2. Osborne - Organisational Structure and Governance

Question 2

Organisational Structure (CH2)

Three types of Organisational Structure

Answer 2

1. Functional
2. Divisional
3. Matrix

Question 3

Organisational Structure (CH2)

Functional Structure

Answer 3

• A functional structure divides the business into specialised functions or skills such as production, sales and marketing, finance, and IT.
• It groups individuals with similar knowledge and expertise together. Work can be carried out quickly and efficiently.

Question 4

Organisational Structure (CH2)

What is Divisional Structure?

Answer 4

• A number of different teams that each focus on an individual product or service, or geographical area.

Question 5

Organisational Structure (CH2)

Matrix Structure

Answer 5

• Individuals will work in their own departments as well as working across teams and projects.
• A business that is developing a new product may set up a project team that includes members from product design, production, marketing, finance, and human resources
• This team will work together on the project until it is completed before returning to their functional team.

Question 6

Organisational Structure (CH2)

What is Span of Control?

Answer 6

The span of control of the managers within an organisation refers to the number of individuals that they are responsible for.

Question 7

Organisational Structure (CH2)

Factors affecting Span of Control

Answer 7

• The size of the organisation.
• The type of work that the individuals do (level of complexity of tasks).
• The location of the staff.

Question 8

Organisational Structure (CH2)

Tall Organisational Structure

Answer 8

• A tall organisational structure will typically be organised by function.
• Long Chain of Command (several layers of management).
• Clear reporting lines.
• Narrow span of control.
• Decision-making often takes longer.

Question 9

Organisational Structure (CH2)

Flat Organisational Structure

Answer 9

• Fewer levels of management.
• Wider span of control.
• Decisions can be made more efficiently as information can pass up and down the chain of command quickly.
• Less opportunity for promotion and progression.

Question 10

Organisational Structure (CH2)

Define Governance

Answer 10

• A system that provides a framework for managing organisations.
• It identifies who can make decisions, who has the authority to act on behalf of the organisation and who is accountable for how an organisation and its people behave and perform.

Question 11

Organisational Structure (CH2)

What is Corporate Governance?

Answer 11

• Systems put in place by directors to direct and control the way in which the business is operated.
• This will include setting the business’s strategic aims and objectives and providing the necessary leadership to put them into effect.

Question 12

Organisational Structure (CH2)

What is Financial Governance?

Answer 12

• This is how the business collects, manages, and controls financial information.
• It allows the business to monitor the operation of the business and promptly identify where there may be a financial risk.
• In extreme cases this could be fraud or money laundering.
• However, it may simply relate to the systems and structures in place that ensure amounts that are owed to the business are collected on time and that amounts owed to suppliers are paid when they are due.

Question 13

Organisational Structure (CH2)

What is Legal Governance?

Answer 13

• A business must ensure that it complies with the necessary legislation and regulation.
• Legal governance ensures that this happens by implementing appropriate levels of authorisation together with internal documented processes that individuals must follow to ensure compliance.

Question 14

Organisational Structure (CH2)

Centralised Control (Top-Down Approach)

Answer 14

• Decision-making rests with the higher tiers of management in the business.
• Decisions are imposed on staff who will be expected to implement them rather than contribute to the decision-making process.
• The higher up in the hierarchy someone is, the more influence they have.
• Higher ups distanced from the ‘coal face’ i.e. they will not have much involvement in the actual activities of the business.
• Less flexible than a decentralised approach.

Question 15

Organisational Structure (CH2)

Features of Decentralised Control (Bottom-Up Approach)

Answer 15

• Authority for making decisions is given to lower levels of management.
• Leads to a more collaborative working atmosphere.
• Senior management can focus on the key decisions of the business, and its strategy, and leave the day- to-day to departmental managers.
• However, lower level managers may not have the necessary experience to make ‘good’ decisions or may make decisions that are good for their team rather than for the business as a whole.
• Could lead to a loss of control.

Question 16

Organisational Structure (CH2)

Levels of Management - Corporate / Strategic level

Answer 16

• Starting at the top of the organisation, this is where strategic decisions are made that affect the whole organisation; these decisions tend to be long-term.
• Should the business open another branch? Should it develop a new product? Should it start trading overseas?

Question 17

Organisational Structure (CH2)

Levels of Management - Managerial level

Answer 17

• This is the middle level of an organisation’s management. Here the decisions relate to the way that the business should go about achieving its goals.
• Which product should it produce? Should it reduce the price of a product to remain competitive?

Question 18

Organisational Structure (CH2)

Levels of Management - Operational level

Answer 18

• Operational level decisions made at this level tend to be shorter-term and relate to thepractical day-to-day operation of the business.
• Do staff need to work overtime? When should raw materials be requested from stores? How many items do we need delivered from a supplier this week?

Question 19

Organisational Structure (CH2)

The 6 Functions of Business

Answer 19

1. Finance
2. Operations / Production: (Setting up credit accounts with suppliers, Inventory control, budgeting).
3. Sales and Marketing: (Pricing, setting rates for services, budgeting, performance indicators).
4. Human Resources (HR): (recruitment costs, staff training and development, pay and benefits).
5. Information Technology (IT): (Investment in IT, data security, performance indicators).
6. Distribution and Logistics: (Inventory management, exporting and importing, performance indicators).

Question 20

Organisational Structure (CH2)

What is Risk?

Answer 20

The possibility of something bad happening.

Question 21

Organisational Structure (CH2)

What is the difference between Risk and Uncertainty?

Answer 21

• Risk is the possibility of something happening that has not been planned. The decision-maker in a risky situation will know that there is more than one potential outcome of their decision and will have assessed each possible outcome before deciding to take the risk.
• Uncertainty refers to situations where the decision-maker either does not know the possible outcomes and/or the probability that they will occur.

