CBSE Class 12th Business Studies Revision Notes - N12

Free Business Studies - Class 12th (CBSE) - Revision Notes - N12 - Consumer Protection

We have heard slogans on the television, radio, and other mediums that "Jaago Grahak Jaago". This campaign by the Indian Government shows the importance of consumer protection in India.

Students who are studying in class 12th also have a Business Studies chapter on Consumer Protection.

So, time has come to read free revision notes for CBSE class 12th mainly focused on Chapter 12: Consumer Protection.

These exclusive revision notes are built by expert CBSE teachers to increase your knowledge level to score higher in your upcoming board exams.

Here are the quick details:

• Subject: Business Studies
• Class: 12th (CBSE)
• Chapter Name: Consumer Protection

Revision Notes for CBSE Class 12th - Business Studies

Consumer Protection

Definition of Consumer (As Per Consumer Protection Act 2019)

A consumer is defined as a person who buys any goods or avail any services for a consideration, which has been paid or partly paid or partly promised or promised to pay, under any scheme of deferred payment.

It also includes the person, who is using the goods or beneficiary of service with the approval of the buyer. It applies to both offline and online transactions through electronic means or by teleshopping or direct selling or multilevel marketing.

Note: Any person who obtains good and avails services for resale or commercial purpose is not treated as consumer.

Importance of Consumer Protection

From Consumer Point of View

• Consumer Ignorance
• Consumer protection provides information to the ignorant customers regarding the rights and remedial available to them. It spreads awareness so that consumer can know about their rights and various redressal agencies.
• Unorganized Consumer
• In developing countries like India, consumers are not organized. Consumer protection provides power and rights to the organizations as these organizations can file case on behalf of customers.
• Widespread Exploitation of Consumers
• Although nowadays consumer is the king of the market, but even then there is a lot of exploitation of consumers. Consumer protection provides a safeguard to consumers from such exploitation.

From Businessmen's Point of View

• Long-Term Interest of Business
• In the race of competition, the businessmen can win and capture a big share in the market only when they are able to satisfy its customers by designing the products keeping in mind the requirements of customers. So, it is in the interest of the business itself to keep its customers satisfied.
• Businessmen Uses Society's Resources
• Businessmen earn profit by supplying goods and services to the members of society, so it must do something for society. Businessmen are merely trustees of resources; they must use these resources for the benefits of consumers.
• Social Responsibilities
• A businessman has social obligations towards various groups and customers. It is the responsibility of businessmen to provide quality goods at a reasonable price. Consumer protection guides businessmen to provide social responsibilities.
• Moral Justification
• In today's environment, business without ethical value is no more than a criminal activity and no civil society can tolerate and allow the existence of unethical business.
• Government Intervention
• If businessmen want to avoid intervention of government then they shouldn't involve in unfair trade practices. Businessmen should voluntarily involve in the activities which protect the interest of the consumer.

Consumer Rights 

The six fundamental consumer rights are:

1. Right to Safety
2. Right to Information
3. Right to be Assured / Right to Choose
4. Right to be Heard or Right to Representation
5. Right to Seek Redressal
6. Right to Consumer Education

Following are the details:

1. Right to Safety
• According to this right, the consumers have a right to be protected against the marketing of goods and services which are hazardous to life and property. This right to safety protects the consumer from sale of such hazardous goods or services. Thus, consumers are educated that they should use electrical appliances which are ISI marked as this would be an assurance of such products meeting quality specifications.
2. Right to Information
• According to this right, the consumer has the right to get information about the quality, quantity, purity, standard and price of goods or services to protect himself against the unfair practices. The law in India also requires the manufacturers to provide such information on the package and label of the product.
3. Right to be Assured / Right to Choose
• The right to choose means an assurance of availability, ability and access to a variety of products and services at fair price. The producer or supplier or retailer should not force the customer to buy a particular brand only. Consumer should be free to choose the most suitable product from his point of view.
4. Right to be Heard or Right to Representation
• According to this right, the consumer has the right to represent himself or to be heard or the right to advocate his interest. In case a consumer has been exploited or has any complaint against the product or service, then he has the right to be heard and be assured that his/her interest would receive consideration. Under this right, the companies must have complaint cells to attend to the complaints of customers.
5. Right to Seek Redressal
• According to this right, the consumer has a right to get compensation or seek redressal against unfair trade practices or any other exploitation. The right to redressal includes compensation in the form of money or replacement of goods on repair of defect in the goods as per the satisfaction of the consumer.
6. Right to Consumer Education
• According to this right, it is the right of the consumer to acquire the knowledge and skills to be an informed consumer. This right assures that literate and illiterate both consumers can seek information about the rights and the reliefs available to him.

