INDUSTRIAL ENGINEERING NOTES ON RELEVANT TOPICS

In order to understand the principles of Industrial Engineering, the students are

required to appreciate the basis on which the subject is introduced into the
curriculum, its importance to the students of mechanical engineering and the
evolution of the studies.
The following words are to be kept in mind while undertaking any project:
1. WHAT:

WHAT IS THE PROJECT PLANNED.

2. WHY:
THE REASONS FOR IDENTIFYING THE PROJECT, such as Demand,
innovation, expecting a revolutionary demand etc.
3. WHEN:
ONCE THE REQUIREMENTS TO IMPLIMENT THE PROJECT IS FINALISED,
THE SELECTION OF ORGANIZATION, TYPE OF ORGANIZATION AND PERSONNEL
RESPONSIBLE FOR MANAGING THE ORGANIZATION NEEDS TO BE ADDRESSED.
4. WHERE: THE LOCATION OF IMPLIMENTING THE PROJECT IS IMPORTANT IN THE
SENSE, THE PRIME REQUIREMENTS FOR THE PROJECT NAMELY ELECTRICITY, WATER,
THE SKILLED WORKERS, TRANSPORT AND THE BASIC AMENITIES REQUIRED FOR THE
HUMAN RESOURCES ARE AVAILABLE IN ABUNDANCE. THE LAND COSTS SHOULD BE
REASONABLE TO AVOID THE HIGH INFRASTRUCTURAL COSTS OF THE PROJECT.
5. HOW:
THE PROJECT FINANCIAL REQUIREMENTS NEED TO BE ADDRESSED.
THE CONTRIBUTIONS NEEDED FROM THE ORGANIZATION, FINANCIAL FUNDS FROM
EXTERNAL SOURCES ETC. THE PROCESS FOR ACHIEVING THE DESIRED PRODUCT,
REQUIREMENT OF VARIOUS MACHINE INPUTS APART FROM THE HUMAN SKILLS ARE
NEEDED. FOR THE SUCCESFUL END RESULTS, THE IDEAL PROCESS IS TO BE
IDENTIFIED AND TRAINING SHOULD BE A CONSISTENT TO MEET THE QUALITY
REQUIREMENT OF THE END PRODUCT.
6. WHO:
THE SKILLED LABOUR, THE EXPERIENCED TECHNICAL MANAGERS
ALONG WITH THE MANAGERS FROM FINANCE, ADMINISTRATION, MARKETING,
PURCHASE CONTRIBUTE TOWARDS THE SUCCESS OF THE PROJECT. EMPHASIS ON
HUMAN RELATIONS AND PROVIDING OF BASIC AMENITIES TO THE EMPLOYEES ADDS
TO THE QUALITATIVE OUTPUT.

CONTD ON
PAGE...2
PAGE.2
THUS INDUSTRIAL ENGINEERING MAY BE DEFINED AS THE BRANCH OF
ENGINEERING SCIENCE WHICH DEALS WITH THE INPUTS FOR INITIATING A PROJECT
AFTER SCIENTIFIC STUDY IN THE AREAS OF NEED OF THE PROJECT, ITS SITE
SELECTION, THE FINANCES REQUIRED, THE PRODUCTION AND PROCESS SELECTION
AND PROCESS CONTROLS. THE SELECTION OF THE TECHNICAL INPUTS INCLUDING
THE HUMAN INPUTS FOR THE OPTIMUM PRODUCTION OUTCOME AND ALL THE
AREAS OF EQUIPMENT NEEDED AND THE CHAIN OF EVENTS LEADING TO FINAL
PRODUCTION NEED TO BE ADDRESSED BY THE TEAM CONCERNED. THE STUDY OF
BEST METHODS OF THE PROODUCTION ROUTE WITH HUMAN EFFICIENCY AND
MACHINE EFFICIENCY IS THE RESPONSIBILITY OF THE TEAM.

SCIENTIFIC MANAGEMENT OF INDUSTRY.

