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Lucknow University BBA Notes / Osmania University B.com Notes

Kinds of Resolutions under Company Act.

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A Company being an artificial person, any decision taken by it shall be in the form of a Resolution. Accordingly, a resolution may be defined as an agreement or decision made by the directors or members (or a class of members) of a company. A proposed resolution is a motion. When a resolution is passed a company is bound by it. The resolutions could be on just about any subject in case of Board meetings since they are ultimately responsible for running the Company. The Act generally specifies the matters in respect of which resolutions are required to be passed by the members in general meetings.

Basically, there are three types of resolutions: Ordinary Resolution, Special Resolution and Unanimous Resolution.

In case of Board Meetings, there is no concept of Special Resolutions and also unanimous resolutions are required in very few cases. However, in case of general meetings, all three are covered.

Section 114 of the Companies Act, 2013 defines an Ordinary and Special Resolutions. It states:

“(1) A resolution shall be an ordinary resolution if the notice required under this Act has been duly given and it is required to be passed by the votes cast, whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolution by members, so entitled and voting.

(2) A resolution shall be a special resolution when:

(a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution;

(b) the notice required under this Act has been duly given; and

(c) the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting.”

Other than these two, there is also a concept of a unanimous resolution implying approval of all the members present and voting, without a single vote cast against it. Initially, as per Companies Act 1956 only one resolution required unanimous approval in the general meeting and the same has also been covered under section 162 (1) of the Companies Act 2013 which states that:

“At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.”

However, in addition to above, for private companies, the Companies Act 2013 also inserts one more resolution which requires unanimous approval of all the members. As per sub-section 4 of section 5 for inclusion of “entrenchment provision” in the Articles of Association of an already existing Company, it should be “agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.” Other than these all-other specified matters require either an ordinary or a special resolution. Let us further take a look into the maters which require ordinary and/or special resolutions as per the Companies Act, 2013.

3Types of Resolutions recognized by Companies Act

Type 1. Ordinary Resolution:

An ordinary resolution is that which is passed by a simple majority at any general meeting of the shareholders. The resolution may be passed by a show of hands or by a poll. A 21 days notice must have been given for the meeting in which such a resolution is passed. Any matters can be decided through an ordinary resolution unless the Companies Act or the Articles of the company provide otherwise.

Objects:

Following are some of the matters which can be decided by an ordinary resolution:

  1. Approval of statutory report.
  2. Approval of directors report.
  3. Approval of final accounts.
  4. Declaration of dividend.
  5. Appointment of directors.
  6. Election of directors.
  7. Issue of shares at discount.
  8. Appointment of auditors and their remuneration.
  9. Alteration of share capital.
  10. Change in the rights of shareholders of any class.
  11. Creation of reserve fund.
  12. Conversion of fully paid-up shares into stock.
  13. Sale of the whole or part of the company’s undertaking or business.

Specimen of Ordinary Resolutions:

  1. Issue of shares at discount (Sec. 79). “RESOLVED that the Directors of the Company be and are hereby authorised, subject to the sanction of the court, to issue 10,000 shares of Rs. 10 each in the capital of the Company at a discount of not exceeding Rupee one per share.”
  2. Increase in the number of directors (Sec. 258). “RESOLVED that (subject to the approval of Central Government) the number of existing directors be increased from……………………….. to…………………… and Mr………….. and Mr…………. be and they are hereby appointed as additional directors.”
  3. Removal of director (Sec. 284) “RESOLVED that Mr…………………… Director of the Company regarding whose removal special notice has been received and has been duly heard as required by Section 284(3) of the Companies Act, 1956, be and is hereby removed from his office of director of the company.”

Type 2. Special Resolution:

A special resolution is one which is passed by at least 3/4th majority of the members voting on it at the General Meeting. A 21 days notice must have been given for the meeting in which such a resolution is passed. Notice calling the meeting should indicate that the resolution is intended to be proposed as a special resolution.

The main feature of special resolution is that the number of votes cast in favour of the resolution should be three times the number of votes against it.

Objects:

The following are some of the matters which can be decided by a special resolution:

(1) Alteration of the name of company.

(2) Alteration of the objects of the company.

(3) Alteration of articles of association.

(4) Change of registered office from one state to another state.

(5) Reduction of share capital.

(6) Creation of reserve capital.

(7) Payment of interest out of capital.

(8) Fixing directors’ remuneration.

(9) Voluntary winding up of a company.

(10) Making the liability of directors unlimited.

(11) Application to the court to wind up the company.

(12) Appointment of inspectors to investigate the affairs of the company.

(13) To bind the company by an arrangement or compromise made.

Specimen of Special Resolution:

  1. Alteration of name of the company. RESOLVED that the name of the company be and is hereby altered from…………………. Limited to………………………… Limited and the Central Government be officially informed for the purpose of securing their consent of such alteration.
  2. Voluntary winding up of the company. “RESOLVED that the company be wound up voluntarily and that Mr……………………….. of………. be and is hereby appointed liquidator for the purpose and that this be and is hereby passed as a special resolution pursuant to Sec. 484 of the Companies Act, 1956.
  3. Alteration of articles of association. “RESOLVED that clause……………………………. of the Articles of Association of the Company be altered by omitting the following words therefore

“………………………….”

and substituting instead of the following words:

“………………………….”

Type 3. Resolution Requiring Special Notice:

The Indian Companies Act, 1956 has introduced a new type of resolution for the passing of which special notice has to be given. Some matters specified in the Act cannot be moved for discussion at 3 General Meeting unless a special notice is given to the company.

A notice containing the intention to move the resolution had to be given in such cases at least 14 days before convening the meeting in which it is proposed to be moved. The company in turn should give members the notice of that resolution at least seven days before the holding of the meeting. Such resolution may be ordinary or special resolution.

Following are some of the resolutions requiring special notice:

(1) Resolution to remove a director.

(2) Resolution to fill up a casual vacancy of the director.

(3) Resolution to appoint as Auditor a person other than the retiring person.

(4) Resolution to appoint as Director a person in place of removed director.

Lucknow University BBA Notes

Importance of HRM and Present day challenges

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Importance of HRM

An organisation cannot build a good team of working professionals without good Human Resources. The key functions of the Human Resources Management (HRM) team include recruiting people, training them, performance appraisals, motivating employees as well as workplace communication, workplace safety, and much more. The beneficial effects of these functions are discussed here:

Recruitment and Training

This is one of the major responsibilities of the human resource team. The HR managers come up with plans and strategies for hiring the right kind of people. They design the criteria which is best suited for a specific job description. Their other tasks related to recruitment include formulating the obligations of an employee and the scope of tasks assigned to him or her. Based on these two factors, the contract of an employee with the company is prepared. When needed, they also provide training to the employees according to the requirements of the organisation. Thus, the staff members get the opportunity to sharpen their existing skills or develop specialised skills which in turn, will help them to take up some new roles.