Consumer's Responsibilities

• Be aware about various goods and services available in the market so that an intelligent and wise choice can be made.
•  Buy only standardised goods as they provide quality assurance. Thus, look for ISI mark on electrical goods, FPO mark on food products, Hallmark/BIS Mark on jewellery, WOOLMARK on 100% Pure Wool etc.
• Learn about the risks associated with products and services, follow manufacturer’s instructions and use the products safely.
•  Read labels carefully to have information about prices, net weight, manufacturing and expiry dates, etc.
•  Assert yourself to ensure that you get a fair deal.
• Be honest in your dealings. Choose only from legal goods and services and discourage unscrupulous practices like black-marketing, hoarding etc.
• Ask for a cash memo/Invoice on purchase of goods or services. This would serve as a proof of the purchase made.
• File a complaint in an appropriate consumer forum in case of a shortcoming in the quality of goods purchased or services availed. Do not fail to take an action even when the amount involved is small.
•  Form consumer societies which would play an active part in educating consumers and safeguarding their interests.
• Respect the environment. Avoid waste, littering and contributing to pollution.

Who can File a Complaint?

1. Any consumer.
2. Any voluntary consumer association, registered under any law.
3. The central Government or any state government.
4. One or more consumers, where there are numerous consumers having the same interest.
5. In case of the death of the consumer, his legal heir or legal representative.
6. In case of a consumer being minor, his parents or legal guardian.

Who are not Considered as a Consumer under Consumer Protection Act 2019?

1. The person who obtains goods for resale.
2. The person who uses the goods without the approval of the buyer.
3. The person who avails of the services without the approval of the hirer.
4. The person who obtains goods without any consideration (i.e., payment).
5. The person who hires or avails of any services without consideration.

Relied or Remedies/Solution Available to Consumers on Complaints Filed by Him

• To remove the defects or deficiency in the service.
• To replace the defective product with a new one free from any defect.
• To refund the price paid for the product or the charges paid for the services.
• To pay a reasonable amount of compensation for any loss or injury suffered by the consumer due to the negligence of the opposite party.
• To pay extra compensation as a corrective measure for damage to the consumer due to the opposite party (It is called to pay punitive damages).
• To discontinue unfair/restrictive trade practice and not to repeat it in the future.
• No to offer hazardous goods for sale.
• To withdraw hazardous goods from the market.
• To cease manufacture of hazardous goods and to desist (abstain/cease/stop) from offering hazardous services.
• Compensate for any loss or injury suffered by the consumer under product liability action and withdraw hazardous products from being offered for sale, etc.
• Payment of adequate cost to the grieved party.
• District Commission, State Commission, and National Commission have the power to declare a contract null and void, if it is unfair.
• To cease and restrict from issuing any misleading advertisement.

Redressal Agencies and Their Jurisdiction

Every order of the District Commission, State Commission, or the National Commission is deemed final if no appeal for such order is made by any of the parties involved in the dispute.

Redressal Agencies under the Consumer Protection Act, 2019

• District Forum (now District Commission)
• State Commission
• National Commission

District Forum (District Commission)

• District Commission consists of a president and two other members.
• The president can be a retired or working judge of the District Court. They are appointed by the state government.
• The complaints for goods or services worth ₹ 1 crore or less can be filed in this agency.
• District forum may give grieved parties five days for settlement.
• The agency sends the goods for testing in a laboratory if required and gives decisions based on facts and laboratory report.
• If the aggrieved party is not satisfied by the jurisdiction of the district commission, then they can file an appeal against the judgement in the State Commission within 45 days.

