Industrial business management and engineering economics

1. Industrial Business Management
and Engineering Economics
M.R. Karthikeyan , BE,M.Tech, DTT,MISTE
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2. Management Concepts
 Management is a universal phenomenon. It is a
very popular and widely used term. All
organizations - business, political, cultural or
social are involved in management because it is
the management which helps and directs the
various efforts towards a definite purpose.
 ―Management is an art of getting things done
through and with the people in formally organized
groups. It is an art of creating an environment in
which people can perform and individuals and
can co-operate towards attainment of group
goals‖.
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3. Management can be defined in detail
in following categories
 Management as a Process
 Management as an Activity
 Management as a Discipline
 Management as a Group
 Management as a Science
 Management as an Art
 Management as a Profession
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4. Determining
planning premises
Establish objectives
Develop Strategies
Establish policies
Develop program
for
accomplishments
Establish schedules
and budgets
Establish
procedures
Identify potential
problems
Develop preventive
&/or contingent
action
Coordinate
throughout the
planning
How does a management Plan?
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5. Features of Management
1. Management is Goal-Oriented: The
success of any management activity is
accessed by its achievement of the
predetermined goals or objective.
Management is a purposeful activity. It is a
tool which helps use of human & physical
resources to fulfill the pre-determined goals.
For example, the goal of an enterprise is
maximum consumer satisfaction by
producing quality goods and at reasonable
prices. This can be achieved by employing5 Karthikeyan M R

6. Features of Management
 2. Management integrates Human,
Physical and Financial Resources: In an
organization, human beings work with non-
human resources like machines. Materials,
financial assets, buildings etc. Management
integrates human efforts to those resources.
It brings harmony among the human,
physical and financial resources.
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7. Features of Management
3. Management is Continuous: Management is
an ongoing process. It involves continuous
handling of problems and issues. It is concerned
with identifying the problem and taking appropriate
steps to solve it. E.g. the target of a company is
maximum production. For achieving this target
various policies have to be framed but this is not
the end. Marketing and Advertising is also to be
done. For this policies have to be again framed.
Hence this is an ongoing process.
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8. Features of Management
 4. Management is all Enveloping: Management
is required in all types of organizations whether it is
political, social, cultural or business because it
helps and directs various efforts towards a definite
purpose. Thus clubs, hospitals, political parties,
colleges, hospitals, business firms all require
management. Whenever more than one person is
engaged in working for a common goal,
management is necessary. Whether it is a small
business firm which may be engaged in trading or
a large firm like Tata Iron & Steel, management is
required everywhere irrespective of size or type of8 Karthikeyan M R

9. Features of Management
5. Management is a Group Activity:
Management is very much less concerned
with individual‘s efforts. It is more concerned
with groups. It involves the use of group
effort to achieve predetermined goal of
management of ABC & Co. is good refers to
a group of persons managing the enterprise.
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10. Levels of Management
 Top level / Administrative level
 Middle level / Executory Level
 Low level / Supervisory / Operative / First-line
managers
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11. Functions of Management
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12. Planning
 Planning is deciding in advance - what
to do, when to do & how to do.
 Planning is determination of courses of
action to achieve desired goals.
 Thus, planning is a systematic thinking
about ways & means for
accomplishment of pre-determined
goals.
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13. Organizing
Identification of activities.
Classification of grouping of activities.
Assignment of duties.
Delegation of authority and creation of
responsibility.
Coordinating authority and
responsibility relationships.
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14. Staffing
―Managerial function of staffing involves manning
the organization structure through proper and
effective selection, appraisal & development of
personnel to fill the roles designed un the
structure‖.
Staffing involves:
 Manpower Planning (estimating man power in terms of
searching, choose the person and giving the right place).
 Recruitment, selection & placement.
 Training & development.
 Remuneration.
 Performance appraisal.
 Promotions & transfer.
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15. Directing
 It is that part of managerial function
which actuates the organizational
methods to work efficiently for
achievement of organizational purposes
Direction has following elements:
Supervision
Motivation
Leadership
Communication
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16. Controlling
 ―Controlling is the process of checking whether or not
proper progress is being made towards the objectives and
goals and acting if necessary, to correct any deviation‖.
 The purpose of controlling is to ensure that everything
occurs in conformities with the standards. An efficient
system of control helps to predict deviations before they
actually occur.
 Therefore controlling has following steps:
 Establishment of standard performance.
 Measurement of actual performance.
 Comparison of actual performance with the standards and
finding out deviation if any.
 Corrective action.16 Karthikeyan M R

