IGCSE Business Studies Revision

By Kushal Vyas
 Chapter 1: The purpose of business activity
A need
need is a good
good or serv
servic
ice,
e, whic
which
h is esse
essent
ntia
iall for livi
living
ng..
A want
want is a good
good or serv
servic
ice
e whic
which
h peop
people
le woul
would
d lik
like to have
have,, but
but whic
which
h is not
not esse
essent
ntia
iall for
for livi
living
ng,, peop
people
les wan
wants are
are unli
unlimi
mite
ted
d
Unlimit
Unlimited
ed wants
wants + Limited
Limited Resources  Scarci
Resources Scarcity
ty (The
(The Economi
Economicc Proble
Problem)
m)
Fact
Factor
orss of prod
produc
uctio
tion
n are
are the resou
resourc
rces
es which
which are
are need
needed
ed to prod
produc
uces
es goods
goods or servi
service
ces.
s. There
There are
are four
four main
main types
types of fact
factor
orss of prod
produc
uctio
tion
n and
and
all
all of them
them are
are limi
limite
tedd in supp
supply
ly::
Land
Land  The
The term
term is used
used to cove
coverr all
all the
the natu
naturral resou
esourrces.
ces.
Labo
Labour
ur  The term
term refe
refers
rs to the
the effo
effort
rtss of the work
workfo
forc
rce
e used
used as input
input into
into the busin
busines
ess.
s.
Capit
Capital
al  This
This term
term assoc
associa
iate
tess with
with all
all the fina
finance
nce,, machi
machiner
nery
y and all equip
equipme
ment
nt need
needed
ed..
Ente
Enterp
rpri
rise
se  This
This term
term mean
meanss the
the skil
skilll and
and risk
risk taki
taking
ng abil
abilit
ity
y of the
the pers
person
on who
who brin
brings
gs the
the othe
otherr resou
esourrces
ces or facto
actorrs of prod
produc
ucti
tion
on toge
togeth
ther
er to
produc
produce e a good or service
service,, e.g. Entre
Entrepre
preneu
neurs.
rs.
Oppor
Opportun
tunit
ity
y Cost
Cost  It is the next
next best
best alter
alterna
nativ
tive
e given
given up by choos
choosin
ing
g anoth
another
er item
item..

Divi
Divisi
sion
on of labo
labour
ur  This
This is when
when the
the prod
produc
ucti
tion
on proc
proces
esss is spli
splitt up into
into dif
differen
erentt task
taskss and
and each
each work
worker
er perf
perfor
orms
ms one
one of the
the task
taskss only
only.. It is also
also
known
known as speciali
specializa
zation
tion..

Busines
Businesses
ses combine
combine facto
factors
rs of produc
production
tion to make
make produc
products
ts which
which satisf
satisfy
y people
peoples wants.
wants.

Busine
Business
ss objec
objectiv
tives
es are
are the aims
aims or targ
target
etss that
that a busin
busines
esss work
workss towa
toward
rds.
s.

The
The five
five most
most common
common objec
objectiv
tives
es are:
are:

1) To make a profit (sales revenue  cost of goods sold)

2) To incr
incre
ease
ase adde
added
d valu
value
e (the
the dif
differen
erence
ce betw
betwee
een
n sell
sellin
ing
g pric
price
e & the
the cos
cost of buyi
buyingin
ngin thos
those
e mat
materia
erials
ls))
3) To expand the business (g
( growth)
4) To achieve business survival
5) To provide a service to the community.

