IB Business&Management – Glossary(textbook)

AC (average-cost) valuation
A method of stock valuation which involves recalculating the average cost of stock every time a new delivery arrives. Each unit is assumed to have been purchased at the average price of all components.
advertising elasticity of demand
Represents the change in sales resulting from each monetary unit (e.g.: each euro or dollar) that is spent on advertising.
appraisal
An assessment, usually conducted annually, of the effectiveness and performance of an individual employee against predetermined objectives. This may lead to the identification of training needs and/or reward through pay increases, bonuses or promotion and the setting of objectives for the following year.
appropriation account
Shows the various ways the company’s net profit each year has been allocated, e.g. interest, dividends, tax and into retained profits.
ARR (accounting rate of return)
The average return from an investment project expressed as a percentage of the cost of the project.
benchmarking [Best Practice Benchmarking]
Measuring an organisation’s performance by comparing the cost, time or quality of what it does against that of its best performing competitors; determining how competitors achieve their performance levels and then using this information as a basis for setting and implementing targets and strategies to improve performance.
break even analysis
A calculation of costs compared to revenue. The point at which the total revenue is equal to costs is known as the break even point.
bureaucracy
A system which people are expected to follow precisely defined, and normally, recorded rules and procedures, rather than to use personal judgement. Paperwork and forms are common, which slows decision-making.
business plan
The document, which sets out how an organisation will meet its corporate objectives, detailing marketing objectives, production costs and financial requirements.
capital
Capital is one of the four factors of production, which describes man-made resources e.g. machines, factories, offices, used in the production of other goods and services.
centralisation
The process of concentrating decision-making power, and authority, in the hands of a few persons in the head office of an organisation. This often involves the gathering together, at a corporate headquarters, of specialist functions such as finance, personnel and information technology.
chain of command
The line of authority and responsibility, along which orders are passed in a formal organisation. Orders are passed downwards through a vertical organisational structure, to ensure the co-ordination of functions.
charity
Not-for-profit organisation. Registration as a charity may give tax and legal advantages. (Traditionally, charities were established to promote ‘good’ causes.)
collective bargaining
The process by which management and employees have representatives, who negotiate on the terms and conditions of employment. Employees are normally represented by trade unions, which promote their members’ interests.
company/corporation
An organisation established for a specific purpose and registered according to the provisions of domestic legislation. Once registered, a company is a separate legal entity.
conglomerate
An organisation which results from a merger and/or takeover of firms which are involved in a diverse range of activities.
contingency planning
The development of a management plan that uses predetermined strategies to deal with a crisis that might occur.
contingency theory
A theory based on the notion that the best way of structuring or leading an organisation depends on a variety or interrelated factors.
contribution
Sales revenue less variable costs produces contribution. This figure ‘contributes’ towards paying the fixed costs and providing the net profit for the business.
cooperative
A business organisation run and owned jointly by the members, who have equal voting rights.
corporate culture
The attitudes, experiences, beliefs and values of an organisation, or company, that guides decision-making.
corporate image
The way a corporation is perceived by its stakeholders – its customers, employees and the general public. It is a generally accepted image of what a company “stands for”. Corporate image may be created, or adjusted, through marketing, public relations and other forms of promotion.
corporate social responsibility (CSR)
An organisation’s duties to its internal and external stakeholder groups, acting as a good corporate citizen. CSR means going beyond legal duties.
cost and profit centres
A firm’s activities can be sub-divided into units of centres. If only costs can be allocated it is known as a cost centre; if revenue and costs can be identified it is a profit centre.
cost centre
A part of an organisation which can be held responsible for the generation of costs.
costing
The process of giving a money value to all the activities involved in making and supplying a good or service to the customer. The method of costing is selected according to the business activity involved.
costing: absorbtion
A method of costing to recover all costs, direct and indirect. Indirect costs or overheads are apportioned in a predetermined manner.
costing: activity-based
The total cost to an organisation of a particular output. The cost is assessed by considering all the resources used to produce the output and assigning all resource costs to the output.
costing: full
A method of costing to recover all costs, direct and indirect. Indirect costs are apportioned by a single arbitrary ratio.
costing: marginal
A method of costing which assigns variable costs of producing a unit, but does not allocate fixed costs.
costing: standard
A method of costing giving the estimated cost of a product. It is prepared in advance of production given reasonably efficient working.
crisis management
The response of an organisation to an unexpected and unpredictable event that threatens its survival.
cultural export
The export of ideas and values from one country to another.
