Tag: Osmania University B.com Notes

Planning Procedures

Planning is the first primary function of management that precedes all other functions.

Management planning process is a step-by-step guide to creating a realistic organizational plan to meet set goals after assessment of available resources. It takes into consideration both long-term and short-term corporate strategies and spells out the vision and the direction to which the company is headed. Organizational planning ensures;

• Proper Resource Utilization; since resources are scarce, planning provides invaluable information to top decision-makers on how the available ones will be utilized. Whatever the project is, maximum productivity should be ensured from minimum resource utilization.
• Establishment of goals; planning sets up challenging but realistic goals to every team member in the organization. Setting individual goals ensures employees are not complacent in-service delivery.
• Uncertainty and risk management; Risk management is very important for any organization to succeed. Sometimes things happen the unexpected way. Planning, therefore, helps put in place the ‘what if’ scenario thus cushioning on the adverse effects that might result due to severe unforeseen consequences. Planning Method

Nine Steps for Management planning process:

Venture Awareness and Resources Allocation

The awareness of the business venture and taking action towards the attainment of set objectives is the first step in the management planning process. Awareness enables the decision-making authority to identify available and future opportunities and plan on their effective utilization

Venture awareness also entails the understanding of organizational goals. A detailed overview of each goal should be looked at and anticipated outcomes analyzed. At this stage, objectives should be described in quantitative terms. E.g. in 12 months period, the anticipated profit margin should rise by approximately 30 per cent. Again it is important to note that the set goals should be allocated adequate human and financial resources for effective completion.

Gathering Adequate Information

Before initiating the actual plan, always have all the relevant information that regards the business operation. All the facts and figures should be detailed, target customers identified and their tastes and preferences noted. The guidelines under which goods and services are provided should also be set and the current market value of products measured against expected returns projected costs and expenses.

When gathering information, management should be well aware of goal related tasks so as to align them with objectives and the required resources i.e. in terms of staff and financing.

Setting Objectives

These are setting goals that the organization strives to achieve by utilizing its available resources. They are the end products that should be attained through proper planning.

Understanding objectives enable each employee to muster his/her role in attaining general goals. They should, therefore, be properly formulated and well communicated to all employees.

Objectives and tasks should be set in their order of importance. The most important tasks should be assigned first priority and completed first.

Anticipation

No one knows what will happen in future a reason why management planning process is essential. When formulating a management plan, forecasting is essential. Forecasting is the assumption of future events by keenly observing present variables and constituting a plan that is likely to meet the desired expectations.

The following should be taken into consideration (if in production industry) when anticipating for the future;

• Likely production volume and the expected demand for general production
• Likely costs and product pricing
• Government’s economic policies and varying patterns in consumer preferences
• Source of funding
• Availability of raw materials and labor
• Importance of technology in meeting the set objectives

The successful implementation of the whole management planning process will entirely hinge on forecasting and some of the factors that have been listed above. Accurate anticipation and forecasting will lead to a reliable set out management plan.

Determining The Absolute Course of Action

The next step is to choose the absolute course of action. Different organizations may use different alternative to achieve similar results but a good manager should analyze all available options and make a final selection that will be appropriate in terms of resource utilization and convenience. According to O’Donnell, there is always a plan against which there are no reasonable alternatives. This, therefore, means that all positives and negatives of a particular course of action should be analyzed and weighed before the final verdict on selection is taken

Evaluate The Course Of Action

After determining the absolute course of action, the next important step is to do an evaluation. Evaluation involves analysis of the performance of different actions. Different factors are measured against each other and the most convenient course of action in terms of resources and timeline preferred. E.g. one course of action may require large investments and it’s profitable in the long run while the other might require very little resources but low-profit margins in the long run. Therefore, appropriate analysis is vital in identifying the best course of action.

Establishing the Contingency Plans

The management planning process does not end after establishing the appropriate course of action. Contingency plans should also be put in place in case the main course of action does not materialize. This should just act as secondary plans in support of the principal plan.

Plan Implementation

This is the second-last step in the process of Management planning. At this stage, the plan is put into action so that the business objectives are realized. For successful implementation of the already set out plan, policies and procedures should be put in place. Plan execution should be for all operational staff, managers, partners and other relevant collaborative partners.

Monitoring and Evaluation

The effectiveness of management planning and the execution process must be assessed if possible, regularly. Depending on evaluation results, managerial guidelines or principles may need adjustments or modifications before final plan execution. Also, the management plan may need to be tailored to meet societal, political or economic changes that affect the organization as a whole.

Planning Rule

Rules are very specific statements that define an action or non-action. Also, rules allow for no flexibility at all, they are final. All employees of the organization must compulsorily follow and implement the rules. Not following rules can have severe consequences.

Rules create an environment of discipline in the organization. They guide the actions and the behaviour of all the employees of the organization. The rule of “no smoking” is one such example.

Planning Budget

A budget is a statement of expected results the managers expect from the company. Budgets are also a quantitative statement, so they are expressed in numerical terms. A budget quantifies the forecast or future of the organization.

