Benefits of using budgets
- They provide direction and contribution- you now how much you should be spending.
- Motive staff- makes them work harder.
- They improve efficiency-by monitoring and reviewing budgets.
- The assess forecasting ability- predictions
Drawbacks of using budgets
- Difficult to monitor fairly.
- Allocations may be incorrect.
- Saving may be sought that are not in the interests of the firm.
- Changes may not be allowed for when a budget is reviewed.
THIS IS ALL BECAUSE IT IS A PREDICTION.
Features of good budgeting
Features of good budgeting
A good budget should:
- Be consistent with the aims of the business.
- Be based on the opinions of as many people as possible
- Set challenging but realistic targets
- Be flexible
In budgeting (or management accounting in general), a variance is the difference between a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues.
Causes of cash-flow problems
Firms may have cash flow problems for a variety of reasons:
- Seasonal demand- the demand for the products may fall during different reasons e.g. ice cream does not really sell in winter.
- Over investment in fixed assets- they may invest in fixed assets to grow but this does not always work.
- Poor stocking management- big stocks can tie up cash what can be used on something-else
- Poor management of the suppliers- not being able to control the suppliers can lead to them asking for the money early when the business does not have it.
- Unforeseen changes- changes in internal (machinery breakdown) and external (new law) can also cost money all of a sudden.
- Losses or low profits- these can cause cash flow problems because you may not be expecting it and may plan ahead only for positive changes.
Cash Flow cont...
Ways to improve cash flow
- Bank overdraft- this helps to improve the cash flow because they give the money all at once and you can pay it back whenever you want. The problems with a bank overdraft are variable interest payments (change all the time), high interest and an immediate payment is required.
- Short-term loan- this is short term. Lower interest than over draft but still high.
- Debt factoring- The sale of a business' invoices to a third party. The third party is charged with processing the invoices, and the business lending the invoices is able to receive loans based on the expected payments on the invoices.
- Sales of assets- selling things you own.
Measuring and increasing profit
Net profit margin (%) = net profit before tax x100
Return on capital (%) = net profit before tax x100
Methods of increasing profits
- Increasing price
- Decreasing costs
- Increasing sales
- Investing in assets
Improving organisational structures
- Organisational structure- the relationship between different people and functions in an organisation.
- Organisation chart-a diagram showing the lines of authority and layers of hierarchy in an organisation.
- Span of control- the number of subordinates whom a manager is required to supervise directly.
- Delegation- the process of passing authority down the hierarchy from a manager to a subordinate.
· Communication- the process of exchanging information
· Open channels of communication-any staff member is welcome to see, read or hear the discussions
· Closed channels of communication- restricted
Measuring the effectiveness of the workforce
Labour productivity= output per period
Number of employees per period
Rate of labour turnovers= Number leaving a business over a given period x100
Average number employed over a given period
· Problems with high labour turnover- high costs
· reduced productivity
Measuring the effectiveness of the workforce cont.
· Absenteeism- the number of employees not at work on a given day.
Rate of absenteeism=number of staff absent on 1 day x100
Total number of staff
Annual Rate of absenteeism= total number of days lost due to absence during the year x100
Total number of days that could be worked x no. of employees
Rate of absenteeism= number of working days lost per
Due to health and safety year due to health and safety x100
Total number of possible working
Days per year
Recruitment, selection and training
- job descriptions
- short listing
- Training needs
- Benefits of training- good employees
- Induction training
Reasons for motivate
- Making them work harder
- Keep them happy so they stay
- Companies respect
How to motivate
- Performance rated pay
- Profit sharing
- Good feedback
Making operational decisions
- Operations management- the process that uses the resources of an organisation to provide the right goods or services for the customer
- Operational targets
- Unit cost= total cost / Units of output
Punctuality (%) = deliveries on time x100
Capacity utilisation (%) = actual output per annum x100
Maximum possible output per annum
Making operational decisions: quality
What is quality?
- Image and brand
Importance of quality to a business
- Impact on sales
- Impact on price
- Cost reductions
QC and QA
- As you only check at the end you wont find all the problems
- Takes longer
- More costs
- Check at every stage
- Know what’s wrong
What is customer service?
- Customer service- identifying and satisfying customer needs and delivering a level of service that meets or exceeds customer expectations.
- Customer expectations- what people think should happen and how they think they should be treated when asking for or receiving customer service.
- Customer satisfaction- the feeling that the buyer gets when they are happy with the customer service.
Customer expectations are based on:
§ What people hear and see.
§ What they are told.
§ Previous experience.
Benefits of good customer service
Benefits of good customer service
- Impacts on volume of sales- more products will be sold due to returning customers.
- Creating USP- they will by more of the items.
- Impact on selling price- they may pay extra.
- Firm’s reputation- people will talk good about it.
