MB0044 Production and Operations Management Assignment Set - 1 Q1. Explain briefly the Computer Integrated Manufacturing. Computer Integrated Manufacturing Integration occurs when a broad range of manufacturing and supporting activities are linked. Activities include engineering design, production planning, shop control, order processing, material control, distribution etc. Information flow across all functions takes place with the help of computers. Transmission, processing, distribution and feed back happen almost in real time so that intended activities are conducted rapidly. This process helps in rapid production and also reduce indirect costs. As response times decrease, customer satisfaction increases resulting in better business. CIM helps in avoiding accumulation of materials resulting in better throughput and better utilization of space. Bar coded labels that accompany materials contain instructions for processing them which are read by sensing devices and display the status on monitors. This information is available to all concerned personnel responsible in planning, marketing etc. so that they will be aware of the status of any order and if expediting is needed to meet deadlines, they will be able to seek intervention. Identifying shortages, ensuring faster deliveries becomes easy with CIM. One of the keys to success in the manufacturing business is to lessen errors and to enhance productivity. The more one can produce with fewer flaws, the more one can make at the bottom line. Over a period of time factory owners have integrated computer systems in order to streamline the production process. CAD, or computer aided design, has been able to aid the operators in the formulation and blueprints of more sophisticated products and technology. CAM, or computer aided manufacturing, has offered the means by which to produce the more sophisticated items. CAM also enhances the productivity of the factory's output. Together the CAD and CAM systems reduce cycle times, enhance productivity, and aid in the streamlining of the overall production process. Since the 1980's CAD and CAM have worked together to move from the idea phase to the application phase. This process has not ceased because of the implication. The factory sector has slowly been phasing in computer integrated manufacturing, or CIM over the years. This integration will allow for the digital information and computer control of the production process to be intertwined throughout and within the factory. In the CIM system some processes will be different. Data entry will now be stored in hard drives. This will allow for the manipulation and the retrieval of the data with a simple keystroke. The means by which the processing of data into the production of products will also be streamlined within hardware and software. This will allow operators to alter and enhance programs in order to improve products. The CIM system will also provide the necessary algorithms to bring all the data together. The data will then be able to intermingle with the sensor and modification components of the system.

While the CIM system is the optimal choice to aid in the manufacturing process, it does come with a unique set of challenges. The greatest challenge is to get all the different machines within the factory to work on the same system. In the typical factory, there are a variety of machines that perform different tasks, that are made by a variety of suppliers. The issue is to get every one of these machines to accept the programming, and tasks from one mainframe computer. The second challenge of the CIM system is encapsulated within the data itself. While many operators may be lost on the actual production floor, there will be a need for operators to maintain the integrity of the data that is transmitted to the machines. The challenge is in acquiring competent individuals who can assure that all the data within the system is at its optimum operating integrity. The third, and final challenge that has been encountered in the use of the CIM system is process control. This entails assuring that the whole process runs smoothly. This particular challenge ties the data entry people, the programmers, and the production operators together. The factory will need to assure that the individuals working with the system throughout the factory are competent and knowledgeable. These individuals will need to be well trained, and probably need to update their training periodically. The goal of the CIM system is to eliminate the waste within the manufacturing process. This is done by taking the design, analysis, planning, purchasing, cost accounting, inventory control and distribution departments and interlink them with the factory floor, material handling, and management departments. The CIM system will have an impact on every system within the factory. The CIM system, which is sometimes referred to as the integrated computer aided manufacturing system, operates on both hard and software. Simply put, the software is what runs the factory, or the brains. The hardware is what makes the machines run, or the muscles. The CIM system runs on an efficient output process. This means that the whole factory works together, not as separate parts. As a unified unit, it operates for the peak benefit of the whole factory. Simply put, the CIM system does not backload or store up work. It does not warehouse products. The CIM system keeps work flowing through computer integration in order to keep all the parts of the system constantly functioning. It registers all the raw material received by the factory. It then walks the material through the factory and the production process. The CIM system fractions every individual "center" of the factory into work cells. As work cells, they are then divided into individual stations. The stations are then broke down to the individual processes, and the processes are what metamorphosizes the raw materials into actual products. This may seem complicated, but it streamlines the whole manufacturing process. With each division of the factory broken down in such a manner, it allows operators to make any necessary changes to the system without shutting down the whole system. Cim is a very interactive, hands on system. If it is applied correctly, it will enhance the productivity of the whole factory. It will link several departments and functions together. It is simple to install. It usually is installed through a LAN, or local area network, connection.

Q2. What is automation? What are the kinds of automation? Answer: For services, automation usually means labour saving devices In education, long distance learning technology helps in supplementing class room instruction. The facilitating goods that are used are web site and videos. Automation in the banking sector has resulted in ATMs which save the banks a huge amount of labour and it is found to have given greater customer satisfaction. Automation is ideal when the service provided or the product manufactured is highly standardized. Some extent of automation can be designed even with customization i.e. product or service s meant to produce or deliver low volumes specific to a requirement. The advantage of automation is it has low variability and will be more consistent on a repetitive basis. On the shop floor variability causes loss of quality. There are three kinds of automation fixed, programmable and flexible. By its very nature, fixed automation is rigid. They are designed for high volume production and their rigidity ensures less variability. They are not amenable to change in product or process. They need minimal human intervention. The machines have sensing and control devices that enable them to operate automatically. The simplest of them called machine attachments they replace human effort. They guide, locate, move and achieve relative positions by means of cams, optical sensing, load sensing mechanisms and activate the controls to remove human intervention. Numerically controlled machines read instructions and convert them to machine operations. Computer/s are used for controlling one machine or a number of them and they have programme written into them for operations. They are Computer Numerically Controlled or, for short, CNC machines. Robots are higher in the order of automation as they perform a variety of tasks. They are designed to move materials by holding them in their arms and make precise movements according to programmers written into the computers that reside in them. They simulate human actions. They can grip and hold tools and with the help of sensors which are sensitive to touch and force to know that the material is to be held with the requisite pressure for the conduct of operations. Vision sensors are used for inspection, identification and guidance. They use optics based instruments to gather data and feed them to the computers for activating the other parts of the robot. With the help of automation, inspection of components can be done 100% which ensures highest quality Identification and movement of materials are helped by bar codes which are read and fed into the system for monitoring quantity, location, movement etc. They help the automated systems to sort information and provide information for effecting any changes necessary. To make effective use of automated machines, we need to have the movement of materials from and to different stations as also stores, automated. Automated Storage and Retrieval Systems ASRS receive orders for materials from anywhere in the production area, collect materials and deliver materials to the workstations. Computers and information systems are used for placing orders for materials, give commands, adjusts inventory records which show the location and quantity of materials available/needed. Continuous updation gives a clear picture for all concerned to enable them initiate action to keep the throughput smooth. Automated Guided Vehicle Systems AGVS are pallet trucks and unit load carriers follow embedded guide wires or paint strips to reach destinations as programmed.

Q3. What are the factors that influence the plant location? Answer: Factors influencing Plant Location can be broadly divided into two types namely: general factors and special factors (See Figure below Factors influencing plant location). Figure: Factors influencing plant location The factors influencing plant location. 1. General factors The general factors that influence the plant location are listed below (See Figure General factors influencing plant location).

