Key words


Using budgets

  • Budget: an agreed plan establishing, in numerical or financial terms the policy to be pursued and the anticipated outcomes.
  • Variance analysis: the process by which the outcomes of budgets are examined and then compared with the budgeting figures. The reasons for any differences are then found.
  • variance= budget figure - actual figure
  • Favourable variance: when costs are lower than expected or revenue is higher than expected.
  • £23,000 - £22,200=£800 favourable
  • Adverse (unfavourable) variance: when costs are higher than expected or revenue is lower than expected.
  • e.g. £2,000 - £2,200= (£200) Adverse
  • A favourable variance will mean more profit than expected.
  • An adverse variance will mean less profit than expected.
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Improving cash flow

  • Bank overdraft: an agreement whereby the holder of a current account at a bank is allowed to withdraw more money than there is in the account.
  • Short-term loan: a sum of money provided to a firm or an individual for a specific, agreed purpose. Repayment of the loan will take place within 2 years, and possibly much less.
  • Factoring: when a factoring company (usually a bank) buys the right to collect the money from the credit sales of an organisation.
  • Sale of assets: when a business transfers ownership of an item that it owns to another business or individual, usually in return for capital.
  • Sale and leaseback of assets: when assets that are owned by a firm are sold to raise cash and then rented back so that the company can still use them for an agreed period of time.
  • Working capital: the day-to-day finance used in a business, consisting of assets (e.g. cash, stock and debtors) minus liabilities (e.g. creditors and overdrafts).
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Measuring and increasing profit

  • Profit: the difference between the income of a business and its total costs. Proft= total revenue - total costs.
  • Profitability: the ability of a business to generate profit or the efficiency of a business in generating profit.
  • Net profit margin: this measures net profit as a percentage of sales (turnover). 
  • Return on capital: ratio showing net profit as a percentage of capital invested.
  • Capital invested: all of the money provided to the business by owners.
  • Liquidity: the ability to convert an asset into cash without loss or delay.
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Improving organisational structures

  • Organisational structure: the relationship between different people and functions in an organisation - both vertically, from shop-floor workers through supervisors and managers to directors, and horizontally between different functions and people at the same level.
  • Organisation chart: a diagram showing the lines of authority and layers of hierarchy in an organisation.
  • Organisational hierarchy: the vertical division of authority and accountability in an organisation.
  • Levels of hierarchy: the number of different supervisory and management levels between the shop floor and the chief executive 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.
  • Responsibility: being accountable for one's actions.
  • Authority: the ability or power to carry out a task.
  • Accountability: the extent to which a named individual is held responsible for the success or failure of a particular policy, project or piece of work.
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Measuring the effectiveness of the workforce

  • Labour productivity: a measure of the output per worker in a given time period.
  • Labour turnover: the proportion of employees leaving a business over a period of time - usually a year.
  • Absenteeism: the proportion of employees not at work on a given day.

Measuring an effective workforce: recruitment, selection and training

  • Internal recruitment: filling a job vacancy by selecting a person who is already employed in the organisation.
  • External recruitment: filling a job vacancy by advertising outside the firm.
  • On-the-job training: where an employee learns a job by seeing how it is carried out by an experienced employee.
  • Off-the-job training: all forms of employee education apart from that at the immediate workplace.
  • Induction training: education for new employees, which usually involves learning about the way the business works rather than about the particular job that the individual will do.
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Motivating employees

  • Motivation: the causes of people's actions - why people behave as they do.
  • Motivation theory: the study of factors that influence the behaviour of people in the workplace.
  • Scientific management: business decision making based on data that is researched and tested quantitatively in order to improve the efficiency of an organisation.
  • Piecework (or piece rates): payment based on the number of items each worker produces.
  • Performance-related pay: a bonus or increase in salary usually awarded for above-average employee performance.
  • Profit sharing (or profit-related bonuses): a financial incentive in which a proportion of a firm's profit is divided among its employees in the form of a bonus paid in addition to an employee's salary.
  • Share ownership: a financial incentive whereby companies give shares to their employees or sell them at favourable rates below the market price.
  • Share options: a financial incentive in which chief executives and senior management are given the choice of buying a fixed number of shares at a fixed price, by a given date.
  • Fringe benefits: benefits recieved by employees in addition to their wages or salary.
  • Job enrichment: a means of giving employees greater responsibility and offering them challenges that allow them to utilise their skills fully.
  • Job enlargement: increasing the scope of a job, either by job enrichment or by job rotation.
  • Empowerment: giving employees the means by which they can exercise power over their working lives.
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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: the goals or aims of the operations function of the business.
  • Unit cost: the cost of producing 1 unit of output. Unit cost= total cost/units of output
  • Capacity: the maximum total level of output or production that a business can produce in a given time period. A company producing at this level is said to be producing at full capacity.
  • Capacity utilisation: the percentage of a fim's total possible production level that is being reached. If a company is large enough to produce 100 units a week, but is actually producing 92 units, its capacity utilisation is 92%.
  • Under-utilisation of capacity: when a firm's output is below the maximum possible. This is also known as excess capacity or spare capacity. It represents a waste of resources and means that the organisation is spending unnecessarily on its fixed assets.
  • Capacity shortage: when a firm's capacity is not large enough to deal with the level of demand for its products. This means that certain customers will be disappointed. Further sales may be lost if unhappy customers decide not to buy from the firm again.
  • Rationalisation: a process by which a firm improves its efficiency by cutting the scale of its operations.
  • Subcontracting: when an organisation asks another business to make all or part of its products.
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Developing effective operations: quality

