THEME 3 Flashcards

Question

Economic policy

Answer 1

Actions taken by the government to stimulate or control economic activity

Answer 2

Government policy to control the demand for money in the economy

Answer 3

Government policy on taxation, expenditure and borrowing to control the economy

Answer 4

Key economic factors that influence how resources are allocated in society and impact on investment and consumption decisions - Economic activity is measured by GDP

Answer 5

The value of one currency in terms of another Strong exchange rate; - Increase in vale of a currency is an appreciation (SPICED) Weak exchange rate; - Decrease in value is called a depreciation (WPIDEC)

Answer 6

Collection of legislation that impact on the activities of organisations

Answer 7

Laws that protect the consumer from firms Why; - To maximise profits, firms may unfairly exploit consumers - "Consumerism" places the interest of the consumer as the most important factor Impact on firms; - Ensures firms take into account consumer requirements - Safeguards EU & UK firms' reputation

Answer 8

Legislation that helps ensure that the production of goods & services doesn't have a negative impact on the environment Why; - Protection from the harmful impacts of a firm's production - Force firms to pay for the negative externalities that they create but do not pay for Impact on firms; - New environmentally friendly production processes - New products that meet higher environmental standards - Greater use of recycling

Answer 9

The degree of competition in the market and the buying and selling power of customers and suppliers within that market

Answer 10

Helps firms analyse their position and therefore attractiveness in that market

Answer 11

- Economies of scale - Increased market power over consumers and suppliers - Increased market share and brand recognition - Increased profitability

Answer 12

Advantages enjoyed by a business when unit costs fall due to an increase in the scale of production Internal economies of scale; increase in scale of operation leading to a fall in unit costs External economies of scale; Increase in scale of production within the industry in which it operates leading to a fall in unit costs

Answer 13

Purchasing - Benefits enjoyed by a business who is able to negotiate greater discounts with suppliers leading to a fall in average costs - Increases buying power of a business Technical - Benefits enjoyed by a business who is able to spend larger, more efficient machinery leading to a fall in average costs - Fixed costs are spread over a greater level of output - Increased competitiveness & efficiency Managerial - Benefits enjoyed when a business can employ specialist employees leading to a fall in average costs

Answer 14

Expertise - Benefits enjoyed when a region or country becomes renowned for a particular industry leading to a more highly skilled workers, improved training & greater talent pool - Ease of recruitment Cooperation - Greater cooperation between businesses within the same industry and region resulting in greater efficiencies Support services - Benefits enjoyed when ancillary services that specialise in a particular industry locate close to the industry

Answer 15

- Lower costs through economies of scale allowing for higher profit margins - Ability to charge higher prices due to brand loyalty - Increased productivity and efficiency from technical and managerial economies of scale

Answer 16

Disadvantages suffered as a result of a business increasing the scale of its operators that lead to a rise in unit costs COMMUNICATION; - business grows in size making it more difficult to communicate effectively, increases in unit costs and additional methods are implemented COORDINATION; - Difficult to coordinate increased number of employees, customers and suppliers, costly to correct ALIENATION; - As the size of the workforce grew, employees may experience a lack of personal recognition leading to demotivation

Answer 17

transferring of information between interested parties within an organisation

Answer 18

Business has expanded too rapidly resulting in it operating at a level beyond its resources leading to potential liquidity problems

Answer 19

When a business expands the scale of operations through external means; (+) - May be with another business within the UK or internationally - Allows businesses to expand rabidly (-) - High risk if two businesses are not compatible

Answer 20

When a business expands size internally by increasing the scale of operations (+) - Less risky - Less threat of brand dilution - Less loss of control or need to adapt policies and procedures (-) - Missed opportunities - Potential for growth may be limited - Dissatisfaction from shareholders who might want quick growth METHODS; - New products - New markets - Franchising - Diversification

Answer 21

Merger; When two or more businesses agree to become integrated to form one business Takeover; When one business gains control over another and becomes the owner HOSTILE TAKEOVER: - Management of the company does not wish to be taken over FRIENDLY TAKEOVER; - Happy to be taken over, often will save the firm from financial distress

Answer 22

- To cut out intermediaries in the supply chain - Gain market share to increase dominance- Benefit rom expertise of other businesses - Brand recognition through increased market share or through buying recognised brands - Synergistic advantages, two business together achieve more than two businesses operating separately