1. Availability of land: Availability of land plays an important role in determining the plant location. Many-a-time, our plans, calculations and forecasts suggest a particular area as the best to start an organisation. However, availability of land may be in question. In such cases, we will have to choose the second best location. 2. Availability of inputs: While choosing a plant location, it is very important for the organisation to get the labour at the right time and raw materials at good qualities. The plant should be located: Near to the raw material source when there is no loss of weight At the market place when there is a loss of weight in the material Close to the market when universally available, so as to minimise the transportation cost 3. Closeness to market places: Organisations can choose to locate the plant near to the customers market or far from them, depending upon the product they produce. It is advisable to locate the plant near to the market place, when: The projection life of the product is low The transportation cost is high The products are delicate and susceptible to spoilage After sales services are promptly required very often The advantages of locating the plant near to the market place are: Consistent supply of goods to the customers Reduction of the cost of transportation

4. Communication facilities: Communication facility is also an important factor which influences the location of a plant. Regions with good communication facilities viz. Postal and Tele communication links should be given priority for the selection of sites. 5. Infrastructure: Infrastructure plays a prominent role in deciding the location. The basic infrastructure needed in any organisation are: Power: For example, industries which run day and night require continuous power supply. So they should be located near to the power stations and should ensure continuous power supply throughout the year. Water: For example, process industries such as, paper, chemical, and cement, requires continuous water supply in large amount. So, such process industries need to be located near to the water. Waste disposal: For example, for process industries such as, paper and sugarcane industries facility for disposal of waste is the key factor. 6. Transport: Transport facility is a must for facility location and layout of location of the plant. Timely supply of raw materials to the company and supply of finished goods to the customers is an important factor. The basic modes of transportation are by Air, Road, Rail, Water, and Pipeline. The choice of location should be made depending on these basic modes. Cost of transportation is also an important criterion for plant location. 7. Government support: The factors that demand additional attention for plant location are the policies of the state governments and local bodies concerning labour laws, building codes, and safety. 8. Housing and recreation: Housing and recreation factors also influence the plant location. Locating a plant with the facilities of good schools, housing and recreation for employees will have a greater impact on the organisation. These factor seems to be unimportant, but have a difference as they motivate the employees and hence the location decisions. 2. Special factors The special factors that influence the plant location are: 1. Economic stability outside investments 2. Cultural factors 3. Wages 4. Joint ventures support of big time players

Q4. Describe the seven basic quality control tools. QC Tools The following seven are considered basic tools for achieving quality. a) Flow Chart b) Check sheet c) Histogram d) Pareto Analysis e) Scatter Diagram f) Control Chart g) Cause and Effect Diagram a) Flow Chart It is a visual representation of process showing the various steps. It helps in locating the points at which a problem exists or an improvement is possible. Detailed data can be collected, analysed and methods for correction can be developed. A sample is shown below. List out the various steps or activities in a particular job. Classify them as a procedure or a decision. Each decision point generates alternatives. Criteria and Consequences that go with decision are amenable to evaluation for purposes of assessing quality. The flow chart helps in pinpointing the exact at which errors have crept in. A simple chart is shown below.

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b)Check Sheet These are used to record the number of defects, types of defects, locations at which they are occurring, times at which they are occurring, workmen by whom they are occurring. It keeps a record of the frequencies of occurrence with reference to possible defect causing parameter. It helps to implement a corrective procedure at the point where the frequencies are more, so that the benefit of correct will be maximum. A sample sheet shown below.

DAY DEFECT 1 2 3 4 5 1

/ /// /// ///// // 2 / //// The table shows that the number of defects/// and 5 are not many as compared to defect no 2 which 1 //// increased over the days and appears to be stabilizing at the higher side and therefore needs to be /// attended immediately. The column which shows days can be changed to observed by the hour, if 3 need be. c) Histogram Histograms are graphical representations of distribution of data. They are generally // used to record huge volumes of data about a process. They reveal whether the pattern of ////// distribution has a single peak, or many peak and also the extent of variation around the peak value. //// This helps in identifying whether the problem is serious. When used in conjunction with comparable // parameters, the visual patterns help us to identify the problem which should be attended to. // 4 // c) Pareto Analysis This is a tool for classifying problem areas according to the degree of //// importance and attending to the most important. Pareto principle, also called 8020 rule, states that /// 80 percent of the problems that we encounter arise out of 20 percent of items. If we find that, in a // day, we have 184 assemblies having problems and there are 11 possible causes, it is observed that // 80 per cent of them i.e. 147 of them have been caused by just 2 or 3 of them. It will be easy to focus 5 on these 2 or three and reduce the number of defects to a great extent. /// ////// /// / /// 6 // //// /// /// //

When the cause of these defects have been attended, we will observe that some other defect becomes predominantly observed and if the process is continued, we are marching toward zero defect. d) Scatter Diagram These are used when we have two variables and want to know the degree of relationship between them. We can determine if there is cause and effect relationship between and its extent over a range of values. Sometimes, we that there is no relationship, in which we can change one parameter being sure that it has no effect. e) Control Charts These are used to verify whether a process is under control. Variables when they remain within a range will render the product maintain the specifications. This is the quality of conformance. The range of permitted deviations is determined by design parameters. Samples are taken and the mean and range of the variable of each sample (subgroup) is recorded. The mean of the means of the samples gives the control lines. Assuming normal distribution, we expect 99.97 per cent of all values to lie within the UCL corresponding to 3 s Upper Control Limit and LCL Lower Control Limit. The graphical representation of data helps in changing settings to bring back the process closer to the target. f) Cause and Effect Diagram This is a diagram in which all possible causes are classified on quality characteristics which lead to a defect. These are arranged in such a way that different branches representing causes connect the stem in the direction of the discovery of the problem. When each of them is investigated thoroughly we will be able to pinpoint some factors which cause the problem. We will also observe that a few of them will have cumulative effect or even a cascading effect.

Q5. Define project management. Describe the five dimensions of project management. Definition of Project Management Managing a project is the practice of controlling the use of resources, such as cost, time, manpower, hardware, and software involved in the project. It usually starts with a problem statement and ends with delivery of a complete product .Project management involves understanding the scope and various processes in a project cycle. Some of the other definitions of project management are shown below. Project management is the complete set of tasks, techniques, and tools applied during project execution. DIN 69901 (German Organisation for Standardisation) Project management is the application of knowledge, skills, tools, and techniques to project activities to meet project requirements. PMBOK (Project Management Body of Knowledge, defined by Project Management Institute (PMI)) Project management can be considered to have five dimensions which are necessary to be managed. The dimensions are a)Features b) Quality c) Cost d) Schedule e) Staff These dimensions are independent of one another. If you add staff, the schedule may shorten and the cost will increase. The tradeoffs among these five dimensions are not linear. For each project, we need o decide which dimensions are critical and how to balance the others so as to achieve the key project objectives. Each of the five dimensions can take one of three roles on any given project: A driver, a constraint or a degree of freedom A driver is a key objective of the project. A constraint is the limiting factor beyond the control of project team. Any project dimension that is neither a driver nor a constraint becomes a degree of freedom. A constraint gives the project team virtually no flexibility, a driver has low flexibility and a degree of freedom provides wider latitude to balance that dimension against the other four. An important aspect of this model is not which of the five dimensions turn out to be drivers or constraints on any given project, but that the relative priorities of the dimensions be negotiated in advance by the project team, customers and management. A graphical way to depict these points is to use a Kiviat diagram. A kiviat diagram is a graph which allows us to plot several values (five, in this case) as an irregularly shaped polygon on a set of normalized axes. The position of each point on its axis indicates the relative degree of flexibility of that dimension for a particular project. It is plotted on an arbitrary scale of 0 10 0 would indicate completely constrained and 10 would indicate completely flexible. The kiviat graph is a useful tool in project management to compare the relative flexibility of the parameters considered.

Q6. What is meant by Supply Chain Management (SCM)? What are the objectives of SCM? Supply chain management is considered by many experts worldwide as the ultimate solution towards efficient enterprise management. Many management failures have been attributed to lack of a system to bind various subsystems within a geographically wide spread enterprise which true to modern trends, also includes an umbrella of customers, suppliers and associates. Managers of tomorrow are therefore expected to raise themselves above the level of perpetual crisis management to one of proactive, predictive and performance oriented management. Need and objectives: SCM is required by and Enterprise as a tool to enhance management effectiveness with the following organizational objectives: 1. Reduction of inventory 2. Enhancement of participation level and empowerment level 3. Increase in functional effectiveness of existing systems like ERP, Accounting Software and Documentation like Financial reports/ Statements/ ISO 9000 Documents etc. 4. Effective integration of multiple systems like ERP, communication systems , documentation system and secure 5. Design / R&D systems etc. 6. Better utilization of resources men, material, equipment and money. 7. Optimization of money flow cycle within the organization as well as to and from external agencies. 8. Enhancement of value of products, operations and services and consequently, enhancement of profitability. 9. Enhancement of satisfaction level of customers and clients , supporting institutions , statutory control agencies, suppliers and vendors , employees and executives. 10. Enhancement of flexibility in the organization to help in easy implementation of schemes involving modernization, expansion and diversification even divestments, mergers and acquisitions. 11. Enhancement of coverage and accuracy of management information systems.