  • Quality: those features of a product or service that allow it to satisfy (or delight) customers.
  • Quality system: the approach used by an organisation to achieve quality. Most quality systems can be classified as either quality control or quality assurance.
  • Quality control: a system that uses inspection as a way of finding any faults in the good or service being provided.
  • Quality assurance: a system that aimes to achieve or improve quality by organising every process to get the product 'right first time' and prevent mistakes ever happening. 
  • Total quality management: a culture of quality that involves all employees of a firm.
  • Kaizen: a policy of implementing small, incremental changes in order to achieve better quality and/or greater efficiency.
  • Quality standard: a set of criteria for quality established by an organisaiton. The standard also requires an organisation to have systems for implementing and monitoring its standards.
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Developing effective operations: customer service

  • Customer service: indentifying 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 recieving customer service.
  • Customer satisfaction: the feeling that the buyer gets when he/she is happy with the level of customer service that has been provided and the degree to which customer expectations have been met.

Working with suppliers

  • Supplier: an organisation that provides a bsuiness with the materials it needs in order to carry out its business activities.
  • Payment terms: the arrangements made about the timing of payment and any other conditions agreed between buyer and seller.
  • Just-in-time: a system where items of stock arrive just in time for production or sale.

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Effective marketing

  • Marketing: the anticipating and satisfying of customers' wants in a way that delights the consumer and also meets the needs of the organisation.
  • Marketing objectives: the goals of the marketing function in an organisation.
  • Business-consumer marketing: where a firm targets individual consumers with its products.
  • Business-to-business marketing: where a firm sells its product to another business.
  • Niche marketing: targeting a product or service at a small segment of a larger market.
  • Mass marketing: aiming a product at all (or most) of the market.
  • Product differentiation: the degree to which consumers see a particular brand as being different from other brands.
  • Marketing mix: those elements of a business's approach to marketing that enable it to satisfy and delight its customers.
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Using the marketing mix: product

  • Product: the good or service provided by a business.
  • Product design: deciding on the make-up of a product so that it works well, looks good and can be produced economically.
  • Product development: when a firm creates a new or improved good or service, for release into an existing market.
  • Unique selling point: a feature of a product or service that allows it to be differentiated from other products.
  • Boston matrix: a tool of product portfolio analysis that classifies products according to the market share of the product and the rate of growth of the market in which the product is sold.
  • Product life cycle: the stages that a product passes through during its lifetime - development, introduction, growth, maturity and decline.
  • Extension strategies: methods used to lengthen the life cycle of a product by preventing or delaying it from reaching the decline stage of the product life cycle.
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Using the marketing mix: promotion

  • Promotion: the process of communicating with customers or potential customers. Promotion can also describe communication with other interested groups, such as shareholders and suppliers.
  • Promotional mix: the coordination of the various methods of promotion in order to achieve overall marketing targets.
  • Public relations: gaining favourable publicity through the media.
  • Branding: the process of differentiating a product or service from its competitors through the name, sign, symbol, design or slogan linked to that product/service.
  • Merchandising: attempts to persuade consumers to take action at the 'point of sale'.
  • Sales promotions: short-term incentives used to persuade consumers to buy a particular product.
  • Direct selling: the process of communicating directly to the individual consumer through an appropriate form of communication.
  • Advertising: the process of communicating with customers or potential customers through specific media.
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Using the marketing mix: pricing

  • Pricing strategies: approaches adopted in order to achieve marketing objectives.
  • Price skimming: a strategy in which a high price is set to yield a high profit margin.
  • Penetration pricing: a strategy in which low prices are set to break into a market or to achieve a sudden spurt in market share.
  • Price leadership: a strategy in which a large company sets a market price that smaller firms will tend to follow.
  • Price taking: a strategy in which a small firm follows the price set by a price leader.
  • Predator: a strategy in which a firm sets very low prices in order to drive other firms out of the market.
  • Pricing tactics: pricing approach or techniques used in the short term to achieve specific objectives.
  • Loss leadership: a tactic in which a firm sets a low price for is product in order to encourage consumers to buy other products that provide profit for the firm.
  • Psychological pricing: a tactic intended to give the impression of value (e.g. selling a good for £9.99 rather than £10).
  • Price elasticity of demand: the responsiveness of a change in the quantity demanded of a good or service to change in price.
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Marketing and competitiveness

  • Market: a place where buyers and sellers come together.
  • Monopoly: a single producer in a market, but in practice a firm which a market share of 25% or more.
  • Oligopoly: a market dominated by a small number of large businesses, known as oligopolists.
  • Monopolistic competition: where a large number of firms are competing in a market, each having enough product differentiation to achieve a degree of monopoly power and therefore some control over the price they charge.
  • Perfect competition: where there is a large number of sellers and buyers, all of which are too small to influence the price of the product.
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Is this OCR unit 2? 

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