All about Business and management

December 11, 2009

Internal recruitment

Filed under: Business management — Jagdish Hiray @ 6:18 am

            The internal recruitment process is popular among organizations as well among employees. It benefits both employer as well as employees. Typically, companies post job positions on their intranet portal, establishing direct communication between hiring manager and candidate looking for change in job position. Internal recruitment (also known as internal transfer) offers many advantages to both employee as well as employer with some disadvantages.

            For employer, internal recruitment offers direct savings over cost of external recruitment. It also saves time, efforts and resources needed to do search for external candidate. Internal recruitment facilitates direct communication happens between hiring manager and candidate on open position and avoids other formalities involved otherwise. Since internal recruits are familiar with overall operations of organization it benefits for hiring manager to minimize learning curve and hence increase in productivity. Some organizations offer specialize training courses to enhance skills so that internal human resources can be internally used across various lines of business as and when required. This practice is particularly seen in large industrial manufacturing companies, pharmaceutical industry and other larger sector of businesses. Internal recruitment thus saves time and cost associated with external recruitment utilizing human resources within company. Therefore, internal recruitment helps to fertilize strong bond, trust and attachment between employees and employer, resulting in better performance at work space. Internal recruitment also helps to minimize brain drain to out of company and tries to keep skilled workers within one company. Companies spend lot of money to train its employees and internal recruitment helps to convert training cost to actual company profit over period of time. Trained and skilled employees are tangible asset to company. Internal recruitment helps to retain this asset within company.

            For employees, internal recruitment offers choices and new opportunities within organization. This in turn offers opportunity to look for alternative to existing job profile as a part of job satisfaction. Existing employees therefore gets opportunity to enhance their skills and develop expertise into various fields across various organizations. This keeps employees motivated and committed to give their best performance. Keeping job in the same company also gives employee peace of mind and stability against job security worries. This in turn increases employee’s productivity and hence benefits employer. Another significant advantage to employees is that over period of time employees can develop multi platform skills during their tenure in organization. This is in particularly true in modern industries like information technology field where multiple skill sets are required and are added advantage for job profile. Internal recruitment gives stable job, constant source of income and keeps employee loyal to one company. Internal recruitment opportunities help employees to void time and effort to look for job outside organization. Since internal recruitment keeps flow of employees within one company, it helps to create strong personal bond among employees and creates virtual network within organization that helps to accelerate day to day operations to be efficient due to personal contacts developed during employee’s tenure in organization. Therefore, larger organization has special HR division to manage internal recruitment process.

            With advantages, internal recruitment also comes up with some disadvantages both for employees as well as for the employer. One of the flip sides of the internal recruitment is, it keeps internal employee movement within organization and over time employees get used to internal operations, strategies and general know how. This in turn creates phenomenon of ‘group think’ in which people thinks in same way, resist to any new change and tries to keep processes intact benefiting them. For any change in policy or change in the business direction which might cause change in their operating habits, they resist change or that can affect their productivity. This in turn affects company’s overall readiness to respond to changing demands of global market and hence negatively affects company’s competitive advantage. This is in particularly true for filling up higher management positions, therefore many companies prefer external skill sets while filling up key strategic management position. Internal recruitment also creates competition among groups to attract best talent within company. To avoid frequent job shift within company, some companies have rules pertaining to internal recruitment. With advances in technology and availability of highly educated work force internal recruitment can prevent flow of advanced skilled workers within company and can prevent company to have competitive edge over rivals. An employee might overlook or tend to avoid outside job positions and might lost touch with general awareness about jobs demand, present job market trend and importantly latest skill sets. This in case is disadvantage in cases where employee looses job during reduction in force. In that situation, skill sets possessed by employee during his or her tenure in one company might not be sufficient to compete in job market and might be tougher to compete.

            Internal recruitment is powerful tool to retain employees within organization. Employer has to make smart decision whether a job position needs to be filling in internally or from out side. Looking at both advantage and disadvantages of recruitment, both employees and employers can get benefited from it.


November 16, 2009

Recruitment process

Filed under: Business management — Jagdish Hiray @ 9:20 pm

The recruitment process is a critical process in an organization. This is the process which is a part of building healthy and stronger organization. The process of recruitment varies depending upon size of organization, nature of type of business and type of open positions for new recruits. This is the process which affects both organization who is recruiting and new recruit who is going to be part of organization. Therefore, process of recruitment has special importance in building competitive and leading organization in the business word.

            The process of recruitment starts with a business need to have a human resource to manage and execute business tasks. Generally hiring manager seeking new resource puts together business requirements; justification such as implications to business and how new resource will add value to business. The hiring manager also lay outs detail job description stating skills required, base location and urgency for new recruitment. In some organizations there are pre allocated positions allocated to each business group whereas some organizations have recruitment board to review need for additional resources and skills required. In large organizations there are also a quota allocated for fresh college graduates.

