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IB business management HL > Unit 6 > Flashcards

Unit 6 Flashcards

1
Q

What is Investment appraisal

A

Quantative techniques to access the profitability or desirability of a project
E.g. should we build a new factory
You will be given
A large negative number in the first year
A series of small positive numbers

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2
Q

What is Payback period

A

Length of time for net cash inflows to be larger than the original investment
When do you get your money back?
With all investment appraisal calculations, add a third column called accumulated cash flow
All cash flows up to that year added together
Payback is when the accumulated cash flow reaches zero

Quick and easy to understand
We get our money back after 2 years and 6 months
Ignores later cashflows after the payback (which may be larger)
Could encourage short term thinking

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3
Q

What is Average rate of return (ARR)

A

Mesures the profitability of a project as a percentage of the initial capital cost
Profit = Inflows - Outflows
ARR (%)
Average annual profit / Initial capital cost x 100

They use all cashflows
They Igore the timing of the larger cash flows
They can compare to returns on other investments

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4
Q

What are the 4 steps to ARR

A

Calculate the total profit
Divide by years
Divide by original cost
x100

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5
Q

Average rate of return (ARR) - example 1

A

ARR(%) = Average annual profit / Initial capital cost x 100
Total profit = 300 over 4 years
Average annual profit = 300/4 = 75 per year
ARR (%) = 75/500 x100 = 15%

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6
Q

What is Net present value

A

$100 is worth more than in the future
Inflation reduces the value of money over time
The further into the future, the more inflation erodes it
For investment appraisal we should allow for this
Discounting = reducing the value of future cash flows using a discount factor %
The further into the future, the more is discounted

Takes account of the time value of money
But assumptions have to be made about the discount rate to use

NPV is calculated as the sum of the discounted cashflows
To calculate discounted cash flow, multiply annual net cash flows by the discount factor in same row

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7
Q

What is the difference between management and leadership?

A

A Manager
- a person who organizes the resources within an organization in order to achieve the objectives of the organisation
- getting things done

A Leader
- a person who has a vision for the future of the organization and inspires others to follow them
- a person may act as both a leader and a manager

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8
Q

What do managers do? - Fayol’s 1916 book

A
  1. planning
  2. organizing
  3. commanding
  4. coordinating
  5. controlling
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9
Q

what do each of the roles of a manager intail? - Fayol’s Theory 1916 book

A
  1. planning
    - setting objectives
  2. organizing
    - ensuring resources are in the right place
  3. commanding
    - assigning tasks to employees and making sure they do this
  4. coordinating
    - making sure everyone is working towards the same goal
  5. controlling
    - measuring performance and making necessary changes
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10
Q

What is scientific thinking (HL only)

A

Scientific management:
- Data is collected and analyzed and a decision is made based on this.
- Logical, rational and data-based
- However, data may be biased, costly or unavailable

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11
Q

What is intuitive thinking

A

Intuitive thinking:
- Decisions are based on intuition and gut-feeling
Good when:
- Data is not available or potentially biased
- When data may not work (e.g. assessing character or the result of a new HR policy)

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12
Q

What are the 5 Leadership Styles

A

Autocratic
Paternalistic
Democratic
Laissez-faire
Situational

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13
Q

Explain Autocratic leadership style

A

Leaders take decisions on their own without input from others, and then announce the decision to employees
Centralised decision making
Suitable when:
- Quick decisions need to be made
When employees are unskilled
Impact:
- Employees become dependent on leaders and dont make decisions
- Low morale and high staff turnover
E.g armed forces and emergency services

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14
Q

Explain Paternalistic leadership style

A

Similar to autocratic but leaders listen to employees and make decisions in their best interest, but still make the final decisions
Pater = Father
Impact:
- Higher morale, higher loyalty, higher motivation
- Still no participation in decision making