17. Productivity
 Productivity is a measure of the efficiency of
production. Productivity is a ratio of production output to
what is required to produce it (inputs). The measure of
productivity is defined as a total output per one unit of a
total input.
 At the national level, productivity growth raises living
standards because more real income improves people's
ability to purchase goods and services, enjoy leisure,
improve housing and education and contribute to social
and environmental programs.
 Productivity growth is important to the firm because it
means that the firm can meet its obligations to
customers, suppliers, workers, shareholders, and
governments (taxes and regulation), and still remain
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18.  Economic well-being is created in a production
process. Production means, in a broad sense, all
economic activities that aim directly or indirectly
to satisfy human needs. The degree to which the
needs are satisfied is often accepted as a
measure of economic well-being.
 The satisfaction of needs originates from the use
of the commodities which are produced. The
need satisfaction increases when the quality-
price-ratio of the commodities improves and more
satisfaction is achieved at less cost. This kind of
economic well-being cannot be measured with
production data.
Characteristics of production
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19. Characteristics of production
 Economic well-being also increases due to the
growth of incomes that are gained from the more
efficient production. The most important forms of
production are market production, public
production and production in households. In order
to understand the origin of the economic well-
being we must understand these three
processes. All of them have production functions
of their own which interact with each other.
Market production is the prime source of
economic well-being and therefore the ―primus
motor‖ of the economy. Productivity is in this
economic system the most important feature and19 Karthikeyan M R

20. What is OHSAS 18001?

OHSAS 18000 is an international occupational
health and safety management system
specification
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21. MATERIALS MANAGEMENT

22. MATERIALS
MANAGEMENT
 Materials management is simply the process by which
an organization is supplied with the Goods and
services that it needs to achieve its objectives of
buying, storage and movement of materials.
 Materials management is related to planning,
procuring, storing and providing the appropriate
material of right quality, right quantity at right place in
right time so as to co-ordinate and schedule the
production activity in an integrative way for an
industrial Undertaking.22 Karthikeyan M R

23. MATERIALS MANAGEMENT
 Most industries buy materials, transport them in to
the plant, change the materials in to parts,
assemble parts in to finished products, sell and
transport the product to the customer.
 All these activities of purchase of materials, flow
of materials, manufacture them in to the product,
supply and sell the product at the market requires
various types of materials to manage and control
their storage, flow and supply at various places. It
is only possible by efficient materials
management
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24. FUNCTIONS OF MATERIALS MAGEMENT
Planning
 Determination of materials requirements.
 Production scheduling according to the
requirement, keeping in view the various
constraints.
 Planning of inventories – determination of stock
levels, recorder timings and quantities etc.
 Co-coordinating various activities of material
management to improve efficiency (reduce paper
work, eliminate duplication etc).
 Liaison with other functions of management.
 Classification and codification materials
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25. Procurements:
 Market research for materials – development of
most suitable source, purchasing research.
 Value Analysis – substitute development.
 Negotiations, pricing and placing of orders.
 Expediting and follow up of purchase orders
 Contracting of labour, transport and other
services (for handling of materials)
 Insurance of materials.
 Disposal of surplus, obsolete and scrap materials.
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26. Receiving & Storage:
 Receipt of materials, unpacking, entering into books
etc.
 Inspection of materials, approval (or rejection) storage
of approved materials (or return or rejected materials).
 Handling and maintaining physical inventories periodic
stock verification (reconciliation with book balances).
 Maintaining stock records and Bin cards (or kaidex)
etc.
 Indenting of stock items.
 Physical inventory Control.
 Packing of final product.
 Issue of materials.
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27. Movement & Transportation:
 Transportation of materials, minimizing
transportation costs.
 Clearing of various shipments, incoming as well
as outgoing at various points (Excise, customs
etc.)
 Claims for losses and damages.
 Dispatching of finished goods.
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Purchasing Systems
Forward Buying:
 Forward buying is nothing but committing an
organization into the future. The buyer commits to buy
at a future date a contacted quantity at a concentrated
price, whatever may be the ruling market price then.
The trader makes such moves with a speculative
interest with an idea that the actual prices will rise in
the future and hence he will be able to make profits.
The reasons for the industrial buyer are different. He
seeks to protect his organization from any future
shortages or undue increases in price. He is
interested in having an uninterrupted supply of
materials.
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29. Hedging(Any technique designed to reduce or
eliminate financial risk; for example, taking two
positions that will offset each other if prices
change)
 Hedging is slightly different from more forward buying. In
this case the buyer tries to protect himself in the future by
entering into two transactions- a purchase and a sale in
two markets whose prices move up and down together.
Thus the profit or loss sustained in the buying transaction
is compensated by the loss or profit in the selling
transaction. This implies that the two markets behave
similarly and one can reach the ideal solution of sero loss
by a perfect hedge. Thus hedging is basically a tool for
protecting oneself against future losses due to vagaries of
prices in the commodities market. To operate successfully29Karthikeyan M R

30. Stockless Purchasing:
 Here the items, that are required in large quantities
and for which the seller has other markets as well can
consider them for stockless buying. The seller holds
the stocks in a convenient location so that the buyer
can draw from it according to his needs.
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31. STEPS FOR EFFECTIVE PURCHASING
 The following steps are taken for carrying out
effective purchasing:
 Pre-purchase System.
 Ordering System.
 Post purchase System.
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32. Principles of Purchasing
 Right Price. Right price need not be the lowest price as usually
understood. The tender system of buying is normally used in
public sector organizations. The objective should be to identify
the lowest responsible bidder and no the lowest bidder. The
price can be kept low by proper planning and not by rush buying.
Price negotiation also helps to determine the right prices.