There are many types of budgets that managers make. There is the obvious financial budget, that forecasts the profit of the company. Then there are operational budgets generally prepared by lower-level managers. Cash budgets monitor the cash inflows and outflows of the company.

The Task Force is a type of a group, formed temporary, in which people from different disciplinary backgrounds come together to perform a specific task or mission. These are different from the committees in the sense, these are temporary and has broader powers of action and decision, greater responsibilities for investigation, analysis, planning and research.

The task force is temporary and comes to an end as soon as the mission for which it was created gets over. The purpose behind its creation is to capitalize the skills, expertise and experience of its members to find the solution to some unusual organizational problem. The task force usually comes into the power when the organization faces a complex problem which is beyond the capabilities of an individual and even the entire department to solve it.

Such groups can either be constituted at the time of; a launch of a new product, selection of a new assignment or for the negotiation of certain terms and conditions. Also, any member of the organization could be a part of this, irrespective of his hierarchical position in the organization.

Thus, the task force is constituted to capitalize the special skills of individuals to solve a complex problem, but sometimes it can also pose serious threats to the organization. Such as people may feel miserable if not selected in the task force, a feeling of independence may emerge in the minds of task force members and might lose attachment to the formal organization.

The modern approach to management was developed around the year 1950. This approach is an improvement upon both the classical and neo-classical approach to management.

This approach has three basic pillars:

1. Quantitative Approach
2. System Approach
3. Contingency Approach

Quantitative Approach:

The quantitative approach was propounded by C. W Churchman and his colleagues around the year 1950. This approach is also known by the name of Operational Research or Operational Analysis.

The classical approach lays stress upon the physical resources while the neo-classical approach gives importance to human resources. Both these approaches are silent about some of the most serious problems usually faced by the managers.

The quantitative approach to management makes some suggestions to solve different problems facing the managers. It tells the managers to solve their problems with the help of the mathematical and statistical formulas. Some special formulas have been prepared to solve managerial problems.

For Example:

(i) Theory of Probability,

(ii) Sampling Analysis,

(iii) Correlation / Regression Analysis,

(iv) Time Series Analysis,

(v) Ratio Analysis,

(vi) Variance Analysis,

(vii) Statistical Quality Control,

(viii) Linear Programming,

(ix) Game Theory,

(x) Network Analysis,

(xi) Break-Even Analysis,

(xii) Waiting Line or Queuing Theory,

(xiii) Cash-Benefit Analysis, etc.

The main objective of the quantitative approach is to find out a solution for the complex problems facing the big companies. The help of a computer is usually taken in order to make use of the above mentioned techniques.

The chief advantage of the approach is to solve complex problems quickly. But the chief disadvantage is that this approach offers an alternative to decision and cannot take decision.

System Approach:

This is a newly developed approach which came existence in 1960. This approach was developed by Chester I. Bernard, Herbert A. Simon and their colleagues.

The system approach means a group of small inter-related units. A group of different units which means a complete unit is called a system, while the small units are themselves independent, but somehow or the other is connected with the sub-systems of the related system. All the sub-systems influence one another. For example- a scooter is a system which has many sub-systems in the form of engine, shaft, gear, wheels body, etc.

All these sub-systems are inter-related with one another and if one of them fails the whole system stops working. Therefore, the success of the system depends on the cooperation and efficiency of the sub-systems.

It can, therefore, be said that a system means different inter-related parts which work n cohesion simultaneously to achieve a particular purpose.

According to the system approach, the whole organization is a system and its various departments are its sub-systems. All the sub-systems work in unison. Then and only then the objective of the organization can be achieved. Therefore, when manager taken some decision regarding a particular sub-system, he should also take into consideration the defect of his decision on the other sub-systems.

Key Concepts of System Approach:

The following are the chief characteristics of the System Approach:

(1) Sub-Systems:

Every system happens to be a combination of many sub-systems. All the sub-systems are inter-related. It means that whenever we take some decision regarding a particular sub-system, we should always keep in mind the possible effect of the decision might have on the other sub-systems. In the context of a company, all its departments (e.g. purchase, sale, finance, production, personnel, research and development) happen to be its sub-systems.

All these are created by the major system which happens to be the company itself. Company itself is a sub-system of industry. Industry is a sub-system of a national economy. Similarly, the national economy itself happens to be a sub-system of the world system. Therefore, it is clear that various sub-systems constitute a major system.

(2) Holism:

A major characteristic of the System Approach is that it is looked upon as a whole. It clearly means that a decision taken with regard to a particular sub-system does influence or affect the other sub-systems. Therefore, every decision is taken keeping in view the entire organisation, meaning thereby, that all the sub-systems are kept in mind while taking a decision. If that is not done, the major system is certainly damaged and it cannot work properly.

For example- if the sales department is aiming at doubling its sales, it shall have to take care of the fact whether the purchase department would be in a position to purchase the requisite amount of raw material.