MB0044 Production and Operations Management Assignment Set - 2 Q1. What is productivity? Write a brief note on capital productivity. Answer: Production Management encompasses all activities which go into conversion of a set of inputs into outputs which are useful to meet human needs. It involves the identification of the requisite materials, knowledge of the processes, installation of equipments necessary to convert or transform the materials to products. The quantities to be produced have to be ascertained, processes established, specifications detailed out, quality maintained and products delivered in time to meet the demands. Decisions need to be taken about the location of the facility, variety of machineries required to be installed, technologies to be deployed, recruitment of workforce with adequate training to perform the tasks to achieve productivity with utmost efficiency. Constraints on resources and competition demands that optimization be obtained in all functions at all levels. Different materials will have to be procured, stored, transported inside the organisation for transformation using processes. Information flows throughout the cycle to instruct, to monitor and to control the processes to establish relevant costs and look for opportunities for continuous improvement. All these functions generate their own subsystems which will help in establishment of accountability and recognition of performance necessary for improvement. Strategies at various levels will have to be formulated with appropriate implementation procedures established with checks and balances. Flexibility will have to be designed into the system to take care of fluctuations in the market both for purchased items as well as the demand. Technological changes have to be accommodated both as challenges and opportunities for development to be abreast of the global environment. Capital Productivity Capital deployed in plant, machinery, buildings and the distribution system as well as working capital are components of the cost of manufacture and need to be productive. Demand fluctuations, uncertainties of production owing to breakdowns and inventories being created drag the productivity down. Therefore, strategies are needed to maximize the utilization of the funds allotted towards capital. Adapting to new technologies 1. Outsourcing Strategies When capacity requirements are determined it will be easy to determine whether some goods or services can be outsourced so that the capital and manpower requirements can be reduced and the available capacities are used to augment core competencies thus reducing the cost of the product or service to the customer. However, the following factors may restrict outsourcing (a) Lack of expertise the outsourced firm may not have the requisite expertise to do the job required

(b) Quality considerations Loss of control over operations may result in lower quality. This is a risk that the firm gets exposed to. (c) Nature of demand When the load is uniform and steady, it may not be worthwhile to outsourcing. Absence of spervisaion and control may be a hindrance to meet any urgent requirements of the customer. This affects the business especially if no production facilities are built in the organization (d) Cost When the fixed costs that go along with making the product does not get reduced considerably 2. Methods Improvement Methods Improvement starts with Methods analysis focus of this process is how a job is done breaking it down to elemental tasks so that they are amenable for analysis.. This is done for both running jobs and new jobs. For a new job, the description becomes the input for analysis. For current jobs, the analyst depends on observations, records and suggestions of the persons involved in the job. When improved methods are suggested, they are implemented and records created for assessing the consequences of the methods improvement procedures. The analyst should involve all concerned persons in the process so that acceptance becomes possible and opportunities open up for further improvements. Moreover, the people actually involved would be interested in improving their productivity and will help the analyst in the process. 3. Balancing of Workstations Assembly lines necessitate out stringing together workstations which carry out operations in a sequence so that the product gets completed in stages. Since the workflow has to be uniform and operations may require different periods for completion the necessity of Line Balancing is felt. Capacities at workstations and the workforce to man are so adjusted that a product in the process of assembly almost approximately the same amount of time. 4. Rationalization of Packaging Methods With logistics becoming an important function of the supply chain and outsourcing becoming the norm, packaging has become an important aspect, packaging has become important . Space is at a premium and therefore stacking and storing have to more scientific. Movements inside the premises from one location to another location are being done with automated systems and they need that the packaging systems are designed for safe transit, continuous monitoring both for quantities and operations. In case of outsourced products the materials used and their design should facilitate reuse of the same which brings in economy.

5. Quality Circles Kaoru Ishikawa is generally considered to have promoted the concept of Quality Circles. It is well known that he is the originator of fishbone diagrams to identify the root cause of any problem. The causes for the existence of a problem are classified as pertaining to the material, processes or method or any factor that goes into production. The matter is further investigated and pursued till the exact cause is determined. Quality circles use these principles in solving problems. The teams select projects selected on the above basis and implement actions to achieve improvement in the processes with a view to improve quality. Since these activities are carried out without affecting the regular day to day work and involve little involvement of the managers, team work gets reinforced and results in continuous improvement in methods and quality. The capital deployed is minimal, if at all, and therefore productivity is enhanced.

Q2. Describe briefly the automated flow lines. Automated flow lines When several automated machines are linked by a transfer system which moves the parts by using handling machines which are also automated, we have an automated flow line. After completing an operation on a machine, the semifinished parts are moved to the next machine in the sequence determined by the process requirements a flow line is established. The parts at various stages from raw material to ready for fitment or assembly are processed continuously to attain the required shapes or acquire special properties to enable them to perform desired functions. The materials need to be moved, held, rotated, lifted, positioned etc. for completing different operations. Sometimes, a few of the operations can be done on a single machine with a number of attachments. They are moved further to other machines for performing further operations. Human intervention may be needed to verify that the operations are taking place according to standards. When these can be achieved with the help of automation and the processes are conducted with self regulation, we will have automated flow lines established. One important consideration is to balance times that different machines take to complete the operations assigned to them. It is necessary to design the machines in such a way that the operation times are the same throughout the sequence in the flow of the martial. In fixed automation or hard automation, where one component is manufactured using several operations and machines it is possible to achieve this condition or very nearly. We assume that product life cycles are sufficiently stable to invest heavily on the automated flow lines to achieve reduced cost per unit. The global trends are favouring flexibility in the manufacturing systems. The costs involved in changing the set up of automated flow lines are high. So, automated flow lines are considered only when the product is required to be made in high volumes over a relatively long period. Designers now incorporate flexibility in the machines which will take care of small changes in dimensions by making adjustments or minor changes in the existing machine or layout. The change in movements needed can be achieved by programming the machines. Provision for extra pallets or tool holders or conveyors are made in the original design to accommodate anticipated changes. The logic to be followed is to find out whether the reduction in cost per piece justifies the costs of designing, manufacturing and setting up automated flow lines. Group Technology, Cellular Manufacturing along with conventional Product and Process Layouts are still resorted to as they allow flexibility for the production system. With methodologies of JIT and Lean Manufacturing finding importance and relevance in the competitive field of manufacturing, many companies have found that well designed flow lines suit their purpose well. Flow lines compel engineers to put in place equipments that balance their production rates. It is not possible to think of inventories (Work In Process) in a flow line. Bottlenecks cannot be permitted. By necessity, every bottleneck gets focused upon and solutions found to ease them. Production managers see every bottleneck as an opportunity to hasten the flow and reduce inventories. However, it is important to note that setting up automated flow lines will not be suitable for many industries

Q3. What is meant by Total Quality Management? Mention the 14 points of Demings approach to management. TQM is viewed from many angles as a philosophy, as an approach and journey towards excellence. The main thrust is to achieve customer satisfaction by involving everybody in the organisation across all functions with continuous improvement driving all activities. TQM systems are designed to prevent poor quality from occurring. The following steps are implemented to achieve Total Quality. a) Take all measures to know what the customer wants voice of the customer. Develop methods that generate facts which can be used for decision making. Do not ignore the internal customer the next person in the process. b) Convert the wants into design specifications, that meet or exceed customer expectations. c) Processes are to be designed so that they facilitate doing the job right the first time. Incorporate elements that make it impossible to make mistakes. It is called failsafing or fool proofing. The Japanese call it Pokayoke. d) Keeping record of all occurrences, procedures followed and consequences. They help in validating the processes so that continuous improvement becomes possible. More importantly any gaps can be seen and rectified immediately. One of the basic tenets of TQM is just because something is working well improvement is not necessary. The search must be continuous to find ways and means to improve every aspect of the business process finance, operations and management. Complacency should never be allowed to creep in at any time. In this aspect, culture plays an important role. All these require top management commitment Deming Wheel: Demings approach is summarised in his 14 points. 1. Constancy of purpose for continuous improvement 2. Adopt the TQM philosophy for economic purposes 3. Do not depend on inspection to deliver quality 4. Do not award any business based on price alone 5. Improve the system of production and service constantly 6. Conduct meaningful training on the job 7. Adopt modern methods of supervision and leadership 8. Remove fear from the minds of everyone connected with the organisation 9. Remove barriers between departments and people 10. Do not exhort, repeat slogans and put up posters. 11. Do not set up numerical quotas and work standards 12. Give pride of workmanship to the workmen 13. Education and training to be given vigorously 14. State and exhibit top managements commitment for quality and productivity

