Management by objectives/MBO

Management by objectives/MBO

This model of goal setting was first offers by Peter Drucker in his book ,The Practice of Management,that time this is only used to set up management goals but now MBO is not only used for setting goals but also used as other techniques like planning , directing, motivation,performance appraisal and control technique.MBO goes beyond setting organisational goals ,it setting organisational goals ,departmental goals& employees goals.
       MBO refers to formal procedures that begin with setting organisational objectives, department objectives and employee objectives and continues till performance review.In MBO Managers and superior jointly set the objectives for organisation and then responsibility is also assign to everyone and performance is review periodically less than one year ,months ,quarter.Each person area of responsibility is defined according to objectives and then performance is measure . Performance is measures periodically..
"MBO is a process where superior and subordinate jointly determine their goals (target)which they want to achieve within a year or less than one year(month, quarter or year). "Responsibility is also assign to everyone and authority also given to perform duty at the end of period both manager and subordinate meet again and jointly review their performance.There is direct participation of employees in goals determination.

Company&his employees

          

 Objectives of MBO..

🖋️To set organisation goals and individual goals.

🖋️Active participation of employees.

🖋️ Employees clear about their responsibility.

🖋️Provide base for comparison.

🖋️ Individual performance measurable.

🖋️To Motivate employees.

🖋️ Maintain co.ordination.

🖋️Enhance communication.

🖋️ Performance Appraisal possible.

             

Ratio Analysis (liquidity ratio)

Ratio Analysis..

"Ratio is a simple arithematical expression of the relationship of one number to another.It is obtained by dividing the former by later .It express relationship of items of financial statements."

Classification of Ratios..

1)Liquidity or Short term solvency ratios-These ratio analysis the short term financial position of business.It represents the firm ability to meet it's current financial obligations.

😊Current Ratio-This ratio express the relationship between current assets and current liabilities it is also known as working Capital 

ratio, its ideal ratio  is 2:1.

   Current Ratio=__Current Assets

                               Current Liabilities

Current Assets are those assets which can be converted into cash within a period of one year .

              Current Assets are 👇

I)Cash and Bank balance

ii)Debtors

III)Bills Receivable

iv)Stock

v)Short -term investment or marketable securities

vi) Prepaid Expenses

vii)Advance Payment

viii)Accrued income

    

    Current Liabilities are those liabilities which are to be paid within a period of one year out of current Assets .

              Current Liabilities are👇

I) Creditors

ii)Bills Payable

III)Bank Overdraft

iv)Short term loans

v) Outstanding Expenses

vi) Income Tax payable

vii) Unclaimed Dividend

viii) Provision for Tax

ix) Proposed Dividend

      Current Ratio of a firm measures it's short term solvency means firm ability to pay it's short term obligations which are due.for eg .if current Assets of firm is 40,00000 and its current Liabilities is 20,00000 current Ratio is 2:1 it means firms current assets is double of its current liabilities means firm is able to pay it's current Liabilities in full margin of safety to short term creditors.if the current Ratio is  higher it is good from the Creditors point of view but extremely high current Ratio is not good from management point of view because it indicates •more funds of the firm invested into unproductive uses(inventory)which do not have return.

•it show poor investment Policy.

•poor credit management due to over extended accounts receivable.

   A low &declining current ratio it indicates

• inadequate margin of safety to the Creditors or no sufficient cash available.

• shortage of working Capital in the business for day to day transactions.
    
    

Liquidity or Quick Ratio...

    This ratio show the instant paying capacity of business debts ,it means how  fast can business pay off its current liabilities from their liquid assets within a period of 1-2months ,that is why this also known as acid test ratio, quick ratio.This ratio established relationship between quick/liquid assets and current Liabilities.

