CHAPTER 5

MANAGEMENT
STUDY
NATURE AND CONCEPT
An assessment of a business project.
A major component of a project feasibility that
has sequential and procedural implications to the
whole process.
Presented after the financial study was
conducted ahead of it.
NATURE AND CONCEPT
The term “Management” in this section refers to
the scientific and procedural contributions of
human resources towards the accomplishment of
the proposed business endeavor.
This section determines the human resource
requirements of the project.
NATURE AND CONCEPT

There must be a group of individuals

with different skills, attributes and
specializations but with common
objectives, desires, and intentions
working together for the success of the
proposed project.
BASIC AIM OF MANAGEMENT
STUDY

The Feasibility of the technical aspect is

tested by determining wether the cash
generated from the proposed project will
provide higher rate of the return on
investment against the minimum required
rate of return .
BASIC AIM OF MANAGEMENT STUDY

 Basically ,The management study aims to

determine the most appropriate type of
business organization ,in terms of
formation and structure, that will
effectively accomplish the objectives of the
business.
BASIC AIM OF MANAGEMENT STUDY

Therefore, The proponent should categorically

include in the conclusion a recommendation
as to what type of business organization
should be established.
 PROCEDURAL IN
CONDUCTING A
MANAGEMENT STUDY
Following are the basic steps in the conduct of a
management study:

1. Selecting the kind of business organization

2. Designing the internal structure

3. Staffing for the internal structure

4. Computing total salaries, compensation, and
fringe benefits

5. Preparing a time table

The different section of the management study

are designed according to these steps.
BUSINESS ORGANIZATION

 This is the first section of the

management study which aims to answer
the fundamental questions:

What type of business organization must be

formed to carry out effectively the objectives of
the proposed project?
There are three types of business organization.
These are

1. Sole proprietorship;

2. Partnership; and

3. Corporation.
The selection of the type of business
organization must have a logical basis
and not merely based on the whim and
caprices of the proponent.
Factors Affecting the Choice of Business
Organization