THE MANAGING OF AFFAIRS OF AN INDUSTRY FROM THE SELECTION OF THE
PROJECT, THE ARRANGEMENT OF FINANCES FOR IMPLEMENTATION, SELECTION OF
RAW MATERIALS, INVENTORY,SELECTION OF THE PROCESS, PLANT LAYOUT,
PRODUCTION AND PROCESS CONTROL APPLYING SCIENTIFIC PRINCIPLES AND
ADOPTING RULES FOR THEIR IMPLEMENTATION IS SCIENTIFIC MANAGEMENT.
THUS SCIENTIFIC MANAGEMENT MAY BE DEFINED AS THE PROCESS TO OBTAIN
HIGHEST PROFITS UTILIZING METHODS SUBJECTED TO ALTERATIONS FOR OPTIMUM
RESULTS.
THE APPLICATION OF CERTAIN RULES FOR SUCCESSFUL OPERATIONS OF AN
INDUSTRY WAS INITIATED IN THE PERIOD OF INDUSTRIAL REVOLUTION AND DURING
THE COMPETITIVE PHASE IN THE WORLD IN EUROPE AND USA. THE INITIAL
PROPOSITION WAS MADE BY FREDRICK TAYLOR AND HENCE IS ALSO CALLED THE
FATHER OF SCIENTIFIC MANAGEMENT. THE PROPOSALS OF TAYLOR WERE
CONCENTRATED ON THE PRODUCTION AND PRODUCTIVITY WITH LEAST
IMPORTANCE ON HUMAN BEHAVIOUR AND HUMAN RELATIONS. THE MAIN
PRINCIPLES EMPHASISED BY TAYLOR ARE:
1.
2.
3.
4.

TO
TO
TO
TO

SELECT THE WORKERS BASED ON THEIR HABITS

SELECT WORKMAN BASED ON SKILL
UPGRADE THE WORKMAN BASED ON SKILL AND WORK
INTEGRATE MANAGEMENT AND WORKFORCE

THUS THE EMPHASIS WAS ON WORK AND PRODUCTIVITY AND NO CARE WAS TAKEN
FOR THE BASIC AMENITIES AND THE HUMAN FEELINGS.
MAYO ON THE OTHER HAND HAD MADE VARIOUS STUDIES ON HUMAN BEHAVIOUR
AND THE EFFECT OF THE HUMAN BEHAVIOURAL SCIENCES ON THE PRODUCTION
AND PRODUCTIVITY.
HE HAD STUDIED OPERATIONS BASED ON THE FOLLOWING HUMAN ATTITUDES WITH
1.
2.
3.
4.

LOW NORMS AND LOW MUTUAL RELATIONS BETWEEN THE WORKFORCES.

LOW NORMS AND HIGH MUTUAL RELATIONS BETWEEN THE WORKFORCES.
HIGH NORMS AND LOW MUTUAL RELATIONS OF THE WORK FORCE.
HIGH NORMS AND HIGH MUTUAL RELATIONS BETWEEN THE WORK FORCES.

IN THE FIRST CASE, OVER ALL NEGATIVE ATTRIBUTES COULD NOT CONTRIBUTE FOR
IMPROVEMENT OF THE PRODUCTION OR PRODUCTIVITY, WAS THEREFORE
CONSIDERED NOT USEFUL.

IN THE SECOND CASE, THE STRINGENCY IN THE NORMS AND GOOD HUMAN
RELATIONS ENCOURAGED NEGATIVE BEHAVIOUR AND THUS COULD NOT SUCCEED
TOWARDS INDUSTRIAL GROWTH.
IN THE THIRD CASE, THOUGH THE WORK METHODS WERE FOUND TO BE GOOD,
THE NEGATIVE ATTITUDE OF THE WORKFORCE DUE TO LACK OF TEAM SPIRIT COULD
NOT IMPROVE GREATLY TOWARDS INDUSTTRIAL GROWTH
CONTD ON PAGE4
PAGE...4

THE FOURTH CASE WAS FOUND TO GREATLY IMPOVE PRODUCTION AND

PRODCUTIVITY AS IDEAL NORMS AND MOTIVATION OF THE WORK FORCE GREATLY
IMPROVED THE LEVEL OF PERFORMANCE OF THE WORK FORCE DUE TO MUTUAL
HELP AND GUIDANCE.
HENCE MAYO GREATLY ENHANCED THE SCIENTIFIC MANAGEMENT
INCORPORATING HUMAN BEHAVIOUR AS A VITAL INGREDIENT IN THE SUCCESS OF
INDUSTRY WHICH NOT ONLY ENHANCED THE PROFITABILITY OF THE INDUSTRIALISTS
BUT ALSO HELPED THE WORKMAN AND THEIR LIVING CONDITIONS BOTH AT WORK
AND OUTSIDE
FAYOL ON THE OTHER HAND PROPOSED THE FOLLOWING PRINCIPLES TOWARDS
SCIENTIFIC MANAGEMENT
1. ASSIGNMENT OF DUTIES DEPENDING ON SKILLS
2. MANAGERS TO CONTROL THE WORKMEN A SENSE OF RESPONSIBILITY AND
TRUST.
3. DISCIPLINE AT ALL LEVELS IS REQUIRED TO OPTIMIZE THE RESULTS.
4. COMMAND IS ESSENTIAL TO WORKFORCEBY SUPERVISOR AND NOT CONFUSE
THE WORK FORCE BY MULTI COMMAND LEVELS. THUS ONE TASK SHOULD BE
UNDER THE CONTROL OF A COMMAND GUIDING WORK FORCE FOR THE TASK.
5. INTEREST OF THE WORK MORE IMPORTANT THAN THE INDIVIDUAL INTEREST.
6. REMUNERATION AS PER SKILL AND WORK AND TO THE SATISFACTION OF THE
WORK MAN.
7. THE WORK FORCE SHOULD BE PARTICIPANTS TO THE DECISION MAKING
RELEVANT TO THEIR WORK.
8. WORK ATMOSPHERE SHOULD BE HYGENIC AND CONDUCIVE TO WORK.
9. MANAGER SHOULD BE IMPARTIAL AND HELPFUL TO THE WORK MAN IN THEIR
WORKS AND IF P POSSIBLE TO HELP OUT UNDER ALL CONDITIONS.
10.TRY TO ENCOURAGE EXPERTISE AND RETAIN WORK FORCE FOR BETTER AND
QUALITATIVE OUTPUT
11.ENCOURAGE INITIATIVE AND CONTRIBUTE FOR BETTERMENT FOR WORK.
12.ENCOURAGE TEAM SPIRIT .

