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PRINCIPLES & PRACTICE OF MANAGEMENT

 

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1. a) What are the steps involved in planning?

b) How you make planning effective?

2. What is the difference between a policy and a procedure?

3. Explain the advantages and limitations of planning.

4. Explain the strategic planning in the Indian industry. Which are the

planning skills required for better business.

5. a) Define a decision making?

b) Explain common difficulties in decision-making.

6. a) Decision-making is a key part of a manager’s activities. –

Elaborate.

b) What are the steps involved in rational decision-making.

7. a) Explain the individual and group decision-making.

b) Describe advantages and disadvantages of group decisions.

8. a) Draw models of decision-making? b) Explain any two.

 

 

 

 

 

 

 

STRATEGIC MANAGEMENT

N. B.: 1) Answer any Eight

 

 

1. Define strategic intent, vision and mission. Write major components of a

mission statement. How do you define corporate objectives? Distinguish

between purpose, mission, long-term objectives and goals.

2. Discuss the roles of the following in corporate governance.

a) Top management

b) Audit Committees

c) Statutory Auditors

What are the recent trends in corporate governance?

3. The organizational resources and behavior exercise a significant

influence on the environment of an organization. Illustrate how

strengths and weaknesses create synergistic effects.

4. Define strategic management and bring out the main elements of

strategic management. Explain with appropriate diagram the strategic

management model and its major components.

5. Discuss the global challenge facing Indian firms. Explain important

techniques for environmental analysis.

6. What are generic Strategies? Discuss the reasons for adopting stability

and expansion strategies.

7. What do you understand by industry environment? Discuss main

components of industry environment.

 

2

 

8. Discuss the nature and significance of strategic evaluation. Bring out the

role different participants play in strategic evaluation. Discuss different

types of obstacles faced in strategic evaluation. Explain premise control

and strategic surveillance.

9. What role an organizational structure plays in the implementation of

strategy of a firm. Explain the interrelationship of strategy and

structure. Distinguish between vertical and horizontal differentiation.

10. Explain Cost leadership strategy, its strategic choices, and advantages

and disadvantages of cost leadership. Define Differentiation Strategy.

Discuss is advantages and disadvantages.

 

 

 

 

 

QUANTITATIVE METHODS
N. B.: 1) Answer any Sixteen
1. What is a linear programming problem? Discuss the scope and role of linear
programming in solving management problems. Discuss and describe the role
of linear programming in managerial decision-making bringing out
limitations, if any.
2. Explain the concept and computational steps of the simplex method for solving
linear programming problems. How would you identify whether an optimal
solution to a problem obtained using simplex algorithm is unique or not?
a) What is the difference between a feasible solution, a basic feasible
solution, and an optimal solution of a linear programming problem?
b) What is the difference between simplex solution procedure for a
`maximization’ and a `minimization’ problem?
c) Using the concept of net contribution, provide an intuitive explanation
of why the criterion for optimality for maximization problem is different
from that of minimization problems.
Outline the steps involved in the simplex algorithm for solving a linear
programming maximization problem. Also define the technical terms used
therein.
3. ``Linear programming is one of the most frequently and successfully employed
Operations Research techniques to managerial and business decisions.’’
Elucidate this statement with some examples.
…2…
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…2…
4. Describe the transporation problem and give its mathematical model. Explain,
by taking an illustration, the North-West Corner Rule, the Least Cost Method
and the Vogel’s Approximation Method to obtain the initial feasible solution to
a transportation problem.
Discuss the various methods of finding initial feasible solution of a
transportation problem and state the advantages, disadvantages, and areas of
application for them.
5. What is an assignment problem? It is true to say that it is a special case of the
transportation problem? Explain. How can you formulate an assignment
problem as a standard linear programming problem? Illustrate. What do you
understand by an assignment problem? Give a brief outline for solving it.
6. What are different types of inventories? Explain. What functions does
inventory perform? State the two basic inventory decisions management must
make as they attempt to accomplish the functions of inventory just described
by you.
7. What is queuing theory? What type of questions are sought to be answered in
analyzing a queuing system? Give a general structure of the queuing system
and explain. Illustrate some queuing situations. What is queuing theory? In
what types of problem situations can it be applied successfully? Discuss giving
examples.
8. What is a replacement problem? Describe some important replacement
situations and policies. Briefly explain the costs which are relevant to
decisions for replacement of depreciable assets. Illustrate their behaviour and
explain how the optimal time for replacement of an asset can be determined.
…3…
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9. What kinds of decision-making situations may be analysed using PERT and
CPM techniques? State the major similarities between PERT and CPM. Under
what circumstances is CPM a better technique of project management than
PERT? A construction company has received a contract to build an office
complex. It has frequently engaged itself in constructing such buildings.
Which of the two network techniques, PERT and CPM, should in your opinion,
be employed by the company? Why?
10. Describe the steps involved in the process of decision making. What are payoff
and regret functions? How can entries in a regret table be derived from a
pay-off table?
11. What do you understand by Markov processes? In what areas of management
can they be applied successfully? What do you understand by transition
probabilities? Is the assumption of stationary transition probabilities realistic,
in your opinion? Why or why not?
12. Explain how the probability tree helps to understand the problem of Markov
processes. Explain the method of calculation of ending up in each absorbing
state when a chain beings in a particular transient state. What is
fundamental matrix of Markov chains? What does it calculate?
13. What is simulation? Describe the simulation process. State the major two
reasons for using simulation to solve a problem. What are the advantages and
limitations of simulation? ``When it becomes difficult to use an optimization
technique for solving a problem, one has to resort to simulation’’. Discuss.
``Simulation is typically the process of carrying out sampling experiments on
the models of the system rather than the system itself.’’ Elucidate this
statement by taking some examples.
…4…
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14. A company has three offers for its existing equipment in one of the divisions.
The first buyer is willing to pay Rs. 50,000 at the end of 8 years’ period. The
second buyer offers Rs. 39,000—consisting of an immediate payment of Rs.
14,000 and Rs. 25,000 after 6 years. The third buyer agrees to buy the
equipment for Rs. 29,000 payable right away. Which is the best offer for the
company if it can earn an interest @ 8% per annum on the money received?
15. What is the difference between qualitative and quantitative techniques of
forecasting. When is a qualitative model appropriate? Briefly discuss the
Delphi method of making forecasts.
16. a) How do you distinguish between resource leveling and resource
allocation problems? State and explain an algorithm for resource
allocation.
b) Explain the following as they are used in PERT/CPM
(i) Beta distribution, and (ii) Budget over-run.
…5…
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17. The following table gives data on normal time and cost, and crash time and
cost for a project.
`Duration (Weeks) Total Cost (Rs)
Activity
Normal Crash Normal Crash
1 – 2 3 2 300 450
2 – 3 3 3 75 75
2 – 4 5 3 200 300
2 – 5 4 4 120 120
3 – 4 4 1 100 190
4 – 6 3 2 90 130
5 – 6 3 1 60 110
i) Draw the network and find out the critical path and the normal project
duration.
ii) Find out the total float associated with each activity.
iii) If the indirect costs are Rs. 100 per week, find out the optimum duration by
crashing and the corresponding project costs.
iv) With the crash duration indicated, what would be the minimum crash
duration possible, ignoring indirect costs?
18. What is a `game’ in game theory? What are the properties of a game? Explain
the ``best strategy’’ on the basis of minimax criterion of optimality. Describe
the maximin and minimax principles of game theory.
…6…
…6…
19. Explain the steps involved in solution to dynamic programming problems.
Explain the following in the context of dynamic programming:
(a) Stages
(b) States
(c) Pay-off function
(d) Recursive relationship
20. A political campaign for election to the parliament is entering its final stage
and pre-poll surveys are medicating a very close contest in a certain
constituency. One of the candidates in the constituency has sufficient funds to
give five full-page advertisements in four different areas. Based on the polling
information, an estimate has been made of the approximate number (in
thousands) of additional votes that can be polled in different areas. This is
shown below.
No. of Area
Commercial Ads A B C D
0
0
0
0
0
1 9 13 11 7
2 15 17 1 15
3 1 21 23 25
4 25 23 21 29
5 31 25 27 33
Using dynamic programming, determine how the five commercial ads be
distributed between the four areas so as to maximize the estimated number of
votes.

 

 

 

MARKETING MANAGEMENT

 

Total Marks—80

 

 

Q.1) Define term “Marketing Management” discuss the elements of Market Environment? (10 Marks)

Q.2) Define the term Product Management? Explain how New Product Decisions are made? (10 Marks)

Q.3) What is Customer relationship Management Explain its feature and nature? (10Marks)

Q. 4) Explain the nature and feature of Marketing research and Information Systems? (10 Marks)

Q.5) What is Market Measurement and Forecasting? (10 Marks)

Q6) What is Segmenting and Targeting the Market? (10 Marks)

Q7) What is Advertising Management? Explain the concept of Sales Promotion and Personal Selling?

 

 

 

(10 Marks)

 

 

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Q8) Write a short note (any two) (10Marks)

a) Brand Equity

b) Global Marketing

c) Direct Marketing

d) Pricing decisions

 

 

 

 

INTERNATIONAL BUSINESS

 

 

Total Marks : 80

 

PART A —(10 MARKS EACH)

 

Answer any FIVE questions.

1) What is meant by Technology? What is its influence on business?

2) What are the functions of WTO?

3) What is international business environment?

4) How cultural factors do influences international business?

5) State the importance of business ethics.

6) What are the different dimensions of economic environment?

7) What are the steps taken by government to improve FDI?

8) What are the functions of UNO?

PART B — (15marks EACH)

 

Answer any 2 questions.

1) Foreign investment is necessary aid for developing countries like India” – Discuss.

2) Discuss in detail the environmental factors that affect a business.

3) What is privatization? What are its merits and limitations?

4) What are the role and functions of WTO in international relations?

5) ‘The changes taking place in socio-cultural environment in India is a boon for business’ –

Discuss. Explain the challenges of globalization of Indian industries.

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6) Describe the factors which are affecting the growth of International business.

 

 

 

HUMAN RESOURCE MANAGEMENT

Total Marks—80

 

Q.1. Elaborate on the system of HR Planning. Outline the steps to be undertaken by

organizations to effectively engage in HR Planning.

Q.2. Discuss the various ways in which the commitment of errors in performance

appraisal can be minimized.

Q.3. The nature and scope of the Human Resource Management Systems keeps on

evolving with the changes in the external and internal environments of

organizations. Elaborate on the same. { marks : 20 }

Q.4. what are some of the traditional and current sources of recruitment used by

organizations? What are their pros and cons?

Q.5. How does HRM enable organizations to adapt to the dynamic changes in the

environment? Illustrate with examples.

Q.6. As an HR executive, how would you go about devising HRIS for a mid – sized

organization?