Again, whether the personnel department will be able to provide the required man-power. Yet again whether the finance department will be able to provide the required financial support. It can, therefore, be said that no decision is possible in respect of any particular sub-system alone. That is why the system approach is called holistic.

(3) Synergy:

It means that the whole is greater than the sum of its parts. This can be better understood with the help of an example. Suppose there are five persons in a group. Everybody has a capacity to carry a load of five quintal each. When they are told to lift a load of one quintal, everybody will be able to lift only one quintal of load. But if that are told to lift the weight collectively, they would certainly be able to lift a load in excess of five quintal.

It is thus, clear that if job is performed collectively rather than individual, it is certainly well-performed with better results. Here, the pointer happens to be towards coordination. When all the parts of a system work keeping in mind the interests of others, the performance turns out to be decidedly better results.

(4) Closed and Open System:

A system can be of two types:

(i) Closed system and

(ii) Open system

(i) Closed System:

This is a system that remains unaffected by the environmental factors. Traditional management experts consider an organisation as a closed system. They believed that an organisation worked without being influenced by the outside factors, e.g., a watch is not influenced by the outside factors and it works continuously without getting interrupted. This is a good example of the closed system.

(ii) Open System:

An open system means a system which remains constantly in touch with its environment and is influenced by it. Modern management experts consider an organisation as an open system. Environment is a combination of many factors.

The chief factors of the environment of an organisation happen to be raw material, power, finance, machine, man-power, technique, market, new products, government policies, etc. All these factors of environment enter an organisation as Input. Within the organisation, they are converted into products through the process of various activities.

Then they walk out of the organisation in the form of output and once again mingle with the environment. At this time, they happen to be in the form of goods, services and satisfaction. All the factors of input and output influence the organisation. That is why an organisation is called an open system.

(5) System Boundary:

This means a certain dividing line which separates a system from its environment. The dividing line in a closed system is rigid while in respect of open system, it is flexible. It is not easy to determine the dividing line in respect of physical and biological systems, e.g., a dividing line can easily be drawn between the two pieces of land.

It is, however, difficult to do so in respect of a social system and an organisation is a social system. System boundary makes it clear as to which factors are related to the system and which factors are related to the environment. Consequently, it makes control easier.

In conclusion, it can be said that there have been revolutionary changes in the process of decision-making because of concept of system approach. However, some critics feel that it is difficult to study the relations between sub-systems of a particular system. Therefore, this concept is not practical.

III. Contingency or Situational Approach:

Contingency approach to management is an important modem approach. This approach originated in around 1970. According to it, the managers should take decisions not according to principles but according to the situations. It means that there cannot be any single principle / formula / managerial activity which can be suitable in all the situations. Its chief reason is the constantly changing nature of environment. Here environment means the sum total of all the factors which influence the organization.

These factors are both internal and external. The internal factors include objectives, policies, organization structure, management information system, etc. The external factors include customers, suppliers, competitors, government policies, political set-up, legal system, etc. All these factors are subject to change that is why the environment of an organization is called dynamic.

The system approach has failed to establish a relationship between the organization and environment. The contingency approach has made an attempt to remove this weakness. It is, therefore, the basic duty of the managers to analyse the environment and they should take decision on the basis of their analysis. The managers should always keep in mind that no single method can be suitable for doing any work. Its suitability depends on the situations.

It is quite possible that a particular method of doing a thing may be futile and to hope that these principles would be suitable or successful in one situation, but the same may not be the case in some other situation. So far as the different principles of management are concerned, they simply guide the mangers, and in the present dynamic environment, it would be futile to hope that these principles would be suitable or helpful in all the situations.

For example- single style of leadership cannot be applied to all the situations. Similarly, there are many methods of motivation and control, but a single method cannot be applied to all the situations.

Features of Contingency Approach:

The following are the main features of the contingency approach:

1. The managerial action influences the environment.
2. The managerial action changes according to the situations.
3. There is essentially coordination between the organization and environment.

Limitations of Contingency Approach:

The following are the limitations of the contingency approach:

1. It is not sufficient to say that the managerial action depends on the situation. It is essential to say what action should be taken in a particular situation.
2. A situation can be influenced by many factors. It is difficult to analyse all these factors.

Conclusion:

In conclusion, it can be said that this approach advises the managers to be alert and suggests that the approach and system of work should be suitably changed in view of the situations confronting them.

1. Other Approaches:

(1) Decision Approach:

Apart from some expert economists who developed the Decision Theory Approach, C.I. Barnard and Herbert Simon happen to be the chief exponents of this approach.

This approach can be better understood with the help of the following mathematical equation:

Management Minus Decision-Making is Zero

This equation makes it clear that if we take away decision out of management, nothing remains except zero. It means that, management is nothing but decision making. A manager has to take decisions at every step. Decision becomes absolutely necessary when there are many alternatives available to solve a particular problem.