            The hiring manager works close with human resources (HR) representative (recruiter or hiring agent) during recruitment process. Once new recruit position is approved, HR representative starts process of search for a candidate for skills required. The process of approval for new recruit position can vary across organizations. There are various avenues and approaches available to search for appropriate skilled candidate among pool of candidates. This really depends on urgency of recruitment, type of position and expense or budget approved that position. For example, to hire an executive, HR representative might appoint outside agency to screen and interview candidates. However, for other positions there might be candidates available internally. In some organizations positions are listed on their internal portal to find internal candidates. Also, larger organizations are always in process of receiving external candidate profiles through their corporate portal and therefore maintains centralized database of resumes which can be searched and available for hiring manager. Some organizations have paid corporate account on global job search engines like, and so. In case of smaller organization like a startup company word of mouth plays important role to find out candidate through colleagues and friends. Job fares, business related conferences and workshops also introduce future candidates.

            The hiring manager goes through candidate profiles received for opened positions. In some organizations members of recruitment committee does review of these profiles. Members of group reporting to hiring manager and other members from broader group can also be asked to screen resumes and grade candidates. Then, short listed candidates are called for personal interviews. In some cases, either hiring manager or a group does screening telephonic interview to short list candidates for personal interviews. Personal interview can take several rounds. First round might include an objective test based on skill requirements and can be based on questions to judge personal workplace behavior. Next round of interview can be with broader team including team with which candidate is going to work with. In some organizations hiring manager considers team members feedback and ratings for candidate. Involving more people to screen candidate helps hiring manage to choose best candidate suitable for job as well as minimizes any future risk which may arise due to any issues associated with candidate after hiring. Before offering job offer, HR representative runs background checks and does personal referral checks. For executive positions this is very critical step to review candidate’s past experience and achievements. Background checks and personal references give hiring manager a peace of mind and confidence about his or her decision to hire candidate.

            Generally in final personal interview hiring manager goes over pay package and benefits with candidate. If agreed final offer is made either personally or through mail. Candidate is given a period of couple of days to review and accept an offer. Once an offer is accepted by candidate, joining date is decided and position is marked as filled or closed.

            Hiring a candidate is very crucial task, particular when business is very conservative about incurring extra cost of adding a head count. This is also crucial from the point view from new recruit who leaves existing job and tries to assimilate into new job environment for better future. It is also vital from hiring manager point of view to mentor and positioned newly hired candidate to fulfill business needs. In many organizations, failure to recruit appropriate candidate turns out to be costly particularly candidates hired at higher executive positions. Therefore, the process of recruitment works as a check post to bring right candidate inside a company for better future.

November 3, 2008

Leadership and fellow-ship

Filed under: Business management — Jagdish Hiray @ 9:42 pm
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            All-important social accomplishment requires complex group effort and, therefore, leadership and follower ship. Leader-follower relationship is two way, leader as well as followers have great capacity to influence the relationship. Just as a leader is accountable for the actions and performance of followers, so followers are accountable for their leaders. Followers support leaders when necessary and help them correct their actions, just as leaders must support followers and help them to correct their actions. This is partnership and both sides must be proactive. Organizations are successful or not partly on the basis of how well their leaders lead, but also in great part on the basis of how well their followers follow. Courageous followers help leaders stay on track and manage their decision-making processes in the right direction. Responsible and effective followers have a critical role in maintaining the desired partnering dynamics. In his book (The Courageous Follower, 2003) Ira Chaleff points out that the old paradigm of the leader/follower is based on power. The leader has traditionally had the power to reward and promote, this has led to a relationship in which the follower avoids jeopardizing their chances of obtaining these rewards. Hence, the follower tends to do what the leader wants and, just as important, not offend or create a negative impression of them. A relationship based on this kind of power does not serve the organization, it shuts down the open flow of communication and candor a leader needs to order to optimize their effectiveness. Chaleff sees a very different kind of relationship between leader and follower.  He suggests a relationship where the leader and follower have equal power but different roles that orbit around support and fulfillment of the organizations’ purpose.   When both the leader and follower are focused on the common purpose a new relationship between them arises. This new relationship is candid, respectful, supportive and challenging.  It is a relationship that honors open communication, honesty and trust from both parties. According to Chaleff, there are three things we need to understand in order to fully assume responsibility as followers: understand out power, appreciate the value of the leader and work towards minimizing the pitfalls of power.

When we think about leadership, we tend to focus almost entirely on the leader. Yet without followers, there is no leader. Leadership is participatory: leaders and followers exist in a mutually beneficial relationship where each adds to the effectiveness of the other. Key to this process is listening, because leadership is as much about listening as it is about talking, or perhaps more so. From the beginning, a leader must be informed by the followers’ values, beliefs, and aspirations, the followers’ identity. The commitment gap people frequently experience, the difference between what the leader desires and what the followers actually do, can often be traced back to not aligning the elements of leaders’ and followers’ identities—who they think they are—to find common ground on which to function and grow. It is the quality of the relationship of leaders and followers, all the way up and down the organization chart, that makes or breaks organizations.