 Right Quality. In order to determine the quality of a product
sampling schemes are quite useful. The quality particulars are
obtained from the indents and experience indicates that the
substantial portion of the indents prepared by the user
departments are invariably incomplete. The objective of
purchasing is to ensure continuity of supply the time at which the
material is provided to the user department assumes great
importance.
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33.  Right Time. The purchase manager should have lead time
information for all products. Lead time is eth total time elapsed
between the recognition of the need of an item till the item
actually arrives and is provided for use. While determining the
purchases, the buyer has to consider emergency situations like
floods, strikes, etc. However rush purchase should be resorted
to only in exceptional circumstances
 Right Sources. The source of the material should be
dependable and capable of supplying items of uniform quality.
Techniques such as value analysis will enable the buyer to locate
the right material. Specifying the right place of delivery, say,
head office or works would often minimize the handling and
transportation costs. Packaging forms an important aspect in the
cost of an item.
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34.  Right Quantity. The right quantity is an important parameter in
buying. Economic Order Quantity (E.Q.Q), Economic Purchase
Quantity (E.P.Q.), Fixed quantity systems will serve as broad
guidelines. The buyer has to adopt separate policies and
procedures for capital and consumer items.

 Negotiation. Negotiation for prices has been accepted as a
policy by some material managers. It is an art of embodying
sophisticated tactics. A successful negotiator has to possess the
qualities of patience, persuasiveness, clear thinking, logical
analysis, optimism knock of getting along with people, ability to
plan and be ―thick skinned‖.
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35. Store Keeping
 It is servicing facility, inside an organization, responsible for proper
storage of the material and then issuing it to respective departments on
proper requisition.
 The custodian of stores is generally known as store-keeper or Store-
controller. Those items which are not in use for some specific duration
e.g. spare parts and the raw-materials are called as stores and the
building or space where these are kept is known as store room Alford
and Beauty say that, ―storekeeping is that aspect of material control
which is concerned with the physical storage of goods.
The duties of storekeeping are to receive materials to protect them while
in storage from damage and unauthorized removal, to issue the
materials in the light quantities, at the right time, to the right place and to
provide these services promptly and at least cost.‖
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36. Functions of Store
 To receive, check and a range all incoming materials and supplies.
 To keep inventories as low as possible consistent with the market conditions
 To meet the demands of consuming departments by proper issues against
authorized requisitions, and account for the consumption.
 To forecast market conditions of the supply an availability of various items.
 To minimize obsolescence, surplus and scrap through proper codification,
preservation and handling.
 To highlight stock accumulation, discrepancies and abnormal consumption
and effect control measures.
 To maintain accurate records.
 To ensure good store-keeping so that inventory handling, materials
preservation, stocking, receipt and issue can be done adequately.
 To assist in verification and provide supporting information for effective
purchase action.
 To ensure that various documents and reports relating to storage functions
are sent to required departments without delay.

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37. Project Management
 Project Management is the art of managing all the
aspects of a project from inception to closure using a
scientific and structured methodology. The term
project may be used to define any endeavor that is
temporary in nature and with a beginning or an end.
The project must create something unique whether it
is a product, service or result and must be
progressively elaborated. As the definition implies, not
every task can be considered a project. It would be
worthwhile to keep this definition in mind when
categorizing projects and studying their role in the
success of the organization. With the above definition
of the project, one gets a clear idea on what a project
is.37Karthikeyan M R

