them with all information regarding financial securities including its price, availability, and cost.

Question 7: Kumar wanted to purchase a fuel-efficient car having the latest standards regarding minimisation of pollution. He saw an advertisement offering such a car and visited the showroom of the company wherein the car was displayed. In his discussion, the Marketing manager told him that the company is providing credit facilities, maintenance services and many other effective services which are helping in bringing repeat sales and developing brand loyalty. Identify the marketing function which the Marketing manager was discussing with Kumar.

Answer: After analysing the aforesaid case study, it is identified as Customer Support Services, such as After Sales Services, Handling Customer Complaints, Maintenance Services, and so on, aim to provide Maximum Satisfaction to the Customer, which in turn helps in Repeat Sales and Brand Loyalty.

Question 8: ‘Ultra Televisions Ltd.’ is offering its 90” TV sets at a discount of   Rs.15,000 for a  period of one month starting from 1st March, 2019. 

Identify the sales promotion activity used by ‘Ultra Televisions Ltd.’. 

Answer: The “Discounts” sales promotion activity is used by Ultra Television Ltd. This refers to a price reduction of a certain percentage for a limited time. Discounts encourage customers to buy more and also benefit business owners in clearing out their inventories.

Section – B

Question 9: Explain any three points of importance of planning function of management.

Answer: Planning means deciding in advance what to do, how to do it, when to do it, and who will do it. Planning connects where we are to where we want to go. It allows things to happen that would not have happened otherwise.

Importance of planning function of management : 

  1. Planning offers direction: Planning is used to determine the most appropriate course of action for the future. Any organisation’s primary task is to establish goals and objectives. Planning offers unity of direction by declaring the objective in advance. Proper planning clarifies and specifies goals. It allows the management to concentrate on the purpose of the various activities. It means that planning decreases pointless activity and increases the value of activities.
  2. Uncertainty is reduced through planning: Every commercial firm may function in an uncertain environment. By avoiding unnecessary action, planning allows a company to survive in this unpredictable environment. It also helps in forecasting the future and preparing for risk by making necessary provisions.
  3. Planning minimizes overlapping and wasteful activity: Plans are developed with the organization’s objectives in mind. An effective plan incorporates the activities of all departments. Planning avoids overlapping and wasteful activities in this way.


Explain any three limitations of planning function of management.

Answer: Planning means deciding in advance what to do, how to do it, when to do it, and who will do it. Planning connects where we are to where we want to go. It allows things to happen that would not have happened otherwise.

Limitations of Planning are:

  1. Rigidity: Planning brings rigidity into the workplace by requiring employees to strictly comply with pre-determined policies. By strictly following to these predetermined policies, people tend to become more concerned with complying with these plans rather than achieving the objectives. Planning may often discourage individual initiative and innovation. It limits their flexibility and prevents them from taking advantage of fresh chances.
  2. Planning may not work in a dynamic context: Planning should operate in an external environment that is beyond the organization’s control, such as government policies, technology, and so on. Changes in the environment make the plan inoperative and ineffective in any situation. When such changes are not precisely forecasted, planning does not provide a favourable outcome.
  3. Planning restricts creativity: Planning involves deciding policies and processes in advance. Employees are expected to rigorously adhere to them, and deviations are seen as very undesirable. As a result, employees are less likely to show their abilities, which decreases their creativity and initiative.

Question 10: Distinguish between Formal and Informal organisation on the basis of the following :  

              (a) Origin;  (b) Authority; and  (c) Leadership.  

Answer: Formal Organisation: Employees in any organisation are led by rules, regulations, and procedures, and the structure of tasks and employee positions are clearly defined to ensure the smooth functioning of the organisation. This type of organisation is called a Formal Organization.

Informal Organisation: Interaction among employees at work creates networks of informal communication, and employees bypass official channels to form their own social groupings known as Informal Organizations. Such informal organisations emerge from within formal organisations.

Difference between Formal and Informal organisation

BasisFormal OrganisationInformal Organisation
OriginIt is the result of corporate policies and rules.It develops as a result of social contact among employees.
AuthorityManagement positions confer authority.Personal qualities determine authority.
LeadershipManagers offer leadership to the employees in their departments.The members of the group elect informal leaders.


Distinguish between Functional and Divisional structure on the basis of the following points :  (a) Coordination;  (b) Managerial Development; and   (c) Cost .

Answer: The structure wherein occupations of similar kinds are grouped under one department is known as the Functional Structure. All departments report to one coordinating head or executive. For example, all production-related activity will be under the control of the production department. This form of structure is appropriate for organisations with a wide range of operations. It promotes specialisation by requiring each partner to perform work according to their strengths, speciality, and knowledge.

Divisional Structure refers to the structure in which jobs linked to one product are grouped under one department. This form of structure is appropriate for organisations that provide more than one product category. The organisation is divided into distinct units or divisions, each of which is managed by a divisional manager. For example, if a corporation has four divisions, each division will have its own department for production, marketing, finance, and so on.

Difference between Functional and Divisional structure 

BasisFunctional StructureDivisional Structure
CoordinationCoordination is difficult in the case of a multi-product corporation.As all functions related to a certain product are integrated into a single department, coordination is simple.
Managerial DevelopmentManagers become specialised in one function only, limiting their opportunities for overall managerial development.Managers perform a variety of functions, making management development easy.
Cost It is cost effective since there is no duplication of work.It is not economical since each department requires all of the resources.

Question 11: Explain ‘Vestibule Training’ and ‘Apprenticeship Programme’ as methods of training ?

Answer: Training is the process of developing an organization’s employees’ skills, talents, and capabilities.Employees benefit from training since it allows them to learn new skills and apply what they’ve learned. Training is essential not just for new employees, but also for current employees. Training isn’t a one-time activity.  It is a continual process that helps employees improve their performance and prepares them for a new job or keeps them updated on their current job.

Apprenticeship Programme’: Apprenticeship programmes place trainees under the supervision of experienced professionals. These programmes are designed to provide learners with advanced skills and knowledge. Such programmes are required for persons entering specialised industries such as plumbers and electricians. These apprentices are trainees who enrol in these programmes and work for a period of time under the supervision of a professional or a trainer. The trainees must spend a certain period of time here where both fast and slow learners are trained together. Slow learners may be given additional training.