Performance Appraisals

HRM encourages the people working in an organisation, to work according to their potential and gives them suggestions that can help them to bring about improvement in it. The team communicates with the staff individually from time to time and provides all the necessary information regarding their performances and also defines their respective roles. This is beneficial as it enables them to form an outline of their anticipated goals in much clearer terms and thereby, helps them execute the goals with best possible efforts. Performance appraisals, when taken on a regular basis, motivate the employees.

Maintaining Work Atmosphere

This is a vital aspect of HRM because the performance of an individual in an organisation is largely driven by the work atmosphere or work culture that prevails at the workplace. A good working condition is one of the benefits that the employees can expect from an efficient human resource team. A safe, clean and healthy environment can bring out the best in an employee. A friendly atmosphere gives the staff members job satisfaction as well.

Managing Disputes

In an organisation, there are several issues on which disputes may arise between the employees and the employers. You can say conflicts are almost inevitable. In such a scenario, it is the human resource department which acts as a consultant and mediator to sort out those issues in an effective manner. They first hear the grievances of the employees. Then they come up with suitable solutions to sort them out. In other words, they take timely action and prevent things from going out of hands.

Developing Public Relations

The responsibility of establishing good public relations lies with the HRM to a great extent. They organise business meetings, seminars and various official gatherings on behalf of the company in order to build up relationships with other business sectors. Sometimes, the HR department plays an active role in preparing the business and marketing plans for the organisation too.

Any organisation, without a proper setup for HRM is bound to suffer from serious problems while managing its regular activities. For this reason, today, companies must put a lot of effort and energy into setting up a strong and effective HRM.

HRM present day challenges

Human Resource Management Challenges (HR Challenges)

  1. Environmental Challenges
  2. Organizational Challenges
  3. Individual Challenges

Environmental Challenges:

The environmental challenges are related to the external forces that exist in the outside environment of an organization & can influence the performance of the management of the organization. These external forces are almost out of control of the management of the organization. These can be regarded as threats to management & should be handled in a proactive manner.

Following are the list of human resource management challenges that considered as the environmental challenges.

  1. Rapid Change
  2. Work Force Diversity
  3. Globalization
  4. Legislation
  5. Technology
  6. Job & Family Roles
  7. Lack of Skills

Rapid Change

The world is changing at a faster rate because change is constant from several centuries. So the management of the organizations should be quickly adaptive to the changing requirement of the environment otherwise they become obsolete from the market. The human resource management of an organization plays a basic role in response to the environmental change. The HR department should adopt such policies that can avail the new opportunities of the environment & keep the organization away from the newly emerging threats.

Work Force Diversity

The changing environment provides both the opportunities & threats to the human resource management of the organization. The HR manager should adopt such policies that can make possible the diverse work force of employees. Although on one hand diversity creates big problem but in the long run, the survival & performance of the organization is flourished.

Globalization

One of the serious issue that today’s organizations are facing is the issue of globalization. The world is converting into global business and severe competition is started between domestic & foreign companies. Such competition results in the laying off the effective workforce of the organization. The HR department can play an important role in keeping the culture of the organization as global & wider.

Legislation

It is the old environmental challenge that is faced by organization since many decades. There are certain labor laws that are declared by the government for the benefits of the working employees. Some of these laws are disadvantageous to the interests of the organizations so it is a one of the big challenges for the HRM to implement all those labor laws within the organizations. If any of such law is violated, serious actions are taken by the relevant government authority that may result into serious penalty for the management of the organization.

Technology

The technology is also growing with great speed especially in the field of computer & telecommunication. New methods are emerging that quickly dominates the older ones & makes them obsolete. Therefore the skills required by the employees also changes with the changing technology & this would compels the worker to advance the skills three to four times throughout their working lives. So there comes a burden on the HR department to constantly update the skills & expertise of their employees.

Job & Family Roles

In recent years, dual-career families are increasing in which both the wife & husband work. This creates a serious burden on the women that they have to give time to their families also. In many organizations the policies of HR favors the employment of more than 10 years. The working hours of the organizations are also strict and tight for the employees. Moreover, the selection & training procedures are two tough and time consuming so most of the talented women hesitate to join any organization which would result in the wastage of talent and potential. Even working men also suffer from these employment policies because they do not properly give time to their families. So the challenges for the HRM increases with this particular issue & special favorable working policies are needed to be employed in all organizations.

Lack of Skills

The service sector development is expanding due to many reasons like change in the tastes & preference of customers, technological change, legal change etc. All of this affected the structure and managing style of the business organizations. The skills required in the employment of service sector is also advancing but the graduates of the technical colleges & universities are groomed according to the latest requirements. Therefore most of the employees lack the standard required skills to perform their duties and it becomes a big challenge for HRM to properly train these new & old employees to become an efficient & effective workers.

Organizational Challenges

The organizational challenges for the HRM are related to the factors that are located inside the organization. Although these challenges are evolved as a byproduct of the environmental challenges but these can be control by the management of the organization to much extent. The proactive HR managers take notice of such challenges in advance and take corrective measures before these would convert into serious issues. The human resource management challenges within the organization include competitive position & flexibility, organizational restructuring & issues of downsizing, the exercise of self managed teams, development of suitable organizational culture etc.

When the workforce of an organization is effectively used in combination with other factor of production, the opportunities of the environment are availed & the threats are eliminated. The competitive position of the organization can be influenced by the policies of HR in the following ways.

  • Controlling Costs
  • Improving Quality
  • Developing Distinctive Capabilities
  • Restructuring
  1. Controlling Costs

An organization can avail the competitive position by lowering its cost & strengthening its cash flows. For this purpose, the labor cost of the organization is minimized through effective compensation system that adopts innovative reward strategies for good performances. In this way the favorable behaviors of the employees are rewarded so the organization would get the ultimate advantage. Moreover the policies of compensation should keep the labor cost under control. The effective employees should be selected that keep with the organization for a longer duration & proper training should also be provided to these employees. The HR department should also restore the work of the employees along with the improvement in the health & safety issue of working environment. All of these efforts would limit the cost of labor.

  1. Improving Quality

The quality improvement can lead an organization towards competitive advantage. The total quality management programs are employed that improves all the processes within the organization which would ultimately result in the improvement of the final product or service.

  1. Developing Distinctive Capabilities

Another method of gaining competitive advantage is to employ the people that have distinct capabilities to develop extra ordinary competence in specific area.

  1. Restructuring

Another technique is the restructuring of the organization in which the methods of performing different functions are altered positively. In case of HR department, the majority of functions are still performed within the organization.

In some organizations the major functions of HR department are now transferred to the other parties in the shape of outsourcing, shared service center etc. The sizes of HR department in those organizations are shrinking because most of functions are performed by outsiders. But in most of the organizations the HR manager performs all the relevant functions of HRM. The HR department is now involved in the mission oriented & strategic activities.

Individual Challenges

The decisions related to the specific individual employees are included in the individual challenges for the HRM. The organizational issues are also affected by the fact that how employees are treated within the organizations. The problems related to the individual level are as follow.