State Commission

• It consists of a president and at least four other members.
• The president must be a retired or working judge of the high court. They all are appointed by the state government.
• The complaints for the goods worth more than ₹ 1 crore and less than ₹ 10 crore can be filed in State Commission.
• On receiving a complaint, the State Commission contacts the party against whom the complaint is filed and sends the goods for testing in a laboratory if required.
• In case the aggrieved party is not satisfied with the judgement, then they can file an appeal in the National Commission within 30 days.

National Commission

• The National Commission consists of a president and four members, one of whom shall be a woman.
• They are appointed by the Central Government.
• The complaint can be filed in the National Commission if the value of goods exceeds ₹ 10 crore.
• On receiving the complaint, the National Commission informs the party against whom the complaint is filed and sends the goods for testing if required and gives judgement.
• If the aggrieved party is not satisfied with the judgement, then they can file a complaint in the Supreme Court within 30 days.

Role of Consumer Organizations and NGOs

1. Educating the public about consumer rights by organizing training programmes, seminars, and workshops.
2. Publishing periodicals and other publications to impart knowledge about consumer problems, reliefs available, and other matters of interest.
3. Carrying out comparative testing of consumer products in accredited laboratories to test relative qualities of competing brands and publishing the test results for the benefit of consumers.
4. Encouraging consumers to strongly protest and act against exploitative and unfair trade practices of sellers.
5. Providing legal assistance to consumers by way of providing aid, legal advice, etc., in seeking legal remedy.
6. Filing complaints in consumer courts on behalf of consumers.
7. Taking an initiative in filing cases in consumer courts in the interest of the public.
8. Helping government agencies to resolve cases of consumer exploitation and to carry on consumer awareness programs.
9. Motivating people to ask for quality marks such as ISI mark, AgMark, etc.

Consumer Protection Act, 2019

The new Consumer Protection Act was passed by Parliament in 2019. It came into force in July 2020 and replaced the Consumer Protection Act, 1986.

Need for the new act

• The Digital Age has led to a new era of commerce. Digitisation has provided easy access, a large variety of choices, convenient payment mechanisms, improved services and shopping as per convenience. However, there are also associated challenges related to consumer protection.
• To help address the new set of challenges faced by consumers in the digital age, the Indian Parliament passed the landmark Consumer Protection Bill, 2019 which aims to provide timely and effective administration and settlement of consumer disputes.

Central Consumer Protection Authority (CCPA)

• The Act proposes the establishment of the Central Consumer Protection Authority (CCPA) as a regulatory authority.
• The CCPA will protect, promote and enforce the rights of consumers and regulate cases related to unfair trade practices, misleading advertisements, and violation of consumer rights.
• The CCPA will have the right to recall products, order reimbursement of the price of goods/services, cancel licenses, impose penalties and file suits.

E-Filing of Complaints

• The new Act provides flexibility to the consumer to file complaints with the jurisdictional consumer forum located at the place of residence or work of the consumer. This is unlike the earlier condition where the consumer had to file a complaint at the place of purchase or where the seller has its registered office address.
• The new Act also contains enabling provisions for consumers to file complaints electronically and for hearing and/or examining parties through videoconferencing.

The End

If you have understood the entire revision notes of Consumer Protection, click here to solve the test series of five question papers for it.

CBSE Class 12th Business Studies Revision Notes - N9

Free Business Studies - Class 12th (CBSE) - Revision Notes - N9 - Financial Management

Time has come to read free revision notes for CBSE class 12th mainly focused on Chapter 9: Financial Management.

These exclusive revision notes are built by expert CBSE teachers to increase your knowledge level to score higher in your upcoming board exams.

Here are the quick details:

• Subject: Business Studies
• Class: 12th (CBSE)
• Chapter Name: Financial Management

Financial Management

Business Finance - The fund required to carry out the activities of the Business.

Financial management refers to the efficient acquisition of finance, efficient utilization of finance and efficient distribution of surplus for the smooth working of the company.