Using the above principles, Deming gave a four step approach to ensure a purposeful journey of TQM. The slope is shown to indicate that if efforts are let up the programme will roll back. Plan means that a problem is identified, processes are determined and relevant theories are checked out. Do means that the plan is implemented on a trial basis. All inputs are correctly measured and recorded. Check means that the trials taken according to the plan are in accordance with the expected results. Act When all the above steps are satisfactory regular production is started so that quality outcomes are assured

Q4. Describe briefly the Project Monitoring and control. Project Monitoring and Control Any project aimed at delivering a product or a service has to go through phases in a planned manner in order to meet the requirements. It is possible to work according to the project plan only by careful monitoring of the project progress. It requires establishing control factors to keep the project on the track of progress. The results of any stage in a project, depends on the inputs to that stage. It is therefore necessary to control all the inputs and the corresponding outputs from a stage. A project manager may use certain standard tools to keep the project on track. The project manager and the team members should be fully aware of the techniques and methods to rectify the factors influencing delay of the project and its product. The methodology of PERT (Programme Evaluation Review Technique) and CPM (Critical Path Method) may be used to analyze the project. In the PERT method one can find out the variance and use the variance to analyze the various probabilistic estimates pertaining to the project. Using the CPM one can estimate the start time and the finish time for every event of the project in its WBS (Work Breakdown Structure). The analysis charts can be used to monitor, control, track and execute a project. The various steps involved in monitoring and controlling a project from start to end are as follows 1. 1. Preliminary work the team members understand the project plans, project stage schedule, progress controls, tracking schedules, summary of the stage cost and related worksheets. All the member have to understand the tolerances in any change and maintain a change control log. They must realize the need and importance of quality for which they have to follow strictly a quality review schedule and frequently discuss on the quality agendas. They must understand the stage status reports, stage end reports, stage end approval reports. 2. Project Progress The members must keep a track of the project progress and communicate the same to other related members of the project. They must monitor and control project progress, through the use of regular check points, quality charts, statistical tables, control the quality factors which are likely to deviate from expected values as any deviation may result in changes to the stage schedule. The project manager ensures that these changes are made smoothly and organizes review meeting with the project management group. 3. Stage Control The manager must establish a project check point cycle. For this suitable stage version control procedures may be followed. The details are to be documented stage wise. Project files have to be frequently updated with suitable version control number and revision status should be maintained for each change. Team members are identified who will exercise controls at various points of the project. 4. Resources Plan the resources required for various stage of the project. Brief both the project team and the key resources about the objectives of every stage, planned activities, products, organization, metrics and project controls.

5. Quality Control This is very important in any project. Quality control is possible if the project members follow Schedule Quality Review It is recommended that quality review be scheduled at the beginning of the stage and also ending of every stage. Agenda for quality review create and distribute a quality review agenda specifying the objective, products, logistics, roles, responsibilities and time frame. Conduct quality review the quality review is to be conducted in a structured and formal manner. Quality review should focus on product development and its quality factors. Focus on whether it meets the prescribed quality standard . Follow up QR complete product status revised from In progress to QR Complete. Follow up the actions planned in strict manner which ensures conformity to the standards. Review quality control procedures verify that the quality objectives for each product are appropriate and that all participants are satisfied both with the process and its outcome.

6. Progress Control Monitor Performance: The team members log in details of actual start date, actual finish date, actual hours worked per task, estimated hours to complete the task, elapsed time in hours to compete the task, any miscellaneous costs incurred during a stage. These inputs become the base to monitor the performance of the project and its stages. Update ScheduleUpdate the schedule for actual start date for tasks started, actual finish date for tasks finished, actual hours worked per task, latest estimated work in hours to complete the task. Update costs Update the stage cost summary worksheet with actual costs incurred this period, estimated remaining costs. Miscellaneous costs will be automatically updated from the scheduler, since they are calculated from actual work. Replan stage scheduleReview the tracking Gantt and Cost workbook and identify any deviation from the baseline. Establish why the deviation has occurred. Refer back to the project control factors to help determine the appropriate corrective action and adjust the schedule accordingly. Determine if the stage has exceeded the progress, cost and quality tolerance levels agreed with the project management team. Review status of open issues and determine any further action required on these issues. Review the status of any outstanding quality reviews Review any new change requests. Conduct team status review Conduct a status meeting with the project team. Items for discussion are achievements this period planned activities that are incomplete or overdue, activities for the next period, new issues identified this period, issues closed this period, summary of results of quality reviews , summary of schedule and cost status, suggested revisions to the plan. Create status report The status report provides a record of current achievement and immediate expectations of the project. The status has to be effectively communicated to all interested parties. Create Flash report summarize the accomplishments for the month, schedule status, upcoming tasks for the month and any major issues. Distribute to the project team and project management team Project Status Reports the status report provides a record of current achievements and

immediate expectations of the project.

A weekly status report includes: Accomplishments during the period Items not completed during the period Proposed activities for the next period Any predicted slippage to the stage schedule, along with cause and corrective action. Any predicted cost overrun along with cause and corrective action. 7) Approvals Project stage reviews and the decisions taken and actions planned need to be approved by the top management. The goals of such review are to improve quality by finding defects and to improve productivity by finding defects in a cost effective manner. The group review process includes several stages like planning, preparation and overview a group review meeting and rework recommendations and followup.

Q5. Write a brief note on Just-In-Time (JIT). JIT can be considered to be a philosophy of manufacturing founded on the principles of elimination of all waste and thereby increasing productivity. When the philosophy is applied at workplace, the approach results in providing parts in just right quantities at the right time. This results in economy of material and time thus lowering the costs and increasing productivity. Since no extra parts are available, production of only good parts is forced on the system. JIT has been extended to mean continuous improvement. These principles are being applied to engineering, purchasing, accounting and data processing also. We will see how JIT helps in implementing Lean Production systems. In these days when technology is able to provide us with highly accurate equipments which have high capacities and the business has become global meaning that both suppliers and customers are widely accessible. To remain competitive, cost efficiencies have become compulsory. JIT helps in this process. It is extended to the shop floor and inventory systems of the vendors also. One of the main challenges for JIT is frequent changes in production schedules owing to the changes in demand. This causes the procurements plans to change. In the present day scenario where most manufacturing concerns depend upon a number of suppliers, who in turn may outsource parts and services, disruptions have a cascading effect. However, there is a limit to the agility that a company can build into the system. Communication right through the supply chain helps in reducing inventories and keep the flow lines smooth. Success of JIT depends upon a lot of preparation and committed implementation. Characteristics of JIT JIT considers elimination of waste as fundamental to any processes. Shigeo Shingo an authority on JIT at Toyota classifies them as under: 1. Over Production The extra parts or products may not be needed or may not be available when needed. So, it is a waste. 2. Waiting Time The operator, the machine or the part will not be either working or worked upon. The duration of waiting is unproductive and may create more serious consequences. 3. Movement Any unnecessary movement is a waste of energy; causes blockages disrupting movements and delaying the flow of other items creating delays. 4. Process Some steps in the process may not be necessary to arrive at the required stage. It is waste of all the inputs that go into the process. 5. Inventory Excess procurement or production builds up stock of materials which are not immediately used, thus locking space, funds carrying heavy costs. 6. Effort and movement The people who work do not make a study as to how these are utilized in realizing the purpose for which they are made. Both, again use up resources which are not available when needed.

