Tag: Factors

  • What are the Factors influencing Plant Layout? Discussion

    What are the Factors influencing Plant Layout? Discussion

    This article of the Factors influencing Plant Layout (PDF) in Production Management is explaining in their 12 key points – 1) Nature of the product, 2) The volume of Production, 3) Basic managerial policies and decisions, 4) Nature of plant location, 5) Type of industry process, 6) Types of methods of production, 7) Nature of machines, 8) Climate, 9) Nature of Materials, 10) Type of machine and equipment, 11) Human factor and working conditions, and 12) Characteristics of the building.

    Here the questions and answer – What are the Factors influencing Plant Layout? Discussion.

    The following are some important factors which influence the planning of effective plant layout to a significant degree.

    Nature of the product:

    The nature of the product to manufacture will significantly affect the layout of the plant. The stationary layout will be most suitable for heavy products while line layout will be best for the manufacture of light products because small and light products can move from one machine to another very easily and, therefore, more attention can pay to machine locations and handling of materials.

    The volume of Production:

    The volume of production and the standardization of the product also affect the type of layout. If standardized commodities are to manufacture on a large scale, the line type of layout may adopt. If production is made on the order of the customers, the functional layout is better to adopt.

    Basic managerial policies and decisions:

    The type of layout depends very much on the decisions and policies of the management to follow in producing a commodity with regard to size of plant, kind and quality of the product; scope for expansion to provide for, the extent to which the plant is to integrate, amount of stocks to carry at any time, the kind of employee facilities to provide, etc.

    Nature of plant location:

    The size, shape, and topography of the site at which plant is located will naturally affect the type of layout to follow because of the maximum utilization of space available. For example, if a site is near the railway line the arrangement of general layout for receiving and shipping and for the best flow of production in and out the plant may make by the side of the railway line. If space is narrow and the production process is lengthy.

    Type of industry process:

    This is one of the most important factors influencing the choice of the type of plant layout. Generally, the types of layout particularly the arrangement of machines and work centers and the location of workmen varies according to the nature of the industry to which the plant belongs.

    For layout, the industry may classify into two broad categories:

    • Intermittent, and.
    • Continuous.

    Intermittent type of industries is those which manufacture different components or different machines. Such industries may manufacture the parts when required according to the market needs. Examples of such industries are shipbuilding plants. In this type of industry functional layout may be the best.

    The second type of industry in “continuous” industry. In this type of industrial raw materials are fed at one end and the finished goods are received at another end. A continuous industry may either be analytical or synthetically. As the analytical industry breaks up the raw material into several parts during the production process or changes its form, e.g. oil and sugar refineries.

    A synthetic industry, on the other hand, mixes the two or more materials to manufacture one product along with the process of production or assembles several parts to get the finished product. Cement and automobile industries are examples of such industry. Line layout is more suitable in continuous process industries.

    Types of methods of production:

    Layout plans may be different according to the method of production proposed to adopt. Any of the following three methods may adopt for production:

    • Job order production.
    • Batch production, and.
    • Mass Production.

    Under job production goods are produced according to the orders of the customers and therefore, specifications vary from customer to customer and the production cannot standardize. The machines and equipment can arrange in a manner to suit the need of all types of customers. Batch production carries the production of goods in batches or groups at intervals.

    In this type of manufacturing the product standardizes and production makes generally in anticipation of sales. Such cases, functional or process layout may adopt. In the case of mass production of standardized goods, line layout is the most suitable form of plant layout.

    Nature of machines:

    Nature of machines and equipment also affects the layout of the plant. If machines are heavy or create noisy atmosphere, stationary layout may reasonably adopt. Heavy machines are generally fixed on the ground floor. Ample space should provide for complicate machines to avoid accidents.

    Climate:

    Sometimes, temperature, illumination, and air are the deciding factors in deciding the location of machines and their establishments. For example, in the lantern manufacturing industry, the spray painting room is built along the factory wall to ensure the required temperature control and air expulsion and then the process of spray painting may undertake.

    Nature of Materials:

    Design and specifications of materials, physical and chemical properties of materials, quantity, and quality of materials and combination of materials are probably the most important factors to consider in planning a layout. So, materials storage and materials handling should give due consideration.

    For materials storage factors such as rate of consumption of raw materials, space, volume and weight of raw materials, floor load capacity, ceiling height method of storing should give special consideration. This will affect the space and the efficiency of the production process in the plant. It will facilitate economic production goods and prompt materials flow and a soundly conceived materials handling system.

    Type of machine and equipment:

    Machines and equipment may be either a general-purpose or special purpose. Also, certain tools are used. The requirements of each machine and equipment are quite different in terms of their space, speed and material handling process and these factors should give proper consideration while choosing out a particular type of layout.

    It should also consider that each machine and equipment use to its fullest capacity because machines involve a huge investment. For instance, under product layout, certain machines may not use to their full capacity so care should take to make full use of the capacity of the machine and equipment.

    Human factor and working conditions:

    Man is the most important factor of production and therefore special consideration for their safety and comforts should give while planning a layout, specific safety items like the obstruction-free floor, workers not exposed to hazards, exit, etc. should provide for. The layout should also provide for the comforts to the workers such as the provision of restrooms, drinking water, lavatory, and other services, etc. Sufficient space is also to provide for the free movement of workers. For this, provisions of the Factories Act should follow strictly.

    Characteristics of the building:

    The shape of building, covered and open area, number of stories, facilities of elevators; parking area, storing place and so on also influence the layout plan. In most of the cases where the building hires. The layout is to adjust within the space available in the building.

    Although minor modifications may finish suiting the needs of the plant and equipment. But if the new building is to construct, proper care should give to construct it according to the layout plan drawn by experts. The special type of construction needs to accommodate huge or technical or complex or sophisticated machines and equipment.

    What are the Factors influencing Plant Layout Discussion
    What are the Factors influencing Plant Layout? Discussion, #Pixabay.

    It is clear from the above description that several factors are considered while choosing out a plan for plant layout. Because they affect the production and its cost to a great extent.

  • What is Control and Organizational Factors? easy Explanation

    What is Control and Organizational Factors? easy Explanation

    Organizational Control: Control can define narrowly as the process a manager takes to assure that actual performance conforms to the organization’s plan, or more broadly as anything that regulates the process or activity of an organization. We are going to study of Control and Organizational Factors. First, want to know what they are? Simply put, organizational control is the process of assigning, evaluating, and regulating resources on an ongoing basis to accomplish an organization’s goals. To successfully control an organization, managers need to not only know what the performance standards are but also figure out how to share that information with employees.

    What is Control and Organizational Factors? easy Explanation.

    The behavioral implications of control, as elaborated above do not mean that control should not be applied in the organization. In fact, control has many positive aspects, as discussed earlier. The basic necessity is that it should suit die participants to make it more effective.

    Control and Organizational Factors - Topic
    Control and Organizational Factors – Topic

    From this point of view, it is imperative that various organizational phenomena should analyze, which affect the control system. Though there are many such organizational factors and people are engaged in finding out the answer to this basic question of how people can better control for organizational effectiveness, the main factors related directly to control are:

    Organizational Rules and Procedures:

    Most of the organizations prescribe some standing measures for providing guidelines for people’s actions in the organizations in the form of policies, rules, and procedures. While these elements provide guidelines to them, they, particularly rules and procedures, prescribe rigidity in action. Thus, they leave very little scope for freedom in action. These rules and procedures also take away initiative and generate alienation.

    Many times, they may not be able to isolate or sense the factors, which have caused a. particular situation. Thus, there may be a tendency to put the blame on those who are not really responsible for a situation. Besides, the rules and procedures create more delay in action and consequently the result. Such a phenomenon is more frustrating to individuals in the organization.

    Perception Formation:

    The people’s perception is affecting by a number of factors, as discussed earlier. In organizational situation, it is affected by the action of management, and the type of relationship between management and employees. The perception of people towards control is a major factor in determining the response to it.

    Thus, if the perception of people about the control attempt is based on sound organizational climate, mutual trust and belief, there is more likelihood of getting a favorable and better response from them. On the other hand, if it is based on general distrust, fear and suspicion, there is always the people resist a possibility that control attempt.

    Organizational Communication:

    The organization has to design a communication network for carrying the control, information both downward and upward. Through the downward communication, a superior sends the information about what a subordinate is expected to do; the upward communication is used to get control information from the subordinates, that is, what they have done. Besides, these channels also serve other purposes.

    Thus, the organization depends to a large extent for exercising control through communication. If the communication system is not quite effective, it will affect the control system also, to that extent, in communicating what is expected from a subordinate and also how he is performing. Often communication blockade is a major source of confusion and frustration in the minds of the people and they resist control.

    What is Control and Organizational Factors easy Explanation
    What is Control and Organizational Factors? easy Explanation

    Motivational Dynamics:

    The control is affecting by the motivational dynamics of people and how the organization is going to satisfy the various needs of the people. The motivational dynamics have a twofold role in control.

