Business Objectives And Strategic Decisions Flashcards
1
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A
2
Q
Explain what is meant by an Enterprise?
A
Is another term for a business
3
Q
Explain what is meant by the Factors of Production.
A
The inputs that are used in the production of goods and services. They are Capital, Enterprise, Land, Labour
4
Q
What are the Factors of Production?
A
Capital Enterprise Land Labour
5
Q
Evaluate the impact and Importance of the availability of factors of production for the stakeholders of a business.
A
- If there is a shortage of a factor, its price will rise. - The Factors Price is a Cost to the business and any rise in factor Costs will not be good because it reduces profit margins. - Can lead to higher prices for consumer because of increased business costs (however; does depend on brand loyalty and competitor actions) - Business could reduce other costs by putting pressures on suppliers and making them worse off (depends on the size of the supplier small suppliers will have to accept the Change whilst national suppliers will not budge) - Business could cut back on costs further which could affect communities, as business may not sponsor local projects
6
Q
Evaluate the impact on and the importance to the economy of entrepreneurship and enterprise.
A
- Creates More employment in the economy - Firm pays more tax such as: Income Tax, Cooperation Tax, National Insurance - Successful Businesses will export goods to other countries and so help improve the UK’s trade balance
7
Q
Explain the role of the entrepreneur in making business decisions.
A
Successful entrepreneur will make decisions to benefit their stakeholders and help them achieve their objectives.
8
Q
Evaluate the impact and importance of entrepreneurial activity for stakeholders of a business.
A
Think about an entrepreneurs decisions like cutting costs and how this will negatively affect other stakeholders likes employees and suppliers.
9
Q
Distinguish between primary, secondary and tertiary organisations.
A
- Primary Sector - Concerned with raw materials (extracting raw materials) - Secondary Sector - Concerned with Manufacturing - Tertiary Sector - Concerned with the output of services
10
Q
Distinguish between private, public and third sector organisations.
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- Private Sector - Ran by individuals (usually for profit) - Public Sector - Businesses owned and run by government, objective is to provide a service rather than make a profit. - Third Sector - includes voluntary and community organisations
11
Q
Distinguish between local, national and international / global markets.
A
- Local Market - Customers who will buy a product in the region or area in which it is produced - National Market - Market operating within the borders of a particular country which is governed by the same government - International Market - Is a market outside the international borders of a company’s country of citizenship
12
Q
Distinguish between a national and multinational business.
A
- National Business - is one the operates within the borders of a particular country - Multinational Business - Is a business that operates in many different countries at the same time.
13
Q
Explain the Legal Structure of - Sole Traders
A
- Sole trader has unlimited liability which means you are responsible for all your debts - Makes all the decisions of the business and can employ people - Sole trader cannot issue shares - Don’t have to pay as much tax - Submit their own tax returns
14
Q
Explain the Legal Structure of - Partnerships
A
- Unlimited Liability which means the business is responsible for all its debts - Cannot issue shares - Involves 2 or more people - Deed of Partnership
15
Q
Explain the Legal Structure of - Limited Liability Partnership
A
- Similar to Partnership but all partners have limited liabilities. - Partners are not responsible for another partners negligence and mistakes
16
Q
Explain the Legal Structure of - Private Limited Company (PLC)
A
- Company name must end with ‘Limited’ or ‘Ltd’ - Cannot be involuntarily be taken over - Has no minimum share capital - Has less complicated shareholder reporting a - A company which has fewer than 50 shareholders - Shares are prohibited from being publicly traded
17
Q
Explain the Legal Structure of - Public Limited Company
A
- Public Company is a ‘plc’ - Can sell Shares in the stock market - As anyone can buy shares it can be taken over if someone takes 51% of its shares - Minimum share capital of £50,000 - Required to include lots of detail in its annual reports to shareholders.
18
Q
Explain what is meant by Limited Liability and Unlimited Liability.
A
- Unlimited Liability - is when you are personally responsible for all the business debts - Limited Liability - When you are not personally responsible for all the debts of the business
19
Q
Advantages of being a Sole Trader.
A
- Few Legal requirements when setting up the business - Does not have to consult anyone when making business decisions - Keeps all the profit - Cannot issue shares
20
Q
Disadvantages of a Sole Trader.
A
- Unlimited Liability - Must single handedly perform all business tasks - Can be hard to raise capital for expansion - Can be overworked
21
Q
Advantages of a Partnership.
A
- Easy to establish - Additional partners means there will be more capital - Work is shared - Gain Experience / Specialisation - Losses are shared
22
Q
Disadvantages of Partnerships.
