Dept. Of Commerce. Study materials

Prepared By Mr. Satya narayan Mishra , Lect. in Commerce

Human Resource Management: Meaning, Objectives, Scope and Functions! Meaning:

Before we define HRM, it seems pertinent to first define the term ‘human resources’. In common parlance, human resources means the people. However, different management experts have defined human resources differently. For example, Michael J. Jucius has defined human resources as “a whole consisting of inter-related, inter-dependent and interacting physiological, psychological, sociological and ethical components”.

According to Leon C. Megginson “From the national point of view human resources are knowledge, skills, creative abilities, talents, and attitudes obtained in the population; whereas from the view-point of the individual enterprise, they represent the total of the inherent abilities, acquired knowledge and skills as exemplified in the talents and aptitude of its employees”.

Sumantra Ghosal considers human resources as human capital. He classifies human capita into three categories-intellectual capitals, social capital and emotional capital. Intellectual capital consists of specialized knowledge, tacit knowledge and skills, cognitive complexity, and learning capacity.

Social capital is made up of network of relationships, sociability, and trustworthiness Emotional capital consists of self-confidence, ambition and courage, risk-bearing ability, and resilience. Now it is clear from above definitions that human resources refer to the qualitative and quantitative aspects of employees working in an organisation. Let us now define human resource management.

In simple words, HRM is a process of making the efficient and effective use of human resources so that the set goals are achieved. Let us also consider some important definitions of HRM.

According to Flippo “Personnel management, or say, human resource management is the planning, organising, directing and controlling of the procurement development compensation integration, 4intenance, and separation of human resources to the end that individual, organisational and social objectives are accomplished”. The National Institute of Personnel Management (NIPM) of India has defined human resource/personnel management as “that part of management which is concerned with people at work and with their relationship within an enterprise. Its aim is to bring together and develop into an effective organisation of the men and women who make up an enterprise and having regard for the well-being of the individuals and of working groups, to enable them to make their best contribution to its success”.

According to Decenzo and Robbins “HRM is concerned with the people dimension in management. Since every organisation is made up of people, acquiring their services, developing their skills, motivating them to higher levels of performance and ensuring that they continue to maintain their commitment to the organisation are

essential to achieving organisational objectives. This is true, regardless of the type of organisation-government, business, education, health, recreation, or social action”.

Thus, HRM can be defined as a process of procuring, developing and maintaining competent human resources in the organisation so that the goals of an organisation are achieved in an effective and efficient manner. In short, HRM is an art of managing people at work in such a manner that they give their best to the organisation for achieving its set goals. Objectives:

The primary objective of HRM is to ensure the availability of right people for right jobs so as the organizational goals are achieved effectively. This primary objective can further be divided into the following sub-objectives: 1. To help the organisation to attain its goals effectively and efficiently by providing competent and motivated employees. 2. To utilize the available human resources effectively. 3. To increase to the fullest the employee’s job satisfaction and self-actualization. 4. To develop and maintain the quality of work life (QWL) which makes employment in the organisation a desirable personal and social situation. 5. To help maintain ethical policies and behaviour inside and outside the organisation. 6. To establish and maintain cordial relations between employees and management. 7. To reconcile individual/group goals with organisational goals. Werther and Davis have classified the objectives of HRM into four categories as shown in table 1.2. Table 1.2: HRM Objectives and

Functions: Scope:

The scope of HRM is, indeed, very vast and wide. It includes all activities starting from manpower planning till employee leaves the organisation. Accordingly, the scope of HRM consists of acquisition, development, maintenance/retention, and control of human resources in the organisation (see figure 1.1). The same forms the subject matter of HRM. As the subsequent pages unfold, all these are discussed, in detail, in seriatim.