CONTD ON PAGE5
PAGE..5

WORK STUDY
THE INDUSTRIAL ENGINEERING DEPARTMENT OF AN INDUSTRY IS TO STUDY
ALL ASPECTS OF PRODUCTION AND IMPLIMENT THE BEST PROCESS METHODS FOR
NOT ONLY BENIFITTING THE INDUSTRY ON THE WHOLE NAMELY OWNERS, WORK
FORCE AND THE END CONSUMERS. IN ORDER TO ACHIEVE THE GOAL, THE
PROCESS TO BE ADOPTED SHOULD TAKE INTO CONSIDERATION THE MATERIAL FOR
CONVERSION, THE MACHINES FOR CONVERSION, WORK SKILL NAMELY THE MAN
HANDLING THE JOB, THE PROCESS METHODS ADOPTED BY THE INDUSTRY. IN ORDER
TO ACHIEVE THIS GOAL, EVERY STAGE OF THE PROCESS AND EVERY STEP TAKEN BY
THE WORK FORCE REQUIRES STUDY AND THIS EXAMINATION BY THE CONCERNED
DEPARTMENT IS CALLED WORK STUDY.
THUS WORK STUDY INVOLVES 4M THAT IS MAN, MACHINE, MATERIAL AND
MONEY.
THE WORK MAN NORMALLY OFFERS RESISTANCE TO THE CHANGES
SUGGESTED IN WORKING AND HENCE THE WORK STUDY PERSONNEL AND THE
WORK MAN INVOLVE MUTUAL TRUST. THE STUDY OF OPERATIONS WITH ECONOMIC
UTILIZATION OF MAN, MATERIAL AND MACHINE RESULTS IN OUTPUT WITH REDUCED
COSTING AND HENCE BENEFITS THE PRODUCER AND CONSUMER.
THE WORK STUDY AS EXPLAINED ABOVE CAN BE DIVIDED INTO TIME STUDY
AND METHOD STUDY. THE TIME STUDY INVOLVES THE TIME TAKEN BY A SKILLED
WORKER ON A PARTICULAR OPERATION ON THE BEST AVAILABLE MACHINE FOR THE
OPERATION, THE ENERGY CONSUMED FOR THE OPERATION, SCRAP GENERATED,
AND THE ACCURACY OF OPERATION. THE RESULTS THUS OBTAINED OF ALL THE
SKILLED WORKERS IS ANALYSED FOR SUGGESTING THE OPTIMUM OUTPUT ON THE
OPERATION. THE TIME STUDY ALSO INCORPORATES STANDARD DEVIATION
METHODS TO ASSESS THE SKILL OF INDIVIDUAL WORKMAN AND ASSIGNING A JOB
THE STANDARD TIME FOR COMPLETION. THE TIME STUDY HELPS THE MANAGEMENT
IN PLANNING THE PRODUCTION. THE COST EVALUATION, THE PRICE OFFER TO THE
CUSTOMER BECOMES EASY FOR THE MANAGEMENT.