    • First, how the various attempts at control are in time with the needs of the people. Ideally speaking, a control system should focus adequately on the needs of the participants and must suit them. It means the control system should be tailor-made and no universal because people differ. Thus, all people cannot satisfy the same system.
    • Second, the organization itself provides motivation or, Demotivation to the people to work. Human beings, being gregarious, seek to remain in the organization.

    Thus, many of his needs can satisfy by this phenomenon. However, since organization, as a Collectivity of people, has certain norms of behavior it becomes Demotivation for the people. If it is not in accordance with the people. Thus the organizational phenomenon of how people are motivating is a crucial factor in the control of the behavior of people in the organization.

    The various factors discussed above suggest that. They actually decide the behavioral implications of control rather than the individual factors alone. Thus real implications may understand in terms of the interaction of individual and organizational factors. While many of the individual factors may analyze the lines suggested earlier in the previous part of the text. The organizational factors may analyze throughout the remaining portion of this part.

  • What are Factors affecting Plant location decisions?

    What are Factors affecting Plant location decisions?

    The factors affecting Plant location decisions; Decisions regarding selecting a location need a balance of several factors. Hardly there is any location which can be ideal or perfect. One has to strike a balance between various factors affecting plant location. Some factors are crucial in deciding the location of the plant while some other factors are less important.

    Here are explains; What are Factors affecting Plant location decisions?

    In taking the decision of the location of the plant, due regard should give to the minimization of the cost of production & distribution and maximization of profit. The decision of plant location should base on nine M’s, namely money, material, manpower, market, motive power, management, machinery, means of communication and momentum to an early start. Also, want to know what is the five M’s in Business?

    What are Factors affecting Plant location decisions
    What are Factors affecting Plant location decisions? #Pixabay.

    The following are some of the important factors which the management must carefully bear in mind in selecting an optimum site for the plant – 15 factors affecting plant location decisions below are;

    Nearness to Raw Material:

    It will reduce the cost of transporting raw material from the vendor’s end to the plant. Especially those plants which consume raw material in bulk, or the raw material is heavyweight, must locate close to the source of raw material. If the raw materials are perishable, the plant is to locate near the source of the material. This is true of the fruit canning industry.

    Sugar and paper and other industries using weight losing materials are also located near the point of supply. Industries which depend for their raw materials on other industries tend to locate near such industries e.g. the petrochemicals industries are locating near refineries. Similarly, Thermal Power Stations are situated near coal mines.

    Sugar Factory Worker
    Sugar Factory Worker #Pixabay.

    In case the raw material is imported, the unit must establish near the port. When a company uses a number of raw materials and their sources are at a different location, the ideal site for the plant shall be a place where the transportation costs of various raw materials are the minimum.

    Apart from these considerations, a promoter must view the supply of raw materials from the following angles also:

    • If the supply of raw materials is linked with finance, it must be set up where the raw material is available at reduced or concessional rates.
    • Reliability and continuity of the source of supply, and.
    • The security of means of transport.

    Nearness to Markets:

    It reduces the cost of transportation as well as the chances of the finished products getting damaged and spoiled in the way. Moreover, a plant being near to the market can catch a big share of the market and can render quick service to the customers. Industries producing perishable or fragile commodities are also attracted to the market because of savings in time and transportation costs. Industrial units have a tendency to disperse if they find a new market for their products.

    Availability of Labor:

    Stable labor force, of the right kind, of adequate size (number) and at reasonable rates with its proper attitude towards work are a few factors which govern plant location to a major extent. The purpose of the management is to face fewer boycotts, strikes or lockouts and to achieve lower labor cost per unit of production.

    Availability of Fuel and Power:

    Because of the widespread electric power, in most cases, fuel (coal, oil, etc.) has not remained a deciding factor for plant location. It is, of course, essential that electric power should remain available continuously, in proper quantity and at reasonable rates.

    Availability of Water:

    Water is used for processing, as in paper and chemical industries, and is also requires for drinking and sanitary purposes. Depending upon the nature of the plant, water should be available in adequate quantity and should be of proper quality (clean and pure). A chemical, fertilizer, thermal power station, etc. should not be set-up at a location which IS famous for water shortage.

    Climatic Conditions:

    Climate conditions also influence the location decision. Some industries need a special type of climate to run the unit effectively. For example, the cotton industry requires a humid climate and therefore it is mainly localizing at Bombay, Ahmedabad, etc.

    But the scientific development and new inventions have lowered down the importance of the factor. So due to the development of artificial humidification, the cotton textile industry can now start in any region of the county. The question of climate is more important for an agricultural product like tea, coffee, rubber, cotton, etc. even today.

    Government Policy:

    Certain states give aid as loans, machinery, built-up sheds, etc. to attract industrialists. In a planned economy, the Government plays an important role in the location of industry. In India Government follows the policy of balanced regional growth of the country which is very important from the point of view of defense and social problems like a slum, the disparity of income & wealth and optimum use of resources.

    On, the order to implement this policy, the Government offers several incentives to entrepreneurs to locate their industrial units in backward regions or no-industry regions. It offers tax concessions or loan facilities or factory sheds at cheaper rates. Sometimes the Government announces certain disincentives to industries located at a certain place. Thus Government policy plays an important role in the location of industry.

    Land:

    The shape of the site, cost, drainage, the probability of floods, earthquakes (from the past history), etc. influence the selection of plant location.

    Community Attitude:

    The success of Industry depends very much on the attitude of local people and whether they want to work or not.

    Security:

    Considerations like law and order situation, political stability and safety also influence the location decision. No entrepreneur will like to start the industry at a place which is not safe and where there are law and order disturbances off and on.

    Transport Facilities:

    A lot of money is spent both in transporting the raw material and the finish goods. Depending upon the size of raw material and finish goods, a suitable method of transportation like roads, rail, water or air is selecting and accordingly the plant location is deciding.

    Transport Truck
    Transport Truck #Pixabay.

    Transportation costs depend mainly on the weight carried and the distance to cover. In some industries, the weight of the raw material is much higher than that of the finished product. e.g. in a weight loss industry like sugar manufacturing, four to five tons of sugarcanes have to carry per ton of sugar.

    Similarly, in Iron and Steel Industry two tons of iron is requiring to produce one ton of pig iron. Therefore the transport costs can save by locating near the source of materials. In the case of weight gaining industry, location near the market may result in savings in transportation costs. e.g. in soft drink, the weight of the finished product is higher than raw material.

    The momentum of an early start:

    Another factor of some importance has been the momentum of an early start. Some places got localized only because one or two units of that industry start production there. With the passage of time, these places gained importance and attracted other units of the industry. As a place gains importance, certain facilities usually beg in to develop.

    For example,

    • Transport facilities are developing because railways and other agencies find it economical to serve those centers.
    • Specialized firms start to take up repair and maintenance job for such units.
    • Banking facilities are made available, and.
    • Labor possessing various skills are attracting there. These facilities further attract more industries.

    Personal Factors:

    Personal preferences and prejudices of an entrepreneur also play an important role in the choice of location. Economic consideration does not weight much. For instance, Mr. Ford started cars manufacturing motor in Detroit because it was his home town. It must, however, recognize that such location cannot endure unless they prove to be economical enough in the long run.

    Communication Facilities:

    Every business firm requires every type of business information regarding the position of labor, market, raw materials, and finished goods and this facility is available only when communication facilities are there. As communications facilities are not adequately available in rural areas, industries are very much reluctant to start their business there.

    What do we think about Plant location decision - with Different Situations - Power Station
    What do we think about Plant location decision? in Different Situations – Power Station #Pixabay.

    Other Considerations:

    There are certainly other considerations that influence the location decisions which are:

    • Presence of related Industry.
    • Existence of hospitals, marketing centers, schools, banks, post office, clubs, etc.
    • Local bye-laws, taxes, building ordinances, etc.
    • Facility for expansion.
    • New enterprise owned or operated by a single group of companies should be so located. That its work can integrate with the work of the associated establishments.
    • Industries like nuclear power stations, processes explosive in nature. The chemical process likely to pollute the atmosphere should locate in remote areas, and.
    • Historical factors etc.
  • Valuation of Goodwill: Meaning, Need, Factors, and Methods

    Valuation of Goodwill: Meaning, Need, Factors, and Methods

    What is Goodwill? Meaning of Goodwill; Goodwill is the value of the reputation of a firm built over time concerning the expected future profits over and above the normal profits. So, what is the topic we are going to study; Valuation of Goodwill – Meaning, Need, Factors, and Methods (In Hindi). A well-established firm earns a good name in the market, builds trust with the customers, and also has more business connections as compared to a newly set up business. Goodwill in accounting is an intangible asset that arises when a buyer acquires an existing business.

    Here are explained how to Valuation of Goodwill? Meaning, Need, Factors, and Methods.

    Goodwill represents assets that are not separately identifiable. Goodwill does not include identifiable assets that are capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability regardless of whether the entity intends to do so.

