1.1 Decision Trees and 1.2 Types of Business Entities Flashcards
decision tree
visual tool used by managers to see possible options and probable outcomes for each option to support informed decision making. quantitative decision making tool
why are decision trees a valuable tool
- sets different outcomes that might occur
- the costs and revenues associated with an outcome
- probability of an outcome occurring
Probable outcome
the likely financial result of an outcome obtained by multiplying the probability by the expected revenue
Expected value
cost of each option must be subtracted from the probable outcome
advantages of using decision trees
- offer managers a visual representation of different decisions with probable and quantifiable outcomes. makes decision making more informed, objective and logical
- helps managers consider various financial risks involved with different choices not just potential financial rewards
- easy to understand, tangible quantitative results to support decision making
- flexible organizational planning tool that can be applied to many different situations and decisions
disadvantages of using decision trees
- purely quantitative tool, ignore qualitative factors (non-financial information) that often affect decision making
- probabilities are only forecasts, even if based on market research data. predicted outcomes are still unknown. changes in the external business environment can easily change the probable outcomes
- does not reduce amount of risk
- ## for very complex decision with numerous interconnected options it can be difficult to construct a concise diagram
What are the 2 types of sectors
Public sector and private sector
what is the public sector
- run and controlled by the government
- funded by the government
- provide essential services
- usually have a social purpose (benefits citizens in some way)
what is the private sector
- run and controlled by individuals
- funded by individuals
- provide products and services that fulfill wants and needs
- are focused on profit, but can also have a social purpose
What is a public sector company
- SOMETIMES DONE IN PARTNERSHIP BETWEEN GOVERNMENT/STATE AND A PRIVATE BUSINESS. PUBLIC-PRIVATE PARTNERSHIP
-operated for good of society. ex. mail service, public transport education - usually in public-private partnership the gov relies on expertise and efficiency of private businesses to run and execute projects
- Highways: private sector provides funding to build road for the government, but the business is allowed to collect tolls on the road
ex. hong kong disneyland, singapore sports hub, new yorks central hub
what are the 3 types of business entities
For profit enterprise, for profit SOCIAL enterprise, not for profit social enterprise
For profit enterprise
sole trader, partnership, privately held companies, publicly held companies
For profit social enterprise
private sector company, public sector company, cooperative
Not for profit social enterprise
NGO
What is limited liability
Investors can only lose the money they invested but not personal property or money
what is unlimited liability
Investors can lose their personal property and money to help pay the debts of the company
What is a sole trader
business owned and controlled by a single person
advantages of a sole trader
- owner has complete control of important decisions
- decision making is quick
- owner keeps all the profits
- flexibility in terms of working hours and days
- usually easy to set up
- close contact with costumers
disadvantages of sole trader
- unlimited liability
- sources of finance are limited
- owner responsible for all aspects of management
- usually long working hours and limited vacation
- lack of continuity if something happens to the owner
what is a partnership
business where 2 or more individuals jointly own and take responsibility of running business together. usually a deed of partnership is written before the business starts
advantages of partnership
- partners bring in different skills and specialties that can help firm
- shared decision making
- additional finance can be added by each partner
- business losses are shared between partners
disadvantages of partnership
- unlimited liability
- profits are shared
- more people can slow down decision making
- there can be conflict between partners
- responsible for their partners´actions
- may disagree over business decisions
What is a company/corporation (publicly and privately held company)
commercial for profit businesses owned by shareholders.
- business and owners legally separate (limited liability). company legally recognized as having an identity separate from its owners
- there are shareholders
- employs people to manage business and employees to handle day to day activities of the business, overseen by board of directors.
what is a shareholder
person or institution who owns shares in a company and are owners
what is a share
certificate confirming part of ownership of a company and entitling the shareholder to dividends and certain shareholder rights such as vote
what is a privately held company
business that has shareholders who are invited to buy shares in the business by the existing owners. shares of a private company are not traded on the stock market and the board of directors has to approve any shares traded so that they can maintain overall control. can make it difficult to sell shares
privately held company advantages
- limited liability
- easier to raise finance as shares can be sold to friends, family
- more control due to choice of shareholders
- management is shared and experts can be hired (specialization)
Disadvantages of privately held companies
- shares cant be sold on stock exchange
- limited number of shares can be sold
- can be expensive to set up
- more information needs to be shared with the government and published for others to see
what is a publicly held company
private sector businesses, often large that sell their shares on stock market to private investors. anyone is able to buy shares in a public limited company.
advantages of publicly held company
- limited liability
- easy to raise finance as shares can be sold on stock market
- management is shared and experts can be hired
- often benefit from economies of scale(1.5) due to their large size
disadvantages of publicly held company
- profits are shared with stakeholders via dividends
- annual reports need to be published annually for everyone to see
- company vulnerable to takeover
- large businesses can have communication issues (diseconomies of scale 1.5)
goal of for profit social enterprises
social enterprises focus mon more than just business focus. try to improve society, environment and employ people through business. some profit used to invest in social goals like charitable donations and social programs
what are the 3 main aims of social enterprises? (connects to CSR 1.3 and sustainability 5.1)
(often referred to as triple bottom line)
Economic- to make porfit or surplus to reinvest back into the company and provide some return to the owners
Social- to provide jobs or support for local disadvantaged communities
Environmental: protect the environment and to manage the business in an environmentally sustainable way
what is a cooperative
owned and run by members. these members can be employees, costumers, residents depending on the type of co-op. include workers, financial, producer, housing, consumer. common and many people around the world are a part of them
advantages of cooperatives
- more democratic than other orgs
- social aims take precedence over profit
- benefits the members and the local community
Disadvantages of cooperatives
- decision making is time consuming and difficult
- may be difficult to raise capital to fund growth
- can be disagreements amongst members
what is an Non profit social enterprise
NGO type of non profit social enterprise that operates in the private sector of the economy and has a social cause. it is not operated by the government. charities can be a type of NGO
run by voluntary group to promote social cause such as the protection of human and animals rights, protection of the environment and development aid.
operate at a local, national or international level and put pressure on gov to adopt policies in support of thier cause
advantages of NGO
- exist for benefit of local communtities and societies
- exempt from paying corporate and profit taxes
- can qualify for government assistance in the forms of grants or subsidies
- positive impact on employees and donors who feel that the non-profit enterprise is pursuing a socially meaningful ambition
disadvantages of NGOs
- strict guidelines and restrictions that must be followed
- depend on goodwill of general public and donors to fund their operations
- lack of financial aid and cost control as they are not expected to earn a profit for their owners or shareholders
- wages and remuneration of workers are often lower than in commerical orgs