Leadership is one of the most widely talked about subject and is most elusive and puzzling. Leadership is a complex phenomenon involving the leader, the followers, and the situation. In general there are individuals who exhibits leadership qualities and there are people who do not.  People who are effective in the leader role have the vision to set goals and strategies, the interpersonal skills to achieve consensus, the verbal capacity to communicate enthusiasm to large and diverse groups of individuals, the organization talent to coordinate disparate efforts. Some people posses inbuilt personality traits like self-determinant, honest, strong desire to achieve goal, devotion and sacrifice. However, there are exceptions, some theorist believes each individual has built-in qualities to make difference and hence influence people around them. Their leadership qualities can be seen by their actions, reactions on situations they manage and support from their followers. However, some people do exhibits their leadership qualities under some circumstances. For example, Mahatma Gandhi was an ordinary person, he faced same realities youth of his age faced at that time, but he evolved as a charismatic leader who stood against British rule to give independence to his country. His thinking, initiatives, selfishness, care about people and honest actions made him a leader.

There are personalities, which are of ‘leader type’ (effective leaders), and there is not ‘leader type’ (poor leaders). Effective leaders are good communicators, especially in providing vision and purposes that are consistent with follower goals, values, dreams and myths. Effective leaders are socio-centric, physically strong, humanistic, approachable, visible, patient, decisive, and open-minded. They maintain high standards of dignity and integrity. Good leaders create a sense of trustworthiness as perceived by their followers.  They do this by being consistent, honest, and dependable. They are good role models, coaches, mentors and teachers. Effective leaders establish a strong participative management culture. They are technically competent but possess important interpersonal skills such as assertion, empathy and negotiation ability. Good leaders show “value focused leadership.” They have a set of purposes and ethics that guide their behavior and decision-making. Control theory suggests that effective leadership is goal-directed with synergy created by the alignment of group members on these goals and priorities. “Value focused leadership” requires that leaders help create “value” for both workers and customers.

Non-effective leaders fail to give clear direction, mission and purpose to the followers or organization. They fail to create cohesion and commitment by neglecting to give support and encouragement to followers. They neglect to energize followers and obtain their dedication and loyalty by providing consistent reward and recognition.  They fail to listen to followers and empower them to take a full, participative role in all-important decisions. When followers do offer suggestions these suggestions are ignored.  Poor leaders tend to tolerate incompetence, a fact that de-motivates followers who are trying hard to get work done.  Poor leaders fail to develop and support a “culture of quality.” Poorly led organizations have a scarcity of clear, consistent goals and when they do have goals they do not have benchmarks or outcomes measures with which to evaluate them. In poorly led organizations there is a paucity of effective communication and true consultation in the organization. Leaders usually find someone to take the blame for a negative event. They spend a great deal of time protecting themselves and their positions and neglect the overall welfare of the organization. The poorly led organization shows shoddy ethics. In the poorly led organization there is a great resistance to change, innovation, and new ways to integrate the various parts of the organization.






August 7, 2008

Financial intermediaries

Filed under: Business management — Jagdish Hiray @ 9:56 pm
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With advances in computer technology, one can transfer money instantly, anywhere in the word, you can trade your funds across major stock exchanges online, you can use your credit card across the globe and so on. Lending and borrowing of money is made simple by financial institutions called financial intermediaries. Financial intermediaries such commercial banks, credit unions and brokerage funds carryout these transactions on your behalf. A financial intermediary is a financial institution that borrows from savers and lend to individuals or firms that need resources for investment. The investments made by financial intermediaries can be in loan and/or securities. Basic role of financial intermediaries is transforming financial assets that are less desirable for a large part of the public into other financial asset, which is preferred more by the public. This transformation involves at least four economical functions: providing maturity intermediation, risk reduction via diversifications, reducing the costs of contracting and information processing and providing a payment mechanism.


Without financial intermediation we must not have seen revolution in financial services in past couple of decades. Financial intermediation is responsible for creation of institutional investors in financial market. Modern world would not have been so modern without financial intermediaries. Financial intermediation has won savers confidence by protecting their asset while providing efficient services to help manage their asset. On contrary, with pool of household savings from savers, they emerged as one large lender who can lend money to businesses and various other borrowers. Financial intermediaries are vital part of our economic system and they help to maintain constant flow of money in economy.


If there were no intermediaries, individual savers would have to directly purchase the securities of borrowers. There would have been incompatibility of the maturity needs of lenders and borrowers since most savers want to lend funds at short maturity, while borrowers want to borrow at longer maturities. It would have been difficult to match small amounts of individual savings to the larger loan amounts desired by borrowers. This would have cause borrowing more difficult and more tedious. Financial intermediaries perform important function of maturity intermediation to make investment from savers and money borrowing for borrowers seamless. Maturity intermediation involves a financial intermediary issuing liabilities against it that have maturity different from the assets it acquires with the fund raised. An example is a commercial bank that issues certificate of deposit and invests in assets with a longer maturity than those liabilities. Maturity intermediation offers more choice concerning maturity for their investments to investors and reduces cost of long term borrowing for borrowers. Financial intermediaries issue their own debt claims to the saver in forms more attractive to savers, and in turn, lend to borrowers on terms satisfactory to the borrowers.