    Valuation of Goodwill Meaning:

    There are various circumstances when it may be necessary to value goodwill. Some of the circumstances are; First, In the case of a partnership, when there is an admission, retirement, death or amalgamation, or a change in the profit-sharing ratio take place, the valuation of goodwill becomes necessary. Secondly, In the case of a company, when two or more companies amalgamate, or one company absorbs another company, or one company wants to acquire controlling interest in another company or when the Government takes over the business, valuation of goodwill becomes necessary.

    Third, In the case of a sole trader concern, goodwill is valued at the time of selling die business, to decide the purchase consideration. Finally, In the case of individuals, goodwill is valued for Estate Duty, Death Duty, etc. On the death of a person.

    Need for Valuation of Goodwill:

    Valuation of goodwill may make due to any one of the following reasons:

    A Sole-Proprietorship Firm:

    • If the firm sells to another person.
    • It takes any person as a partner, and.
    • It converts into a company.

    A Partnership Firm:

    • If any new partner takes.
    • Any old partner retires from the firm.
    • There is any change in the profit-sharing ratio among the partners.
    • Any partner dies.
    • Different partnership firms amalgamate.
    • Any firm sale, and.
    • Any firm converts into a company.

    A Company or Firm:

    • If the goodwill has already been written-off in the past but the value of the same is to records further in the books of accounts.
    • An existing company taking with or amalgamated with another existing company.
    • The Stock Exchange Quotation of the value of shares of the company is not available to compute gift tax, wealth tax, etc., and.
    • The shares are valued based on intrinsic values, market value, or fair value methods.

    Factors Affecting the Value of Goodwill:

    The following factors affect the value of goodwill:

    Location:

    A business which locates in the main market or at a place where there is more customer traffic tends to earn more profit and also more goodwill. If the firm centrally locates or locate in a very prominent place, it can attract more customers, increasing turnover. Therefore, the locational factor should always consider while ascertaining the value of goodwill.

    Time:

    The time dimension is another factor that influences the value of goodwill. The comparatively old firm will enjoy a more commercial reputation than the other one since the old one is better known to its customers, although both of them may have the same locational advantages.

    Nature of Business:

    A firm that deals with good quality products or has stable demand for its product can earn more profits and therefore has more value. This is another factor which also influences the value of goodwill which includes:

    • The nature of goods.
    • Risk involved.
    • Monopolistic nature of the business.
    • Benefits of Patents and Trade-marks, and.
    • Easy access to raw materials, etc.
    Capital Required:

    More buyers may interest to purchase a business that requires a comparatively small amount of capital but the rate of earning a profit is high and, consequently, raise the value of goodwill. On the contrary, for a business that required a large amount of capital but the rate of earning a profit is comparatively less, no buyer will interest to have the business and, hence, the goodwill of the said firm pull down.

    Owner’s Reputation:

    An owner, who has a good personal reputation in the market, is honest and trustworthy attracts more customers to the business, and makes more profits and also goodwill.

    Market Situation:

    The organization has a monopoly right or condition in the market or having limited competition, enables it to earn high profits which in turn leads to a higher value of goodwill.

    The trend of Profit:

    The value of goodwill may also be affected due to the fluctuation in the amount of profit (i.e., based on the rate of return). If the trend of profit is always rising, no doubt the value of goodwill will be high, and vice versa.

    The efficiency of Management:

    Efficient management may also help to increase the value of goodwill by increasing profits through properly planned production, distribution, and services. An organization with efficient management has high productivity and cost-efficiency. This gives it increased profits and also high goodwill. Therefore, to ascertain the value of goodwill, it must note that such efficiency in management must not be curtailed.

    Special Advantages:

    A firm that has special advantages like import licenses, patents, trademarks, copyrights, assured supply of electricity at low rates, subsidies for being situated in a special economic zone’s (SEZs), etc. possess a higher value of goodwill.

    Other Factors:
    • The condition of the money market.
    • The possibility of competition.
    • Government policy, and.
    • Peace and security in the country.

    Precaution to Take in Valuing Goodwill: We know that the amount of goodwill always pays for in the future. The buyer will pay a little more than the intrinsic value of assets only when he expects that he will enjoy some extra benefits from such goodwill shortly. On the other hand, if the buyer thinks that there is no possibility of having such advantages in the future, he will not be ready to pay anything for goodwill—even if the value of goodwill is very high.

    Valuation of Goodwill Meaning Need Factors and Methods
    Valuation of Goodwill: Meaning, Need, Factors, and Methods. Image credit from #Pixabay.

    Methods of Valuing Goodwill:

    There are two methods of valuing goodwill:

    1. Simple profit method, and.
    2. Super-profit method.
    Simple Profit Method:

    There are two methods based on simple profit:

    • Purchase of Past Profit Method, and.
    • The capitalization of the Average Profit Method.
    A. Purchase of Past Profit Method:

    Under this method, goodwill is expressed as a purchase of a certain number of years’ profit based on the adjusted average profit of a given number of years.

    This method involves two steps:

    • The profits for an agreed number of years preceding the valuation average to ar­rive at the average annual profit earned during that period. This will have to adjust in the light of future possibilities and the average future maintainable profit determined. If the profits have been fluctuating, a simple average use. If profits show a steadily increasing or decreasing trend, appropriate weights are used giving greater weightage for profits of the later year.
    • The average future maintainable profit is multiplied by a certain number of years to find out the value of goodwill. The number of years selected for this purpose base on the expectation of the number of years’ benefit to derive in the future from the past association.

    For example, if the average future maintainable profit is Rs.25, 000 and it expects that this profit would earn for at least another 3 years, then the goodwill will be:

    Goodwill,

    = Rs. 75,000 (25,000 x 3).
    = Average of profit x number of years.

    The number of years over which the profits are averaged and the number of years’ purchase applied may vary considerably in practice but generally falls between one and five years. Estimating future profit beyond a period of say, 5 years would be quite difficult and unrealistic.

    The method suffers from two defects:

    • The difficulty of finding out the right number of years’ purchase of profits as it depends on so many factors and
    • Ignoring capital to employ in the business.
    B. The capitalization of the Average Profit Method:

    The following steps are to take in ascertaining the value of goodwill under this method:

    • Ascertain the average future maintainable profit, as explained already.
    • Capitalize this average profit at the normal rate of return on investment on the type

    Of business under consideration:

    This will give the net worth of the business.

    • Find out the value of net tangible assets (i.e., net assets other than goodwill) of the business.
    • Deduct the net tangible assets from the capitalized net worth of the business and the difference is goodwill.
    Super-Profit Method:

    Strictly speaking, goodwill can attach only to a business that is earning above-normal profits of super-profits. If there is no anticipated excess earning over normal earnings, there can be no goodwill.

    Such excess profits know as super-profits and it is the difference between the average profit earned by the business and the normal profit based on the normal rate of return.

    Hence for find­ing to the super-profits, the following information will require:

    • The estimated average future profits of the firm (ascertained as already explained),
    • The normal rate of return on investment and
    • The fair value of the average capital employed in the business.

    The normal rate of return:

    The normal rate of return refers to the rate of earnings that inves­tor, in general, expect on their investments in a particular type of industry. It varies depending upon general factors like the bank rate, general economic conditions, political stability, etc., and specific factors like period of investment, risk attached to the investment, etc.

    Normal profit and Super-profit:

    If the average capital employed and the normal rates of return know, the normal profit can ascertain. For example, if the average capital employed is Rs. 1, 00,000 and the normal rate of return is 10%, the normal profit is 1, 00, 000 x 10/100 = 10, 000.

    Super-profit is the simple difference between the actual average profit earned and the normal profit. If in the above example, the average profit is Rs. 25,000, then the super-profits will be Rs. 25,000 – Rs. 10,000 = Rs. 15,000

    Goodwill based on Super-Profit:

    There are four methods of calculating goodwill based on the super-profit.

    They are:

    • Purchase of super-profits Method,
    • Sliding-scale Valuation of Super-profit Method,
    • Annuity of Super-Profit Method and
    • The Capitalization of Super-Profit Method.
    1. Purchase of Super-profit Method:

    Goodwill as per this method = Super profit * Number of years. If, for example, the super-profit is Rs. 15,000 and goodwill agree to be 3 years’ purchase of super-profits, then the goodwill will be s.45,000 (15,000 * 3)

    2. Sliding-scale Valuation of super-profits Method:

    This is the only variation of the first method. It is based on the logic that the greater the number of super-profits, the more difficult it would be to maintain. Higher profit will naturally attract competition and soon the firm’s ability to make super-profits is curtailed.

    3. Annuity super-profit Method:

    Under this method, goodwill calculates by finding the present worth of an annuity paying the super profit per year, over the estimated period discounted at the given rate of interest. Usually, the reference to the Annuity Table will give the present value of an annuity for the given number of years and at the given rate of interest.

    Goodwill = super-profit * annuity.

    For example, if the super-profits are Ts. 15,000 and the annuity of re. 1 at 10% for 3 years is 2.48,685, then the goodwill is = Rs. 15,000 * 2.48,685 = Rs. 37,302.75. This method takes into consideration the interest loss involved in paying a lump sum as goodwill in anticipation of the future of profit.