Vestibule Training: Employee gets vestibule training on the equipment that they will be utilising during their jobs. Though the training is conducted away from the actual workplace, the trainees are provided with a work environment that includes all of the necessary equipment, files, and materials. This method is usually utilised when staff need to operate advanced or complex technology and equipment.

Question 12 : One of the functions of Securities and Exchange Board of India is ‘Promotion of fair practices and code of conduct in securities market’. 

State the category to which this function belongs and state any two other functions of this category.

Answer: SEBI (Securities and Exchange Board of India) was established in 1988 to regulate the functions of the securities market. It supports the stock market’s orderly and healthy development. However, SEBI did not previously have full oversight over stock market transactions. It was only left as a watchdog, monitoring but unable to regulate or control the operations. As a result, SEBI was granted legal status in May 1992 and is now a body corporate that has its own legal existence and perpetual succession.

These Functions are categorised as “Protective Functions”. SEBI performs these functions to protect investors’ interests and provide investment security.

Two other functions of this category : 

  1. Check a Price Rigging: Manipulation of price of securities to inflate or depress the market price of securities is known as Price Rigging. SEBI through protective functions prohibits these kinds of practices as they can cheat and defraud the investors.
  2. Prohibits Insider Trading: Any person who is connected with the company such as promoters, directors, etc., is an insider. They have all the sensitive information about the company which can affect the price of the securities. However, this sensitive information is not available to the people at large, and if the insiders use this privileged information to make profit, it is known as Insider Trading. SEBI protects the interest of investors, keep a strict check on the insiders when they buy securities of the company and takes strict actions against them insider trading.
  3. SEBI prohibits fraudulent and unfair trade practices: SEBI does not allow the companies to make any statement that can mislead the people and induce the sale or purchase of securities by any other person.

Question 13 : ‘G. Motors’ is the manufacturer of sophisticated cranes. The Production manager of the company, reported to the Chief Executive Officer, Ashish Jain that one of the machines used in manufacturing sophisticated cranes had to be replaced to compete in the market, as other competitors were using automatic machines for manufacturing cranes. After a detailed analysis, it was decided to purchase a new automatic machine having the latest technology. It was also decided to finance this machine through long term sources of finance. Ashish Jain compared various machines and decided to invest in the machine which would yield the maximum returns to its investors. 

(a) Identify the financial decision taken by Ashish Jain.  

(b) Explain any three factors affecting the decision identified in (a) above. 

Answer: a) Investment or Financing decision has been taken by Ashish Jain.

The financing decision determines the amount of funding to be raised from various long-term sources, as well as the cost of each source of finance.

b) Three factors affecting the decision identified above: 

  1. Cost: The cost of acquiring funding from various sources varies. In general, a financial manager favors the cheapest source of credit.
  2. Risk: The risk associated with various sources of financing is that every borrowed fund has a higher degree of risk than the owners. Before making a financing decision, the financial management examines the risk associated with each source. The risk is minimal in the case of equity and high in the case of debt.
  3. Consideration for Control: The issuance of additional equity shares may result in a loss of management control over the firm. Debt financing does not have this implication. Companies that are scared of being taken over will choose to take on debt. It indicates that if existing shareholders wish to keep full control of the firm, debt should be chosen. However, if they do not mind losing control, the company may go for equity. As a result, we can say that equity dilutes control whereas debt has no effect on control.

  Section – C

Question 14: Explain any four features of business environment.

Answer : The term “business environment” refers to all individuals, institutions, and other elements that are outside the control of a business enterprise but may have an impact on its success.. In other words, the business environment includes all of the conditions and factors that govern how a business operates. These forces have an impact on how the business operates,, and it has to deal with them effectively. It refers to the climate or set of conditions in which business operations take place, which might be economic, social, political, or institutional.

Features of business environment : 

  1. Totality of external forces: The business environment is the total of all the external forces that directly or indirectly influence the working of a business system. The external forces refer to those individuals and groups, also known as stakeholders, with which a particular organization comes into direct and frequent contact in the course of its functioning.
  2. Specific and general forces: The business environment is made up of both specific and general forces. Specific forces such as investors, customers, competitors, and suppliers affect individual enterprises directly and immediately in their everyday work. General forces such as social, political, legal, and technological conditions indirectly affect the business environment.
  3. Interrelatedness: The various elements of the business environment are closely interrelated, which means a change in one element affects the other elements of the business environment. In the present social environment, there has been a health-conscious and fitness trend amongst people, and demand for some product and services have increased, like low-fat cooking oil, low-fat milk, sugarfree products, yoga centers, health restoration, etc., at the same time demand for spicy and oily foods, etc., has decreased to an extent. These health products have changed the lifestyle of people, and also because of the rise in the number of working women in nuclear families, certain setups in India have led to the introduction of semi-cooked or processed food facilities.
  4. Dynamic nature: The business environment is dynamic in nature, i.e. it keeps on changing whether in terms of technological improvement, a shift in consumer preferences or entry of new competition in the market. For example, changes like invention of new techniques of production, changes in industrial policies, or a new minister in the government, etc. Business is required to remain highly alert and adaptable so that they can survive for long period.


Explain any four features of ‘demonetization’.

Answer: When a currency is stripped of its legal status and replaced with a new currency, it is known as demonetization. It is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted.  The government of India, announced the demonetization on November 8, 2016, with profound implications for the Indian economy. The government decided that the two largest denomination notes, Rs. 500 and Rs. 1000 were ‘demonetized’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills. This led to eight-six per cent of the money in circulation bills. The people of India had to deposit invalid currency in the banks, which came along with the restrictions placed on cash withdrawals. The aim of demonetization was to control corruption, counterfeiting the use of high denomination notes for illegal activities, and especially the increase of black money generated by income that has not been paid to the tax authorities. 