7. Defective Products these are produced using the same equipments, workmen and the time that would be used to make good products. Thus defective products use up resources and result in losses. Since these wastes have to be eliminated, a thorough study how they occur and what steps would result in their elimination is of paramount importance.

Q6. What is value engineering? Explain its significance. Value Engineering / Value Analysis has gained importance in todays manufacturing field because of the necessity of making all components as economically as possible. Every unnecessary component, every unwanted operation has to be eliminated for economizing. Materials may have to be changed, tolerances in manufactures relaxed because value can be created in terms of reduced volume, increased strength or longer service. Involving the supplier and utilizing his knowledge and experience are crucial for its success. Value Engineering / Value Analysis Basically it is a methodology by which we try to find substitutes for a product or an operation. It can be conducted both internally and externally. The concept took shape during the Second World War. The thinking process calls for a deep study of a product the purpose for which it is used, the raw materials used, the processes of transformation, the equipment needed etc. and question whether what is being used is the most appropriate and economical. This applies to all aspects of the product. For example, let us consider a component needs a round brass rod as raw material in size 21.5 mm. Diameter. It has seven operations cutting, drilling, chamfering boring. milling, plating and polishing. Value analysis considers all aspects of each of these and investigates whether any of them can substituted by another material, a different size, a different tool, a different machine, a different cot sequence, a different tool for an operation, a different chemical, a different concentration, a different voltage, shorter time or processing. Studies can be conducted to verify whether any operation can be eliminated. Simplification of processes reduces the cost of manufacture. Every piece of material and the process should add value to the product so as to render the best performance. Thus there is an opportunity at every stage of the manufacturing and delivery process to find alternatives which will increase the functionality or reduce cost in terms of material, process and time. It should be remembered that we are not seeking a cost reduction sacrificing quality. It has been found that there will be an improvement in quality when systematic value engineering principles are employed. Relevance of VE in modern manufacturing Modern manufacturing can be seen from two important perspectives. One is the management approach which consists of TQM, JIT, Kanban, concurrent engineering, Lean Manufacturing, TPM, Group Technology, Cellular Manufacturing and others. These have basic philosophies based on which techniques, tools and methodologies are developed. To aid the process, we have computers and softwares written to collect data, process them, distribute them and analyse them. We have Management Information Systems which help in decision making. Optimisation at every level looks into the aspects of cost and benefit. Modern machines like automatic machines, Special Purpose Machines, Robots are built to high produce highly accurate components at greatly reduced costs. New materials and processes have resulted in great advances in the variety of products available to large numbers of people. With globalisation procurement and distribution are being conducted over great distances. The main thrust is on quality, timely delivery at the least price. These are the values that we put in the product.

Value Analysis looks at the manufacturing activities with a view to make the components simpler,processes faster and the products better. Since huge investments on the machines, it is mandatory that every component/part used is made as economically as possible. Fabrication, erection and installation being costly and have long term implications, assessment of utility of the materials used and processes adopted is important. In the manufacturing activities power drives many machine elements with respect to one another to obtain the transformation on the materials that result in becoming parts. Using machines with appropriate capabilities in terms of power, voltage, distances moved, lifting and placing them all provide opportunities for value analysis. Modifications may be made to effect savings.

MB0045 Financial Management Assignment Set- 1 Q.1 Show the relationship between required rate of return and coupon rate on the value of a bond. The relation between the required rate of interest (K ) and coupon rate on the value of a bond are displayed below.d

When required rate of interest (K ) is equal to the coupon rate, the intrinsic value of the bond is equal to its face value.d

When required rate of interest (K ) is greater than the coupon rate, the intrinsic value of the bond is less than its face value.d

When required rate of interest (K ) is lesser than the coupon rate, the intrinsic value of the bond is greater than its face value.d

Number of years of maturity When required rate of interest (K ) is greater than the coupon rate, the discount on the bond declines as maturity approaches.d

When required rate of interest (K ) is less than the coupon rate, the premium on the bond declines as the maturity increases.d

Example To show the effect of the above, consider a case of a bond whose face value is Rs. 100 with a coupon rate of 11% and a maturity of 7 years. If Kd is 13%, then, V0 = I*PVIFA (K , n) + F*PVIF (K , n) = 11*PVIFA (13%, 7) + 100*PVIF (13%, 7) = 11*4.423 + 100*0.425 = 48.65 + 42.50 = Rs.91.15d d

After 1 year, the maturity period is 6 years, the value of the bond is V0 = I*PVIFA (K , n) + F*PVIF (K , n) = 11*PVIFA (13%, 6) + 100*PVIF (13%, 6) = 11* 3.998 + 100*0.480d d

= 43.98 + 48 = Rs. 91.98. We see that the discount on the bond gradually decreases and value of the bond increases with the passage of time as required rate of interest (Kd) is higher than the coupon rate. Continuing with the same problem above, let us see the effect on the bond value if the required rate is 8%. If K is 8%, V0 = I*PVIFA (K , n) + F*PVIF (K , n) = 11*PVIFA (8%, 7) + 100*PVIF (8%, 7) = 11*5.206 + 100*0.583 = 57.27 + 58.3 = Rs. 115.57d d d

One year later, with K at 8%,d

V0 = I*PVIFA (K , n) + F*PVIF (K , n) = 11*PVIFA (8%, 6) + 100*PVIF (8%, 6) = 11*4.623 + 100* 0.630 = 50.85 + 63 = Rs. 113.85d d

For a required rate of return of 8%, the bond value decreases with passage of time and premium on bond declines as maturity approaches

Q2. What do you understand by operating cycle? The time gap between acquisition of resources and collection of cash from customers is known as the operating cycle. Operating cycle of a firm involves the following elements. Acquisition of resources from suppliers Making payments to suppliers Conversion of raw materials into finished products Sale of finished products to customers Collection of cash from customers for the goods sold The five phases of the operating cycle occur on a continuous basis. There is no synchronization between the activities in the operating cycle. Cash outflows occur before the occurrences of cash inflows in operating cycle. Cash outflows are certain. However, cash inflows are uncertain because of uncertainties associated with effecting sales as per the sales forecast and ultimate timely collection of amount due from the customers to whom the firm has sold its goods. Since cash inflows do not match with cash out flows, firm has to invest in various current assets to ensure smooth conduct of day to day business operations. Therefore, the firm has to assess the operating cycle time of its operation for providing adequately for its working capital requirements. Operating cycle = IC period + RC period IC period = Inventory conversion period RC period = Receivables conversion period Inventory conversion period is the average length of time required to produce and sell the product. Inventory Conversion period = (Average Inventory * 365) / Annual Cost of goods sold Receivables conversion period is the average length of time required to convert the firms receivables into cash. Receivables conversion period = Average Accounts Receivables *365 / Annual Sales Accounts payables period is also known as payables deferral period. Accounts payables period = Average Creditors / Purchases per day (Payables deferral period)

Purchases per day = Total Purchases for year / 365 Cash conversion cycle is the length of time between the firms actual cash expenditure and its own cash receipt. The cash conversion cycle is the average length of time a rupee is tied up in current assets. Cash Conversion Cycle is CCC = ICP + RCP PDP CCC = Cash Conversion Cycle ICP = Inventory Conversion Period RCP = Receivables Conversion Period PDP = Payables deferral period

Q3. What is the implication of operating leverage for a firm? Operating leverage is associated with the asset purchase activities, while financial leverage is associated with the financial activities. However, combined leverage is the combination of operating leverage and the financial leverage. Operating leverage arises due to the presence of fixed operating expenses in the firms income flows. A companys operating costs can be categorized into three main sections as shown in figure fixed costs, variable costs and semi-variable costs.