     

            

    Liquidity or Quick Ratio=Prepaid Expenses

                         Liquid or Quick Assets

                       Current liabilities

Current Assets

I)Cash and Bank balance

ii)Debtors

III)Bills Receivable

iv)StockPrepaid Expenses

v)Short -term investment or marketable securities

vi) Prepaid Expenses

vii)Advance Payment

viii)Accrued income

    All these current Assets are liquid assets except stock and prepaid expenses because  all these assets except (stock and prepaid expenses) can converted into cash within 1-2months to pay off its current Liabilities but from  Stock and  Prepaid Expenses we cannot get cash quickly because stock may not be sale within 1-2month and we cannot get cash back from our pre paid expenses so these assets are excluded from current assets.Its ideal ratio is 1:1.If business have 1:1 its quick ratio it indicates sound financial position..It means business can easily pay off its current liabilities from its quick Assets without any difficulty.

Absolute Liquidity Ratio..

 Meaning- Absolute Liquidity Ratio show more liquidity than current ratio and quick ratio that is why it is known as Absolute Liquidity Ratio.It shows the relationship between absolute liquid assets to quick liabilities formula..

   

Absolute Liquidity Ratio=

                           =Absolute liquid Assets

                             Quick & Liquid Liabilities

  In Absolute Liquidity Ratio we take those assets which can be converted into cash within few days for pay liquid liabilities and in liquid liabilities we include those all current liabilities which can be paid immediately .

Absolute & Quick Assets are 

😊Cash

😊Bank

😊 Marketable securities.

🖋️ Debtors and receivable are not included in Absolute liquid Assets because these assets take time to converted into cash .

🖋️All current liabilities are liquid liabilities except bank overdraft as it is not to be paid immediately.

 A standard ideal ratio in Absolute Liquidity Ratio is 0.5:1 it means fifty Paisa of absolute liquid assets are sufficient for one rupee worth of liquid liabilities.

Planning Process..

Planning Process..

🖋️ Determine the objectives-First and foremost function of business is deciding objectives which we want to achieve whether we want to earn profit or doing social service & serve society.

🖋️ Establishment of the planning premises-In this step we forecast the future controllingis planning premises.It means base which we determine eg what are the demand of our product in future,which type of tastes of consumers changes in future,what are government policies in future etc these are forecast in planning premises.Success of business depends upon correctly determination of planning premises because we are already prepare for the conditions which will come in future.

🖋️Search of Alternative courses of action-Every work can be complete in many ways ,there are many alternatives ,for completing work in this step we search the available alternatives.

🖋️Evaluate the alternative-After searching alternatives we evaluate the every available alternatives in many ways .

🖋️ Selection of best alternative-After evaluate the various alternatives we select the  best option through which our work is completed in time with the minimum cost.

Planning in present for future.

🖋️ Formulation of sub plans-In this step we formulate the sub plan to fulfill main plan.eg business main plan is to attain profit so for profit we had to make plan for purchase department,sales department etc without these sub plans our main plan cannot be achieve.

🖋️ Sequence the activities-In this step we make sequence of activities in order they perform,after manage in sequence we perform it one by one.

🖋️ Follow up plan-In our last step we follow up our plan and in the end of year we compare our desired performance to actual performance if there are any deviation or failure in it we make changes in our planning.
     

 Types of Plan..

Objectives.

1)

Rules

2)

Strategy

3)

Policies

4)

Procedures

5)

6)

Good luck results of good planning 

https://commerceclasses86.blogspot.com/2020/10/Good%20luck--result-good-planning.html

Business Planning

https://commerceclasses86.blogspot.com/2020/05/planning-process.html?m=1

Business Planning-A business plans is a written description of business,in this document we make plan what to do ,when to do,how to do.

"Planning is detailed blueprint prepared which activities to be performed in future to attain goals.."

Characteristics of Planning

😊It is based on objectives & policies.

😊It is mental activity.

😊It is pervasive activity.

😊It is primary function of Management.

😊It is dynamic process.

😊It is decision making process.

😊It concerns future activity.

Techniques of Planning..

 Planning is decided in advance what is to be done in future.In planning management doing overall planning for eg- how much raw material is required,how much capital is required,how much labour is required etc.. For doing planning manager use planning techniques these are...

1) Forecasting.

2) Budgets.

3) Break- Even Analysis.

4) Linear Programming.

5) Waiting line.

6) Network techniques: PERT/CPM.

7) Theory of Probability.

               

Techniques of planning

          Techniques of planning..