Financial intermediaries bears risk on behalf of investors by investigating their savings across various sectors of business. They transform risk-by-risk spreading and risk pooling; they can spread risk across a range of institution. In turn institutions can pool risk by spreading investment across firms and various projects. Diversification allows a financial intermediary to allocate assets and bear risk more efficiently. Financial intermediaries do risk screening, risk monitoring and risk evaluation; it is more efficient for institution to screen investment opportunity on behalf of individuals than for all individuals to screen the risk. It helps individual saver to save time and money and offers low risk investment opportunity. One of the common example of this function is; a dollar deposited in a checking or savings account, it is not redeemed at less than a dollar but in turn one get paid interest on it over period of time. Therefore without financial intermediaries it would really have been difficult for individual investor to screen prospect borrower or investment opportunity, which would have discouraged individual savers from lending money and would have affected economical developments.


Financial intermediaries provide convenient and safe way to store finds and creates standardized forms of securities. It also facilitates easy exchange of funds. Due to high volume it is able to bear transaction and information search cost on behave of savers. Therefore, individual saver enjoys financial services that enable them to deposit and withdraw funds without negotiation whereas borrower avoids having to deal with individual investors. Since it has information available for both lenders and borrowers, it minimizes information cost for analyzing their data. Without financial intermediaries lenders and borrowers would have to pay higher transactional and information costs.


            Modern world would not have been so efficient, aggresive and progressive without financial intermediation.


August 1, 2008

Functions of investment banker

Filed under: Business management — Jagdish Hiray @ 7:04 pm
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When corporation sells new securities to raise funds, the offering is called a primary issue. The agent responsible for finding buyers for these securities is called the investment banker. The investment banker purchase primary issue from corporation and arranges immediate resell of these securities to the investors. Merrill Lynch & Co., Goldman Sachs are some examples of well-known investment banking firms. Broadly investment bankers (investment banking firms) perform three functions: Investigation, Analysis and Research (Origination), Underwriting (Public Cash offerings) and Distribution. Most of time a single investor banker performs all functions, however some investment bankers are specialized in certain functional areas only.


Investigation, Analysis and Research (Origination):            Origination includes the subsidiary operations of discovery, investigation, and negotiation. Discovery is the finding of a prospective issue of securities; investigation is the testing of the investment credit of the prospective security issuer, and the intrinsic soundness of the issue; negotiation is the determination of the amount, the price, and the terms of the proposed issue. Investigation usually involves an analysis of the financial history of the corporation by accountants, investigation of legal factors, a survey of its physical property by engineers, and in-depth review of operations. The purpose of investigation and analysis is to determine whether a proposed issue has sufficient merit to be offered to investment community. In other words, function of investment banking is careful analysis of the soundness and reliability of the corporation whose securities are seeking the investment market. The task of investigation and analyzing the numerous factors, which govern the value of investment securities, varies considerably with the different types of issuing bodies.


Underwriting (Public Cash offerings): When a corporation wishes to issue new securities and sell them to the public, it makes an arrangement with an investment banker whereby the investment banker agrees to purchase the entire issue at a set price, known as underwriting. Underwriting also refers to the guarantee by the investment banker that the issuer will receive a certain minimum amount of cash for their new securities. The investment banker buys a new security issue, pays the issuer, and markets the securities. The underwriter’s compensation is the difference between the price at which the securities sold to the public, and the price paid to the company for the securities. Underwriting can be done either through negotiations between underwriter and the issuing company (called negotiated underwriting) or by competitive bidding. A negotiated underwriting is a negotiated agreed arrangement between the issuing firm and its investment banker. Most large corporations work with investment bankers with whom they have long-term relationship. In competitive bidding, the firm awards offering to investment banker that bid the highest price.


In certain cases, for large or risky issues a number of investment bankers get together as a group, they are referred to as syndicate. A syndicate is a temporary association of investment bankers brought together for the purpose of selling new securities. One investment banker is selected to manage the syndicate called the originating house, which does underwriting of the major amount of the issue. There are two types of underwriting syndicates, divided and undivided. In a divided syndicate, each member group has liability of selling a portion of offerings assigned to them. However, in undivided syndicate, each member group is liable for unsold securities up to the amount of its percentage participation irrespective of the number of securities that group has sold.


Distribution: Another function of investment banker it to market the security issues. The investment banker acts as a specialist to distribute securities efficiently for the corporation. It can be very expensive and ineffective for a corporation to sell an issue by establishing marking and selling organization by its own. Investment banker has established marketing and sales network to distribute securities. For a reputed invest banker, with its past history of selecting good companies and pricing securities builds a broad client base over time, and further increases the efficiency with which securities can be sold.


            Invest banker offers security to both corporation issuing securities and investors buying securities. For corporations investment banker offers definite price guaranty on a certain date for securities to offer. The corporation runs no risk of the uncertainties of the market and do not have to spend on resources with which it is not equipped with.

To the investor, the responsible investment banker offers protection against unsafe securities. The offering of a few unsound issues can caused serious loss to its reputation, and hence loss of business. Therefore, investment banker play very important role in issuing new security offerings.