38. Program Management
 Program Management is defined as a
department that centralizes the management
of projects. What this means is that the PMO
or the Project Management Office is a
repository of all the projects that are being
executed in an organization. Program
Management serves the CIO (Chief
Information Officer) by providing him or her
with regular status updates regarding the
progress of all the projects in the company.
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39.  The PMO‘s role is to ensure that the projects are
financially viable and to raise an alert whenever
there is a possibility or occurrence of a cost over
run. The PMO also keeps tab on the billing and
other details that are concerned with the project.
Thus, the PMO‘s function is to oversee the
projects coming under its domain and act as a
kind of monitoring agency for them. In the current
scenario, there is a need for visionary leadership
by the CIO‘s in addition to the technical
leadership.
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40.  The role of a project manager is similar to that of a
conductor in a symphony. Individually each of the
artists knows what has to be done for his or her role.
But, there needs to be a person who has the overall
―big picture‖ or the collective vision to make the
performance a success. Similarly, the project
manager drives the entire project team in pursuit of
common goals.
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41.  The Project Manager‘s role is to ensure that the
overall objectives of the project are achieved with the
participation of each individual member. The project
manager deals how well he or she can leverage the
strengths of the individual members while minimizing
the impact of their weaknesses. Program managers
take the same view but at a much higher level. Their
job is on the overall bottom line for the division or the
company and they drive the individual project
managers.
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42. Importance of Project Management
 Project management is the art of managing the project and
its deliverables with a view to produce finished products or
service. There are many ways in which a project can be
carried out and the way in which it is executed is project
management.
 Project management includes: identifying
requirements, establishing clear and achievable
objectives, balancing the competing demands from
the different stakeholders and ensuring that a
commonality of purpose is achieved.
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43. Karthikeyan
Marketing Management for Textile & Leather

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What is Marketing…??
Selling?
Advertising?
Promotions?
Making products available in stores?
Maintaining inventories?
All of the above, plus much more!
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Marketing = ?
Marketing is the process of planning and executing the
conception, pricing, promotion, and distribution of ideas,
goods, services to create exchanges that satisfy
individual and organizational goals
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Marketing = ?
Marketing management is the art and science of
choosing target markets and getting, keeping, and
growing customers through creating, delivering, and
communicating superior customer value.
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Simple Marketing System
Industry
(a collection
of sellers)
Market
(a collection
of Buyers)
Goods/services
Money
Communication
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Marketing = ?
 Marketing is the sum of all activities that take you to a
sales outlet. After that sales takes over.
 Marketing is all about creating a pull, sales is all
about push.
 Marketing is all about managing the four P‘s –
product
price
place
promotion
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The 4 Ps & 4Cs
Marketing
Mix
Product
Price Promotion
Place
Customer
Solution
Customer
Cost
Communication
Convenience
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Difference Between - Sales & Marketing ?
Sales
trying to get the customer to want what the
company produces
Marketing
trying to get the company produce what the
customer wants
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Scope – What do we market
 Goods
 Services
 Events
 Experiences
 Personalities
 Place
 Organizations
 Properties
 Information
 Ideas and concepts
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Core Concepts of Marketing
Based on :
 Needs, Wants, Desires / demand
 Products, Utility, Value & Satisfaction
 Exchange, Transactions & Relationships
 Markets, Marketing & Marketers.
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Needs, wants
demands
Markets Marketing &
Marketers
Utility, Value &
Satisfaction
Xchange, Transaction
Relationships
Products
Core Concepts of Marketing
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Core Concepts of Marketing
 Need – food ( is a must )
 Want – Pizza, Burger, French fry's ( translation of a need
as per our experience )
 Demand – Burger ( translation of a want as per our
willingness and ability to buy )
 Desire – Have a Burger in a five star hotel
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In order to understand Marketing let us begin with the
Marketing Triangle
Customers
CompetitionCompany
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Who is a Customer ??
Anyone who is in the market looking at a product / service for attention,
acquisition, use or consumption that satisfies a want or a need
CUSTOMER IS . . . . .
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Customer –
CUSTOMER has needs, wants, demands and
desires
Understanding these needs is starting point of
the entire marketing
These needs, wants …… arise within a
framework or an ecosystem
Understanding both the needs and the
ecosystem is the starting point of a long term
relationship
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How Do Consumers Choose Among
Products & Services?
Value - the value or benefits the customers gain from
using the product versus the cost of obtaining the
product.
Satisfaction - Based on a comparison of performance
and expectations.
 Performance > Expectations => Satisfaction
 Performance < Expectations => Dissatisfaction
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Customers - Problem Solution
As a priority , we must bring to our customers ―WHAT
THEY NEED‖
We must be in a position to UNDERSTAND their
problems
Or in a new situation to give them a chance to AVOID
the problems
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Customer looks for Value
Value = Benefit / Cost
Benefit = Functional Benefit + Emotional
Benefit
Cost = Monetary Cost + Time Cost +
Energy Cost + Psychic Cost
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Strategic Marketing
Strategic marketing management is concerned with how we will
create value for the customer
Asks two main questions
 What is the organization’s main activity at a
particular time? – Customer Value
 What are its primary goals and how will these be
achieved? – how will this value be delivered
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Strategic Planning
Strategic Planning is the managerial process of
creating and maintaining a fit between the
organization‘s objectives and resources and the
evolving market opportunities.
 Also called Strategic Management Process
 All organizations have this
 Can be Formal or Informal
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The Strategic-Planning, Implementation,
and Control Process
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Business Strategic-Planning Process
External environment
(Opportunity &
Threat analysis)
Internal Environment
(Strength/ Weakness analysis)
Goal FormulationBusiness Mission
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Strategy Formulation
Environmental Analysis
Internal AnalysisCompetitor
Customer
Supplier
Regulatory
Social/ Political
Technology Know-How
Manufacturing Know-How
Marketing Know-How
Distribution Know-How
Logistics
Strength & Weaknesses
Identity Core Competencies
Opportunities & Threats
Identify opportunity
Fit internal Competencies with external opportunities
Firm Strategies
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The Marketing Plan
A written document that acts as a guidebook of
marketing activities for the marketing manager
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CONTENTS of MARKETING PLAN
Business Mission Statement
Objectives
Situation Analysis (SWOT)
Marketing Strategy
 Target Market Strategy
 Marketing Mix
 Positioning
 Product
 Promotion
 Price
 Place – Distribution
 People
 Process
Implementation, Evaluation and Control
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The Marketing Process
Business
Mission
Statemen
t
Objective
s
Situation
or SWOT
Analysis
Implementation
Evaluation, Control
Target Market
Strategy
Marketing Strategy
Product
Promotion
Place/Distribution
Price
Marketing Mix
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69. Marketing Environment