A conf
confli
lict
ct of busi
busine
ness
ss obje
object
ctiv
ives
es is when
when dif
differ
ferent grou
groups
ps of peop
peoplele have
have cert
certai
ain
n poin
points
ts of vie
view whic
whichh are
are agai
agains
nstt the
the busi
busine ness
ss that
that has
has been
been set
set
up.
up. These
These peop
people
le belie
believe
ve that
that need
needss are
are not being
being satis
satisfie
fied,
d, as the busin
business
ess objec
objectiv
tives
es are
are not valid
valid and
and bene
benefic
ficia
iall for
for anyo
anyone
ne..
A stak
stakeh
ehold
older
er is any
any pers
person
on or grou
group
p that
that is direc
directly
tly inte
intere
rest
sted
ed in the
the perf
perfor
orman
mance
ce and
and acti
activit
vitie
iess of a busin
busines
ess,
s, e.g.
e.g.,, owner
owners,
s, direc
directo
tors
rs,, work
worker
ers,
s,
managers,
managers, consumers,
consumers, government,
government, local community
 C apter 2: Types o us ness act v ty
The primary sector of industry extracts and use the natural resources for the Earth.
The secondary sector of industry manufactures the goods using the raw materials provided by the primary sector.
The tertiary sector of industry provides services to consumers and the other se ctors of industry.
The three sectors are usually compared by 2 things:
- The number of workers in each sector
- The value of the output of goods and ser vices
Deindustrialization is the process in which there is decline in the importance of the secondary manufacturing sector of industry in a company.
A free market economy is the type of economy where there isnt any government control over the factors of production. It is also known as the market economy.
A monopoly is a business which controls all of the market for a particular product.
A command economy is the type of economy where there isnt a private sector since all resources are owned by the state.
A mixed economy is the type of e conomy which contains both a public (state) and private sector.

Privatization is the process in which national industries are sold out by the government to different individuals in the private sector.
Capital is the money invested into a business by its owners.
There are many groups who find it useful to compare the sizes of businesses:-
Investors  Before deciding which business they would like to invest into
Governments  Often there are different tax rates for small and large businesses.
Competitors  They are interested to know where they stand in competition and importance with other firms.
Workers  To have some idea of how many people they might be working with.
Banks  To see how important a loan to a business is compared to its overall size.

Business size is measured in three ways: - by number of employees

- by value of output and sales
- by capital employed
Profit- It is the surplus that a business makes after total costs have been subtracted from the sales revenue.

Internal growth is when business expands its existing operations.

External growth is when a business takes over or merges with another business. It is also called integration.
A merger is when two business agree to join their business together and make one big firm.
A takeover (acquisition) is when one firms buys out the r ight or ownes of another business.
Horizontal integration is when one firm merges with another which same sector of industry and as well as the same stage of production.
Vertical integration is when one firm merges with another which is in the same sector of industry but at a different stage of production. It can be both forwards and
backwards.
Conglomerate integration is when one firm merges or takes over a firm with completely different industry. It is also known as diversification.
A business remains small depending on:
1) The type of industry it ope rates in
2) The market size
3) The owners objectives
 Chapter 3: Forms of business
organisations
There are five main forms of business organisations in the private sector:
1) Sole traders
2) Partnerships
3) Private Limited Companies (PLCs)
4) Public Limited Companies ( Ltd.)
5) Co-operatives
Limited liability- This is the term given to the owners of a company (shareholders). They cannot be held responsible for the debts of a company they
own. Their liability is limited to the investment they made in buying the shares.
Partnership Agreement  It is a written and legal agreement between business partners. It is not essential for partners to have such an agreement,
though, its always recommended.
Soletraders- It is the most common form of business organisation. It is a business owned and operated by just 1 person only.
Partnerships  A partnership is a group or association between 2 and 20 people who agree to own and run a business together.
Unincorporated business  It is a business which does not have a separate existing legal identity., e.g. soletraders and partnerships are
unincorporated businesses.
Shareholders  They are the owners of a limited company. They buy shares which represent part of ownership of a company.
Prospectus  A detailed document issued by the directors of a company when they are converting it to public limited company status. It is an
invitation to all the general public to buy shares in the newly formed plc.
Annual General Meeting (AGM)  It is a legal requirement for all companies. All shareholders may attend the event. They vote on who they want on
the board of directors for the coming year.
Dividends  They are payments made to shareholders from the profits of a company, after it has paid corporation tax. They can also be thought to
be the returns to the shareholders for investing in the company.
There are 2 other organisations in the private sector:
1) Close Corporations
2) Joint Ventures

Franchise  A business upon the use of the brand names, promotional logos and trading methods of an existing, successful business. The franchise
buys the license to operate this business from the franchisor.
There are two main types of business organisations in the public sector:
1) Public Corporations
2) Municipal Enterprises
Advantages of a sole trader Disadvantages of a sole trader

There are a few legal regulations to worry They have no one to discuss their business
about when the business is set up. matters with as they are the sole owner of the
business

The sole-trader is his/her own businesss boss They do not have limited liability.