DCF (discounted cash flow)
The discounting of expected future cash flows to take into account the time value of money.
decentralisation
A situation where major responsibilities, and the power to make decisions, is delegated to branches or subsidiaries.
delegation
The assignment to others, normally lower down [a subordinate] in the organisational hierarchy, of the authority for particular functions, tasks, and decisions. BUT NOT THE (FINAL) RESPONSIBILITY
demographic change
Changes in the size, structure and distribution of populations over time and place.
dependency ratio
The portion of a country’s population not in employment (including those who have retired and children, as well as the ‘unemployed’) relative to the total population in employment (Working Population). Those not in employment, depend on those who have a job.
diseconomies of scale
The rise in average or unit costs as an organisation grows in size (internal), or as the industry in which an organisation operates grows and/or concentrates in a geographical area (external).
dismissal
The termination of employment because of unsatisfactory work performance or breach of contract.
e-commerce
Business conducted on the Internet.
economic growth
The increase in the amount of the goods and services produced by an economy over time, usually measured as the percentage increase in real gross domestic product.
economic order quantity (EOQ)
Refers to the optimal order size that will result in the lowest total of order and carrying costs for an item of stock, given its: expected usage; carrying costs and ordering cost.
economies of scale
The reduction in average or unit costs as an organisation grows in size (internal), or as the industry in which an organisation operates grows and/or concentrates in a geographical area (external).
employee share ownership scheme
A scheme which gives shares to employees, the aim being to motivate them to contribute to the success of the company.
empowerment
Providing the means by which individual employees can exercise control over their working arrangements.
entrepreneur
Individuals, who organise other factors of production and who show enterprise and initiative, in order to make a profit. A risk-taker and decision-maker normally associated with new business set-ups.
ethical/ethics [business ethics]
A code of behaviour which is acceptable for a person or organisation to follow in a given society.
exchange rate
The price of one currency in terms of another.
federal organisation
Where the central management have a co-ordinating function: providing vision, motivation and inspiration for the entire organisation.
FIFO (first in, first out)
A method of stock valuation which involves issuing stock in the order in which it is delivered so that remaining stock is valued closer to its replacement cost.
formal communications
Communication processed through the official formal organisational structure, approved by the senior management.
formal organisation
The official structures of command and control that exist in an organisation. Authority is specified by clearly laid out rules and regulations.
franchise
An agreement where a business (franchiser) sells rights to other businesses (franchisees) allowing them to sell products and/or use the company name in return for a fixed fee and/or percentage of the turnover.
gantt chart
A method of scheduling which uses a horizontal bare or line chart showing the activities needed to complete a project in the right order and at the right time.
goodwill
It reflects the fact that a business has some “intrinsic value” beyond its physical assets, such as the value of its brand or customer list. It explains why people may pay more than the net assets for acquiring a firm.
holding company
A joint stock company which controls another company or companies.
inflation
A persistent increase in the average price level over time.
informal communications
Communication processed through unofficial communication channels, unauthorised by the senior management. The ideas communicated may turn counter to the official views expressed by the organisation.
informal organisation
The unofficial organisation of personal and social relations, that develops within informal groups. There are no specified rules and regulations for these relationships. This informal organisation can run counter to the official organisational structure and its authority.
intangible assets
The assets of a firm which can not be easily valued or physically identified. A brand name, client list, or copyright and patents are examples.
IRR (internal rate of return)
The discount rate which equates the cost of an investment with the present value of expected inflows.
JIC (just in case)
An approach to stock management which recognises the need for a minimum reserve stock just in case there are supply or demand fluctuations.