Role of Financial Management

• The overall financial health of a business and its future depend on its financial management.
• Optimal procurement and the usage of finance.
• It aims at ensuring the availability of enough funds whenever required and avoiding idle finance.
• The financial statements, such as Balance Sheet and Statement of Profit and Loss Account, of a business are largely determined/affected by financial management decisions taken earlier.

Objectives of Financial Management

The objective of financial management is to maximize the current price of equity shares of the company or to maximize the wealth of owners of the company (shareholders).

Financial Decisions

Investment Decision (Capital Budgeting Decision)

• ¯  This decision relates to the careful selection of assets in which funds will be invested by the firms.
• ¯  The firm invests its funds in acquiring fixed assets as well as current assets.
• ¯  When a decision regarding fixed assets is taken it is also called a Capital Budgeting Decision.

Factors Affecting Investment / Capital Budgeting Decision

·  Cash flow of the Project - Cash flows are in the form of a series of cash receipts and payments over the life of an investment. The amount of these cash flows should be carefully analyzed

· Return on Investment - The rate of return an investment will be able to bring back for the company in the form of income. For example: If project A is bringing 10% return and project B is bringing 15% return then we should prefer project B.

· Risk Involved - The company must try to calculate the risk involved in every proposal and should prefer the investment proposal with a moderate degree of risk only.

· Investment Criteria - There are different techniques to evaluate investment proposals which are known as capital budgeting techniques. These techniques are applied to each proposal before selecting a particular project. 

Financing Decision

This decision relates to the Quantum of finance to be raised from various long-term sources.

¯   A company can raise finance from various sources, but the main sources of finance are divided into two categories :

a) Owner’s Funds: It includes share capital and retained earnings.

b) Borrowed Funds: These include debentures, loans, bonds etc.

¯  Deciding how much to raise from which source

¯  The borrowed funds involve some degree of risk whereas in the owner's fund, there is no fixed commitment of repayment.

Factors Affecting Financing Decision    6CR

·  Cash flow Position - With smooth and steady cash flow companies can easily afford borrowed funds securities but when companies have a shortage of cash flow, then they must go for owner's fund securities only.

·  Cost- The cost of raising finance from various sources are different and finance manager always prefer the source with minimum cost.

·  Flotation Cost- It refers to the cost involved in the issue of securities such as broker's commission, underwriter's fees, expenses on the prospectus, etc. The firm prefers securities which involve the least floatation cost.

· Fixed Operating Cost- If a company is having high fixed operating cost, then it must prefer an owner's fund because due to high fixed operational costs. For example: Building rent, Insurance premium, salaries etc. The company may not be able to pay interest on debt securities which can cause serious troubles for the company.

·  Control Considerations- If existing shareholders want to retain complete control of the business, then they prefer borrowed fund securities to raise further funds. On the other hand, if they do not mind losing control then they may go for owner's fund securities.

·  Capital Market- During the boom period, it is easy to sell equity shares as people are ready to take risks whereas, during the depression period, there is more demand for debt securities in the capital market.

·  Risk- More risk is associated with the borrowed fund as compared to owner's fund securities.

Dividend Decision

Dividend is that portion of profit which is distributed to shareholders.

¯  The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business.

¯  The extent of retained earnings also influences the financing decision of the firm.

Factors Affecting Dividend Decision

·  Cash Flow Position - Paying dividend means an outflow of cash. Companies declare a high rate of dividend only when they have surplus cash. In a situation of shortage of cash, companies declare no or very low dividend.

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

· Stability of Earnings- Companies having stable or smooth earnings prefer to give a high rate of dividend whereas companies with unstable earnings prefer to give a low rate of dividend. The increase in dividends is generally made when there is confidence that their earning potential has gone up and not just the earnings of the current year.

· Growth Opportunities- If a company has a few investments plans then it should reinvest the earnings of the company. Hence, a company with no growth plans will distribute more in the form of dividends whereas growing companies will be kept aside more as retained earnings.