Features of ‘demonetization’ are: 

  1. Demonetization is seen as a tax administration measure. Cash that was there with the people from their income by performing legal activities, was instantly deposited in the bank in order to exchange against the new notes. But people with money earned through illegal activities, i.e. the black money had to pay taxes with the penalty rate as their money was unaccountable. It was also made clear by the government that demonetization was a change on their part, showing that tax evasion will no longer be tolerated or accepted.
  2. Demonetization led to the withdrawal of nearly 86% of currency in circulation. As per the report of the income tax department, an undisclosed income over Rs. 9,334 crore between November 9, 2016, to February 2017 was reported.
  3. It promoted the variable service of launching a mass awareness campaign against black money. It reduced the informal transactions in the economy.
  4. Demonetization facilitates channelizing savings into the formal financial system. As a result, some of the new deposit schemes offered by the banks continued to provide base loans at lower interest that can be used for launching new profitable schemes.
  5. Demonetization also helped in creating a less-cash economy by bringing an understanding within the general people, i.e., channelling more savings through the formal financial system and improving tax compliance that would improve more chances of a cash-lite economy. This would help in introducing a formal economy in our country.

Question 15 : Kunal joined as a shop level manager in the Production department of a textile company in the year 2005. Because of his good work, he became the Deputy Production Manager of the company in the year 2010. He had status and prestige and was well-respected by all in the company.  On 1st March, 2019, he was promoted as the General Manager of the company. Kunal was very happy on his promotion as now he had become what he was capable of becoming. As a good manager, Kunal decided to motivate his subordinates, after understanding the Need Hierarchy theory which is based on various assumptions.  He realised that people’s behaviour is based on their needs and the manager can influence the behaviour of his employees by satisfying their needs. 

a) One of the assumptions of Need Hierarchy theory is stated in the above paragraph. State the other three assumptions of this theory ?

b) State the needs of Kunal which are being satisfied through promotion.  

Answer: a) Maslow’s Theory is based on the following assumptions:

  1. People’s behaviour is based on needs. Fulfillments of needs decide the behaviour. When needs are fulfilled, an individual behaves positively and behaves negatively when the needs are not fulfilled.
  2. People are motivated by unfulfilled needs, and once a particular need is satisfied, it ceases to be a motivating factor. Therefore, motivation ends with the satisfaction of needs, after that next higher need serves as a motivator.
  3. An individual’s needs start from basic and go to other higher level needs. Therefore, we can say that people’s needs are in hierarchical order. 
  4. An individual moves to the next higher level of the hierarchy only when the lower needs are satisfied. 

(b) Needs of Kunal satisfied are: 

  1. Here Kunal’s Needs are being met by “Promotion” which are classed under “Esteem Needs”. These Needs pertain to Realizing or Reaching Your Life’s Goal. When an employee achieves his or her goals, he or she has satisfied his or her actualization need. For example, when a soldier bravely faces an enemy bullet, he seems to realise the need for self-actualization.
  2. Needs for self-actualization are also fulfilled. It represents Kunal’s urge for self-development, self-advancement, and self-fulfilment as a result of his progressive growth.
  3. Kunal’s social requirements are satisfied as he realises where he belongs and is accepted by his seniors, peers, and subordinates. As a result, he creates an environment in the organisation that promotes communication, teamwork, and higher production.

Question 16: ‘Foods India Ltd.’ is a company engaged in the production of packaged juice since 2010. Over this period, a large number of competitors have entered the market and are putting a tough challenge to ‘Foods India Ltd.’. To face this challenge and to increase its market share, the company has decided to replace the old machinery with an estimated cost of Rs 100 crores. To raise the finance, the company decided to issue 9% debentures. The Finance department of the company has estimated that the cost of issuing the 9% debentures will be Rs 10,00,000. The company wants to meet its floatation cost.

(a) Explain the instrument that the company may issue for this purpose. 

(b) In which type of financial market, is the instrument explained in (a) above traded? Also, explain how safe the instruments are in this market.  

Answer: a) The Finance Manager of “Foods India Ltd.” should issue “Commercial Paper” to compensate for the floatation cost of issuing 9% Debentures.

A Commercial Paper is an unsecured promissory note issued by a private or public sector company with a predetermined maturity time ranging from 15 days to one year. In 1990, it was launched for the first time in India. As this instrument is unsecured, it can be issued by companies with a solid credit rating and reputation. Commercial banks and mutual funds are the primary purchasers of commercial papers. Companies utilise the funds raised through commercial papers to cover their flotation costs. This is known as bridge financing.

b) These instruments are traded in the Money Market,” and Commercial Paper is a short-term unsecured promissory note. As a result, it is advantageous for the company to issue such instruments since no security is required from the company.

Money Market refers to a market for short-term money that are intended to be used for a period of up to one year. In general, the money market serves as a source of funds or financing for working capital. Money market transactions involve the lending and borrowing of cash for a short period of time, as well as the selling and purchase of securities with a one-year term or securities that are paid back (redeemed) within one year. Common money market instruments include Call Money, Commercial Bills, T Bills, Commercial Paper, Certificates of Deposit, etc. The organisations and institutions that deal with short-term debts are all included in a money market, that has no specific location. The State Bank of India, the Reserve Bank of India, LIC, UTI, various Commercial Banks, etc. are a few of the more popular institutions.

Question 17: Define a ‘Consumer’ according to the provisions of the Consumer Protection Act, 1986.

Answer: Under the Consumer Protection Act, 1986, a consumer means: Any person who buys any goods for a consideration which has been paid or promised or partly paid and partly promised or under any scheme of deferred payment. It includes any user of such goods when such use is made with the approval of the buyer but does not include a person who obtains goods for re-sale or any commercial purpose. b Any person who hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment. It includes any beneficiary of services when such services are availed of with the approval of the person concerned but does not include a person who avails of such services for any commercial Purpose.


State any eight reliefs available to the consumer, if the court is satisfied about the genuineness of the complaint ?

Answer: Everyone is a consumer of goods and services who expects a fair deal to avoid being exploited. The Consumer Protection Act of 1986 was enacted by the Indian Parliament to protect customer rights, address consumer complaints, and resolve consumer disputes. It protects customers from dishonest or fraudulent business practices. This Consumer Protection Act extends across India, except in the state of Jammu and Kashmir, and covers all goods and services purchased by consumers in all sectors such as private, public, and cooperative. It should be noted that the Indian Consumer Protection Act is a social welfare law designed to remove technicalities, procedural delays, procedural requirements, court costs, and charges.