JIT (just in time)
A method of stock management which ensures that stock is delivered to the next stage or customer at the exact time it is needed.
job enlargement
Increasing the range of tasks and duties and employee needs to perform.
job enrichment
Providing employees with greater opportunities to use their existing skills and abilities. This could involve job rotation or working in different groups or environments.
joint venture/strategic alliance
Two or more organisations which set up one or more business projects that will be operated jointly, so avoiding the need for a complete merger but allowing the organisations to benefit from joining forces.
lead time
The time between the order and delivery of goods and/or services.
levels of hierarchy
The number of authority or management layers in an organisation.
LIFO (last in, first out)
A method of stock valuation which involves issuing more recent deliveries first so that closing stock is valued at the older and possibly lower price.
limited liability
On a liquidation of a limited company, shareholder debts are limited to the amount invested in the business – i.e. the value of their shares.
liquidity
Cash that is within the business. The ability of the firm to generate cash quickly.
make-or-buy
A situation where an organisation may decide between manufacturing a product or buying in from an outside supplier.
management
The organisational process that includes strategic planning, setting objectives, managing resources, deploying the human and financial assets need to achieve objectives, and measuring results.
matrix organisation
The combination of different patterns of organisation, e.g. functional and geographic; that cut across normal departmental boundaries. In a matrix organisation, individual employees may belong to two or more groups, with more than one boss.
merger
The ‘agreed’ combination of two, or more, companies to achieve greater efficiencies of scale and productivity. This is accomplished through the elimination of duplicated plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company.
mission statement
A concise description of what a company currently does. It defines the main purpose of an organisation and the reason for its existence.
mission statement
A philosophy, vision or set of principles which steers the direction and behaviour of an organisation.
motivation
The internal (intrinsic) and external (extrinsic) forces and influences, that drive and individual to achieving certain goals.
NGO (non-governmental organisation)
A private sector, not-for-profit organisation, formed with the objective of achieving public benefit.
non-profit organisation {not-for-profit}
An organisation whose primary objectives do not include profit. Examples include government organisations and charities.
NPV (net present value)
The sum of the discounted cash flow minus the cash flow.
NPV = (discounted cash flow) – (cash flow)
offshoring
The relocation of some of the company’s production, services or jobs overseas in order to reduce costs.
operational objective
A specific goal set to guide day-to-day operations. It should be compatible with a strategic objective and the mission statement of the organisation.
outsourcing
Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. This enables an organisation to cut costs and to focus on its core activities.
overtrading
When a firm is expanding quickly and is struggling to fund its working capital needs, it is in danger of over-trading and running out of cash.
partnership
A business owned and controlled by two or more people who subscribe capital and share decision-making.
payback period
A method of measuring the cash flow associated with a project to assess how long it will take for a project to generate sufficient cash to recover in full its original investment.
PEST/STEP
Political, Economic, Social, and Technological analysis.
PEST/STEP/STEEPLE/PESTLE analysis
A useful way of classifying and assessing the impact of the external environment on an organisation’s future activities.
PESTLE
Political, Economic, Social, Technological, Legal, and Environmental analysis.
STEEPLE
Social, Technological, Economic, Environmental, Political, Legal, and Ethical analysis.
physical evidence
The tangible aspects of a service, for example: the clean tables in a restaurant.
porter’s five forces
The model which suggests that the profit potential for companies is influenced by the interaction of five competitive forces: rivalry in the market, the threat of substitutes, buyer power, supplier power, and barriers to entry into the market for new ‘players’.
portfolio working
Portfolio working involves earning an income from a variety of sources, combining self-employment with, for example, short-term or part-time contracts, temporary or project work. For example, working on freelance contracts or as a part-time employee for several organisations, and perhaps, running a business. It is popular with those who have specific skills that are in demand by different organisations.
position map
A diagram which illustrates the position of products in relation to each other and against variables such as price, quality, and target market.
primary sector
The first stage of production. Business activities involve the extraction of raw materials and include farming, fishing, forestry, and mining.