The scope of HRM as follows: 1. The Labour or Personnel Aspect: This is concerned with manpower planning, recruitment, selection, placement, transfer, promotion, training and development, lay-off and retrenchment, remuneration, incentives, productivity, etc. 2. Welfare Aspect: It deals with working conditions, and amenities such as canteen, creches, rest and lunch rooms, housing, transport, medical assistance, education, health and safety, recreation facilities, etc. 3. Industrial Relations Aspects: This covers union-management relations, joint consultation, collective bargaining, grievance and disciplinary actions, settlement of disputes, etc. Functions: We have already defined HRM. The definition of HRM is based on what managers do. The functions performed by managers are common to all organizations. For the convenience of study, the function performed by the resource management can broadly be classified into two categories, viz. (1) Managerial functions, and (2) Operative functions (see fig. 1.2). These are discussed in turn. (1) Managerial Functions: Planning: Planning is a predetermined course of actions. It is a process of determining the organisational goals and formulation of policies and programmes for achieving them. Thus planning is future oriented concerned with clearly charting out the desired direction of business activities in future. Forecasting is one of the important elements in the planning process. Other functions of managers depend on planning function.

Organising: Organising is a process by which the structure and allocation of jobs are determined. Thus organising involves giving each subordinate a specific task establishing departments, delegating authority to subordinates, establishing channels of authority and communication, coordinating the work of subordinates, and so on.

Staffing: TOs is a process by which managers select, train, promote and retire their subordinates This involves deciding what type of people should be hired, recruiting prospective employees, selecting employees, setting performance standard, compensating employees, evaluating performance, counseling employees, training and developing employees. Directing/Leading: Directing is the process of activating group efforts to achieve the desired goals. It includes activities like getting subordinates to get the job done, maintaining morale motivating subordinates etc. for achieving the goals of the organisation. Controlling: It is the process of setting standards for performance, checking to see how actual performance compares with these set standards, and taking corrective actions as needed. (2) Operative Functions: The operative, also called, service functions are those which are relevant to specific department. These functions vary from department to department depending on the nature of the department Viewed from this standpoint, the operative functions of HRM relate to ensuring right people for right jobs at right times. These functions include procurement, development, compensation, and maintenance functions of HRM. A brief description of these follows: Procurement:

It involves procuring the right kind of people in appropriate number to be placed in the organisation. It consists of activities such as manpower planning, recruitment, selection placement and induction or orientation of new employees. Development: This function involves activities meant to improve the knowledge, skills aptitudes and values of employees so as to enable them to perform their jobs in a better manner in future. These functions may comprise training to employees, executive training to develop managers, organisation development to strike a better fit between organisational climate/culture and employees. Compensation: Compensation function involves determination of wages and salaries matching with contribution made by employees to organisational goals. In other words, this function ensures equitable and fair remuneration for employees in the organisation. It consists of activities such as job evaluation, wage and salary administration, bonus, incentives, etc. Maintenance: It is concerned with protecting and promoting employees while at work. For this purpose virus benefits such as housing, medical, educational, transport facilities, etc. are provided to the employees. Several social security measures such as provident fund, pension, gratuity, group insurance, etc. are also arranged. It is important to note that the managerial and operative functions of HRM are performed in conjunction with each other in an organisation, be large or small organisations. Having discussed the scope and functions of HRM, now it seems pertinent to delineate the HRM scenario in India.

Human Resource Planning Human Resource Planning is a systematic process of forecasting both the prospective demand for and supply of manpower, and employment of skills with the objectives of the organization. It can also be termed as the method of reviewing the manpower necessities to ensure that right kind of skills is made available to the organization.

The main purpose of HRP is to set the goals and objectives of the company. In other words, it is to have the precise number of employees, with their skills matching the requirements of the organization, so that the organization can move towards its goals. Chief objectives of Human Resource Planning are as follows:

Guarantee ample supply of resources, whenever there is a need for it. Make sure that the current manpower in the company is being used properly. To foresee the potential requirements of manpower at various skill levels. Evaluate excess or scarcity of resources that are available at a given point of time. Predict the impact of technological changes on the resources as well as on the kind of jobs they

do. Manage the resources that are already employed in the organization. Ensure that there is a lead time available to pick and train any supplementary human resource.

Need for Human Resource Planning The need of HRP may arise because of the following reasons:

1. In India, unemployment is a grave concern. Scarcity of manpower and that too with the required skill sets and competence, has given rise for need of Human Resource Planning.