May 23, 2008

Mutual funds and their investment objectives

Filed under: Business management — Jagdish Hiray @ 5:48 am
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Mutual funds control a significant portion of US financial assets. Mutual funds offer investment diversification, professional management and convenience to investors. Every mutual fund has an investment objective, which it describes in its prospectus. The fund’s name often reflects its investment objective; for example, a fund that seeks a balance of growth and income might call itself the Growth and Income Fund. Most fund objectives are designed to provide a particular type of return. As a result, the fund objective has a major impact on the types of securities that dominate the fund’s portfolio. The Investment Company Institute classifies mutual funds into various categories according to their objectives.

There are six broader categories of Mutual funds according to their investment objectives: Common Stock Funds (also known as Equity funds, Stock funds), Special purpose funds, Income Funds, Bond Funds, Balanced Funds and Money Market Funds.

Common Stock Funds: In this type of Mutual funds, funds are invested almost entirely in common stock of companies, although their objectives vary considerably. Some of the different types of stock fund are: growth funds, aggressive growth funds, growth and income funds, Income-equity funds and Option income funds.  

Growth funds are seeking capital appreciation by selecting companies that should grow more rapidly than the general economy. The primary objective of these funds is capital appreciation rather than current dividend income. Growth funds hold the common stocks of more established, large growth-type companies. Aggressive growth funds invest in small or more speculative growth companies for maximum capital appreciation. The primary investment objective of these funds is capital appreciation, however, the investment policies tend to be more aggressive and riskier that for growth funds. These funds may hold common stocks in startup companies, new industries, and regular growth-type stocks. Growth and income funds seek long-term capital appreciation with income. Funds are invested in common stocks of well-established companies that are expected to show reasonable growth of principal. Their risk level is moderate. Index funds, a popular type in recent years, buy representative stocks to simply match the market indices. Income-equity funds (Dividend Yield funds) tend to invest in common stocks of companies with stable and good dividend returns. The emphasis is on secure and reasonable dividend yields and not on capital appreciation. Investment in this type of funds carries relatively low risk. Option-income funds invest in common stocks of companies to seek maximum current return by writing call options on the stock they hold. Option income funds sell option contracts against the stocks they buy. Large Cap funds invest in stocks of large companies, such as General Motors, and General Electrics which have strong business background, large market and lower business risk. Small Cap funds invests in stocks of smaller companies. Smaller firms have comparatively greater business risk than larger firms, but they have greater potential for profit.

Sector funds/Special purpose funds: Funds in this category have objective or limit their investment to a specialized industry or sector such as energy-related firms or companies that produce precious metals. These fund permits investors to concentrate on a specific investment segment. These funds can also use futures and options and short selling to meet more aggressive objectives.

Income Funds: Income funds are portfolios consisting of bonds and common stocks as well as preferred stocks. Income fund managers try to obtain satisfactory interest and dividend income for the shareholders.

Bond Funds: Bond funds seek high income and preservation of capital by investing primarily in bonds and selecting the proper mix between short term, intermediate-term, and long-term maturities. A bond fund may restrict its investments to certain categories of bonds, such as corporate, municipal, or foreign bonds. In recent years, tax-free municipal bonds funds have been popular.

Balanced Funds: Unlike most of mutual funds that make investment exclusively in one asset class, balanced funds invests a portion of its assets into each of major asset classes: cash and cash equivalents, government securities, corporate bonds, and corporate stocks. Main object behind is that if one asset class were to fall in value, another would rise to compensate, thus giving investor a balanced rate of return.

Money Market Funds:  Money market funds are a special form of mutual funds. Main investment objective of these funds is to provide more safety of principal or investment. The investor can own a portfolio of high yielding CDs, T-bills, and other similar securities of short-term nature, with a small amount to invest. Their investment portfolio covers investment in short-term government securities, commercial papers, and certificates of deposit. Each share has a net asset value of $1, however, yield fluctuates daily. 






April 24, 2008

Open-ended, multiple-choice, and Likert-scales items in surveys

Filed under: Business management — Jagdish Hiray @ 7:26 pm


          Identifying and writing survey items or questions are important aspect of any survey process. Survey items are the building blocks of the survey. The way the survey questions perform, the adequacy with which they obtain the desired information, has a greater influence on the results of the survey than any other single part of the process. Therefore, great care should be taken while building survey items. Survey questions fall into two general categories: closed-ended or multiple-choice and open-ended