Reliefs available to the consumer are (any eight):

When a district, state, or national commission decides that a compensation claim under product liability is backed up by proof of a defect in the goods or a deficiency in the services, the commission issues an order :

  1. A consumer has the relief of removing the defects in the service.
  2. They can get the defective product replaced with the new one, which is non-defective.
  3. The consumers can also get a refund of the price paid for the goods or charges paid for the service.
  4. Consumers also have the relief to remove or withdraw hazardous goods from the market.
  5. If the consumer suffers a loss or injury because of the negligence of the opposite party, then he/she has the relief of getting a reasonable amount of compensation.
  6. Discontinuation of unfair or restrictive trade practices and reducing their repetition in the future.
  7. A consumer has the relief of ceasing the manufacturer of the hazardous goods and scans top the service providers from offering hazardous services.
  8. To pay extra compensation to the consumer as a corrective measure for the damage done to them by the other party. It is also known as to pay punitive damages in appropriate circumstances.
  9. To pay the grieved party with adequate cost.
  10. To stop and desist the manufacturers and advertisers from issuing misleading advertisements.
  11. If a contract is unfair, then the District Commission, State Commission, and National Commission have the power to declare them null and void.
  12. To stop the offering of hazardous goods for sale. 

Question 18: Explain any four factors which affect the fixation of price of a product ?

Answer: Price is the value of a product or service passed on by the buyer to the seller. As a customer is very sensitive about the price of a product, it is a crucial element of the marketing mix. A slight shift by the organisation in the price of a product can shift the customers towards the competitor’s product. For example, if the price of Nescafe Coffee changes from ₹155 to ₹160, then the customers will start demanding Bru Coffee, which is still available at ₹155. Therefore, it is important for an organisation that they take pricing decisions with proper care and caution. A company should ensure that the price of a product or service matches its utility, as a consumer is always ready to pay a specific price for a product or service if it matches its utility.

Four factors which affect the fixation of the price of a product are: 

1. Pricing Objectives: The objective of a firm is an essential factor that plays a major role in deciding the price of a good or service. Usually, the basic objective of an organisation is profit maximisation. Besides this, other pricing objectives of an organisation are as follows:

  • Survival in a Competitive Market: For surviving in a competitive market, organisations have to decrease the price of their products or services by offering discounts to the customers. 
  • Obtaining Market Share Leadership: If an organisation wants to capture a big market share, then it is essential for the firm to keep the price of the products or services low. In this way, more people will be attracted to the product or service. 
  • Attaining Product Quality Leadership: Sometimes organisations charge high prices for a product or service to cover the cost of product and research and development. 

2. Extent of Competition in the Market: The next factor that an organisation has to keep in mind while determining the price of a product or service is the competition level in the market. If an organisation does not face any competition in the market, then it is free to fix any price for the product or service, as the company has a monopoly in the market. However, if the competition is tough, then the organisation has to fix the price of the product or service after keeping the competitor’s price in mind. For example, HUL cannot fix the price of Surf Excel without taking the price of Tide (a P&G product) and other detergents into consideration.

3. Product Cost: The next important factor to keep in mind while deciding the price of a product or service is the cost of the product or service. The price of the product fixed by the organisation must cover the total cost of the product. Here, total cost includes fixed cost and variable cost of the product. Fixed Costs are the cost of a product or service, which does not change whether the production level gets low or high. For example, rent of the building, cost of machinery, etc. Variable Costs are the cost of a product or service, which changes with the change in production level. For example, labour wages, cost of raw materials, fuel, electricity, power consumption, etc. The organisation fixes the price of a product or service after calculating the total cost. If there is high competition in the market and the firm has to capture a big share in the market, in this case, it has to fix the price, which can at least cover the variable cost. The fixed cost of the product or service can be ignored for a while.

4. Demand and Utility of a Customer: Another factor to keep in mind while deciding the price of a product or service is its demand. When the demand for a product is elastic, it means that there are various substitutes for that product available in the market, and thus the organisation has to bring down the price of the product. However, when the demand for a product is inelastic, it means that there are very less substitutes for that product available in the market, and thus the organisation can fix a high price for the product.

Also, when the demand for a product or service is high, then the organisation can charge a high price from the customers. But, when the demand for a product or service is low, then the organisation has to lower its price also. Similarly, if a product is offering higher utility to the consumers, then they are willing to pay a high price for the same; hence, it easy to charge a high price for those products. However, if a product is offering lower utility to the consumers, then the organisation cannot charge a higher price from them.

5. Marketing Methods Used: Different organisations use different techniques of methods of marketing to promote their products or services, and these methods affect the pricing decision of the organisation. If an organisation uses intensive advertising techniques to promote a product or service, then it can charge a higher price from the customers. Some of the other marketing techniques affecting the price of a product or service are distribution system, customer support services, type of packaging, etc.

6. Government and Legal Regulations: The government has every right to control the price of a product or service, which includes products that come in the category of essential commodities, such as Drugs, LPG, food items, etc., to protect the interest of the general public. These regulations and government interventions help in keeping a check on the monopolists so that they do not charge an unfairly high price from the customers.

Question 19: ‘Smart Stationery Ltd.’ wants to raise funds of Rs. 40,00,000 for its new project. The management is considering the following mix of debt and equity to raise this amount :

Capital Structure Alternatives (1) Rs(2) Rs(3) Rs
Equity40,00,000 30,00,00010,00,000
Debt 010,00,00030,00,000

Other details are as follows :  

Interest Rate on Debt 9% 

Face Value of Equity Shares Rs 100 each  

Tax Rate 30%  

Earning Before Interest and Tax (EBIT) Rs 8,00,000 

(a) Under which of the three alternatives will the company be able to take advantage of Trading on Equity? 

(b) Does Earning Per Share always rise with increase in debt? 

Answer: Trading on Equity refers to the increase in profit earned by equity shareholders as a result of the presence of fixed financial charges such as interest.