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Why a product like radio declined
and now once again emerging as
an entertainment medium ?
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What Were the Drivers of This Change ?
Technology ?
Government policy ?
Other media substitutes ?
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Why Market Leaders Suffered ?
 HMT vs. Titan
 HLL vs. Nirma
 Bajaj vs. Honda
 Dot.com boom, then bust and now resurgence
 Market leadership today cannot be taken for
granted.New and more efficient companies are able
to upstage leaders in a much shorter period.
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Factors
Influencing
Company’s
Marketing
Strategy
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Demographics
Social
Change
Economic
Conditions
Political &
Legal Factors
Technology
Competition
Environmental
Scanning
Target Market
Product
Distribution
Promotion
Price
External Environment
is not controllable Ever-Changing
Marketplace
External Marketing Environment
Physical / Natural
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The macro-environment
is the assessment of the external forces that act upon the
firm and its customers, that create threats & opportunities
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P r o d u c t
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Anything that is offered to the market for
attention, acquisition, use or consumption that
satisfies a want or a need
Product is . . . . .
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Types of Products
Consumer
Products
Industrial
Products
PRODUCTS
Services
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Product Items, Lines, and Mixes
Product Item
Product Line
Product Mix
A specific version of a product
that can be designated as a
distinct offering among an organization’s products.
A group of closely-related
product items.
All products that an
organization sells.
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Product Mix
Width – how many product lines a company has
Length – how many products are there in a product line
Depth – how many variants of each product exist within
a product line
Consistency – how closely related the product lines are
in end use
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Gillette’s Product Lines & Mix
Blades and Writing
razors Toiletries instruments Lighters
Fusion – 5 blade
Mach 3 Turbo
Mach 3 Series Paper Mate Cricket
Sensor Adorn Flair S.T. Dupont
Trac II Toni S.T. Dupont
Atra Right Guard
Swivel Silkience
Double-Edge Soft and Dri
Lady Gillette Foamy
Super Speed Dry Look
Twin Injector Dry Idea
Techmatic Brush Plus
Width of the product mix
Depthoftheproductlines
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What is a Service? Defining
the Essence
An act or performance offered by one party to another
(performances are intangible, but may involve use of
physical products)
An economic activity that does not result in ownership
A process that creates benefits by facilitating a desired
change in customers themselves, or their physical
possessions, or intangible assets
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Some Industries - Service Sector
Banking, stock broking
Lodging
Restaurants, bars,
catering
Insurance
News and entertainment
Transportation (freight and
passenger)
Health care
Education
Wholesaling and retailing
Laundries, dry-cleaning
Repair and maintenance
Professional (e.g., law,
architecture, consulting)
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84. 85
Classification of Services
Pure Tangible Product
Materials / Components
Computers
Major Product with
Minor Services
Product = Service
Major Service with
Minor Product
Business Hotels
Good Transportation
Banking
Pure Intangible
Service
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85. 86
 Intangibility – Services are intangibility cannot be seen,
tasted, felt, heard or smelled before purchase.
 Inseparability - Services are produced and consumed
simultaneously.
 Variability or Heterogeneity – Services are highly variable
 Perishability – Services cannot be stored.
 Non Ownership - Services are rendered but there is no
transfer of title
Major Characteristic of Services
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86. 87
The Marketing Mix
The conventional view of the marketing mix consisted of
four components (4 Ps): Product, Price, Place/
distribution and Promotion.
Generally acknowledged that this is too narrow today;
now includes , Processes, Productivity [technology
]People [employees], Physical evidence
Marketers today are focused on virtually all aspects of
the firm‘s operations that have the potential to affect
the relationship with customers.
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87. 88
The “8Ps” of Integrated Service
Management vs. the Traditional “4Ps”
► Product elements
► Place, cyberspace, and time
► Process
► Productivity and quality
► People
► Promotion and education
► Physical evidence
► Price and other user outlays

