Unit 1.1 : Introduction to Business Management

Question 1

Business

Answer 1

1. A business is an organisation that uses human, physical and financial resources to produce goods and services for customers who want or need them.
2. They usually do this in order to make a profit
3. It can be defined as a decision-making organization that uses inputs (factors of production)

Question 2

Business Inputs

Answer 2

1. Business activity combines human, physical and financial resources to produce their goods and services
2. These are also known as Factors of Production
3. factors of production is the collective term for the resources needed to produce goods and services
4. These are sometimes remembered by the acronym C.E.L.L

Question 3

Factors of Production

Answer 3

1. Capital
2. Enterprise
3. Land
4. Labour

Question 4

Land

Answer 4

1. Land includes any natural resource used to produce goods and services.
2. This includes not just land, but anything that comes from the land.
3. e.g. paper or water, physical land

Question 5

Labour

Answer 5

1. Labour is the effort that people contribute to the production of goods and services.
2. The physical human effort and psychological intellect used in the production process

Question 6

Capital

Answer 6

1. Capital as the machinery, tools and buildings humans use to produce goods and services.
2. The non-natural (manufactured) resources used to further the production process
3. e.g. buildings, machinery, tools, vehicles

Question 7

Enterprise

Answer 7

1. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit.
2. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist.

Question 8

Adding Value

Answer 8

1. the process of producing a particular good or service that is worth more than the cost of the resources used to produce it
2. It can be measured by the difference between a product’s selling price and the material or direct costs of production

Question 9

Consumers

Answer 9

1. people who use the goods or service

2. are not necessarily the customer

Question 10

Customer

Answer 10

people or other businesses that purchase goods or services

Question 11

Goods

Answer 11

goods are physical products e.g. food, clothes, furniture, and smartphones

Question 12

Services

Answer 12

1. services are intangible products provided by businesses
2. e.g. haircuts, tourism , healthcare, banking etc
3. The service is not tangible but the results usually are

Question 13

Types of Products

Answer 13

1. Consumer goods
2. Capital goods or producer goods
3. Services

Question 14

Consumer goods

Answer 14

1. products sold to the general public rather than to other businesses
2. They can be further split into consumer durables (products that last a long time and can be used repeatedly e.g. smartphones or cars) or non-durables (that need to be consumed shortly after they purchase e.g. medicine, food, newspapers)

Question 15

Capital goods

Answer 15

1. also known as producer goods
2. physical products bought by businesses to produce other goods and/or services
3. e.g. buildings, computers, machinery, tools, and specialist equipment

Question 16

Main departments of a business

Answer 16

1. Marketing
2. Finance and accounts
3. Human Resources
4. Operations Management

Question 17

Human Resources

Answer 17

1. The human resources (HR) department is responsible for managing the personnel of the organization
2. In managing people, the HR department is likely to deal with the following issues: workforce planning, recruitment, training, appraisal, dismissals, and redundancies, and outsourcing human resource strategies
3. The HR department must also comply with legal aspects of the external business environment business environment. In particular, it must observe different labour laws in all countries it operates in such as minimum wage

Question 18

Finance and accounts

Answer 18

1. The finance and accounts department is in charge of managing the organization’s money
2. The finance and accounts director must ensure that accurate recording and reporting of financial documentation takes place. This is to comply with legal requirements such as paying tax and to inform those interested in the financial position of the business such as shareholders.
3. Finance and accounts has to maintain accurate accounts of the firm’s funding

Question 19

Marketing

Answer 19

1. The marketing department is responsible for identifying and satisfying the needs and wants of customers.
2. It is ultimately in charge of ensuring that the firm’s products sell. This is done through a series of activities such as market research, test marketing, advertising and branding
3. Functions of marketing department can be summed up in the 4Ps of marketing

Question 20

Operation Management

Answer 20

1. Operation Management is the functional area of an organization is responsible for the process of converting raw materials and components into finished goods which are ready for sale and delivery to customers
2. It involves ensuring that goods and services meet production targets, deadlines, and quality standards

Question 21

Needs vs Wants

Answer 21

1. Needs are the basic necessities that a person must have to survive e.g. foods and water
2. Wants are people’s desires or the things they would like to have e.g. a new smartphone or an overseas holiday

Question 22

Business Sectors

Answer 22

1. Primary sector
2. Secondary sector
3. Tertiary sector
4. Quaternary sector

Question 23

Primary Sector

Answer 23

1. The primary sector of the economy extracts or harvests resources from the earth.
2. Activities associated with the primary sector include agriculture mining, forestry, farming, grazing, hunting and gathering, fishing, and quarrying
3. Also known as extractive production

Question 24

Secondary Sector

Answer 24

1. The secondary sector of the economy manufactures goods for customers. It transforms primary resources into manufactured goods for sale
2. Activities associated with the secondary sector include metal working, automobile production, textile production, chemical and engineering industries, energy utilities, engineering, breweries and bottlers, construction, and shipbuilding

Question 25

Tertiary Sector

Answer 25

1. The tertiary sector of the economy is the service industry. This sector provides services to the general population and to businesses.
2. Activities associated with this sector include retail and wholesale, transportation and distribution, entertainment restaurants, clerical services, media, tourism, insurance, banking, healthcare, and law.
3. Tertiary sector is the predominant sector in economically developed countries (or high-income economies). The tertiary sector of the economy accounts for the majority of GDP in these countries
4. The added value of tertiary sector is very high