·   Preference of Shareholders- If a company is having many retired and middle-class shareholders then it will declare more dividend. Whereas if company is having many young and wealthy shareholders then it will prefer to keep aside more in the form of retained earnings and declare a low rate of dividend.

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

·   Access to Capital Market Consideration- If the capital market can easily be accessed or approached and there is enough demand for securities of the company then the company can give more dividends and raise capital by approaching the capital market. But if it is difficult for the company to approach the capital market then companies declare a low rate of dividend and use reserves for reinvestment.

·  Legal Restrictions / Constraints- Companies Act has given certain provisions regarding the payment of dividends. Apart from the company's act, there are certain internal provisions of the company like whether the company has enough cash flow to pay a dividend or not. The payment of dividend should not affect the liquidity of the company.

·  Contractual Constraints- When companies take long-term loans then financier may put some restrictions or constraints on the distribution of dividend and companies must abide by these constraints.

·  Stock Market Reactions- The declaration of dividend has impact on stock market as the increase in dividend is taken as good news in the stock market and prices of securities rise. Whereas a decrease in dividend may have negative impact on the share price in the stock market. Hence equity share price also affects dividend decision.

·  Stability of Dividend- Some companies follow a stable dividend policy as it has a better impact on shareholder and improves the reputation of the company in the share market. The stable dividend policy also satisfies the investor. When the company is confident then their earning potential has improved then they increase the dividend. 

Financial Planning

• The main objective of financial planning is that sufficient funds should be available in the company for different purposes such as for the purchase of long term assets, to meet day-to-day expenses, etc.
• Excess funding is as bad as a shortage of funds. It may result in the wastage of resources.
•  If adequate funds are not available, the firm will not be able to honor its commitments and carry out its plans.
• On the other hand if excess funds are available, it will unnecessarily add to the cost and may encourage wasteful expenditure.
• It enables the management to foresee the fund requirements both the quantum as well as the timing.

Importance of Financial Planning

• Financial planning helps in forecasting what may happen in future under different business situations. It helps the firm to face the eventual situations. For example: If a company is expecting 20% growth in sales there are chances that it may be 10% or maybe 30%. The planners prepare the blueprint of all three situations so that the company can be well known of all the possible situations and the planning for those situations.
• It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
• If helps in coordinating various business functions e.g., sales and production functions, by providing clear policies and procedures.
• It tries to link the present with the future.
• It provides a link between investment and financing decisions on a continuous basis.
• It makes the evaluation of actual performance easier.

Fixed Capital

• Fixed Capital involves the allocation of firm's capital to long-term assets.
• Managing fixed capital is related to investment decisions and it is also called Capital Budgeting.
• This decision includes the purchase of land, building, plant and machinery, change of technology, expenditure of advertising campaign, research and development etc.

Factors Affecting the Requirement of Fixed Capital

1.Nature of Business - A manufacturing company needs more fixed capital as compared to a trading company and does not need a plant, machinery, etc.

2. Scale of Operation - Companies which are operating at large scale require more fixed capital. Whereas companies operating on a small scale need less amount of fixed capital as they need less amount of machinery and other assets.

3. Technique of Production - Companies using capital-intensive techniques require more fixed capital. Whereas companies using labor-intensive techniques require less fixed capital.

4.Technology Upgradation - Industries in which technology upgradation is fast need more amount of fixed capital as when new technology is invented old machines become obsolete and they need to buy new plants and machinery. Whereas companies, where technological Upgradation is slow, require less fixed capital as they can manage with old machines.

5. Growth Prospects - Companies which are expanding and have higher growth plans require more fixed capital as to expand their production capacity they need more plant and machinery so more fixed capital.

6. Diversification - Companies which have plans to diversify their activities by including more range of products require more fixed capital. As to produce more products they require more plants and machinery which means more fixed capital.

7.  Availability of Finance and Leasing Facility - If companies can arrange financial and leasing facilities easily then they require less fixed capital as they can acquire assets in easy instalments instead of paying a huge amount at one time.