A
- Unlimited Liability - Decision making is slower due to possible disagreements - Legal restriction on maximum number of partners means that business can still lack capital
23
Q
Advantages of Companies. (Private and Public)
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- Access to large amounts of capital through ability to issue shares - Limited Liability for Shareholders - Investors such as Banks class then as less risky
24
Q
Disadvantages for Companies (Private and Public Companies)
A
- Can be expensive to set up, due to expensive documents - More complex because directors have certain legal responsibilities to shareholders - Company accounts are not private, difficult to keep it hidden from competitors
25
Explain what is meant by a franchise.
Is where a business with a well known brand name let’s a person set up their own business using that brand.
26
Distinguish the difference between Franchisors and Franchisees.
Franchiser - is the business Franchisee - The Person wanting to create the franchise
27
Advantages of a Franchise.
- Firm does not have to spend large amounts of money in order to expand - Products necessary for the franchise to operate are under the franchiser’s direct control - Applicants are carefully selected.
28
Disadvantages of a Franchise.
- Control issues, Control the garnishee it has over its product is not as great if the business sold the product itself - Cost of supporting the franchises, the ongoing support, training, market research and product development are costs to the franchisers
29
Evaluate the impact and importance of franchising to the stakeholders of a business.
- Initial Costs of setting up the whole network and the risk that it may initially fail if the wrong locations or franchises are chosen. - Business stakeholder will not Dee huge benefits immoderately.
30
Explain what is meant by cooperatives.
A business that is owned and run by its remembered (employees and customers). Profits are shared between members rather than being distributed to shareholders
31
Evaluate the importance and impact of a cooperative structure to the stakeholders of a business.
Stakeholders get a better deal with cooperative business models because the concern of those running it is not narrowly focused purely on the organisations shareholders
32
Explain the functions of a business including marketing
The action of promoting and selling products or services in order to create relationships with and satisfy customers.
33
Explain the functions of a business including Production
The process and methods used to transform raw materials into goods and services
34
Explain the functions of a business Operations Management.
Is the process of putting in place practises to create the highest level of efficiency possible within a business
35
Explain the functions of a business including Accounting and Finance.
Is the process of managing companies income and expenses, managing the flow of money and thereby direct the course of the business
36
Explain the functions of a business including Customer Service.
Is the service provided to customers before, during and after purchasing and using goods and services
37
Explain the functions of a business including Sales and Support Service.
- Sales service helps customers find products and their services - Customer service ensures their interactions with the business remain positive over time.
38
Evaluate the impact and importance of the functions of business to the stakeholders of a business.
• Marketing - Builds consumer loyalties, helps understand the consumer • Production - helps employees work more effectively • Accounts - Improves Cash Flow and manages profits, employees get payed, shareholder get dividends and profits accurate.
39
Characteristics of a Large businesses?
- Large businesses will employ a large number of employees - The Higher the number of factories, shops or offices a business has the more it will be perceived as ‘large’ - High Turnover is associated with a large business - Higher the Profit Level, the Larger the firm is likely to be. - The Higher the value of the company, the larger the company will be. - Capital employed is the total value of a businesses assets, of the figure is high the larger the business
40
How can we determine business size?
By measuring the number of employees that work for it or by total sales within a certain period
41
Evaluate the factors affecting the size of a business.
• Number of Employees - Many factories are highly automated and capital intensive, they produce a lot of output, but do not employ a large number of people • Turnover and Profit Levels - a jeweller many only own one shop but still have a high turnover because of the high value of relatively few products sold. • Stock market Value - Share Prices Change daily, this method of estimating a business’s size could be misleading • Capital Employed - Prices can rise and fall without any change in the size of the building, additionally geographical differences can cause different factory prices such as expensive buildings in London.