METHOD STUDY INVOLVES THE STUDY OF THE PROCESS, THE EFFECTIVE TIME
INVOLVED IN THE OPERATION, MOVEMENT OF THE MATERIAL, EFFORT OF THE MAN
IN IDLE TRANSPORT OF MATERIAL, AND EFFECTIVE USE OF SPACE IN OPERATIONS.
THE HUMAN EASE IN THE OPERATIONS IS THUS AN IMPORTANT ASPECT IN METHOD
STUDY WHICH NOT ONLY HELPS REDUCING THE TIME, SPACE AND HUMAN EFFORT
BUT ALSO GREATLY CONTRIBUTES IN PRODUCTIVITY AND ECONOMICS.
THE
PROCESSES INVOLVED ARE AVAILABLE IN VARIOUS TEXT BOOKS.
WORK STUDY
I

METHOD STUDY
MEASUREMENT

WORK
PAGE...6
ORGANIZATION

IN ORDER TO INITIATE A PROJECT FOR PRODUCTION AND MARKETING AT A PROFIT,

AN ORGANIZATION IS TO BE SET UP. THUS AN EXAMINATION OF THE VARIOUS
TYPES OF ORGANIZATIONS IS REQUIRED AND SELECTED DEPENDING UPON THE
SCALE OF OPERATION, THE OVERALL COSTS INVOLVED, THE FINANCIAL
ARRANGEMENT ETC.
TYPES OF ORGANIZATIONS:
1.
2.
3.
4.

PROPRIETORSHIP
PARTNERSHIP
JOINT STOCK COMPANIES
CO OPERATIVE SOCIETIES.

PROPRIETORSHIP COMPANY
IT IS AN ORGANIZATION TOTALLY OWNED BY AN INDIVIDUAL WHO IS RESPONSIBLE
FOR ARRANGING THE FINANCE, THE ENTIRE OPERATIONS FROM SETTING UP TO THE
UNIT, TO LOOK INTO THE AFFAIRS OF OPERATION, TO LOOK INTO THE MARKETING
OF THE FINISHED GOODS ETC. THE FOLLWING ARE THE ADVANTAGES AND
DISADVANTAGES ASSOCIATED WITH THE SET UP.
ADVANTAGES:
1. NOT ANSWERABLE TO ANY ONE FOR THE DECISIONS.

2. DECISION MAKING IS SOLE AND HENCE FAST.

3. CLOSE WATCH ON THE OPERATIONS.
DISADVANTAGES:
1. SINCE THE FINANCE IS TOTALLY OWNED/ARRANGED BY AN INDIVIDUAL,
SCALE OF OPERATIONS WOULD NOT BE VERY LARGE.
2. FINANCIAL BURDEN INTRODUCES EXTRA CARE AND UNDUE WORRIES.
3. EFFICIENCY DECREASES AS A RESULT OF ONE INDIVIDUAL LOOKING INTO ALL
AFFFAIRS.
4. IN CASE OF FAILURE OF THE PROJECT, THE FINANCIAL BURDEN ON THE
INDIVIDUAL IS TOTAL
5. OBTAINING FINANCE FROM EXTERNAL SOURCES SUCH AS FINANCIAL
INSTITUTIONS IS ALMOST NON EXISTENT.

CONTD ON PAGE7
PAGE...7

PARTNERSHIP COMPANY;
TWO OR MORE INDIVIDUALS TAKING THE RESPONSIBILITY OF RUNNING AN
ORGANIZATION BY DISTRIBUTING DUTIES DEPENDING UPON CAPABILITIES OR
UNDERSTANDING AND FINANCIAL INPUTS DEPENDING UPON THE CAPACITY FORM A
PARTNERSHIP COMPANY. THE ADVANTAGES OF SUCH A SET UP ARE AS FOLLOWS:
1. FEWER BURDENS OF FINANCE AND WORK AS COMPARED TO
PROPRIETORSHIP COMPANY.
2. WORK DISTRIBUTION IMPROVES THE EFFICIENCY OF THE SET UP.
3. BIGGER SET UP CAN BE HANDLED EASILY.
4. PROFITABILITY COULD BE IMPROVED DUE TO THE ARRANGMENT.
DISADVANTAGES:
1. THE MIS UNDERSTANDINGS DUE TO WORK/FINANCE DISTRIBUTION COULD
LEAD TO INEFFICIENT PERFORMANCE AND COULD LEAD TO CLOSURE.
2. TAXATION IS HIGHER DUE TO DOUBLE TAXATION. THE COMPANY IS TAXED ON
GROSS PROFITS AND ON DISTRIBUTION AMONG PARTNERS FURTHER
TAXATION ON THE INDIVIDUAL TAKES PLACE.
JOINT STOCK COMPANIES

