Introduction To Business Flashcards
What is a business?
A business is an organisation that transforms inputs into outputs that are purchased by customers they add value to inputs
What is a good?
Goods are physical or tangible products eg consumer electronics I industrial components, car
What are services?
Servicesare intangible products e.g insurance dental services, cleaning
Why do businesses exist?
Businesses exist because they are formed by entrepreneurs and are subsequently developed it they manage to get beyond the survival stage
How do businesses benefit a country?
- Create jobs - taxes - improve economy
Provides services to people
Create innovative products that improve lifestyle or even save lives
Enhance country’s reputation in certain fields
Define a mission statement
Mission statement: sets out what a firm is trying to achieve eg to be the lowest cost producer in the industry_ they tend to focus on the business’ values, non-financial goals1 now they benefit the community) now they will satisfy consumers
Example of a mission statement
Etsy: to keep human connection at the heart of commerce
Benefits of a mission statement
Decision-making is easier as all decisions must help the overall mission be achieved
Everyone’s actions are directed towards the same thing
mission statements can motivate - give workers a sense of belonging and direction
It unrealistic / A PR exercise they are ignored
Define aims
Aims: long term plans From which corporate objectives are derived - they are normally qualitative, not numerical targets eg to deliver long-term growth
Define corporate objectives
Corporate objectives: a quantifiable (measurable) statement of a business’ goals which should include measurable targets eg growth profits diversification, develop innovative goods. They will be quantifiable eg 10% increase in profit over the next 4 years
What should all objectives be?
Smart ( specific, measurable, agreed, realistic, time - based ) decisions within each functional area are based on corporate objectives
Define functional objectives
A quantifiable statement of a departments goals which should enable it to contribute to the achievement of the business’ objective
Why must functional objectives be coordinated?
Functional objectives must be coordinated so that they don’t conflict with each other this can be harder to achieve as the firm keeps growing and communication channels become more complex.
What do common business objectives focus on?
-profits
-growth
-survival
-cash flow
-social/ethical issues
-diversification
Why do businesses set objectives?
-state what needs to be achieved
-a focus for all activity
-targets for individuals and group achievement
-a way to measure performance
Why do businesses set objectives?
-state what needs to be achieved
-a focus for all activity
-targets for individuals and group achievement
-a way to measure performance
Benefits of corporate objectives
Increase market share-
Reduce unit costs
Increase cash flow
Improve customer satisfaction
Criticisms of mission statements
Not always supported by business actions
Often too vague and general
Often merely statements of the obvious
Are they just PR
Sometimes regarded cynically by staff
To be effective everyone have to buy in
What may a business want to do if it has a long term growth objective?
It may want to invest in training to improve skills invest in expansion into new markets and invest in development of new products all this helps achieve LR objective of growth however sr profits will fall.uk firms are often criticised for setting objectives that are too short term and don’t involve long term planning
What are Uk firms often criticised for ?
Uk firms are often criticised for setting objectives that are too short term and don’t involve long term planning
What are Uk firms often criticised for ?
Uk firms are often criticised for setting objectives that are too short term and don’t involve long term planning
Define fixed costs
Costs that do not alter when the business alters its level of output eg rent,interest charges
Define variable costs
Variable costs are costs that alter as the level of the firm’s output alters eg raw materials energy used in production.Variable costs are ‘per unit’ .
How do you find total variable costs
Total variable costs =cost per unit x total number of units
Why will (in reality) the TVC line on the graph become less steep at higher output levels?
When firms buy larger quantities they can often gain bulk buying discounts reducing variable costs per unit
Why is it important a business knows their total costs?
-can highlight problems which managers can try to stop
-helps with pricing decisions -price usually above cost-cost plus pricing
-helps with output decisions .If fixed costs are high eg expensive machinery then a high output spreads this cost over more units made -FC per unit are lower
-helps managers to decide whether or not to enter a market -if customers are only willing to pay a certain price and costs are higher it isn’t worth while entering the market
Define revenue
Revenue is the total value of sales made within a trading period
Equation for revenue
Revenue =price x quantity sold
How can firms increase revenue ?
-increase price-product should be differentiated so people are willing to pay higher ( output may be low due to high price )
-increase quantity sold eg having low price or promotions
Equation for profit
TR-TC(total revenue -total costs )
What do a firms profits depend on ?
-profit margin-profit made in one item
-quantity sold -a higher quantity sold equals more profit (unless price is reduced to achieve these higher sales in which case profit margin falls and so total profits may not increase
Why are profits important ?
-pay the owners
-finances growth
- profitable firms attracts customers -public may believe firms products are desirable since they sell well .if the customer is a business they may be more willing to make a longer term commitment to the firm
-attract investors and persuade banks to lend
-highly profitable firm is more valuable meaning the owners could sell for larger sums
-suppliers may be willing to give trade credit o profitable firms
What are the external factors that affect a business ?
-market conditions -covers a range of factors that affect a market eg levels of sales rate of growth ,level of competition and strength of competition
-income-consumer incomes are determined by the nations GDP -a rise in GDP will increase incomes received by many consumers
-interest rates-cost of borrowed money or the reward for saving
-demography-study if human populations eg age size Immigration
-environment -businesses contribute to global warming air pollution road congestion water pollution deforestation etc
-fair trade -promotes improved trading conditions for producers in less developed countries
What are the costs of market conditions ?