Classification of operating costs Fixed costs

Fixed costs are those which do not vary with an increase in production or sales activities for a particular period of time. These are incurred irrespective of the income and value of sales and generally cannot be reduced. For example, consider that a firm named XYZ enterprise is planning to start a new business. The main aspects that the firm should concentrate at are salaries to the employees, rents, insurance of the firm and the accountancy costs. All these aspects relate to or are referred to as fixed costs. Variable costs Variable costs are those which vary in direct proportion to output and sales. An increase or decrease in production or sales activities will have a direct effect on such types of costs incurred. For example, we have discussed about fixed costs in the above context. Now, the firm has to concentrate on some other features like cost of labour, amount of raw material and the administrative expenses. All these features relate to or are referred to as Variable costs, as these costs are not fixed and keep changing depending upon the conditions. Semi-variable costs Semi-variable costs are those which are partly fixed and partly variable in nature. These costs are typically of fixed nature up to a certain level beyond which they vary with the firms activities. For example, after considering both the fixed costs and the variable costs, the firm should concentrate on some-other features like production cost and the wages paid to the workers which act at some point of time as fixed costs and can also shift to variable costs. These features relate to or are referred to as Semi-variable costs.

The operating leverage is the firms ability to use fixed operating costs to increase the effects of changes in sales on its earnings before interest and taxes (EBIT). Operating leverage occurs any time a firm has fixed costs. The percentage change in profits with a change in volume of sales is more than the percentage change in volume. As operating leverage can be favorable or unfavorable, high risks are attached to higher degrees of leverage. As DOL considers fixed expenses, a larger amount of these expenses increases the operating risks of the company and hence a higher degree of operating leverage. Higher operating risks can be taken when income levels of companies are rising and should not be ventured into when revenues move southwards. The applications of operating leverage are as follows: Business risk measurement Production planning Measurement of business risk Risk refers to the uncertain conditions in which a company performs. A business risk is measured using the degree of operating leverage (DOL) and the formula of DOL is: DOL = {Q(SV)} / {Q(SV)F} Greater the DOL, more sensitive is the earnings before interest and tax (EBIT) to a given change in unit sales. A high DOL is a measure of high business risk and vice versa. Production planning A change in production method increases or decreases DOL. A firm can change its cost structure by mechanising its operations, thereby reducing its variable costs and increasing its fixed costs. This will have a positive impact on DOL. This situation can be justified only if the company is confident of achieving a higher amount of sales thereby increasing its earnings.

Q4. Explain the factors affecting Financial Plan. Factors affecting Financial Plan Nature of the industry The very first factor affecting the financial plan is the nature of the industry. Here, we must check whether the industry is a capital intensive or labour intensive industry. This will have a major impact on the total assets that a firm owns. Size of the company The size of the company greatly influences the availability of funds from different sources. A small company normally finds it difficult to raise funds from long term sources at competitive terms. On the other hand, large companies like Reliance enjoy the privilege of obtaining funds both short term and long term at attractive rates Status of the company in the industry A well established company enjoys a good market share, for its products normally commands investors confidence. Such a company can tap the capital market for raising funds in competitive terms for implementing new projects to exploit the new opportunities emerging from changing business environment Sources of finance available Sources of finance could be grouped into debt and equity. Debt is cheap but risky whereas equity is costly. A firm should aim at optimum capital structure that would achieve the least cost capital structure. A large firm with a diversified product mix may manage higher quantum of debt because the firm may manage higher financial risk with a lower business risk. Selection of sources of finance is closely linked to the firms capability to manage the risk exposure. The capital structure of a company The capital structure of a company is influenced by the desire of the existing management (promoters) of the company to retain control over the affairs of the company. The promoters who do not like to lose their grip over the affairs of the company normally obtain extra funds for growth by issuing preference shares and debentures to outsiders. Matching the sources with utilization The prudent policy of any good financial plan is to match the term of the source with the term of the investment. To finance fluctuating working capital needs, the firm resorts to short term finance. All fixed asset investments are to be financed by long term sources, which is a cardinal principle of financial planning.

Flexibility The financial plan of a company should possess flexibility so as to effect changes in the composition of capital structure whenever need arises. If the capital structure of a company is flexible, there will not be any difficulty in changing the sources of funds. This factor has become a significant one today because of the globalisation of capital market. Government policy SEBI guidelines, finance ministry circulars, various clauses of Standard Listing Agreement and regulatory mechanism imposed by FEMA and Department of corporate affairs (Govt. of India) influence the financial plans of corporates today. Management of public issues of shares demands the compliances with many statues in India. They are to be complied with a time constraint.

Q5. An employee of a bank deposits Rs. 30000 into his PF A/c at the end of each year for 20 years. What is the amount he will accumulate in his PF at the end of 20 years, if the rate of interest given by PF authorities is 9%? Amount deposit/invested at the end of every year for n years= A = Rs 30000 Time horizon or no. of years= n = 20 years Rate of interest = i = 9% p.a Value of PF amount at end of 20 years= = A * FVIFA(i,n) where FVIFA(i,n) = {(1+i)n 1}/i} = 30000 * FVIFA (9%, 20Y) = 30000 * 51.160 = Rs. 1534800

Q6. Mr. Anant purchases a bond whose face value is Rs.1000, and which has a nominal interest rate of 8%. The maturity period is 5 years. The required rate of return is 10%. What is the price he should be willing to pay now to purchase the bond? Solution: Interest payable= 100*8% = Rs. 8 Principal repayment = Rs. 1000 Required rate of return = 10% Therefore, Value of the bond = 8*PVIFA(10%,5y)+1000*PVIF(10%,5y) = 924.28

MB0045 Financial Management Assignment Set- 2 Q1. The following data is available in respect of a company : Equity Rs.10lakhs,cost of capital 18% Debt Rs.5lakhs,cost of debt 13% Calculate the weighted average cost of funds taking market values as weights assuming tax rate as 40% Hint: Use the equation WACC = We Ke + Wp Kp +Wr Kr + Wd Kd + Wt Kt Solution: Equity = Rs.10lakhs, Cost of capital = 18% Debt = Rs.5lakhs, Cost of debt = 13% Total = Rs 15 lakh Tax rate as = 40% We = 10 / 15 = 0.67 Ke = 18% = 0.18 Wd = 5/15 = 0.33 Kd = I (1-T) WACC = We Ke + Wp Kp +Wr Kr + Wd Kd + Wt Kt = 0.67*.18 + 0 + 0 +0.33*13(1-.40) + 0 = 0.146 or 14.6%

Q2. ABC Ltd. provides the information as shown in table 6.21 regarding the cost, sales, interests and selling prices. Calculate the DFL. Details of ABC Ltd. Output 20,000 units Fixed costs Rs.3,500 Variable cost Solution : Rs.0.05 per unit Interest DFL = Q(S-V) / [Q(S-V) F I {Dp/(1-T)}] on borrowed funds = 20000(0.20 0.05) / [20000(0.20 0.05) 0 Nil 0] 0 Selling price per unit = 3000 / 3000 0.20 =1

Solution: S= 1000,000/.22 =4545454.5 ny Y does not have any debt. Both companies earn 20% before interest and taxes on their total asset B=25,00,000 =K0=[25,00,000/[2500000+4545454.5)].14+[4545454.5/2500000+4545454.5)].22 0.0496+.142 =.1915 or 19.15% V = 5000000/0.1915 = 26,109,660.57

Q4. Examine the importance of capital budgeting. Importance of Capital Budgeting: Capital budgeting decisions are the most important decisions in corporate financial management. These decisions make or mar a business organisation. These decisions commit a firm to invest its current funds in the operating assets (i.e. long-term assets) with the hope of employing them most efficiently to generate a series of cash flows in future. These decisions could be grouped into: Decision to replace the equipments for maintenance of current level of business or decisions aiming at cost reductions, known as replacement decisions Decisions on expenditure for increasing the present operating level or expansion through improved network of distribution Decisions for production of new goods or rendering of new services Decisions on penetrating into new geographical area Decisions to comply with the regulatory structure affecting the operations of the company, like investments in assets to comply with the conditions imposed by Environmental Protection Act Decisions on investment to build township for providing residential accommodation to employees working in a manufacturing plant The reasons that make the capital budgeting decisions most crucial for finance managers are: These decisions involve large outlay of funds in anticipation of cash flows in future For example, investment in plant and machinery. The economic life of such assets has long periods. The projections of cash flows anticipated involve forecasts of many financial variables. The most crucial variable is the sales forecast. For example, Metal Box spent large sums of money on expansion of its production facilities based on its own sales forecast. During this period, huge investments in R & D in packaging industry brought about new packaging medium totally replacing metal as an important component of packing boxes. At the end of the expansion Metal Box Ltd found itself that the market for its metal boxes has declined drastically. The end result is that metal box became a sick company from the position it enjoyed earlier prior to the execution of expansion as a blue chip. Employees lost their jobs. It affected the standard of living and cash flow position of its employees. This highlights the element of risk involved in these type of decisions. Equally we have empirical evidence of companies which took decisions on expansion through the addition of new products and adoption of the latest technology, creating wealth for shareholders. The best example is the Reliance Group.