42
The effect of a businesses size on its stakeholders - Employees (ADVANTAGES)
- Greater job security - A large firm have specialist Human Resources department which will ensure compliance with legislation
43
The effect of a businesses size on its stakeholders - Employees (DISADVANTAGES)
- Employees can feel remote from those who make the decisions that actually affect them
44
The effect of a businesses size on its stakeholders - Suppliers (ADVANTAGES)
- Regular order - Large orders
45
The effect of a businesses size on its stakeholders - Suppliers (DISADVANTAGES)
- May he offered a ‘take it or leave it approach’ to conditions of supply and payments - Over dependance on a large customer can cause problems if the large firm decides to change supplier
46
The effect of a businesses size on its stakeholders - Local Community (ADVANTAGES)
- Creation of Jobs
47
The effect of a businesses size on its stakeholders - Local Community (DISADVANTAGES)
- Possible Negative Externalities such as Pollution/congestion around the business - A large business may drive the existing local firms out of the market
48
The effect of a businesses size on its stakeholders - Shareholders (ADVANTAGES)
- Larger Firm May have some market power and so may have a degree of control over prices - Can Gain economies of scale
49
The effect of a businesses size on its stakeholders - Shareholders (DISADVANTAGES)
- If managers make the wrong decision it can have significant effects on the business profits - Large businesses can be organisationally inflexible
50
The effect of a businesses size on its stakeholders - Customers (ADVANTAGES)
- Business can develop new products - Economies of Scale can lower costs and therefore prices
51
The effect of a businesses size on its stakeholders - Customers (DISADVANTAGES)
- Diseconomies of scale may raise costs - Customers can be swayed into buying a product they don’t want through marketing
52
Explain what is meant by a Joint Venture.
Is a formal business arrangement between two or more businesses who commit to work together on a particular project.
53
Why undertake a Joint Venture?
- Cost of Capital May be very high and may be beyond the resources of a single business - A single business may consider the venture as too much of a risk - Enables businesses to share strengths
54
Explain what is meant by a Strategic Alliance.
Is an agreement between two or more parties to pursue a set of agreed upon objectives while remaining independent organisations
55
Effects of Joint Ventures and Strategic Alliances on a Business’s Stakeholders?
- The Venture/Alliance could fail and the expected stakeholder benefits could materialise. - If one party is more powerful than the other it could demand conditions - If the contract is vague/ambiguous it will be a recipe for trouble, therefore no stakeholder benefits
56
What is an Organisational Aim?
- Are short-terms sun medium-term goals that an organisation seeks to accomplish, they play a large part in developing organisations and determining the allocation of resources.
57
What is a Business Aim?
Is the goal a business wants to achieve
58
What are Strategic Objectives?
Are long-term Organisational goals that help to convert a missions statement from a broad vision into more specific plans and projects.
59
What are Tactical Objectives?
Is the immediate short-term desired result of a given activity.
60
What are Operational Objectives?
Are short-term goals whose achievement brings and organisation closer to its long term goals.
61
What is meant by the term SMART?
- Specific - Measureable - Agreed - Realistic - Time-bound
62
Explain the importance of setting SMART objectives to a business and its stakeholders - Specific
Important that everyone understands what the objective is.
63
Explain the importance of setting SMART objectives to a business and its stakeholders - Measureable
So success or failure can ascertained
64
Explain the importance of setting SMART objectives to a business and its stakeholders - Agreed
- Agreement between different departments means that the firm is more likely to achieve its objective - All departments must work together in setting objectives
65
Explain the importance of setting SMART objectives to a business and its stakeholders - Realistic
- Important to be realistic in order to avoid employees becoming demotivated - Large plc’s May want to satisfy shareholders
66
Explain the importance of setting SMART objectives to a business and its stakeholders - Time-Bound
- Time constraints tend to focus people’s minds.
67
Scalping what is meant by the hierarchy of Objectives?
Is a tool that helps analyse and communicate project objectives, it organises these objectives into different levels of the hierarchy tree.
68
Advantages of setting Aims.
- Creates clear plans - Increased Awareness - Creates prioritise
69
Disadvantages of Aims.
- Creates Pressure on Employees - Creates a Sense of Failure and Demotivation
70
Explain how the sector in which a business operates affects its aims and objectives.
- Small Firms May Aim to Survive and Break even - Larger Businesses May Aim to increase Market Share / Growth
71
Explain how objectives can be communicated.
- Business could communicate through managers to the employees and Owners to the Managers - Businesses could communicate online - By news letter
72
Evaluate the consequences of mis-communicating objectives to a business and its stakeholders.
- If employees feel that growth is going to be achieved at the cost of jobs, with worker being replaced by capital, this can result in serious unrest. - Employees may be resistant to change and new ideas should be communicated clearly.
73
Evaluate ways in which the objectives of a business could be better communicated.
- Make the message simple - Inspire the team
74
Explain why objectives of a business may need to change.
- A firms tactical objectives may alter, depending on priorities and circumstances, in order to achieve the strategic plan and main goals. - Business may have to use its contingency plan
75
What is meant by the term stakeholder?
A person or party with an interest in the success of a business
76
Identify Internal and External Stakeholders of a business.