88. 89
The Give and Get of Marketing
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89. 90
Great Words on Marketing
1. ―The purpose of a company is ‗to create a customer…The only
profit center is the customer.‘‖
2. ―A business has two—and only two—basic functions: marketing
and innovation. Marketing and innovation produce results: all the
rest are costs.‖
3. ―The aim of marketing is to make selling unnecessary.‖
4. ―While great devices are invented in the Laboratory, great
products are invented in the Marketing department.‖
5. ―Marketing is too important to be left to the marketing
department.‖
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90. 91
Drivers of Customer Satisfaction
Many aspects of the firm‘s value proposition contribute
to customer satisfaction:
 The core product or service offered
 Support services and systems
 The technical performance of the firm
 Interaction with the firm and it employees
 The emotional connection with customers
Ability to add value and to differentiate as a firm focuses
more on the top levels
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91. 92
Marketers and Markets
Marketers are focused on stimulating
exchanges with customers who make up
markets – B2C or B2B.
The market is comprised of people who play a
series of roles: decision makers,
consumers, purchasers, and influencers.
It is absolutely essential that marketers have a
detailed understanding of consumers, their
needs and wants.
Much happens before and after the sale to
affect customer satisfaction
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92. 93
Stages of Customer Interaction
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93. 94
What Changed in Marketing…
 Organize by product units
 Focus on profitable transactions
 Look primarily at financial
scorecard
 Focus on shareholders
 Marketing does the marketing
 Build brands through advertising
 Focus on customer acquisition
 No customer satisfaction
measurement
 Over-promise, under-deliver
• Organize by customer segments
• Focus on customer lifetime value
• Look also at marketing scorecard
• Focus on stakeholders
• Everyone does the marketing
• Build brands through performance
• Focus on customer retention
• Measure customer satisfaction and
retention rate
• Under-promise, over-deliver
Old Economy New Economy
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94. 95
Are Banks truly
marketing-savvy and
customer - centric?
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95. 96
Myth 1 – The larger the range of products, the more
customer-centric I am.
Mythbuster – The range of products has
emerged from being
competition-centric.
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96. 97
Myth 2 – Better technology (read CRM) leads to
better customer service.
Mythbuster – Technology
alone does not deliver,
helps people do.
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97. 98
Myth 3 – Launch a product and the customer will start
using instantly.
- Give a customer a card and he will learn how to play
with it immediately
Mythbuster – Customers need
To be educated too…
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98. 99
Mythbuster – Customers
are not only present
where competition is.
Myth 4 – The only way to get a customer is from
competition.
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99. 100
Myth 5 – Just advertise and - You will sell.
Mythbuster – Advertising will only sell,
Not retain customers.
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100. 101
Myth 6 – No difference between marketing & selling
Mythbuster – “Selling focuses on the needs of the seller; marketing on
the needs of the buyer.

101. 102
Myth 7 – In the absence of relationships ‘trust’ builds
financial brands
Mythbuster – Trust is not a differentiator at all…
it is the very minimum that the customer expects!!
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102. 103
So what will the differentiators be :
• Technology ?
• Brand ?
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103. 104
The real differentiator of
customer – centricity in a
commoditised world of financial
products -
Customer Service !
Karthikeyan M R

104. Costing & Depreiciation

105. Unit Cost
 The unit cost of a product is the cost per standard
unit supplied, which may be a single sample or a
container of a given number.
 When purchasing more than a single unit, the total
cost will increase with the number of units, but it is
common for the unit cost to decrease as quantity is
increased (bulk purchasing), as there are discounts
etc.
 This reduction in long run unit costs which arise from
an increase in production/purchasing is due to the
fixed costs being spread out over more products and
is called economies of scale.
106 Karthikeyan M R

106. Opportunity cost
 Opportunity cost is the cost of any activity measured
in terms of the value of the next best alternative
forgone (that is not chosen).
 It is the sacrifice related to the second best choice
available to someone, or group, who has picked
among several mutually exclusive choices.
 The opportunity cost is also the cost of the forgone
products after making a choice. Opportunity cost is a
key concept in economics, and has been described
as expressing "the basic relationship between scarcity
and choice"
107 Karthikeyan M R

