Definitions 3.2

Question 1

Seasonal variation

Answer 1

change in the value of a variable that is related to seasons

Question 2

Criterion level

Answer 2

a yardstick set by directors to enable managers to judge whether investment ideas are worth pursuing (e.g. ARR must be 15+% or payback must be a max of 12 months)

Question 3

Cumulative cash

Answer 3

the buildup of cash over several time periods

Question 4

Discounting

Answer 4

applying a discount factor to a money sum to take into account the opportunity cost of money over time

Question 5

Present values

Answer 5

the discounting of future cash flows to make them comparable with today’s cash. this takes into account the opportunity cost of waiting for the cash to arrive

Question 6

Short-termism

Answer 6

making decisions on the basis of the immediate future and therefore ignoring the long-term future of the company

Question 7

Tactical decisions

Answer 7

those that are day-to-day events and therefore do not require a lengthy decision making process

Question 8

Actual values

Answer 8

although known as actual values or payoffs, these are the forecasts of the net cash flow which result from following a sequence of decisions and chance events through a decision tree. They should always be at the ends of the branches of the tree

Question 9

Expected values

Answer 9

these are the forecast actual values adjusted by the probability of their occurrence. Although called ‘expected’, they are not the actual cash flows which result. Expected equals actual times probability

Question 10

Net gains (or losses)

Answer 10

subtracting the initial outlay from the expected value to find out whether or not a decision is likely to produce a surplus

Question 11

Node

Answer 11

a point in a decision tree where chance takes over. It is denoted by a circle, and at that point it should be possible to calculate the expected value of this pathway

Question 12

Probability

Answer 12

the likelihood of something occurring. Expressed as a numerical value, can be a percentage, a fraction or a decimal. Probability of something certain is 100% or 1. Something impossible is 0. Range from 1 to 0

Question 13

Critical path

Answer 13

the activities that put be completed on time for the project to finish on time. They have no float times at all

Question 14

Management by exception

Answer 14

the principle that because managers cannot supervise every activity within the organisation, they should focus their energies on the most important issues

Question 15

Network

Answer 15

diagram showing all the activities needed to complete a project, the order in which they put be completed and the critical path

Question 16

Network analysis

Answer 16

breaking a project down into its component parts, to identify the sequence of activities involved

Question 17

Earnings per share

Answer 17

company profits after tax divided by the number of shares issued; a rising EPS makes it easy to pay out rising dividends to shareholders

Question 18

Intuition

Answer 18

deducing something from circumstances without any direct evidence

Question 19

Mittelstand

Answer 19

the family-owned small and medium sized businesses that are the backbone of the German Economy

Question 20

Stock market index

Answer 20

a weighed average of the share prices of many companies are added together, adjusted to equal 100, then measured for % change over time

Question 21

Person culture

Answer 21

an organisation such as a legal practice, where common training practices mean everyone is trusted to get on with their jobs with minimal supervision

Question 22

Power culture

Answer 22

the boss as spider in the web, with every decision going through him or her. Power kept at the top

Question 23

Psychmetric tests

Answer 23

designed to test the psychological make-up of a candidate - that is, the personality and character of an individual

Question 24

Role culture

Answer 24

where the job role is treated as of more importance than the individual; this will be a bureaucratic, risk-avoiding culture

Question 25

Task culture

Answer 25

making the task or project the focus with staff brought in to form a temporary team empowered to get the task completed successfully

Question 26

Pressure group

Answer 26

a group of people with a common interest who try to further that interest

Question 27

Shareholder

Answer 27

an owner of (part up) a company

Question 28

Shareholder value

Answer 28

a term widely used by company chairmen and chairwomen, which means little more than an attempt to maximise the company’s share price

Question 29

Social responsibilities

Answer 29

duties towards stakeholder groups, which the firm may or may not accept

Question 30

Stakeholders

Answer 30

an individual or group that affects and is affected by an organisation