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15
Q

Explain Democratic leadership style

A
  • Employees participate in decision making and decisions are made based on what the majority decides
  • Could be voting or through informal discussions
    Impact:
  • Higher morale, empowered, committed to the decision
  • But slow decision-making, leaders and employees need certain skills
    E.g start-ups
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16
Q

Explain Laissez-faire leadership style

A
  • Leaders trust and allow employees to make decisions on their own.
  • Decision making is done mostly by employees with little input from management.
  • “Let them do it” or “Hands off”
    Suitable when:
  • When teams need freedom or need to be creative
  • Employees are highly skilled and self-motivated
17
Q

Explain Situational leadership style

A
  • When a leader adjusts their leadership style to suit the situation or task
    Impact:
  • Flexibility and suitability to each employee
  • Can be confusing
  • Can a leader change their leadership style
18
Q

Pros and cons of moving to Autocratic from democratic leadership style

A

Pros:
- Quicker decision-making and implementation
- Clear hierarchy (employees know who’s in charge)
- Consistent goals and direction

Cons:
- Reduced staff morale as employees are used to having input in decisions
- Higher likelihood of employee/ management conflict
- Dependency of the decision of one person/ team

19
Q

Pros and cons of moving to Laissez-faire from autocratic leadership style

A

Pros:
- Empowered and more motivated employees
- Higher levels of creativity as employees take the initiative
- More skilled employees

Cons:
- Some employers may become less productive with less oversight
- Management knows less about what is going on
- Less standardised output

20
Q

What are the 4 parts of Ansoff Matrix

A

Market penetration
Market development
Product development
Diversification

21
Q

Explain Market penetration

A

Selling existing products in existing market
- Growth strategie is to sell more of existing products - e.g:
- increase market share
- Decrease prices
- Increase promotion
- Buying a competitor
Lowest risk
- Doing the same as before

22
Q

Explain Market development

A

Selling existing products in new markets
- e.g. New geographical markets
- e.g. New consumers
Medium risk growth strategy

23
Q

Explain Product development

A

Selling new products in existing markets
- e.g. Apple releasing the iphone 14
- Or product extension strategies
Medium risk growth strategy

24
Q

Explain Diversification

A

Selling new products in new markets
High risk growth strategy

25
Q

Pros and cons of Ansoff matrix

A

Pros:
- Allows manager to see all decisions available
- Can take risk into account
- E.g. Market penetration - low risk

Cons:
- Only two choices
- Does not give specifics
- What country should they use for market development?
- How should they market their product to gain customers?

26
Q

Related Diversification

A

When a new product that is created is related to prior products that were created by the company

27
Q

Unrelated Diversification

A

When a new product that is created is not related to prior products that were created by the company

28
Q

pros autocratic leadership

A
  • has structure
  • everyone knows whos boss
  • less time consuming
29
Q

cons autocratic leadership

A
  • less skilled workers
  • high turnover
  • lack of diverse input
30
Q

con paternalistic leadership

A
  • it can create dependency on the leader
  • it may lead to resistance to change
30
Q

pro paternalistic leadership

A
  • employee loyalty increased
  • clear hierarchy
  • focused on employee-wellbeing
31
Q

pro democratic leadership

A
  • employees are involved and made feel valuable
  • collective input can lead to more well rounded decisions
  • fosters an environment where creativity is encouraged
32
Q

con democratic leadership

A
  • slower decision making
  • potential for conflict
  • lack of accountability or responsability
33
Q

pro laissez-faire

A
  • employees feel empowered
  • encourages innovation
  • flexible work environment
34
Q

con laissez-faire

A
  • lack of direction
  • poor coordination
  • output can vary - no standardized output
35
Q

pro situational leadership

A
  • leader adapts to the situation - more effective management
  • leaders can tailor to the employees and help them grow
  • increased flexibility
36
Q

cons situational leadership

A
  • there may be inconsistencies
  • may be confusing
  • requires high level of skill

IB business management HL (12 decks)

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