Q 7 . Discuss the various principles and purposes of promotion and types and purpose of

transfers.

AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B- SCHOOL


HUMAN RESOURCE MANAGEMENT
Total Marks—80
1. Figures to the right indicate the marks assigned to each Case Study.
2. All questions carry equal marks
3. Read the case studies carefully and then attempt the questions.
Case –1 ( 20 Marks)
The reality of software development is a huge company like Microsoft-it employs more than
48,000 people- is that a substantial portion of your work involves days of boredom punctuated by
hours of tedium. You basically spend your time in an isolated office writing code and sitting in
meetings during which you participate in looking for and evaluating hundreds of current employees
and potential employees. Microsoft has no problem in finding and retaining software programmers.
Their programmers work for very long hours and obsess on the goal of shipping product.
From the day new employees begin at Microsoft, they know they are special. New hires all
have one thing in common-they are smart. The company prides itself on putting all recruits through a
grueling “interviewing loop”, during which they confront a barrage (an overwhelming number of
questions or complaints) of brain-teasers by future colleagues to see how well they think. Only the
best and the brightest survive to become employees. The company does this because Microsofties
truly believe that their company is special. For example, it has high tolerance for non-conformity,
would you believe that one software tester comes to work everyday dressed in extravagant Victorian
outfits? . But the underlying theme that unites Microsofties is the belief that the firm has a manifest
destiny to change the world.
The least important decision as programmer can have a large importance which it can affect a
new release that might be used by 50 million people. Microsoft employees are famous for putting in
long hours. One program Manager said “In my First Five Years, I was the Microsoft stereotype.
I lived on caffeine and vending-machine hamburgers and free beer and 20-hour work-days……I
had no life…..I considered everything outside the building as a necessary evil”. More recently things
have changed. There are still a number of people who put in 80-hour weeks, but 60 and 70 hour
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
weeks are more typical and some even are doing their jobs in only 40 hours.
No discussion of the employee life at Microsoft would be complete without mentioning the
company’s lucrative stock option program. Microsoft created more millionaire employees, faster,
than any company in American history-more than 10,000 by the late – 1990’s while the company is
certainly more than a place to get rich, executive still realize that money matters. One former
Manager claims that the human resources’ department actually kept a running chart of employee
satisfaction versus the company’s stock price. “When the stock was up, human resources could turn
off the ventilation and everybody would say they were happy. When the stock was down, we could
give people Massages and they would tell us that the Massages were too hard.” In the go-go 1990’s,
when the Microsoft stock was doubling every few months and yearly stock splits were predictable,
employees not only got to participate in the Microsoft’s manifest destiny, they would get rich in the
process. By the spring of 2002, with the world in a recession, stock prices down, and the growth for
Microsoft products slowing, it wasn’t so clear what was driving its employees to continue the
company’s dominance of the software industry.
Questions
1. If you were the programmer, would you want to work at Microsoft? Why or Why not?
2. How many activities in this case can you tie into specific motivation theories? List the
activities; list the motivation theories, and how they apply.
3. As Microsoft continues to get larger and its growth rate flattens do you think Management
will have to modify any of its motivation practices? Elaborate.
4. Can money act as a motivator? Explain.
Case-2 (20Marks)
Merlyn Monroe is not a complainer. If she has a major ache, she usually suffers in silence.
Although her employer, Atlantic Mutual Insurance, has an employee assistance program- to provide
emotional and psychological support in the work plan. She certainly never thinks of using it, even if
she did have a worry on her mind. “They say its confidential but who really knows? Asked Ms.
Monroe’, an administrative assistant at the insurance company.
But Merlyn Monroe’s life changed on September 11, 2001. Her office at 140 Broadway in New
York City, was near the world trade Center. She watched the whole thing from her 50th Floor office
window.
Ms.Monroe had never seen so much destruction in her life. She had never seen such a horrific
terrorist attack. Nor had she forced her to relieve 9/11 over and over.
Everything she talked to people they wanted details, which made it worse for her. She had so
much anger about what had happened to her life and lives of so many people and the city where she
worked for 40 Years.
Two weeks after 9/11, Ms.Monroe was still suffering after effects. Even though she lives on state
Island and Atlantic Mutual’s offices have been temporarily relocated to Madison, New Jersey, not an
hour goes by when she doesn’t have flashbacks of her experiences of 9/11.
Questions
1. What should Atlantic Mutual Management do, if anything, to cope with the aftereffects of
9/11?
2. How long would You expect employees to be adversely affected by 9/11 if a company
provides no formal assistance for dealing with anger and stress?
3. What, if anything, should Management do about employees who appear to be suffering from
such kind or trauma and stress, but will neither admit it nor accept help from their employee?
4. Outline the role of HR specialist in providing a safe and healthy environment for employees.
Case – 3 (20 Marks)
Patil, RK Materials, is very angry, anxious and restless. He bumped into Mehta, RK Materials,
threw the resignation letter on his table, screamed and walked out of the room swiftly.
Patil has a reason for his sudden outburst. Details of the story will tell the reasons for Patil’s
anger and why he put his resignation, only four months after he took up his job.
In the year 2000 Patil quit his prestigious Mittal plant at Vishakhapatnam. As a manager
Materials, Patil had various powers like he could even place an order of materials worth Rs.50 Lakhs.
He required nobody’s prior consent.
Patil Joined a pulp-making plant located at Kerala, as RK Materials. The plant is part of a multiproduct
and multi-plant conglomerate owned by a prestigious business house in India. The perks,
reputation and designation of the conglomerate attracted Patil away from the public sector steel
monolith.
When he joined the eucalyptus pulp making company, little did Patil realize that he needed prior
approval to place an order for materials worth Rs.25lakh. He thought that he had the authority to
place an order for materials by himself worth half the amount of what he used to as at the Mega Steel
maker. He placed the order, materials arrived, were received, accepted and used up in the plant.
Trouble started when the bill for Rs.25 lakh came from the vendor. The accounts department
withheld the payment for the reason that the bill was not endorsed by Mehta. Mehta refused to sign
on the bill as his approval was not taken by Patil before placing the order.
Patil felt very angry and cheated. A brief encounter with Mehta only made the situation worse.
Patil was rudely told that he should have known company rules before venturing. He decided to Quit.
Questions
1. Do you think the company has any orientation programme? If yes, discuss its effectiveness.
2. If employees were properly selected, there should be no need for an orientation programme”.
Comment on the statement.
3. If You were Patil, how would you react to the above situation?
4. Discuss the purpose of orientation. What are various requisites of an effective programme?
Case-4 (20Marks)
ABC Tool Engineering is a company producing machinery and machine tools and some other
related engineering products for specialist production companies. It’s workforce consists of 1000
employees, two-thirds of which work in the production department. In 2000, the Management
decided to introduce a total quality Management Scheme to increase efficiency and quality control.
Throughout the 1990’s, more flexible arrangements had been introduced together with a breakdown
of old work demarcation lines. Machines were now built by flexible teams of workers employing
different skills like fitters, electricians, hydraulic engineers, etc. In 2000, the initiatives towards TQM
were made with the introduction of BS 1110. Workers were asked to inspect the quality of their work
which resulted in reduction of the need for specialist inspectors and both time and money were saved.
Agreements were negotiated with the union for extra pay as a result of the increase in worker
responsibility. In 2001, the Management decided to introduce a full-blown Total-quality Management
Scheme on the basis of the success with the introduction of BS 1110. Problem solving groups were
formed based on work groups with voluntary participation. Group leaders, who were mainly
supervisors, were trained is how to run a group and in problem-solving techniques. The aims of the
groups were
1. Identifying problems inside their work area.
2. Propose solutions
3. Identifying problems outside their work area
4. Refer external problems to a review team.
The review team consisted of Managers with one representative from each group, usually the
group leader. The unions were lukewarm to the scheme and some shop stewards were directly against
it. Within a period of 9 Months, the Total quality Management Scheme was reviewed and the senior
Management came to the conclusion that it had not lived up to expectations, and few board members
called it a failure. Some reason s they had identified were that team leaders had felt uncomfortable in
their roles and there has been a lot of skepticism from some of the workers.
Questions
1. According to You, why did the Bs1110 Scheme succeed and the TQM Scheme failed in ABC
engineering? Define the term “workers” participation in management. Bring out the
prerequisites for its success.
2. Explain in your own words what empowerment means to You. Also discuss “A worker is a
worker, a Manager a Manager and never the two shall meet.” Do You agree? Why?
3. What suggestions would You give to a similar company who were thinking of introducing
Total Quality Management to make it a success?
.