Any serious error in forecasting sales, the amount of capital expenditure can significantly affect the firm. An upward bias might lead to a situation of the firm creating idle capacity, laying the path for the cancer of sickness. Any downward bias in forecasting might lead the firm to a situation of losing its market to its competitors. Long time investments of the funds sometimes may change the risk profile of the firm.

Capital budgeting is significant for the following reasons: 1. The decision-maker loses some of his flexibility, for the results continue over an extended period of time. He has to make a commitment for the future. 2. Asset expansion is related to future sales 3. The availability of capital assets has to be phased properly 4. Asset expansion typically involves the allocation of substantial amounts of funds 5. Many firms fail, because they have too much or too little capital equipment 6. Decision relating to capital investment are among the difficult and, at the same time, a most critical a management has to make. These decisions require an assessment of the future events which are uncertain.7. The most important reason for capital budgeting decision is that they have long-term implications for a firm. The effects of a capital budgeting decision extend into the future and have to be put up with for a longer period than the consequences of current operating expenditures.

8. Capital budgeting is an important function of management because it is one of the critical determinants of success or failure of the company. Ill-advised or excessive capital spending may create excessive capacity and increase operating costs, limit the viability of company funds and reduce its profit earning capacity.

Q5. Briefly explain the process of capital rationing The following are the steps involved in capital rationing. Ranking of different investment proposals Selection of the most profitable investment proposal

in

Ranking of different investment proposals means the various investment proposals should be ranked on the basis of their profitability. Ranking is done on the basis of NPV, Profitability index or IRR the descending order.

Net present value method recognises the time value of money. Net present value correctly admits that cash flows occurring at different time periods differ in value. Therefore, there is a need to find out the present values of all the cash flows. Profitability index is also known as benefit cash ratio. Profitability index is the ratio of the present value of cash inflows to initial cash outlay. The discount factor based on the required rate of return is used to discount the cash inflows. Internal rate of return (IRR) is the rate (i.e. discount rate) which makes the net present value of any project equal to zero. Internal rate of return is the rate of interest which equates the present value (PV) of cash inflows with the present value of cash outflows. IRR is also called as yield on investment, managerial efficiency of capital, marginal productivity of capital, rate of return and time adjusted rate of return. IRR is the rate of return that a project earns. IRR can be determined by solving the following equation for

Selection of the most profitable investment proposal After ranking the different investment proposals based on their net present value, profitability index and the internal rate of return, the selection of the most profitable investment proposal is to be done. The selection is done mainly in a view to select the investment proposal which earns more profits than compared to the other proposals. The basic features to be taken under consideration during the selection of the most profitable investment proposal are: The proposal should have the potentiality of making large anticipated profits The proposal should involve high degree of risk The proposal should involve a relatively long time-period between the initial outlay and the anticipated return Evaluation of the selection procedure PI rule of selecting projects under capital rationing may not yield satisfactory result because of project indivisibility. When projects involving high investment is accepted many small projects will have to be excluded. But the sum of the NPVs of small projects to be accepted may be higher than the NPV of a single large project Capital rationing also suffers from the multi-period capital constraints

Q6. Explain the concepts of working capital. Answer: Concepts of Working Capital The four most important concepts of working capital are Gross working capital, Net working capital, Temporary working capital and Permanent working capital.

Gross working capital Gross Working Capital refers to the amounts invested in various components of current assets. This concept has the following practical relevance. Management of current assets is the crucial aspect of working capital management Gross working capital helps in the fixation of various areas of financial responsibility Gross working capital is an important component of operating capital. Therefore, for improving the profitability on its investment a finance manager of a company must give top priority to efficient management of current assets The need to plan and monitor the utilisation of funds of a firm demands working capital management, as applied to current assets

Net working capital Net working capital is the excess of current assets over current liabilities and provisions. Net working capital is positive when current assets exceed current liabilities and negative when current liabilities exceed current assets. This concept has the following practical relevance. Net working capital indicates the ability of the firm to effectively use the spontaneous finance in managing the firms working capital requirements A firms short term solvency is measured through the net working capital position it commands Permanent Working Capital Permanent working capital is the minimum amount of investment required to be made in current assets at all times to carry on the day to day operation of firms business. This minimum level of current assets has been given the name of core current assets by the Tandon Committee.

Permanent working capital is also known as fixed working capital. Temporary Working Capital Temporary working capital is also known as variable working capital or fluctuating working capital. The firms working capital requirements vary depending upon the seasonal and cyclical changes in demand for a firms products. The extra working capital required as per the changing production and sales levels of a firm is known as temporary working capital. The need for working capital arises on account of two reasons: To finance operations during the time gap between sale of goods on credit and realisation of money from customers of the firm To finance investments in current assets for achieving the growth target in sales Therefore to finance the operations in operating cycle of a firm, working capital is required. In the next section, we will know more about the operating cycle of the firm.

MB0046 Marketing Management ASSIGNMENT- Set 1 Q.1 Explain the various stages involved in new product development New Product Development New products are essential for existing firms to keep the momentum and for new firms they provide the differentiation. New product doesnt mean that it is absolutely new to the world. It may be a modification, or offered in a new market, or differentiated from existing products. Therefore it is necessary to understand the concept of new products. Meaning of New Products: a. They are really innovative. For example, Googles Orkut, a networking site which revolutionized social networking. In this site people can meet like-minded people; they can form their own groups, share photos, comments and many more. b. They are very different from the others: Haier launches path-breaking 4-Door Refrigerators first time in India c. They are imitative; these products are not new to the market but new to the company. For example, Cavin Kare launched Ruchi pickles. This product is new to Cavin Kare but not to the market. New product development process: Stage 1 - Idea generation: New product idea can be generated either from the internal sources or external sources. The internal sources include employees of the organization and data collected from the market. The external source includes customers, competitors and supply chain members. For example, Ingersoll Rand welcomes new ideas from the General public. Stage 2-Idea screening: Organization may have various ideas but it should find out which of these ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many changes from the basic version. He told that he wanted to develop car with scooter engine, plastic doors etc But when he unveiled the car, there were many changes in the product. This shows that initial idea will be changed on the basis of market requirements. Stage 3 - Concept development: the main feature or the specific desire that it caters to or the basic appeal of the product is created or designed in the concept development. Concepts used for Tata Nano car are

Concept I: Low-end rural car, probably without doors or windows and with plastic curtains that rolled down, a four-wheel version of the auto-rickshaw Concept II: A car made by engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding. Concept III: Indigenous, in-house car which meets all the environment standards Stage 4 - Concept testing: At this stage concept is tested with the group of target customers. If any changes are required in the concept or the message it will be done during this stage. Also the effectiveness is tested on a minor scale. If the concept meets the specific requirements, then it will be accepted. Stage 5 Marketing strategy development: The marketing strategy development involves three parts. The first part focuses on target market, sales, market share and profit goals. TATAs initial business plan consisted sales of 2 lakhs cars per annum. The second part involves product price, distribution and marketing budget strategies. TATAs fixed Rs 1 lakhs as the car price, and finding self employed persons who work like agent to distribute the cars. The final part contains marketing mix strategy and profit goals. Stage 6 - Business analysis: it is the analysis of sales, costs and profits estimated for a new product and to find out whether these align with the company mission and objectives. Stage 7 - Product development: during this stage, product is made to undergo further improvements, new features or improvised versions are added to the product. There is also scope for innovation and using the latest technology into the product. TATA Nano car development (Source: business world nanolution) Tried to outsource the product from all over the world. Development of mule or prototype with 20bhp. Designing the small engine Thermodynamic simulations and final engine Development of MPFI with help of Bosch. Cost reduction and negotiating with vendors. Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cutting weight. Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres to bear extra weight on rear wheels. Stage 8 - Test marketing: is the most crucial stage for the testing products performance and its future in the market. There are certain cases where product has failed in the test marketing and had to be withdrawn. The product is introduced into the realistic market The 4Ps of marketing are tested. The cost of test marketing varies with the type of product.