Internal Stakeholders - Are found within the business, and are the owners, employees, managers etc. External Stakeholders - Are suppliers, banks, customers and the local community
77
Analyse the objectives of the stakeholders of a business - Employees
- Job security - Want more legal entitlement such as holidays and sick pay - Want managers to organise their work so they find it interesting - Employees that feel valued will be more productive, be less resistant to change and less likely to leave - Employees want promotional oppertunities - Highest wage possible
78
Analyse the objectives of the stakeholders of a business - Customers
- Good Quality - Low Prices (dont want to feel exploited) - Safe Products - Innovation - Good Customer Service
79
Analyse the objectives of the stakeholders of a business - Suppliers
- Regular Orders - Prompt payment - Suppliers who are treated as true stakeholders rather than suppliers are more likely to be loyal and committed because they have a stake in the business. - Helps in the short term eg. quick delivery
80
Analyse the objectives of the stakeholders of a business - Owners & Shareholders
- Owners will want the best possible return on their investment - Want to see the business grow maybe via. Low Prices - Want a high rate of return - Shareholders want a large dividend - Shareholders also want the share price to increase. - If share prices decrease then shareholders will sell their shares which may lead to a greater threat of business takeover.
81
Analyse the objectives of the stakeholders of a business - Local Community
- Jobs - Community Involvement - Responsible attitude (eg. to the local environment)
82
Explain the reasons for conflicts between different stakeholder groups.
Increasing profits could lead to employees becoming redundant and consumers experiencing higher prices.
83
Explain why a business needs to manage the conflicting objectives of its stakeholders.
A business needs to keep their stakeholders happy because it could lead to short-term trade offs.
84
Evaluate the impact on a business of different stakeholders having different objectives.
- If CUSTOMERS are dissatisifed with the quality, service, price, service and ethical behaviour, they will eventually stop buying from the business - Firms who have treated SUPPLIERS not as stakeholders are not likely going to get special deals like fast dealines.
85
Analyse the objectives of the stakeholders of a business - Lenders
- Wants the agreed amount owed to it to be paid at the agreed time.
86
Analyse the objectives of the stakeholders of a business - The Government
- If more people are employed by the business, the government will pay out less welfare payments, and receive increased tax revenues. - Improves the UK's Balance of Payments if the firm is large enough to export.
87
What are the Stakeholder Objective Conflicts of moving production processes abroad?
A business decision to move production overseas may reduce staff costs. It will therefore benefit owners but work against the interests of existing staff who will lose their jobs. Customers also suffer if they receive a poorer service.
88
Why should a business not make business decisions focusing on one stakeholders group?
Because it is said to be counterproductive as it will alienate the other stakeholder groups
89
What should a company do to minimise stakeholder objective conflicts when making decisions?
Use SMART objectives S - Specific M - Measurable A - Agreed R - Realistic T - Time-Bound
90
How do EMPLOYEES influence business decisions?
- How many are there? - Are there trade unions? How many employees are members? - Are there a large number of employees who cannot be replaced?
91
How do SHAREHOLDERS influence business decisions?
- If the business is a Private Company, it can be hard to identify the value of the shares because they are not on the stock market. - If the business is a Public Company, shareholders are sensitive to a change in share price and dividend, they have the powers to vote directors off the board. In a Public Company, directors may then see shareholders as the most important stakeholder.
92
How do SUPPLIERS influence business decisions?
- Is the supplier a monopoly and have a lot of buying power? - Could similar products be bought elsewhere? \> If it isn't a unique product, en it has less power.
93
How do LOCAL COMMUNITIES influence business decisions?
- What extent might bad publicity affect the business in the long term? - Will the bad public blow my bet quickly?
94
How do CREDITORS influence business decisions?
If a business is finding it difficult to keep up with its mortgage repayments, it may have to delay payments to suppliers to improve its liquidity position.
95
Explain what is meant by a Joint Venture?
Is a formal business arrangement between two or more businesses who commit to work together on a particular project. - A Joint Venture is different from a Merger because there is no change in ownership involved for either firm.
96
Explain what is meant by a Strategic Alliance?
Is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. - The difference between a Joint Venture and a Strategic Alliance, a Strategic Alliance is normally less involved and less permanent.
97
Evaluate the impact and importance of a Joint Venture and a Strategic Alliance in business Stakeholders.
- The Venture / Alliance could fail and the expected stakeholder benefits could materialise and fail. - Strengths of parties when the contract or agreement is drawn up, if one party is more dominant than the other it could demand conditions which could benefit that businesses stakeholders more. - The contract needs to be clear, parties must be clear about their rights and duties.
98
Explain the nature and purpose of a Missions Statement.
- A Mission Statement gives a general idea of what the business exists to do. - The purpose of a Mission Statement is to set this down for the benefit of all its stakeholders.
