unit 2

Unit 2 revision cards.

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  • Created on: 15-02-11 20:03

Using Budgets - Keywords

  • Variance The difference between the actual and predicted.
  • Variance Analysis The process of calculating variances and attempting to   understand the cause and effect on profit.
  • Favourable Improves profit
  • Adverse Worsens the profit

Variance = Budgeted figure -  Actual figure

Pros                                                               Cons

- Be consistent with the aims                           - Be difficult to monitor

- Realistic in tragets it sets                              - Be inaccurate

                                                                        - Be based on opinions

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Using budgets

The uses of budgets

  • Motivate staff
  • Control expenditure
  • Set sales revenue targets
  • Allocate money to different parts


Drawbacks to budgets

  • Long term implications are missed
  • Staff might not have skills
  • Training costs
  • Allocating may be difficult
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Improving Cash Flow - Keywords

  • Creditors People owed money by the business.
  • Debtors People who owe money to the business.
  • Trade credit when a supplier allows a customer to receive goods but pay for them later.
  • Credit control Monitoring and collecting money owed.
  • Bad debts Payments long overdue.
  • Overtrading Business doesn't have enough cash to finance the purchases.
  • Debt factoring Selling off debts to a factoring company.
  • Sale & lease back Sell a fixed asset and renting it back.
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Causes of cashflow problems

  • Seasonal demand
  • Overtrading
  • Over investing in fixed assets
  • Credit sales
  • Poor management
  • Poor managment of suppliers
  • Unforseen changes
  • Loss or low profits

How to improve

Bank overdraft, Short-term loan, Factoring, Sale of asset, Sale & leaseback, Improve management.

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Measuring & increasing profit

  • Net Proit = Sales - Cost of Production
  • Capital Money Invested in a business



Net profit margin = Net profit/Sales x 100%

Return on Capital = Return/Capital Invested x 100%


Methods of improving profit

  • Increasing prices, widen profit margin
  • Decreasing costs
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Improving Organisational Structure - Keywords

  • Authority The power to carry out a task or to instruct someone else to do it.
  • Responsibility The person or job role that is responsible for ensuring         something is done.
  • Delegation Passing of authority down an organisational structure.
  • Organisational Structure The way a firm organises the activities that need to be done.
  • Organisation Charts A diagram which illustrates the organisational structure.
  • Levels of hierachy The level of authority in an organisation.
  • Chain of command The line of authority from the chief executive via manager to shop floor.
  • Span of control The number of workers who are directly responsible to a manager or supervisor.
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Organisational structure


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Measuring the effectiveness of the workforce



  • Labour productivity Measures the amount of goods produced in relation to the no. of employees. Shown in terms of output per worker.
  • Labour Turnover Measures how good a firm is at keeping it workers. Percenatge of workers who leave within a year.
  • Absenteeism Measures how often workers are absent.
  • Health & Safety Measures the safety of the working environment.
  • Customer satisfaction Measures how customes feel about the product or service they receive. 


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Measuring the effectiveness of the workforce


Labour productivity = Output per period/ No. of employees at work


Labour Turnover = No. of staff leaving during year

                                      Average no. of staff                    x 100


Absenteeism = no. of staff absent/ total no. of staff  x 100


Health & safety = No. of working days lost per year for H&S reasons

                                      Total no. of possible working days                    x 100

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Developing an effective workforce

  • Recruitment The process businesses go through to attract the right people to apply for a job.
  • Selection The procedure businesses follow to choose the best person from those who apply.
  • Job description A detailed list of the tasks that need to be done and the responsibility of a particular job.
  • Personal/ Job Specification A detailed list of skills, qualifications, experience and personal characteristics.
  • Internal recruitment When a business fills a job from within its existing workforce.
  • External Recruitment When a business fills a job from outside existing workforce
  • Training This is the process through which a worker acquires the skills & knowledge.
  • Induction This is a period of initial training given to employees when they first join a firm.
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Induction Training


Health & Safety                                                                  Benefits

                                      Customer Services


                How the business works






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Recruitment & Selection

The process

1.  A vaccancy arises 

2.  Write a job description

3.  Write a person specification

4.  Decision Internal/External

5.  Place advertisment

6.  Issue appilication forms/CV

7. Short List

8. Interview

9. Select

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Motivating employees

  • External Motivation The will to work to achieve a target as a result of a stimulus such as a reward or threat.
  • Internal Motivation The will to work because of enjoyment.
  • School of thought People who hold similar views on a issue.
  • Taylor (scientific) Motivation is external and achieved through money.
  • Time & motion studies These measures and analyse the way jobs are done to find the most efficent way of doing them.
  • Division of labour Breaking work down into a series of small repetitive  tasks that can be carried out by unskilled labour.
  • Neo-human (Maslow & Herzburg) Motivating physcological needs.
  • Maslow Hierachy of needs 5 needs to fulfill.
  • Herzburg Two factor theory Factors that influence can be divided to hygiene and motivators.
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Motivating Employees