Several factors affect the choice of business

organization that is best fitted to the proposed
project. These are

1. Capital requirement

2. Liability of owner or owners

3. Managerial skills needed

4. Ease of information

5. Taxation implication

6. Government intervention

7. Nature of business

8. External financing
CAPITAL REQUIREMENTS
 The capital requirements to start the
business may come directly from fresh
cash infusion of the owners, or may be
sourced from creditors, particularly
financial institutions. The amount of
capital needed should be enough to cover
the infrastructure requirements and the
scale of operations.
The capital requirements of a sole
proprietorship and partnership is
usually less compared to that of a
corporation. In other words, a
corporate entity should be formed if a
huge capital base is required.
LIABILITY OF OWNER OR OWNERS
 The liability of the owner or owners may
either be limited or unlimited. Limited
liability means that the owner is liable only to
the to the extent of his capital contributions;
while unlimited liability implies that
creditors may run after the personal
properties of the owner in case the business
cannot fully settle its financial obligations.
 The underlying element in liability is the
degree of risk exposure. In case the business
operation involves more risk life banks and
other financial intermediaries, a corporate
form of business organization is suited to be
established.
MANAGERIAL SKILLS
 Since sole proprietorship and
partnership need only small capital
requirements, the operation is usually
simple. In most instance, one person
with managerial skills is employed to
handle the daily operating activities of
the business.
 However, if the operation of the business is
highly complicated and covers a wider
market, there is a need to hire several
managers to run the day-to-day operation of
various departments. This also requires the
creation of a corporation.
EASE OF FORMATION
 Sole proprietorship and partnership are
easily formed, and do not require the
preparation of documentary papers. These
business types are not usually registered
with the securities and exchange
commission (SEC).
The formation of a corporate entity, however,
requires the services of a legal counsel and a
certified public accountant. The business
acquires its legal personality after complying
with all the legal requirements and formalities.
 TAX IMPLICATION
 The tax liability of a sole proprietorship is
computed using the scheduled tax rates, and the
amount is usually lower compared to that of a
partnership and a corporation. The owner of the
business includes the income realized from the
business in the computation of his or her gross
income.
On the other hand, partnerships and corporations
are presently taxed at the rate of 30 percent
based on the computed net taxable income or at
two percent of the gross income, whichever is
higher. The tax liability of business partnerships
and corporations is usually higher than that of a
sole proprietorship.
GOVERNEMENT INTERVENTION
 The government usually imposes greater and
wider control on corporations. Various
government agencies closely monitor the
operations of corporations and they impose
more stringent measures to be complied with.
Sole proprietorships usually comply with the
local government reportorial and legal
requirements. Less intervention is imposed by
the national government.
NATURE OF BUSINESS
 Merchandising and service entities usually do not
have complicated operations. They carry routine
activities all throughout the year. Sole
proprietorship and partnership are highly
advisable for these kinds of business.
For example, a convenience department store
that offers a 24-hour service to customers is a
merchandising business. The operations of
buying and selling products are performed
throughout the year, and the process is simple.
There is no conversion of raw materials to
finished goods.
A manufacturing business, on the other hand,
usually requires high capital base and the nature
of operation is more complicated than those of
merchandising and service entities. It would be
appropriate to establish this kind of business in
corporate form.
Take for example, San Miguel Corporation. Its
business is capital intensive and the
manufacturing process is complicated. Products
are converted from raw materials to finished
goods.
EXTERNAL FINANCING
 Financial institutions like banks usually
favor the granting of credit to corporations
rather than to sole proprietorship and
partnership. In other words, corporate
entities can easily seek external funding
from outside sources should they need
additional working capital, as against sole
proprietorship and partnership.
In describing the different types of
business organization, the proponent
should put emphasiso n the benefits that
may be derived from each type and then
recommend the type suitable to the
proposed project.
However, a mere listing of the advantages and
disadvantages of the recommended business
organization may not be too attractive to the
prospective investors. Rather, a short and vivid
description of the viability of the project may
entice the investor to consider the proposal.
NTERNAL ORGANIZATIONAL STRUCTURE
 The design of the internal structure of the
business usually follows once the type of
business organization has been chosen.
Impliedly, the internal organizational
structure of the business cannot be
defined unless the type of business
organization has been chosen.
This section answers the basic question:

What is the best internal organizational

structure to be adopted to achieve the goals and
objectives of the organization?
The internal organizational structure serves as the
framework that outlines the communication process
between employees and departments, and defines the
responsibilities and functions of each employee in
the organization.
The primary factor affecting the design of the
internal organizational structure is the size of the
business. The type of product that the business
sells may also influence the design of the
internal organizational structure.
The internal organizational structure may either be a

1. flat structure;