    4. The Capitalization of Super-Profit Method:

    This is similar to the capitalization of the average profit method as already explained. Under this method, the super-profits when capitalized at the normal rate of return will give the value of goodwill.

    Goodwill,

    = Rs. 1, 50, 000 (Rs. 15, 000/10 x 100).
    = Super Profit/Normal rate of return x 100.

    This method gives the maximum value for goodwill. Since the contention that super-profits will continue for long is unreasonable, this method is not safe for one to follow.

  • Factors of Sales Forecasting

    Factors of Sales Forecasting

    Explore essential factors of sales forecasting to improve accuracy and drive business growth. Learn how to leverage data for better decision-making. The management of a firm is required to prepare its forecast of the share of the market that it can hope to capture over the period of forecasting. In other words, the sales forecast is an estimate of the sales potential of the firm in the future. All plans are based on the sales forecasts. Sales Forecasting is the projection of customer demand for the goods and services over a period of time. A businessman who invests a large amount of capital in his business, cannot afford to work haphazardly. So, what we discussing is – Meaning, Definition, Need, and Factors of Sales Forecasting.

    The Concept of Forecasting explains Sales Forecasting by Meaning, Definition, Need, and Factors.

    In this article is discussing, Sales Forecasting: Meaning of Sales Forecasting, Definition of Sales Forecasting, Need for Sales Forecasting, and Factors of Sales Forecasting. This forecast helps the management in determining as to how much revenue can be expected to be realized. How much to manufacture, and what shall be the requirement of men, machine, and money. Future is uncertain. Man thinks about the future. He may be a businessman, a broker, a manufacturer, a commission agent etc.

    All guess about the future in their respective field of interest. We try to know, through a clear imagination, what will be happening in the near future—after a weak, month or year. It can be called forecast or prediction. The process of forecasting is based on reliable data of past and present. Forecasting is not new, as it has been practiced from time immemorial.

    Meaning of Sales Forecasting:

    Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at the speci­fied price. Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time.

    Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Some firms manufacture on the order basis. But in general, the firm produces the material in advance to meet future demand. Forecasting means estimation of quantity, type, and quality of future work e.g. sales. For any manufacturing concern, it is very necessary to assess the market trends sufficiently in ad­vance.

    This is a commitment on the part of the sales department and future planning of the entire concern depends on this forecast. It is the estimate of the number of sales to be expected for an item/product or products for a future period of time. Except the industries based on job order, almost all the enterprises produce in advance to meet the future requirements. Thus accurate sales forecasting is essential for an enterprise to enable it to produce the required number of items at right time.

    Definition of Sales Forecasting:

    Forecasting is one of the important aspects of administration. The comer-stone of successful marketing planning is the measurement and forecasting to market demand.

    According to the American Marketing Association,

    “Sales forecast is an estimate of Sales, in monetary or physical units, for a specified future period under a proposed business plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”
    “An estimate of sales in dollars or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”

    It is an estimation of sales volume that a company can expect to attain within the plan period. A sales forecast is not just a sales predicting. It is the act of matching opportunities with the marketing efforts. It is the determination of a firm’s share in the market under a specified future. Thus sales forecasting shows the probable volume of sales.

    According to Candiff and Still,

    “Sales forecast is an estimate of sales during a specified future period, whose estimate is tied to a proposed marketing plan and which assumes a particular state of uncontrollable and competitive forces.”

    Thus we can define sales forecasting as, estimation of type, quantity, and quality of future sales. The goal for the sales department is decided on the basis of this forecast and these forecasts also help in planning the future development of the concern. The sales forecast forms a basis for production targets. From above, looking to its importance, it is essential that the sales forecast must be accurate, simple, easy to understand and economical.

    Thus we can say that a sales forecast is an estimate of the number of sales for a specified future period under a proposed marketing plan or programme. They can also be defined as an estimate of sales in terms of money or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.

    Need for Sales Forecasting:

    The following Need for Sales Forecasting below are:

    • The management of the enterprise can take the decision regarding operations planning, scheduling, production programming inventories of various types, physical distribution and operating profits on the basis of sales forecasts.
    • Long-term sales forecasts can help in deciding investment proposals. Such as modernization, expansion of existing units, diversification of product lines etc.
    • Sales forecasts are essential to make proper arrangement for training. The manpower in its own unit or sending them to other industries in the country or abroad to meet the future needs of expertise.

    Factors of Sales Forecasting:

    Factors influencing a Sales Forecasting; A sales manager should consider all the factors affecting the sales while predicting the firm’s sales in the market.

    An accurate sales forecast can be made if the following factors are considered carefully:

    General Economic Condition:

    It is essential to consider all economic conditions relating to the firm and the consumers. The forecaster must see the general economic trend-inflation or deflation, which affect the business favorably or adversely. A thorough knowledge of the economic, political and the general trend of the business facilities to build a forecast more accurately. Past behavior of the market, national income, disposable personal income, consuming habits of the customers etc., affect the estimation to a great extent. Two types of Economic; microeconomic and macroeconomic as well as short-term market and long-term market.

    Consumers:

    Products like wearing apparel, luxurious goods, furniture, vehicles. The size of the population by its composition-customers by age, sex, type, economic condition etc., have an important role. And the trend of fashions, religious habits, social group influences etc., also carry weights. Also, The consumer is the one who pays something to consume goods and services produced. As such, consumers play a vital role in the economic system of a nation. Without consumer demand, producers would lack one of the key motivations to produce: to sell to consumers.

    Industrial Behaviors:

    Markets are full of similar products manufactured by different firms, which compete among themselves to increase the sales. As such, the pricing policy, design, advanced technological improvements, promotional activities etc., of similar industries must be carefully observed. A new firm may come up with products to the markets and naturally affect the market share of the existing firms. Unstable conditions—industrial unrest, government control through rules and regulations, improper availability of raw materials etc., directly affect the production, sales, and profits.

    Changes within Firm:

    Future sales are greatly affected by the changes in pricing, advertising policy, quality of products etc. A careful study in relation to the changes in the sales volume may be studied carefully. Sales can be increased by the price cut, enhancing advertising policies, increased sales promotions, concessions to customers etc.

    Period:

    The required information must be collected on the basis of the period—short run, medium run or long run forecasts. A period of sales depending on the market requires. For example, Some product sale short period. As well as medium or long periods all required, is product demands and supply.

    Some Factors also Considered:

    Following factors should be considered while making the sales forecast:

    • Market Competition: To assess demand, it is the main factor to know about the existing and new competitors and their future programme, the quality of their product, the sales of their product. The opinion of the customers about the products of other competitors with reference to the product manufactured by the firm must also be considered.
    • Technology Changes: With the advancement of technology, new products are com­ing in the market and the taste. The likings of the consumer’s changes with the advancement and change of technology.
    • An action of Government: When the government produces or purchases. Then depending upon the government policy and rules, the sales of the products are also affected.
    • Factors Related to the Concern Itself: These factors are related to the change in the capacity of the plant. Change in price due to the change in expenditure, change in product mix etc.

    Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time. Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Also, Many firms manufacture on the order basis. But in general, every firm produces the material in advance to meet future demand.

  • Social Entrepreneurship Meaning and Factors of Success

    Social Entrepreneurship Meaning and Factors of Success

    The rapid growth of marketing is constantly changing our lives. As a result, entrepreneurs are played the important role in a market as they are seen as agents of change. Which the change is economically based, the implications are far-reaching, affecting other aspects of society such as social, cultural and political. That is why the entrepreneur is willing to take the responsibility and taking the business risk to create and expand their business to order to explore more opportunities. Which the goods and services are fulfilled customer’s demand and preferences. Besides, learn what? More about Social Entrepreneurship Meaning and Factors of Success.

    Modern Business in need the Social Entrepreneurship? Explain Each Social Entrepreneurship Meaning and Factors of Success, Position, and their Challenges.

    Entrepreneurs have seen to be the starters and they also assume the role of manager. Which entrepreneurs are observing the fourth factor of production (entrepreneur, land, labor, and capital) and improve for the economic development. They were actively formed to lead their own business and cultivate and offering new ideas for the economic growth and prosperity in individually.

    Moreover, entrepreneurs have a good in planning and manage strategically to make a decision and always strive for excellence in a business. Therefore, it can avoid the failure that may threat to an entrepreneur and the lack of continuity of the business and know how to develop the field of social entrepreneurship.

    In the scenarios, among a social entrepreneur is motivated to improve and transform social, educational, environmental and economic conditions. Social entrepreneurs are for social improvement but not for the money. They present their ideas that are user-friendly and ethical that which applies innovative solutions to support in order to expand the large number of people to tackle their idea.

    Which the challenges and successes of highly effective social entrepreneurs include the failure and a lack of acceptance of the status. The social entrepreneur is importance to driven by an emotional desire for the social and economic conditions and not only by the desire for profit. Anyways, they seek for the best solutions to resolve the problems that can be copied by others. In another hand, the social entrepreneur was the improvement of the goods and services offered to the community is to create the social value with run as non-profits.

    #The success of Social Entrepreneurship.