 FINANCIAL MANAGEMENT
Attempt any Four cases cases carries equal marks.
NO. 1
ZIP ZAP ZOOM CAR COMPANY
Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15
years back and since its establishment it has seen a phenomenal growth in both its market and profitability.
Its financial statements are shown in Exhibits 1 and 2 respectively.
The company enjoys the confidence of its shareholders who have been rewarded with growing
dividends year after year. Last year, the company had announced 20 per cent dividend, which was the
highest in the automobile sector. The company has never defaulted on its loan payments and enjoys a
favourable face with its lenders, which include financial institutions, commercial banks and debenture
holders.
The competition in the car industry has increased in the past few years and the company foresees
further intensification of competition with the entry of several foreign car manufactures many of them being
market leaders in their respective countries. The small car segment especially, will witness entry of foreign
majors in the near future, with latest technology being offered to the Indian customer. The Zip Zap Zoom¡¦s
senior management realizes the need for large scale investment in up gradation of technology and
improvement of manufacturing facilities to pre-empt competition.
Whereas on the one hand, the competition in the car industry has been intensifying, on the other
hand, there has been a slowdown in the Indian economy, which has not only reduced the demand for cars,
but has also led to adoption of price cutting strategies by various car manufactures. The industry indicators
predict that the economy is gradually slipping into recession.
Exhibit 1 Balance sheet as at March 31,200 x
(Amount in Rs. Crore)
Source of Funds
Share capital 350
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
Reserves and surplus 250 600
Loans :
Debentures (@ 14%) 50
Institutional borrowing (@ 10%) 100
Commercial loans (@ 12%) 250
Total debt 400
Current liabilities 200
1,200
Application of Funds
Fixed Assets
Gross block 1,000
Less : Depreciation 250
Net block 750
Capital WIP 190
Total Fixed Assets 940
Current assets :
Inventory 200
Sundry debtors 40
Cash and bank balance 10
Other current assets 10
Total current assets 260
-1200
Exhibit 2 Profit and Loss Account for the year ended March 31, 200x
(Amount in Rs. Crore)
Sales revenue (80,000 units x Rs. 2,50,000) 2,000.0
Operating expenditure :
Variable cost :
Raw material and manufacturing expenses 1,300.0
Variable overheads 100.0
Total 1,400.0
Fixed cost :
R & D 20.0
Marketing and advertising 25.0
Depreciation 250.0
Personnel 70.0
Total 365.0
Total operating expenditure 1,765.0
Operating profits (EBIT) 235.0
Financial expense :
Interest on debentures 7.7
Interest on institutional borrowings 11.0
Interest on commercial loan 33.0 51.7
Earnings before tax (EBT) 183.3
Tax (@ 35%) 64.2
Earnings after tax (EAT) 119.1
Dividends 70.0
Debt redemption (sinking fund obligation)** 40.0
Contribution to reserves and surplus 9.1
* Includes the cost of inventory and work in process (W.P) which is dependent on demand (sales).
** The loans have to be retired in the next ten years and the firm redeems Rs. 40 crore every year.
The company is faced with the problem of deciding how much to invest in up gradation of its plans
and technology. Capital investment up to a maximum of Rs. 100 crore is required. The problem
areas are three-fold.
„h The company cannot forgo the capital investment as that could lead to reduction in its market share
as technological competence in this industry is a must and customers would shift to manufactures
providing latest in car technology.
„h The company does not want to issue new equity shares and its retained earning are not enough for
such a large investment. Thus, the only option is raising debt.
„h The company wants to limit its additional debt to a level that it can service without taking undue
risks. With the looming recession and uncertain market conditions, the company perceives that
additional fixed obligations could become a cause of financial distress, and thus, wants to determine
its additional debt capacity to meet the investment requirements.
Mr. Shortsighted, the company¡¦s Finance Manager, is given the task of determining the additional debt
that the firm can raise. He thinks that the firm can raise Rs. 100 crore worth debt and service it even in years
of recession. The company can raise debt at 15 per cent from a financial institution. While working out the
debt capacity. Mr. Shortsighted takes the following assumptions for the recession years.
a) A maximum of 10 percent reduction in sales volume will take place.
b) A maximum of 6 percent reduction in sales price of cars will take place.
Mr. Shorsighted prepares a projected income statement which is representative of the recession years.
While doing so, he determines what he thinks are the ¡§irreducible minimum¡¨ expenditures under
recessionary conditions. For him, risk of insolvency is the main concern while designing the capital
structure. To support his view, he presents the income statement as shown in Exhibit 3.
Exhibit 3 projected Profit and Loss account
(Amount in Rs. Crore)
Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0
Operating expenditure
Variable cost :
Raw material and manufacturing expenses 1,170.0
Variable overheads 90.0
Total 1,260.0
Fixed cost :
R & D ---
Marketing and advertising 15.0
Depreciation 187.5
Personnel 70.0
Total 272.5
Total operating expenditure 1,532.5
EBIT 159.5
Financial expenses :
Interest on existing Debentures 7.0
Interest on existing institutional borrowings 10.0
Interest on commercial loan 30.0
Interest on additional debt 15.0 62.0
EBT 97.5
Tax (@ 35%) 34.1
EAT 63.4
Dividends --
Debt redemption (sinking fund obligation) 50.0*
Contribution to reserves and surplus 13.4
* Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)
Assumptions of Mr. Shorsighted
„h R & D expenditure can be done away with till the economy picks up.
„h Marketing and advertising expenditure can be reduced by 40 per cent.
„h Keeping in mind the investor confidence that the company enjoys, he feels that the company can
forgo paying dividends in the recession period.
He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising
Rs. 100 crore of debt to finance the intended capital investment. Mr. Arthashatra does not feel comfortable
with the statements and calls for the company¡¦s financial analyst, Mr. Longsighted.
Mr. Longsighted carefully analyses Mr. Shortsighted¡¦s assumptions and points out that insolvency
should not be the sole criterion while determining the debt capacity of the firm. He points out the following
:
„h Apart from debt servicing, there are certain expenditures like those on R & D and marketing that
need to be continued to ensure the long-term health of the firm.
„h Certain management policies like those relating to dividend payout, send out important signals to the
investors. The Zip Zap Zoom¡¦s management has been paying regular dividends and discontinuing
this practice (even though just for the recession phase) could raise serious doubts in the investor¡¦s
mind about the health of the firm. The firm should pay at least 10 per cent dividend in the recession
years.
„h Mr. Shortsighted has used the accounting profits to determine the amount available each year for
servicing the debt obligations. This does not give the true picture. Net cash inflows should be used
to determine the amount available for servicing the debt.
„h Net Cash inflows are determined by an interplay of many variables and such a simplistic view should
not be taken while determining the cash flows in recession. It is not possible to accurately predict
the fall in any of the factors such as sales volume, sales price, marketing expenditure and so on.
Probability distribution of variation of each of the factors that affect net cash inflow should be
analyzed. From this analysis, the probability distribution of variation in net cash inflow should be
analysed (the net cash inflows follow a normal probability distribution). This will give a true picture
of how the company¡¦s cash flows will behave in recession conditions.
The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are
complex and require expenditure of time and effort to obtain and interpret. Considering the importance of
capital structure design, the Finance Director asks Mr. Longsighted to carry out his analysis. Information on
the behaviour of cash flows during the recession periods is taken into account.
The methodology undertaken is as follows :
(a) Important factors that affect cash flows (especially contraction of cash flows), like sales volume,
sales price, raw materials expenditure, and so on, are identified and the analysis is carried out in
terms of cash receipts and cash expenditures.
(b) Each factor¡¦s behaviour (variation behaviour) in adverse conditions in the past is studied and future
expectations are combined with past data, to describe limits (maximum favourable), most probable
and maximum adverse) for all the factors.
(c) Once this information is generated for all the factors affecting the cash flows, Mr. Longsighted
comes up with a range of estimates of the cash flow in future recession periods based on all possible
combinations of the several factors. He also estimates the probability of occurrence of each estimate
of cash flow.
Assuming a normal distribution of the expected behaviour, the mean expected value of net cash
inflow in adverse conditions came out to be Rs. 220.27 crore with standard deviation of Rs. 110
crore.
Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr.
Arthashastra feels that the firm should factor a risk of cash inadequacy of around 5 per cent even in the most
adverse industry conditions. Thus, the firm should take up only that amount of additional debt that it can
service 95 per cent of the times, while maintaining cash adequacy.
To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside.
Hence, the expected available net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 ¡V Rs. 35 crore) Analyse
the debt capacity of the company.
NO. 2
COOKING LPG LTD
DETERMINATION OF WORKING CAPTIAL
Introduction
Cooking LPG Ltd, Gurgaon, is a private sector firm dealing in the bottling and supply of domestic LPG for
household consumption since 1995. The firm has a network of distributors in the districts of Gurgaon and
Faridabad. The bottling plant of the firm is located on National Highway ¡V 8 (New Delhi ¡V Jaipur), approx.
12 kms from Gurgaon. The firm has been consistently performing we.¡¨ and plans to expand its market to
include the whole National Capital Region.
The production process of the plant consists of receipt of the bulk LPG through tank trucks, storage
in tanks, bottling operations and distribution to dealers. During the bottling process, the cylinders are
subjected to pressurized filling of LPG followed by quality control and safety checks such as weight,
leakage and other defects. The cylinders passing through this process are sealed and dispatched to dealers
through trucks. The supply and distribution section of the plant prepares the invoice which goes along with
the truck to the distributor.
Statement of the Problem :
Mr. I. M. Smart, DGM(Finance) of the company, was analyzing the financial performance of the company
during the current year. The various profitability ratios and parameters of the company indicated a very
satisfactory performance. Still, Mr. Smart was not fully content-specially with the management of the
working capital by the company. He could recall that during the past year, in spite of stable demand pattern,
they had to, time and again, resort to bank overdrafts due to non-availability of cash for making various
payments. He is aware that such aberrations in the finances have a cost and adversely affects the