1) Forecasting -Forecasting is predicts the future events in present.It is the most important technique of planning, through forecasting we predicts the future.Manager predicts what is likely to be happen in future,so they will prepare according to that and make plan accordingly.

     Forecasting provide base for making planning and make plan for materials, personnel and other requirements.Forecasting is base on guess work and past & present conditions.Manager continuously monitor the environment before forecasting is done.Forecasting can be perform into two categories:-a) Quantitative b) Qualitative.

a) Quantitative forecasting- When the forecasting is perform on basis of past data &figures is called Quantitative forecasting.

b) Qualitative Forecasting- When the forecasting is perform on the basis of judgement and knowledge of people is called Qualitative Forecasting.

                             

Forecasting..

2) Budgets-Budgets is also for planning.In budget we showing the expected expenses and expected incomes of future through we come to know how much we spend in various resources and and how much expected capital expenditure and how much expected income in future . Manager make planning according to the budget.

3) Break-Even Analysis-It is widely used technique in planning.Through Break-Even Analysis we come to know how much units to be sold to cover the costs.Break -Even point is that point in which we come to know where the total costs equals to the total revenue.

Break-Even Analysis helps in planning in such a way..

*Through BEP we make planning how much units should we sold to cover costs.

*BEP helps in fix the price of units.

4) Network technique PERT/CPM -PERT /CPM are also Network techniques which is useful in planning, decision making and controlling.PERT  is Programming Evaluation and Review Technique and CPM is Critical Path Method.Through PERT technique every project is evaluated like what are the activities needed to complete the project.Its sequence of activities in project,how much cost and time associated in each activity and what are the expected obstacles in the project.Manager also monitor progress of the project.

CPM-Critical path method technique is used to Analysis the time of project .This technique helps in identify critical and non- critical tasks and avoid risks.

5) Queuing Theory-Queue - A line of people awaiting for their turn . Queuing theory is the mathematical study of queue .This technique provides badis of decision making about the resources needed to provide services.Queuing Theory helps in planning in this way👇

 1)To find out the cost of offering the service.

2) To find out the cost incurred due to delay in offering the service

3)To allocate the resources.

6) Theory of Probability-Theory of probability also helps in planning and decision making.Through this techniques managers use statistics to know the probability of risk in future plan and according to that probability make pattern of future plan.

Read this article of Planning..

https://commerceclasses86.blogspot.com/2020/08/financial-planning.html

https://commerceclasses86.blogspot.com/2020/05/planning-process.html

https://commerceclasses86.blogspot.com/2020/05/business-planning.html

Management & Characteristics..

Meaning of Management

Management is the process of planning, organising,directing,motivating and control the resources (human, physical,financial)of an organisation to attain its goal efficiently and effectively.
                      It is concerned with the 5'Ms(Men, Machine, Money, Material, Methods). Management manage and control these 5'Ms and attain its goal efficiently and effectively.Management is an Art of getting things done through others.

Definition of Management

"Management is the function of executive leadership anywhere."_______Ralph C.Davis

"Management is work,and as such it has its own skills,its own tools ,its own techniques."____Kuntz

Characteristics of Management..

😊 Goal Oriented Process -Management is goal oriented because all the functions like planning, organising, directing, Motivating, Controlling are help in achieving organisational goals by using efforts of individuals.

😊 Management is pervasive activity-Management is pervasive activity because management functions like planning, organising, directing, Controlling etc are perform in every business whether it is small or large ,profit organization or non-profit organization,schools, hospitals,clubs etc management functions performed.

😊 Management is continous Activity-Management is continous activity because it is never ending process if in  first process planning, organising, directing, Controlling etc are perform if the targeted goals are not achieve so again this process is run so it is continous activity because every organization Continuously improve it's functions so they achieve their goals efficiently and effectively.

Business Risk

Business risk-Business is uncertain because there is probability of losses which is not in control of businessmen.There are many risks in business like demand for product declined due to change in fashion,tastes, preferences of the customers or loss by fire,theft etc.
               
      Nature of Business Risk

✓Profit is the reward for bearing Risk-Business is the reward of bearing risk because in business"no risk no gain"because entrepreneur bears risk with the expectation of earning Profit.