After analysing the various alternatives, a rational decision has to be taken. The process of decision-making is a continuous process. The chief reason for it is that the managers have to face problems one after the other and they have to take decision to solve those problems.

Features:

The following are the chief characteristics of the decision theory approach:

(1) Decision is the soul of management.

(2) The study of various factors influencing decision is management.

(3) This approach lays stress on taking rational decisions.

(4) This approach considers decision-making as the centre of the study of management.

(5) Decision-making is a continuous process.

(6) The success of the organisation depends on the quality of the decisions.

(7) This approach recommends the use of quantitative methods in the process of decision-making.

(8) According to this approach, the system of communication has a vital role to play for the success of the process of decision-making.

(9) According to this approach, a manager is recognised as a person known for his problem solving capability.

(10) This approach lays stress on the study of the economic, political, social and practical aspects in case of decision making.

Criticisms:

The following are the major points of criticism of this approach:

(1) Narrow Concept:

This is a narrow approach of management. Decision-making can be an important function of management but not the whole of it.

(2) Rational Decision not Possible:

This approach takes about taking rational decisions, but it is not possible. Various types of information are needed to make rational decisions possible but this is not available or even if it becomes available, its purity is not ensured or granted.

(3) Use of Quantitative Methods not Possible:

There are many occasions when the use of Quantitative Methods is not possible. In such situations a manager makes use of his knowledge and experience rather than some formulae.

On the basis of the above details, it can be said that undoubtedly decision-making is the essence of management, but not the entire management.

(2) McKinsey’s 7-s Approach:

In 1970, Tom Peters and Robert Waterman advocated the theory of 7-S. They made this achievement while they were working as consultants with McKinsey & Co. They conveyed their 7-S approach to the managers through their published article “Structure is Not Organisation.”

The advocates of this approach decided to study the secret of the success of the well-reputed organisations and managers. On the basis of this study, they found out seven important factors on which the effectiveness of an organisation depended.

These factors are the following:

(1) Strategy

(2) Structure

(3) System

(4) Style

(5) Staff

(6) Skill

(7) Shared value

According to this approach the, effectiveness of an organisation is influenced by these seven factors. The chief characteristic of these factors is that they are inter-related. Each factor influences the other factors and is influenced by others. Therefore, nothing can be decided about any particular factor separately. When managers take any decision regarding any one particular factor, they have to take into consideration the effect it will have on the other factors.

Scientific Management Approach:                                

The industrial revolution in England gave an immense impetus for the scientific management approach. It brought about such an extra ordinary mechanisation of industry that it necessitated the development of new management principles and practices. Bringing groups of people together for the purpose of working in the factory posed problems for the factory owners.

The establishment of formal organisation structure, formal lines of authority, factory systems and procedures had to be undertaken for coordinated effort. In order to deal with these problems, a management movement known as ‘Scientific Management’ was born.

Frederick Winslow Taylor (1865-1915) was the first to recognise and emphasise the need for adopting a scientific approach to the task of management. The introduction of the concept of standard time, standard output, standard cost, standardisation of production process, change in the attitude of management and workers to bring about the mutuality of interests are the important landmarks of scientific management. This approach was supported and developed by Henry L. Gantt, Frank Gilbreth, Lillian Gilbreth, Harrington Emerson, etc.

2. Management Process or Administrative Management Approach:

The advocates of this school perceive management as a process consisting of planning, organising, commanding and controlling. In the words of W.G. Scott, “It aims to analyse the process, to establish a conceptual framework for it, to identify principles underlying it, and to build a theory of management from them”.

It regards management as a universal process, regardless of the type of the enterprise, or the level in a given enterprise. It looks upon management theory as a way of organising experience so that practice can be improved through research, empirical testing of principles and teaching of fundamentals involved in the management process.

The process school is also called the ‘traditional’ or ‘universalist’ school as it believes that management principles are applicable to all the group activities, Henry Fayol is regarded as the father of this school. Oliver Shelden, J.D. Mooney and Chester I. Barnard are among the other important contributors to this approach.

3. Human Relations Approach:

The human relations approach is concerned with the recognition of the importance of human element in organisations. Elton Mayo and his associates conducted the world famous Hawthorne Experiments and investigated the myriad of informal relationships, social cliques, patterns of communication and patterns of informal leadership. As a result of these experiments, a trend began which can be phrased as ‘being nice to people’. This trend was eventually termed as ‘the human relations movement’.

The human relations approach revealed the importance of social and psychological factors in determining workers’ productivity and satisfaction. It was instrumental in creating a new image of man and the workplace. It put stress on interpersonal relations and the informal groups. “It’s starting point was in individual psychology rather than the analysis of worker and work. As a result, there was a tendency for human rationalists to degenerate into mere slogans which became an alibi for having no management policy in respect of the human organisation.” Nevertheless, this school has done a unique job in recognising the importance of human element in organisations.

4. Behavioural Science Approach:

The ‘behavioural science’ approach utilises methods and techniques of social sciences such as psychology, sociology, social psychology and anthropology for the study of human behaviour. Data is objectively collected and analysed by the social scientists to study various aspects of human behaviour.