Answer 23

RISKS; - Legal and regulatory procedures, high costs if the merger or takeover does not go through - Cost of integrating internal operations - Potential diseconomies of scale - May be buying a failing business with debt REWARDS; - Revenue raised from the sale of excess assets - Potential increase in share price if integration is viewed favourably - Economies of scale, lower unit costs therefore increasing liquidity - Increased revenue from synergy

Answer 24

- Overtrading, leads to potential liquidity problems - Cultural clashes leading to inefficiencies - Loss of control due to communication and coordination - strain on resources including leaders' time and over-utilisation of assets

Answer 25

Numerical techniques to predict future sales volumes and/or value - Informs resource management, production output & logistics - Informs cash flow and budgets - Aids workforce planning

Answer 26

A quantifiable technique showing past sales figures in date order to help inform sales forecasting - Marketer may use historical data after fluctuations have been smoothed out to identify trends - Trends used to predict future sales - Moving averages used to smooth out fluctuations

Answer 27

Quantitative sales forecasting techniques whether a trend is significant by smoothing out fluctuations - Better identification of an overall trend - Identify influencing factors on future sales - Sufficient data is needed to give validity to the trend identified

Answer 28

Use of past data to extend an identified trend into the future, trends can be identified when the market is relatively stable *Not always a good indication of the future - Sales are influenced by PESTLE, difficult to predict - Past isn't to always a fair indication

Answer 29

Calculates how long it will take to pay back the cost of the initial investment *Expressed in years & months

Answer 30

Calculates average profit as a % of the cost of the initial investment *High ARR suggests that the proposed investment will be worthwhile, showing how profitable the investment ill be but no consideration given to the timings of the cash inflows

Answer 31

Calculates the total return on an investment taking into account the time value of money e.g. where £1 today may be less in the future *Positive NPV makes it a worthwhile investment

Answer 32

A predetermined set of guidelines against which an investment can be judged - Results from investment appraisal calculations must be compared with investment criteria in order to make a decision

Answer 33

Current/forecasts interest rates; - Investments should provide a return at least as much as expected from money placed in an interest bearing account; if it doesn't, there is little point in taking such risks Culture of a business; - Risk averse businesses need to be assured that there is little risk; Risk takers are prepared to take gambles if there are high profits

Answer 34

Used to try to minimise risk & helps inform decision making - key considerations; - Gearing; does the investment pose a risk to the long-term financial health & survival of the firm - Opportunity costs; Benefits foregone of the next best alternative - Predictions - Competitors' reactions - Corporate objectives

Answer 35

- All calculations are based on forecasts & therefore cannot be 100% reliable - May be affected by unexpected external influences - Internal influences may impact on the forecasts outcomes e.g. machinery breaking down

Answer 36

A quantifiable model that visually presents the alternative course of action when making a decision - used in decision making where numerical data can be applied - Encourages managers to make decisions Decision trees identify; - Choices available - Costs associated with each option - Possible outcomes related to each choice - Likelihood of each outcome happening

Answer 37

Measurable unknowns in decision making - possible to add a probability to quantify the degree of risk

Answer 38

Unmeasurable unknowns in decision making - unable to quantify degree of risk

Answer 39

The cost of one course of action in terms of the next best alternative foregone

Answer 40

(+) - Shows options available - Allows structured discussions & comparisons - Takes into account risk - May raise alternative options (-) - Relies heavily on estimates - Doesn't take into account qualitative factors - Estimates may be biased - May not consider PESTLE

Answer 41

A technique used to identify which tasks can be completed simultaneously and the order in which they ned to be completed in, in order to complete in the shortest time possible

Answer 42

The earliest point in time that one activity can be started based on the competition of the next activities

Answer 43

The latest point in time that one activity must be completed in order to allow the next activity to start and avoid delaying the project

Answer 44

The amount of extra time available to complete a non-critical activity without delaying the project

Answer 45

Strengths; - Identifies the critical activities allowing them to be closely monitored - Improved focus on project by identifying simultaneous activities - Improves focus on project - Greater productive efficiency Limitations; - Relies on estimations of durations - Doesn't take into account external influences - May encourage inefficient behaviour on non-critical activities - Large projects may be too complex for CPA

Answer 46

Pressure on a business to perform in the short-term e.g. profit maximisation - pressure in particular from financial markets *May be at the expense of long-term growth; - Profits used to issue dividends rather than reinvesting to fund growth - Lack of R&D investment - Lack of investment in training or adopt hard HR strategy

Answer 47

Decision making is focused on achieving the long-term vision and objectives of a business - Heavy R&D investment for product innovation - Soft HR strategy in order to retain and recruit top talent - Build long-term relationships with suppliers and external stakeholders