Question 22

Organisational Structure (CH2)

What is Business Risk?

Answer 22

A business ‘s vulnerability to factors that could decrease its profits’ or cause the business to fail.

Question 23

Organisational Structure (CH2)

What is Strategic Risk?

Answer 23

Strategic risks are those that arise from the fundamental decisions the directors of the business make about the business’s objectives, or strategies.

-An example of a strategic risk would be for a car manufacturing business to move production of one of its models overseas. This may be a positive move for the business but could result in risks associate with exchange rates, working conditions in different country or changes in the duties on imports and exports.

Question 24

Organisational Structure (CH2)

What is Financial Risk?

Answer 24

Financial risk for a business comes from a change in the financial conditions in which it operates.

• This might be a change in interest rates that increases the cost of borrowings. If a business heavily relies on loans (i.e. debt) it is referred to as being highly geared. An increase in interest rates will increase the repayments that need to be made by a highly geared business.

Question 25

Organisational Structure (CH2)

What is Operational Risk?

Answer 25

Operational risk is a risk that arises from the way in which an organisation operates its business functions.

• It focuses on risks arising from the people, systems and processes and the ethical attitude of the organisation.

Question 26

Organisational Structure (CH2)

What are the three Operational risks?

Answer 26

1. Process risk: there will be risks of loss inherent to the processes of a business.

2. People risk: this is the risk from issues caused by the people who work for an organisation.

3. Systems Risk: most organisations are heavily dependent on computer systems in all aspects of their operations. Unless these systems have strong controls built in, there are increased risks that the systems could be used to process fraudulent transactions.

Question 27

Organisational Structure (CH2)

What is Legal / Regulatory Risk?

Answer 27

This is the risk of loss resulting from an organisation failing to comply with legislation and/or regulations.

• This could be risks relating to health and safety regulations, or breaches of regulations relevant to the industry that the business operates in, resulting in the risk of fines.

Question 28

Organisational Structure (CH2)

What is Event Risk?

Answer 28

Risks which may be present due to an external factor or event that affects the business.

Question 29

Organisational Structure (CH2)

What are 4 types of Event Risk?

Answer 29

1. Physical event risks - the risk of fire or flood which could damage documents or assets, or could interrupt business, are examples of physical risks.
2. Social event risks - using inexpensive labour in certain parts of the world could be exposed to a social event risk if this was reported in a negative fashion as ‘slave labour”.
3. Political event risks - when governments make political decisions such as increasing rates of taxation or introducing environmental legislation, this will have an effect on organisations.
4. Economic event risks - if the Bank of England raises interest rates, this has an impact on the interest rates charged by lenders. This would be an example of an economic event risk for a business that has to pay interest on loans.

Question 30

Organisational Structure (CH2)

What is Cyber Risk?

Answer 30

Any risk associated with financial loss, disruption or damage to the reputation of an organisation from unauthorized use of its systems.

Question 31

Organisational Structure (CH2)

What are the 8 types of Cyber Risk?

Answer 31

1. Phishing
2. Malware
3. Ransomware
4. Distributed Denial-of-service Attack (DDOS)
5. Spyware
6. Keylogging
7. Password Attack
8. Browser Hijacking

Question 32

Organisational Structure (CH2)

What is Reputational Risk?

Answer 32

Reputational Risk is something that threatens the good name of a business, or its reputation.

Question 33

Organisational Structure (CH2)

What can cause Reputational Risk?

Answer 33

• Can result from the direct actions of the business, the actions of one or more of its employees, or the actions of third parties linked to the business.
• Can cause loss of sales and profit, employees to resign and reluctance on the part of suppliers, customers, and investors to be associated with the business.

Question 34

Organisational Structure (CH2)

What can Reputational Risk lead to?

Answer 34

• Can lead to loss of sales and profit, employees to resign and reluctance from suppliers, customers, and investors to be associated with the business.

Question 35

Organisational Structure (CH2)

How can a business avoid Reputational Risk?

Answer 35

• To avoid reputational risk damage, organisations must have good codes of conduct, strong governance and be transparent in their dealings with customers, suppliers, and employees.
• In addition to this, the organisation needs to be socially responsible and environmentally conscious.

Question 36

Organisational Structure (CH2)

What does Risk Management involve?

Answer 36

This involves evaluating each risk by deciding the likelihood of the risk actually happening, and the impact on the business if it does.

Question 37

Organisational Structure (CH2)

How can businesses asses Risk?

Answer 37

• Many organisations will use a risk map, or risk matrix, to assess risk. This is simply a table or chart which plots the impact of the risk on one axis and the likelihood of it materialising on the other.
• Risks can then be grade by multiplying impact and likelihood.

Question 38

Organisational Structure (CH2)

Managing Risk - What does TARA stand for?

Answer 38

1. Transfer
2. Avoid
3. Reduce
4. Accept

Question 39

Organisational Structure (CH2)

Explain Transfer (TARA)

Answer 39

Transfer - if there is a high potential consequence and a low likelihood, the business should transfer part or all of the risk to a third party e.g. insurance.

Question 40

Organisational Structure (CH2)

Explain Avoid (TARA)

Answer 40

If a risk is highly likely and would have a significant adverse impact, the business should look to avoid the risk completely.

Question 41

Organisational Structure (CH2)

Explain Reduce (TARA)

Answer 41

If a risk has a high likelihood and low impact, the business should look to reduce the possibility of it happening and its impact of it if it does.

Question 42

Organisational Structure (CH2)

Explain Accept (TARA)

Answer 42

A business may choose to simply accept that a risk may happen and deal with it when if and when it does.

This would likely only be the case for risks that a both unlikely to happen and not have a significant impact on the business.