The pioneers of this school such as Gantt and Munsterberg reasoned that in as much as managing involves getting things done with and through people, the study of management must be centred around the people and their interpersonal relations.

The advocates of this school concentrated on motivation, individual drives, group relations, leadership, group dynamics and so forth. The noted contributors to this school include Abraham Maslow, Fredrick Herzberg, Victor Vroom, McGregor, Lawler, Sayles, and Tannenbaum.

5. Quantitative or Mathematical Approach:

This approach stands for using all pertinent scientific tools for providing a quantitative basis for managerial decisions. The abiding belief of this approach is that management problems can be expressed in terms of mathematical symbols and relationships. The basic approach is the construction of a model because it is through this device that the problem is expressed in its basic relationships and in terms of selected objectives. The users of such models are known as operations researchers or management scientists.

Linear programming, Critical Path Method, Programme Evaluation Review Technique, Break­even analysis, Games Theory and Queueing Theory have gained popularity for solving managerial problems these days. These techniques help the managers in improving their decisions by analysing the various alternatives in a scientific manner.

The application of mathematical techniques is particularly useful in solving the physical problems of management such as inventory and production control. They can never be substitute for knowledge, experience and training necessary for understanding the human behaviour.

6. Systems Approach:

A system is composed of elements or subsystems that are related and dependent on each other. The system approach is based on the generalisation that an organisation is a system and its components are inter-related and inter-dependent. This approach lays emphasis on the strategic parts of the system, the nature of their interdependency, goals set by the system and communication network in the system.

Another basic feature of the systems approach is that attention is paid towards the overall effectiveness of the system rather than the effectiveness of subsystems. Under system approach, the overall objectives and performance of the organisation are taken into account and not only the objectives and performance of its different departments or subsystems.

The spiritual father of this school of management was Chester I. Barnard. The systems theory lays emphasis on the interdependency and interrelationships between the various parts of a system.

It stresses communication and decision processes throughout the organisation. It follows an open system approach. The organisation as an open system has an interaction with the environment. It can adjust to the changes in the environment.

7. Contingency Approach:

The latest approach to management is known as ‘contingency’ or ‘situational’ approach. Underlying idea of this approach is that the internal functioning of organisations must be consistent with the demands of technology and external environment and the needs of its members if the organisation is to be effective.

This approach suggests that there is no one best way to handle any management problem. The application of management principles and practices should be contingent upon the existing circumstances. Functional, behavioural, quantitative and systems tools of management should be applied situationally.

There are three major parts of the overall conceptual framework for contingency management – (a) environment; (b) management concepts, principles and techniques; and (c) contingent relationship between the two. The environment variables are independent and management variables (process, quantitative, behavioural and systems tools) are dependent. Every manager has to apply the various approaches of management according to the demands of the situation.

8. Operational Approach:

Koontz and O’Donnell have advocated operational approach to management. This approach recognises that there is a central core of knowledge about managing which exists in management such as line and staff, patterns of departmentation, span of management, managerial appraisal and various managerial control techniques. It draws from other fields of knowledge and adapts within it those parts of these fields which are specially useful for managers.

“The operational approach regards management as a universally applicable body of knowledge that can be brought to bear at all levels of managing and in all types of enterprises. At the same time, this approach recognises that the actual problems managers face and the environments in which they operate may vary between enterprises and levels”. The application of science by a perceptive practitioner must take this into account in finding solutions to management problems.

9. Empirical Approach:

According to this approach, management is the study of the experiences of managers. The knowledge based on experiences of successful managers can be applied by other managers in solving problems in future and in making decisions. Thus, the empirical school is based on analysis of past experience and uses the case method of study and research.

Managers can get an idea of what to do and how by studying management situations of the past. They can develop analytical and problem-solving skills. They can understand and learn to apply effective techniques in comparable situations.

No one can deny the value of analysing past experience to obtain a lesson for the future. But management, unlike law, is not a science based on precedent, and future situations exactly resembling those of the past are unlikely to occur. Indeed, there is a positive danger in relying too much on past experience…….. for the simple reason that a technique found “right” in the past may be far from an exact fit for a somewhat similar situation of the future.

CSR refers to the idea that companies need to invest in socially and environmentally relevant causes in order to interact and operate with concerned parties having a stake in the company’s work. CSR is termed as “Triple-Bottom-Line-Approach”, which is meant to help the company promote its commercial interests along with the responsibilities it holds towards the society at large. CSR is different and broader from acts of charities like sponsoring or any other philanthropic activity as the latter is meant to be a superficial or surface level action as part of business strategy, but the former tries to go deep and address longstanding socio-economic and environmental issues.