JOINT STOCK COMPANIES ARE REGISTERED UNDER THE REGISTRAR OF COMPANIES

UNDER THE MINISTRY OF COMPANY AFFAIRS. THE REGISTRAR OF COMPANIES IS
REQUIRED TO BE APPROACHED FOR:
1. APPROVAL OF THE TITLE OF THE COMPANY. THE APPLICATION SHOULD
SPECIFY THREE NAMES/TITLES FOR THE PROPOSED FORMATION. ON
APPROVAL FROM THE AUTHORITY, THE COMPANY HAS TO SUBMIT A
MEMORANDUM OF ARTICLES COVERING ALL THE DETAILS PERTAINIING TO
THE MEMBERS INITIATING THE COMPANY, FINANCIAL ARRANGMENT OF THE
HOLDERS, NAMELY THE INDIVIDUAL SHARE AMOUNT, DIRECTORS OF THE
COMPANY, MANAGING DIRECTOR OF THE SET UP.THE ARTICLES SHOULD ALSO
INCORPORATE THE NATURE OF WORKS IT PROPOSES TO CARRY OUT ON
INCORPORATION AND LIKELY WORKS IN FUTURE. THE ABOVE APPLICATION IS
MANDATORY FOR A COMPANY FALLING UNDER JOINT STOCK COMPANY.
2. THE REGISTRATION FEE IS BASED ON THE FINANCIAL CAPITAL.
3. THE COMPANY THUS FORMED IS REQUIRED TO FURNISH YEARLY STATEMENTS
AND PERMISSION/ INFORMATION REGARDING CHANGE OF SHARE HOLDERS,
THEIR STAKES ETC.
4. THUS THE COMPANIES UNDER THIS CATEGORY ARE CONTROLLED BY THE
GOVERNMENT OF INDIA, THERE BY SAFEGAURDS AS TO EXTERNAL FINANCE
ETC IS MAINTAINED.
PAGE...8
5. JOINT STOCK COMPANIES FALL UNDER THE FOLLOWING CATEGORIES.
(a) PRIVATE LIMITED
(b) PUBLIC LIMITED
(c) CO OPERATIVE SOCIETIES FOR LIMITED OPERATIONS AND FOR LIMITED
PERIODS.
PRIVATE LIMITED COMPANY:
THESE ARE COMPANIES SET UP WITH SHARE HOLDERS RESTRICTED TO A MAXIMUM
OF 50 MEMBERS AND SHARE HOLDING IS BASED ON INDIVIDUAL FINANCIAL INPUTS
IN THE FORM OF SHARES HELD EACH SHARE CAN BE ANYTHING RANGING FROM
Re.1/= TO Rs.1000/= OR AS DECIDED AND INCORPORATED IN THE MEMORANDUM
OF ARTICLES SUBMITTED TO THE REGISTRAR OF COMPANIES. NO INDIVIDUAL
OTHER THAN THE FOUNDING MEMBERS APPROVAL HAS THE RIGHT TO OWN
SHARES OF SUCH A COMPANY AND HENCE THE SHARE HOLDERS ARE NORMALLY
FROM A FAMILY OR FAMILY FRIENDS AND NEAR AND DEAR ONES ARE THE SHARE
HOLDERS OF SUCH AN ORGANIZATION. DEPENDING UPON THE REQUIREMENTS,
WITH THE CONSENT OF THE SHARE HOLDERS A SPECIALIST IN THE FIELDS OF
RELEVANCE OF THE COMPANY, AN OUTSIDER SPECIALIST COULD BE INDUCTED INTO
THE COMPANY FOR THE BENEFIT OF THE ORGANIZATION AND HIS/HER SHARE
HOLDING DECIDED MUTUALLY. THE SALIENT FEATURES OF A PRIVATE LIMITED
COMPANY ARE:

1. SINCE THE COMPANY IS CLOSELY HELD, THE MANAGEMENT AND

DISTRIBUTION OF WORK IS EASILY CONTROLLED.
2. EFFICIENCY IS GREATLY ENHANCED SINCE THE SHARE HOLDERS ARE CLOSELY
KNOWN TO EACH OTHER.
3. THE LIABILITY OF THE SHARE HOLDERS IS LIMITED TO THE EXTENT OF THE
SHARE HOLDING.
4. THE PROJECT, DEPENDING UPON THE EFFICACY OF THE PROJECT, FINANCIAL
INSTITUITIONS CONSIDER FUNDING.
5. SHARE HOLDERS ARE ENRICHED OF THEIR CAPITAL ON ACHIEVING PROFITS
IN THE FORM SHARE WORTH, PROFIT DISTRIBUTION, IMPROVED BOOK VALUE
OF THE SHARE IN CASE OF ENHANCING THE PROJECT/ACQUIRING NEW
ASSETS.
6. THE COMPANY IS BOUND TO SUBMIT TO THE REGISTRAR OF COMPANIES THE
PROCEEDINGS OF THE QUARTERLY MEETINGS, THE AUDITED STATEMENT OF
ACCOUNTS AT THE END OF THE FINANCIAL YEAR, MAINTAIN PROPER
RECORDS AND FURNISH WHEN ASKED FOR.
THOUGH PRESENTLY, PRIVATE LIMITED COMPANIES WITH HUGE CAPITAL ARE
FUNCTIONING, NORMAL SIZE OF THE PRIVATE COMPANIES ARE NOT VERY HUGE
AND HENCE TO ENHANCE THEIR CAPITAL TO MEET THE REQUIREMENT OF A BIG
PROJECT, IS A PROBLEM SINCE FINANCIAL INSTITUTIONS HESITATE TO CONTRIBUTE
HUGE INPUTS. IN ORDER TO OVERCOME THIS DRAW BACK AND TO GREATLY
ENHANCE THE PROJECT SIZE, THE ORGANIZATIONS IDEALLY SUITED TO MEET THE
REQUIREMENTS ARE PUBLIC LIMITED COMPANIES.
CONTD IN PAGE...9
PAGE...9

