All Topics
2699 flashcardsDefine a business.
Track your progress — Sign up free to save your progress and get smart review reminders based on spaced repetition.
All cards in this selection
Define a business.
A business is an organization that provides goods or services to satisfy customer needs and wants.
Use: goods or services + needs/wants.
State one key difference between goods and services.
Goods are tangible and can be stored; services are intangible and cannot be stored.
Tangible vs intangible.
Define a customer need.
A need is an essential requirement for survival, such as food, water, or shelter.
Need = essential.
Exam tip: What must you include to get full marks when defining a business?
Mention that a business provides goods or services to satisfy customer needs and wants.
Hit: goods/services + needs/wants.
Define a customer want.
A want is a desire that is not essential for survival but improves quality of life.
Want = non-essential.
Give two examples of goods.
Examples of goods include clothing and smartphones.
Physical products.
State two ways goods and services differ.
Goods are tangible and can be stored; services are intangible and cannot be stored.
Tangible + storage.
What is meant by goods?
Goods are tangible (physical) products that can be touched and stored.
Tangible = physical product.
State one example of added value.
A café adds value by turning coffee beans, milk, and labor into a latte sold at a higher price than input costs.
Inputs -> product customers pay for.
What is meant by services?
Services are intangible activities performed for customers and cannot be stored.
Intangible = not physical.
Give two examples of services.
Examples of services include healthcare and banking.
Activities performed for customers.
Give one example of a need and one example of a want in transportation.
Need: basic public transport to get to work. Want: a luxury sports car.
Same category, different level.
State one need and one want.
Need: shelter. Want: a luxury holiday.
Need essential; want desirable.
Give one example of a customer need and one example of a customer want.
Need: clean water. Want: premium bottled sparkling water.
Need = essential; want = improves life.
Why is the difference between needs and wants useful for businesses?
It helps businesses design products, set prices, and target customers based on what is essential versus desirable.
Think: product + price + target market.
Why can services be harder to standardize than goods?
Services depend on people and customer experience, so quality can vary between employees, locations, and times.
Think: customer experience varies.
What does it mean to add value?
Adding value means transforming inputs into outputs that customers are willing to pay more for than the cost of inputs.
Inputs -> transformation -> outputs.
Why do all businesses exist in one sentence (IB style)?
To satisfy customer needs and wants by providing goods or services and adding value through transformation.
One sentence, include add value.
Give one example of a business that provides both goods and services.
A restaurant provides goods (food) and services (table service).
Many businesses are mixed.
How can a want become a need over time?
If society changes so the item becomes essential for normal living or work, such as internet access in many countries.
Think: social/tech change.
Give one example of interdependence between Marketing and Operations.
Marketing may promise product features and delivery dates, and Operations must produce the product to that specification and schedule.
Promises vs production.
State two responsibilities of HR.
HR is responsible for recruitment and training (and also motivation/rewards and employee relations).
People-related tasks.
Define business functions.
Business functions are the main areas of activity within a business that work together to achieve organizational objectives.
Main areas of activity.
List the four main business functions.
Human Resources, Finance and Accounts, Marketing, Operations.
HR + Finance + Marketing + Operations.
State two responsibilities of Finance and Accounts.
Finance and Accounts records financial transactions and manages cash flow (also budgeting and financial reporting).
Money management.
List the four main business functions in IB Business Management.
Human Resources, Finance and Accounts, Marketing, Operations.
HR, Finance, Marketing, Operations.
Match the function to what it manages: People.
Human Resources (HR).
People = HR.
How does Finance support Operations during a product launch?
Finance provides budgets for materials/equipment and monitors cash flow so production can be funded.
Money enables production.
Match the function to what it manages: Money.
Finance and Accounts.
Money = finance.
State two responsibilities of Marketing.
Marketing carries out market research and decides on promotion/pricing (also product development).
Customer needs focus.
Which function is mainly responsible for managing people?
Human Resources (HR).
People = HR.
How does HR support Marketing during growth?
HR recruits and trains sales/marketing staff to deliver promotions and customer service effectively.
People power.
Which function is mainly responsible for producing goods/services?
Operations (production).
Making = operations.
What problem can occur if functions do not communicate well?
Marketing may advertise features or delivery times that Operations cannot deliver, leading to customer dissatisfaction.
Misalignment.
State two responsibilities of Operations.
Operations manages production methods and quality management (also inventory and supply chains).
Making + quality.
Match the function to what it manages: Creating products/services.
Operations.
Making = operations.
Exam tip: In interdependence questions, what should you always include?
A specific example showing how decisions in at least two functions affect each other.
Use a product launch example.
Which function links most directly to customer needs and wants?
Marketing, because it identifies customer needs through research and creates strategies to satisfy them.
Customer focus.
Why must business functions work together?
Because decisions in one function affect others, and coordination is needed to meet objectives efficiently.
Interdependence.
Why is interdependence important for achieving business objectives?