99
Recommend and justify a suitable Mission Statement for a Business.
- A mission statement is intended to appeal to employees and customers - Can be used as a form of marketing.
100
What are the advantages of a Mission Statement?
- Provides directions : without directions business are operating without purpose which could be dangerous. - Helps to Resolve Conflicts : members of the management board can easily make quick reference to a mission statement in time of conflict and argument.
101
What are the disadvantages of a Mission Statement ?
- On its own it can be ambiguous and worthless : Can be easily vague, empty and confusing - Focuses and short term issues
102
Explain what is meant by Corporate Social Responsibility (CSR)?
is how companies manage their business processes to produce an overall positive impact on society
103
Explain the potential conflict between Corporate Social Responsibility (CSR) and profit and other objectives.
- CSR is likely to lead to lower profits because businesses have to invest elsewhere. - If businesses act sustainably they can use this as a USP and advertising point.
104
Evaluate the impact and importance of a CSR policy to a business and its stakeholders.
With changes in consumer interest and demands consumers can put pressure on businesses to change the CSR objectives.
105
Advantages of Corporate Social Responsibility.
- Improves company image - Consumers will be more willing to avail your products/services because of the clean image of your company. - Helps retain and attract new employees - This makes it easier for your company to attract potential candidates who seek employment opportunities. Also, when your company starts earning goodwill through significant CSR activities, the employees are more likely to continue with the company for a longer time.
106
Disadvantages of Corporate Social Responsibility.
- CSR costs money to implement - Conflicts with profits
107
Define an Objective.
Refers to specific steps a company will take to achieve a desired result.
108
What are Strategic Objectives?
How a business plans to achieve its aims or goals, often a long-term approach
109
What are Tactical Objectives?
The day-to-day (short term) objectives needed to ensure the strategic objectives are achieved.
110
What does a GOOD objective cause?
- A greater sense of direction for the business - A possible motivational force for all employees - An aid to controlling existing and future operations in the business.
111
How could a business alter its strategy?
The business could alter its strategy with short term events in mind
112
Stakeholder Influence - Employees
Take into account... - How many employees there are - Is there a Trade Union - Large number of employees who can not be replaced - High labour turnover rate
113
Stakeholder Influence - Suppliers
Take into account... - Is the supplier a monopoly - Could similar products be bought elsewhere
114
Stakeholder Influence - Local Community
Take into account... - To what extent might any bad publicity affect the business in the long term? - Will bad publicity blow over quickly
115
Stakeholder Influence - Creditors
Take into account... - Business may have to delay mortgage payments
116
What is Implementation Strategy?
Is the process that turns strategies and plans into actions in order to accomplish strategic objectives and goals.
117
Explain why a business needs to plan its Implementation Strategy.
So it can please as many stakeholder groups as possible
118
What is Porters 5 Forces Model?
Is a system for analysing the level of competition in an industry
119
What are the 5 Forces of Porters Model?
1 - Threat of new entrants into the market
2 - Bargaining power of supplires
3 - Bargaining power of consumers
4 - Threat of substitute products entering the market
5 - Degree of existing competitive rivalry
120
Evaluation point about Porter's Model
It is not always easy to obtain all the required information about the threats that exist and the market situation
121
Porters 5 Forces Analyse - The threat of new entrants
- If new firms enter an industry they will take a share of the marketand increase competitive intensity
122
Porters 5 Forces Analyse - The bargaining power of suppliers
When an industry has suppliers who can force up the price of their products through their strong power to bargain, it will cut profits.
123
Porters 5 Forces Analyse - The bargaining power of customers
If the customers of an industry have strong bargaining power, this will force prices down and reduce profitability.
124
Porters 5 Forces Analyse - The threat of substitutes
A business that fails to keep up to date with new devices will quickly lose market share.
125
Porters 5 Forces Analyse - The degree of competitive intensity
Where there is high competitive intensity it is likely there will be innovation, price wars etc... all these things reduce the level of profitability that can be achieved.
126
When would a business use Porters 5 Forces Model?
If a business is thinking about moving into a different sector.
127
Explain the purpose of a business plan.
Is a formal written document taht explains the detail how a business is going to achieve its objectives.
128
Describe the main contents of a business plan.
- What is the business aiming to achieve?
- Why?
- What will need to be done to achieve this?
- By Whom?
etc. ..
129
Explain why things are contained in a business plan?
So the business is well organise and can succeed.
130
Advantages of a Business Plan.
- Gives a business a sense of direction
- Can stop problems developing in strategic and tectical objectives
131
Disadvantages of a Business Plan
- The business plan is only a plan and does not guarantee success.