Open-ended questions let the respondent verbalize the answer. An open-ended question does not provide the participant with a choice of answers. Open-ended questions are also referred to as free-response or free-answer questions. Instead, participants are free to answer the question in any manner they choose. Closed-ended, or multiple choice, questions ask the respondent to choose an answer from list of alternatives. While open-ended questions encourage respondents to answer in their own terms, they can lead to repetition, the gathering of irrelevant information, and misunderstandings about the intent of the question. The results obtained from open-ended questions are also more difficult to analyze. Multiple-choice questions limit respondent’s input into the wording of answers but ensure that the interviewer or anyone else is not influencing the answer by randomly encouraging elaboration or making suggestions for answers. Multiple-choice questions are easier for respondents to answer. They are also easier to analyze and tabular than open-ended questions. Unstructured questions are open-ended questions that respondents answer where as questions are more structured in close-ended questionnaires. Compare to open-ended questions in survey, multiple-choice questions reduces changes of interviewer’s bias opinion on a particular subject. In multiple-choice survey, questions are well administered and structural towards goal of survey compare to open-ended survey questions. Some researchers prefer multiple-choice questions to gather quantitative data. It is difficult to develop effective multiple-choice questions compare to open-ended questions. In general, open-ended questions are useful in exploratory research and as opening questions. However, multiple-choice questions or Likert scales are advantages in large surveys. Open-ended survey questions allow respondents to answer in their own words and allow the researcher to explore ideas that would not otherwise be aired and are useful where additional insights are sought. In contrast, multiple-choice questions require the respondent to choose from among a given set of responses. Multiple-choice questions with ordered choices require the respondent to examine each possible response independent of the other choices. It is difficult to develop effective multiple-choice questionaries.


The Likert scale is one of the most widely used itemized scales. The end-points of a Likert scale are typically strongly disagree and strongly agree. The respondents are asked to indicate their degree of agreements by checking one of five response categories: strongly disagree, disagree, neither agree nor disagree, agree, and strongly agree. The Likert scale has several advantages. It is easy for the researcher to construct and administer this scale, and it is easy for the respondent to understand. Therefore, it is suitable for mail, telephone, personal, or electronic surveys. The Likert scale is widely used in marketing surveys. The major disadvantage of the Likert scale is that it takes longer to complete than other itemized rating scales.

March 30, 2008

Measures of Central tendency and Variability

Filed under: Business management — Jagdish Hiray @ 9:10 pm
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            Central tendency is a statistical measure that identifies a single score as representative of an entire distribution of scores. The goal of central tendency is to find the single score that is most typical or most representative of the entire distribution. Unfortunately, there is no single, standard procedure for determining central tendency. The problem is that there is no single measure that will always produce a central, representative value in every situation. There are three main measures of central tendency: the arithmetical mean, the median and the mode. 

            The mean of a set of scores (abbreviated M) is the most common and useful measure of central tendency.  The mean is the sum of the scores divided by the total number of scores. The mean is commonly known as the arithmetic average. The mean can only be used for variables at the interval or ratio levels of measurement. The mean of [2 6 2 10] is (2 + 6 + 2 + 10)/4 = 20/4 = 5. One can think of the mean as the balance point of a distribution (the center of gravity). It balances the distances of observations to the mean. Another measure of central tendency is the median, which is defined as the middle value when the numbers are arranged in increasing or decreasing order. The median is the score that divides the distribution of scores exactly in half. The median is also the 50th percentile. The median can be used for variables at the ordinal, interval or ratio levels of measurement. If for example, daily expenses are $50, $100, $150, $350, $350 the middle value is $150, and therefore, $150 is the median. For odd number of count the median is middle value. If there is an even number of items in a set, the median is the average of the two middle values. For example, if we had four values—$50, $100, $150, $350—the median would be the average of the two middle values, $100 and $150; thus, 125 is the median in that case. The median may sometimes be a better indicator of central tendency than the mean, especially when there are extreme values. Another indicator of central tendency is the mode, or the value that occurs most often in a set of numbers. In other words, the mode is the score or category of scores in a frequency distribution that has the greatest frequency. In the set of expenses mentioned above, the mode would be $350 because it appears twice and the other values appear only once. The mode can be used for variables at any level of measurement (nominal, ordinal, interval or ratio). Sometimes a distribution has more than one mode. Such a distribution is called multimodal. A distribution with two modes is called bimodal. Note that the modes do not have to have the same frequencies. The tallest peak is called the major mode; other peaks are called minor modes. Some distributions do not have modes. A rectangular distribution has no mode. Some distributions have many peaks and valleys.

              Variability provides a quantitative measure of the degree to which scores in a distribution are spread out. The greater the difference between scores, the more spread out the distribution is.  The more tightly the scores group together, the less variability there is in the distribution. Variability is the essence of statistics. The most frequently used methods of measurement of this variance are: range, deviation and variance, interquartile range and standard deviation. The range is simply the difference between the highest score and the lowest score in a distribution plus one. This statistic can be calculated for measurements that are on an interval scale or above. In dataset with 10 numbers {99,45,23,67,45,91,82,78,62,51}, the highest number is 99 and the lowest number is 23, so 99−23=76; the range is 76. The interquartile range (IQR) is a range that contains the middle 50% of the scores in a distribution. It is computed as follows: IQR=75th percentile−25th percentile. A related measure of variability is called the semi-interquartile range. The semi-interquartile range is defined simply as the interquartile range divided by 2. Variance can be defined as a measure of how close the scores in the distribution are to the middle of the distribution. Using the mean as the measure of the middle of the distribution, the variance is defined as the average squared difference of the scores from the mean. When the scores are spread out or heterogeneous, the measure of variability should be large. When the scores are homogeneous the variability should be smaller. Another measure of variability is the standard deviation. The standard deviation is simply the square root of the variance. The standard deviation is an especially useful measure of variability when the distribution is normal or approximately normal (see Probability) because the proportion of the distribution within a given number of standard deviations from the mean can be calculated. Therefore standard deviation is the average distance from the mean. So the mean is the representative value, and the standard deviation is the representative distance of any one point in the distribution from the mean.