2. It comes handy for smooth and continuous supply of workers when a huge number of employees is retiring, or leaving the company or maybe they are incapable of working due to psychological or physical ailments.

3. There is a need for Human Resource Planning when there is an increase in employee turnover, which is obvious. Some examples of this turnover are promotions, marriages, end of contract, etc.

4. Technological changes lead to a chain of changes in the organization, right from skill sets product methods and administration techniques. These changes lead to an overall change in the number of employees required and with entirely different skill set. It is here that the Human Resource Planning helps the organization deal with the necessary changes.

5. Human Resource Planning is required to meet the requirements of diversification and growth of a company.

6. There is a need for Human Resource Planning in downsizing the resources when there is a shortage of manpower. Similarly, in case of excess resources, it helps in redeploying them in other projects of the company.

Importance of Human Resource Planning After the need for HRP, it is apt to discuss the importance of it. A few are mentioned below.

It gives the company the right kind of workforce at the right time frame and in right figures. In striking a balance between demand-for and supply-of resources, HRP helps in the optimum

usage of resources and also in reducing the labor cost. Cautiously forecasting the future helps to supervise manpower in a better way, thus pitfalls can be

avoided. It helps the organization to develop a succession plan for all its employees. In this way, it creates

a way for internal promotions. It compels the organization to evaluate the weaknesses and strengths of personnel thereby making

the management to take remedial measures. The organization as a whole is benefited when it comes to increase in productivity, profit, skills,

etc., thus giving an edge over its competitors.

Human Resource Planning Process

In any Human Resource Planning model there are three key elements which the management should adhere to:

1. Forecasting recruitment needs: There are a number of ways in forecasting your business needs, to know the exact number of employees required to run the business. Factors to be considered are the economical situation of any given country, internal and external factors of an organization and the demand for the products.

2. Evaluate Supply: In estimating this, there are two aspects, one is the evaluation of the internal resources and the other is the prospective or external resources. Among the two, external factors require extra care, these include education, unemployment rate and law that is in existence. Evaluating these factors very closely will help the organization in filling the right resources at the right time with the right skill set.

3. Supply and demand balance: This element of Human Resource Planning is very important, as striking a balance between these two forces will help the organization in understanding if there is shortage or excess of employees available in a particular group. It also helps in understanding as to the need of full time or part time needs of the organization.

CONTRACT : ITS ESSENTIALS

The Indian Contract Act came into force on 1st September, 1872. It was enacted mainly with a view to ensurereasonable fulfilment of expectations created by the promises of the parties and also enforcement of obligationsprescribed by an agreement between the parties. The object of the Act is also to introduce definiteness in commercialtransactions. It applies to the whole of the country except that State of Jammu and Kashmir.The Act is neitherretrospective nor exhaustive. It deals mostly with the general principles embodying contracts. The Act doesnot cover the whole field of contract law. Besides the Contract Act, there are various other laws regulatingdifferent types of agreements, e.g., the Transfer of Property Act deals with agreements relating to transfer ofimmovable property; the Sale of Goods Act deals with contract of sale of goods; the Partnership Act deals with partnership agreements, etc. The present Contract Act also does not affect particular customs andusages of trade, which are not inconsistent with any of the provisions of law, for example, usages relating toHundies as negotiable instruments. The Law of Contract is different from other branches of law in as muchas that the contracting parties are at liberty to make rules and regulations about the enforcement of theirrights and fulfilment of their duties. Meaning and Nature of Contract

A contract has been defined as follows: Salmond defines a contract as “an agreement creating and defining obligationsbetween the parties”.Sir William Anson observes, A contract is an agreement enforceable at law made between two ormore persons, by which rights are acquired by one or more to acts or forbearances on the part of other orothers.According to Sir Federick Pollock, “Every agreement and promise enforceable at law is a contract”.Sec. 2(h) ofthe Indian Contract Act defines a contract as “An agreement enforceable by law”.These definitions resolve themselvesinto two distinct parts: First, there must be an agreement. Secondly, such an agreement must be enforceable bylaw and an agreement to be enforceable must be coupled with obligation and the obligation has its source in law.