8. Level of Collaboration / Joint Ventures - If companies are performing collaborations, joint venture then companies will need less fixed capital as they can share plant and machinery. But if a company prefers to operate as an independent unit, then there is more requirement for fixed capital.

Working Capital

• Capital required for smooth day-to-day operations of the business.
• It refers to the investment in all the current assets such as cash, bills receivables, prepaid expenses, inventories, Debtors etc.
• These current assets get converted into cash within an accounting year.

  Factors Affecting the Requirement of Working Capital

1. The Scale of Operation- The firms operating at large scale need to maintain more inventory, debtors, etc. so they generally require large working capital.

2. Nature of Business- The manufacturing company requires a huge amount of working capital because they must convert raw materials into finished goods, sell on credit, and maintain the inventory of raw materials as well as finished goods. The trading organization usually needs a lower amount of working capital.

3. Business Cycle Fluctuations- During the boom period, the market is flourishing which means more demand, more production, more stock, and more debtors which means more amount of working capital is required. Whereas during the depression period low demand less inventories to be maintained, and less debtors, so less working capital will be required.

4.Seasonal Factors- The working capital requirement is constant for companies which are selling goods throughout the season. The companies which are selling seasonal goods require huge amounts during the season as more demand, more stock must be maintained and fast supply is needed. Whereas during the off-season demand is very low, so less working capital is required.

5.Credit Allowed- If a company is following a liberal credit policy result in a higher number of debtors, hence needs more working capital. Ø If a company is following a strict credit policy, then it can manage with less working capital also.

6.Credit Availed- It is how much and for how long a period a company is getting credit from its suppliers. If suppliers of raw materials are giving long-term credit, then the company can manage with less amount of working capital. Whereas if suppliers are giving only short-period credit then the company will require more working capital to make payments to creditors.

7.Operating Efficiency- A firm having a high degree of operating efficiency requires less amount of working capital.

8. Level of Competition- If the market is competitive then the company will have to adopt a liberal credit policy and supply goods on time. Higher inventories must be maintained so more working capital is required.

9. Inflation- If there is an increase or rise in price then the price of raw materials and cost of labor will rise, it will increase the working capital requirement.

10. Growth Prospects- Firms planning to expand their activities will require more amount of working capital. As for expansion, they need to increase the scale of production which means more raw materials, more inputs etc.

11. Technology and Production Cycle- If Production Cycle is long then more working capital is required because it will take a long time for converting raw material into finished goods.

    Capital Structure

•          Capital structure means the proportion of debt and equity used for financing the operations of the business.
•          Capital Structure = 𝐃𝐞𝐛𝐭 / 𝐄𝐪𝐮𝐢𝐭y
•          An ideal capital structure is very difficult to define but it should be such that it increases the value of equity shares or maximizes the wealth of equity shareholders (EPS).

                      Debt and Equity differ in Cost and Risk:

Ø  Debt involves less cost, but it is very risky because of the payment of regular interest which is the legal obligation of the business. If the company fails to pay its obligation the security holders can claim over the assets of the company.

Ø  Equity securities are expensive securities, but these are safe securities from the company's point of view as a company has no legal obligation to pay a dividend to equity shareholders if it is running into losses.     

                     Financial Leverage /Trading on Equity

Ø  Financial leverage refers to the proportion of debt in the overall capital.

Ø  Financial leverage = 𝐃𝐞𝐛𝐭 / 𝐄𝐪𝐮𝐢𝐭𝐲

Ø  With debt funds company's funds and earnings increase (CONDITION 1)

      More debt will increase the earning only when the return on investment (ROI) is more than the rate of interest on the debt. (CONDITION 2)

Ø  💥 Return on Investment > Rate of Interest = Favorable Situation.

Ø  💥 Return on Investment < Rate of Interest = Unfavorable Situation.

                  

                 💫 If we compare all the situations then we can see the situation 3 equity shareholders can                    get maximum return followed by the situation  2 and least earning in the situation 1.

                

                💫 Hence, it is proof that more debt brings more income for the owners in capital structure.

                💫 But this statement holds only till return on investment (ROI) of the company is more                      than the rate of interest charged on debt.