    The success will require good practice, interchangeable ideas and knowledge to improve society. Social entrepreneurship must have hard work, plain, and simple behavior to drive the success that can solve the social issues. Anyways, they have shared their ideas and have a good in plan and manage strategically to make a decision and always strive for excellence in a business. Therefore, it can avoid the failure that may threat to an entrepreneur and the lack of continuity of the business and know how to develop the field perfectly.

    The next point will bring success to an entrepreneur is the traits of an entrepreneur. That’s important for the entrepreneur to strive the excellent in business and also focus on how they can get the things they want through the ways they go. Below are show the factor and traits of an entrepreneur to drive success.

    Goal-Setter:

    A goal-setter is very important for anyone to get the success in business. Stay focused and strive for balance to set a goal will be useful for everyone. To achieve the goal, the entrepreneur must ensure that the goal is clear and achieve attainable vision with concrete measurable goals.

    Knowing Your Strengths and Weaknesses:

    Knowing the strengths and weaknesses of an entrepreneur also may bring success in business. Anyways, the strengths and weaknesses are playing an active role in people likes to succeed in business. This is the ability that entrepreneurs have to brush off failures and mistakes and keep going forward.

    Therefore, an entrepreneur must exercise how to get even better performance in business, enhance self-confidence, and improve the study skills, knowledge and ability. Regardless in life or in business, entrepreneurs are playing the importance and potential role in the business. Before that, entrepreneurs have to self-evaluation themselves such as strengths, weaknesses, opportunities, and threats. This may transform people attitudes to get even better, know the ways to improve the ability.

    Maximizing Opportunities:

    An opportunity is important for entrepreneurs; they are always looking for opportunities. Whether they are already in business or just getting started, they have an attitude that expects opportunities, and they invest the time necessary to find the opportunities that will work for them; even those already running a successful business remain open to new possibilities.

    Know Your Business/ Know Your Competition:

    Problems are always occurring in the business. The new idea may bring the opportunities by increase the income of the business and success achieve the goal was set. So that an entrepreneur must have a good in plan and manage strategically to make a decision and always strive for excellence in a business.

    An entrepreneur must have the great thinking and creative ideas that to play the important to share the new ideas which the ideas may make them successful in their own business.

    Effectively Manage Budgets and Finances:

    Budgets and finance are also the issues for entrepreneurs as for how they earn the income by investment. The ethical and moral must be including by an entrepreneur, they use positive ways to operate their business. Effectively manage budgets and finances may help them to save the resources and reduce the expenses in production.

    Never Settle for Second Best:

    Never settle for second best also as a trait for an entrepreneur also may bring the success in business. Entrepreneurs have a good in planning and manage strategically to make a decision and always strive for excellence in a business. Innovation for entrepreneurs is to do the new ideas to become products and services which the products and services are fulfilled customer’s demand and preferences.

    They were actively formed to lead their own business and cultivate and offering new ideas for the economic growth and prosperity in individually. Moreover, entrepreneurs are the capability to learn from the failure and personal initiative to make innovation and improvement to get the business opportunities.

    Hard Work:

    The time is the issues that to bring people for driven to success. The characteristic of an entrepreneur is the willingness to work hard and assuming the responsibility in the workplace. Entrepreneurs must know how to managing their time to work or launching a new business. Therefore, they are fully applying their ability with intensity and focus to do their duty in business.

    #The position of Social Entrepreneurship.

    To become a great entrepreneur, there are ways to position their post in the workplace. This may help entrepreneurs to succeed in business and improve their knowledge and ideas.

    • Set a clear, attainable vision with concrete measurable goals: Explanation the notion of leading is to motivate the employee to achieve the goals has been set. Create a shared culture and values, communicating to all the employees of all the organization. That may infuse the employees that to perform the high level and ability to shape the communication, culture and motivate employees to achieve business success. Anyways, leading process was let the employees know what is the vision need to measure up and try to motivate the employees to make the organization more effectiveness, efficiency and functional the organization.
    • Tell people what your individual expectations are: A feedback is helpful to specific and measurable about their ongoing job performance. It’s may identify the employees who get the benefit from every training or supervision. In another hand, everyone’s expectations are different from each other. They’re needed to tell other about what was he or she expects to want to get in the business. That’s the key to striving to make someone a success. Moreover, responsibility for a person may bring the effect to the whole organization. The motivation, dedication and productive may drive the business a success. Entrepreneurs may feel confident about their skills and it may make it easily be more productive, satisfied and successful.
    • Self-review, evaluation to motivate the potential in the workplace: Self-evaluation can use the SWOT analysis to evaluate strengths, weaknesses, opportunities, and threats in workplaces. However, it may transform people attitudes to get even better, know the ways to improve the ability. A good conversation promotes an image of intelligence, wittiness and, self-confidence. Therefore, this may improve a person’s ability in conversation or other situation. This also may help people to find the objectives and how to solve the problem in presentation, study, and finding information. Anyways, the different path such as academic, personal, career, or other also has distinct objectives. To achieve the goal, a person must ensure that the goal is clearly aware of what is expected of them if an objective is to be achieved.
    • Be open to new ideas: The thinking strategically is the challenges for entrepreneurs to resolve the business problem and create the innovations. A social entrepreneur must have great thoughts and creative ideas. That’s an important reason than to share their new ideas which the ideas may success to improve their organization. A new idea may bring opportunities to extend the business in which increased productivity. The challenges in the field of social entrepreneurship also the development of new strategies and notion frameworks tailored specifically to social value creation. These reactions are crucial to fostering a positive environment that builds morale, improves motivation, and creates opportunities for success.

    #Challenges in Social Entrepreneurship.

    The challenging issue of social entrepreneurship is to build up a no funding of reliable team and establish an effective and realistic business plan to scale up. In this case, the skills and insight of a social entrepreneurship are very important that must hold by them in their business. Challenges may bring success for entrepreneurs to lead their own businesses and active involvement to explore more opportunities. The below are show the challenges of social entrepreneurship.

    Managing Accountability:

    Accountability is a complicated issue for social entrepreneurship. Social entrepreneurs create the opportunities, good in planning and manage strategically to make a decision and always strive for excellence in a business. Which they must have a good skill and insight into developing its strategy in the business.

    Social entrepreneurs need to build the profitable businesses which are observing the fourth factor of production (entrepreneur, land, labor, and capital) and improve for the economic development. Therefore, social entrepreneur always strives for excellence in a business which makes their own view and experiences to the company’s strategy.

    However, social entrepreneurs also same with other entrepreneurs, have to search for resources and survive until the business begins reaping income. The challenges and skills are useful in the future for entrepreneurs more accountable for their business.

    Managing the Double Bottom Line:

    The double bottom line is a business term which can create a series of tensions across the business. It’s to measure the financial performance in term of positive social impact. Its approaches to applying to public and private sector organization’s ability to take their strengths and capacity and match them to an opportunity they see in the marketplace- an opportunity that both meet their mission and provides financial stability- this is what we call double bottom line. These great efforts must take time to achieve the results more effective management and outcome of the form of revenue diversification.

    Managing Identity:

    In the managing identity issues, Social entrepreneurs who have worked mainly in the nonprofit sector may find it difficult to identify closely with the commercial side of the business; for entrepreneurs with a for-profit background, the problem may be a difficulty identifying with the goals and approach of the social side of the venture, especially when they undermine the stability of the business.

    Besides that, Complex identity issues such as these need to make explicit in the context of social entrepreneurship education, which should also convey the commercial realities of managing a social venture; regardless of their commitment to their social vision, only by operating profitably can social entrepreneurs engender sustainable social change. Clearly, this raises particular leadership dilemmas for social enterprise.

    Managing a Global Operation:

    Managing a global operation also play the important role in the challenges of the social entrepreneur. All the work is done for global especially for the social enterprise which they have faced to the new challenges to manage the business. In this case, the time also important to this section to help them more function closely as a team in the workplace.

    Anyways, staying objective and communicating your value, fighting fires and thinking strategically, and remaining true to the vision when complexity arrives is also be the strategy to positioning the business while there are occur a list of issues that need to solve in the workplace.

    Social Entrepreneurship Meaning and Factors of Success - ilearnlot
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  • Factors Affecting of Price Determination with Steps and Process

    Factors Affecting of Price Determination with Steps and Process

    What is Price Determination? In Economics Price Determination is the interaction between the demand and supply in the free market that is used to determine the costs for a good or service. Basically Meaning is Interaction of the free market forces of demand and supply to establish the general level of price for a good or service in Market. Also learn, Factors Affecting of Price Determination with Steps and Process.

    In the production of Marketing is also important of Factors Affecting of Price Determination with Steps and Process.

    The Factors Affecting Price Determination of Product

    Main factors affecting the price determination of product are:

    Product Cost:

    The most important factor affecting the price of a product is its cost. Product cost refers to the total of fixed costs, variable costs and semi-variable costs incurred during the production, distribution, and selling of the product. Fixed costs are those costs which remain fixed at all the levels of production or sales.