Answer 48

Scientific decisions that are backed by research and are therefore objective - Outcomes can be simulated/ tested - Reduces but does not eliminate task *Techniques include; - Quantitative sales forecasting - Investment appraisal - Decision trees

Answer 49

Decisions that are based on gut instinct rather than scientifically - Allows for quicker decisions to be made - An experienced manager may understand the market and base decisions on "hunch" rather than data - Dominant leaders may push decisions forward

Answer 50

The values and standards shared by people and groups within an organisation - affects way people within the organisation interact with each other - Decision making e.g. speed, level of involvement - Communication methods - Leadership styles - Competitiveness of the business on the ability to adapt and to innovate

Answer 51

Employees respond positively to organisational values leading toa shared sense of responsibility towards a vision, mission and objectives - Motivated and loyal workforce who accept roles and responsibilities willingly - Competitive advantage through a greater efficiency

Answer 52

There is little alignment with organisational values - Employees treat the organisation as a source of income and therefore have to be forced to perform duties - Greater management control and supervision is required - Employees have to be forced to perform duties

Answer 53

- resistance as employees fear that they will be worse off as a result or unable to adapt - Lack of trust by employees who misunderstand the reason for change - Difficult to change habits that may have been embedded over a long period of time - Potential alienation of stakeholders including suppliers, customers and employees

Answer 54

Any individual group with an interest in the actions of a business *Internal stakeholders = Employees, managers *External stakeholders = suppliers, government

Answer 55

The requirement and aims of each individual or group that are affected by the actions of a business - Different stakeholders have different objectives

Answer 56

Investors who are part owners of a company providing equity capital in return for a % of ownership - shareholders will receive a dividend - Having a voting right proportional to the number of shares owned

Answer 57

Belief that all stakeholders, are important to a business - Business will not have profit maximisation as its main objective will take into account other factors

Answer 58

The prioritisation of shareholders as the most important stakeholders of a business - Profit maximisation and increasing market share become the main objectives for a business in order to improve shareholder returns - Shareholders will look for an increase in share price and dividends

Answer 59

Stakeholders have different objectives, when a business makes decisions there may be disagreements *Potential conflicts between profit maximisation and wider objectives e.g; - Profit for shareholders or increased wages - Cheaper production methods or less pollution

Answer 60

When one decision results in the loss of an alternative outcome - For each decision made there may be multiple trade-offs

Answer 61

A business' decision to accept responsibility to its stakeholders for its social, environmental and ethical actions *can give competitive advantage E.g. Economic responsibility - having an obligation to pay a fair rate to employees/ suppliers whilst rewarding investors

Answer 62

Financial benefits - Ability to attract investment - Avoidance of fines and environmental taxes - Mistakes and bad PR are expensive HR benefits - Recruitment and retention of staff, attract wider pool of talent and skills Marketing benefits - Greater customer loyalty - Potential differentiation, using CSR as USP - Positive PR

Answer 63

Financial costs - Looking after employees e.g. pay, working conditions - Ethical suppliers - Environmentally friendly practices Not meeting corporate objectives - Short term shareholder's returns - Missed growth opportunities Opportunity cost - Time spent on CSR, policies, reports and monitoring - Day to day functions

Answer 64

Formal records that summarises a business' financial performance, activities and worth over a specific period of time *Produced annually or at interim points of time

Answer 65

A formal financial document that summarises a business' trading activities and expenses to show whether they've made a profit or loss over a specified period of time * Can be used to analyse profit margins, quality, utilisation, competitiveness and performance

Answer 66

A formal financial document which summarises the net worth of a business at a given point in time *When analysing two important factors are; liquidity and working capital

Answer 67

Items of value owned by a business Non-current assets; Likely t be kept by the business for more than one year Current assets; Likely to be turned into cash within a year

Answer 68

Money a business owes Non-current liabilities; Debts that the business has that it repays over more than one year Current liabilities; Debts a business may have to repay within a year

Answer 69

A measure of a business' ability to meet day-to-day expenses and short-term debts

Answer 70

Comparisons made between two or more figures in a set of financial accounts *Inter/intra business comparisons; - Inter; Between business e.g. to compare performances - Intra; Within a business e.g. over time within an organisation (Types of ratios; Gearing, profitability and liquidity)

Answer 71

A measure of the proportion of a business' capital that is funded through long-term loans (-) - Low gearing may be a sign of missed opportunities or a risk averse business (+) - A high gearing is of greater risk if interest rates are likely to increase