Here: Interest Rate on Debt 9%, Face Value of Equity Shares Rs 100 each, Tax Rate 30%, Earning Before Interest and Tax (EBIT) Rs 8,00,000 

ParticularAlternative 1Alternative 2Alternative 3
Share Capital (Equity
Share of ` 100 each)
Debentures DebtNiL10,00,00030,00,000
Interest (–)Nil90,0002,70,000
Tax (–)2,40,0002,13,0001,59,000
Number of Shares of
` 100 each
Earning Per Share

Given: Total Fund Used = ` 40,00,000

Interest Rate = 9 %

Tax Rate = 30 %

Return on Investment = (EBIT / Capital Employed )x 100

                            ROI = 8,00,000 / 40,00,000 x 100

                                   = 20 %
So, Return on Investment (ROI) > Rate of Interest.

Hence, the High Debt Alternative which is the third one in the above table has more advantages.

b) No, earnings per share (EPS) rise only when the return on investment (ROI) exceeds the rate of interest. As a result, when debt increases in the capital structure and the return on investment is less than the rate of interest, the equity shareholder earns less.


Section – D 

Question 20: Explain any five characteristics of ‘Co-ordination’.

Answer: Coordination is the force that links all management tasks and enables an organization’s smooth and effective operation. All of an organization’s operations, such as purchasing, manufacturing, sales, and finance, are linked by this coordination link, which enables and helps in the organization’s ongoing operation. It is regarded as the soul of management since it helps in the achievement of goals via the harmony and discipline of both people and organisations. Though coordination is not always referred to as a managerial activity, it is the essence of management.

Five characteristics of ‘Co-ordination are: 

  1. Coordination assimilates group efforts: Coordination combines diverse business activities into a purposeful group activity, ensuring that all people work in one direction to achieve organizational goals. It provides a common focus to
    group effort so that the performance is as it was planned and scheduled. Coordination assures unity of action: Coordination directs the activities of different departments and employees towards achievement of common goals and brings unity in individual efforts. It performs as the binding force between departments and assures that all action is aimed at achieving the organizational goals. In an enterprise, the production department needs to coordinate its work with the sales department so that production takes place to the demand in the market. 
  2. Coordination is a continuous process: Coordination is essential in every stage of managerial functions. Stating right from the stage of planning, it continues till controlling. It is a continuous process that is required at all levels, in all the departments till the organization continues its operation. In an enterprise, which makes shoes, first they need to come up with a good plan. Then they have to make sure that there is an adequate workforce and continuously monitor whether production is proceeding according to plans. The marketing department also needs to prepare their promotional and advertising campaigns so that they can increase their sales.
  3. Coordination is an all-pervasive function: Coordination is in nature. It integrates the activities of all levels and departments as they are dependent on each other to maintain balance in the organization. To achieve organizational objectives harmoniously, the purchase, production, and sales departmental efforts have to be coordinated properly. For example, in a textile company, the purchasing department is responsible for procuring fabric. Then the production department performs their task and finally, sales can take place. If the quality of fabric purchased is of poor quality or is not according to the specifications of the production department, further sales will also decline, which will lead to loss. In the absence of coordination, there is a lot of chaos, delays, and duplication in the organization.
  4. Coordination is the responsibility of all managers: In an organization, every manager needs to perform the function of coordination. It is equally important at all three levels of management, i.e. top, middle and lower levels. Top-level managers need to coordinate with their subordinates to make sure that all the policies for the organization are carried out properly. Middle-level management is the one that coordinates with both the top level as well as the lower-level managers. The operational level or the lower level management coordinates the activities of its workers to ensure that work proceeds according to plans.
  5. Coordination is a deliberate function: Coordination is never by itself, rather it is a conscious effort on the part of every manager. Even where members of a department willingly cooperate and work, coordination gives direction to that willing spirit. Effective coordination cannot be achieved without the cooperation of group members. Cooperation in the absence of coordination may lead to wasted effort, and coordination without cooperation may lead to dissatisfaction among employees.


Explain any five characteristics of ‘Management’.

Answer: Management is the process of creating an internal environment in which individuals working in a group can work effectively and efficiently in order to achieve organisational goals. or Management is described as the process of planning, organising, executing, and regulating an organization’s operations in order to accomplish coordination of the human and material resources required for the effective and efficient achievement of goals.

Five characteristics of ‘Management’

  1. Continuous Process: Management is a continuous process. It means that the process of business management goes on until the company exists, as it helps in achieving the organisational goals. Every manager of an organisation has to perform the different functions of management in a series (planning, organising, staffing, directing, and controlling).
  2. Goal-oriented: Every organisation has a set of specified goals or objectives that it strives to achieve during its existence. Every organisation has a different set of objectives. As a result, management assists these organisations in meeting their objectives by making the greatest use of their limited resources. For example, if Airtel’s goal is to attract a billion Airtel Xtreme users in a year, then all of its managerial activities will be focused toward achieving that goal.
  3. All Pervasive: The business management process is universal in nature. Every organisation, whether small or large, economic or social, utilizes the management process at every level or stage. Furthermore, whether a social, political, or commercial organisation, the activities involved in management are similar.
  4. Dynamic Function: A number of internal and external elements influence how an organisation operates. To achieve organisational goals and objectives, an organisation must evolve and adapt to a changing environment. As a result, management is a dynamic function.
  5. Management is a Group Activity: Management involves a group of people carrying out managerial tasks. Management functions can only be carried out when each employee fulfils his or her duty, regardless of rank or department. And, even though the result of management affects every employee and every department of an organization, it always refers to a group effort.

Question 21: Vikas was the Chief Operating Officer of ‘Yalet Ltd.’, a company providing advanced software solutions to Indian Defence Services. They had been carrying on business successfully for the last twelve years and earning enough profits. But from the last one year, they realised that though the business is getting big orders which are being fulfilled in time, even then the revenues kept on decreasing. Vikas was not able to find out where the problem was. He started keeping a close check on the progress of activities as he could sense that something was wrong. He wanted to take some action before any major damage could be done to the business. Vikas appointed a cyber security expert who monitored the company’s processes and found out that the computer operator was deleting the entries from the computers and pocketing the revenues. He was caught and handed over to the police. This created an atmosphere of order and discipline in the organisation and helped in minimising dishonest behaviour on the part of the employees. 