    For example, rent of the building, salary, etc. Variable costs refer to the costs which are directly related to the levels of production or sales. For example, costs of raw material, labor costs etc. Semi-variable costs are those which change with the level of activity but not in direct proportion. For example, a fixed salary of Rs 12,000 + up to 6% graded commission on an increase in the volume of sales.

    The price of a commodity is determined on the basis of the total cost. So sometimes, while entering a new market or launching a new product, the business firm has to keep its price below the cost level but in the long rim, it is necessary for a firm to cover more than its total cost if it wants to survive amidst cut-throat competition.

    The Utility and Demand:

    Usually, consumers demand more units of a product when its price is low and vice versa. However, when the demand for a product is elastic, little variation in the price may result in large changes in quantity demanded. In the case of inelastic demand, a change in the prices does not affect the demand significantly. Thus, a firm can charge higher profits in the case of inelastic demand. Moreover, the buyer is ready to pay up to that point where he perceives utility from the product to be at least equal to the price paid. Thus, both utility and demand for a product affect its price.

    The extent of Competition in the Market:

    The next important factor affecting the price of a product is the nature and degree of competition in the market. A firm can fix any price for its product if the degree of competition is low. However, when the level of competition is very high, the price of a product is determined on the basis of the price of competitors’ products, their features, and quality etc. For example, the MRF Tyre company cannot fix the prices of its Tyres without considering the prices of Bridgestone Tyre Company, the Goodyear Tyre company etc.

    Government and Legal Regulations:

    The firms which have the monopoly in the market, usually charge the high price for their products. In order to protect the interest of the public, the government intervenes and regulates the prices of the commodities for this purpose; it declares some products as essential products for example. Life-saving drugs etc.

    Pricing Objectives:

    Another important factor, affecting the price of a product or service is the pricing objectives.

    Following are the pricing objectives of any business:

    • Profit Maximisation: Usually, the objective of any business is to maximize the profit. During the short run, a firm can earn the maximum profit by charging the high price. However, during the long run, a firm reduces the price per unit to capture the bigger share of the market and hence earn high profits through increased sales.
    • Obtaining Market Share Leadership: If the firm’s objective is to obtain a big market share, it keeps the price per unit low so that there is an increase in sales.
    • Surviving in a Competitive Market: If a firm is not able to face the competition and is finding difficulties in surviving, it may resort to free offer, discount or may try to liquidate its stock even at BOP (Best Obtainable Price).
    • Attaining Product Quality Leadership: Generally, the firm charges higher prices to cover high quality and high cost if it’s backed by the above objective.
    Marketing Methods Used:

    The various marketing methods such as distribution system, quality of salesmen, advertising, type of packaging, customer services, etc. also affect the price of a product. For example, a firm will charge high profit if it is using an expensive material for packing its product.

    The Steps Involved in Price Determination Process.

    The Price decision must take into account all factors affecting both demand price and supply price. The Process of Price Determination. The market price is the price determined by the free play of demand and supply. The market price of a product affects the price paid to the factors of production – rent for land, wages for labor, interest for capital and profit for the enterprise. In fact, price becomes a basic regulator of the entire economic system because it influences the allocation of these resources.

    The pricing decisions must take into account all factors affecting both demand price and supply price. The price determination process involves the following steps:

    • Market Segmentation: On the basis of market opportunity analysis and assessment of firms strengths and weaknesses marketers will find out specific marketing targets in the form of appropriate market segments. Marketers will have the firm decision on  – (a) the type of products to be produced or sold, (b) the kind of service to be rendered, (c) the costs of operations to be estimated, and (d) the types of customers or market segments sought.
    • Estimate of Demand: Marketers will estimate the total demand for the products. It will be based on sales forecast, channel opinions and degree of competition in the market.
    • The Market Share: Marketers will choose a brand image and the desired market share on the basis of competitive reaction. Market planners must know exactly what his rivals are charging. Level of competitive pricing enables the firm to price above, below, or at par and such a decision is easier in many cases. The higher initial price may be preferred if you expect a smaller market share, whereas if you expect of much larger market share, you prefer the lower price.
    • The Marketing Mix: The overall marketing strategy is based on an integrated approach to all the elements of the marketing mix. It covers – (1) product-market strategy, (2) promotion strategy, (3) pricing strategy, and (4) distribution strategy. All elements of the marketing mix are essential to the overall success of the firm. Price is the strategic element of the marketing mix as it influences the quality perception and enables product positioning.
    • Estimate of Costs: Straight cost-plus pricing is not desirable always as it is not sensitive to demand. Marketing must take into account all relevant costs as well as price elasticity of demand, if necessary, through market tests.
    • Pricing Policies: Price policies provide the general framework within which managerial decisions are made on pricing. Pricing policies are guidelines to carry out pricing strategy. Pricing policy may desire to meet competition or we may have pricing above or below the competition. We may have fixed or flexible pricing policies. Pricing policies must change and adapt themselves to the changing objectives and changing environment.
    • Pricing Strategies: Pricing policies are general guidelines for recurrent and routine issues in marketing. The strategy is a plan of action (a movement or counter movement) to adjust with changing conditions of the marketplace. New and unanticipated developments may occur, e.g., price cut by rivals, government regulations economic recession, fluctuations in the purchasing power of consumers, changes in consumer demand, and so on. Situations like these demand special attention and relevant adjustments in our pricing policies and procedures.
    • The Price Structure: Developing the price structure on the basis of pricing policies strategies is the final step in the price determination process.

    The Factors Affecting of Price Determination with Steps and Process - ilearnlot
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  • Factors Affecting the Major Types of Financial Decisions!

    Factors Affecting the Major Types of Financial Decisions!

    Learn and Understand, Factors Affecting the Major Types of Financial Decisions!

    Definition: The Financing Decision is yet another crucial decision made by the financial manager relating to the financing-mix of an organization. It is concerning the borrowing and allocation of funds required for the investment decisions. Types of Decisions: i. Investment decision ii. Financing decision iii. Dividend decision iv. Liquidity Decision. Also learn, Simple Types of Financial Decisions, Factors Affecting the Major Types of Financial Decisions!

    Some of the important functions which every finance manager has to take are as follows:

    A. Investment decision.

    B. Financing decision.

    C. Dividend decision, and.

    D. Liquidity Decision.

    The following decision is explained below:

    A. Investment Decision (Also Know, Capital Budgeting Decision):

    This decision relates to the careful selection of assets in which funds will be invested by the firms. A firm has many options to invest their funds but the firm has to select the most appropriate investment which will bring maximum benefit to the firm and decide or selecting most appropriate proposal is investment decision.

    The firm invests its funds in acquiring fixed assets as well as current assets. When decision regarding fixed assets is taken it is also called capital budgeting decision.

    Factors Affecting Investment/Capital Budgeting Decisions:

    1. Cash Flow of the Project:

    Whenever a company is investing huge funds in an investment proposal it expects some regular amount of cash flow to meet day to day requirement. The amount of cash flow an investment proposal will be able to generate must assess properly before investing in the proposal.

    2. Return on Investment:

    The most important criteria to decide the investment proposal is the rate of return it will be able to bring back for the company in the form of income for, e.g., if project A is bringing 10% return and project В is bringing 15% return then we should prefer project B.

    3. Risk Involved:

    With every investment proposal, there is some degree of risk is also involved. The company must try to calculate the risk involved in every proposal and should prefer the investment proposal with the moderate degree of risk only.

    4. Investment Criteria:

    Along with return, risk, cash flow there are various other criteria which help in selecting an investment proposal such as availability of labor, technologies, input, machinery, etc.

    The finance manager must compare all the available alternatives very carefully and then only decide where to invest the most scarce resources of the firm, i.e., finance.

    Investment decisions are considered very important decisions because of following reasons:

    (i) They are long-term decisions and therefore are irreversible; means once taken cannot change.

    (ii) Involve huge amount of funds.

    (iii) Affect the future earning capacity of the company.

    Importance or Scope of Capital Budgeting Decision:

    Capital budgeting decisions can turn the fortune of a company. The capital budgeting decisions are considered very important because of the following reasons:

    1. Long-Term Growth:

    The capital budgeting decisions affect the long-term growth of the company. As funds invested in long-term assets bring the return in future and future prospects and growth of the company depend upon these decisions only.

    2. Large Amount of Funds Involved:

    Investment in long-term projects or buying of fixed assets involves the huge amount of funds and if the wrong proposal is selected it may result in wastage of huge amount of funds that is why capital budgeting decisions are taken after considering various factors and planning.

    3. Risk Involved:

    The fixed capital decisions involve huge funds and also the big risk because the return comes in long run and company has to bear the risk for a long period of time till the returns start coming.

    4. Irreversible Decision:

    Capital budgeting decisions cannot reverse or change overnight. As these decisions involve huge funds and heavy cost and going back or reversing the decision may result in heavy loss and wastage of funds. So these decisions must take after careful planning and evaluation of all the effects of that decision because adverse consequences may be very heavy.