performance of the company. However, he was unable to pinpoint the cause of the problem.
He discussed the problem with Mr. U.R. Keenkumar, the new manager (Finance). After critically
examining the details, Mr. Keenkumar realized that the working capital was hitherto estimated only as
approximation by some rule of thumb without any proper computation based on sound financial policies
and, therefore, suggested a reworking of the working capital (WC) requirement. Mr. Smart assigned the task
of determination of WC to him.
Profile of Cooking LPG Ltd.
1) Purchases : The company purchases LPG in bulk from various importers ex-Mumbai and Kandla, @
Rs. 11,000 per MT. This is transported to its Bottling Plant at Gurgaon through 15 MT capacity tank
trucks (called bullets), hired on annual contract basis. The average transportation cost per bullet exeither
location is Rs. 30,000. Normally, 2 bullets per day are received at the plant. The company
make payments for bulk supplies once in a month, resulting in average time-lag of 15 days.
2) Storage and Bottling : The bulk storage capacity at the plant is 150 MT (2 x 75 MT storage tanks)
and the plant is capable of filling 30 MT LPG in cylinders per day. The plant operates for 25 days
per month on an average. The desired level of inventory at various stages is as under.
„h LPG in bulk (tanks and pipeline quantity in the plant) ¡V three days average production / sales.
„h Filled Cylinders ¡V 2 days average sales.
„h Work-in Process inventory ¡V zero.
3) Marketing : The LPG is supplied by the company in 12 kg cylinders, invoiced @ Rs. 250 per
cylinder. The rate of applicable sales tax on the invoice is 4 per cent. A commission of Rs. 15 per
cylinder is paid to the distributor on the invoice itself. The filled cylinders are delivered on
company¡¦s expense at the distributor¡¦s godown, in exchange of equal number of empty cylinders.
The deliveries are made in truck-loads only, the capacity of each truck being 250 cylinders. The
distributors are required to pay for deliveries through bank draft. On receipt of the draft, the
cylinders are normally dispatched on the same day. However, for every truck purchased on pre-paid
basis, the company extends a credit of 7 days to the distributors on one truck-load.
4) Salaries and Wages : The following payments are made :
„h Direct labour ¡V Re. 0.75 per cylinder (Bottling expenses) ¡V paid on last day of the month.
„h Security agency ¡V Rs. 30,000 per month paid on 10th of subsequent month.
„h Administrative staff and managers ¡V Rs. 3.75 lakh per annum, paid on monthly basis on the last
working day.
5) Overheads :
„h Administrative (staff, car, communication etc) ¡V Rs. 25,000 per month ¡V paid on the 10th of
subsequent month.
„h Power (including on DG set) ¡V Rs. 1,00,000 per month paid on the 7th Subsequent month.
„h Renewal of various licenses (pollution, factory, labour CCE etc.) ¡V Rs. 15,000 per annum paid at the
beginning of the year.
„h Insurance ¡V Rs. 5,00,000 per annum to be paid at the beginning of the year.
„h Housekeeping etc ¡V Rs. 10,000 per month paid on the 10th of the subsequent month.
„h Regular maintenance of plant ¡V Rs. 50,000 per month paid on the 10th of every month to the vendors.
This includes expenditure on account of lubricants, spares and other stores.
„h Regular maintenance of cylinders (statutory testing) ¡V Rs. 5 lakh per annum ¡V paid on monthly basis
on the 15th of the subsequent month.
„h All transportation charges as per contracts ¡V paid on the 10th subsequent month.
„h Sales tax as per applicable rates is deposited on the 7th of the subsequent month.
6) Sales : Average sales are 2,500 cylinders per day during the year. However, during the winter months
(December to February), there is an incremental demand of 20 per cent.
7) Average Inventories : The average stocks maintained by the company as per its policy guidelines :
„h Consumables (caps, ceiling material, valves etc) ¡V Rs. 2 lakh. This amounts to 15 days consumption.
„h Maintenance spares ¡V Rs. 1 lakh
„h Lubricants ¡V Rs. 20,000
„h Diesel (for DG sets and fire engines) ¡V Rs. 15,000
„h Other stores (stationary, safety items) ¡V Rs. 20,000
8) Minimum cash balance including bank balance required is Rs. 5 lakh.
9) Additional Information for Calculating Incremental Working Capital During Winter.
„h No increase in any inventories take place except in the inventory of bulk LPG, which increases in the
same proportion as the increase of the demand. The actual requirements of LPG for additional
supplies are procured under the same terms and conditions from the suppliers.
„h The labour cost for additional production is paid at double the rate during wintes.
„h No changes in other administrative overheads.
„h The expenditure on power consumption during winter increased by 10 per cent. However, during
other months the power consumption remains the same as the decrease owing to reduced production
is offset by increased consumption on account of compressors /Acs.
„h Additional amount of Rs. 3 lakh is kept as cash balance to meet exigencies during winter.
„h No change in time schedules for any payables / receivables.
„h The storage of finished goods inventory is restricted to a maximum 5,000 cylinders due to statutory
requirements.
NO. 3
M/S HI-TECH ELECTRONICS
M/s. Hi ¡V tech Electronics, a consumer electronics outlet, was opened two years ago in Dwarka, New Delhi.
Hard work and personal attention shown by the proprietor, Mr. Sony, has brought success. However,
because of insufficient funds to finance credit sales, the outlet accepted only cash and bank credit cards. Mr.
Sony is now considering a new policy of offering installment sales on terms of 25 per cent down payment
and 25 per cent per month for three months as well as continuing to accept cash and bank credit cards.
Mr. Sony feels this policy will boost sales by 50 percent. All the increases in sales will be credit
sales. But to follow through a new policy, he will need a bank loan at the rate of 12 percent. The sales
projections for this year without the new policy are given in Exhibit 1.
Exhibit 1 Sales Projections and Fixed costs
Month Projected sales without instalment
option
Projected sales with instalment
option
January Rs. 6,00,000 Rs. 9,00,000
February 4,00,000 6,00,000
March 3,00,000 4,50,000
April 2,00,000 3,00,000
May 2,00,000 3,00,000
June 1,50,000 2,25,000
July 1,50,000 2,25,000
August 2,00,000 3,00,000
September 3,00,000 4,50,000
October 5,00,000 7,50,000
November 5,00,000 15,00,000
December 8,00,000 12,00,000
Total Sales 48,00,000 72,00,000
Fixed cost 2,40,000 2,40,000
He further expects 26.67 per cent of the sales to be cash, 40 per cent bank credit card sales on which a 2 per
cent fee is paid, and 33.33 per cent on instalment sales. Also, for short term seasonal requirements, the film
takes loan from chit fund to which Mr. Sony subscribes @ 1.8 per cent per month.
Their success has been due to their policy of selling at discount price. The purchase per unit is 90
per cent of selling price. The fixed costs are Rs. 20,000 per month. The proprietor believes that the new
policy will increase miscellaneous cost by Rs. 25,000.
The business being cyclical in nature, the working capital finance is done on trade ¡V off basis. The
proprietor feels that the new policy will lead to bad debts of 1 per cent.
(a) As a financial consultant, advise the proprietor whether he should go for the extension of credit
facilities.
(b) Also prepare cash budget for one year of operation of the firm, ignoring interest. The minimum
desired cash balance & Rs. 30,000, which is also the amount the firm, has on January 1. Borrowings
are possible which are made at the beginning of a month and repaid at the end when cash is
available.
NO.4
SMOOTHDRIVE TYRE LTD
Smoothdrive Tyre Ltd manufacturers tyres under the brand name ¡§Super Tread¡¦ for the domestic car market.
It is presently using 7 machines acquired 3 years ago at a cost of Rs. 15 lakh each having a useful life of 7
years, with no salvage value.
After extensive research and development, Smoothdrive Tyre Ltd has recently developed a new tyre,
the ¡¥Hyper Tread¡¦ and must decide whether to make the investments necessary to produce and market the
Hyper Tread. The Hyper Tread would be ideal for drivers doing a large amount of wet weather and off road
driving in addition to normal highway usage. The research and development costs so far total Rs.
1,00,00,000. The Hyper Tread would be put on the market beginning this year and Smoothdrive Tyrs
expects it to stay on the market for a total of three years. Test marketing costing Rs. 50,00,000, shows that
there is significant market for a Hyper Tread type tyre.
As a financial analyst at Smoothdrive Tyre, Mr. Mani asked by the Chief Financial Officer (CFO),
Mr. Tyrewala to evaluate the Hyper-Tread project and to provide a recommendation or whether or not to
proceed with the investment. He has been informed that all previous investments in the Hyper Tread project
are sunk costs are only future cash flows should be considered. Except for the initial investments, which
occur immediately, assume all cash flows occur at the year-end.
Smoothedrive Tyre must initially invest Rs. 72,00,00,000 in production equipments to make the
Hyper Tread. They would be depreciated at a rate of 25 per cent as per the written down value (WDV)
method for tax purposes. The new production equipments will allow the company to follow flexible
manufacturing technique, that is both the brands of tyres can be produced using the same equipments. The
equipments is expected to have a 7-year useful life and can be sold for Rs. 10,00,000 during the fourth year.
The company does not have any other machines in the block of 25 per cent depreciation. The existing
machines can be sold off at Rs. 8 lakh per machine with an estimated removal cost of one machine for Rs.
50,000.
Operating Requirements
The operating requirements of the existing machines and the new equipment are detailed in Exhibits 11.1
and 11.2 respectively.
Exhibit 11.1 Existing Machines
„h Labour costs (expected to increase 10 per cent annually to
account for inflation) :
(a) 20 unskilled labour @ Rs. 4,000 per month
(b) 20 skilled personnel @ Rs. 6,000 per month.
(c) 2 supervising executives @ Rs. 7,000 per month.
(d) 2 maintenance personnel @ Rs. 5,000 per month.
„h Maintenance cost :
Years 1-5 : Rs. 25 lakh
Years 6-7 : Rs. 65 lakh
„h Operating expenses : Rs. 50 lakh expected to increase at 5 per cent annually.
„h Insurance cost / premium :
Year 1 : 2 per cent of the original cost of machine
After year 1 : Discounted by 10 per cent.
Exhibit 11.2 New production Equipment
„h Savings in cost of utilities : Rs. 2.5 lakh
„h Maintenance costs :
Year 1 ¡V 2 : Rs. 8 lakh
Year 3 ¡V 4 : Rs. 30 lakh
„h Labour costs :
9 skilled personnel @ Rs. 7,000 per month
1 maintenance personnel @ Rs. 7,000 per month.
„h Cost of retrenchment of 34 personnel : (20 unskilled, 11 skilled, 2 supervisors and 1 maintenance
personnel) : Rs. 9,90,000, that is equivalent to six months salary.
„h Insurance premium
Year 1 : 2 per cent of the purchase cost of machine
After year 1 : Discounted by 10 per cent.
The opening expenses do not change to any considerable extent for the new equipment and the
difference is negligible compared to the scale of operations.
Smoothdrive Tyre intends to sell Hyper Tread of two distinct markets :
1. The original equipment manufacturer (OEM) market : The OEM market consists primarily of the
large automobile companies who buy tyres for new cars. In the OEM market, the Hyper Tread is
expected to sell for Rs. 1,200 per tyre. The variable cost to produce each Hyper Tread is Rs. 600.
2. The replacement market : The replacement market consists of all tyres purchased after the
automobile has left the factory. This markets allows higher margins and Smoothdrive Tyre expects
to sell the Hyper Tread for Rs. 1.500 per tyre. The variable costs are the same as in the OEM