Small or Medium Enterprises (SMEs) should be asked to promote CSR by taking into account their respective fiscal capacity and not over-stretching their rather limited resources. According to the United Nations Industrial Development Organization (UNIDO), CSR based on Triple Bottom Line (TBL) Approach, can help countries in the developing bracket to accelerate their socio-economic growth and help them become more competitive. TBL approach encourages private companies and institutions to align their activities in a socially, economically and environmentally viable way. This will help countries achieve Sustainable Development Goals (SDGs) in the long run. Companies should be encouraged to take up cost-effective CSR programmes that help the society and the environment according to the UNIDO.

Need of CSR

CSR is responsible for generating a lot of goodwill to companies either directly or indirectly. These include:

• Making employees more loyal and help companies retain them in the long run.
• Make companies more legitimate and help them in accessing a greater market share.
• Since companies act ethically, they face less legal hurdles.
• Bolster the goodwill of companies amongst the general public and help in strengthening their “brand value”.
• Help in the stabilization of stock markets in both the short and long run
• Help in limiting state’s involvement in corporate affairs as companies self-regulate and act as most ethical.

CSR helps companies and their components like their shareholders to help in the development of a country’s economy on a macro-level. They motivate companies to cooperate and communicate with each other, their customers and the administrative machinery.

The various advantages granted to various stakeholders are explained below:

• The Standard of living gets better with the introduction of more amenities.
• Companies engage in large-scale “capacity building” due to which the society becomes more prosperous and wealthier.

• Creates a more balanced world and healthier environmental systems.
• Ecosystems become healthier due to balancing efforts of the corporates.
• Management of waste is improved.
• Cleaner and greener environment is created.
• Advantages to corporates.
• Creates greater societal acceptance and respect.
• Helps the company to grow fiscally and makes it more competitive.
• Helps the company to interact with various stakeholders and helps them understand their needs.
• Employees and their family feel proud to be associated with a balanced corporate organization.

CSR LAWS IN INDIA

The Companies Act, 2013, a successor to The Companies Act, 1956, made CSR a compulsory act. Under the notification dated 27.2.2014, under Section 135 of the new act, CSR is compulsory for all companies- government or private or otherwise, provided they meet any one or more of the following fiscal criterions:

• The net worth of the company should be Rupees 500 crores or more
• The annual turnover of the company should be Rupees 1000 crores or more
• Annual net profits of the company should be at least Rupees 5 crores.

If the company meets any one of the three fiscal conditions as stated above, they are required to create a committee to enforce its CSR mandate, with at least 3 directors, one of whom should be an independent director.

The responsibilities of the above-mentioned committee will be:

• Creation of an elaborate policy to implement its legally mandated CSR activities. CSR acts should conform to Schedule VII of the Companies Act, 2013.
• The committee will allocate and audit the money for different CSR purposes.
• It will be responsible for overseeing the execution of different CSR activities.
• The committee will issue an annual report on the various CSR activities undertaken.
• CSR policies should be placed on the company’s official website, in the form and format approved by the committee.
• The board of directors is bound to accept and follow any CSR related suggestion put up by the aforementioned committee.
• The aforementioned committee must regularly assess the net profits earned by the company and ensure that at least 2 percent of the same is spent on CSR related activities.
• The committee must ensure that local issues and regions are looked into first as part of CSR activities.

Features of CSR Laws

The broad and important features of the CSR laws are as follows:

• Quantum of money utilized for CSR purposes are to be compulsorily included in the annual profit-loss report released by the company.
• The CSR rules came into force on 1st April 2014 and will include subsidiary companies, holdings and other foreign corporate organizations which are involved in business activities in India.
• CSR has been defined in a rather broad manner in Schedule VII of Companies Act, 2013. The definition is exhaustive as it includes those specific CSR activities listed in Schedule VII and other social programmes not listed in schedule VII, whose inclusion as a CSR activity is left to the company’s discretion.

Per Section 135 of the Companies Act (“CSR provisions”), every company with net worth of INR 500 crore, or turnover of INR 1000 crore or more or net profit of 5 crore or more is mandated to spend 2% of average net profit of the preceding three (3) years on corporate social responsibilities/CSR activities.

Since the time CSR provisions were first introduced, the list of CSR activities enumerated under Schedule VII of the Companies Act have been amended by the government from time to time. Most of the items enumerated under Schedule VII since its inception has been framed around activities pertaining to social welfare and charitable activities with key focus on eradicating extreme hunger and poverty, promotion of education, gender equality and empowering women, reducing child mortality, improving maternal health, ensuring environmental sustainability and protection of national heritage amongst others.

For instance, the pre-amended item (ix) under Schedule VII of the Companies Act pertained to contributions and funds that could be made to technology incubators located within academic institutions.

Activities which may be included by companies in their Corporate Social Responsibility Policies relating to:

• Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

• Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

• Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.

• Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

• Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;

• Measures for the benefit of armed forces veterans, war widows and their dependents;

• Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports

• Contribution to the Prime Minister’s national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;

• Contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.

• Rural development projects
• Slum area development.

Known as a B/P book, bills payable book is a subsidiary or secondary book of accounting where all bills of exchange, which are payable by the business, are recorded. The total value of all the bills payable for an accounting period is transferred to the books of accounts.