    B. Financing Decision:

    The second important decision which finance manager has to take is deciding source of finance. A company can raise finance from various sources such as by issue of shares, debentures or by taking loan and advances. Deciding how much to raise from which source is the concern of financing decision.

    Mainly sources of finance can divide into two categories:

    1. Owners fund.

    2. Borrowed fund.

    Share capital and retained earnings constitute owners’ fund and debentures, loans, bonds, etc. constitute borrowed fund.

    The main concern of finance manager is to decide how much to raise from owners’ fund and how much to raise from a borrowed fund.

    While taking this decision the finance manager compares the advantages and disadvantages of different sources of finance. The borrowed funds have to pay back and involve some degree of risk whereas in owners’ fund there is no fixing commitment of repayment and there is no risk involved. But finance manager prefers a mix of both types. Under financing, decision finance manager fixes a ratio of owner fund and borrowed fund in the capital structure of the company.

    Factors Affecting Financing Decisions:

    While taking financing decisions the finance manager keeps in mind the following factors:

    1. Cost:

    The cost of raising finance from various sources is different and finance managers always prefer the source with minimum cost.

    2. Risk:

    More risk is associated with the borrowed fund as compared to owner’s fund securities. Finance manager compares the risk with the cost involved and prefers securities with the moderate risk factor.

    3. Cash Flow Position:

    The cash flow position of the company also helps in selecting the securities. With smooth and steady cash flow companies can easily afford borrowed fund securities but when companies have a shortage of cash flow, then they must go for owner’s fund securities only.

    4. Control Considerations:

    If existing shareholders want to retain the complete control of business then they prefer borrowed fund securities to raise further fund. On the other hand, if they do not mind to lose the control then they may go for owner’s fund securities.

    5. Floatation Cost:

    It refers to the cost involved in the issue of securities such as broker’s commission, underwriters fees, expenses on the prospectus, etc. The firm prefers securities which involve least floatation cost.

    6. Fixed Operating Cost:

    If a company is having high fixed operating cost then they must prefer owner’s fund because due to high fixed operational cost, the company may not be able to pay interest on debt securities which can cause serious troubles for the company.

    7. State of Capital Market:

    The conditions in capital market also help in deciding the type of securities to raise. During boom period it is easy to sell equity shares as people are ready to take risk whereas during depression period there is more demand for debt securities in the capital market.

    C. Dividend Decision:

    This decision is concerned with the distribution of surplus funds. The profit of the firm is distributed among various parties such as creditors, employees, debenture holders, shareholders, etc.

    Payment of interest to creditors, debenture holders, etc. is a fixed liability of the company, so what company or finance manager has to decide is what to do with the residual or left over the profit of the company.

    The surplus profit is either distributed to equity shareholders in the form of the dividend or kept aside in the form of retained earnings. Under dividend decision, the finance manager decides how much to distribute in the form of dividend and how much to keep aside as retained earnings.

    To take this decision finance manager keeps in mind the growth plans and investment opportunities.

    If more investment opportunities are available and company has growth plans then more is kept aside as retained earnings and less is given in the form of dividend, but if company wants to satisfy its shareholders and has fewer growth plans, then more is given in the form of dividend and less is kept aside as retained earnings.

    This decision is also called residual decision because it is concerned with the distribution of residual or leftover income. Generally new and upcoming companies keep aside more of retain earning and distribute less dividend whereas established companies prefer to give more dividend and keep aside less profit.

    Factors Affecting Dividend Decision:

    The finance manager analyses following factors before dividing the net earnings between dividend and retained earnings:

    1. Earning:

    Dividends are paid out of current and previous year’s earnings. If there are more earnings then company declares the high rate of dividend whereas during the low earning period the rate of dividend is also low.

    2. Stability of Earnings:

    Companies having stable or smooth earnings prefer to give the high rate of dividend whereas companies with unstable earnings prefer to give the low rate of earnings.

    3. Cash Flow Position:

    Paying dividend means outflow of cash. Companies declare the high rate of dividend only when they have surplus cash. In the situation of shortage of cash, companies declare no or very low dividend.

    4. Growth Opportunities:

    If a company has a number of investment plans then it should reinvest the earnings of the company. As to invest in investment projects, the company has two options: one to raise additional capital or invest its retained earnings. The retained earnings are the cheaper source as they do not involve floatation cost and any legal formalities.

    If companies have no investment or growth plans then it would be better to distribute more in the form of the dividend. Generally, mature companies declare more dividends whereas growing companies keep aside more retained earnings.

    5. Stability of Dividend:

    Some companies follow a stable dividend policy as it has the better impact on shareholder and improves the reputation of the company in the share market. The stable dividend policy satisfies the investor. Even big companies and financial institutions prefer to invest in a company with regular and stable dividend policy.

    There are three types of stable dividend policies which a company may follow:

    (i) Constant dividend per share:

    In this case, the company decides a fixed rate of dividend and declares the same rate every year, e.g., 10% dividend on investment.

    (ii) Constant payout ratio:

    Under this system, the company fixes up a fixed percentage of dividends on profit and not on investment, e.g., 10% on profit so dividend keeps on changing with the change in profit rate.

    (iii) Constant dividend per share and extra dividend:

    Under this scheme, a fixed rate of dividend on investment is given and if profit or earnings increase then some extra dividend in the form of bonus or interim dividend is also given.

    6. Preference of Shareholders:

    Another important factor affecting dividend policy is expectation and preference of shareholders as their expectations cannot ignore the company. Generally, it is observed that retired shareholders expect the regular and stable amount of dividend whereas young shareholders prefer capital gain by reinvesting the income of the company.

    They are ready to sacrifice present-day income dividend for future gain which they will get with growth and expansion of the company.

    Secondly poor and middle-class investors also prefer the regular and stable amount of dividend whereas wealthy and rich class prefers capital gains.

    So if a company is having a large number of retired and middle-class shareholders then it will declare more dividend and keep aside less in the form of retained earnings whereas if company is having a large number of young and wealthy shareholders then it will prefer to keep aside more in the form of retained earnings and declare low rate of dividend.

    7. Taxation Policy:

    The rate of dividend also depends upon the taxation policy of the government. Under present taxation system dividend income is tax-free income for shareholders whereas. The company has to pay tax on dividend given to shareholders. If the tax rate is higher, the company prefers to pay less in the form of dividend whereas. If the tax rate is low then the company may declare the higher dividend.

    8. Access to Capital Market Consideration:

    Whenever company requires more capital it can either arrange it by the issue of shares or debentures in the stock market or by using its retained earnings. Rising of funds from the capital market depends upon the reputation of the company.

    If capital market can easily access or approach and there is enough demand for securities of the company then company can give more dividend and raise capital by approaching capital market, but if it is difficult for company to approach and access capital market then companies declare low rate of dividend and use reserves or retained earnings for reinvestment.

    9. Legal Restrictions:

    Companies’ Act has given certain provisions regarding the payment of dividends that can pay only out of current year profit or past year profit after providing depreciation fund. In case the company is not earning the profit then it cannot declare the dividend.

    Apart from the Companies’ Act, there are certain internal provisions of the company that is whether the company has enough flow of cash to pay the dividend. The payment of dividend should not affect the liquidity of the company.

    10. Contractual Constraints:

    When companies take a long-term loan then financier may put some restrictions or constraints on the distribution of dividend and companies have to abide by these constraints.

    11. Stock Market Reaction:

    The declaration of the dividend has an impact on the stock market as an increase in dividend is taken as a good news in the stock market and prices of security rise. Whereas a decrease in dividend may have the negative impact on the share price in the stock market. So possible impact of dividend policy on the equity share price also affects dividend decision.

    D. Liquidity Decision:

    It is very important to maintain a liquidity position of a firm to avoid insolvency. Firm’s profitability, liquidity, and risk all are associated with the investment in current assets. In order to maintain a tradeoff between profitability and liquidity. It is important to invest sufficient funds in current assets. But since current assets do not earn anything for business, therefore, a proper calculation must do before investing in current assets.

    Current assets should properly value and dispose of from time to time once they become non-profitable. Currents assets must use in times of liquidity problems and times of insolvency.

    Factors Affecting the Major Types of Financial Decisions - ilearnlot

  • Definition Importance Affected Factors of Manpower Planning

    Definition Importance Affected Factors of Manpower Planning

    Factors of Manpower Planning with their Definition and Importance; According to Gorden MacBeath, manpower planning involves two stages. The first stage is concerned with the detailed; “Planning of manpower requirements for all types and levels of employees throughout the plan”; and, the second stage is concerned with; “Planning of manpower supplies to provide the organization with the right types of people from all sources to meet the planned requirements”. Also learn, What is the Process of Manpower Planning?

    Explaining, Definition, Importance, and Affected Factors of Manpower Planning!

    According to Vetter, the process by which management determines how the organization should move from its current manpower position to its desired manpower position. Through planning, management strives to have the right number and the right kinds of people, at the right places, at the right time, doing things that result in both the organization and the individual receiving the maximum long-run benefit.