01- Productivity

02- Empowerment

03- Brain drain

04- Ethics & social responsibility

05- Job insecurity

06- Matching people & organization

  1. Productivity

Productivity is defined as the measure of the value that an employee can add to the final product or service of the organization. The increased output per employee is reflected as increased productivity. Ability & motivation are two important factors that affect the employee productivity. The ability of the employee can be improved by the hiring & replacement along with the proper training & career development. On the other high quality of work life serves as accelerator to the motivational factor of the employees.

  1. Empowerment

In the modern days many organizations make changes in such a way that their individual employees exert more control on their work as compared to their superiors. This individual control of employees is called empowerment which helps the employees to work with enthusiasm, commitment & learn new skills because they are more make normal decisions about their work by themselves & hence enjoy their work.

  1. Brain Drain

One of the challenges for HRM is the detachment of the key potential employees from the organization which link with the competitors for higher remunerations etc. In such cases the organization loses its intellectual property & in many situations the leaving employees at the higher levels also take with them the potential lower level employees. This brain drainage is becoming serious issue in the high-Tec companies.

  1. Ethics & Social Responsibility

Under this challenge, the organizations make an effort to benefit some portion of the society. This is now considered to the social responsibility of the organization to show favorable behavior towards the society. The ethics serves as the basic principle for the socially behavior of the organizations. Within organizations, the HR departments develop a code of conduct & principles of code of ethics that serve as the guidance for the personal behavior of the employees of the organizations. The employees also expect from the management to show favorable decisions.

  1. Job Insecurity

In the recent years, restructuring & downsizing develops the sense of insecurity of job within the employees of the organizations. Now many employees only desire to get a steady job rather than a job with promotional future. Even most successful organizations lay off its employees in the period of cut throat competition. The stock market also shows favorable results when layoffs has been made. All these things create a fear among employees about the insecurity of their jobs which would hinder their effective performance.

  1. Matching People & Organizations

It has been proved from the research that the HR department contributes to the profitability of the organization when it makes such policies of employee selection in which those employees are selected & retained that best suits the culture of the organization & its objectives. For example it is proved from research that those employees would become beneficial for the high-Tech companies that can work in risky, uncertain environment having low pay. In short it is an important challenge for the HR department to hire and keep such employees whose abilities & strengths would match the requirements & circumstances of the organization.

Management Notes

Decision Support Systems, Attributes, Characteristics, Classification, Types, Advantages, Disadvanatages

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Decision Support system (DSS) is a computerized program used to support determinations, judgments, and courses of action in an organization or a business. A DSS sifts through and analyzes massive amounts of data, compiling comprehensive information that can be used to solve problems and in decision-making.

Typical information used by a DSS includes target or projected revenue, sales figures or past ones from different time periods, and other inventory- or operations-related data.

A DSS can be used by operations management and planning levels in an organization to compile information and data and synthesize it into actionable intelligence. This allows the end user to make more informed decisions at a quicker pace.

The DSS is an information application that produces comprehensive information. This is different from an operations application, which would be used to collect the data in the first place. A DSS is primarily used by mid- to upper-level management, and it is key for understanding large amounts of data.

For example, a DSS could be used to project a company’s revenue over the upcoming six months based on new assumptions about product sales. Due to the large amount of variables that surround the projected revenue figures, this is not a straightforward calculation that can be done by hand. A DSS can integrate multiple variables and generate an outcome and alternate outcomes, all based on the company’s past product sales data and current variables.

The primary purpose of using a DSS is to present information to the customer in a way that is easy to understand. A DSS system is beneficial because it can be programed to generate many types of reports, all based on user specifications. A DSS can generate information and output it graphically, such as a bar chart that represents projected revenue, or as a written report.

As technology continues to advance, data analysis is no longer limited to large bulky mainframes. Since a DSS is essentially an application, it can be loaded on most computer systems, including laptops. Certain DSS applications are also available through mobile devices. The flexibility of the DSS is extremely beneficial for customers who travel frequently. This gives them the opportunity to be well-informed at all times, which in turn provides them with the ability to make the best decisions for their company and customers at any time.

Process of Decision Support Systems (DSS):

  1. Data Input:

Gathering relevant data from various sources, both internal and external.

  1. Data Processing:

Analyzing and processing data using models, algorithms, and analytical tools.

  1. Knowledge Base:

Utilizing a knowledge base to store relevant information, rules, and decision criteria.

  1. User Interface:

Providing a user-friendly interface for querying and interacting with the system.

  1. Model Execution:

Executing models and simulations to generate insights and scenarios.

  1. Results Presentation:

Presenting results through reports, dashboards, and visualizations.

  1. User Feedback:

Gathering feedback from users to improve system performance.

Attributes of a DSS

  • Adaptability and flexibility
  • High level of Interactivity
  • Ease of use
  • Efficiency and effectiveness
  • Complete control by decision-makers
  • Ease of development
  • Extendibility
  • Support for modeling and analysis
  • Support for data access
  • Standalone, integrated, and Web-based

Characteristics of a DSS

  • Support for decision-makers in semi-structured and unstructured problems.
  • Support for managers at various managerial levels, ranging from top executive to line managers.
  • Support for individuals and groups. Less structured problems often requires the involvement of several individuals from different departments and organization level.
  • Support for interdependent or sequential decisions.
  • Support for intelligence, design, choice, and implementation.
  • Support for variety of decision processes and styles.
  • DSSs are adaptive over time.

Benefits of DSS

  • Improves efficiency and speed of decision-making activities.
  • Increases the control, competitiveness and capability of futuristic decision-making of the organization.
  • Facilitates interpersonal communication.
  • Encourages learning or training.
  • Since it is mostly used in non-programmed decisions, it reveals new approaches and sets up new evidences for an unusual decision.
  • Helps automate managerial processes.

Disadvantages of Decision Support Systems:

  • Complex Implementation:

Implementing DSS may require specialized skills and technical expertise.

  • High Initial Costs:

The initial investment in DSS development and implementation can be substantial.

  • Dependency on Data Quality:

DSS effectiveness heavily relies on the quality and accuracy of input data.

  • Resistance to Change:

Users may resist adopting new decision-making processes facilitated by DSS.

  • Security Concerns:

DSS may handle sensitive information, raising security and privacy issues.

  • Overemphasis on Technology:

Overreliance on technology may overlook the human element in decision-making.

  • Limited Flexibility:

Some DSS may lack flexibility to adapt to rapidly changing business environments.

  • Integration Challenges:

Integrating DSS with existing systems may pose compatibility and integration challenges.

  • Learning Curve:

Users may face a learning curve when adopting new DSS tools and interfaces.

  • Maintenance Requirements:

Regular maintenance and updates are necessary to keep DSS effective and up-to-date.

Components of a DSS

(i) Database Management System (DBMS)

To solve a problem the necessary data may come from internal or external database. In an organization, internal data are generated by a system such as TPS and MIS. External data come from a variety of sources such as newspapers, online data services, databases (financial, marketing, human resources).

(ii) Model Management System

It stores and accesses models that managers use to make decisions. Such models are used for designing manufacturing facility, analyzing the financial health of an organization, forecasting demand of a product or service, etc.

(iii) Support Tools

Support tools like online help; pulls down menus, user interfaces, graphical analysis, error correction mechanism, facilitates the user interactions with the system.