Financial Motivators

Reward schemes(Discounting goods, PRP, prizes), Pay (Tips, Salary, Bonus, overtime,piece rate), Fringe benefits (Incentives, discounts, special facilities), Ownership (Shares)

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Motivating employees

Hygiene                                                     Motivators

- Relationships                                          - Recongnition

- Rules                                                      - Promotion

- Fringe benefits                                       - Sense of achievment

- Wages                                                    - Responsibility

- Working

- Style of supervision

- Status

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Motivating employees in practise

  • Salary - Pay expressed as a yearly amount paid monthly.
  • Wage - Pay for the time worked i.e. hourly.
  • Piecework - Pay for amount produced.
  • Fringe benefits - Payments in addition but not money eg. company cars, health care, discounts.
  • PRP - Some part of an employees pay is linked to performance, sales target.
  • Profit sharing - Some of the firms profit is distributed to the workforce.
  • Share ownership - Employees are given shares and receive profit in the form of dividends.
  • Job design - Process of putting individual tasks together to create a job.
  • Job enlargement - Giving workers a wider range of tasks to do. Can involve job rotation.
  • Job enrichment - Jobs designed to include more challenging and complex tasks.
  • Empowerment - Give employees greater control over their workingt lives by giving them power to make decisions that affect them.
  • Team working - Work is broken down into large units and teams are given the responsibility to complete the work.
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Non-Financial Motivators

Job Enrichment                                                                 Job Enlargement

New/ challenging                                                                                                  rotation/ expand



                                                  Non Financial       


Working in teams                                                                       Empowerment

Spilt tasks                                                                                                                                Delegation

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Making operational decisions

  • Efficency - Making the m,ost of the resources. It can be done by max outputs or min inputs.
  • Unit cost - This is the cost of producing one unit of output.
  • Capacity - The max possible output that a firm can produce over a period of time with its existing resources.
  • Capacity Utilisation - The percenatge of a firms capacity being used.
  • Productivity - The measurement of a firms output in relation to its inputs.
  • Opporunity cost - Benefit given up by choosing to do something.
  • Capacity under utilisation - This occurs when a business is producing less than its maximum.
  • Rationalisation - The process of reorganising a firms operations to reduce capacity and therefore increase efficency.
  • Subcontracting - When firms can't reach consumer demand contract work out
  • Stock - There are three types; Raw materials, Work in progress, Finished goods.
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Unit costs = Total costs/ Units of output

Capacity Utilisation = Actual output/ Max output      x 100

Labour productivity = Output/ No. of workers

Punctuality = Deliveries on time/ Total deliveries    x 100

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  • React quickly to change
  • Can focus on core
  • Non-standard orders can be dealt with


  • Lose control over quality
  • Reputation damaged
  • Opportunity cost
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Developing effective operations: quality

  • Quality - A product which is fit for the purpose and meets customer needs.
  • Quality control - The inspection of products to check they meet neccesary standards.
  • Quality Assurance - Quality guaranteed throughout an organisation (first stage to last)
  • Total quality Management - An approach to quality that emphasises everyones involvement.
  • Zero Defects - Make no errors in production so quality standards met first time.
  • Quality standards - A recognition that certain targets have been achieved.
  • ISO 9000 - An international quality award avaiable to organisations in the EU. 
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Problems of poor quality


  • Scrapping unusable products
  • Rework below standard products
  • Costs of handling complaints


  • Loss of reputation
  • May impact other products
  • Retailers unwilling to stock
  • May need to discount so lower prices
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Developing effective operations: customer services

  • Customer service - A series of activities designed to enhance the level of customer satisfaction.
  • Mystery shopper - People employed to test customer service.


What do customers want?

  • Expectations to be met or exceed
  • Quality
  • Trained staff
  • Market research
  • Customer experience.
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Working with suppliers

  • Supply Chain - The various organisations involved in moving resources from their raw material through to the retail outlets.


Factors that influence supplier

  • Price
  • Payment terms
  • Quality
  • Reliability
  • Capacity
  • Flexibilty
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Relationships with suppliers


  • Keep informed
  • Pay fair
  • Pay promptly                                             Keep happy, flexible
  • Coordinate                                                Hard over price
  • Pass on leads


  • Hard over price                                          Pay less, increase profit
  • Delay payment                                           No loyalty
  • Switch supplies
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Using technology in operations

  • Technological deveopments - Improvements in a product or process due to improvements in science.
  • Automation - Using a machine or elctronic device to carry out a process to reduce labour.
  • Information technology - The hardware used to store and retrieve and manipulate information.
  • Robotics - To perform tasks with a certain degree of accuracy.