              While the measures of central tendency convey information about the commonalties of measured properties, the measures of variability quantify the degree to which they differ. If not all values of data are the same, they differ and variability exists. The measures of central tendency should be complemented by measures of variability for the same reason.

March 16, 2008

The Research process: an independent and dependent variables

Filed under: Business management — Jagdish Hiray @ 9:26 pm
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        Research is the foundation of any science, including both hard sciences such as physics, chemistry and the social sciences such as psychology, management and education. The steps and process involved in the research can vary depending on the type of research being done and the hypothesis being tested. Research methods such as Naturalistic observation and surveys are often less structured, where as experimental methods are more structured. Depending upon what is observed or experienced, new theories are developed. There are aspects of a theory or aspects of a study that can change or vary as part of interaction within the theory, defined as variables. Variables are anything that can change of effect the results of a study. In an experimental method, the experiment is conducted by changing the value of one variable and measuring the changes in another variable while holding or assuming surroundings constant. There is no limit to the number of variables that can be measured, although the more variables, the more complex the study and the more complex the statistical analysis.

        Every experiment has at least two types of variables: an independent and dependent. An independent variable is the variable that the researchers systematically manipulate in the experiment. An independent variable is measured, manipulated, or selected by the experimenter to determine its relationship to an observed phenomenon. This might be a variable that you control, like a treatment, or a variable not under your control, like an exposure. It also might represent a demographic factor like age or gender. While the independent variable is often manipulated by the researcher, it can also be a classification where subjects are assigned to groups. In a study where one variable causes the other, the independent variable is the cause. In a study where groups are being compared, the independent variable is the group classification. In a research to demonstrate the increasing alcohol consumption during pregnancy actually causes a reduction in birth weight, researchers randomly assigned 50 pregnant rat either to an experimental group or to a control group. The 25 rats in the experimental group had bottles filled in with mixture of pure water and alcohol, 25 rats in the control group had bottles with water. Other than this, researchers treated all rats as much alike as possible. Aim was to have the two groups differ systematically along only one variable: alcohol versus pure water. This is independent variable; idea was to manipulate this variable independently of other factors such as diet that might affect pregnancy. In this example, birth weight is the dependent variable that is it represents the outcome that we measure, an outcome that is dependent on the manipulation of the independent variable. With experiments, then, researchers systematically manipulate the independent variable to determine if it causes a difference in the dependent variable. There are three ways to manipulate independent variables: presence or absence technique, amount technique and type technique. In presence or absence technique, the independent variable can be manipulated can be manipulated by presenting a condition or treatment to one group of individuals and withholding the condition or treatment from another group of individuals. In amount technique, the independent variable can be manipulated by varying the amount of a condition or variable such as the amount of a drug which is given to children within a learning disorder. In type technique, the independent variable is to vary the type of the condition or treatment administered.  

        In an experiment, a dependent variable is the factor which is observed and measured to determine the effect of the independent variable, that is, that factor that appears, disappears, or varies as the experimenter introduces, removes, or varies the independent variable. The dependent variable is the participant’s response. The dependent variable is the outcome of experiment. In an experiment, it may be what was caused of what changed as a result of the study, in a comparison of groups; it is what they differ on. In research study on rats, described in previous paragraph, the experimental group is exposed to alcohol, and the control group is not. If we observe that the rat pups in the groups differ reliably in birth weight, and then we can conclude alcohol exposure caused this difference. In this example birth weight is a dependent variable.




        In an experiment, the independent variable is the variable that is varied or manipulated by the researcher, and the dependent variable is the response that is measured. An independent variable is the presumed cause, whereas the dependent variable is the presumed effect. The independent variable is the antecedent, whereas the dependent variable is the consequent. In experiments, the independent variable is the variable that is controlled and manipulated by the experimenter; whereas the dependent variable is not manipulated, instead the dependent variable is observed or measured for variation as a presumed result of the variation in the dependent variable. Dependent variables can be influence by controlled variables.

February 21, 2008

Time-series methods of forecasting

Filed under: Business management — Jagdish Hiray @ 10:19 pm
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         Forecasting is a method or a technique for estimating future aspects of a business or the operation. It is a method for translating past data or experience into estimates of the future. It is a tool, which helps management in its attempts to cope with the uncertainty of the future. Forecasts are important for short-term and long-term decisions. Businesses may use forecast in several areas: technological forecast, economic forecast, demand forecast. There two broad categories of forecasting techniques: quantitative methods (objective approach) and qualitative methods (subjective approach). Quantitative forecasting methods are based on analysis of historical data and assume that past patterns in data can be used to forecast future data points. Qualitative forecasting techniques employ the judgment of experts in specified field to generate forecasts. They are based on educated guesses or opinions of experts in that area. There are two types of quantitative methods: Times-series method and explanatory methods.