(a) Identify the function of management highlighted in the above paragraph. 

(b) Explain any four other ways in which this function of management may help the organisation.

Answer :

a) Controlling is the function of management highlighted in the above para.

Controlling means comparing an organization’s actual performance with its planned performance and taking corrective actions if the actual performance does not match the planned performance. Controlling cannot avoid deviations between actual and planned performance; however, it can decrease deviations by taking corrective actions and decisions that reduce their recurrence.

b) Four other ways in which Controlling function of management may help the organisation are: 

  1. Accomplishing Organisational Goals: Controlling is a goal-oriented process as it aims at determining whether the pre-determined plans are being performed accordingly and whether required progress is made towards the achievement of the objectives. With the help of controlling, an organisation can keep business activities on the right track and can achieve the organisational goals effectively and efficiently, and take the necessary corrective actions if required.
  2. Judging Accuracy of Standards: An effective controlling process can help an organisation in verifying whether or not the firm has set the standards accurate. It also helps in keeping a check on the changes taking place in the business environment and making required changes in the standards whenever it is necessary.
  3. Making Efficient Use of Resources: Controlling helps an organisation in reducing wastage of resources, as it aims at ensuring that every activity of the firm is performed according to the pre-determined goals.
  4. Improving Employee Motivation: As controlling process includes comparing the pre-determined goals of an organisation with its actual performance, it properly communicates the role of employees in advance. It means that the employees know in advance on what standards their performance will be measured, compared, and appraised. This set of pre-determined goals motivates them to give a better performance. 
  5. Ensuring Order and Discipline: An efficient control system in an organisation can help its managers in creating an atmosphere of discipline and order in the firm. Besides, controlling also helps in keeping a continuous check on the employees so they can minimise undesirable activities, such as theft, corruption, fraud, etc.

Question 22 : ‘Pushpanjali Ltd.’, is manufacturing chocolates, biscuits, cakes and other similar products. The company is not generating enough profits. Saurabh, the Marketing manager of the company got a survey conducted to find out the reasons. The findings of the survey revealed that in spite of better quality, the customers were not able to distinguish the products of the company from its competitors. Though the customers wanted to buy the products of ‘Pushpanjali Ltd.’ again and again because of its good quality, but they were not able to identify its products in the market. Because of this, the sales of the company could not pick up resulting in inadequate profits. Saurabh, the Marketing manager now realised that ‘Pushpanjali Ltd.’ had forgotten to take one of the most important decisions related to the product.  

a) What decision should ‘Pushpanjali Ltd.’ take so that its customers are able to identify its products in the market ? 

b) Explain the benefits that may result to ‘Pushpanjali Ltd.’ and its customers if the above decision is taken ? 

Answer: a) Branding is the decision that ‘Pushpanajali Ltd.’ should make so that its customers can recognise their products in the marketplace.

Banding is one of the most significant components of product mix since a marketer must decide whether the firm’s product will be marketed under its generic or brand name. In this case, the Generic name refers to the name of the entire class of the firm’s product. The laptop, for example, is a generic term, while Dell, Acer, and Lenovo are brand names. Now, if a marketer offers its products under a generic name, such as laptop, it will be difficult for the company to sell the product and for buyers to differentiate between different companies and the product. Branding, along with providing an identification mark, indicates a seller’s commitment to provide the goods with quality and satisfaction in accordance with the buyer’s expectations. Simply defined, branding assists a company in product differentiation, promotion, pricing, launching new products or product lines, assuring quality, and so on. Customers can quickly recognise which product belongs to which company because of branding. Once an organisation has earned a high reputation for quality in the eyes of its customers, it may have greater control over them and easily establish brand loyalty.

b) Benefits to the Company: 

1. Helps in Product Differentiation: Branding helps a marketer in differentiating his/her products from the competitor’s product.

2. Helps in easy Introduction of a New Product: Some organisations, such as Amazon, Nike, Bata, etc., use their company’s name as their brand name. It makes it easy for them to make the new products, they are planning to introduce in the market popular.

3. Helps in Advertising: Having a brand name for the product makes advertising more effective, as it makes the audience/customers aware of the product, its features, quality, characteristics, etc., along with the benefits that the brand can provide them.

4. Differential Pricing: If an organisation has an established brand name in the market, it can easily change its product’s price, and make it higher than its competitor’s product’s price. 

Benefits to the Customer:

1. Helps in ensuring the Quality of the Product: Customers can get quality assurance from a product’s brand name. Besides, they can buy branded products without hesitating about their quality.

2. Helps in identifying the product: Branding helps the customer in identifying the products of different companies and can easily select the product of a brand that gives them satisfaction.

3. Status Symbol: Customers usually use branded products because it adds to their status symbol and confidence level. 

Section – E

Question 23: Explain the following techniques of scientific management :  (a) Time Study; (b) Motion Study; and (c) Functional Foremanship. 

Answer: Scientific management is the implementation of scientific methods to solve management issues. It is the art of understanding exactly what you want your staff to perform and ensuring that they do it in the most efficient and cost-effective manner possible. It entails thoroughly researching each activity and carrying out the work in such a way that it may be completed effectively and efficiently.

F.W. Taylor established management as a science based on fundamental concepts. He was the one who proposed using scientific methods of measurement and study to solve managerial difficulties. As a result, F.W. Taylor is regarded as the father of scientific management.

The procedures that help in the implementation of management are referred to as scientific management techniques. In order to implement scientific management principles into practice. Taylor recommended the following techniques:

a. Time Study: Time Study is the study that determines the standard time required to complete a task. The volume, frequency of tasks, cycle of operation, and other factors all affect the time study. Time is divided into a series of elements, and the time required to complete each element (job) is recorded with time-measuring devices such as stopwatches. The primary goal of a time study is to determine the time and number of employees necessary to execute a task in order to identify incentive schemes and labour expenses. It also seeks to distinguish between efficient and inefficient employees.

b. Motion Study: This study refers to a detailed examination of numerous motions done by a worker while doing a certain task. The primary goal of motion study is to discover and eliminate unnecessary movement, as well as to determine the optimal way to do a specific task. This study is carried out using a video camera or a stopwatch. Taylor experimented with motion studies and showed that removing wasteful motion may enhance worker productivity by up to four times.

c. Functional Foremanship: The task of supervision is divided into multiple specialist foremen using this technique. Taylor argues that a single foreman cannot be an expert in all parts of the job. As a result, each worker should be supervised by several foremen. Those who are experts in their area. This strategy will increase the quality of supervision as well as the quality of work and worker efficiency. Taylor proposed that eight specialists, four of whom would be in charge of planning and the other four of whom would be in charge of supervising and executing tasks.