2. department-focused structure; or

3. product-focused structure.
FLAT STRUCTURE
 is highly advisable for sole proprietorships and
partnerships where there are only a few
personnel. Usually, there are only two or three
levels of reporting in this configuration of
employees. The simple structure is
advantageous because it hastens the decision
making process by empowering the employees
to formulate decisions.
A flat organization has a broader pyramid
structure designed to make employees more
productive. Since there are few levels of
management, bureaucracy is minimized,
productivity is increased, and lesser
management budget is required.
DEPARTMENT-FOCUSED STRUCTURE
 is applicable to corporate entities where the work to
accomplish the product is broken down into
different functions. The prevalent functional areas of
the business are operation, marketing, finance, and
human resources. This type of internal structure is
highly advisable to be adopted by a corporation that
values teamwork in the attainment of its objectives
and goals.
There are several levels of management in a
department-focused structure. For example, there
is a Vice-president for operations in the head
office of the business under whom are directors
for Mindanao operation, Visayas operation, and
Luzon operation.
Under the Director for Mindanao operation,
there are key personnel lined up in a horizontal
structure. The concept of teamwork is the
thread that ties up every individual within the
department. This is the philosophical value
cherished by a department-focused structure.
PRODUCT-FOCUSED STRUCTURE
 gives importance to the product that the
business offers. All efforts are joined together
to deliver quality products or services to
customers. Enhancement of product quality is
the primary concern of a product-focused
structure.
A product-focused structure is often adopted
by huge retail corporate stores in corporate
form with very strong leadership teams
across several functional areas.
In huge retail stores, for example, there is a
vice-president for apparel, vice-president for
household wares, or vice-president for
mechanical accessories. Under the vice-
president for apparel are directors and other
key personnel lined up in a horizontal
structure.
Once the internal structure of the organization has
been clearly outlined, the proponent then prepares
the organizational chart.
ORGANIZATIONAL CHART
 An organizational chart is a diagram of the
structure of the organization which shows
the positions, ranks, and relationships of the
employees in the organization. It likewise
identifies the positions that execute line or
staff functions.
At a glance, the organizational structure
should depict the formal relationship among
employees. It is presently considered as the
best formal arrangement of employees that
would meet the objectives of the
organization.
In case, however, that there is an expected change in the
structure after two or three years based on the expected
external events in the business community, the
proponent is required to present the new organizational
chart. An organizational chart is not static. It is
restructured in response to the changing conditions and
opportunities both in the local and international
markets.
A simple organizational chart may not need a
brief description, especially if the flow of
reporting can easily be identified. However, a
concise but complete description is required if
the organizational chart is complicated to erase
doubts and possible queries from the reader.
STAFFING REQUIREMENTS
 The staffing of the internal structure is a
management function that usually involves
1. determining the appropriate number of
employees required by the organization; 2.
employees who qualify for the position
based on education, knowledge, training,
experience, skills, and abilities; and 3.
deploying and retaining employees.
Based on the proposed internal structure of the
business that defines the different positions, the
proponent next determines the required number
of employees and defines the minimum
qualification standards for the positions.
The staffing process, therefore, should seek
answers to the following questions:
1. How many employees are needed for the position?
2. How many workers are required in the department
or section?
3. What is the educational requirement for the
position?
4. Does the position require previous work experience?
5. What are the functions of the positions?
6. What are expected outcomes from the position?
COMPUTATION OF SALARIES,
COMPENSATION, AND FRINGE
BENEFITS
Once the staffing process has been accomplished,
the schedules of salaries, wages, allowance, and
other fringe benefits of employees is a very
sensitive issue that must be critically evaluated and
studied, An attractive compensation package may
lure highly-qualified workers to the position while
low salaries will discourage them from joining
business.
In formulating the level of compensation, allowances, and other
fringe benefits, the proponent should consider the following:

1.The amount legally provided in the Labor Code

2.The statutory minimum wage in the regions as stipulated
by the regional Tripartite Wage and Productivity Board
3.The prevailing practice in the industry
4.The demands of the position based on expertise,
qualification, and work experience
5.The technical requirements of the work to be performed
This section, therefore, should provide
definite answer to the following question
1. How much is the salary for the position?
2. What benefits should be added to the
position?
3. Is the position entitled to representation and
travelling allowance (RATA)?
4. Will the compensation package create
imbalance or distortion among employees?
The grouping of salary schedule may be
presented in the following schemes:
1. By functional unit (marketing, operations, finance)
2. By rank (key personnel, rank-and-file)
3. By tenure (permanent, contractual or casual)

Data from the management study should be forwarded

to the financial study, particularly those covering the
computation of labor cost and salary expenses.
PROJECT SCHEDULE
The project is usually the last section of management
study. The proponent is advised to work closely with
a quantitative analyst or operation science specialist.
A project schedule defines time frame from the pre-
operating phase of the proposed project and the
different activities carried out within that time frame.
It is a planning toot that
1. Identifies the activities or task during the project
implementation;
2. Determine the required resources (materials,
technology, and personnel) to complete the task.
3. Describe the work to be accomplished within
particular time frame; and
4. Determine the date to start the project and the
expected date completion.
The two widely-used techniques in scheduling the various
interrelated activities in project implementation are the

1. Gantt and
2. The PERT/CPM model.