Thus a contract requires: (i) Two Parties : There must be two parties to constitute a contract. A contract can only be bilateral andthe same party cannot be a party from both the sides. Hence, there cannot be a contract between A on oneside and A on the other. Nor can a partner be a servant of his own firm as a man cannot be his ownemployer. A person cannot enter into a contract with himself.The person who makes the promise is known as the“promisor” and the person to whom the promise is made is known as the “promisee”. As a matter of fact in a contracteach party is a promisor as well as promisee. For example when A promises to sell his car for a sum of Rs.20,000 to B,A is a promisor because he has promised to sell his car while he is also a promisee because there is a promise from Bto pay a sum of Rs. 20,000 to him. The same is the position of B.

(ii) An Agreement : A proposal from the side of one party to do or abstain from doing a particular actand its acceptance by the other party are the two essential elements of an agreement. An agreement isconstituted by means of an offer and a binding acceptance of the offer. Thus, an agreement occurs whentwo minds meet for a common purpose; they mean the same thing in the same sense at the same time.The meeting of the mind is called consensus ad idem, i.e., consent to the matter.For example; if A says to Bthat he is willing to sell him his car for Rs.20,000 and B gives his assent to this offer, the agreement will come intobeing. (iii) An Obligation : An obligation is the legal duty to do or abstain from doing something.

An agreement to a contract should give rise to some legal obligation i.e., obligation which is enforceable at law.Agreements which give rise only to social or domestic obligations cannot be termed as contracts. Thus, an agreementto go to a picture or attend a dinner is not a contract, as it was not intended to give rise to any legal obligation.Similarly, an agreement to agree in future is not a contract because unless all important terms of the contract aresettled, there cannot be any binding obligation. Such agreements are void for want of certainty. For example, if Aagrees to sell 100 bales of cotton to B at a price to be settled in future.

Essential Elements of a Valid Contract

An agreement to be enforceable at law must satisfy the essentials of a valid contract. According to Section 10 ofthe Act. “All agreements are contracts, if they are made by the free consent of parties, competent to contract, for alawful consideration

and with a lawful object, and not hereby expressly declared to be void.”

Thus, the following are the essential elements of a valid contract: (i) Agreement, i.e., Proposaland Acceptance. (ii) Intention to create legal relationship

(iii) Lawful Consideration

(iv) Competent Parties (v) Free Consent (vi) Legal Object

(vii) Not expressly declared void by law. (viii) Certainty and possibility of performance

(ix) Compliance with legal formalities. (i) Agreement: An offer or proposal by one party and an acceptance of that offer by another party iscalled an agreement. An agreement has been defined by the Act as “every promise or every set ofpromises forming considerations for each other.” The acceptance of the offer must be according to the mode prescribed and must be communicated to the proposer. Further, the intention of the agreement must be tocreate legal relationship between the parties. Agreement must be capable of performance with terms whichare clear and certain. It should not be suffering from either a fundamental mistake or impossibility ofperformance. (ii) Intention to create legal relationship: Whenever parties make an agreement, their must be anintention to create a legal relationship between them. If such intention is not present, there is no contractbetween the parties. In case of social or domestic agreements, parties do not contemplate legalrelationship, as such these are no

t contracts. [Balfour Vs. Balfour (1919) 2 K.B. 571]But in case of businessagreements or commercial agreements, the usual presumption is that the parties have intention to create legalrelationship. But this presumption is rebuttable with the help of evidence.

[Rose and Frank co. Vs. Crompton Bros. (1925) A.C. 445] [Jones Vs. Vernon's Pools. Ltd.(1938) 2 AII.R. 626]