Classification of DSS

There are several ways to classify DSS. Hoi Apple and Whinstone classifies DSS as follows:

(i) Text Oriented DSS

It contains textually represented information that could have a bearing on decision. It allows documents to be electronically created, revised and viewed as needed.

(ii) Database Oriented DSS

Database plays a major role here; it contains organized and highly structured data.

(iii) Spreadsheet Oriented DSS

It contains information in spread sheets that allows create, view, modify procedural knowledge and also instructs the system to execute self-contained instructions. The most popular tool is Excel and Lotus 1-2-3.

(iv) Solver Oriented DSS

It is based on a solver, which is an algorithm or procedure written for performing certain calculations and particular program type.

(v) Rules Oriented DSS

It follows certain procedures adopted as rules.

(vi) Rules Oriented DSS

Procedures are adopted in rules oriented DSS. Export system is the example.

(vii) Compound DSS

It is built by using two or more of the five structures explained above.

Types of DSS

(i) Status Inquiry System

It helps in taking operational, management level, or middle level management decisions, for example daily schedules of jobs to machines or machines to operators.

(ii) Data Analysis System

It needs comparative analysis and makes use of formula or an algorithm, for example cash flow analysis, inventory analysis etc.

(iii) Information Analysis System

In this system data is analyzed and the information report is generated. For example, sales analysis, accounts receivable systems, market analysis etc.

(iv) Accounting System

It keeps track of accounting and finance related information, for example, final account, accounts receivables, accounts payables, etc. that keep track of the major aspects of the business.

(v) Model Based System

Simulation models or optimization models used for decision-making are used infrequently and creates general guidelines for operation or management.

Decision Support Systems Role in Decision making process

  1. Data Aggregation and Analysis:

    • Role of DSS:
      • Gathers and aggregates relevant data from various sources.
      • Analyzes data using advanced modeling and analytical techniques.
    • Impact on Decision Making:
      • Provides decision-makers with a comprehensive view of relevant information.
      • Enables in-depth analysis for better-informed decisions.

  2. Scenario Simulation:

    • Role of DSS:
      • Allows for the creation and simulation of different decision scenarios.
      • Models the potential outcomes of various decision options.
    • Impact on Decision Making:
      • Assists decision-makers in understanding the consequences of different choices.
      • Supports proactive decision-making by exploring potential scenarios.

  1. Decision Modeling and Optimization:

    • Role of DSS:
      • Utilizes mathematical models to represent decision problems.
      • Optimizes decision variables to achieve the best outcomes.
    • Impact on Decision Making:
      • Provides decision-makers with quantifiable and objective insights.
      • Optimizes resource allocation and decision parameters.

  1. Access to Real-Time Information:

    • Role of DSS:
      • Integrates with systems to provide real-time data updates.
      • Ensures decision-makers have access to the latest information.
    • Impact on Decision Making:
      • Enables timely decision-making based on current and relevant data.
      • Supports agility and responsiveness in dynamic business environments.

  1. User-Friendly Interfaces:

    • Role of DSS:
      • Provides intuitive and user-friendly interfaces for interaction.
      • Allows users to easily input queries and interact with the system.
    • Impact on Decision Making:
      • Reduces the learning curve for users, fostering widespread adoption.
      • Enhances accessibility for decision-makers across different levels.

  1. Collaboration Support:

    • Role of DSS:
      • Facilitates collaboration by allowing multiple users to interact with the system.
      • Supports shared decision-making processes.
    • Impact on Decision Making:
      • Encourages teamwork and collective decision-making.
      • Improves communication and coordination among decision-makers.

  1. Information Presentation:

    • Role of DSS:
      • Presents insights through visualizations, reports, and dashboards.
      • Transforms complex data into easily understandable formats.
    • Impact on Decision Making:
      • Enhances comprehension by presenting information in a digestible manner.
      • Supports quick and effective decision-making.

  1. Risk Assessment and Mitigation:

    • Role of DSS:
      • Assesses potential risks associated with decision options.
      • Recommends strategies to mitigate identified risks.
    • Impact on Decision Making:
      • Helps decision-makers make informed choices while considering potential risks.
      • Supports the development of risk-conscious decision-making strategies.

  1. Feedback Mechanism:

    • Role of DSS:
      • Establishes a feedback loop for continuous improvement.
      • Collects feedback from users to enhance system performance.
    • Impact on Decision Making:
      • Enables continuous learning and improvement in decision-making processes.
      • Incorporates user insights for refining decision support functionalities.
Management Notes

Executive Information Systems, Process, Disadvantages, Role in Decision making process

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An Executive Information System can be defined as a specialized Decision Support System. This type of the system generally includes the various hardware, software, data, procedures and the people. With the help of all this, the top level executives get a great support in taking and performing the various types of the decisions. The executive information system plays a very important role in obtaining the data from the different sources, then help in the integration and the aggregation of this data. After performing these steps the resulting information is displayed in such a pattern that is very easy to understand.

Executive information system is ‘a computer based system that serves the information that is needed by the various top executives. It provides very rapid access to the timely information and also offers the direct access to the different management reports.’

Executive Information System is very user friendly in the nature. It is supported at a large extent by the graphics.

Executive support system can be defined as the comprehensive executive support system that goes beyond the Executive Information System and also includes communications, office automation, analysis support etc.

According to Watson, Executive Information System / executive support system depends on some of the factors that can be summarized as the follows

  1. Internal factors
  • Need for the timely information.
  • Need for the improved communications.
  • Need for the access to the operational data.
  • Need for the rapid status updates on the various business activities.
  • Need for the access to the corporate database.
  • Need for very accurate information.
  • Need for the ability to identify the various historical trends.
  1. External Factors
  • Increasing and intensifying the global competition.
  • Rapidly changing the business environment.
  • Need to be more proactive.
  • Need to access the external database.
  • Increasing the various government regulations.

Characteristics of the Executive Information System

  1. Informational characteristics
  • Flexibility and ease of use
  • Provides the timely information with the short response time and also with the quick retrieval
  • Produces the correct information
  • Produces the relevant information
  • Produces the validated information
  1. User interface/orientation characteristics
  • Consists of the sophisticated self help
  • Contains the user friendly interfaces consisting of the graphic user
  • Can be used from many places
  • Offers secure reliable, confidential access along with the access procedure
  • Is very much customized
  • Suites the management style of the individual executives
  1. Managerial / executive characteristics
  • Supports the over all vision, mission and the strategy
  • Provides the support for the strategic management
  • Sometimes helps to deal with the situations that have a high degree of risk
  • Is linked to the value added business processes
  • Supports the need/ access for/ to the external data/ databases
  • Is very much result oriented in the nature

Capabilities of Executive Information System

(i) Helps in accessing the aggregated or macro or global information.

(ii) Provides the user with an option to use the external data extensively.

(iii) Enables analysis of the address and the hoc queries.

(iv) Shows the trends, the ratios and the various deviations.

(v) Helps in incorporating the graphic and the text in the same display, which helps to have a better view.

(vi) It helps in the assessment of the historical as also the latest data.

