unit 2

• 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

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

• 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.

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.

• 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

• 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.

• 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. 

Calculations

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

• 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.

Health & Safety                                                                  Benefits

                                      Customer Services

                How the business works

                                                                             Uniform

                                      ECDL

                                                                                       Rules

      Mission

                                             Terms

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

• 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.

Financial Motivators

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

Hygiene                                                     Motivators

- Relationships                                          - Recongnition

- Rules                                                      - Promotion

- Fringe benefits                                       - Sense of achievment

- Wages                                                    - Responsibility

- Working

- Style of supervision

- Status

• 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.

Job Enrichment                                                                 Job Enlargement

New/ challenging                                                                                                  rotation/ expand

                                                  Non Financial       

Motivators  

Working in teams                                                                       Empowerment

Spilt tasks                                                                                                                                Delegation

• 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.

Calculations

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

Good

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

Bad

• Lose control over quality
• Reputation damaged
• Opportunity cost

• 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. 

Operations

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

Marketing

• Loss of reputation
• May impact other products
• Retailers unwilling to stock
• May need to discount so lower prices

• 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.

• 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

Collaborative

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

Competitive

• Hard over price                                          Pay less, increase profit
• Delay payment                                           No loyalty
• Switch supplies

• 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)

Communications 

Intranet

• 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.

Niche marketing

Advantages                                                              Disadvantages

+ Less competitors                                                    - Small volumes of sales

+ Aim to dominate                                                     - Small market

+ Charge high prices                                                - Brands more trust

+ Unique selling price

• 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.

• 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.

Technology                                                                                       Competitors

What influences a new

Product or service?

Other factors                                                                               Entreprenuer

                                                                                                            skills

What makes a successful product or service?

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

• 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.

• 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.

• 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.

• 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.

Monopoly

• Single producer (25% share)
• Power in 'few'
• Barriers to entry
• Exploit consumers

High profit margin!

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

High Profit Margin!

Monopolistic Competition!

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

Low Profit Margin!

Perfect Competition

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

Low profit margin!

Calculations!

• 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