         Time-series methods make forecasts based solely on historical patterns in the data. Time-series methods use time as independent variable to produce demand. In a time series, measurements are taken at successive points or over successive periods. The measurements may be taken every hour, day, week, month, or year, or at any other regular (or irregular) interval. A first step in using time-series approach is to gather historical data. The historical data is representative of the conditions expected in the future. Time-series models are adequate forecasting tools if demand has shown a consistent pattern in the past that is expected to recur in the future. For example, new homebuilders in US may see variation in sales from month to month. But analysis of past years of data may reveal that sales of new homes are increased gradually over period of time. In this case trend is increase in new home sales. Time series models are characterized of four components: trend component, cyclical component, seasonal component, and irregular component. Trend is important characteristics of time series models. Although times series may display trend, there might be data points lying above or below trend line. Any recurring sequence of points above and below the trend line that last for more than a year is considered to constitute the cyclical component of the time series—that is, these observations in the time series deviate from the trend due to fluctuations. The real Gross Domestics Product (GDP) provides good examples of a time series tat displays cyclical behavior. The component of the time series that captures the variability in the data due to seasonal fluctuations is called the seasonal component. The seasonal component is similar to the cyclical component in that they both refer to some regular fluctuations in a time series. Seasonal components capture the regular pattern of variability in the time series within one-year periods. Seasonal commodities are best examples for seasonal components. Random variations in times series is represented by the irregular component. The irregular component of the time series cannot be predicted in advance. The random variations in the time series are caused by short-term, unanticipated and nonrecurring factors that affect the time series.

            Smoothing methods (stable series) are appropriate when a time series displays no significant effects of trend, cyclical, or seasonal components. In such a case, the goal is to smooth out the irregular component of the time series by using an averaging process. The moving averages method is the most widely used smoothing technique. In this method, the forecast is the average of the last “x” number of observations, where “x” is some suitable number. Suppose a forecaster wants to generate three-period moving averages. In the three-period example, the moving averages method would use the average of the most recent three observations of data in the time series as the forecast for the next period. This forecasted value for the next period, in conjunction with the last two observations of the historical time series, would yield an average that can be used as the forecast for the second period in the future. The calculation of a three-period moving average is illustrated in following table. Based on the three-period moving averages, the forecast may predict that 2.55 million new homes are most likely to be sold in the US in year 2008.

Year Actual sale(in million) Forecast(in million) Calculation
2003 4    
2004 3    
2005 2    
2006 1.5 3 (4+3+2)/3
2007 1 2.67 (3+2+3)/3
2008   2.55 (2+3+2.67)/3

Example: Three-period moving averages

In calculating moving averages to generate forecasts, the forecaster may experiment with different-length moving averages. The forecaster will choose the length that yields the highest accuracy for the forecasts generated. Weighted moving averages method is a variant of moving average approach. In the moving averages method, each observation of data receives the same weight. In the weighted moving averages method, different weights are assigned to the observations on data that are used in calculating the moving averages. Suppose, once again, that a forecaster wants to generate three-period moving averages. Under the weighted moving averages method, the three data points would receive different weights before the average is calculated. Generally, the most recent observation receives the maximum weight, with the weight assigned decreasing for older data values.

Year Actual sale(in million) Forecast(in million) Calculation
2005 2 (.2)    
2006 1.5 (.3)    
2007 1 (.4)    
2008   .42 (2*.2+1.5*.3+1*.4)/3

Example: Weighted three-period moving averages method

A more complex form of weighted moving average is exponential smoothing. I this method the weight fall off exponentially as the data ages. Exponential smoothing takes the previous period’s forecast and adjusts it by a predetermined smoothing constant, ά (called alpha; the value for alpha is less than one) multiplied by the difference in the previous forecast and the demand that actually occurred during the previously forecasted period (called forecast error). Exponential smoothing is mathematically represented as follows: New forecast = previous forecast + alpha (actual demand − previous forecast) Or can be formulated as  F = F + ά(D − F)

         Other time-series forecasting methods are, forecasting using trend projection, forecasting using trend and seasonal components and causal method of forecasting. Trend projection method used the underlying long-term trend of time series of data to forecast its future values. Trend and seasonal components method uses seasonal component of a time series in addition to the trend component. Causal methods use the cause-and-effect relationship between the variable whose future values are being forecasted and other related variables or factors. The widely known causal method is called regression analysis, a statistical technique used to develop a mathematical model showing how a set of variables is related. This mathematical relationship can be used to generate forecasts. There are more complex time-series techniques as well, such as ARIMA and Box-Jenkins models. These are heavier duty statistical routines that can cope with data with trends and the seasonality in them.

         Time series models are used in Finance to forecast stock’s performance or interest rate forecast, used in forecasting weather. Time-series methods are probably the simplest methods to deploy and can be quite accurate, particularly over the short term. Various computer software programs are available to find solution using time-series methods.  

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