- If the plan is too rigid some problems may arise, it must be flexible to adapt to market changed.
132
Evaluate the impact and importance of a business plan to the stakeholders of a business - Employees
Objectives - Job security - Pay Rises - Good working conditions
Want to know are these likely to be forthcoming in the future?
If so to what extent?
133
Evaluate the impact and importance of a business plan to the stakeholders of a business - SUPPLIERS
Objectives - Regular Orders - Prompt payment for products
Wants to know - Are this more likely to occur?
134
Evaluate the impact and importance of a business plan to the stakeholders of a business - SHAREHOLDERS
Objectives - Larger Dividends - Rise in share price
Will future plans jeopardise this?
Will the plan mean there are long-term or short-term gains?
135
Evaluate the impact and importance of a business plan to the stakeholders of a business - CUSTOMERS
Objectives - A 'fair' price - Ethical Issues (how the product is sourced) - Improvement in the product - Good customer service
Will there be changes to a product?
Are they being sourced ethically?
Is customer service likely to improve?
136
Evaluate the impact and importance of a business plan to the stakeholders of a business - LOCAL COMMUNITY
Objectives - Jobs - Business involvement in the community
Are jobs likely to be created or not?
Will more be put back into the community?
137
Explain what is meant by the Plan-Do-Review Cycle.
Plan - Established objectives and the course of action, and the resources necessary to achieve them
Do - Implement the plan ensuring that all areas of the business understand their part of it in terms of responsibilities and deadlines
Review - There will need to be a formal ongoing evaluation of progress towards objectives and a final review at the end of the process
138
Advantages of Plan-Do-Review.
- If those in each department of the business are clear about what they have to do then employees should be more focused on achieving results.
- Regular reviews of departmental and individual employees progress mean that deviations from the plan can be indentified and corrected
139
Evaluate the impact and importance of a strategic review to a business and its stakeholders.
- Conducting Strategic Planning will lead to...
- Improvement in long-run profitability of the business
- Means stakeholders are more likely to be satisfied, shareholders will get larger dividends, employees will have greater job security, suppliers will be in a more secure position and therefore greater community involvement.
140
Explain what is meant by Risk and Reward.
A decision to take a high risk is associated with the expectation of a high reward and vice versa.
141
Evaluate the relationship between risk and reward in business.
Creates oppertunity cost - pursueing a particular course of action will mean that someting else has to be fortified.
142
What is Quantifiable Risk?
The liklihood od a predictable risk occuring. It is possible to put a sort of value on this sort of risk.
143
What is Unquantifiable Risk?
The risk of an event that is unexpected. It is not possible to put a value on this sort of risk.
144
Evaluate Unquantifiable and Quantifiable Risk to a business.
Not always possible to put an absolute precise figure on a risk because of uncertainty.
Building a new factory is unquantifiable because a figure can be put on it but the loss of an employees is quantifiable because new employees are not as good as experienced ones.
145
Evaluate ways in which a business can reduce its levels of risk.
Use oppertunity cost
146
Evaluate the consequences to a business and its stakeholders of poor risk management.
It can ruin a companies reputation and financially destroy the company.
147
Evaluate the specific risks faced by an entrepreneur.
Entrepreneurs take risks with their physcal and mental well-being often working long hours wiht few breaks or holdaiys.
148
Explain what is meant by uncertainty.
The inability to calculate the costs and benefits of a decision precisely.
149
150
Explain what is meant by opportunity cost.
The next best alternative that has to be fortified when a decision is made
151
Analyse the impact of opportunity cost in business decision making.
This means that all possible courses of action have to be considered very carefully.
152
Explain the nature and purpose of contingency planning.
Planning for 'what will happen if things go wrong?' This means that an agreed course of action is in place and is ready to be used if necessary.
153
What are the disadvantages of Contingency Planning?
- Opportunity Cost of the time involved in constructing the plan.
- The people who construct the plan may not be honest in their assessment of risk and the plan therefore not being a true reflection of the businesses situation.
154
Impact of NOT having contingency plan for a business and its stakeholders - SUPPLIERS
Will receive fewer orders and will experience a fall in revenue and profit
155
Impact of NOT having contingency plan for a business and its stakeholders - EMPLOYEES
- Will have no livelihood
156
Impact of NOT having contingency plan for a business and its stakeholders - CUSTOMERS
Will be let down if the products they run out of products, which tarnishes the businesses reputation.
157
Impact of NOT having contingency plan for a business and its stakeholders - LOCAL COMMUNITY
Will experience a fall in income from the rise in the number of unemployed.