Answer 72

A profitability ratio that measures how efficiently a business is using capital employed to generate profits *Capital employed = e.g. all the money invested in the business

Answer 73

BENEFITS; - Provides a tool for the interpretation of accounts - Considers relationships between key variables - Structure from which comparisons can be amde - Aids decision making * Internally by managers/ Externally by investors LIMITATIONS; - Possibility that accounts have been window dressed - Need to consider reasons behind ratios e.g. if ROCE is lower than previous year because of an investment programme - Quantitative info only - Based on past performance

Answer 74

The function within a business that relates to the management and strategies involved in dealing with individuals and groups that make up the workforce

Answer 75

Quantifiable data that can be used to measure workforce performance - Will help decision making

Answer 76

A measure of workforce performance that looks at the output per worker - High labour productivity, lowers the labour cost per unit - Can be improved by developing the skills of the workforce or other factors such as machinery

Answer 77

The rate of change in a business' labour force - Low labour turnover could imply a stagnant workforce with no introduction of new ideas

Answer 78

A measure of a business' ability to keep its workforce within the business normally for more than one year - Loss of talent - Risk of loss of important information - Higher recruitment, selection and training costs

Answer 79

The number of staff who miss work as a proportion of the total number of staff - High absenteeism could signify serious problem - May result in poor customer service and low labour productivity

Answer 80

The variety of methods that have a money value - used to incentivise workforce TYPES OF INCENTIVES: Price rate; When payment is based on the number of units sold Commission; When payment is based on the number of units sold Bonus; An additional one-off payment to an employee for meeting individual or team targets Salary schemes; A basic rate of pay given to employees, determined on an annual basis - based on level of experience and skills Performance related pay; A bonus based on the performance of the employee measured against a pre-agreed range of criteria

Answer 81

A human resource strategy that involves giving employees share or the option to buy shares in the company *Employee directly benefits from the success of the company; - Dividends - Increased share value

Answer 82

The process of seeking the thoughts and opinions of employees prior to making decisions - Increases feelings o worth and involvement - Easier to implement change as staff, feel involved in decision making - Employees have valuable input as they are often the ones working in the functional areas

Answer 83

Involves delegating greater responsibility to employees, allowing them to use their abilities and have a greater say in decision making

Answer 84

- Changes in organisational structure - Poor business performance - New ownership - Transformational leadership

Answer 85

Directors may have an objective growth, achieved by; - Organic growth e.g. new branches - Inorganic growth e.g. mergers & Takeovers An objective of cost minimisation may require the business to contract - known as retrenchment; - Internal contradiction e.g. delayering/ closing down unprofitable areas - External contraction e.g. selling off parts of the business

Answer 86

When a business is failing to meet its corporate and functional objectives - If poor business is experienced for a sustained period of time, the need for change will become inevitable Shareholders will; - Demand answers as to the reason for poor performance - Actions to be taken to improve performance

Answer 87

- failure to keep up to date with the market - poor decision making, inadequate management/ information systems or lack of expertise - External factors - Poor leadership

Answer 88

Leaders, with a clear vision, who are able to lead others to achieve the extraordinary Characteristics include; - Passionate, energetic and enthusiastic - Inspire others - Supports every member in a team to achieve their potential

Answer 89

Intellectual stimulation; Challenges the status Quo whilst encouraging activity Individualised consideration; Supportive/ Encouraging to team members Inspirational motivation; Shared passion and a clear vision Idealised influenced; A role model who earns trust and respect

Answer 90

External factors outside the control of a business but are still present opportunities/ threats

Answer 91

The process by which organisations try t prepare for unexpected and potentially disastrous events (+) - Limits damage and helps maintain reputation - Opportunity cost to carrying out scenario planning (-) - Regularly needs reviewing + no guarantee it will be used

Answer 92

The actions taken by a business to minimise or eliminate risk through a process of identifying, assessing and prioritising potential threats

Answer 93

The process by which organisations try to prepare for unexpected and potentially disastrous events (+) - Provides sense of security - Limits damage - Speeds up recovery process - Informs staff training (-) - Costly and time consuming, including the opportunity cost of management time - Needs reviewing - Lack of predictability

Answer 94

The process of planning for the loss of a leader or key member of staff - Appointing ahead of time to allow for training and hand over period - Talent development within the organisation to identify those with potential to be future leaders

Answer 95

- Is closely associated with the brand - Power culture exists - Responsible for original invention/ innovation - Plays a key role

THEME 3 Flashcards

(119 cards)