PUBLIC LIMITED COMPANIES IS OF TWO TYPES, NAMELY.,

1. CLOSELY HELD PUBLIC LIMITED COMPANIES
2. OPEN PUBLIC LIMITED COMPANIES.
IN THE CASE OF CLOSELY HELD COMPANIES, THE SHARE HOLDERS ARE PICKED AND
CHOSEN BY THE FOUNDING MEMBERS. THE OPEN COMPANIES ARE GOVERNED BY
THE REGISTRAR OF COMPANIES AND THE STOCK EXCHANGE RULES AND
REGULATIONS FOR MANAGING THE SHARE FOR OPEN SALE AND PURCHASE IN THE
MARKET FOR THE PUBLIC.
THE FORMATION OF PUBLIC LIMITED COMPANY INVOLVES:
1. SUGGESTING OF PROSPECTIVE TITLE OF THE COMPANY TO REGISTRAR OF
COMPANIES AND SEEKING ITS APPROVAL.
2. REGISTRATION FEE BASED ON THE CAPITAL.

3. SUBMISSION OF MEMORANDUM OF ARTICLES TO THE REGISTRAR FOR

APPROVAL. THE MEMORANDUM OF ARTICLE INCORPORATES THE EXPECTED
OPERATIONS TO BE UNDERTAKEN, THE FOUNDING MEMBERS/ DIRECTORS OF
THE COMPANY AND THEIR RESPECTIVE SHARE HOLDING.
THE FORMATION OF COMPANY THE PROPOSED PROJECT AND ITS OPERATIONS
INVOLVE FINANCE PLANNING INVOLVING HUGE AMOUNTS IN MOST CASES. THE
PROJECT REPORT BASED ON THE PROSPECTIVE PROJECT, ITS REQUIREMENTS
NAMELY THE INFRASTRUCTURE, PLANT AND MACHINERY REQUIRED, SCOPE OF
WORK, THE HUMAN NEEDS NAMELY THE SKILLED/SEMI SKILLED LABOUR AND
UNSKILLED LABOUR, RAW MATERIAL AVAILABILITY, BASIC NEEDS SUCH AS
HOUSING, TRANSPORTATION, WATER AND POWER AVAILABILITY. IN CERTAIN AREAS
BACKWARD AREA SUBSIDIES ARE ALSO AVAILABLE, WHICH ALSO HAS TO BE TAKEN
INTO CONSIDERATION ALONG WITH THE ABOVE OTHER PRIME NEEDS FOR SET UP.
THE SUCCESS OF A PROJECT GREATLY DEPENDS ON THE THOROUGH FINANCIAL
PLANNING.

FINANCIAL MANAGEMENT:
THE FINANCES REQUIRED FOR A PROJECT MAY BE SUB DIVIDED INTO THE
FOLLOWING MAIN CATEGORIES:
1

2
3

INITIAL FINANCE FOR PREPARATION OF A PROJECT REPORT, REGISTRATION

EXPENSES, PUBLIC ISSUE NOTIFICATION AND MISCELLANEOUS EXPENSES
ASSOSCIATED WITH IT.
THE PROJECT SITE SELECTION, INFRASTRUCTURE SET UP.
SENIOR MANAGEMENT FOR FINALIZATION OF THE PROJECT
PREPARATIONS, IMPLIMENTATION, MARKET SURVEY ETC.
PAGE...10

4
5

SELECTION OF EQUIPMENT AND TRIAL STUDIES. SALARIES AND RAW

MATERIAL SELECTION ETC.
WORKING CAPITAL FOR SALARIES, RAW MATERIAL PROCUREMENT,
PRODUCTION, EXPENSES TOWARDS INFRASTRUCTURE MAINTENANCE ETC.