Objectives require coordinated decisions across functions, so resources, people, and processes align toward the same targets.
Objectives need coordination.
State the key activity of the primary sector.
Extracting raw materials (e.g., farming, mining).
Extraction.
Classify a fishing business by sector.
Fishing is in the primary sector because it extracts a raw resource from nature.
Extraction.
Classify a retail shop by sector.
Retail is in the tertiary sector because it provides a service (selling and distributing products).
Service activity.
State the four sectors of business activity.
Primary, Secondary, Tertiary, Quaternary.
Extraction -> manufacturing -> services -> knowledge.
What is the primary sector?
The primary sector extracts raw materials from the earth, such as farming, fishing, mining, and forestry.
Extraction from nature.
Classify an IT consultancy by sector.
IT consultancy is in the quaternary sector because it provides knowledge-based and information services.
Knowledge work.
Classify a car manufacturing business by sector.
Car manufacturing is in the secondary sector because it makes products using raw materials and components.
Manufacturing.
State the key activity of the secondary sector.
Manufacturing/constructing products from raw materials.
Manufacturing.
What is the secondary sector?
The secondary sector manufactures or constructs products using raw materials, such as factories and construction firms.
Manufacturing/construction.
Give two examples of tertiary sector businesses.
Examples include a bank and a hotel.
Services for customers.
State the key activity of the tertiary sector.
Providing services (e.g., retail, transport, healthcare).
Services.
Give two examples of primary sector activities.
Examples include farming and mining.
Raw materials.
State the key activity of the quaternary sector.
Providing knowledge/information services (e.g., IT, R&D, consultancy).
Knowledge.
What is the tertiary sector?
The tertiary sector provides services to consumers and other businesses, such as retail, banking, transport, and healthcare.
Services.
Give two examples of quaternary sector businesses.
Examples include a research lab and a software development firm.
Knowledge and information.
Give two examples of secondary sector activities.
Examples include construction and food processing.
Making/constructing.
Exam tip: What should you add after classifying a business into a sector?
A brief reason linked to the sector definition (e.g., “provides services”, “extracts raw materials”).
Always justify.
How does economic development usually change a country’s sector balance?
As countries develop, tertiary and quaternary sectors tend to grow while primary becomes a smaller share of employment/output.
Developed = more services/knowledge.
What is the quaternary sector?
The quaternary sector focuses on knowledge and information, such as IT, research, consultancy, and education.
Knowledge-based.
Why is the secondary sector sometimes called the manufacturing sector?
Because it converts raw materials into finished or semi-finished products using production processes.
Raw -> finished products.
Define a business plan.
A business plan is a written document outlining the business idea and how it will succeed.
Written plan for success.
State the first step in starting a business.
Identify a business opportunity, such as a gap in the market (unmet need).
Start with a gap/problem.
State one reason market research reduces risk.
It checks if there is real customer demand and identifies competitors before money is invested.
Validate demand.
What is meant by a gap in the market?
A gap in the market is an unmet customer need or want that existing businesses do not satisfy well.
Unmet need.
Why is market research an important step before launching?
It reduces risk by checking customer demand, competitors, and acceptable prices before investing.
Validate demand.
State two key questions market research should answer.
Who are the customers and what do they want? Who are the competitors and what do they offer?
Customers + competitors.
State one reason a business plan helps attract finance.
It shows lenders/investors how the business will operate and generate revenue, with financial projections.
Shows viability.
State three typical sections of a business plan.
Examples include market analysis, marketing strategy, and financial projections (also operations plan, funding requirements).
Plan sections.
Why do investors/lenders ask to see a business plan?
To judge the viability of the idea, the strategy to achieve sales, and whether finances support repayment/returns.
They want proof it will work.
What is the purpose of a business plan?
To outline the business idea, strategy, operations, and finances, and to persuade investors/lenders to provide funding.
Plan + funding.
Why do many new businesses fail if they skip market research?
They may misjudge demand, set wrong prices, or underestimate competition, leading to low sales and losses.
Wrong assumptions.
Give two possible sources of start-up finance.
Personal savings and a bank loan.
Internal vs external.
What is meant by start-up capital?
Start-up capital is the money needed to set up a business before it starts earning revenue.
Money to begin operations.
State the correct sequence: business plan or finance first?
Usually the business plan comes before finance because it is used to persuade lenders/investors.
Plan supports funding.
Give two common sources of start-up finance.
Examples include personal savings and bank loans (also family/friends, angels, crowdfunding, grants).
Where does the money come from?
Give one example of improving on an existing product to create a business idea.
Creating a longer-lasting phone battery or a more sustainable packaging option than competitors.
Improve existing offer.
What does it mean to identify a target market?
It means defining the specific group of customers the business will focus on, based on needs, income, location, and preferences.
Who exactly are you selling to?
Give two external sources of finance for a start-up.
Examples include bank loans and angel investors (also crowdfunding, grants).
External = outside the owner.
Why is choosing a legal structure a key step?