Where the number of bills received or bills issued is large, it would lead to saving of time if, instead of journalizing each receipt of bill or issue of bill, we were to maintain suitable registers (or books) and record the transactions there. Two books would be required one for bills received and another for bills issued. The rulings for the two books are given below.

The book will be totaled monthly. In case of the Bills Receivable Book, the total of the amount column will be posted to the debit of the Bills Receivable Account. The accounts of the parties from whom the bills are received will be credited with the amounts appearing against their names.

In case of the Bills Payable Book, the total of the amount column will be posted to the credit of the Bills Payable Account and the accounts of the parties who drew the bills (or at whose request the bills were accepted) will be debited. It must be remembered that in the case of other transactions relating to bills, journal entries will have to be passed with the only exception of discounting.

When a bill is discounted, the entry will be made on the debit side of the Cash Book the amount received being entered in the bank column and the amount of the discount being entered in the discount column. In the case of endorsement in favour of a creditor or for dishonour, the entry concerned will be through the journal.

In a mid to large sized business where the number of bills exchanging hands is large in number, it is tough to journalize all bills drawn. All such bills are entered in an accounting ERP or a register depending on the business, furthermore, all these entries are transferred to the respective ledger accounts at a regular interval, often monthly.

A bill receivable for a “drawer” is a bill payable for a “drawee”. Bills payable account will usually have a credit balance, as it is supposed to be paid at maturity, it acts as a liability for the business. Generally, every bill has a 3-day grace period.

Sample Format of a B/P Book

The person, who draws the bill of exchange, is called a “drawer” and the customer, on whom it is drawn, is called a “drawee” or an “acceptor”.

S. No.	Date of Bill	Bill No.	Drawer	Payee	Terms	Date of Maturity	Amt.	Remarks

IMF

The International Monetary Fund (IMF) is an international organization, headquartered in Washington, D.C., consisting of 190 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world while periodically depending on the World Bank for its resources.

Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had XDR 477 billion (about US$667 billion).

Through the fund and other activities such as the gathering of statistics and analysis, surveillance of its members’ economies, and the demand for particular policies, the IMF works to improve the economies of its member countries. The organization’s objectives stated in the Articles of Agreement are: to promote international monetary co-operation, international trade, high employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty. IMF funds come from two major sources: quotas and loans. Quotas, which are pooled funds of member nations, generate most IMF funds. The size of a member’s quota depends on its economic and financial importance in the world. Nations with larger economic importance have larger quotas. The quotas are increased periodically as a means of boosting the IMF’s resources in the form of special drawing rights.

According to the IMF itself, it works to foster global growth and economic stability by providing policy advice and financing the members by working with developing countries to help them achieve macroeconomic stability and reduce poverty. The rationale for this is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance-of-payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse economic consequences. The IMF provides alternate sources of financing.

IBRD

The International Bank for Reconstruction and Development (IBRD) is an international financial institution, established in 1944 and headquartered in Washington, D.C., United States, that is the lending arm of World Bank Group. The IBRD offers loans to middle-income developing countries. The IBRD is the first of five member institutions that compose the World Bank Group. The initial mission of the IBRD in 1944, was to finance the reconstruction of European nations devastated by World War II. The IBRD and its concessional lending arm, the International Development Association (IDA), are collectively known as the World Bank as they share the same leadership and staff.

Following the reconstruction of Europe, the Bank’s mandate expanded to advancing worldwide economic development and eradicating poverty. The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects that seek to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food and potable water, and access to improved sanitation.

The IBRD is owned and governed by its 189 member states, with each country represented on the Board of Governors. The IBRD has its own executive leadership and staff which conduct its normal business operations. The Bank’s member governments are shareholders which contribute and have the right to vote on its matters. In addition to contributions from its member nations, the IBRD acquires most of its capital by borrowing on international capital markets through bond issues at a preferred rate because of its AAA credit rating.

IMF Vs. IBRD

1. Purpose of Loan:

The main purpose of loan provided by I.M.F. is to promote exchange stability and to make the balance of payments deficits; where-as the I.B.R.D. provides loans to developing countries for reconstruction and development by facilitating the investment of capital for productive purpose mainly to develop the infrastructure for the development.

2. Period of Loan:

The International Monetary Fund provides medium-term loans to the developing member countries for a period of ten years; where-as the World Bank offers long-term loans for developing countries for a period of fifty years.

3. Terms of the Loan:

I.M.F. as a creditor institution has always insisted upon fulfilment of certain conditions by the debtor countries. Thus, I.M.F. loan is on stringent terms and it insists always on an agreed programme of action to eliminate within a reasonable time all the causes responsible for the dis-equilibrium in the balance of payments. There is no such conditionality clause in I.B.R.D. Loan.