107. Cash flow
 Cash flow is the movement of money into or out
of a business, project, or financial product. It is
usually measured during a specified, finite period
of time.
 Measurement of cash flow can be used for
calculating other parameters that give information
on a company's value and situation
108 Karthikeyan M R

108. Sunk Cost
 In economics and business decision-making,
sunk costs are retrospective (past) costs that
have already been incurred and cannot be
recovered.
 Sunk costs are sometimes contrasted with
prospective costs, which are future costs that
may be incurred or changed if an action is taken
109 Karthikeyan M R

109. Inflation
 Inflation is a rise in the general level of prices of
goods and services in an economy over a period
of time.
 When the general price level rises, each unit of
currency buys fewer goods and services.
Consequently, inflation also reflects an erosion in
the purchasing power of money – a loss of real
value in the internal medium of exchange and unit
of account in the economy.
 A chief measure of price inflation is the inflation
rate, the annualized percentage change in a
general price index (normally the Consumer Price
Index) over time
110 Karthikeyan M R

110. Depreciation
 Depreciation refers to two very different but
related concepts:
 the decrease in value of assets (fair value
depreciation), and
 the allocation of the cost of assets to periods in
which the property are used (depreciation with
the matching principle).
111 Karthikeyan M R

111. Depreciation involves
Generally this involves four criteria:
 Cost of the asset,
 Expected salvage value, also known as residual
value of the asset,
 Estimated useful life of the asset, and a method of
apportioning the cost over such life.
112 Karthikeyan M R

112. Methods of depreciation
 Straight-line depreciation
 Declining-balance method (or Reducing balance
method)
 Activity depreciation
 Sum-of-years' digits method
 Units-of-production depreciation method
 Units of time depreciation
 Group depreciation method
 Composite depreciation method &
 Tax depreciation
113 Karthikeyan M R

113. Straight-line depreciation
 Straight-line depreciation is the simplest and most-often-
used technique, in which the company estimates the salvage
value of the asset at the end of the period during which it will
be used to generate revenues (useful life) and will expense a
portion of original cost in equal increments over that period.
 The salvage value is an estimate of the value of the asset at
the time it will be sold or disposed of; it may be zero or even
negative. Salvage value is also known as scrap value or
residual value.114 Karthikeyan M R

114. Depreciation formula for Straight-line depreciation
Cost of Fixed Asset – Residual
Value
Depreciation = ------------------------------------------------
-
Usual Life of Asset(In
Years)
115 Karthikeyan M R

115. Book value
at
beginning of
year
Depreciation
expense
Accumulated
depreciation
Book value
at
end of year
$17,000
(original
cost)
$3,000 $3,000 $14,000
$14,000 $3,000 $6,000 $11,000
$11,000 $3,000 $9,000 $8,000
$8,000 $3,000 $12,000 $5,000
$5,000 $3,000 $15,000
$2,000 (scrap
value)
116 Karthikeyan M R

116. Declining-balance method (or)
Reducing balance method
 Depreciation methods that provide for a higher depreciation
charge in the first year of an asset's life and gradually
decreasing charges in subsequent years are called
accelerated depreciation methods. This may be a more
realistic reflection of an asset's actual expected benefit from
the use of the asset: many assets are most useful when they
are new. One popular accelerated method is the declining-
balance method. Under this method the book value is
multiplied by a fixed rate.
Annual Depreciation = Depreciation Rate * Book Value at Beginning of
Year
117 Karthikeyan M R

117. Book value
at
beginning of
year
Depreciation
rate
Depreciation
expense
Accumulated
depreciation
Book value
at
end of year
$1,000
(original
cost)
40% $400 $400 $600
$600 40% $240 $640 $360
$360 40% $144 $784 $216
$216 40% $86.40 $870.40 $129.60
$129.60
$129.60 -
$100
$29.60 $900
$100 (scrap
value)
118 Karthikeyan M R

118. Depreciation Rate
119 Karthikeyan M R
N
dAssetCostofFixe
esidualValu
onRateDepreciati
Re
1

119. Activity depreciation
 Activity depreciation methods are not based on time,
but on a level of activity. This could be miles driven for
a vehicle, or a cycle count for a machine.
 When the asset is acquired, its life is estimated in
terms of this level of activity. Assume the vehicle
above is estimated to go 50,000 miles in its lifetime.
 The per-mile depreciation rate is calculated as:
($17,000 cost - $2,000 salvage) / 50,000 miles =
$0.30 per mile.
 Each year, the depreciation expense is then
calculated by multiplying the rate by the actual activity
level.
120 Karthikeyan M R

120. Sum-of-years' digits method
 Sum-of-years' digits is a depreciation method that
results in a more accelerated write-off than
straight line, but less than declining-balance
method.
 Under this method annual depreciation is
determined by multiplying the Depreciable Cost
by a schedule of fractions.
Depreciable cost = original cost − salvage value
book value = original cost − accumulated
depreciation
121 Karthikeyan M R