- Employee motivation- people will say good things to employees.
- Reduced costs- fewer complaints to be handled.
- Trade between businesses- due to reputation.
- Public relations- more people will be willing to help.
Working with suppliers
For a manufacturer a supplier will mainly provide raw materials and components to produce the finished goods. For a retailer the manufacture of a product is the supplier.
Choosing effective suppliers
When choosing a supplier a firm looks for:-
- Prices- the supplier must be cheap and have reasonable prices.
- Payment terms- most companies do a thing called winning businesses this is when they buy good of the supplier and then pay back at a later time.
- Quality- all businesses want the best quality they can get so but at a low price so they always have to be careful.
- Capacity- a supplier has to be able to provide as much goods as a business wants so the business does not lose reputation by having less to sell.
- Reliability- they have to be reliable because if they aren’t then businesses may not always get the products to sell.
- Flexibility- suppliers have to provide the goods whenever the business wants or they can be losing customers.
Roles of suppliers in improving operational perfor
- Unit costs- the amount the supplier charges is really important because is the unit cost stays low the operational performance will improve.
- Quality- the quality is also important because if the quality is bad then the business will lose customers.
- Capacity utilisations- businesses usually buy large amount and if there is not enough to buy then it will cost them more what will make the operational performance worse.
Using technology in operations
Robotics: Robots are very helpful in workplaces, here are some things they help to do:-
- Handling operations- Robots can manipulate materials and components into position. In order for other production activities.
- Welding- robots can be programmed to join together materials during the production process.
- Other production applications- activities such as dispensing liquids, painting and coating materials.
- Assembling- they can also be used to put items together.
- Packaging and palletising- they can help do packaging which makes it easier because you won’t need to lift heavy items.
- Measurement, inspection and testing- they can check the items for you and it saves time.
- Hazardous applications- they do all the dangerous jobs.
Purpose of marketing
- To know what the customer wants.
- Satisfying the customers needs.
- Meeting the needs of the organisation.
There are goals of the marketing department. They are:-
- Size- they want to increase the size of the business.
- Marketing position- the customers they want e.g. age, gender.
- To create new products.
- To make the brand when known.
- Security- to save the company from bankruptcy.
Types of marketing
- Business to consumer (B2C) - where they try to sell it to consumers.
- Business to business (B2B) – where they sell it to other businesses.
Designing an effective marketing mix
Influences on the marketing mix
- Finance: -
- Important parts of finance.
- Cash flow.
- Discounts- they need to get their products cheaper than other companies.
- Advanced product- it will be more popular with the customers.
- Lower costs- you don’t have to pay them wages.
- Easier online selling.
- Market research:-
- If competition is high you will have to risk losing customers.
- Consumer opinion- you need to know what they want.
Using marketing mix- product
- product design:-
- Convenience of use.
- Aesthetic qualities.
- Legal requirements.
- developments of new goods and services:-
- Generations of ideas.
- Analysis of ideas.
- Product development.
- Test marketing.
Using marketing mix- promotion
Promotion can be informative or persuasive.
Elements of promotional mix
- Public relations- the public will recognise the point of the product.
- Branding- if it is a good brand like coke-cola it would add value to the product.
- Sales promotion- offers get consumers to buy more than one.
- Direct selling- sell directly to the consumer so you can tell them everything they need.
- Advertising- TV is the best way because everyone has and uses one.
- Sponsorship- if they sponsor a company it will help with their advertising.
- Fair trade- to get economically friendly support.
- Informative- is to increase consumer awareness.
- Persuasive- is to make consumers purchase the product.
Using marketing mix- pricing
- Price skimming- this is when they set a high price for a new product to encourage the consumer to buy it.
- Penetration price- low prices are set to break into a market or to achieve a sudden spurt in market share.
- Price leadership- the market leader sets a high price what small businesses take. This is called price taking.
- Predator price- a firm sets a low price to drive others out the market.
- Loss leaders- firms like supermarkets set low prices for certain products to encourage consumers to buy full price products.
- Psychological pricing- 99p instead of £1.
Using marketing mix- place
Importance of location
- Cost of access.
Placement in the point of sale
Placing a range of good items from the same category would make the consumer choose.
Number of outlets
The more outlets there are the better because more people will be able to go there.
Types of distribution
The faster the products get to the consumer the better because it would be fresher and cheaper.
Marketing and competitiveness
- Monopoly- a single producer in a market, but in a firm with a market share over 25%.
- Oligopoly- a market dominated by a small number of large businesses.
- Cartel- a group of firms that come together to control production, competition, and prices.
- Monopolistic competition- where a large number of firms are competing in a market each having enough product differentials to achieve a degree of monopoly power and therefore some control over the price they charge.
- Perfect competition- where there are a large number of sellers and buyers, all of which are too small to influence the price of the product.