4. Levies service charges and high rate of interests:

The IMF advances loans to member countries and levies service charges at 0.5 per cent on purchase of currencies other than purchases from reserve bank tranche. In addition, fund levies charges on balances of member currencies determined every year. Loan from I.B.R.D. bears a high rate of interest. Its rate of interest is 1/2 to 1 per cent above the cost of borrowing during the preceding six months but is below the market rates.

5. Parties of the Loan:

I.M.F. provides loans only to the governments of member countries which have subscribed their quota as fixed by the fund; from time to time in terms of S.D.Rs. (Special Drawing Rights) and members over currencies. No other party except the member Government is authorised to borrow from the fund.

The I.B.R.D. (World Bank) on the other hand may advance loans to Governments or to any of their political sub-divisions or even to private business or agricultural enterprises in the territories of members. If it is not a loan to the Government the Bank asks the member Government to guarantee the repayment of loan. But I.B.R.D. meets only the foreign exchange component-of the project.

6. Borrowings not from Other Resources:

I.M.F. advances loans to member countries only out of the fund’s own resources. It does not borrow money from other sources. But I.B.R.D. lends fund directly either from its own resources or from the funds it borrows from the market. The I.B.R.D. may guarantee the loans advances by other or it may participate in loans whereas I.M.F. cannot do so.

It neither guarantees nor does it contribute to the capital of private or other institutions. Thus, these two international lending institutions aim at assisting the developing countries. IMF’s. main function is to stabilise the exchange value of currencies and meet the balance of payments problems whereas I.B.R.D. advances loans for the development program­mes in member countries mainly to develop infrastructural facilities. It lends to member country Governments or to any private firm on the guarantee of the Government of that country.

It comprises two institutions: The International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA).

World Bank Group

The World Bank Group is an extended family of five international organizations, and the parent organization of the World Bank, the collective name given to the first two listed organizations, the IBRD and the IDA:

• International Bank for Reconstruction and Development (IBRD)
• International Development Association (IDA)
• International Finance Corporation (IFC)
• Multilateral Investment Guarantee Agency (MIGA)
• International Centre for Settlement of Investment Disputes (ICSID)

The World Bank’s activities are focused on developing countries, in fields such as, human development (e.g., education, health), agriculture and rural development (e.g., irrigation, rural services), environmental protection (e.g. pollution reduction, establishing and enforcing regulations), infrastructure (e.g. loads, urban regeneration and electricity) and governance (e.g. anti-corruption, legal institutions development).

The IBRD and IDA provide loans at preferential rates to member countries, as well as grants to t e poorest countries. Loans or grants for specific projects are often linked to wider policy changes in the sector or the economy.

For example, a loan to improve coastal environmental management may be linked to development of new environment institutions at national and local levels and to implementation of new regulations to limit pollution. The activities of the IFC and MIGA include investment in the private sector and providing insurance respectively.

Organizational Structure:

Together with four affiliated agencies created between 1956 and 1988, the IBRD is part of the World Bank Group. The Group’s headquarters in Washington, D.C. It is an international organization owned by member governments; although it makes profits, these profits are used to support continued efforts in poverty reduction.

Technically the World Bank is part of the United Nations system, but its governance structure is different. Each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries but there are also additional votes which depend on financial contributions to the organization.

As a result, the World Bank is controlled primarily by developed countries, while clients have almost exclusively been developing countries. Some critics argue that a different governance structure would take greater account of developing countries’ needs.

As of November 1, 2006, the United States held 16.4% of total votes, Japan 7.9%, Germany 4.5% and the United Kingdom and France each held 4.3%. As major decisions require an 85% super-majority, the US can block any such major change.

World Bank Group Agencies:

The World Bank Group consists of:

1. The International Bank of Reconstruction and Development (IBRD), established in 1945, which provides debt financing on the basis of sovereign guarantees;
2. The International Financial Corporation (IFC), established in 1956, which provides various forms of financing of without sovereign guarantees, primarily to the private sector;
3. The International Development Association (IDA), established in 1960, which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees;
4. The Multilateral Investment Guarantee Agency (MIGA), established in 1988, which provides insurance against certain types of risks, including political risk, primarily to the private sector;
5. The International Centre for Settlement of Investment Disputes (ICSID), established in 1966, which works with governments to reduce investment risk.

The term “World Bank” generally refers to the IBRD and IDA, whereas the World Bank Group is used to refer to the institutions collectively.

Governments can choose which of these agencies they sign up to individually. The IBRD has 185 member governments and other institutions have between 140 and 176 members. The institutions of the World Bank Group are all run by a Board of Governors meeting once a year. Each member country appoints a governor, generally its Minister of Finance.

On a daily basis the World Bank Group is run by a Board of 24 Executive Directors to whom the governors have delegated certain powers. Each Director represents either one country (for the largest countries), or a group of countries. Executive Directors are appointed by their respective governments or the constituencies.

The agencies of the World Bank are each governed by their Articles of Agreement that serve as the legal and institutional foundation for all of their work.

The Bank also serves as one of several implementing agencies for the UN Global Environment Facility (GEF).