(iii) Free Consent: Two or more persons are said to have consented when they agree upon the same thing in the same sense. Thus, if two persons enter into an apparent contract concerning a particularperson or thing and it turns out that each of them was misled, by a similarity of name and actually eachhad a different person or thing in mind, no contract would exist between them. For example, A has twocars, one blue and the other red. He wants to sell his blue car. B, who knows of only A's red car, offer topurchase A's car for Rs.20.000. A accepts the offer thinking that it is for his blue car. There is no consentbecause both the parties are not understanding the same thing in the same sense. Besides, to make acontract valid not only consent is necessary but the consent must also be free. According to Sec. 14,consent is said to be free when it is not caused by coercion, undue influence, fraud,misrepresentation or mistake. A clear distinction must be made between 'no consent' and 'no free consent'.In the case or 'no consent,' there is no identity of mind and therefore, in the absence of consent theagreement is void abinitio—from the very beginning. In the later case of 'no free consent', consent is therebut it is not free, the agreement is voidable at the option of the party whose consent is not free.A thief whodeprives a person

of his goods without his consent cannot claim any title whatsoever in the goods. But a dacoit whoobtains goods from the other person by obtaining his consent at the point of pistol (coercion) can retain the goodsuntil the real owner claims them back. The possession of the thief is void for want of consent but the possession ofthe dacoit is voidable at the option of the real owner, i.e., valid unless challenged by the real owner because it hasbeen obtained with the consent of the real owner though the consent had not been free. (iv) Competent Parties: At least two parties are essential for every valid contract. A person cannot enter into acontract with himself except in a different capacity, e.g., a partner may purchase goods from his own firm. In orderthat an arrangement may be a binding contract, the parties must have the legal capacity of entering into thecontract. According to Sec.11 of the Act “Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by anylaw to which he is subject.” Thus, a contract entered into by a minor or by a lunatic is void. In India, a person whohas not completed his 18th year of age is considered to be a minor. However, a lunatic can enter into bindingcontracts during his lucid intervals.

The legal presumption is that every party to a contract has the capacity to contract unless contrary is proved andthe presumption is rebutted.

(v) Lawful Consideration: Consideration is an essential element of a valid contract. An agreement withoutconsideration is a bare promise and is not binding on the parties.Contracts result only when a promise is made inexchange for i

n something in return. This something in return is termed as “consideration”. Consideration is the pricepaid by the promisee for the obligation of the promisor. Consideration need not be a benefit to thepromisor. If the promisee has suffered some loss or detriment, it will be taken as a sufficient consideration for the promisor to fulfill his promise.

Example: A agrees to sell his car to B for a sum of Rs.10,000. For A’ a promise the consideration is asum of 10,000 while for B’s promise consideration is the car.

Consideration is also the necessary evidence required by law about the intention of the parties to establish legalrelationship.Consideration must be real, and not illusory or illegal. Consideration may be past, present or future. It maymove from the promisee or any other person but it should always be furnished at the desire of the promisor.Consideration must be valuable in the eyes of law, i.e., it must result in some gain to one party and detriment to theother. (vi) Legal object: The agreement must not relate to a thing which is contrary to the provisions of any law or hasexpressly been forbidden by any law or which is opposed to public policy or immoral. All agreements which are notlawful cannot be enforced by law. This is because courts will not allow polluted hands to touch the pure fountains ofjustice. No agreement can be allowed to defeat the provisions of any law or to cause injury to the person or property ofany person or to achieve fraudulent objects. Example: A agrees to sell certain goods to B. A knows that the goods are to be smuggled out of the country.The contract is unlawful and not enforceable.A p

erson who knowingly lets out his house for prostitution cannot recover the rent thereof because the purpose of the agreement has been immoral. (vii) Not expressly declared void: The agreement must have not been expressly declared void by any law in force inthe country. In India agreements in restraint of trade, in restraint of marriage, or to do things which are impossible orare in the nature of illega1 or immoral agreements, etc., are expressly declared void by the Indian ContractAct.Example: A and B are competitors in a business. B agreed to pay A a sum of money if he would close his business. A did so but B refused to pay him the money. Held, the agreement was void because it was inthe nature of restraint of trade and therefore, money could not be recovered. (viii) Certainty and possibility of performance. The agreement between the parties must be certain. It should notbe vague or indefinite. If it is vague and the determination of its meaning is not possible, it is not a contract andcan not be enforced.In addition to this, the terms of the contract must be such which can be performed. An agreement to do an impossible act can not be enforced. For example, A agrees with B to put life into B’s dead child,the agreement is void as it is impossible of performance. [Sec 56 (1) (ix) Compliance with Legal Formalities: If anylegal formalities of writing, registration,etc. are necessary by law, these must be satisfied. In the absence of theselegal formalities,agreements will not be enforceable in courts of law. Contracts which must be registered

(i) A promise made without consideration on account of natu

ral love and affection between partiesstanding in near relation to each other.