✓Risk is essential part of business-Risk is essential part of every business because every businessmen have to bears risk to earn profit .

✓Business Risk due to uncertainty-There are many risks in business due to uncertainity.Uncertainity means what is going to be happen in future like change in consumers tastes ,preferences demand,change in govt policy etc these are the risks who makes business uncertain.

            .
              Business risk.

 Cause of Business Risk...

There are 4 causes of business risks..

1) Natural causes-

In this those causes are included in which human beings have no control over it.Natural causes like earthquake,flood,famine etc these affects business a lot because businessmen cannot make preparation against it because it is uncertain.

2)Human causes-In this,causes related to human beings are included means business suffer due to employees of organisation.it includes

•Dishonesty of employees.
•strike by employee.
•Employee leak secret information.
•Emoloyee commits fraud .
•Employees waste organisation resources.
Due to these causes business incurr heavy losses.

3) Economic causes-In this economic causes are included these are👇•Change in price ,taste, preferences etc
•Government tax policy
•price fluctuation
•Demand policy.Due to these businessmen always in risk because they lead heavy losses.
4) Physical causes-In this all physical causes are included like •change in technology
•Old use of technology 
•Mechanical defects are included.

                     Types of Business Risk..
✏️Insurable Risk- Risk which are recoverd by insurance company are called Insurable risks.Insurance companies provide protection against these risks like fire, theft, earthquake,flood etc.Insurance companies provide compensation against loss occur due to these Insurable risks.

✏️Non-Insurable Risk -Risk which are not recovered by insurance company are called Non-Insurable risks like economic risks and human risk .Businessmen cannot get compensation against these risks eg change in demand, carelessness of employees etc..😊

https://commerceclasses86.blogspot.com/2020/05/business-risk_28.html?m=1

Commerce & Functions of Commerce

                   

Commerce means..

Commerce refers to all those activities which help directly or indirectly in the distribution of goods to the ultimate consumer.There will be no use of producing goods unless and until these goods reach the ultimate consumer.Goods are produced at one place and consumer are scattered at different places.Consumer don't know what kinds of goods are produced by manufacturer.How much quantity required by consumers,all these problems like hinderance of place, hinderance of knowledge, hinderance of storage are solved by Commerce.

                     Functions of Commerce
😊 Removing the hinderance of place-Goods are produce at one place and consumers are scattered at different places ,so there is a problem how goods are moves to the consumers .transport segment of Commerce helps in moves goods from producers to consumers.Transport helps in removing the hinderance of place .. Transport is very important function of Commerce.

😊 Removing the hinderance of Time-Some goods are produced for particular season  and some goods are produced in particular season and demanded throughout the year like wheat ,rice,pulses etc .So there is a time gap between the production and consumption,so goods needs to be kept fresh and safe during time gap . Warehousing segment of Commerce helps in keeping goods safe and fresh till they are demanded.

😊 Removing the hinderance of persons-Person who produce large variety of goods are called producers .These are used by consumers.There is no direct connection between producers and consumers.Trade segment of Commerce helps in creates link between producers and consumers.

😊 Removing the hinderance of Risk-Business is uncertain,there are various types of risks which a businessman has to face . Insurance branch of Commerce helps in removing the hinderance of risk by providing protection and compensation to the businessmen.

😊 Removing the hinderance of knowledge-There are variety of goods are produced by the producers but consumers are unaware about the goods are produced by the producers as there is no direct communication between producers and consumers so the advertisement segment of Commerce helps in removing the hinderance of knowledge by spreading the awareness about the new products.

Capitalization

                  

Capitalization 

Capitalization-The Capitalization of a company is the sum total of all the long term funds and those reserves not meant for distribution.It comprises share Capital, debentures,long term borrowings and free reserves of the company.

    The amount of capitalization should be related to the earning capacity of the company.There are 3possible situations of the Capitalization:

i)Fair or Normal Capitalization-  It means the business has employed correct amount of Capital and its earnings are same as the average rate of earnings of the company.

ii) Over Capitalization- It means business has employed more capital then required and its earnings are less than the average rate of earnings of the company.