158
Impact of NOT having contingency plan for a business and its stakeholders - GOVERNMENT
Will lose tax revenue as corporation tax
159
Explain the nature and purpose of crisis management.
Is the process by which an organisation deals with an event that threatens to harm the business and its stakeholders.
160
Evaluate a businesses crisis management.
- If it is not communicated well then there is no point in having it
- Shoudl be created at the most senior level of the business but should involve those lower in the business maybe.
161
Explain the nature and purpose of Porter's Five Forces Model.
Is a system for analysing the level of competition in an industry
162
Show Porter's Five Forces Model Diagram.
163
Evaluate the usefulness of Porter's Five Force Model to a business.
The model can be used by a business to see the situation clearly if a business is moving into a new market.
Problem with the Porter's Five Forces model is that it is not always easy to obtain all the required information.
164
What is the purpose of Porter's Generic Strategies?
Shows how a company can achieve a competitive advantage in an industry
165
What are Porter's Generic Strategies?
- Cost of Leadership - Aim to be the lowest cost producer in the field, by achieving economies of scale, and taking this cost cuts and passing them onto the consumer.
- Differentiation - Involves the firm producing a range of goods that is either different from that of the competition. This could lead to problems because the products could be easily replaced.
- Focus or Niche - This involves producing for a particular sector of the market, such as paying a premium price to be different.
- Stuck in the Middle - A business that tries to adopt all three strategies is unlikely to achieve success, it is impossible to please all consumers.
166
Evaluate a business's position/proposed position using Porter's Generic Strategies.
If a business ttries to apply these strategies it could gain a competitive advantage.
However some firms cannot gain advantages such as economies of scale because they are too scale, or not have the possibility of creating a new product.
167
Explain what is meant by Competitive Advantage.
a circumstance that puts a company in a favourable or superior business position.
168
Distinguish between financial and non-financial measures of business performance.
Financial - Is a measure of how well a business operates in the context of profits, revenues etc.
Non-Financial - Is a measure of business performance through customer satisfaction and business reputation etc.
169
What are Final Accounts and are they a Financial Measure of Business Performance?
gives an idea about the profitabilitty and financial position of a business to its management, owners, and other interested parties.
High figure shows a good business performance
170
What are Ratio Analysis and are they a Financial Measure of Business Performance?
Is the comparison of line items in the financial statements of a business.
171
What are Gearing Analysis and are they a Financial Measure of Business Performance?
The proportion of assets invested in a business that are financed by borrowing.
The lower the number the better, this shows the firm is very liquid.
172
What are Ratio Analysis and are they a Financial Measure of Business Performance?
Is the examination of a company's cash inflows and outflows during a specific period.
A higher inflow than outflow shows a profitable business
173
What are Budget Analysis and are they a Financial Measure of Business Performance?
is to understand how an organization's money is being spent and managed.
Well managed budget analysis shows investments staying within the budget
174
What are Variance Analysis and are they a Financial Measure of Business Performance?
is the difference between actual and planned behavior.
If the actual behaviour is similar to that which is planned shows an efficient business.
175
Explain the difference between cash flow and profit.
Cash Flow is the total amount of money being transferred into and out of a business.
Profits are money that is earned in trade.
176
Distinguish between the measures of liquidity, profitability and performance.
Liquidity = Current Assets / Current Liabilities
Profitability - --\>
Gross Profit = Net Sales – Cost of Goods Sold.
Operating Profit = Gross Profit – (Operating Costs, Including Selling and Administrative Expenses)
Net Profit = (Operating Profit + Any Other Income) – (Additional Expenses) – (Taxes)
Efficiency = dividing a worker's actual output rate by the standard output rate and multiplying the outcome by 100 percent.
177
Explain why a business' published accounts do not provide a complete picture of performance.
- Because it is only a snap shot of the business
- Doesn't take into account the businesses non-financial measures
178
Define Market Share
Is the share of the market that the product or business controls in a particular area.
179
Explain why a business measures performance.
- Measures work qualitatively to provide the useful information about products, processes and services that are produced in a business.
180
Advantages of measuring business performance.
- It can increase the productivity of individuals and teams / It provides the opportunity to recognize top performers.
- It can identify under-performing individuals and teams.
181
Disadvantages of measuring business performance.
- It can lead to decreased levels of output. (top performers will feel theyre being ignored, for new staff i can be unattainable)
- It can lead to a lack of commitment. (Negative performance can demotivate employees)
182
Explain the nature and purpose of forecasting.