(ii) Documents of which registration is compulsory under Sec.17 of the Registration

Act, 1908. (iii) Contracts relating to the transfer of immovableproperties under the Transfer of Property Act 1882.

(iv) Memorandum and Articles of Association, debentures, mortgages and charges under the Companies Act, 1956.

Planning. Planning is based on the theory of “thinking before acting”. Planning

is an integral part of our life. We make plans in each and every step of life whether it be to go to school or to buy household goods during shopping. We make plans according to the limitations of our budget and resources to get maximum satisfaction and to fulfill goals from out activities.

Planning is the most basic and primary function of management. It is the pre-decided outline of the activities to be conducted in the organization. Planning is the process of deciding when, what, when where and how to do a certain activity before starting to work.

It is an intellectual process which needs a lot of thinking before a formation of plans. Planning is to set goals and to make certain guidelines achieve the goals. Also, Planning means to formulate policies, segregation of budget, future programs etc. These are all done to make the activity successful.

All other function of management is useless if there is not proper planning system in an Organization. So planning is the basis of all other functions. Thus Planning is the map or a blueprint for the organization.

According to Theo Haimann, “Planning is deciding in advance, what is to be done. When a manager plans, he projects a course of action for the future, attempting to achieve a consistent, coordinated structure of operations aimed at the desired results.”

According to Alford and Beaty, “Planning is the thinking process, the organized foresight, the vision based on fact and experience that is required for intelligent action.”

According to ME. Hurley, “Planning is deciding in advance what is to be done. It involves the selection of objectives, policies, procedures and programs from among alternatives.”

Any organization can have different plans. We can classify the types of plans in the following ways:

On the basis of Nature

Operational Plan: Operational plans are the plans which are formulated by the lower level management for short term period of up to one year. It is concerned with the day to day operations of the organization. It is detailed and specific. It is usually based on past experiences. It usually covers functional aspects such as production, finance, Human Resources etc.

Tactical Plan: Tactical plan is the plan which is concerned with the integration of various organizational units and ensures implementation of strategic plans on day to day basis. It involves how the resources of an organization should be used in order to achieve the strategic goals. The tactical plan is also known as coordinative or functional plan.

Strategic Plan: Strategic plan is the plan which is formulated by the top level management for a long period of time of five years or more. They decide the major goals and policies to achieve the goals. It takes in a note of all the external factors and risks involved and makes a long-term policy of the organization. It involves the determination of strengths and weaknesses, external risks, mission, and control system to implement plans.

On the basis of managerial level:

Top level Plans:Plans which are formulated by general managers and directors are called top-level plans. Under these plans, the objectives, budget, policies etc. for the whole organization are laid down. These plans are mostly long term plans.

Middle-level Plans: Managerial hierarchy at the middle level includes the departmental managers. A corporate has many departments like purchase department, sales department, finance department, personnel department etc. The plans formulated by the departmental managers are called

middle-level plans.

Lower level Plans: These plans are prepared by the foreman or the supervisors. They take the existence of the actual workplace and the problems connected with it. They are formulated for a short period of time and called short term plans.

On the basis of time:

Long Term Plan: Long-term plan is the long-term process that business owners use to reach their business mission and vision. It determines the path for business owners to reach their goals. It also reinforces and makes corrections to the goals as the plan progresses.

Intermediate Plan: Intermediate planning covers 6 months to 2 years. It outlines how the strategic plan will be pursued. In business, intermediate plans are most often used for campaigns.

Short-term Plan: Short-term plan involves pans for a few weeks or at most a year. It allocates resources for the day-to-day business development and management within the strategic plan. Short-term plans outline objectives necessary to meet intermediate plans and the strategic planning process.

On the basis of use:

Single Plan: These plans are connected with some special problems. These plans end the moment of the problems to be solved. They are not used, once after their use. They are further re-created whenever required.