                      ROI = EBIT / Total Investment  

                              = 7,00,000 / 50,00,000 X 100

                             = 14%

                    Hence, ROI > Rate of Interest. (14% > 10%)

 

The End

CBSE Class 12th Business Studies Revision Notes - N5

Free Business Studies - Class 12th (CBSE) - Revision Notes - N5 - Organising

Dear Students,

Pull up your socks and get ready to read free revision notes for CBSE class 12th mainly focused on Chapter 5: Organising.

These revision notes are built by expert CBSE teachers to improve your knowledge level.

Here are the quick details:

• Subject: Business Studies
• Class: 12th (CBSE)
• Chapter Name: Organising

Revision Notes for CBSE Class 12th - Business Studies

Meaning of Organising

• Organizing refers to arranging everything in orderly form and making the most efficient use of resources. 
• It can be defined as a process that initiates the implementation of plans by clarifying jobs and working relationships and effectively deploying resources for the attainment of identified and desired results (goals).

Steps in the Organizing Process

1. Identification and Division of Work: The first step in the process of organizing involves identifying and dividing the work that must be done as per the plans.  The division of work make sure there is no duplication of work and there is no burden of work on one person. The manager divides the work into smaller unit, and each unit of work is called a job.
2. Departmentalization: After dividing the work in smaller jobs, related and similar jobs are grouped and put under one department. The departmentation can be done by the organization ways such as Functional Departmentation and Divisional Departmentation.
3. Assignment of Duties: After dividing the organization into specialized departments each individual working in different departments is assigned a duty matching to his skill and qualifications. The work is assigned according to the ability of individuals.
4. Establishing Reporting Relationship: In the fourth step of the organizing process all the individuals are assigned some authority matching to the job they must perform. The managers with maximum authority are considered as top level management and managers with minimum authority are grouped into lower-level management. So, everyone knows who will report to whom.

Importance/Significance/Benefits of Organising

1. Benefits of Specialisation: Every individual is assigned a part of the total work and not the whole task. Repetitive performance of a particular task allows a worker to gain experience in that area and leads to specialisation.
2. Clarity in a working relationship: Each employee knows very clearly to whom he can give order and from whom he must receive the order.
3. Effective Administration: Clarity in working relationships enables proper execution of work. Management of an enterprise thereby becomes easy, and this brings effectiveness in administration.
4. Adaption to Change: It allows the organisation structure to be suitably modified according to changes in business environment. Thus, provides stability to the enterprise as it can then continue to survive with changes.
5. Development of Personnel: Delegation allows the managers to reduce their workload by assigning routine jobs to their subordinates. It gives them the time to explore areas for growth and the opportunity to innovate.
6. Expansion and Growth: It allows an enterprise to add more job positions, departments and even diversify their product lines.
7. Optimum utilization of resources: It leads to the proper usage of all material, financial and human resources. Avoidance of duplication of work helps in preventing confusion and minimising the wastage of resources and efforts.

Organization Structure

1. It is the framework within which managerial and operating tasks are performed.
2. It specifies the relationships between people, work and resources in an organization.
3. It allows correlation and coordination among human, physical and financial resources and accomplish desired goals.
4. It is essential to ensure a smooth flow of communication and better control over the operations of a business enterprise.

Span of Management refers to the number of subordinates that can be effectively managed by a superior. The Span of management largely gives shape to the organization structure. This determines the levels of management in the structure.

Types of Organization Structure

Functional Structure

It is an organizational structure formed by grouping of jobs of similar nature according to functions and organizing these major functions as separate departments.

For example, all the jobs related to production are grouped under the production department, related to sales in sales department, related to purchase in purchase department.

Suitability for those enterprises which have the following:

• Only one category of product.
• The size of the organization is large.
• It has diversified activities.
• Operations require a high degree of specialization.

Advantages of Functional Structure

• Specialization
• Increase Managerial and Operational Efficiency
• Easy Coordination
• Effective Training

Disadvantages of Functional Structure

• Difficulty in Achieving Organizational Goals
• Inflexibility of employees in shifting to other departments
• Conflict of Interest
• Problems in Coordination

Divisional Structure

When the organization is large and is producing more than one type of product then activities related to one product are grouped under one department.