- Forecasting is the use of existing data to predict future trends
- Businesses need to use forecasting so that they can make plans for the future.
183
Uses of Forecasts.
- Helps predict the future (which gives the company a sense of direction)
- Keeps customers happy (this is because businesses can more accurately predict changes in demand)
184
Limitations of Forecasting.
- Never are 100% accurate because they are based upon assumptions, averages and previous trends.
- Can take a lot of time to put together as lots of data needs to be collected.
185
Explain what is meant by Qualitative Forecasting.
Using views and opinions in reaching decisions about the future, which are often based upon previous experiences.
186
Explain what is meant by Quanatitative Forecasting
It is a statistical technique to make predictions about the future which uses numerical measures.
187
Describe structured methods of Qualitative forecasting including Delphi technique and Expert Opinion.
Delphi Technique - Relies on information from experts, in the form of a questionaire to experts. Opinion are squeezed into an average opinion and forecasts are made based off of this.
- Expert Opinion - Experts give present their ideas and solutions to the table.
188
Describe unstructured methods of qualitative forecasting including brainstorming and intuition.
- Brainstorming - This technique brings together individuals to discuss their ideas for solutions to problems, group discussions are more effective than individuals.
- Intuition - Instead of using any structured techniquess, managers will rely on their knowledge of the markets and the economy and past experiences.
189
Calculate and interpret a range of quantitative financial forecasts including sales, costs, profit and cash flow
Pretty straight forward, just think!!!
Sales are high so forecast to produce more
Costs are high so forecast to spend less
Profits are low so forecast to sell more
190
What is Time Series analysis?
Is the use of a moving average using past data, over a period of time, which is then projected to give forecast figures.
191
Explain what is meant by Seasonal Variations/Changes.
A situation in which a company has better sales incertain times of the year than in other times.
Eg. Christmas
192
Explain what is meant by Cyclical Variations / Changes?
Are the variations that occur as a result of the business cycle (economic cycle), such as recessions and booms in the economy.
193
194
How do you calculate cyclical variations?
Actual sales in a period of time - moving average figures
Eg. £110,000 sales in 2001
£115,000 moving average sales
You would do...
Actual Sales - Moving average sales
110 - 115 = -5
195
Analyse how seasonal and cyclical variations impact on forecasting.
Identifying the trends in sales figures will show a business whether the business profit is rising or falling at that specific time period or just in general.
196
Use correlations to analyse trends and make forecasts.
For a diagram that fluctuates up and down and has no real correlation it is not suitable to forecast, using that graph.
To make it suitable to forecast from a business should join the points together and make a line of best fit, this shows a long-term trend that CAN be used to forecast future sales.
197
Use Time Series Analysis to predict future values. Diagram.
198
Evaluate the usefulness of Time Series Analysis for a business.
- The factor that affected the fluctuations cannot be adjusted by the time series analysis.
- The factors that influence the trends may not stay the same over a certain time period.
199
Recommend and Justify how a business could respond to forecasts.
If a business tries to estimate future revenues and costs they can take appropriate action to improve their overall performance. The use of moving averages will help show the business how well it is likely to perform in thee future.
200
Evaluate the importance of accurate forecasting to a business and its stakeholders.
- The forecast is only as useful as the data that it is used to formulate.
- Businesses should be too optimistic
- Business simply cant predict what is going to happen in the economic cycle
- Most recent information is the most useful information.
201
Explain the nature and purpose of Decision Making.
- Is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.
- make more deliberate, thoughtful decisions by organizing relevant information.
202
Evaluate the impact and importance of effective decision making to a business and its stakeholders.
- Improves communication and the objectives of the business creating clarity.
203
What are Aims?
A business attempts or intends to reach a certain goal.
204
What are Objectives?
Seeking to achieve main aims by setting various specific objectives.
205
What is Short-term, Medium-Term and Long-Term in business.
Short term - less than 3 years
Medium Term - Between 3 - 10 years
Long Term - Over 10 years
206
What are Strategic Objectives?
How a business plans to achieve its aims, often a long-term approach
207
What are Tactical Objectives?
The day-to-day (short term) objectives needed to ensure the strategic objectives are achieved
208
What are Operational Objectives?
Super similar to tactical objectives
209
Distinguish between Quantitative and Qualitative decision-making tools.
Quantitative - approach is to make an optimal decision by using mathematical and statistical models in a situation when the probability of all outcomes is uncertain.
Qualitative - is more subjective NOT based on the numerical statistical data.
210
Evaluate the usefulness of different measures of performance - Financial Measures
- Cannot predict the future accurately
- Does not take into account future scenarios
211