Standing Plan: These plans are formulated once and they are repeatedly used. These plans continuously guide the managers. That is why it is said that a standing plan is a standing guide to solving the problems. These plans include mission, policies, objective, rules and strategy.

Hence these are the basic types of plans in any organization.

Planning is a complex process which requires high level of studies and analysis. To create a plan there must be determination of objectives and outlining of the course of action to achieve the goals. There is no set formula for planning. A planning process which is suitable for one kind of

organization may not be suitable for another type of organization. However, we can take the following steps as the guideline to draw a plan:

1. Analysis of the environment: Planning begins with the awareness of the opportunities in the external environment and within the organization. For this SWOT analysis is most suitable. Strength and weaknesses are the internal factors whereas opportunities and threats are the environmental factors which are to be analyzed.

2. Setting the objectives: The second step of planning is to set objectives and goals for the organization as a whole and for each department. Long term, as well as short-term plans, are to be created. Objectives are specified to each and every manager and department head. Objectives give direction to the major plans. So managers should have an opportunity to contribute their ideas for setting their own objectives and of the organization.

3. Develop premises: Planning premises are the assumptions about the future on the basis of which the plans will be ultimately formulated. Planning premises are the key to the success of planning as they supply pertinent facts and information regarding the future such as general economic conditions, production cost, and prices, probable competitive behavior, governmental control etc. Forecasting is an essential part of premises.

4. Determine and evaluate alternatives: The fourth step is to search and identify the alternative course of action. It suggests that a particular objective can be achieved through numerous ways. But the most relevant alternatives must be listed down so that selection is made easier. Once various alternatives are identified, they must be well analyzed with theirstrong and weak points.

5. Selection of Best Alternative: This is the point where the certain plan is adopted. When the alternatives are determined most suitable alternative must be chosen out from the list which can give maximum output with minimum risk.

6. Formulation of a derivative plan: Derivative plans are the backing plans which are very essential. Once the basic plan has been formulated, it must be translated into day to day operation of the organization. Middle and low-level managers must draw up the appropriate plans, programs and budget for their sub-units.

7. Budget formulation: After decisions are made and plans are set the next step is giving them sufficient funds to carry them out. Optimum budgeting

must be done for every course of action.

8. Implementation of a plan: Once the plans are set up, now the plans must be well informed and shared with the employees and managers expecting full commitment and trust. Finally, the plans must be carried out.

9. Follow up action: Obviously once a plan is carried out it generates certain output. The progress must be well monitored and managers need to check the progress of their plans so they can take necessary steps to improve the plans if needed.

Measures of Central Tendency Introduction

A measure of central tendency is a single value that attempts to describe a set of data by identifying the central position within that set of data. As such, measures of central tendency are sometimes called measures of central location. They are also classed as summary statistics. The mean (often called the average) is most likely the measure of central tendency that you are most familiar with, but there are others, such as the median and the mode.

The mean, median and mode are all valid measures of central tendency, but under different conditions, some measures of central tendency become more appropriate to use than others. In the following sections, we will look at the mean, mode and median, and learn how to calculate them and under what conditions they are most appropriate to be used.

Mean (Arithmetic)

The mean (or average) is the most popular and well known measure of central tendency. It can be used with both discrete and continuous data, although its use is most often with continuous data (see our Types of Variable guide for data types). The mean is equal to the sum of all the values in the data set divided by the number of values in the data set. So, if we have n values in a data set and they have values x1, x2, ..., xn, the sample mean, usually denoted by (pronounced x bar), is:

This formula is usually written in a slightly different manner using the Greek capitol letter, , pronounced "sigma", which means "sum of...":

You may have noticed that the above formula refers to the sample mean. So, why have we called it a sample mean? This is because, in statistics, samples and populations have very different meanings and these differences are very important, even if, in the case of the mean, they are calculated in the same way. To acknowledge that we are calculating the population mean and not the sample mean, we use the Greek lower case letter "mu", denoted as µ:

The mean is essentially a model of your data set. It is the value that is most common. You will notice, however, that the mean is not often one of the actual values that you have observed in your data set. However, one of its important

properties is that it minimises error in the prediction of any one value in your data set. That is, it is the value that produces the lowest amount of error from all other values in the data set.