They have the freedom to choose their own Not enough capital can be accumulated in
holidays , hours of work, prices to be charged order to expand or grow.
and also who to employ.

They are easily able to keep close contact with

their customers which helps to improve and
progress on business relationships and as well
as respond quickly to their needs and
demands.

They are able to keep all profits

They do not have to give information about

the business to anyone else  other than the
Tax Office
Advantages of a partnership Disadvantages of a partnership

More capital can now be invested into the Partners may disagree on business decisions
business from other partner s savings as well. and consulting all partners consumes a lot of 
time.

The responsibilities of running the business They do not have limited liability.
can now be shared.

The partners are now all motivated to work If one of the partners is inefficient or actually
hard because they are all going to benefit from dishonest, then the other partners could suffer
the profits made. by losing money in the business.
Advantages of a Private Limited Company Disadvantages of a Private Limited Company

Shares can be sold to be a large number of  The process of setting up a private limited
people. It could sold only to friends and company is long. Articles of association is the
relatives . document which contains the rules under
which the company will be managed.
Memorandum of association contains
information about the directors and company
objectives as well as its registered offices.

All shareholders have limited liability. The shares in a private limited company cannot
be sold or transferred to anyone else.

The people who started the company are able The accounts are less secret in comparison to
to keep control of it as long as they do not sell sole traders and partnerships. The company
too many shares to other people. cannot offer its shares to the general public
either.
Advantages of a Public Limited Company Disadvantages of a Public Limited Company

It is an incorporated business and is a separate The legal formalities of forming such a

legal unit. Its accounts are kept separately from company are quite complicated and time
those of the owners and there is still continuity consuming.
because of this even if one of the shareholders
die.

All shareholders have limited liability. There are many more regulations and controls
over public limited companies in order to try to
protect the interests of the shareholders.

There is now an opportunity to raise a large Some public limited companies grow so large
sum of capital to invest into the business. that they become difficult to control and
There is no limit to the number of  manage. Therefore, then there is real danger
shareholders that a public limited company that although the business might become rich
can have. by selling shares, they may even lose control
over it when it goes public.
 Chapter 4: Government influences on
business activity
Inflation is the increase in the average price level of goods and services over time.
Unemployment occurs when people who are willing and able to work cannot find a job.
Economic growth happens when the GDP (Gross Domestic Product) increases  more goods and services are produced in the previous year.
Balance of payments records the difference between a countrys exports and imports .
Real income  It is the value of income which falls when prices rise faster than money income.
GDP  The value of the output of goods and services in one years time.
 Slump - expected to find heavy unemployment, a low level of demand and capital utilization. Profits will be low as will business confidence.

 Growth - the upswing of the trade cycle is characterized by expanding production , the replacement of old machinery, rising consumers'
expenditure and increasing profits
 Recession is the downswing of the trade cycle . This is where falling consumption, decreasing profits and expectations and rising stocks of unsold
goods will be characterized in this stage.
 Boom - Expectations are high , profits are high and prices will be rising rapidly .Investment will also be high but labor will be short supply