Automated stock control                                                   Design Technology

Greater efficency                                                                                               CAD (3d format)



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Effective Marketing




  • Marketing - The process of identifying, anticipating and satisfying customer needs.
  • Niche marketing - Marketing products to a small segment of the market.
  • Mass market - Marketing products to most of the market.
  • Market segment - Breaking a market into smaller sections.
  • Product orientation - Focuses mainly on product.
  • Market orientation - Focuses on what consumers want.



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Niche marketing

Niche marketing

Advantages                                                              Disadvantages

+ Less competitors                                                    - Small volumes of sales

+ Aim to dominate                                                     - Small market

+ Charge high prices                                                - Brands more trust

+ Unique selling price

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Designing an effective marketing mix




  • Marketing mix - The contribution of price, product, promotion and place that influences a consumers decision.
  • USP - the feature of a product or service thats differentiates it from its competitors.
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Using the marketing mix: Product

  • USP - differentiate your product or service.
  • New product development process - The stages involved in developing a new product.
  • Product Life cycle - Stages of a products life and pattern of sales.
  • Extension strategies - The methods used to prevent falling sales and extend product life.
  • Produt portfolio - Analyses how well the products a firm have are doing
  • Boston Box Matrix - A model which analyses product portfolio in terms of each products market share.
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Technology                                                                                       Competitors



What influences a new

Product or service?



Other factors                                                                               Entreprenuer


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What makes a successful product or service?

  • Fashion
  • Reliability
  • Safety
  • Convience of use
  • Durability
  • Legal Requirements
  • Aesthenic quality (eye)
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Product life cycle


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Boston matrix


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Using the marketing mix: Promotion

  • Promotion mix - The combination of promotional activities used by a firm to promote a product.
  • Advertising - Put product in media.
  • Sales promotion - Attempts to boost sales by using incentives to buy. (short-term)
  • Personal selling - Face to Face -> B2B
  • Public relations - Facourable publisity in the media. It is free.
  • Sponsorship - A form of PR to gain publicity.
  • Direct mail - Mailshots, emails etc. to customers.
  • Merchandising - Mugs, t-shirts etc.
  • Brand - The identity of a product differentiates it from competitors.
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Price elasticity of demand



  • Demand - The amount consumers both want and are able to buy.
  • Price elasticity of demand - The response of demand to a change in price.
  • Price elastic - Change demand greater than change in price  >1
  • Price Inelastic - Change in demand less than price <1
  • Unitary Elasticity - Change in demand same as price =1
  • Price discrimination - Charging different prices for the same product.
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stock control


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Using the marketing mix: Place

  • Distribution channel - The route taken by a product from manufactuer to the end consumer.
  • Intermediates - A business that acts as a link between a producer and the end customer.
  • Wholesalers - A business that buys large quantities of a product and sells them in smaller quantities.
  • Retailers - A business that buys goods from manufacturers and wholesalers.
  • Breaking bulk - Dividing large quantities of a product into smaller amounts.
  • Direct distribution - Selling direct to customers.
  • Distribution targets - Set a no. of sales through each channel or outlet.
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Marketing and competitiveness


  • Market share - The proportion of the total sales in a market which each business has.
  • Market size - The total no. of items sold in a market in terms of volume or value.
  • Competition - The no. of firms in a market and the amount of rivarly there is between firms.
  • Barriers of entry - Something that makes it difficult for firms to enter a market.
  • Differentiation - The way in which firms try to make their product appear different.
  • Market structure - The nature of the market i.e. what are the barriers to entry, how competitive, how many firms operate in it, how much product differentiation.
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  • Single producer (25% share)
  • Power in 'few'
  • Barriers to entry
  • Exploit consumers


High profit margin!

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  • Market dominated by small no. of companies
  • Power more spread
  • More consumer choice
  • Risk of cartels
  • Less barriers to entry.

High Profit Margin!

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Monopolistic Competition

(http://peppercomblog.typepad.com/photos/uncategorized/2008/07/09/starbucksillustration.jpg)Monopolistic Competition!

  • Big market, many firms
  • Minimal barriers to entry
  • Rely on differentiation
  • Product monopolies


Low Profit Margin!

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Perfect Competition

(http://www.bangzo.com/ebayimages/Mr%20perfect.jpg)Perfect Competition

  • Many sellers, many buyers
  • No barriers to entry
  • Perfect Knowledge
  • Price takers


Low profit margin!

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  • Labour Productivity = Output per year/ No. of employees
  • Labour turnover = No. of staff leaving per year/ Average no. of staff  x 100 =%
  • Absenteeism = No. of staff absent/ Total no. of staff   x 100
  • Health & Safety = No. of days lost due to H&S/ Total possible days   x 100
  • Price elasticity of demand = % change in quantity/ % change in price
  • %change in demand = % change in price x PED
  • Market share = The business sales/ Total sales in market   x 100
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