(vii) Problem indicators can be highlighted with the help of the Executive Information System / executive support system.

(viii) Open ended problem explanation with the written interpretations can be done with the help of the Executive Information System / executive support system.

(ix) Offers management by the exception reports.

(x) Utilizes the hyper text and the hyper media.

(xi) Offers generalized computing.

(xii) Offers telecommunications capacity.

Executive Information System Process

  • Data Collection:

EIS gathers data from various internal and external sources, including databases, reports, and external data feeds.

  • Data Processing:

The collected data undergoes processing, including validation, aggregation, and transformation to ensure accuracy and relevance.

  • Data Storage:

Processed data is stored in a centralized repository, often a data warehouse, for easy retrieval and analysis.

  • Information Retrieval:

Executives can query the EIS to retrieve specific information based on their needs. The system uses user-friendly interfaces for ease of interaction.

  • Data Analysis and Reporting:

EIS provides tools for data analysis, generating reports, summaries, and visualizations that offer insights into key performance indicators (KPIs) and relevant metrics.

  • Trend Identification:

The system identifies trends and patterns within the data, allowing executives to understand historical performance and anticipate future developments.

  • Decision Support:

EIS assists executives in decision-making by providing relevant and timely information. It may include decision support tools and models for scenario analysis.

  • Alerts and Notifications:

EIS monitors predefined thresholds and conditions, triggering alerts or notifications to executives when significant events or deviations occur.

  • Strategic Planning Support:

EIS contributes to strategic planning by offering insights into market trends, competitive intelligence, and the organization’s overall performance.

  • Integration with External Data:

EIS often integrates with external data sources, such as industry reports, economic indicators, and market research, to provide a comprehensive view.

  • Customization for Executives:

EIS is customizable to meet the specific needs and preferences of individual executives, allowing them to focus on the information most relevant to their roles.

  • User Interface and Accessibility:

EIS features user-friendly interfaces that provide easy access to information, ensuring that executives can quickly navigate and retrieve the data they require.

  • Feedback Mechanism:

Executives can provide feedback on the usefulness and relevance of the information provided, contributing to system refinement and improvement.

  • Security Measures:

EIS incorporates robust security measures to safeguard sensitive executive-level information and ensure data confidentiality.

Benefits of Executive Information System

(i) Achievement of the various organizational objectives.

(ii) Facilitates access to the information by integrating many sources of the data.

(iii) Facilitates broad, aggregated perspective and the context.

(iv) Offers broad highly aggregated information.

(v) User’s productivity is also improved to a large extent.

(vi) Communication capability and the quality are increased.

(vii) Provides with the better strategic planning and the control.

(viii) Facilitates pro-active rather than a reactive response.

(ix) Provides the competitive advantage.

(x) Encourages the development of a more open and active information culture.

(xi) The cause of a particular problem can be founded.

Executive Information System Disadvantages

  • Costly Implementation:

The initial investment in designing, implementing, and maintaining an EIS can be substantial, including costs for hardware, software, training, and ongoing support.

  • Complexity and Customization:

EIS can be complex to implement, and customization to fit specific executive needs may require a high level of expertise and effort.

  • Dependency on Data Quality:

The effectiveness of EIS is highly dependent on the quality of the underlying data. Inaccurate or incomplete data can lead to flawed insights and decisions.

  • Integration Challenges:

Integrating EIS with existing information systems within the organization can be challenging, especially in environments with diverse data sources and formats.

  • Resistance to Change:

Executives and organizational members may resist adapting to new technologies and processes, potentially hindering the successful adoption of EIS.

  • Security Concerns:

EIS often deals with sensitive and confidential information. Ensuring robust security measures is crucial to prevent unauthorized access and protect against data breaches.

  • Learning Curve:

Executives and users may face a learning curve when using new EIS tools and interfaces, which can temporarily impact productivity.

  • Overemphasis on Technology:

Overreliance on EIS may lead to a reduction in the importance of human intuition and experience in decision-making, potentially overlooking nuanced aspects.

  • Limited Flexibility:

Some EIS solutions may lack flexibility to adapt quickly to changes in business environments or evolving executive information needs.

  • Maintenance Requirements:

Ongoing maintenance is essential for EIS to remain effective. This includes updates, troubleshooting, and ensuring compatibility with evolving technologies.

  • Data Overload:

EIS, when presenting a large volume of information, may lead to information overload for executives, making it challenging to focus on critical data points.

  • Potential for Misinterpretation:

Executives may misinterpret presented information, especially if they lack a comprehensive understanding of the data sources, models, or assumptions used.

  • Dependency on IT Support:

Executives may become overly dependent on IT support for system-related issues, potentially slowing down decision-making in case of technical problems.

  • Ethical Considerations:

The use of EIS raises ethical concerns related to the privacy and responsible use of sensitive information, requiring organizations to establish clear guidelines and policies.

Executive Information System Role in Decision making process

  • Access to Critical Information:

EIS provides top executives with quick and easy access to critical information relevant to their roles. This information includes key performance indicators (KPIs), financial metrics, market trends, and strategic data.

  • Real-Time Data Monitoring:

Executives can monitor real-time data through EIS, allowing them to stay informed about the current state of the organization and external factors that may impact decision-making.

  • Strategic Planning Support:

EIS assists in strategic planning by offering insights into long-term trends, market dynamics, and competitive intelligence. Executives can align organizational goals with available resources and external opportunities.

  • Decision Support Tools:

EIS incorporates decision support tools such as data analytics, modeling, and scenario analysis. These tools help executives evaluate various decision options and their potential outcomes.

  • Performance Measurement:

Executives can use EIS to measure the performance of different departments, business units, or projects, enabling data-driven assessments and informed decision-making.

  • Risk Management:

EIS supports risk management by identifying potential risks and uncertainties. Executives can use this information to develop strategies for mitigating risks and making more informed decisions.

  • Facilitation of Communication:

EIS facilitates communication among top executives by providing a centralized platform for sharing information, insights, and collaborative decision-making.

  • Aggregation of Information:

EIS aggregates information from diverse sources, including internal databases, external market reports, and operational systems. This aggregation provides a comprehensive view for decision-makers.

  • Customization for Executives:

EIS allows executives to customize dashboards and reports based on their specific information needs. This ensures that executives focus on the most relevant data for their decision-making processes.

  • Performance Evaluation:

Executives can use EIS to evaluate the performance of strategic initiatives, allowing for adjustments and refinements in alignment with organizational goals.

  • Alerts and Notifications:

EIS includes alert mechanisms that notify executives of critical events or deviations from established benchmarks, enabling proactive decision-making.

  • Benchmarking:

Executives can compare the organization’s performance against industry benchmarks and competitors, aiding in strategic positioning and goal setting.

  • Data Visualization:

EIS employs data visualization techniques such as charts and graphs to present complex information in a visually comprehensible format, aiding executives in understanding trends and patterns.

  • Feedback Loop:

EIS establishes a feedback loop where executives can provide feedback on the effectiveness of decisions made and the relevance of information presented, contributing to continuous improvement.