market.
Smoothdrive Tyre expects to raise prices by 1 percent above the inflation rate.
The variable costs will also increase by 1 per cent above the inflation rate. In addition, the Hyper Tread
project will incur Rs. 2,50,000 in marketing and general administration cost in the first year which are
expected to increase at the inflation rate in subsequent years.
Smoothdrive Tyre¡¦s corporate tax rate is 35 per cent. Annual inflation is expected to remain constant
at 3.25 per cent. Smoothdrive Tyre uses a 15 per cent discount rate to evaluate new product decisions.
The Tyre Market
Automotive industry analysts expect automobile manufacturers to have a production of 4,00,000 new cars
this year and growth in production at 2.5 per year onwards. Each new car needs four new tyres (the spare
tyres are undersized and fall in a different category) Smoothdrive Tyre expects the Hyper Tread to capture
an 11 per cent share of the OEM market.
The industry analysts estimate that the replacement tyre market size will be one crore this year and
that it would grow at 2 per cent annually. Smoothdrive Tyre expects the Hyper Tread to capture an 8 per
cent market share.
You also decide to consider net working capital (NWC) requirements in this scenario. The net
working capital requirement will be 15 per cent of sales. Assume that the level of working capital is
adjusted at the beginning of the year in relation to the expected sales for the year. The working capital is to
be liquidated at par, barring an estimated loss of Rs. 1.5 crore on account of bad debt. The bad debt will be a
tax-deductible expenses.
As a finance analyst, prepare a report for submission to the CFO and the Board of Directors,
explaining to them the feasibility of the new investment.
No. 5
COMPUTATION OF COST OF CAPITAL OF PALCO LTD
In October 2003, Neha Kapoor, a recent MBA graduate and newly appointed assistant to the Financial
Controller of Palco Ltd, was given a list of six new investment projects proposed for the following year. It
was her job to analyse these projects and to present her findings before the Board of Directors at its annual
meeting to be held in 10 days. The new project would require an investment of Rs. 2.4 crore.
Palco Ltd was founded in 1965 by Late Shri A. V. Sinha. It gained recognition as a leading producer
of high quality aluminum, with the majority of its sales being made to Japan. During the rapid economic
expansion of Japan in the 1970s, demand for aluminum boomed, and palco¡¦s sales grew rapidly. As a result
of this rapid growth and recognition of new opportunities in the energy market, Palco began to diversify its
products line. While retaining its emphasis on aluminum production, it expanded operations to include
uranium mining and the production of electric generators, and finally, it went into all phases of energy
production. By 2003, Palco¡¦s sales had reached Rs. 14 crore level, with net profit after taxes attaining a
record of Rs. 67 lakh.
As Palco expanded its products line in the early 1990s, it also formalized its caital budgeting
procedure. Until 1992, capital investment projects were selected primarily on the basis of the average return
on investment calculations, with individual departments submitting these calculations for projects falling
within their division. In 1996, this procedure was replaced by one using present value as the decision
making criterion. This change was made to incorporate cash flows rather than accounting profits into the
decision making analysis, in addition to adjusting these flows for the time value of money. At the time, the
cost of capital for Palco was determined to be 12 per cent, which has been used as the discount rate for the
past 5 years. This rate was determined by taking a weighted average cost Palco had incurred in raising funds
from the capital market over the previous 10 years.
It had originally been Neha¡¦s assignment to update this rate over the most recent 10-year period and
determine the net present value of all the proposed investment opportunities using this newly calculated
figure. However, she objected to this procedure, stating that while this calculation gave a good estimate of
¡§the past cost¡¨ of capital, changing interest rates and stock prices made this calculation of little value in the
present. Neha suggested that current cost of raising funds in the capital market be weighted by their
percentage mark-up of the capital structure. This proposal was received enthusiastically by the Financial
Controller of the Palco, and Neha was given the assignment of recalculating Palco¡¦s cost of capital and
providing a written report for the Board of Directors explaining and justifying this calculation.
To determine a weighted average cost of capital for Palco, it was necessary for Neha to examine the
cost associated with each source of funding used. In the past, the largest sources of funding had been the
issuance of new equity shares and internally generated funds. Through conversations with Financial
Controller and other members of the Board of Directors, Neha learnt that the firm, in fact, wished to
maintain its current financial structure as shown in Exhibit 1.
Exhibit 1 Palco Ltd Balance Sheet for Year Ending March 31, 2003
Assets Liabilities and Equity
Cash
Accounts receivable
Inventories
Total current assets
Net fixed assets
Goodwill
Total assets
Rs. 90,00,000
3,10,00,000
1,20,00,000
5,20,00,000
19,30,00,000
70,00,000
25,20,00,000
Accounts payable
Short-term debt
Accrued taxes
Total current liabilities
Long-term debt
Preference shares
Retained earnings
Equity shares
Total liabilities and
equity shareholders
fund
Rs. 8,50,000
1,00,000
11,50,000
1,20,00,000
7,20,00,000
4,80,00,000
1,00,00,000
11,00,000
25,20,00,000
She further determined that the strong growth patterns that Palco had exhibited over the last ten years were
expected to continue indefinitely because of the dwindling supply of US and Japanese domestic oil and the
growing importance of other alternative energy resources. Through further investigations, Neha learnt that
Palco could issue additional equity share, which had a par value of Rs. 25 pre share and were selling at a
current market price of Rs. 45. The expected dividend for the next period would be Rs. 4.4 per share, with
expected growth at a rate of 8 percent per year for the foreseeable future. The flotation cost is expected to
be on an average Rs. 2 per share.
Preference shares at 11 per cent with 10 years maturity could also be issued with the help of an
investment banker with an investment banker with a per value of Rs. 100 per share to be redeemed at par.
This issue would involve flotation cost of 5 per cent.
Finally, Neha learnt that it would be possible for Palco to raise an additional Rs. 20 lakh through a 7
¡V year loan from Punjab National Bank at 12 per cent. Any amount raised over Rs. 20 lakh would cost 14
per cent. Short-term debt has always been usesd by Palco to meet working capital requirements and as
Palco grows, it is expected to maintain its proportion in the capital structure to support capital expansion.
Also, Rs. 60 lakh could be raised through a bond issue with 10 years maturity with a 11 percent coupon at
the face value. If it becomes necessary to raise more funds via long-term debt, Rs. 30 lakh more could be
accumulated through the issuance of additional 10-year bonds sold at the face value, with the coupon rate
raised to 12 per cent, while any additional funds raised via long-term debt would necessarily have a 10 ¡V
year maturity with a 14 per cent coupon yield. The flotation cost of issue is expected to be 5 per cent. The
issue price of bond would be Rs. 100 to be redeemed at par.
In the past, Palco had calculated a weighted average of these sources of funds to determine its cost of
capital. In discussion with the current Financial Controller, the point was raised that while this served as an
appropriate calculation for external funds, it did not take into account the cost of internally generated funds.
The Financial Controller agreed that there should be some cost associated with retained earnings and need to
be incorporated in the calculations but didn¡¦t have any clue as to what should be the cost.
Palco Ltd is subjected to the corporate tax rate of 40 per cent.
From the facts outlined above, what report would Neha submit to the Board of Directors of palco
Ltd?
NO. 6
ARQ LTD
ARQ Ltd is an Indian company based in Greater Noida, which manufactures packaging materials for food
items. The company maintains a present fleet of five fiat cars and two Contessa Classic cars for its
chairman, general manager and five senior managers. The book value of the seven cars is Rs. 20,00,000 and
their market value is estimated at Rs. 15,00,000. All the cars fall under the same block of depreciation @ 25
per cent.
A German multinational company (MNC) BYR Ltd, has acquired ARQ Ltd in all cash deal. The
merged company called BYR India Ltd is proposing to expand the manufacturing capacity by four folds and
the organization structure is reorganized from top to bottom. The German MNC has the policy of providing
transport facility to all senior executives (22) of the company because the manufacturing plant at Greater
Noida was more than 10 kms outside Delhi where most of the executives were staying.
Prices of the cars to be provided to the Executives have been as follows :
Manager (10) Santro King Rs. 3,75,000
DGM and GM (5) Honda City 6,75,000
Director (5) Toyota Corolla 9,25,000
Managing Director (1) Sonata Gold 13,50,000
Chairman (1) Mercedes benz 23,50,000
The company is evaluating two options for providing these cars to executives
Option 1 : The company will buy the cars and pay the executives fuel expenses, maintenance expenses,
driver allowance and insurance (at the year ¡V end). In such case, the ownership of the car will lie with the
company. The details of the proposed allowances and expenditures to be paid are as follows :
a) Fuel expense and maintenance Allowances per month
Particulars Fuel expenses Maintenance allowance
Manager
DGM and GM
Director
Managing Director
Chairman
Rs. 2,500
5,000
7,500
12,000
18,000
Rs. 1,000
1,200
1,800
3,000
4,000
b) Driver Allowance: Rs. 4,000 per month (Only Chairman, Managing Director and Directors are
eligible for driver allowance.)
c) Insurance cost: 1 per cent of the cost of the car.
The useful life for the cars is assumed to be five years after which they can be sold at 20 per cent
salvage value. All the cars fall under the same block of depreciation @ 25 per cent using written down
method of depreciation. The company will have to borrow to finance the purchase from a bank with interest
at 14 per cent repayable in five annual equal instalments payable at the end of the year.
Option 2 : ORIX, The fleet management company has offered the 22 cars of the same make at lease for the
period of five years. The monthly lease rentals for the cars are as follows (assuming that the total of
monthly lease rentals for the whole year are paid at the end of each year.
Santro Xing Rs. 9,125
Honda City 16,325
Toyota Corolla 27,175
Sonata Gold 39,250
Mercedes Benz 61,250
Under this lease agreement the leasing company, ORIX will pay for the fuel, maintenance and driver
expenses for all the cars. The lessor will claim the depreciation on the cars and the lessee will claim the
lease rentals against the taxable income. BYR India Ltd will have to hire fulltime supervisor (at monthly
salary of Rs. 15,000 per month) to manage the fleet of cars hired on lease. The company will have to bear
additional miscellaneous expense of Rs. 5,000 per month for providing him the PC, mobioe phone and so
on.
The company¡¦s effective tax rate is 40 per cent and its cost of capital is 15 per cent.
Analyse the financial viability of the two options. Which option would you recommend? Why?