Stage 9 - Commercialization: In this stage product is completely placed in the open market and aggressive communication program accompanied with promotion activities is carried out to support it.

Q.2 Discuss the importance of SWOT analysis to develop effective marketing mix. Developing an effective marketing mix: Following example shows how Big Bazaar has worked out on its marketing mix in India after doing a SWOT analysis: SWOT analysis indicates the 4 specific and crucial areas by which an organization can know its position in the market. SWOT analysis can be done by any kind of organization, dealing with any kind of products or services, at any point of time and whenever it feels the need to do so. SWOT analysis is an analysis showing the Companys a) Strengths i.e. areas where it has got advantage, its core processes, its unique or successful brands, key people etc. If the company has a good reputation in the consumer market then it becomes strength of that company. b) Weaknesses i.e. areas where the company is weak or having drawbacks and which needs to be improvised or eliminated from the existing system. If the company is feeling that its sales force has too many inefficient people then it becomes the weakness of the company. c) Opportunities i.e. areas where company can establish itself and the challenges that it can accept to its benefit as well as the consumers. Suppose a company knows that there are consumers all over the world who consume companys products then there presents opportunity of expanding its activities globally. d) Threats i.e. areas where the company feels that it might be subject to pressure situations or where it is unable to pull itself from a possible crises or the threat may simply come from competitive forces or other external factors such as Recession.

Q.3 Briefly explain the major external and uncontrollable factors that influence an organization decision making, performance and strategies Companys Macro Environment Forces in the macro environment 1. Demographic Environment Demography: The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion. Demography statistics helps companies to forecast demand. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors. 1. Age structure of the population 2. Marital status of the population 3. Geographic distribution of the population 4. Education level 5. Migration 6. Occupation. Age structure of the population: from the following table you can generalize that 48% of the population in India are aged below 21yrs and 28% of the population are in the bracket of

21-25yrs. Many marketing companies are focusing on these two segments. For example, Radio Indigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music. Radio indigo targets youth segment who like western music. 2. Political and Legal Environment Government policies, legislations, regulations, and stability will directly affect the business. Therefore it is inevitable for the firm to closely monitor this environment. The political and legal forces are grouped into the following four categories. Monetary and fiscal policies: These policies regulate government spending, money supply and tax legislations. 1. Social legislations and regulations. For e.g. Environmental Protection Act which specifies the emission level etc. 2. Legislations, Policies and regulations relating to industries: labour Acts, Factories Act and policies regarding subsidies and change in tariff rate will have direct impact on a particular company. 3. Legislations related to manufacturing, trading, marketing etc: Following are the list of legislations which affect the various activities of the company. Economic, Monetary and Natural Environment These constitute a large number of variables which cannot be examined here in detail. The economic environment includes consumption patterns, productivity patterns, spending patterns, and sectored growth and so on. The monetary environment consists of inflation, interest rate, exchange rate, money supply etc. These provide vital clues for marketers to decide on product offering, incentive offerings, promotional decisions and pricing decisions. If the consumption pattern or expenditure behavior of the middle class shifts towards higher levels, marketers sees great opportunities for exchange offers, buy back offers etc. The middle class may like to upgrade and at the same time would like to get some value for their old goods. If the government decides to offer loans to farmers at a low interest rate, marketers see opportunities to sell more farm equipments. Consumer spending pattern According to National sample survey 2005-06, 1. Monthly per capita consumption in rural area: Rs625. 2. Monthly per capita consumption in urban area: Rs1, 171. 3. Food expenditure in monthly per capita consumption: 53 %(Rural area) 4. Food expenditure in monthly per capita consumption: 40%(Urban Area)

The data above shows that a significant percent of the monthly per capita income is on food expenditure. Marketers in the non food category may have to come up with new ideas in promotion in order to change this spending pattern. Interest rate: when interest rates are high, consumer tend not to make long term purchase like housing. If the interest rate is low people park their money in alternative financial options where they get better return. Marketers of financial products could seize this opportunity to promote new products. On the other hand the housing sector would do well to promote budget houses. Inflation: Higher the inflation rate lesser will be the purchasing power of the consumer. Hence government always tries to control inflation within a limit. In situations of rising inflation marketers may not be able to avoid the increase in prices. They sometimes try to cover this fact by offering clever incentives to buyers. They may also arrange to offer EMIs to consumers. In recent times (September 2009) LEVIs tried to woo middle income consumers to their store by offering EMI payments on their high priced apparels. Changes in income: The rise in the salaries of the employees, improved performance of stock market and better industrial growth led to the change in the income pattern in India. Many Indians entered the millionaires and billionaires categories. This provided great opportunity for luxury brands to set shop in India. The advent of Gucci, Armani and others with exclusive outlets in metros is a sign of changing income patterns and affordability. A similar trend is noticeable in the tourism sector. Indian are a significant percentage of the tourist population in destinations like Singapore, Ireland, New Zealand and other European countries Travel companies are targeting high net worth Indians to market their packages and also designing appropriate packages. Natural Environment: Environmental concerns are growing over the years. Governments are bringing in stringent regulations to conserve and manage natural resources. Marketers should beware of such trends in the environment. Some of the aspects/factors on which organizations should keep a vigil are; a. Inadequate raw materials arising out of strict mining regulations b. Global warming and pollution levels which have ushered in new legislations a. A case in point is the conversion of three wheelers and city buses to CNG fuel. This provided great opportunity for manufacturers of such engines in New Delhi during the later part of 20 Century. On the other hand, manufacturers of low-end passenger cars had to attune their facilities to Bharat-I, Bharat-II and subsequent norms. The ban on smoking in public places forced tobacco manufacturers to tone down their marketing efforts.

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4. Social and cultural environment Growing urbanization, increasing participation of women in livelihood activities, advent of global cultural practices, greater exposure to life styles practiced world wide etc has altered marketing efforts remarkably. A club house and a swimming pool is an essential part of purchase decision for a flat in a metro. Marketers have encased this trend during the nineteen nineties and later too. Festivals have gained an urban color and marketers are packaging festivals offers accordingly. On the other hand the rural populace has been exposed to urban life style thanks to the electronic media. Companies like Hindustan Lever have successfully marketed their low priced offerings of toiletries and cosmetics in the rural areas. While this transformation is over a wide canvas, we mention below some of the major changes which have affected the marketing efforts.

1. Working women and the rise of metro sexual man.: The number of working women in India is ever increasing. This segment is looking towards products which help them in bringing better work life balance. MTR a fast food giant in South India started offering ready to eat products to this segment. Metro sexuality is another new phenomenon, wherein a man also assumes the role of women and plays a role in purchasing household items and helping kids chose products. It has made the marketers task more difficult in positioning their products. The shift in decision making is a challenge to marketers who till now focused on mothers to promote household items of daily use and also items relating to kids. 2. Jet set people: This segment involves people who work long hours and have less personal time. These are also working people who hop in and hop out of their house at a phone call. These people are looking for products and services which consume less time and are convenient. For example, Easy bill, from Hero group offers one stop solution to consumer to pay their utility bills and do other financial transactions. Technological environment There are several tumultuous changes being wrought in the technological from which is transforming the way business is conducted. The changes are so rapid and sweeping those enterprises have found it difficult to keep pace. Several have fallen by the wayside for failing to keep with the changes. Major public sector undertakings in India which did not upgrade in time and closed their shutters are, ITI, HMT, and HTIF. On the other hand in the private sector, Hindustan Motors, LML etc are examples who were known as flag bearers, collapsed once they fell behind in the race for technology. Some of the major changes are as follows: 1. Growth of information technology and biotechnology industries: Information technology has revolutionized the lives of the people. It bought dramatic changes in