Exports are goods and services sold from one country to another.
Imports are goods and services bought in from one country to another.
Exchange rate is the currency of one country in terms of all other countries.
Exchange rate depreciation is when the currency of one country falls in terms of another.
Fiscal policy is the change in tax rates by the government or public sector spending.
Direct taxes are the type of taxes which re paid directly from peoples incomes, e.g. income tax or profits tax.
Indirect taxes are the taxes added on to prices of goods and taxpayers pay tax as they purchase the goods, e.g. VAT (Value-AddedTax)
Import tariff is the tax on an imported product.
Import quota is the physical limit to the quantity of a product that can be imported into a country.
Monetary policy is the change in interest rates by the government or central bank.
Exchange rate appreciation is when there is a rise in the value of a currency in comparison to other currencies.
Supply side policies are policies used by governments to improve the efficient supply of goods and services in their country.
Ethical decision Is a decision taken by a manager because of the moral code observed in that firm, e.g., improving working conditions in factories,
stopping the urge of illegal activities etc.
Industrial tribunal is a legal meeting which considers workers complaints.
Contract of employment is a legal agreement between an employer and an employee listing the rights/duties and responsibilities of workers.
Planning permission is the right for a government to allow where (location) a business or factory is allowed to be set up.
Development area is the region where a business recieves financial support and other incentives to estabilish there. High unemployment is often a
problem with these sort of areas which also has strong government support as well.
 Chapter 5: Other external influences
on business
A constraint on a business is something that limits or controls its actions or decisions.
External constraints are those over which a business ha s no direct control.
Social responsibility is when a business takes decisions that may benefit stakeholders other than
shareholders, e.g. a decision to reduce pollution of the local environment by using the latest and
least dirty production equipment.
Pressure groups are formed by people who share a common interest and who will take action to try to
change government policy or business decisions.
Cost-benefit analysis is a valuation by the government agency of all external and private costs resulting
from a business decision.
External costs are the costs paid by the rest of the society, other than the business, as a result of a
business decision.
External benefits are the gains to the rest of the society, other than the business, resulting from a
business decision.
Private costs are the costs of a business decision actually paid for by the business.
Private benefits are the financial gains made by the business as result of a business decision.
Social costs is the addition of the private and external costs of business decision.
Social benefits are the addition of the private and external benefits of a business decision.
New products encourage consumers to buy It is expensive to research and develop new
more often products because they are not guaranteed to
succeed. Small firms may not be able to afford
the expenses of the investment needed.
If a business is first to market with a new idea Businesses that do not develop new products
for a product, it will have a competitive tend to lose sales and market share. They may
advantage over it competitors. go out of business, causing employees to lose
their jobs.
New high tech production leads to higher New production methods with robots and
efficiency and productivity, hence lowering computers are expensive. Small firms, in
average costs, making the business particular, may have to continue to use
competitive traditional methods.
Fewer workers will be needed on the Workers will need retraining. This may be
production line, there will be fewer to recruit expensive and workers may be reluctant to
and manage, hence saving costs learn new skills. They may have fear of losing
their jobs or not being able to operate the new
production methods could lead to a fall in
motivation.
New production methods will lead to quick Depending too much on IT and E-commerce
adaptation of methods very quickly to make a may take away direct personal contact with
wide range of similar products and this gives customers, though many consumers still prefer
businesses more flexibility to meet consumer this approach.
needs
 Chapter 6: Business Costs and Revenue
Fixed costs are cost which do not vary with the number of items sold or produced in the short term. They have to be paid whether the business is making any sales or not. These are also
known as overhead costs.
Variable costs are costs which vary with the number of item s sold or produced. They are often called direct costs because they can be directly identified or related to a particular product.
Total costs are fixed costs + variable costs added together.
Break-even charts are graphs of how costs and revenues change with sales. They show the level of sales the business has to produce in order t o break-even (the exact production level of 
units where they are making neither a profit or a loss).
The revenue of a business is the income it makes over a period of time from the sales of goods or services.
Total Revenue = Quantity sold X Price of 1 unit
The break-even point is where the total revenue is equal to the total costs. Therefore, the business does not make a profit or a loss.
On the graph: The X-axis always shows the figures of the units of production
The Y-axis always shows the figures for the costs and revenue (Fixed Cost, Variable C ost, Total Cost and Revenue Cost).
Anything under the Break-even point (B.E.P) is the area for loss incurring to the business. Anything above the B.E.P is the area for profit incurring to the business.
Sales Revenue  Total  Costs = Profit