HOSPITAL ADMINISTRATION
Any Four Questions(4X 10=40)
1. Hospital waste causing environmental pollution and leading
to negative recycling with serious medical and health
consequences- Discuss at length.
2. Keeping the Hospital staff equipped with latest knowledge
in the new millennium in clinical, technical and managerial
competence is the need of the hour. Identify some new
methods to achieve the objective.
3. List out the various areas of Hospital Administration. Review
them in your own style.
4. What do you understand by the term MBO? Apply the
concept to the Hospitals with appropriate examples.
5. Based on your study, establish certain Management
techniques for the administrative Improvement and
Administrative Reforms of Hospitals.
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
Case Studies(20X2=40)
Case No.1
In an effort to build a solid health care workforce for the future,
a group of about 30 employees from various departments of a
Hospital in Georgia spoke to high school students about the
different disciplines in health care. The hospital also has
assembled a resource book for high school guidance counselors
on the various health care careers, the type of education
required, salaries/wages, and availability of jobs. The hospital
provides partial funding for a permanent staff position to help
maintain the RN program. The hospital offers clinical rotations to
students in the nursing and radiology programs and prides itself
on treating the students as though they are valuable employees.
As a result, students feel as though they are making a positive
difference in the organization and are more likely to apply for a
job upon graduation.
The hospital's employment specialist assists applicants in
applying for appropriate jobs based on their qualifications and
communicates with them throughout the application process. In
several departments, applicants undergo a peer interview to
ensure that the appropriate candidate is selected for the
position.
Once hired, new employees attend an orientation where they
learn the importance of organizational values, expectations of
employees, customer service, etc. The hospital's values play a
crucial role in the culture of the organization, and employees are
expected to continually exhibit these values and behaviors.
The organization's culture has created a pleasing environment
for both employees and patients. Employees are on a first name
basis with one another, they acknowledge each other when
passing in the hall, and they always take time to help their
colleagues.
This program strives to open the lines of communication
between administration and employees by holding monthly
luncheons with administrators and employees. Each month,
several employees are selected at random to attend the
luncheon. The luncheons give employees the opportunity to
share ideas and concerns with administrators; administration's
motto is "If you don't say it, I can't hear it." This ethic allows
employees to have ownership in the organization.
Administration also supports a "No Secrets" policy in which it is
open and willing to share financial and other information with
employees at informational meetings. Administration makes
rounds throughout the hospital to ensure employees have the
tools necessary to do their jobs, thanks them for their hard
work, and simply communicates with them.
Workforce Problem the Program/Initiative Was Designed
to Address
„h Shortage of nurses
„h Turnover rate
„h Employee job satisfaction
Major Objectives
„h Decrease turnover rate
„h Decrease job vacancies
„h Create a pleasant work environment
Significant Results
„h Decreased nurse job vacancy rate to less than 2 percent
„h Leader in quality care in Georgia- based on SatisQuest
patient satisfaction survey
„h Received the highest scores in history on the Meeting
Professionals International (MPI) Employee Surveys
(Athens Regional Medical Center is now used as a MPI
benchmark for organizations.)
„h Decreased turnover rate to 14 percent
„h Awarded Hospital of the Year by the Georgia Alliance of
Community Hospitals, and first place in overall quality and
patient care by the Georgia Hospital Association
Issues to be Discussed
1. Facts of the case.
2. By making additional study, Analyse the means to achieve
the major objectives as stated in the case.
3. How would you address the workforce problems as given in
the case effectively?
Case No 2 Hospital Waste Management:A Case Study of
Chandigarh Administration
Hospital waste is the term used to denote unwanted
material produced by various medical processes carried out in
medical treatment and other laboratory procedures. Hospital
wastes comprise both infectious and non-infectious wastes
generated in the different sections of a hospital, which if not
properly collected, transported or disposed-off, may cause
cross-infections in the hospital and pose a major public
health hazard and environmental pollution.
The waste can be classified into the following categories
1. General Waste
This includes domestic type of waste, packing material,
garbage from hospital kitchen and other waste materials
which do not pose a special handling problem or hazards to
human health or environment.
2. Chemical Waste
This waste comprises material discarded from diagnostic and
experimental work and cleaning, housekeeping and
disinfecting work. This may contain hazardous animal wastes
which are toxic, corrosive, flammable, and reactive or
genotoxic. Such wastes require special precautions in
handling.
3. Pathological Waste
This waste consists of tissues, body parts removed in
surgery, and human fetuses. This may be infections waste
material.
4. Highly Infectious Waste
This contains pathogens in sufficient quantity and exposure
to it could result in disease. This category includes cultures
and stock of infectious agents from laboratory work, waste
from surgery and autopsies on patients with infectious
diseases, wastes from infected patients in isolation wards,
wastes that have been in contact with animals etc.
5. Sharp Objects
These include needles, syringe, scalpels, blades, broken
glass, nails and other type of materials which can cause
puncture.
6. Pharmaceutical Wastes
This includes pharmaceutical products, drugs and chemical
that have been returned from wards, or having spilled or are
outdated or contaminated, or discarded for any other
reasons.
7. Pressurised Containers
This includes those containers used for demonstration of
instrumental purposes containing innocuous of inert gas and
aerosol cans which may explode if incinerated or accidentally
punctured.
8. Laboratory Waste
This includes wastes which arise during storage, use and
spillage of solid drugs and chemicals, blood and blood
products, which may be toxic or contaminated.
Proper management of various types of waste is essential for
the upkeep of hospital sanitation. Segregation at source, safe
transfer, requisite treatment and disposal through cost
effective technologies can bring about significant changes.
Infectious waste from hospital and health care
Establishments contain pathological wastes, used disposable,
semi-wet products (the used blood bags etc.) This waste is
often thrown into the community bins instead of being
properly treated and disposed-off.
Presently in most Government hospitals and Pvt. Nursing
Homes there is no specialized system of handling, collection,
transportation and disposal of Solid Waste including
hazardous bio-medical wastes. Hospital waste is responsible
for various health hazards, including serious diseases like
AIDS & Hepatitis.
The Government notification in this regard has made it
mandatory to join hands in order to ensure efficient
hospital/medical waste management. The said Notification
aims ¡§to provide for a system for management of all
potentially infectious and hazardous waste in accordance with
the bio-medical waste management and handling rules
1998¡¨.
Bio-medical waste is defined as the waste generated during
the diagnosis, treatment or immunization of human
beings/animals or in research activities and training thereto
or in the production or testing of biological, including
categories mentioned in schedule of the biomedical waste
rule 1998.
Ten numbers of categories have been framed:
(i) Human anatomical waste,
(ii) Animal waste,
(iii) Microbiology and Bio-technology waste,
(iv) Waste sharps,
(v) Discarded medicines and cytological drugs,
(vi) Solid waste-I,
(vii) Liquid wastes,
(viii) Incineration as, and
(ix) Chemical waste.
The collection of bio-medical waste is further to be done
category-wise as the waste is to be disposed of in particular
type of container having specific colour coding.
The ¡§City beautiful¡¨, Chandigarh has made the
implementation of the bio-medical waste rule, 1998 possible
by installation of incinerators in PGI, Medical College &
Hospital, Sector-32 and in the process of starting incinerator
in General Hospital, Sector-16, Chandigarh.
Private Nursing Homes also produce almost equal amount of
Solid Waste and bio-medical waste, but they don¡¦t have any
independent facility available with them for its disposal. They
need either to get together for a private incinerator of their
own or Municipal Committee may set upon incinerator and let
them use on rented charges.
If followed thoroughly, this will make the city free from
biomedical waste, which at present is being dumped in open,
thereby reducing the spread of infection. We suggest here
the following to deal with the problem of waste management.
(i) Creating Awareness
Awareness is to be created amongst patients, attendants,
medical personnel and people in general regarding
importance of bio-medical waste management through
various media devices. An integrated approach with sharing
treatment and disposal technologies amongst group of
hospitals and medical units should be introduced. It will be
cost effective and can cover more number of medical units.
(ii) Developing a Manual
A manual need to be developed to define procedure and
responsibilities in connection with waste disposal.
(iii) Need of strict supervision and control.
(iv) Need of developing linkages with local government.
(v) Need to avoid misuse of disposable items.
(vi) Offices responsible for waste disposal need be framed.
Hospital waste management would be beneficial to both the
patients as well as the hospital staff especially those who are
always in touch with these wastes. This would also improve
general environment.
Issues to be discussed
1. Facts of the Case.
2. Analyze the different categories of waste as discussed in
the case in your style by making additional study.
3. Comment on the framed categories which are 10 in
number.
4. How would you deal with the problem of Hospital waste
management (Add on to the suggestions given in the case)