private sector
Any organisations owned, controlled, and managed by private individuals, usually with the objective of making a profit.
product portfolio analysis
A product portfolio records all the products held by a firm and is used to identify and analyse its strengths, weaknesses and future potential. An example of a product portfolio analysis is the Boston (Consultancy Group) Matrix
profit centre
A section of an organisation for which both costs and revenues can be, and are, calculated of profit contribution. The profit centre is responsible for a percentage of the overall profitability of the organisation.
public sector
Organisations owned, controlled, and managed by national or local government bodies.
public-private partnerships (PPP)
Collaboration between public bodies and private companies. A government service or private business venture, which is funded and operated through a partnership of government and one or more private sector companies.
recruitment
The process of sourcing, screening, and selecting people for a job or vacancy within an organisation.
redundancy/lay-off
The termination of employment where an employee is asked to leave through no fault of his or her own. In some countries lay-off means only a temporary suspension of the contract of employment.
regional economic group/block
An organisation of countries which have formed economic alliances for mutual benefit.
salary
A payment made to an employee for his or her labour. Salary is usually expressed as an annual sum and paid to the employee on a monthly basis.
secondary sector
Business activities involving manufacturing and construction. The economic sector which creates a finished or useable product.
shareholders funds
Long term funds that ultimately belong to the shareholders and which include: retained profits, share capital.
snowballing
A method which involves starting the process with one individual or group and then using these contacts to develop more contacts to increase the sample.
sole trader/proprietor
A business owned by one person who provides all capital, other than loan capital; they have complete control over decisions and unlimited liability.
span of control
The number of subordinates reporting, and directly responsible, to a single manager. There will be a ‘wide’ span, where a manager has many direct subordinates; and a ‘narrow’ span, where there are few.
stakeholder
A person, group or organisation with a vested interest in the performance, behaviour or conduct of an organisation.
stakeholders
Any individual or group who have an interest, usually financial, in the activities of an organisation. Stakeholders can be internal or external.
strategic management
The process of specifying an organisation’s objectives, developing policies and plans to achieve the objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity.
strategic objective
A goal which determines the policy of an organisation and sets the performance standard against which the success of the whole organisation is measured.
strategic objectives
The long-term and significant goals which determine the policy of a business and which set the performance standards against which the success of the whole organisation is measured.
strategy
A long-term pan of action designed to achieve a particular goal or objective. The plan includes the financial, production, and human, resources required.
subordinate
An employee, lower in rank or importance, who is responsible to a particular manager.
SWOT
Strengths, Weaknesses, Opportunities, and Threats.
A framework for identifying the internal strengths (S) and weaknesses (W) of an organisation, and the external opportunities (O) open to it, and the threats (T) it faces; which can be used to formulate the organisation’s business strategy.
tactical objectives
Short-term, day-to-day objectives, requiring few resources and with limited significance and consequences.
tertiary sector
Business activities which provide services to businesses and individuals. Often referred to as the ‘service sector’.
unique selling point (USP)
The features of a product or service, which distinguishes or differentiates a business from the competition. Or what a business chooses to highlight to distinguish itself from the competition.
unlimited liability
When the debts of a sole proprietorship or partnership are greater than its resources, the owners of the business are personally responsible for all debts of the business. Personal assets may be sold to pay for the debts of the business.
viral marketing
A campaign that uses word-of-mouth or “tell a friend” mechanisms.
vision statement
A description of the desired future position of an organisation. It defines the organisation’s purpose in terms of its values and core beliefs.
wage
The money paid to a worker for his or her labour, usually on a weekly basis. The wage rate me be time (hourly) or piece rate.
workforce planning
Workforce planning begins with an examination of the current workforce of an organisation. It then involves a forecast of future human resource needs and identification and development of the knowledge, skills and experience required to ensure future success in meeting the organisation’s objectives. This may require recruitment and training.
working capital / net current assets
Accounting terms meaning the current assets of an organisation minus current liabilities.
The monies or liquid assets used to fund day-to-day operations.
= (current assets) – (current liabilities)