Question 26

Quaternary Sector

Answer 26

1. The quaternary sector is the knowledge based sector of the economy and consists of those industries providing information services, such as computing, ICT, consultancy and R&D.
2. It is known as the knowledge-based sector of the economy. The quaternary sector is sometimes included with the tertiary sector, as they are both service sectors.
3. It involves using a computer and digital information technologies

Question 27

Chain of Production

Answer 27

1. The four business sectors are linked through the chain of production which tracks the stages of an item’s production from the extraction of raw materials used to make the product all the way through it being delivered to the consumer
2. Production → Manufacturing → Services → Consumers

Question 28

Sectoral change

Answer 28

1. sectoral change refers to a shift in the relative share of national output and employment that is attributed to each business sector over time
2. Typically, countries develop by shifting the majority of national output being contributed by the primary sector (such as agriculture) to manufacturing and then eventually to the tertiary and quaternary sectors

Question 29

Entrepreneur

Answer 29

An individual who, rather than working as an employee, founds and runs a small business, assuming all the risks and rewards of the venture

Question 30

Intrapreneur

Answer 30

1. A person within an organisation who is given the freedom and resources to initiate projects, business ventures etc
2. the act of being an entrepreneur but as an employee within a large organization

Question 31

difference between entrepreneurs and intrapreneurs

Answer 31

1. owners vs employees
2. substantial risk vs medium risks
3. visionary vs innovative
4. rewarded with profit vs rewarded with pay
5. Responsibility for workforce vs accountability to the owner
6. Failure incurs personal costs vs failure is absorbed by the organization

Question 32

What makes a successful entrepreneur

Answer 32

1. Risk Taker (willing to take calculated business risks)
2. Innovative (creative / original thinking)
3. Strategist (strategic thinking)
4. Enthusiastic (passion / energetic / drive)
5. Resilient (ability to accept constructive feedback and setbacks)

Question 33

Entrepreneurs and the economy

Answer 33

1. The economic success of a nation is largely dependent on the entrepreneurial spirit within the country
2. An entrepreneurial culture encourages risk taking in the pursuit of profit
3. Entrepreneurs also create jobs in the economy, therefore contributing to the wealth of the culture

Question 34

Reasons for starting a business

Answer 34

1. Money / Earnings - the key driving force for a person to start their own business is the motivation to earn a profit. The potential returns from setting up your own business can easily outweigh the costs and keep the profit as a reward
2. Autonomy - may not enjoy working for someone else’s rules and instructions so being self-employed means they have independence in how things are done within the organization
3. Challenges - enjoy the satisfaction of working hard to achieve greatness
4. Passion / Hobbies - want to pursue their personal passions/interests and turn it into a business
5. Family ties / inheritance - running a business may be part of a family tradition and may be in the family for generations. Others open a business so that they can pass it on to their children as inheritance to give them a sense of security
6. Unfilled market opportunities - there is a gap in the market for a certain goods or service
7. Security - more job security for someone who is their own boss
8. Growth - they may benefit personally when there is an appreciation in the value of their assets such as property and land. This is known as capital growth.

Question 35

Steps in starting up a business

Answer 35

1. Write a business plan - including the goals and objectives for the business with an outline of how they are going to be achieved
2. Obtain start-up capital - look for money and take out loans
3. Obtain business registration - get licensing requirements and register the legal status of the business
4. Open a business bank account - to facilitate the financial operations of the new business
5. Marketing - potential customers need to know about the business and its products

Question 36

Examples of start-up costs for a business

Answer 36

1. Premises e.g. mortgage or rental deposit
2. Buildings e.g. alterations and insurance
3. Capital Equipment e.g. office furniture, computers
4. Legal and professional fees e.g. licensing and costs of solicitors
5. Marketing costs e.g. market research and advertising
6. Human resources e.g. recruitment

Question 37

Problems that a new business may face

Answer 37

1. Lack of access to sources of finance
2. Poor management - lack of experience
3. Over-optimistic predictions
4. Significant barriers to entry
5. Difficulty in protecting ideas
6. Cash flow problems
7. Small marketing budget
8. Difficulty establishing a customer base
9. Difficulty accessing distribution channels
10. Overtrading
11. Production issues
12. High production costs due to small scale
13. Poor location

Question 38

Business Plan

Answer 38

1. a report detailing how a business sets out to achieve its goals and objectives
2. It is a useful planning tool as it requires the owners to consider the marketing, financial, and human resources of the business
3. It also helps to reassure financial lenders such as banks and venture capitalists that the entrepreneur has comprehensively researched the business idea

Question 39

Business Plan contents

Answer 39

1. Executive summary - overview of the business, objectives and intended strategy
2. Introduction / Overview - introduction to the business, legal status, vision and mission, organisational structure
3. market analysis - details the market it plans to enter + competitor analysis + projected sales
4. product analysis - planned product being offered
5. financial analysis - projected cash flows or latest finance accounts
6. Marketing strategy - include the firms marketing mix (4Ps)

Question 40

How are business plans beneficial to businesses

Answer 40

1. Clarifies objectives and strategy
2. Provides a common sense of direction and purpose
3. Requires thorough research to be done
4. Sets targets
5. Allocates responsibility and accountability
6. Provides a means of monitoring progress
7. Helps in obtaining finance

Question 41

Potential limitations/downsides of business plans

Answer 41

1. Can be very time consuming to produce (Opportunity cost)
2. May not be required if no external finance is needed
3. Based on predictions which can be really inaccurate

Question 42

What makes a good business plan?

Answer 42

1. They are carefully researched
2. They are used as a reference point for decisions
3. Actual performance is compared with objectives and objectives are regularly updated
4. They evolve over time to ensure that growth targets are realistic and challenging