Lucknow University BBA Notes / Osmania University B.com Notes

India’s Balance of Trade

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Balance of Trade (BOT) is the difference in the value of all exports and imports of a particular nation over a period of time. A positive or favorable trade balance occurs when exports exceed imports. A negative or unfavorable balance occurs when the opposite happens. Simply put, if a country exports more than what it imports, for a given period of time, it has a positive BOT.

BOT is most often the largest component of a country’s current account or Balance of Payment (BOP) and is a crucial reflection of a country’s business scenario. Moreover, the BOP data also highlights key inferences from the past performances, which help create better strategies for future. The components contributing heavily to exports/imports can be readily identified and improved upon.

The balance of trade (BOT), also known as the trade balance, refers to the difference between the monetary value of a country’s imports and exports over a given time period. A positive trade balance indicates a trade surplus while a negative trade balance indicates a trade deficit. The BOT is an important component in determining a country’s current account.

It is the difference between the money value of exports and imports of material goods during a year.

Examples of visible items are clothes, shoes, machines, etc. Clearly, the two transactions which determine BOT are exports and imports of goods.

Interpretation of BOT for an Economy

To the misconception of many, a positive or negative trade balance does not necessarily indicate a healthy or weak economy. Whether a positive or negative BOT is beneficial for an economy depends on the countries involved, the trade policy decisions, the duration of the positive or negative BOT, and the size of the trade imbalance, among other things.

In short, the BOT figure alone does not provide much of an indication regarding how well an economy is doing. Economists generally agree that neither trade surpluses or trade deficits are inherently “bad” or “good” for the economy.

A positive balance occurs when exports > imports and is referred to as a trade surplus.

A negative trade balance occurs when exports < imports and is referred to as a trade deficit.

Surplus or Deficit BOT:

Balance of trade may be in surplus or in deficit or in equilibrium. If value of exports of visible items is more than the value of imports of visible items, balance of trade is said to the positive or favourable. Thus, BOT shows a surplus. In case the value of exports is less than the value of imports, the balance of trade is said to be negative or adverse or unfavourable.

Balance of Trade: BOT means the discrepancy between a countries’s exported goods and services and its imported goods and services.

Example

Country X exports $1 billion of goods and services for the financial year 2015-2016, while in the same period it imported $1.5 billion of goods. Thus, this country has an unfavorable balance because it imports more than it exports. This is typically considered unfavorable because it shows how little the country produces and how dependent it is on foreign countries.

Country X is a reputed player in the rubber products industry, owing to the climate that accentuates rubber cultivation. It also has a majority share in its export portfolio.

The political and business leaders focus heavily on the same and ensure more and more rubber exports in coming years. However, this has led to jeopardized attention to food grains cultivation, which was observed from the high import value in the balance of trade figures of the particular year.

As such, it becomes imperative to the policy makers that it’s good to focus largely on the main profit centers, but not at the cost of the very basic necessities being left untouched. This can result in costlier imports. Moreover, the BOT data also reflects how effectively a nation has been using its key factors of production in the past and clearly depicts the outlook a nation is heading forth with.

Components of BOT

(1) Current Account:

Current account refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time.

Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.

Components of Current Account:

The main components of Current Account are:

  1. Export and Import of Goods (Merchandise Transactions or Visible Trade):

A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as balance of trade (or trade balance).

  1. Export and Import of Services (Invisible Trade):

It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. Payments are either received or made to the other countries for use of these services.

Services are generally of three kinds:

(a) Shipping,

(b) Banking, and

(c) Insurance.

Payments for these services are recorded on the negative side and receipts on the positive side.

  1. Unilateral or Unrequited Transfers to and from abroad (One sided Transactions):

Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions. These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side.

  1. Income receipts and payments to and from abroad:

It includes investment income in the form of interest, rent and profits.

Current Account shows the Net Income:

Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, it shows the net income generated in the foreign sector.

Difference between Balance of Trade and Current Account:

Basis Balance of Trade (BOT) Current Account
Components: Balance of trade includes only visible items. Current Account records both visible and invisible items.
Scope: It is a narrow concept as it is only a part of current account It is a wider concept and it includes BOT.

Balance on Current Account:

In the current account, receipts from export of goods, services and unilateral receipts are entered as credit or positive items and payments for import of goods, services and unilateral payments are entered as debit or negative items. The net value of credit and debit balances is the balance on current account.

  1. Surplus in current account arises when credit items are more than debit items. It indicates net inflow of foreign exchange.
  2. Deficit in current account arises when debit items are more than credit items. It indicates net outflow of foreign exchange.

Components of Current Account:

Credit Items Debit Items Net Credit (Credit – Debit)
1. Visible Trade Exports of goods: Imports of goods Net Exports of goods (Balance of Trade)
2. Invisible Trade Exports of services: Imports of services Net Exports of services
3. Unilateral Transfers Transfer Receipts: Transfer Payments Net Transfer Receipts
4. Income Receipts & Payments Income Receipts: Income Payments Net Income Receipts
Current Receipts (1+2+3+4) Current Payments Current Account Balance

(2) Capital Account:

Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature.

Capital Account is used to:

(i) Finance deficit in current account; or

(ii) Absorb surplus of current account.

Capital account is concerned with financial transfers. So, it does not have direct effect on income, output and employment of the country.

Components of Capital Account:

The main components of capital account are:

  1. Borrowings and landings to and from abroad: It includes:
  • All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side.
  • All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item.

2. Investments to and from abroad: It includes:

  • Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange.
  • Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange.

3. Change in Foreign Exchange Reserves:

The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side. It must be noted that ‘change in reserves’ is recorded in the BOP account and not ‘reserves’.

Balance on Capital Account:

The transactions, which lead to inflow of foreign exchange (like receipt of loan from abroad, sale of assets or shares in foreign countries, etc.), are recorded on the credit or positive side of capital account. Similarly, transactions, which lead to outflow of foreign exchange (like repayment of loans, purchase of assets or shares in foreign countries, etc.), are recorded on the debit or negative side. The net value of credit and debit balances is the balance on capital account.

  1. Surplus in capital account arises when credit items are more than debit items. It indicates net inflow of capital.
  2. Deficit in capital account arises when debit items are more than credit items. It indicates net outflow of capital.

In addition to current account and capital account, there is one more element in BOP, known as ‘Errors and Omissions’. It is the balancing item, which reflects the inability to record all international transactions accurately.

Credit Items Debit Items Net Credit (Credit – Debit)
1. Borrowings and lending’s to and from abroad Borrowings from abroad: Landings to abroad Net Borrowings from abroad
2. Investments from abroad Investments from abroad: Investments to abroad Net Investments from abroad
3. Change in Foreign Exchange Reserves. Decreases in foreign exchange reserves: Increases in foreign exchange reserves Net change in foreign exchange reserves
Capital Receipts (1+2+3): Capital Payments Capital Account Balance

Balance on Current Account Vs. Balance on Capital Account:

Balance on current account and balance on capital account are interrelated.