FINANCIAL INPUTS REQUIRED AS ABOVE ARE MET FROM THE FOLLOWING:

1. SHARE CAPITAL CONTRIBUTION FROM THE PROMOTERS. (ORDINARY
SHARES/PREFERENTIAL SHARES.)
2. SHARE CAPITAL ISSUED AND SUBSCRIBED FROM THE PUBLIC ISSUE (IN CASE
OF OPEN PUBLIC LIMITED COMPANY)
3. CONTRIBUTIONS IN THE FORM OF PREFERENTIAL SHARES/ DEBENTURES/
BONDS.
4. CONTRIBUTION FROM FINANCIAL INSTITUTIONS AS

a) FINANCIAL INSTITUTIONS CONTRIBUTION TOWARDS SHARE CAPITAL.

b) TERM LOANS FROM FINANCIAL INSTITUTIONS
c) WORKING CAPITAL.
ORDINARY SHARES:
THESE ARE THE SHARES ISSUED AND SUBSCRIBED FROM THE PROMOTERS AND
FROM THE PUBLIC ISSUE. THE FACE VALUE OF A SHARE CAN BE ANYTHING
RANGING FROM Re. 1/= to Re.1000/= OR AS DECIDED BY THE PROMOTERS.
ORDINARY SHARE HOLDERS ARE IN REAL TERMS THE OWNERS OF THE COMPANY
WHO ARE TO BE RESPONSIBLE FOR THE FUNCTIONING OF THE COMPANY, DECIDE
THE ACTIVITIES OF THE COMPANY. THE GENERAL BODY MEETINGS ARE TO BE HELD
PERIODICALLY AND SEEK THE OPINION OF THE SHARE HOLDERS BEFORE MAJOR
DECISIONS ARE TAKEN.
THUS DECLARED IN THE A.G.M IS DECIDED AFTER ALL THE FINANCIAL OBLIGATIONS
ARE MET, NAMELY TERM LOAN INSTALMENTS, INTEREST TO DEBENTURE
HOLDERS/BOND HOLDERS, DIVIDEND TO PREFERENTIAL SHARE HOLDERS. THE
REAL WORTH OF THE COMPANY IS ENJOYED BY THE EQUITY SHARE HOLDERS IN THE
FORM OF NET WORTH, SHARE WORTH IN THE MARKET ETC.
THE APPROVAL OF THE SHARE HOLDERS IS REQUIRED FOR CHANGE IN THE TOP
MANAGEMENT, THE REMUNERATION OF THE TOP MANAGEMENT, AND THE
ACQUISITION OF COMPANIES.
PREFERENTIAL SHARES.
THESE ARE SHARES WITH A PRE DETERMINED DIVIDEND AND ARE NORMALLY OF
TWO TYPES: NAMELY REDEEMABLE AND IRREDEEMABLE. THE RE DEEMABLE
PREFERENTIAL SHARES ARE FOR A SPECIFIC

PAGE.11
TERM AND THE PRINCIPAL IS REQUIRED TO BE RETURNED ON EXPIRATION OF THE
PERIOD. IRREDEEMABLE SHARES ARE ALSO QUOTED ON THE SHARE MARKETS AND
ARE MARKETABLE FOR CAPITALIZATION OF THE SHARE BASED ON THE VALUE OF
QUOTATION IN THE MARKET. IN CERTAIN COMPANIES PART OR FULLY CONVERTIBLE
PREFERENTIAL SHARE IS ISSUED WHICH ON THE SPECIFIC PERIOD AND TERMS
MENTIONED WHILE ISSUING, IS CONVERTED TO ORDINARY SHARES. IN CERTAIN
INSTANCES, DEFERRED DIVIDEND IS ALSO ISSUED WHICH OTHERWISE COULD NOT
BE GIVEN DUE TO PAUCITY OF FUNDS OR LACK OF FUNDS FOR DISTRIBUTION OF
DIVIDENDS. AS IN THE CASE OF ORDINARY SHARES, THE FACE VALUE OF A
PREFERENTIAL SHARE CAN RANGE ANY WHERE FROM Re.1/= to Re 1000/= OR AS
DECIDED WHILE FINALIZING THE ISSUE WITH A PRE DETERMINED DIVIDEND RATE.