121. Example
 Example: If an asset has original cost of $1000, a
useful life of 5 years and a salvage value of
$100, compute its depreciation schedule.
 First, determine years' digits. Since the asset has
useful life of 5 years, the years' digits are: 5, 4, 3,
2, and 1.
 Next, calculate the sum of the digits.
5+4+3+2+1=15
122 Karthikeyan M R

122. Sum-of-years' digits method
Book
value at
beginning
of year
Total
depreciabl
e
cost
Depreciati
on
rate
Depreciati
on
expense
Accumulat
ed
depreciati
on
Book
value at
end of
year
$1,000
(original
cost)
$900 5/15
$300 ($900
* 5/15)
$300 $700
$700 $900 4/15
$240 ($900
* 4/15)
$540 $460
$460 $900 3/15
$180 ($900
* 3/15)
$720 $280
$280 $900 2/15
$120 ($900
* 2/15)
$840 $160
$160 $900 1/15
$60 ($900 *
1/15)
$900
$100
(scrap
value)123 Karthikeyan M R

123. Units-of-production depreciation method
 Under the units-of-production method, useful life
of the asset is expressed in terms of the total
number of units expected to be produced
 Suppose, an asset has original cost $70,000,
salvage value $10,000, and is expected to
produce 6,000 units.
124 Karthikeyan M R

124. Cost of Fixed asset – Residual Value
Depreciation = ----------------------------------------------- X Actual
Production
Estimated Total Production
 Suppose, an asset has original cost $70,000, salvage value
$10,000, and is expected to produce 6,000 units.
 Depreciation per unit = ($70,000−10,000) / 6,000 = $10
125 Karthikeyan M R

125. Example
Book
value at
beginning
of year
Units of
productio
n
Depreciati
on
cost per
unit
Depreciati
on
expense
Accumulat
ed
depreciati
on
Book
value at
end of
year
$70,000
(original
cost)
1,000 $10 $10,000 $10,000 $60,000
$60,000 1,100 $10 $11,000 $21,000 $49,000
$49,000 1,200 $10 $12,000 $33,000 $37,000
$37,000 1,300 $10 $13,000 $46,000 $24,000
$24,000 1,400 $10 $14,000 $60,000
$10,000
(scrap
value)
126 Karthikeyan M R

126. Units of time depreciation
 Units of time depreciation is similar to units of
production, and is used for depreciation
equipment used in mine or natural resource
exploration, or cases where the amount the asset
is used is not linear year to year.
 A simple example can be given for construction
companies, where some equipment is used only
for some specific purpose. Depending on the
number of projects, the equipment will be used
and depreciation charged accordingly.
127 Karthikeyan M R

127. Group depreciation method
 Group depreciation method is used for
depreciating multiple-asset accounts using
straight-line-depreciation method. Assets must
be similar in nature and have approximately
the same useful lives.
Asset
Historic
al
cost
Salvage
value
Deprecia
ble
cost
Life
Deprecia
tion
per year
Computer
s
$5,500 $500 $5,000 5 $1,000
128 Karthikeyan M R

128. Composite depreciation method
 The composite method is applied to a collection of assets
that are not similar, and have different service lives. For
example, computers and printers are not similar, but both
are part of the office equipment. Depreciation on all assets
is determined by using the straight-line-depreciation
method.
 Composite life equals the total depreciable cost divided by
the total depreciation per year. $5,900 / $1,300 = 4.5 years.
 Composite depreciation rate equals depreciation per year
divided by total historical cost. $1,300 / $6,500 = 0.20 = 20%
 Depreciation expense equals the composite depreciation
rate times the balance in the asset account (historical cost).
(0.20 * $6,500) $1,300. Debit depreciation expense and credit
accumulated depreciation.
129 Karthikeyan M R

129. Tax depreciation
 Most income tax systems allow a tax deduction for recovery of the cost of
assets used in a business or for the production of income. Such
deductions are allowed for individuals and companies.
 Where the assets are consumed currently, the cost may be deducted
currently as an expense or treated as part of cost of goods sold. The cost
of assets not currently consumed generally must be deferred and
recovered over time, such as through depreciation.
 Some systems permit full deduction of the cost, at least in part, in the year
the assets are acquired. Other systems allow depreciation expense over
some life using some depreciation method or percentage.
 Rules vary highly by country, and may vary within a country based on type
of asset or type of taxpayer. Many systems that specify depreciation lives
and methods for financial reporting require the same lives and methods be
used for tax purposes. Most tax systems provide different rules for real
property (buildings, etc.) and personal property (equipment, etc.).
130 Karthikeyan M R

130. 131
Thank You
Karthikeyan M R