  1. A deficit in the current account must be settled by a surplus on the capital account.
  2. A surplus in the current account must be matched by a deficit on the capital account.
Lucknow University BBA Notes

Meaning of Correlation, Importance

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Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0

A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves, either up or down, the other security moves in lockstep, in the same direction. A perfect negative correlation means that two assets move in opposite directions, while a zero correlation implies no relationship at all.

For example, large-cap mutual funds generally have a high positive correlation to the Standard and Poor’s (S&P) 500 Index – very close to 1. Small-cap stocks have a positive correlation to that same index, but it is not as high – generally around 0.8.

However, put option prices and their underlying stock prices will tend to have a negative correlation. As the stock price increases, the put option prices go down. This is a direct and high-magnitude negative correlation.

  • Correlation is a statistic that measures the degree to which two variables move in relation to each other.
  • In finance, the correlation can measure the movement of a stock with that of a benchmark index, such as the Beta.
  • Correlation measures association, but does not tell you if x causes y or vice versa, or if the association is caused by some third (perhaps unseen) factor.

Importance of correlation Analysis

Correlation is very important in the field of Psychology and Education as a measure of relationship between test scores and other measures of performance. With the help of correlation, it is possible to have a correct idea of the working capacity of a person. With the help of it, it is also possible to have a knowledge of the various qualities of an individual.

After finding the correlation between the two qualities or different qualities of an individual, it is also possible to provide his vocational guidance. In order to provide educational guidance to a student in selection of his subjects of study, correlation is also helpful and necessary.

Correlation Statistics and Investing

The correlation between two variables is particularly helpful when investing in the financial markets. For example, a correlation can be helpful in determining how well a mutual fund performs relative to its benchmark index, or another fund or asset class. By adding a low or negatively correlated mutual fund to an existing portfolio, the investor gains diversification benefits.

In other words, investors can use negatively-correlated assets or securities to hedge their portfolio and reduce market risk due to volatility or wild price fluctuations. Many investors hedge the price risk of a portfolio, which effectively reduces any capital gains or losses because they want the dividend income or yield from the stock or security.

Correlation statistics also allows investors to determine when the correlation between two variables changes. For example, bank stocks typically have a highly-positive correlation to interest rates since loan rates are often calculated based on market interest rates. If the stock price of a bank is falling while interest rates are rising, investors can glean that something’s askew. If the stock prices of similar banks in the sector are also rising, investors can conclude that the declining bank stock is not due to interest rates. Instead, the poorly-performing bank is likely dealing with an internal, fundamental issue.

Lucknow University BBA Notes

Degrees of Price Discrimination

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Price discrimination means charging different prices from different customers or for different units of the same product. In the words of Joan Robinson: “The act of selling the same article, produced under single control at different prices to different buyers is known as price discrimination.” Price discrimination is possible when the monopolist sells in different markets in such a way that it is not possible to transfer any unit of the commodity from the cheap market to the dearer market.

Degrees of price discrimination

Prof. Pigou in his Economics of Welfare describes three degrees of discriminating power which a monopolist may wield. The type of discrimination discussed above is called discrimination of the third degree. We explain below discrimination of the first degree and the second degree.

Discrimination of the First Degree (1st) or Perfect Discrimination

Discrimination of the first degree occurs when a monopolist charges “a different price against all the different units of commodity in. such wise that the price exacted for each was equal to the demand price for it and no consumer’s surplus was left to the buyers.”

Joan Robinson calls it perfect discrimi­nation when the monopolist sells each unit of the product at a separate price. Such discrimination is possible only when consumers are sold the units for which they are prepared to pay the highest price and thus they are not left with any consumer’s surplus.

For perfect price discrimination, two conditions are required

(1) To keep the buyers separate from each other, and

(2) To deal with each buyer on a take-it-or-leave-it basis. When the discriminator of first degree is able to deal with his customers on the above basis, he can transfer the whole of consumers’ surplus to himself. Consider Figure 1. Where DD1 is the demand curve faced by the monopolist. Each buyer is assumed as a price-taker. Suppose the discriminating monopolist sells four units of his product at four different prices:

OQ1 unit at OP1price, Q1Q2 unit at OP2 price, Q2Q3 unit at OP3 price and Q3Q4 unit at OP4 price. The total revenue (or price) obtained by him would be OQ4 AD. This area is the maximum expenditure that the consumers are willing to incur to buy all four units of the product under the first-degree discriminator’s all-or-nothing offer. But with no price discrimination under simple monopoly, the monopolist would sell all four units at the uniform price OP4 and thus obtain the total revenue of OQ4AP4.

This area represents the total expenditure that consumers would actually pay for the four units. Thus the difference between what Quantity the consumers were willing to pay (OQ4 AD) under Fig. 1 the take-it-or-leave-it offer of the first degree discrimi­nator and what they actually pay (OQ4AP4) to the simple monopolist, is consumers’ surplus. This is equal to the area of the triangle DAP4.

Thus under the first-degree price discrimination, the entire consumers’ surplus is pocketed by the monopolist when he charges a separate price for each unit of the product. Price discrimination of the first degree is rare and is to be found in such rare products as diamonds, jewels, precious stones, etc. But a monopolist must have full knowledge of the demand curve faced by him and he should know the maximum price that the consumers are willing to pay for each unit of the product he wants to sell.

Discrimination of the Second Degree (2nd) or Multi-part Pricing

In discrimination of the second degree, the monopolist divides the consumers in different slabs or groups or blocks and charges different prices for different slabs of the same product. Since the earlier units of the product have more utility for the consumers than the later ones, the monopolist charges a higher price for the former units and reduces the price for the later units in the respective slabs.

Such discrimination is only possible if the demand of each consumer below a certain maximum price is perfectly inelastic. Electric supply companies in developed countries practice discrimination of the second degree when they charge a high rate for the first slab of kilowatts of electricity consumed. As more electricity is used, the rate falls with subsequent slabs.

Figure 2 illustrates the second degree discrimination, where DD1is the demand curve for electric­ity on the part of domestic consumers in a town. CP3 represents the cost of generating electricity, so that the electricity company charges M1P1 rate per kw. up to OM1 units. For consuming the next M1 to М2 units, the rate is lowered to M2P2. The lowest rate charged is M3P3 for M2 to M3 units. M3P3 is, however, the lowest rate which will be charged even if a con­sumer consumes more than M3 units of electricity.

If the electricity company were to charge only one rate throughout, say M3P3the total revenue would not be maximized. It would be OCP3 M3But by charg­ing different rates for different unit slabs, it gets the total revenue equal to OM3 x P1M1 + OM2 x P2M2 + OM3x P3M3 Thus the second degree discriminator would take away a part of consumers’ surplus covered by the rectangles ABEP1and BCFP2 .The shaded area in three triangles DAP1 Р1ЕР2, and P2FP3 still remains with consumers as their surplus.

The second degree price discrimination is practised by telephone companies, railways, companies supplying water, electricity and gas in developed countries where these services are available in plenty. But it is not found in developing countries like India where such services are scarce.