 HOSPITAL ADMINISTRATION MANAGEMENT
N. B.: 1)Attempt any Four Questions
2)All questions carries equal marks.
Case Study 1 -- A New Approach to Managing GORD - ALTANA Pharma
COMPANY PROFILE
ALTANA Pharma is the pharmaceutical division of ALTANA AG. The company concentrates on innovative
pharmaceutical products in therapeutics, imaging (contrast media) and OTC medication. Therapeutics, the most
important business area, is based on prescription drugs for gastrointestinal and respiratory diseases.
INTRODUCTION
A new method has been developed for diagnosing gastro-oesophageal reflux disease and assessing treatment
progress.
Until now, assessing the progress of treatment for Gastro-Oesaphageal Reflux Disease (GORD) has relied
primarily on an assessment of oesophageal healing. Documenting GORD therapy success is a difficult task, as
mucosal damage does not always correspond with the severity of symptoms.1 In addition, 70% of all patients with
GORD symptoms have endoscopic-negative GORD.
To further complicate the GORD picture, Endoscopy-Negative Reflux Disease (ENRD), Non-Erosive Reflux
Disease (NERD), functional heartburn or reflux-like dyspepsia is often diagnosed, and most patients with
heartburn do not have mucosal breaks. Moreover, diagnostic approaches vary between primary and secondary
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
care.
In the absence of gold standard diagnostic testing for GORD, symptom assessment and understanding how
symptoms impact on a patientfs quality of life is critical to the successful management of a patient. Recent
research has suggested that the symptom complex experienced by GORD patients is much wider than previously
appreciated.
Besides heartburn, acid eructation, and pain on swallowing, a variety of other GORD-related symptoms are
experienced, including nausea, diarrhoea or constipation and sleep disturbance, as well as other symptoms, such as
respiratory complaints. GORD is a condition of diverse and variable symptoms, many of which significantly
impair quality of life.
The problem for gastroenterologists trying to build a complete picture of a patientfs symptoms is that patients may
find it difficult to describe accurately all the symptoms they are experiencing. Consequently, they may not be
treated effectively. Even after successful acute treatment, the majority of patients suffer a recurrence of symptoms
within six months. And, if the non-classic signs of GORD are not seen, patients may be misdiagnosed. The broad
spectrum of symptoms in GORD patients and the high prevalence of endoscopy-negative GORD highlight the
need for a robust, validated approach to symptom assessment.
SIMPLE QUESTIONNAIRE
One such approach is ReQuest., a simple and effective questionnaire, which patients use to assess themselves
daily for a wide range of GORD symptoms. It was created following discussions with patients and physicians to
identify the spectrum of symptoms reported and establish how they were described by GORD patients. The
questionnaire was also based on an evaluation of relevant medical literature and clinical trial data.
ReQuest is divided into seven dimensions covering acid complaints, upper abdominal/stomach complaints, lower
abdominal / digestive complaints, nausea, sleep disturbances, general well-being and other complaints. A short
version of the questionnaire, which can be completed in less than five minutes, focuses solely on these seven
dimensions, while the full version, which takes approximately 20 minutes, is more wide-ranging.
Both tests have undergone extensive clinical trial evaluation and statistical analysis, which has confirmed their
internal consistency, test-retest reliability, construct validity, and responsiveness to changes during treatment.
ReQuest fulfils the criteria set by the regulatory authorities for a validated symptom-based system for use as the
primary outcome measure in clinical trials of GORD therapy. It has now been validated in 26 languages and tested
in 20 countries.
REQUEST / LA CLASSIFICATION
The ReQuest / LA classification system is the first to effectively integrate a highly sensitive patient questionnaire
(ReQuest) with an adaptation of the LA classification for esophagitis. The new index allows the combined
assessment of symptom relief and the healing of oesophageal lesions in GORD.
The adapted LA classification (N = lesions not present, grade A.D) was paired with a grading of patientsf
symptom burdens from 0.4 (0 = no disease, 1 = minor, 2 = tolerable, 3 = troublesome, 4 = intense), as assessed by
the rescaled subscale of the established GORD symptom evaluation instrument ReQuest.
By comparing both scales in a matrix, clinicians are able to quantify both aspects of GORD and assign an index to
each patient. An index of 0N indicates optimal treatment outcome, in other words complete remission (relief from
symptoms and the healing of oesophageal lesions).
VALUABLE INSIGHTS
A randomised, double-blind study of 581 patients using ReQuest has established that pantoprazole is as effective
as esomeprazole (both 40mg/day) over 12 weeks in achieving the complete remission of erosive GORD. With
respect to endoscopically confirmed healing, pantoprazole was superior to esomeprazole.
A second randomised, double-blind ReQuest study, this time of four weeksf duration (561 patients), again
comparing pantoprazole and esomeprazole (both 40mg/day), demonstrated parity between the two PPIs in terms of
symptom relief scores, but it also showed that the beneficial effects of pantoprazole were sustained for longer,
with significantly fewer symptomatic relapses in the seven-day post-treatment phase.
Professor K D Bardhan, consultant physician and gastroenterologist at the District General Hospital, Rotherham,
in the UK, who was instrumental in developing the ReQuest/ L A classification, says: eWe need a device that
enables an accurate assessment of treatment success in GORD patients that combines the main parameters of
symptom relief and oesophageal healing. The new ReQuest / LA classification enables a detailed clinical and
treatment outcome assessment of GORD patients at any stage of their disease using a single and reliable global
measure. In my view, ReQuest / LA classification represents a helpful step in the right direction and provides a
means of standardising the assessment and reporting of GORD clinical trials.f
An extensive ReQuest database, which provides information on patient demographics, symptom profiles and
treatment outcomes, now exists for over 8,000 patients with GORD. Use of the combined endpoint ecomplete
remissionf, evaluated using the ReQuest./LA classification, will permit even greater insights by helping to
analyse patient populations and shed light on the factors that dictate whether a treatment works. Such a source of
GORD treatment outcomes, during various stages of the disease, could be of major benefit to patients, physicians
and the organisations that fund healthcare in the future.
ISSUES TO BE DISCUSSED
1. Discuss the salient features put up in the case.
2. Evaluate the new approach based on your understanding of the case.
3. The case indicates two research studies. Give your insights based on these two studies.
Case -2 --A New Concept in Annuloplasty for Valve Repair: the Biodegradable Ring - BIORING
COMPANY PROFILE
BIORING, founded in 2000, develops and commercializes biodegradable medical devices that lower
surgical risk and reduce post-surgical complications. The first device in the series, The KalangosR ring,
received the CE Mark in March 2005. BIORING is currently working on obtaining the FDA approval for
this device
INTRODUCTION
The KalangosR ring was developed for pediatric annuloplasty to preserve the growth potential of the
child's heart. It is also suitable for adult annuloplasty by extension. This now commercially available
device made of biodegradable polydioxanone induces the growth of autologous fibrous tissue that
reinforces the deficient annulus.
The good functioning of the native, or repaired valve depends on coaptation capacity of its leaflets.
Annuloplasty rings have been used since 1968 to remodel the shape, correct the dilatation, and
consolidate the repair of heart valves by improving coaptation of the valve's leaflets during systole.
The further understanding of the three-dimensional geometry of the native valve annulus during the
normal cardiac cycle lead to the evolution of the rings from the first rigid, planar stainless steel-based
Carpentier ring to the fexible Duran ring and to the more recent Cosgrove-Edwards bands. All these
devices, which actually fulfil the requirements of the application on adults, do not allow the further
growth of the native annulus if implanted in children.
Indeed, implantation in growing hearts could result in a stenotic effect which could worsen with time. For
this reason, these current traditional rings do not exist in pediatric sizes (under 26).
A NEW CONCEPT IN ANNULOPLASTY VALVE REPAIR
The above considerations were the driving elements for the development of a new concept in annuloplasty
valve repair: the future device had to allow growth of the native annulus. Based on some encouraging
results reported in annoloplasty practices performed in the pediatric population with different
biodegradable materials and especially polydioxanone1-3, Bioring (Lonay, Switzerland) has developed
the KalangosR mitral and tricuspid rings, which are biodegradable annuloplasty devices made of
polydioxanone.
These advanced devices, do not work like traditional rings. Indeed, the device does not provide a
mechanical support, except in the first short period following implantation, but induces the creation of
endogenous fibrous tissue which will take on this function subsequently. Moreover, it was designed to
facilitate its implantation.
The device is introduced within the native annulus and simply secured to the anterior and posterior
trigones by knotting the integrated monofilament sutures equipped with crimped stainless steel atraumatic
needles.
This intra-annular implantation prevents the device from being in contact with blood. This avoids
thromboembolic complications which require systemic anticoagulation therapies until the endocardium
covers the traditional rings sutured on the native annulus. In addition, Bioring's device is solely composed
of materials that can be used in presence of endocarditis.
In order to preserve the native annulus growth potential in children, the non-resorbable suture that is
incorporated in the polydioxanone segment, in order to prevent further degenerative dilatation of the
annulus in adults, is cut in pediatric sizes of the ring under 26.
Ultrasound imaging follow-up of the first implantations performed on animals demonstrated the
preservation of the valve's functional efficacy and of the ventricular contractility while allowing the
physiological growth of the orifice. This was revealed by measures of the valve orifices on the sacrificed
pigs which had seen their body weight increased by an average of more than 500% over a year.
Six months or more following implantation, a fibrous autologous tissue was developed in all dissected
hearts, in replacement of the implanted polydioxanone device, resorbed by hydrolysis. Moreover, it was
discovered that the fibrous tissue continues on growing for a few months after complete resorption of the
device. The newly grown fibrous tissue remodells the annulus and prevents it against redilatative stretch
without interfering with its dynamical physiological motion.
CLINICAL STUDIES AND TRIALS
The preliminary clinical study that focussed on pediatric population gave positive outcomes and
confirmed the results obtained in the animal trials. This demonstrated the biodegradable device's main
feature for pediatric applications: the preservation of the growth potential of the native annulus4.
In the frame of a clinical trial performed between April 2004 and May 2006, 111 patients affected by
valve insufficiency, mostly of congenital, degenerative or rheumatic origin, received a mitral and/or a
tricuspid KalangosR ring.
The patients included in this investigation were comprised between one and 75 years of age; 51 were aged
16 or less and 60 were aged 17 or more on the implantation date. Among them, 57 (51.3%) patients were
female and 54 (48.7%) were male. This population was monitored with a mean follow-up of
approximately 10 months.
The benefits of the valve repair with Bioring's biodegradable annuloplasty device were assessed in terms
of NYHA Grade for the 105 patients in whom the follow-up was complete. They were immediately tested
post-op and monitored at 6, and 12 months. This evaluation was utilized as it is one of the most
commonly used scoring systems worldwide. It can be seen that all patients fully recovered and are
presently scored Grade 0 or Grade 1. Moreover, in this study it is also demonstrated that the degradation
of the polymeric segment of the device occurs without any observable consequences for the patient.
In conclusion, the KalangosR ring is a new biodegradable device that has proven to be safe and efficient.
Moreover it is the only commercial device available in pediatric sizes for correcting, remodelling the
shape, reinforcing, and restoring the function of the valves' annuli, that preserves the native annulus
growth potential in children. The tissue-growth properties associated with the intra-tissular implantation
of this device introduce a completely new concept in annuloplasty.
.
ISSUES TO BE DISCUSSED
1. Bring out the facts as enumerated in the case.
2. Analyse the new concept at length in terms of Biodegradable principle.
Case -3 --Bone Substitutes to replace Transplantation?
INTRODUCTION
An osteoconductive and osteoinductive biphasic ceramic replacement for bone loss could be an
alternative to grafts. The safety and efficacy of this material has been shown in preclinical and clinical
trials, demonstrating its suitability.
Tumours, bone cysts and traumas, as well as osteomyelitis and osteolysis, can cause massive bone loss.
The primary method used today for filling such defects is autogenic or allogeneic bone transplantation. As
both approaches are associated with considerable problems there is an ongoing critical debate as to
whether these procedures should still be considered the treatments of choice. Autogenic bone
transplantation, for instance, is always associated with another surgery.
For the patient, the surgical removal of graft material means additional stress and a higher postoperative
morbidity due to local complications. In addition, the amount of graft material that can be harvested from
the patientfs own body is limited. Economic analyses provide additional arguments for challenging the
use of autogenic bone material. Given the extended duration of surgery, the use of autogenic bone grafts
involves higher costs. Although allogeneic bone transplantats have the advantage of higher availability,
their inherent antigenicity is a major disadvantage.
BENEFITS OF BONE SUBSTITUTES
Given the multitude of problems associated with autogenic and allogeneic bone transplantation, the search
for bone substitutes similar to bone grafts in terms of biomechanical strength and biological properties has
intensified over the past few years.
Such materials should support the bone healing process and ideally should be associated with
osteoconductive and osteoinductive properties and biocompatibility. Apart from natural materials
obtained from corals or algae, there are inorganic materials such as ceramics made of hydroxyapatite or
tricalcium phosphate. Other materials include xenografts and glass ionomer cements.
BIPHASIC CERAMICS
The development of TricosR represents real progress in the field of bone substitutes. The idea behind this