The contribution of a product is the selling price less the variable costs.
The break-even level of production can be calculated as follows:
Break-even level of production = Total fixed costs / Contribution per unit

Direct costs are those that can be directly related or identified with a particular product or department.
Marginal costs are cost that incur to a business for producing one m ore unit of output than the set target.
Indirect costs are those which can be directly identified or related to a particular product. They are often termed overheads or overhead costs.
The average cost per unit can be calculated by the total costs divided by the total number of sales (output of production)
Economies of scale are the factors which lead to a re duction in average costs as a business increases in size.
The six types of economies of scale are:
1) Technical economies
2) Marketing economies
3) Managerial economies
4) Financial economies
5) Purchasing economies
6) Risk-bearing economies

Diseconomies of scale are the factors which lead to an increase in average costs ass a business grows beyond a certain size.

1) Low morale
2) Poor communication
Forecasts are predictions for the future, for example, likely future changes in the size of the market.
A trend is an underlying movement or direction of data over time, for example, the trend of sales data may be increasing.
A line of best fit is drawn through a series of points, foe example, sales data, which best shows the trend of that data. It can be used to forecasts results in the future.
Budgets are plans for the future containing numerical or financial targets.
Advantages of Break-even charts Disadvantages of Break-even charts
Managers are able to read off from the graph Break-even charts are constructed assuming
the expected profit or loss to be made at any that all goods are sold  the graph is not able
level of output of production. to show the possibility that stocks may build
up if not all goods are sold.

The impact of profit or loss of certain business Fixed costs only remain constant if the scale of 
decision can also be shown by redrawing the production does not change, which may
graph. The new situation according to the change as a factory might expand over time
market can be shown on another break-even and figures of scale of production may vary.
chart.

It gives a good idea of how many sales can Break-even charts only look at the break-even
made realistically to check whether they are level of production, but there are many other
at-least breaking even. It provides them to aspects of the operations of a business which
analyse their current situation with the graphs need to be analyzed by managers, for example
figures how to reduce wastage or how to increase
sales.