For example, a large company may have divisions like footwear, garments etc.

Suitability of Divisional Structure

• Organizations which require product specialization.
• Organizations producing multi product or different line of products.
• Growing companies which plan to add more line of products in future.

Advantages of Divisional Structure

• Product Specialization
• Expansion and Growth
• Flexibility

Disadvantages of Divisional Structure

• More Resources Required
• Conflicts
• Ignoring of Organizational Interests 

Differences Between Functional and Divisional Structure

Formal and Informal Organisation

1. Formal Organisation

Meaning of Formal Organisation: It refers to the organization which is designed by the management to accomplish a particular task. It specifies authority and responsibility.

Features of Formal Organisation

• Created intentionally by the process of organizing.
• Purpose is the achievement of organizational goal.
• Every individual is assigned a fixed authority (decision-making power).
• Creates a scalar chain of communication.

Advantages of Formal Organisation

• Systematic working
• Coordination
• Achievements of Organizational Goals

Disadvantages of Formal Organisation

• Delay in Action
• Emphasis on Work Only 
• No Recognition of Creativity

2. Informal Organisation

Meaning of Informal Organisation: Interaction among people at work gives rise to a 'network of social relationships among employees. The informal organizational structure gets created automatically and the main purpose of such structure is getting psychological satisfaction.

Features of Informal Organisation

• Created automatically without any intended efforts of managers.
• Formed by the employees to get psychological satisfaction.
• Does not follow any fixed path of flow of authority or communication.

Advantages of Informal Organisation

• Fast Communication
• Fulfils Social Needs
• Disadvantages
• Spread Rumours
• No Systematic Working
• May Bring Negative Results

 

Differences Between Formal and Informal Organization

Delegation of Authority

Meaning of Delegation: Delegation of authority means the granting of authority to subordinates to operate within prescribed limits. Delegation helps a manager to extend his area of operations, as without it, his activities would be restricted to only what he himself can perform. However, delegation does not mean abdication. The manager shall still be accountable for the performance of the assigned tasks. Moreover, the authority granted to a subordinate can be taken back and redelegated to another person.

Importance of Delegation

• Effective management
• Employee development
• Motivation of employees
• Facilitation of growth
• Basis of management hierarchy
• Better coordination

Elements of Delegation

1. Responsibility means the work assigned to an individual. A subordinate must perform the assigned duty. Responsibility is the obligation of a subordinate to properly perform the assigned duty. Responsibility flows upward because a subordinate will always be responsible to his superior.
2. Authority means the power to make decisions. To carry on the responsibilities every employee needs to have some authority. So, when managers pass their responsibility to their subordinates, they also pass some of the authority to the subordinate. Authority flows downwards from superior to subordinate. The authority must be equal to the responsibility.
3. Accountability implies being answerable for the outcome of the assigned task. Once responsibility for the performance of an assigned task is accepted, one cannot deny accountability. Accountability arises from responsibility.  Accountability flows upwards i.e., a subordinate will be accountable to a superior for satisfactory performance of work. It cannot be delegated or passed.

Centralisation and Decentralisation

• Centralization refers to the concentration of power or authority in a few hands, i.e., top level. An organization is centralized when the decision-making authority is in the hands of top-level management only.
• Decentralization is defined as a systematic distribution of authority at every level of management. Those organizations in which such authority is shared with lower levels are 'decentralized organizations. The decision-making authority is pushed down the chain of command.

Importance of Decentralization

• Develops initiative among subordinates
• Develops managerial talent for the future
• Quick decision-making
• Facilitates Growth
• Better Control
• Relief to Top Management

Differences between Decentralization and Delegation

Organising Flowchart

The End

Have you finished the entire revision of the notes? Now, it’s time to test your knowledge!

Go through the worksheets (containing case studies, MCQs, theory questions) related to CBSE Class 12th (Chapter: Organising) by clicking the link/s below:

• Worksheet (W5a)