DEBENTURES:
DEBENTURES ARE LIKE BONDS WHICH ARE ISSUED AGAINST ASSETS, HENCE ARE
TO BE DISBURSED AS PROMISED AT THE TIME OF ISSUE OF DEBENTURES. THE
DEBENTURE HOLDERS ARE NOT CONCERNED OF THE PROFITS OF THE COMPANY
BUT ONLY WITH THE PAYMENT OF PRE DETERMINED INTEREST. DEBENTURES ARE
OF THE FOLLOWING TYPES:
a) REDEEMABLE DEBENTURES
b) PARTLY CONVERTIBLE DEBENTURES
c) FULLY CONVERTIBLE DEBENTURES.
THE REDEEMABLE DEBENTURES ARE TOO REDEEMED AS ASSURED WHILE THE
ISSUE IS RAISED IN THE MARKET. PARTLY CONVERTIBLE DEBENTURES ARE TO BE
PARTLY CONVERTED INTO ORDINARY SHARES AS PROMISED WHILE ISSUE IS BEING
SUBSCRIBED AND SIMILARLY THE FULLY CONVERTIBLE DEBENTURES ARE TO BE
CONVERTED AS PROMISED AT THE TIME OF ISSUE.
TERM LOANS FROM FINANCIAL INSTITUTIONS:
FINANCIAL INSTITUTIONS ARE:
1. PUBLIC SECTOR BANKS
2. PRIVATE BANKS.
3. FINANCIAL INSTITUTIONS LIKE IFCI, STATE OWNENED FINANCIAL
CORPORATIONS ETC.
4. LIC OF INDIA.
THE FINANCIAL INSTITUTIONS BASED ON THE EFFICACY OF THE PROJECT, ITS
PROMOTERS FINANCE THE PROJECTS BASED ON TERMS AND CONDITIONDS
DECIDED MUTUALLY. IN CERTAIN CASES, THE FIS ALSO PARTICIPATE IN THE
CONTRIBUTION AS SHARE HOLDERS.
AS EXPLAINED, THE FINANCE FROM ALL THESE SOURCES ARE UTILIZED IN THE
IMPLIMENTATION OF THE PROJECT BEGINNING WITH FINALIZING OF THE PROJECT,
INFRA STRUCTURE, PROCUREMENT OF PLANT AND MACHINERY. THE FINANCE IS
ALSO REQUIRED FOR TRIAL RUNS, THE SALARIES FOR TRIAL RUN PERIOD, RAW
MATERIALS REQUIRED TOWARDS TRIAL RUNS AND FOR INITIAL PRODUCTION,
TOWARDS
PAGE...12.
MARKET SURVEY AND MARKETING OF THE INITIAL PRODUCTION. THE FINANCE
RREQUIRED IS KNOWN AS WORKING CAPITAL. THE WORKING CAPITAL IS NORMALLY
OBTAINED THE BANKERS IN THE FORM OF A SPECIFIC AMOUNT TO BE UTILIZED
TOWARDS THE ABOVE REQUIREMENTS. THE CHARGES ON THE WORKING CAPITAL
IS PRE DECIDED AND IS CHARGEABLE ON THE WITH DRAWALS ONLY. IN CERTAIN

CASES OVER DRAFT FACILITIES OVER AND ABOVE THE WORKING CAPITAL IS ALSO
PROVIDED WHICH MAY BE AT HIGHER RATES.
IN CERTAIN INSTANCES DUE TO SUDDEN REQUIREMENTS WITH LITERALLY LACK OF
TIME TO EXPLORE OTHER AVENUES, LOANS COULD BE RAISED FROM NEAR AND
DEAR ONES OF THE PROMOTERS. THE REPAYMENT OF THESE LOANS IS OF LAST
PREFERENCE OR AFTER MEETIG THE DEEMANDS TOWARDS INTEREST OF FIS,
DEBENTURE INTEREST.
IT IS THEREFORE RELEVANT TO UNDERSTAND THAT THE BIGGEST LIABILITY OF AN
ENTERPRISE IS THE RAISING OF FUNDS FOR IMPLIMENTATION. FINANCIAL PLANNING
AND RESOURCE MANAGEMENT IS OF UTMOST IMPORTANT FOR SUCCESS OF A
PROJECT. THUS CLOSE WATCH ON THESE ASPECTS IS REQUIRED TO BE
MAINTAINED. THE MOST IMPORTANT STATEMENTS TO BE MAINTAINED AND CLOSELY
WATCHED FOR EXAMINING THE HEALTH OF A PROJECT ARE:
1.
2.
3.
4.
5.
6.
7.
8.

CASH FLOW STATEMENT

STATEMENT OF INCOME AND EXPENDITURE.
BALANCE SHEET
DEBT EQUITY RATIO
DEBT SERVICE RATIO
LIQUIDITY RATIO
CURRENT RATIO
EARNING PER SHARE.

THOUGH THERE ARE FEW OTHER PARAMETERS WE MAY CONFINE OUR STUDY TO
THE ABOVE, WHICH WOULD COVER MOST OF THE ASPECTS FOR EXAMINING THE
HEALTH OF AN ORGANIZATION.