 III)Under Capitalization- It means that the business has employed less Capital and its earnings are more than the average rate of earning of the company.

Causes of Over Capitalization....

i) Acquisition of assets at higher prices -Assets might have been acquired at higher prices or at time of their shortage.In both the cases ,the relevant of the company would be low and the earnings become very low.

ii) Higher promotional Expenses/Floatation Cost - The company might incur heavy preliminary expenses such as purchase of Goodwill, underwriting commission,printing of prospectus, brokerage etc.

iii) Under utilization - Sometimes the company may overestimate it's earnings and raise the capital accordingly and if the company is not in a position to invest these funds profitably then in that case the company will have more capital then is required.Consequently , earning per share will be less.

iv) Insufficient Provision for Depreciation -Depreciation may be charged at lower rates and the company may not make sufficient provisions for replacement of assets.This will reduce the earning capacity of the company.

v) Liberal Dividend Policy-The company may follow a liberal dividend policy and may not retain sufficient funds for self financing.This may results in over Capitalization.

vii) Inefficient Management - It also leads to over Capitalization because of wrong decisions and misutilization of resources,hence the earnings of the company will be low.

              

Capitalization 

Effects of Over Capitalization...

I. In Company:

a) Reduced earning per share will there and the shares of the company may not be easily marketable.

b) The company will not be able to raise fresh capital.

c). Reduced earnings may force the company to follow unfair practices.

d) Management may cut down expenditures on maintenance and quality products.

e) Because of low earnings reputation of the company will be lower.

II  On shareholders..

a) Shareholders will be get lesser dividend.

b) Market value of shares will go down because of lower profitability.

c) Uncertainty of income to the shareholders.

d) The reputation of the company will go down and because of this share of the company may not be easily marketable.

e) The face value of the equity shares might be brought down.

III. On Society..

a) Return on Capital employed is very low.It means that financial resources of the public are not being properly utilized.

b) An over capitalized company will not be able to pay the interest to the creditors.

c) The workers of an overcapitalised company will not be satisfied as they won't be able to get proper working conditions and wages because the firm is not able to face such situations.

How to overcome the situation of over Capitalization..

 i) The earning capacity of the company should be increased by increasing the efficiency of workers and machinery.

ii) Conservative dividend policy should be followed.

iii) Those funds which carries higher rate of interest may be redeemed out.

Causes of Under Capitalization:

i) Acquisition of assets at the time of recession period-Assets might have been acquired at low costs and higher income can be earned by their use.

ii) Underestimation of Requirement - Sometimes, the capital requirements of a company may be under estimated.

iii) Conservative dividend policy -The company may follow Conservative dividend policy and can increase their earning capacity.

iv) Efficient Management - Due to the efficient management,the company may need the financial requirement at lower rates of interest and can increase their earning capacity.

Effects of Under Capitalization..

1) On shareholders:The profitability of the company may be very high.As a result, the rate of earnings per share will be go up.

2) Reputation of company will be increase.

3) The shareholders can expect high rate of dividend.

II) On company

1) Higher rate of earnings creates more competition.

2) The Government may increase tax rates.

3) More secret reserves.

4) The workers can expect high wages ,bonus etc.

III) On Society:

1) Unhealthy speculation.

2) consumers may feel exploited and they think higher profits with higher prices.

3) Adverse effect on the Goodwill of the company.

Steps to be taken in under Capitalization situation..

1) Management can issue bonus shares to the shareholders.This will reduce the rate of earning per share.

2) By increasing the par value of equity shares.This will lead to increase the rate of earning.

Difference between Over Capitalization and Under Capitalization..

1) Meaning - Over Capitalization - Capitalization is higher than the existing profits .

Under Capitalization - Capitalization is lower than the existing profits.

2) Utilization of Capital - In Over Capitalization there is surplus capital.

Under Capitalization - Proper Utilization of capital.

3) Regular Income - In Over Capitalization shareholders can not expect regular dividend.

In under Capitalization - Regular Income of the shareholders is assured.

4) Market Price of shares - In Over Capitalization market price of shares is less.

In under Capitalization market price of shares is high.

.