The break-even chart helps to calculate the The simple charts used in this section have
safety-margin, which is the amount by which assumed that the costs and revenues can be
sales exceeds the break-even point. It tells us drawn with straight lines. The actual costs and
how much they can still reduce sales until they revenues do not exactly condemn to go up in
reach break-even. The formula for the safet lin st i htf d atte
 Chapter 7: Business Accounting
Accounts are the financial records of a firms transactions.
Accountants are the professionally qualified people who have responsibility for keeping accurate accounts and for producing the final accounts.
Final accounts are produced at the end of the financial year and give details of the profit or loss made over the year and the worth of the business.
Methods of making payment:
1) Cash  The traditional method of payment which is still widely used for small amounts.
2) Cheque  Cheques are not money they are instructions to a bank to transfer a specified sum in the form of a bank balance to a named person.
3) Credit Card  This allows the consumer to obtain goods and services now but to pay for them in the future.
4) Debit Card  These are used in the same way as credit cards but, instead of credit bill being accumulated on the cardholders card account, the
money is simply transferred directly from the c ardholders bank account to that of seller.
The trading account shows how the gross profit of a business calculated.
The cost of goods sold is t he cost of producing or buying in the goods actually sold by the business during a time period.
The sales revenue is the income t o a business during a period of time from the sale of goods and services.
A gross profit is made when sales revenue id greater than the c ost of goods sold.
Net profit is the profit made by a business after all c osts have been deducted from sales revenue. It can be calculated by subtracting overhead costs from
gross profit.
The profit and loss account shows how the net profit of a business and the retained profit of a company are c alculated.
Depreciation is the fall in the value of a fixed asset over time.
An appropriation account is that part of the profit and loss account which shows how the profit after tax is distributed- either as dividends or kept in the
company as retained profits.
Retained profit is the net profit reinvested back into a company, after deducting tax and payments to owners, such as dividends.
The balance sheet shows the value of a businesss assets and liabilities at a particular time.
Assets are those items of value which are owned by the business. They may be fixed or current which is long-term or short-term. Liabilities are items owned
by the business for which they are still a financial burden on them.
Total Assets - Total Liabilities = Shareholders Funds (Owners wealth)
Current Assets  Current Liabilities = Working Capital
Net Assets = Fixed Assets + Working Capital
Capital employed = Shareholders Funds + Long-term liabilities
Capital Employed = Net Assets
Liquidity is the ability of a business to pay back its short-term debts
 Chapter 8: Cash Flow Planning
 The cash flow of a business is the cash inflows and outflows over a period of time
 Cash inflows are the sums of money received by a business during a period of time.
 Cash outflows are the sums of money paid out by a business during a period of time.
 A cash flow cycle shows the stages between for paying out cash for labour, materials, etc and
receiving cash from the sale of goods.
 Profit is the surplus after total costs have been sub tracted from sales revenue.
 When businesses runs out of cash, it is known as insolvency.
 A cash flow forecast is an estimate of the future cash inflows and outflows of a business, usually on
a month by month basis. This will then show the expected cash balance at the end of each month.
 Opening cash (or bank) balance is the amount of cash held by a bu siness at the start of the month.
 Net cash flow is the difference, each month, between inflows and outflows.
 Closing cash (or bank) balance is the amount of cash held by the bus iness at the end of each month.
This becomes next months opening cash balance.
How can be cash problems be solved?
1) Arrange a bank to borrow money over the time when the business has negative cash flow.
2) Reduce or delay some of your expenses
3) Increase your forecasted cash income is some way, for example a part-time job.
4) Delay paying for some of your expenses until cash is available, i.e. ask for credit on your
purchases.
 Chapter 9: Financing business activity
 Starting up a business
 Expanding an existing business
 A business in difficulties
Start-up capital is the finance needed by a new business to pay for the essential fixed and current assets before it can begin trading.
Capital expenditure is money spent on fixed assets which will last for more than one year.
Revenue expenditure is money spent on day-to-day expenses which do not involve the purchase of a long-term asset, for example wages or rent.
Internal finance is the money obtained from the business within itself.
The most common examples are:
1) Retained profits
2) Sale of existing assets
3) Running down st ocks to r aise cash
4) Owners savings
External finance is the money obtained from individuals or institutions outside of the business. The most common forms of external finance are as follows:
1) Issue of shares
2) Bank loans
3) Selling debentures

4) Factoring debts
5) Grants and subsidies from outside agencies (such as the government)

Short-term finance provides the working capital needed by the businesses for day-to-day operations. Examples include:
1) Overdrafts
2) Trade Credit
3) Factoring of debts

Medium-term finance is the finance available between three to ten years. It is usually used needed to purchase machinery and vehicles, which often have useful lives for
this period. The three most common examples of medium-term finance are:
1) Bank loans
2) Hire Purchase
3) Leasing

Long-term finance is available for more than 10 years. Usually taken to buy long-term assets:

1) Issue of shares
2) Long-term loans or debt finance
3) Debentures
 Chapter 10: Organisational Structure
Organisational structure refers to the levels of management and division of responsibilities within an
organisation.
A job description outlines the responsibilities and duties to be carried out by someone employed to do
a specific job.
Delegation means giving a subordinate the authority to perform particular tasks. It is very important to
remember that it is the authority to being able to perform a task  it is not the final responsibility.
Chain of command is the structure in an organisation which allows instructions to be pa ssed down from
senior levels of management to lower levels of management.
The span of control is the number of subordinates working directly und er a manager.
Line managers have direct authority over subordinates in their depart ment. They are able to take
decisions in their departmental area.
Staff managers are specialist advisers who provide support to line managers and to the board of 
directors.
A decentralized management structure means that many decisions are not taken at the centre of the
business but are delegated to a lower level of mana gement.
A centralized management structure means that most decisions are taken at the centre, or higher levels
of management.
Different forms of decentralisation:
1) Functional decentralisation  Specialist department making delegated decision-making.
2) Regional decentralisation  Decentralisation over regions and nations
3) Federal decentralisation  Authority divided between the different production lines of the
business.
4) Decentralisation by project teams  Decentralisation using projects.
Advantages of an organisation chart Advantages of short chains of command
The chart shows how everybody is linked Communication is quicker and more
together in the organisation. accurate within the organisation.
Every individual can see their own Top managers are less remote from the
position in the organisation. lower level of the hierarchy.
It shows the relationship between Spans of control will be wider. This will
different departments. mean that each manager will be
responsible for more delegates.
Everyone is in a department which gives There will be less direct control of each
them a sense if belonging. worker due to the reason above and they
will feel more trusted. They will be able to
take more decisions by themselves. They
may obtain more job satisfaction.
Advantages of delegation for the Advantages of delegation for the
manager subordinate
Managers cannot do all the jobs The work becomes more interesting and
themselves. By delegating they are able to more rewarding.
find more time to do the jobs that he
considers should be left to him.
Managers are less likely to make mistakes The employees feels more important and
if some of the tasks are being performed believes that trust is being put into them
by their subordinates (those to whom the to perform a job well.
tasks are being delegated).
Managers can easily measure the success Delegation helps to train workers and
of their staff by this method. They can see they can then make progress in the
how well their subordinates have organisation. It gives them career
performed by being the tasks delegated opportunities.
to them.
 Chapter 11: Managing a business
Effective managers:
Tasks:
1) Plan for the future
2) Organise and delegate
3) Co-ordinate departments
4) Command and guide others
5) Control and assess the work of departments
Qualities:
1) Intelligence
2) Self-confidence
3) Determination
4) Initiative
5) Good communication skills
6) Enthusiasm

Strategic decisions are very important decisions which can affect the overall success of the bu siness.
Tactical decisions are decisions which are taken more frequently and which a re less important in
comparison to strategic decisions.
Operational decisions are day-to-day decisions which will be taken by a lower level of manager.
 Chapter 12: Communication in
Business
 Communication is the t ransferring of a message from the sender to the receiver, who understands the message.
 The message is the information or instructions being passed by the sender to the receiver.
 The transmitter or sender of the message is the person starting off the process by sending the message.
 Medium of the communication is t he method used to send a message, for example, a letter is a method of written
communication and a meeting is a method of verbal communication.
 The receiver is the person who receives the message.
 Feedback is the reply from the receiver which show s whether the message has arrived, been understood and, if necessary,
acted upon.
 One-way communication involves a message which d oes not call for or require a response.
 Two-way communication is when the receiver gives a response to the mess age and there is a discu ssion about it.
 Internal communication is when messages are sent betw een people working in the same organisation.
 External communication is when messages are sent between one organisation and another organisation or outside
individual.
 Communication nets are the ways in which members of a group communicate with each other. The three types are:
1) Chain network
2) Wheel network
3) Connected network

The four barriers to communication are:

1) Problems with the sender
2) Problems with the message
3) Problems with the receiver
4) Problems with the feedback
 Advantages of verbal communication Disadvantages of verbal communication

Information can be given out quickly. Higher In a big meeting, there is no way to confirm
efficiency. whether everyone is listening or has
understood the message that was put across
by the speaker.

There is opportunity for immediate feedback It can take longer to use verbal methods when
and two-way communication feedback occurs than to use a form of 
communication

The message is often reinforced by seeing the When an accurate and permanent record of 
speaker. the message is needed, such as a warning to a
worker, a verbal method is inappropriate.
 Advantages of written communication Disadvantages of written communication

There is hard evidence of the message which Direct feedback is not always possible, unless
can be referred to in the future. electronic communication is used. With
written messages, the two-way
communication process is much more difficult

It is essential for certain messages involving It not so easy to check that the message has
complicated details which might be been received and acted upon as with verbal
understood if, for example, a telephone messages.
message were given.