    Stainer defines it as a “Strategy for the acquisition, utilization, improvement, and preservation of an enterprise’s human resources. It relates to establishing job specifications or the quantitative requirements of jobs determining the number of personnel required and developing sources of manpower”.

    According to Wickstrom, human resource planning consists of a series of activities, viz:

    1. Forecasting future manpower requirements, either in terms of mathematical projections of trends in the economic environment and development in industry, or in terms of judgmental estimates based upon the specific future plans of a company;  
    2. Making an inventory of present manpower resources and assessing the extent to which these resources are employed optimally;
    3. Anticipating manpower problems by projecting present resources into the future and comparing them with the forecast of requirements to determine their adequacy, both quantitatively and qualitatively; and
    4. Planning the necessary programmes of requirement, selection, training, development, utilization, transfer, promotion, motivation, and compensation to ensure that future manpower requirements are properly met.

    According to Geisler, it is the process—including forecasting, developing, and controlling—by which a firm ensures that it has the right number of people and the right kind of people at the right places at the right time doing work for which they are economically most useful.

    Importance of Manpower Planning!

    1. Key to managerial functions: The four managerial functions, i.e., planning, organizing, directing, and controlling are based on manpower. Human resources help in the implementation of all these managerial activities. Therefore, staffing becomes a key to all managerial functions.

    2. Efficient utilization: Efficient management of personnel becomes an important function in the industrialization world of today. The setting of large-scale enterprises requires the management of large-scale manpower. It can be effectively done through staffing functions.

    3. Motivation: Staffing function not only includes putting the right men on the right job; but it also comprises of motivational programs, i.e., incentive plans to be framed for further participation and employment of employees in a concern. Therefore, all types of incentive plans become an integral part of the staffing functions.

    4. Better human relations: A concern can stabilize itself if human relations develop and are strong. Human relations become strong through effective control, clear communication, effective supervision, and leadership in a concern. Staffing function also looks after training and development of the workforce which leads to co-operation and better human relations.

    5. Higher productivity: Productivity level increases when resources utilizing in the best possible manner; higher productivity is a result of minimum wastage of time, money, effort, and energy. This is possible through the staffing and its related activities ( Performance appraisal, training, and development, remuneration).

    Factors Affecting Manpower Planning!

    The exercise is not an easy tube because it imposing by various factors such as; what are the success factors of manpower planning below are :

    1. It suffers from inaccuracy because it is very difficult to forecast long-range requirements of personnel.  
    2. It depends basically on organization planning. Overall planning is itself is a difficult task because of changes in economic conditions, which make long-term it planning difficult.
    3. It is difficult to forecast about the personnel with the organization at a future date. While vacancies caused by retirements can predict accurately other factors like resignation, deaths are difficult to forecast.
    4. Lack of top management support also frustrates those in charge of planning; because, in the absence of top management support, the system does not work properly.
    5. The problem of forecast becomes more occur in the context of key personnel; because their replacement cannot arrange the short period of time.

    Moreover, any system that requires the support of top management and manpower planning is no exception to this.

    Definition Importance and Affected Factors of Manpower Planning - ilearnlot
    Definition, Importance, and Affected Factors of Manpower Planning! Thanks, Also, Photo Credit to pixabay.com/ More free Images!
  • Factors affecting Organizational Change, External and Internal

    Factors affecting Organizational Change, External and Internal

    Factors affecting Organizational Change; Change is inevitable in the life of an organization. In today’s business world, most organizations are facing a dynamic and changing business environment. Also Learn, What are the Participation and Organizational Change? factors affecting change in organization External, and Internal. They should either change or die, there is no third alternative. Organizations that learn and cope with change will thrive and flourish and others who fail to do so will be wiped out. The major forces which make the changes not only desirable but inevitable are technological, economic, political, social, legal, international, and labor market environments.

    Explain are Factors affecting Organizational Change, Difference between External and Internal Factors. 

    In very simple words, we can say that change means the alteration of the status quo or making things different. The factors affecting change in organisation; “The term change refers to any alterations which occur in the overall work environment of an organization.”

    “When an organizational system is disturbed by some internal or external force, change frequently occurs. Change, as a process, is simply the modification of the structure or process of a system. It may be good or bad, the concept is descriptive only.”

    Organizational changes are required to maintain equilibrium between various external and internal forces to achieve organizational goals. Therefore various factors that may be important for necessitating organizational changes may group into two categories: external and internal.

    #EXTERNAL FACTORS:

    Every organization exists in some context: no organization is an island in itself. Each must continually interact with other organizations and individuals – the consumers, suppliers, unions, shareholders, government – and many more. Each organization has goals and responsibilities related to others in its environment. Thus not only an organization must deal with its environment in conducting its affairs, but it must also consider the goals of others as it establishes its foals and conducts its operations.

    The present-day environment is dynamic and will continue to be dynamic. Changes in social, political, economic technological, and legal environments force organizations to change themselves. Such change may result in organizational changes like major functions, production processes, labor-management relations, nature of competition, economic constraints, organizational methods, etc. to survive in the changing environment, an organization must change.

    How the change in various environmental factors necessitates the change in the organization may see in the following context:

    1. Technological Changes:

    when there is a change in technology in the organization’s environment and other organizations adopt the new technology, the organization under focus becomes less cost-effective and its competitive position weakens. Therefore, it has to adopt new technology. When organizations adopt new technology, their work structure stands affected and a new equilibrium has to establish. For example computers and automation have made a significant impact on organizational functioning. Also read, Explain Organizational Culture.

    2. Changes in Marketing Conditions:

    Since every organization exports its outputs to the environment, an organization has to face competition in the market. There may be two types of forces that may affect the competitive position of an organization – other organizations supplying the same products and buyers who are buying the product. Any change in these forces may require suitable changes in the organization. For example, when the Indian economy was liberalized (the process continues), many foreign organizations entered the Indian market.

    This forced many Indian organizations to realign themselves with the new situation. The result is that there have been many cases of divesting the businesses and concentrating on the core businesses, acquiring core businesses, and developing competitive competence to face competitive threats. Similarly, there may be changes in buyers in terms of their needs, liking – disliking, and income disposal for a product. These changes force the organizations to bring those products which meet the buyer’s requirements.

    3. Social changes:

    The social changes reflect in terms of people’s aspirations, their needs, and their way of working. Social change has taken place because of several forces like the level of education, urbanization, feeling of autonomy, and international impact due to new information sources. These social changes affect the behavior of people in the organization. Therefore it is required to adjust its working so that it matches people.

    Political and legal factors broadly define the activities which an organization can undertake and the methods which will follow it in accomplishing those activities. Any change in these political and legal factors may affect the organizational operation. Don’t forget for learning, Dimensions of Organizational Climate.

    #INTERNAL FACTORS:

    It is not only the change in external factors that may necessitate organizational change, but any change in an organization’s internal factors may also necessitate change. Such a change is required because of two reasons: a change in managerial personnel and a deficiency in existing organizational practices.

    1. Change in Managerial Personnel:

    Besides environmental; changes, there is a change in managerial personnel. Old managers are replaced by new managers who are necessitating because of retirement, promotion, transfer, or dismissal. Each new manager brings his ideas and way of working in the organization. The manager brings his ideas and way of working to the organization. The relationships more particularly informal ones, change because of changes in managerial personnel. Moreover, attitudes of the personnel change even though there is no change in them. The result is that an organization has to change accordingly.

    2. Deficiency in Existing Organization:

    Sometimes, changes are necessary because of deficiencies in the present organizational arrangement and process. These deficiencies may be in the form of an unmanageable span of management, a large number of managerial levels, lack of coordination between various departments, obstacles in communication, the multiplicity of committees, lack of uniformity in policy decisions, lack of cooperation between line and staff, and so on.

    3. Nature of the workforce:

    The nature of the workforce has changed with time. Different work values have been expressed by different generations. Workers who are in the age group of 50 plus value loyalty to their employers. Workers in their mid-thirties to forties are loyal to themselves only. The youngest generation of workers is loyal to their careers. The profile of the workforce is also changing fast. The new generation of workers has better education; they place greater emphasis on human values and question the authority of managers. Their behavior has also become very complex and leading them towards organizational goals is a challenge for the managers. The employee turnover is also very high which again puts the strain on the management.

    4. To avoid developing inertia:

    In many cases, organizational changes take place just to avoid developing inertia or inflexibility. The conscious manager takes into account this view of the organization that the organization should be dynamic because any single method is not the best tool for management every time. Thus, changes are incorporated so that the person develops a liking for change and there is no unnecessary resistance when the major change in the organization is brought about.

    What are Factors affecting Organizational Change External and Internal
    What are the Factors affecting Organizational Change? External and Internal.

    Reference:

    1. Organizational Changes – //livinfo.blogspot.in/2012/10/participation-and-organisational-climate.html
    2. Factors Affecting Organizational Change – //www.mbaknol.com/management-concepts/factors-affecting-organizational-change/
    3. Photo Credit URL – //bookboonglobal.com/wp-content/uploads/sites/8/2013/09/How-demographic-changes-will-impact-organizations-and-managers.png
    4. Image Source HD Wallpapers.