Explain the following principles of general management : (a) Division of Work;   (b) Authority and Responsibility; and (c) Discipline.  

Answer: Any management principle is a universal and general theory for decision-making and implementation. For example, while deciding whether to promote an employee, the management may take into account their age or status. Others may promote them depending on their behaviour and performance. Management principles are based on experience and developments in the corporate world, hence they may not be as firm as scientific principles. They include human behaviour and are used in the appropriate situation. As a result, these principles change over time. The development of ICT (information and communications technology) has enabled managers to expand their organizational businesses around the world.

a. Division of Work: Work is divided into several tasks/jobs. Each job requires a trained and experienced professional. Thus, the division of labour leads to specialisation. “The goal of division of labour is to generate more and better output for the same effort,” says Fayol. “Specialization is the most efficient method to utilize human effort.”  Work in company can be done more effectively if it is divided into specialised tasks, each of which is accomplished by a professional or trained employee. As a result, the output will be more efficient and effective. Thus, in a company, we have different departments for finance, marketing, production, and human resource development, along with many other areas. They all have specialized staff. They collectively achieve the company’s production and sales targets.
Fayol applies the notion of work division to all types of work, both technical and managerial. This idea may be seen at work in any organization, such as a hospital or a government office.

For example, A bank has several operations, such as cash collection and payment, the issue of cheque books, and so on. All of the operations are divided and assigned to different people in the bank. This method of work increases their efficiency and makes them specialists in their field.

b. Authority and Responsibility: This principle states that there should be a suitable balance between authority and responsibility. The duty that a subordinate is required to perform is referred to as authority. Responsibility and authority go hand in hand. Authority without responsibility leads to irresponsible actions, whereas responsibility without Authority makes a person ineffective.

According to Fayol, “Responsibility is the consequence of authority. Authority is the right to issue instructions and command compliance. Official authority, which is the authority to command, and personal authority, which is the authority of the individual manager, are the two types of authority.”

For example,  If a foreman is tasked with producing 50 units per day, he must be given the necessary power to reach this goal. He cannot be blamed if he is not given the authority to extract raw materials from the warehouses.

c. Discipline: Respect for the organization’s norms and regulations is referred to as discipline. At all management levels, discipline requires effective supervision. According to Fayol, good management on all levels, fair and clear regulations, and a built-in system of penalties will help in maintaining discipline. For all managerial levels, it is essential.

For Example, To fulfil their commitments to incentives raises, and promotions, workers must be disciplined to perform effectively and efficiently. By developing stronger relationships between management and employees, its smoothness systematizes how an organisation works.

Question 24: E-Solutions Ltd.’ started its operations in the year 2000. At the time of its inception, the company had only ten employees with two departments, a Production department and an Administration department. The products supplied and the services provided by the company started gaining popularity over the years. The management had faith in the abilities of the employees and thus they allowed them freedom of action. The management recognised that the decision-makers at different levels of the organisation need to be given more autonomy. They took a policy decision that there will be less control of superiors over subordinates. This increased the role of the subordinates in the organisation and now they were in a position to take numerous as well as important decisions. As a result, its business has diversified into many areas. Presently, it has its operations throughout the country with seven branches overseas. Its organisational structure has now changed into divisional structure and ten thousand people are working with the company.  

(a) Identify the concept of management which helped the company to diversify into many areas and branches abroad. 

(b) Explain five points of importance of the concept identified in (a) above.   

Answer: a)Decentralization” is a management concept that has assisted the company in diversifying into numerous areas and branches abroad.

Decentralization is a form of organization in which authority is delegated from top management to middle and lower levels of management in an organisation. In this organisational structure, everyday operations and small decision-making capacities are transferred to the middle and lower levels, allowing top-level management to focus on key choices such as corporate development, diversification, and so on. Delegation is the act of a superior assigning a portion of work and related responsibilities to a subordinate. Simply stated, decentralization occurs when delegation is expanded on an organisational level.

b) Five points of importance of the concept identified in (a) above i.e Decentralization 

  1. Develops initiative among subordinates: Since the lower levels of management have to make decisions on their own and perform the tasks with the help of their capabilities, they become more confident and self-reliant. It also enables them to stay focused and find the answers to solve all the different kinds of problems they might have to face. Decentralization is helpful for the subordinates to develop and identify themselves, and also to find their potential to become strong leaders.
  2. Develops managerial talent for the future: The experience that a subordinate gain from handling different kinds of tasks and situations is equally important that one receives from the training based on skills and talent. Decentralization gives the subordinates a purpose to prove themselves and helps them build their potential to qualify for a more ambitious position through promotion. It is also a means to identify those persons who are not ready and need more training and development. Thus, it is an opportunity for the subordinates to implement their training in real-life situations.
  3. Quick decision-making: In centralization, the decisions are taken by the top level of management, which has to be transferred down to the lower levels. This transfer of information has to go through several levels, which could slow down the response and hence the decision-making. However, in decentralization, the decisions are taken even at the lower levels, so they are already updated, and therefore, there is no need for the information to travel through long channels for their approval. This makes communication quick and easy and also saves up a lot of time for the organization. Besides this, the information is more accurate, as there is no need for it to pass through all the levels of management. 
  4. Relief to the Top management: Decentralization reduces direct management of the subordinates at the hands of the superiors, as the subordinates are free to act and manage the given activities by the restriction set by the top management. The top management can focus better on the policy decisions, i.e., future decisions, rather than being concerned with both policy and operational decisions. They can invest their time in thinking and planning for the future of the organization without being worried about daily activities. Thus, decentralization is helpful as the superiors do not have to check up on all the decisions made by the lower levels every single time.
  5. Facilitates growth: Decentralization makes the lower levels as well as the top management or departmental heads self-reliant. This allows them to make better decisions concerning their departments. Decentralization also creates a competitive environment for different departments, which enables them to compete and excel with each other. This competition promotes productivity and allows the different departments to generate greater returns to help expand their business.
  6. Better control: Decentralization makes it possible for the top management to manage and control each level based on their performance. Also, their department will be held responsible for their actions alone. The result accomplished by the organization and the contribution of each department in achieving those objectives can be determined through decentralization. Reports received from each level help the organization understand and improve its performance of the organization. This encourages organizations to improve and develop an innovative system of management.