The differences between the first and second degree price discrimination may be noted. In the first degree discrimination, the monopolist charges a different price for each different unit of the prod­uct. But in second degree discrimination, a number of units in one slab (or group or block) are sold at the lowest price and as the slabs increase, the prices charged by the monopolist are lowered. In the case of the former the monopolist takes away the whole of consumers’ surplus. But in the latter case, the monopolist takes away only a portion of the consumers’ surplus and the other portion is left with the buyer.

Conditions under which Price Discrimination is Possible

Price discrimination is possible under following conditions:

  1. Nature of Commodity

In the first place it is said that price discrimination is possible when the nature of the commodity or service is such that there is no possibility of transference from one market to the other.

That is, the goods sold in the cheaper market cannot be resold in the dearer market; otherwise the monopolist’s purpose will be defeated.

  1. Distance of Two Markets

Price discrimination is possible when the two markets or markets are separated by large distance or tariff barriers, so that it is not possible to transfer goods from a cheaper market to dearer markets. For instance, a monopolist may sell the same product at a higher price in Bombay and lower price in Meerut.

  1. Ignorance of the Consumers

Price discrimination is possible when the consumers are ignorant about price discrimination, they are not aware that in one part of the market prices are lower than in the other part. Thus, he purchases in dearer market, than in cheaper market since he is ignorant of the prices that are prevailing in different markets.

  1. Government Regulation

Price discrimination occurs when the government rules and regulations permit. For instance, according to rules, electricity rates are fixed at higher level for industrial purposes and lower for domestic uses. Similarly, railways charge by law higher fares from first class passengers than from the second class passengers. Hence, price discrimination is possible because of legal sanction.

  1. Geographical Discrimination

Price discrimination may be possible on account of geographical situations. The monopolist may discriminate between home and foreign buyers by selling at lower price in the foreign market than in the domestic market. Geographical discrimination is possible because no unit of the commodity sold in one market can be transferred to another.

  1. Difference in Elasticity of Demand

A commodity may have different elasticity of demand in different markets. Thus, the market of a commodity can be separated on the basis of its elasticity of demand.

Hence, a monopolist can charge different prices in different markets classified on the basis of elasticity of demand, low price is charged where demand is more elastic and high price in the market with the less elastic demand or inelastic demand.

  1. Artificial Difference between Goods

A monopolist may create artificial differences by presenting the same commodity under different names and labels, one for the rich and snobbish buyers and the other for the ordinary customers. For instance, a biscuit manufacturer may wrap small quantity of the biscuits, give it separate name and charge a higher price. Thus, he may charge different price for substantially the same product. He may charge Rs. 2/- for 100 gram wrapped biscuits and Rs. 1.50 for unwrapped biscuits.

Lucknow University BBA Notes

Lucknow University BBA Notes

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>>NEP 2021 Syllabus Notes<<

1st Semester

Principles of Management (Updated) VIEW
Financial & Management Accounting-I (Updated) VIEW
Business Organisations (Updated) VIEW
Business Communication (Updated) VIEW
Computer & IT Applications-I (Updated) VIEW
Personality Development and Grooming (Updated) VIEW

2nd Semester

Organizational Behaviour (Updated) VIEW
Financial & Management Accounting-II (Updated) VIEW
Managerial Economics (Updated) VIEW
Business Environment (Updated) VIEW
Quantitative Techniques-I (Updated) VIEW
Resume Writing and Corporate Communication (Updated) VIEW

3rd Semester

Financial Management (Updated) VIEW
Marketing Management (Updated) VIEW
Operations Management (Updated) VIEW
Human Resource Management (Updated) VIEW
Computer & IT Applications-II (Updated) VIEW
Interview Preparation & Planning (Updated) VIEW

4th Semester

Taxation & Laws (Updated) VIEW
Customer Relationship Management (Updated) VIEW
Logistic and Supply Chain Management (Updated) VIEW
Industrial Relations Management (Updated) VIEW
Quantitative Techniques-II (Updated) VIEW
Role Play and Simulation (Updated) VIEW

5th Semester

Entrepreneurship and Family Business-I (Updated) VIEW
Business Ethics (Updated) VIEW
Business Policy & Strategic Management-I (Updated) VIEW
Business Laws (Updated) VIEW
Financial Institutions (Updated) VIEW
Consumer Behaviour (Updated) VIEW

6th Semester

Entrepreneurship and Family Business-II (Updated) VIEW
Corporate Governance and Corporate Social Responsibility (Updated) VIEW
Business Policy & Strategic Management-II (Updated) VIEW
Management Information System (Updated) VIEW
E-Commerce (Updated) VIEW
Talent Management and HRIS (Updated) VIEW

7th Semester

Decision Sciences (Updated)

VIEW

Project Management (Updated)

VIEW

Business Analytics (Updated)

VIEW

Banking Operations Management (Updated)

VIEW

Retail & Rural Marketing (Updated)

VIEW

Insurance & Risk Management (Updated)

VIEW

Service and Industrial Marketing (Updated)

VIEW

Research Methodology (Updated)

VIEW

 

>Old Syllabus<

1st Semester

Subjects

BBA101 Business Mathematics (No Update)

VIEW

BBA102 Computer Fundamentals (Updated)

VIEW

BBA103 Financial Accounting (Updated)

VIEW

BBA104 Managerial Economics (Updated)

VIEW

BBA105 Marketing Fundamentals (Updated)

VIEW

BBA106 Principles of Management (Updated)

VIEW

2nd Semester

Subjects

BBA201 Business Communication (Updated)

VIEW

BBA202 Business Statistics (Updated)

VIEW

BBA203 Foreign Trade of India (Updated)

VIEW

BBA204 Environmental Studies (Updated)

VIEW

BBA205 Financial Mathematics (Updated)

VIEW

BBA206 Indian Value System (Updated)

VIEW

3rd Semester

Subjects

BBA301 Advertising Management (Updated)

VIEW

BBA302 Banking operations Management (Updated)

VIEW

BBA303 Business Environment (Updated)

VIEW

BBA304 Management Accounting (Updated)

VIEW

BBA305 Organizational Behavior (Updated)

VIEW

BBA306 Research Methodology (Updated)

VIEW

4th Semester

Subjects

BBA401 Business Laws (Updated)

VIEW

BBA402 Financial Management (Updated)

VIEW

BBA403 Human Resource Management (Updated)

VIEW

BBA404 Information Management (Updated)

VIEW

BBA405 Operation Management (Updated)

VIEW

BBA406 Consumer Behavior (Updated)

VIEW

5th Semester

Subjects

BBA501 E-Commerce (Updated)

VIEW

BBA502 Financial Services (Updated)

VIEW

BBA503 Insurance and Risk Management (Updated)

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BBA504 Retail & Rural Marketing (Updated)

VIEW

BBA505 Taxation Laws (Updated)

VIEW

BBA506 Managing Personal Finance (Updated)

VIEW

6th Semester

Subjects

BBA601 Business Policy (Updated)

VIEW

BBA602 Company Law (Updated)

VIEW

BBA603 Entrepreneurship (Updated)

VIEW

BBA604 International Business (Updated)

VIEW

BBA605 Marketing of Service (Updated)

VIEW

BBA606 Project Management (Updated)

VIEW

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