bone substitute was to ensure structured, physiological formation of bone substance. The biphasic ceramic
containing hydroxyapatite (HA, 60%) and beta-tricalcium phosphate (s-TCP, 40%), fulfills these
requirements in several ways. This is used in combination with a fibrin matrix made of human plasma.
In the new material there is a balanced equilibrium between the quickly resorbable beta-tricalcium
phosphate and the slowly resorbable hydroxyapatite. s-TCP has a high osteogenetic potential and
constitutes a source of P+ and Ca++ ions.
Simultaneously, with the progressive biodegradation of s-TCP, biological apatite crystals begin to form,
gradually replacing the bone substitute analogously to natural remodelling.
Hydroxyapatite guarantees the long-term stability of the material; it ensures that the bone substitute
supports cell adhesion in the long run, acting as a carrier. In its chemical structure the substance resembles
the bonefs biological apatite crystals, and it is only mildly osteogenic.
The new bone substitute has an interconnective pore system consisting of micropores and macropores; the
granules are 1.2mm in size . The micropores less than 10ƒÊm in size provide for a rapid exchange of fluid
and ions by means of diffusion. With their size of 300ƒÊm.600ƒÊm, macropores permit the adhesion and
proliferation of osteogenetic cells. This ensures that the bone substitute material is successively replaced,
by cells spreading from the periphery to the middle of the ceramic material
FIBRIN MATRIX
In order to optimise physiological bone regeneration the biological two-component matrix of
Tissucol/TisseelR is added to the inorganic material. The two-component matrix consists of fibrinogen,
plasmafibronectin, factor XIII and plasminogen as well as the plasmin inhibitor aprotinin. The human
thrombin contained as a second component triggers the final step of physiological blood clotting, the
conversion of fibrinogen to fibrin.
The completely resorbable fibrin is used in all surgical fields. The fibrin matrix penetrates both
micropores and macropores, and provides high stability through adhesion to the walls of the bone defect.
Simultaneously, the fibrin matrix serves as a binding agent for the granules. Its content of polymerised
fibrin, fibronectin and growth factors helps trigger cell proliferation and angiogenesis, and enhances
wound healing.
On a cellular level the artificial bone induces signals similar to physiological material. Diffusion of
biological fluids into the ceramicLs micropores and macropores triggers the release of calcium ions;
macrophages, mesenchymal stem cells, osteoblasts and osteoclasts will then enter the ceramicLs
macropores.
Cell adhesion is followed by cell proliferation, and gradually, osteoclasts will resorb the so-called
artificial bone in a process similar to physiological remodelling, while osteoblasts will build new bone
material.
Application of Tricos is simple and straightforward. The preparation is ready for application
approximately two minutes after mixing the two components. Similar to a plastic glue, the mixture can be
applied with a spatula and used for anatomical reconstruction.
PRECLINICAL AND CLINICAL DATA
The benefits of biphasic ceramics combined with a fibrin matrix have been shown in many preclinical and
clinical trials over the past few years. The easy-to-use, pliable material allows successful anatomical
reconstruction, proving both biocompatible and stable.
Histological examinations reveal the polymerised fibrin to have a stable structure on which ions
crystallize, thus enhancing intrinsic osteogenic properties. Biopsis shows that the material is progressively
replaced by new lamellar bone within two or three months. A retrospective long-term trial over 16 years
supported the materialLs long-term tolerability, good bioactivity and high osteointegration rate.
SUCCESSFUL TREATMENT TRAIL
At Wurzburg Orthopaedic University Clinic further comprehensive clinical data on Tricos was collected
between 10/2004.08/2005. During a one-year clinical trial, bone defects in a total of 17 patients aged
between ten and 69 were treated using the new bone substitute. The material was used for filling various
bone defects caused by benign tumours or tumour-like lesions.
There were five patients with benign bone tumours (enchondrome, chondromyxoid fibroma,
chondroblastoma, osteoma, osteoblastoma, osteoclastoma) and 12 with tumour-like lesions (juvenile bone
cyst, non-ossifying fibroma, eosinophilic granuloma, intraosseous ganglion, fibrous dysplasia). The cysts
were surgically removed and each bone defect then filled with two to ten syringes containing 3.5cm3 of
Tricos, i.e. 7.35cm3 in total.
During this one-year trial the bone substitute proved both easy to use and safe. There were no
complications. The long-term data after nine months showed that the biomaterial had successfully
integrated into the bone; resorption was not yet complete.
Points to be addressed
1. Outline the salient facts of the case.
2. Discuss at length on the line of the salient features.
Case -4--Eliminating Latent TB
INTRODUCTION
Latent TB in healthcare workers is a major threat to patients. Traditional tests have too often been unable
to detect the condition reliably. A new blood test looks set to change this, which is good news for patients
- and healthcare workers.
In December 2005 the New York Times reported that a nurse with active TB from a New York City
hospital had exposed 1,500 patients and infected four infants, after 11 years of latency. As this case
shows, the successful detection, monitoring and treatment of Latent Tuberculosis Infection (LTBI) after
risk-assessment are crucial to reducing the number of active cases in patient healthcare settings.
The detection of latently infected persons has been the objective of healthcare workers in patient-care
settings in hospitals for decades, but has often yielded unsatisfactory results. The blame for this has been
placed largely on the lack of a truly effective test for LTBI.
REPLACING THE TST
The Tuberculin Skin Test (TST), developed more than 100 years ago, has been the only tool available for
detecting LTBI, and the limitations of that procedure are well documented. Although the TST may be a
useful epidemiological tool, its poor specificity, vulnerability to false positives and subjective
interpretation mean that it does not meet the standards required for today's medical decisions.
As a consequence of this poor medical return, programmes to detect LTBI, which could include
prophylactic treatment of the infection, have often been poorly established, and control programmes
themselves neglected.
In May 2005 the US Food and Drug Administration (FDA) approved the use of a whole blood test to aid
the diagnosis of LTBI. The new test, QuantiFERON(r)-TB Gold (QFT-G), also eliminates the logistical
challenges of skin testing: a simple venipuncture procedure followed by a standard, batchable laboratory
procedure is all that is required to obtain a definitive yes or no response to the question of LTBI.
New guidelines from the US Center for Disease Control, published in December 2005, affirm that QFT-G
can be used in all situations in which a skin test is used, thereby recognising its potential as a replacement
for the TST.Unlike the TST, QFT-G is not confounded by BCG vaccination or infection by non-TB
mycobacteria. Furthermore, it eliminates the logistical challenges of skin testing because of its simple
application and laboratory procedure.
A NEW STANDARD
Hospitals around the world have started to use QFT-G as their standard for LTBI testing. Those that have
implemented QFT-G programmes have recognised significant cost savings over TST. These come mainly
from significantly lower rates of positivity, leading to reduced caseloads and elimination of working time
losses for follow-up visits to the occupational health office.
Case Example: HOW A FALSE POSITIVE WAS ALMOST A REAL NEGATIVE
Keiko, a 19-year-old Japanese exchange student in the USA, took a routine Tuberculin Skin Test (TST)
before beginning training to become a nurse. Although she showed no symptoms of TB, the test gave a
positive result of 15mm. Her doctor insisted that nine months of preventive treatment with isoniazid was
the standard of care recommended by the Centers for Disease Control.
However, Keiko argued that her test was positive because of two BCG vaccinations she received as a
child, and denied exposure to active disease. A chest X-ray confirmed that she did not have TB, but she
was worried that her refusal of treatment might jeopardise her entry into the nursing programme.
Her doctor then found out that the local TB programme used QFT-G and obtained a test for her. The
result: no TB infection. Treatment was determined to be unnecessary.
Issues to be Addressed
1. List out the facts of the case.
2. Project your perception on the new standard brought out in the testing.
3. Analyse the case example provided.
Case-5 --Gamma Knife Surgery . Saving Lives and Money?
INTRODUCTION
For years neurospecialists have been performing microsurgery on acoustic neuromas. Par Nordstrom
looks at the case for radiosurgical techniques, and the advantages for both patients and the health service.
Hearing loss, vertigo, difficulty in maintaining balance and facial paralysis.these are just a few of the
symptoms that patients with Vestibular Schwannomas (VS) experience on a daily basis.
Also known as neurinloma, schwannomas are slow growing tumours of the central nervous system. The
most common form of the disease is known as vestibular schwannoma (acoustic neuroma), in which the
eighth, or acoustic cranial nerve is affected. This combines the vestibular and the cochlear nerves, which
are responsible for our senses of balance and hearing.
When the nerves are disrupted by a neuroma, victims of the condition can experience a range of
symptoms related to hearing and ocular function. An untreated tumour may expand to compress other
local nerve structures, leading to facial paralysis, hydrocephalus, and various complications of facial
control, salivation and sight. The neuroma may also become life threatening.
Historically, treatment of this condition has been handled through the use of microsurgery . a delicate and
technically demanding procedure in which the tumour and affected tissue are excised through the use of
an operating microscope and finely scaled instruments.
In recent years, however, evidence has indicated some drawbacks to this complicated method. Patients
can experience symptoms years later, caused by damage sustained to the acoustic and facial nerves during
tumour removal. Despite advances in surgical technique and operating equipment, these risks have
persisted.
As an alternative to microsurgery, many neurospecialists are now employing radiosurgical techniques,
where a precise dose of radiation is directed to the lesion to be treated. Also known as stereotactic
radiosurgery, this non-invasive modality has rapidly grown in popularity due to its brief treatment times
and lower complication rates.
INTRA-CRANIAL RADIOSURGERY
Although the scientific basis of radiosurgery is a complex exercise in physics and medicine, the procedure
is comparatively simple. Despite its name, no incisions are made during Gamma Knife Surgery (GKS).
A specially designed helmet, comprised of 201 hemispherically arrayed cobalt sources, delivers multiple
beams of radiation originating from different locations. Scan data enables these individually weak beams
to be directed at a precise target, resulting in a strong peak dose of radiation.
Areas surrounding the target lesion are not affected, so many forms of intra-cranial tumours may be
treated, leaving healthy tissues intact with near-zero exposure to radiation. Although it may take a few
months for the results of GKS to take full effect, the entire procedure is pain-free and has fewer associated
side effects.
RADIOSURGERY AND MICROSURGERY HEAD TO HEAD
Debate remains over whether radiosurgery is most appropriate for VS patients, with many still in favour
of microsurgery. A recent study from French neurosurgeons Dr Jean Regis and Dr William Pellet may,
however, have some impact on current opinion. Published in the Journal of Neurosurgery, the analysis
considers the clinical outcomes of patients treated with GKS versus those treated with microsurgery.
Over 430 patients treated using radiosurgery were examined during the study, with four-year follow-up
data evaluated for the first 104 patients. This was compared to 110 patients who had undergone
microsurgery for the removal of similarly sized tumours. Patients were interviewed three years after their
treatment and were examined for side effects and hearing loss.
Within the study group, almost half of those patients who had received microsurgery as their primary
form of treatment developed facial tremors or paralysis, while none of those in the GKS group suffered
this effect. Equally large differences were seen between the two populations in the development of
hemispasm (facial spasms), hearing loss, hypaesthesia (impaired facial sensitivity) and ocular (sightrelated)
problems.
Patients who had received microsurgery experienced a number of additional side effects of varying
severity, from meningitis and facial pain to leakage of the cerebrospinal fluid. In one case, a patient
suffered a fatal haematoma. None of these complications occurred in the GKS group.
Most importantly, for over a third of the microsurgery recipients, symptoms were severe enough to
prevent a return to work three years after their operation. By comparison, only one per cent of GKS
patients did not return to work over the same period. This was further exemplified by their mean time
away from work, with an average of just seven days, compared to a mean of over four months among the
microsurgery patients.
SO WHAT DOES ALL THIS MEAN?
Despite dramatic improvements in techniques and equipment, microsurgery is still associated with a
comparatively high level of risk. The advent of modern imaging systems, however, has greatly advanced
the ability of neurosurgeons to treat VS with GKS. This has had a significant impact on post-operative
patient quality of life and the socio-economic impact of the treatment of VS, with constant and sizeable
differences in the after-care costs of these patients.
GKS patients generally stay in hospital for a maximum of three days, whereas those who receive
microsurgery typically need one to three weeksf stay, adding substantial after-care costs for the latter
group. Most GKS-treated patients will return to work after leaving hospital, while their microsurgery
counterparts have to rely on insurance and government funds for an average of three months posttreatment.
Additionally, many will not return to work for over three years.
Furthering the evidence for the use of GKS, Dr Regis and his team have recently released a second study
in the French journal Neurochirurgie, which confirms the results of their original analysis. This larger
study consists of over 1,700 VS cases treated with a gamma knife, and supports the use of the instrument
over microsurgery for Koos Grade II and III tumours (the most common sizes and forms of acoustic
neuromas).
Taking both the clinical evidence for GKS, as well as its long-term economic benefit, it has become clear
that the standard of VS treatment is taking a new direction. With support from government health
authorities and hospital administration, the future of patients with acoustic neuromas and intra-cranial
tumours looks set to improve.
Issues to Addressed
1. Identify the facts of the case.
2. How would you consider this surgery as an innovative.
3. What exactly is the recourse action the case tried to put forth in terms of saving life and
money?