Question 25: ‘Entertainment India Ltd.’ has been incorporated with the objective of entertaining people by organising festivals, programmes and other similar events depicting the rich cultural heritage of the country. The company management has renowned personalities from the field of art, literature and culture. They decided to give a platform to young budding musicians, poets and artists. The company decided its organisational structure by grouping similar jobs together. Thereafter, the heads of different departments were also appointed. Nisha, one of the heads, did an analysis of the number, type and qualification necessary for people to be appointed. The information generated in the process of writing the job description and the candidate profile was used to develop ‘Situations vacant’ advertisement. This was published in print media and flashed in electronic media. This brought in a flood of responses.   

Explain the other steps which Nisha has to perform to complete the process being discussed above.

Answer: The HA Head, Nisha, should conduct the manpower planning. Analyze the Workforce and Workload. Assessing and starting the Staffing Process.

The prime concern of the staffing function in the management process is in the fulfilment of the manpower requirements within an organization. These requirements may arise in the case of starting a new enterprise or expanding the existing one. It may also arise as the need for replacing those who quit, retire, transfer, or are promoted from the job. In any case, the need for ‘the right person for the right job, at the right time’ needs an emphasis. The process of staffing consists of several interrelated activities, such as planning for human resources requirements, recruitment, selection, training development, remuneration, and so on. 

Staffing Process:

  1. Manpower Planning: Human resource management is a process of determining the number and type of personnel required for filling the vacant job in an organization. Manpower requirements involve two kinds of analysis, i.e., workload analysis and workforce analysis. Workload analysis involves determining the number and type of employees required to perform various jobs and achieve organizational objectives. Workforce analysis shows the number and type of human resources available within an organization. The difference between workload and workforce is calculated to determine the shortage and surplus of manpower. Excess workload indicates understaffing, i.e., the need of appointing more people and excess workforce indicates overstaffing, i.e., the need to remove or transfer some employees to other places. 
  2. Recruitment: After estimating manpower requirements, the second step in the process of staffing is recruitment. Recruitment refers to the process of searching for prospective employees and encouraging them to apply for jobs in the organization. It involves identifying various resources of human force and attracting them to apply for the job. The main purpose of a requirement is to create a pool of applicants with a large number of qualified candidates. Recruitment can be done by both internal and external sources of recruitment. Internal sources may be used to a limited extent, and to get fresh talent and a wider choice, external sources can be used.
  3. Selection: Selection is the process of choosing and appointing the right candidates for various job positions in the organization. It is treated as a negative process because it involves the rejection of some candidates. There are many steps involved in the process of employee selection. These steps include preliminary screening, filling-in applications, written tests, interviews, medical examinations, checking references, and issuing a letter of appointment to the candidates. The most suitable candidates who meet the requirement of the vacant job are selected. The process of selection serves two important purposes, firstly, it ensures that the organization gets the best among the available candidates, and secondly, it boosts ups the self-esteem and prestige of the candidates. 
  4. Placement and Orientation: After selection, an appropriate job is assigned to each selected person. Placement is the process of matching the candidates with the jobs in the organization. Under this process, every selected candidate is assigned a job most suitable for him. The purpose of placement is to fit the right person to the right job so that the efficiency of work is high and the employees get personal satisfaction. Correct placement helps to reduce labour turnover and absenteeism. Here, orientation means introducing new employees to the organization. It is the process of introducing and familiarizing newly appointed candidates with their job, work groups and the organization so that they may feel at home in the new environment.
  5. Training and Development:  People are in search of careers and not jobs. Every individual must be given a chance to rise to the top. The most favourable way for this to happen is to promote employee learning. For this, organizations either provide training themselves within the organization or through external institutions. This is beneficial for the organization as well. If the employees are motivated enough, it will increase their competence and will be able to perform even better for the organization with greater efficiency and productivity. By providing such opportunities to its employees for career advancement, the organization captivates the interest and holds on of its talented employees. The majority of the organization has a distinct department for this purpose, that is, the Human Resource Department. Though in small organizations, the line manager has to do all the managerial functions viz, planning, organizing, staffing, controlling, and directing. The process of staffing further involves three more stages. 
  6. Performance appraisal: After training the employees and having them on the job for some time, there should be an evaluation done on their performance. Every organization has its means of appraisal whether formal or informal. Appraisal refers to the evaluation of the employees of the organization based on their past or present performance by some pre-decided standards. The employee should be well aware of his standards and his superior is responsible for proving feedback on his performance. The process of performance appraisal thus includes specifying the job, performing appraisal performance, and providing feedback. 
  7. Promotion and Career planning: It has now become important for all organizations to deal with career-related issues and promotional routes for employees. The managers should take care of the activities that serve the long-term interests of the employees. They should be encouraged from time to time, which will help the employees to grow and find their true potential. Promotions are an essential part of any employee’s career. Promotion refers to the transferring of employees from their current positions to a higher level increasing their responsibilities, authority and pay.
  8. Compensation: Every organization needs to set up plans for the salary and wages of the employees. There are several ways to develop payment plans for employees depending on the significance of the job. The worth of the job needs to be decided. Therefore, all kinds of payments or rewards provided to the employees is referred to as compensation. The compensation may be in the form of direct financial payments, such as salary, wages, bonuses, etc., or indirect payments like insurance or vacations provided to the employee. 

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Last Updated : 06 Apr, 2023
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