An important property of the mean is that it includes every value in your data set as part of the calculation. In addition, the mean is the only measure of central tendency where the sum of the deviations of each value from the mean is always zero.

When not to use the mean

The mean has one main disadvantage: it is particularly susceptible to the influence of outliers. These are values that are unusual compared to the rest of the data set by being especially small or large in numerical value. For example, consider the wages of staff at a factory below:

Staff 1 2 3 4 5 6 7 8 9 10

Salary 15k 18k 16k 14k 15k 15k 12k 17k 90k 95k

The mean salary for these ten staff is $30.7k. However, inspecting the raw data suggests that this mean value might not be the best way to accurately reflect the typical salary of a worker, as most workers have salaries in the $12k to 18k range. The mean is being skewed by the two large salaries. Therefore, in this situation, we would like to have a better measure of central tendency. As we will find out later, taking the median would be a better measure of central tendency in this situation.

Another time when we usually prefer the median over the mean (or mode) is when our data is skewed (i.e., the frequency distribution for our data is skewed). If we consider the normal distribution - as this is the most frequently

assessed in statistics - when the data is perfectly normal, the mean, median and mode are identical. Moreover, they all represent the most typical value in the data set. However, as the data becomes skewed the mean loses its ability to provide the best central location for the data because the skewed data is dragging it away from the typical value. However, the median best retains this position and is not as strongly influenced by the skewed values. This is explained in more detail in the skewed distribution section later in this guide.

Median

The median is the middle score for a set of data that has been arranged in order of magnitude. The median is less affected by outliers and skewed data. In order to calculate the median, suppose we have the data below:

65 55 89 56 35 14 56 55 87 45 92

We first need to rearrange that data into order of magnitude (smallest first):

14 35 45 55 55 56 56 65 87 89 92

Our median mark is the middle mark - in this case, 56 (highlighted in bold). It is the middle mark because there are 5 scores before it and 5 scores after it. This works fine when you have an odd number of scores, but what happens when you have an even number of scores? What if you had only 10 scores? Well, you simply have to take the middle two scores and average the result. So, if we look at the example below:

65 55 89 56 35 14 56 55 87 45

We again rearrange that data into order of magnitude (smallest first):

14 35 45 55 55 56 56 65 87 89

Only now we have to take the 5th and 6th score in our data set and average them to get a median of 55.5.

Mode

The mode is the most frequent score in our data set. On a histogram it represents the highest bar in a bar chart or histogram. You can, therefore, sometimes consider the mode as being the most popular option. An example of a mode is presented below:

Normally, the mode is used for categorical data where we wish to know which is the most common category, as illustrated below:

We can see above that the most common form of transport, in this particular data set, is the bus. However, one of the problems with the mode is that it is not unique, so it leaves us with problems when we have two or more values that share the highest frequency, such as below:

We are now stuck as to which mode best describes the central tendency of the data. This is particularly problematic when we have continuous data because we are more likely not to have any one value that is more frequent than the other. For example, consider measuring 30 peoples' weight (to the nearest 0.1 kg). How likely is it that we will find two or more people with exactly the same weight (e.g., 67.4 kg)? The answer, is probably very unlikely - many people might be close, but with such a small sample (30 people) and a large range of possible weights, you are unlikely to find two people with exactly the same weight; that is, to the nearest 0.1 kg. This is why the mode is very rarely used with continuous data.

Another problem with the mode is that it will not provide us with a very good measure of central tendency when the most common mark is far away from the rest of the data in the data set, as depicted in the diagram below:

In the above diagram the mode has a value of 2. We can clearly see, however, that the mode is not representative of the data, which is mostly concentrated around the 20 to 30 value range. To use the mode to describe the central tendency of this data set would be misleading.

Summary of when to use the mean, median and mode

Please use the following summary table to know what the best measure of central tendency is with respect to the different types of variable.

Type of Variable Best measure of central tendency

Nominal Mode

Ordinal Median

Interval/Ratio (not skewed) Mean

Interval/Ratio (skewed) Median