A written message can be copied and sent to The language used can be difficult for some
many people. This could be more efficient than receivers to understand. If the written
telephoning all of those people to give the message is too long it may be confusing and
same message verbally. lose the interest of the reader.

Electronic communication is a quick and cheap There is no opportunity for body language to
way to reach a large number of people. be used to reinforce the message.
 Advantages of visual communication Disadvantages of visual communication

These methods can present information in an There is no feedback and the sender of the
appealing and attractive way. People are often message may need to use other forms of 
more prepared to look at films or posters than communication to check that the message has
to read letters or notices because of the been conveyed properly and understood. For
interesting way they communicate messages. example, training videos are often followed by
a written test for the new staff to check their
understanding.

They can be used to make a written message Charts and graphs are difficult for some people
clearer by adding a chart or diagram to to interpret. The overall message might be
illustrate the point being made. understood if the receiver is unsure of how to
read values of a graph or how to interpret a
technical diagram.
 Chapter 13: Motivation at work
 Motivation is the reason why employees want to work hard and work effectively for the business.
 Well motivated workers -> High productivity -> Increased output -> Higher profits
 Unhappy workers -> Do not work very effectively -> Low output -> No profits
Motivation theories
Taylor (1911)  Money is the main motivator
Maslow (1954)  Hierarchy of needs
Herzberg (1959)  Hygiene and motivators
McGregor (1960)  Theory X and Theory Y

A wage is payment for work, usually paid weekly.

A salary is payment for work, usually paid monthly.
A commission is a payment relating to the number of sales made.
Profit sharing is a system where by a proportion of the companys profits is paid out t o employees.
A bonus is an additional amount of payment above basic pay as a reward for good work.
Performance-related pay is pay which is related to the effectiveness of the employee.
An appraisal is a method of assessing the effectiveness of an employee.
Fringe benefits are non-financial rewards given t o employees.
Job satisfaction is the good feeling that employees get which has been derived from doing a good job in t he firm.
Job rotation involves swapping round and doing each specific task for only a limited time and then changing round again.
Job enlargement is where extra tasks of a similar level of work are added to a workers j ob description.
Job enrichment involves looking at jobs and adding tasks that require more skill and/or responsibility.
Leadership styles are the different approaches to dealing with people when in a position of authority  autocratic, laissez-faire or democratic.
Autocratic leadership is where the managers expects to be in charge of the business and to have their orders followed. They keep themselves separate from
the rest of the employees.
Laissez-faire leadership is French for leave to do. This type of leadership tends to make the broad objectives of the business known to employees, but then
they are left to make their own decisions and organize their work.
Democratic leadership is the type of leadership where the other employees get involved in the decision-making process. Information about future plans will
be openly discussed before the final decision will be made, often by the leader.
A formal group is a group designated to carry out specific tasks within a business.
An informal group is a group of people who form independently of any official groups within the business and who have similar interests or something else
in common.
 Chapter 14: Recruitment, training and
human resources
 The responsibilities of the Human Resources (HR) department includes:
1) Recruitment and selection
2) Wages and salaries
3) Industrial relations
4) Training programmes
5) Health and safety
6) Redundancy (retrenchment) and dismissal
A job analysis identifies and records the responsibilities and tasks relating to a job.
A job description outlines the responsibilities and duties to be carried out by someone employed to do a specific job.
A job specification is a document which outlines the requirements, qualifications, expertise, physical characteristics,
etc. for a specified job.
Internal recruitment is when a vacancy is filled by someone who is an existing employee of the business.
External recruitment is when a vacancy is filled by someone who is not an existing employee and will be new to the
business.
Induction training is an introduction given to a new employee, explaining the firms activities, customs and procedures
and introducing them to fellow workers.
On-the-job training occurs by watching a more experienced worker doing the job.
Off-the-job training happens when the people are being trained away from the work-place, usually by specialist
trainers.