Theme 3 Flashcards
what is a objective
statement of specific outcomes that the business wants acheive
the hierarchy of business objectives
mission
corporate/strategic
functional
team
indvidual
Purpose of corporate objectives :
provide strategic focus
measure performanceof the firm as a whole
informed decision making
set th scene for more detailed functional objectives
the mission statement is :
the over riding purpose of the business
the reason for its existence
a strategic porspective
supports the stated vision for the future
SMART objectives
specific
measureable
acheivable
relevant
time bound
what is ansoffs matrix :
a markting planning model that helps a business determine its product and market strategy
what is a market
the group of people to whom you are selling your product
what is the boston matrix
business model which helps business analyse thier product portfolio
intrest rate :
the cost of borrowing, the reward for saving
what are external influences :
factors outside the business over which they have no control to which they have to react
what is vertical intergration
when a business takes over with another business at a different stage of the production process of the same good
what is a stratergy
this is the long term plan on how you are going to acheive your aims and objectives
core capabilities
the things a business does best
oppourtunity
something that can help the ompany meet it’s business objectives
barriers to entry
intial outlay may be too high
legal barriers
economies of scales
control of a supply of raw materials
objectives of growth
to acheive economies of scale
increased market power over customers and suppliers
increased market share and brand recognition
increased profitabilty
what is economies of scale
when unit costs fall as outputs increase
cost per unit
total costs / number of units produced
oppourtunity costs
forgone costs
contribution
selling price - veriable costs
what is a takeover
involves one business acquiring control of another business
what is a hostile takeover bid
when a business buys out shares from shareholders
possible reasons for takeover
increase market share
access eos
acquire intangable assets
acquire new skills
secure better distribution
spread risk by diversifying
drawbacks of a takeover
high costs
upset customers and suppliers
resistnace from employees
incompatibilty of management styles
high failure rate
what is a merger
a combination of two previously seperate brands which is achieved by forming a completly nre firm into which the two original businesses are intergrated
why do forecast sales
a vital planning activity
the sales forecast forms the basis for most other common parts of a busisness
advantages of using extropolation
a simple method of forecasting
not much data required
quick and cheap
disadvantages of using extropolation
unreliable if there are significant fluctuations in historical data
Assumes that past trends will continue into the further unlikely in many competitive markets
ignores qualitative factors
what is correlation
looks at the stregnth of a relationship between two variables
investment appraisal
the process of analysing wether investments projects are worth wile
what is worthwile
will it hep the business to acheive it’s objectives
three main methods of investment appraisal
payback period
avrage rate of return
discounted cash flow
payback period
the time it takes for a project to repay it’s intial investment
average rate of return
looks at the total accouting return for a project to see if it means the target return
discounted cash flow
net present value calculates the monetary now of the profits future cash flow
benefits of using payback period
simple and easy to calculate
focuses on cash flow
emphasises speed of return
straight forward to compare competing projects
drawbacks of using payback period
ignores cash flow after payback has been reached
takes no account of the time value of money
may encourage short term thinking
ignores qualitative aspects of a decision
does not actually create a decision for investment
what is the ARR (Average Rate of return)
the annual percentage return on an investment project based on average returns earned by the project
benefits of ARR
simple to understand and easy to calculate
focuses on the overall profitablilty of an investment project
uses all the returns generated by a project
drawbacks of ARR
ignores the timing of retruns
focuses on profits rather than cashlow
does not adjust for the time value of money
what is discounting
the method used to reduce the future value of cash flows to reflect the risk that they may not happen
how to calculate ARR
- calculate the average annual profit from the investment project
- divide the average annual profit by initial outlay
- compare with the target percentage return
how to calculate payback
identify net cash flow for each period
keep a running total of the cash flow
what are the results of each method of investment appraisal
payback = time day years
ARR = % retrun
discounted cash flow = monetary value ( £ )
what is a decision tree
a mathematical model used to help managers make decisions. Uses estimates and porbabilities to calculate likely outcome. helps deciede wether the net gain from a decision is worthwile
profitability
the rate of profit per product
net gain
when the money generated from the porject is greater than the money spent on the project
expected value
the financial value of an outcome calculated by multiplying the estimated financial effect by it’s probability
advantages of decision trees
choicesare set out in a logical way
potential option choices are considered at the same time
use of probabilities enables the risk of the options to be considered
likely costs are considered aswell as potential beenfits, measured financially
disadvantages of decision trees
probabilities are just estimates
use qualitative data only
assigenments of porbabilities and expected values prone to bias
decision making technique doesn’t necesarily reduce the amount of risk
Critical Path Analysis
and planning method that allows a project to be completed in the shortest amount of time
information needed for CPA
a list of all activites required to complete the project
the duration each that each activity will take to complete
the dependecies between the activities
what is critical path analysis
the sequence of project activities whcih add up to the longest overall duration the crytcial path determines the shortest time possible to complete the project
CPA calculates …
the longest path of planned activities of the end of the project
the earliest start time (est)
latest finish time(lst)
crytical path
total float
why is the crytical path so important
any delay of an activity on the critical path directly impacts the planned project completion date
calculating ests
the first node will always have an est of zero
ests are calculated from left to right
add the duration of an activity to the est of a previous node
if more than one activity leads to a node the highest figure becomes the new est
calculating lfts
give the last node of the project an lft = to the est
work backwards from right to left
subtract the duration of the activity from the lft
what is the total float
the durattion an activity can be extended or postponed so that so that the project still finishes within the minimum time
oginisational culture =
the set if shared beliefs and actions that afe built into the way that people in an orginisation behacve
factors influencing culture of an orginisation
influence of the founder
size and satge of the business
leadership/management style
market indsutries
working enviroment
external enviroments
attitude of orginisation and risk taking
why change culture
improve business performance
respond to significant change
features of a strong culture
source of competitive advantage
clear set of values , missions and goals
performance orientated
encourages suitable risk taking and innovation
strong internal communication
engaged employees
not easily copied
what are ethics
moral guide lines which govern acceptable behaviour
common areas where ethics are tested
advertising
personal seling
suppliers
pay and rewards
contracts
pricing
benefits of ethics
higher revenues = demand for positive consumer support
improved brand and business awareness and recognition
better employee motivation and recruitment
new sources of finance
possible drawbacks of ethics
higher costs
higher overheads
a danger of building up flase expectations
different approaches to business ethics
the amoral business
the legalistic business
the responsive business
the ethical business
amoral business
seeks to win at all costs and anything is accpetable
legalistic business
will obey the law but no more than that
resposive business
accepts that being ethical can pay off
ethical busniess
ethical practice is at the core of the business
income statement
this measures the business performance iver a given period of time usually one year
balance sheet
a snapsheet of the business assets and it’s liabilities on a particular day
cash flow statements
show how the business has generated and disposed of cash and liquid funds during a specific period
liabilities
an outside claim on the business assets
current assets
can change in value durimg this amount financial period