-new competitor causes firms to increase promotion increasing costs
-competitor launches new product =higher costs to develop new product to compete with
What is the effects of demand on market conditions ?
-new competitions can reduce demand
-product goes out of fashion =lower demand
-merger /takeover =larger firm which can take demand away from others
-competitors launches new product =less sales
What is the effects of demand on market conditions ?
-new competitions can reduce demand
-product goes out of fashion =lower demand
-merger /takeover =larger firm which can take demand away from others
-competitors launches new product =less sales
What are the effects of costs on income ?
If GDP increase so do wages increasing a firms’s costs (makes it difficult to keep the price the same)
What are the effects of costs on income ?
If GDP increase so do wages increasing a firms’s costs (makes it difficult to keep the price the same)
What are the effects of demand on income?
-a fall in GDP leads to less employment and lower wages for those in work( eg no overtime)=fall in demand
-increase in incomes particularly increases demand for luxury products (less so for necessities)
What are the effects of demand on income?
-a fall in GDP leads to less employment and lower wages for those in work( eg no overtime)=fall in demand
-increase in incomes particularly increases demand for luxury products (less so for necessities)
What are the effects of costs on interest rates?
-if a firm has a loan then a rise in interest rates increases cost of repayment. If the loan is large even a small change can have a large effect .Fixed rate loans overcome this problem
-if interest rates rise the uk currency becomes attractive chasing the exchange rate to rise (strong pound).SPICED
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What are the effects of demand on interest rates ?
-rising interest rates :saving is more attractive than spending and loans are more expensive so demand tends to fall.consumer durables eg sofas a and cars are often bought in credit so are sensitive to interest rate changes
-rising interest rate make mortgage repayments increase leaving less to spend in businesses reducing demand
-pensioners income comes from pensions and saving therefore therefore their income is determined by interest rates
What is the effects of costs on demography?
-immigration means there are less shortages of labour helping to control wage costs
What are the effects of demand on demography ?
-bigger population =more demand
-aging population =more demand for products bought/used by older age groups-there is a projected rise in over 70s of 33% between 2014-2025
What are the effects of costs on environment?
-disposing of waste properly using supplies from sustainable sources or altering production methods can increase costs
-being energy efficient and recycling can reduce a firms costs
-grants for greener production methods reduce costs
What are the effects of demand on environment?
Being environmentally friendly can attract customers
What are the effects of fair trade on costs?
The movement supports the paying of higher prices to producers if firms in developed countries purchase these products it increases their costs
What are the effects of fair trade on costs?
The movement supports the paying of higher prices to producers if firms in developed countries purchase these products it increases their costs
What are the effects of fair trade on demand ?
Fair trade orifices fan attract customers who are willing to pay a higher price
What are the types of decisions?
Programmed-familiar routine decisions .information required is easy to obtain eg re ordering stock
Non programmed-requires unique solutions.may be risky eg a major investment
Strategic -long term decisions involving major commitment of resources and a high level of uncertainty.taken by senior management eg selling abroad to increase sales
Tactical-short to medium term involving fewer resources and less uncertainty-easier to reverse and a re taken by more junior management eg reducing price to reach revenue targets;how many staff to recruit
Define risk
The chance of incurring misfortune or loss.most decisions involve some degree of risk. Gathering data can be,of course reduce the risk of a decision
Define rewards
Result if managers take good decisions eg extra revenue
Define uncertainty
A situation in which there is a lack of knowledge and so events/outcomes are unpredictable
Define opportunity cost
The cost of the next best alternative forgone ie the best option that a manger gives up in making a decision
What is scientific decision making based on?
It is based on data and uses a logical rational approach to decision making eg break even analysis ratio analysis investment appraisal correlation analysis
How can data be gathered for scientific decision making ?
Data can be gathered through the internet customer surveys or the businesss loyalty cards . Technology makes it easier and more cost effective to collect and analyse data
Why is scientific decision making less risky?
Risk should be reduced because decisions are based on research not hunches -its usefulness depends on the quality of data
When is scientific decision making used?
It’s used if there’s a high risk that managers want to reduce
What do managers need to do to make scientific decisions ?
Managers need to consider the external PESTEL factors plus competitiees actions supplier and buyers . From this a SWOT can be derived and then decisions can be made
What are the advantages or using your intuition over scientific decisions ?
-less expensive -collecting and a analysis of data costs money
-quicker -benefit from first mover advantage
What are the problems making decisions
-may be no times for scientific approach
-insufficient or inaccurate data(poor research and lack of finance)
-data has become outdated
-poor quality managers
Describe decisions trees
It shows the likely outcomes for a business or a number of courses of actions.it then shows the financial consequences of each
What are decision points shown by?
Decision points are shown by squares -show options a firm can choose between
What do chance points show?
Chance points (circles) show the outcomes that might arise from a decision - each outcome has a probability of occurring
Define expected value
The financial outcomes from a course of action are weighted to allow the probability of occurring
Define net gain
The expected values of a course of action minus the cost
What are the influences on decision making ?
-success of a particular style of decision ,asking in past. If it was successful it will be used again
-power of different stakeholder groups
-risk involved -if its high then managers can reduce risk by using scientific methods
-corporate values mission and objectives-all decisions should help the objectives be achieved
-external environment including competition
-ethics of decision
-resources available
-swot
What are the pros of decision trees?
Decreases risks and consequences
May make managers think about courses of action not previously considered
Forces managers to conduct market research
Results in a logical less rushed process based on evidence rather than gut feeling