It affects liability, control, taxation, and access to finance, so it shapes risk and long-term growth.
Liability + control + tax + finance.
Why is choosing a legal structure important in one sentence?
It determines liability, control, and how the business is financed and taxed.
Liability + control + tax.
State one financial opportunity of starting a business.
Potential for profits and building wealth/assets.
Money-related rewards.
What is meant by a market opportunity?
A market opportunity is a chance to meet customer needs or wants better than existing businesses, often due to gaps, trends, or technology.
Opportunity = unmet/changed demand.
State one financial and one personal opportunity of starting a business.
Financial: profits. Personal: independence/being your own boss.
Balance categories.
What is one benefit of first-mover advantage?
It can capture market share early before competitors enter.
Be first, gain share.
State one personal opportunity of starting a business.
Independence and being your own boss (also flexibility and pursuing passion).
Personal reward.
Give one example of a gap in the market creating a new business opportunity.
If a town has no affordable healthy lunch options, a new salad bar can meet that unmet need.
No existing supply.
How can starting a business benefit the community?
It can create employment and provide new or improved goods/services.
Jobs + value for society.
State one way consumer trends can create opportunities.
Changing preferences (e.g., healthier diets) create demand for new products/services (e.g., plant-based foods).
Trends shift demand.
How can new technology create opportunities for new businesses?
Technology can enable new products/services or cheaper delivery methods, creating markets that did not exist before.
Tech enables new solutions.
What is meant by capital gains for an entrepreneur?
Capital gains are the increase in value of the business that can be realized if it is sold.
Sell later for more.
State one community benefit of new businesses.
They create jobs and increase choice for consumers.
Jobs + choice.
Define first-mover advantage.
First-mover advantage is the benefit gained by being the first business to enter a market, helping it build brand recognition and capture market share early.
Be first.
State two possible benefits of first-mover advantage.
Benefits include early brand recognition and customer loyalty (also setting industry standards).
Early lead.
Exam tip: When asked to discuss opportunities, what should you also mention?
Briefly acknowledge that opportunities come with risks/challenges (covered in the next section).
Balance your answer.
State one reason entrepreneurship can increase personal satisfaction.
Entrepreneurs may feel achievement from building something and solving customer problems.
Non-financial reward.
Why are established competitors a challenge for new businesses?
They often have loyal customers, strong brands, and economies of scale that allow lower prices.
Loyalty + scale.
State one operational challenge for new businesses.
Finding reliable suppliers.
Suppliers affect quality and timing.
Name two categories of challenges new businesses face.
Financial challenges and market/competition challenges (also personal, operational, and legal).
Think categories.
State one financial challenge faced by new businesses.
Lack of capital/funding to start or grow.
Money shortage.
Why is cash flow often the biggest financial threat to start-ups?
Because running out of cash stops the business paying bills, even if sales look strong on paper.
Cash timing kills.
What is meant by cash flow problems?
Cash flow problems occur when cash inflows are insufficient to pay cash outflows on time, even if the business is profitable.
Timing of cash.
Why is recruiting skilled employees a challenge for start-ups?
They may not afford high wages/benefits and have less job security than established firms.
Hard to attract talent.
What is meant by difficulty building brand awareness?
New businesses may struggle to get noticed by customers, so sales grow slowly and marketing costs can be high.
Hard to be known.
State one personal challenge of entrepreneurship.
Long working hours and stress (also poor work-life balance).
Personal pressure.
Why is finding a target market a challenge for start-ups?
Without clear targeting, promotion is inefficient and the product may not match customer needs, reducing sales.
No target = wasted marketing.
Give one example of a legal/regulatory requirement a business must comply with.
Health and safety regulations (also tax rules, employment law, licenses/permits).
Compliance matters.
Why can it be hard for start-ups to get bank loans?
They often have no track record, limited collateral, and higher perceived risk for lenders.
No history = risky.
Give one operational challenge and one legal challenge.
Operational: recruiting staff. Legal: complying with tax and employment laws.
One from each bucket.
What is price competition and why is it a challenge?
Price competition is when rivals lower prices; start-ups may not afford low margins because costs per unit are higher.
Small firms have higher unit costs.
What is meant by protecting intellectual property (IP)?
Protecting IP means securing legal rights over ideas/creations (e.g., brand name, designs) to prevent copying.
Prevent imitation.
Give one example of personal financial risk for an entrepreneur.
The entrepreneur may lose personal savings invested in the business if it fails.
Owner bears risk.
Give one reason changing market conditions can harm start-ups.
Demand, costs, or trends can shift quickly, and start-ups may lack resources to adapt fast.
Low flexibility/resources.
Exam tip: When discussing challenges, what should you add to score higher?
A practical way the entrepreneur can reduce or manage the challenge (e.g., business plan, research, advice).
Challenge + solution.
Why can “unexpected costs” be dangerous for new businesses?
Start-ups have limited cash buffers, so unexpected expenses can quickly cause cash flow crises.
Low reserves.
How can entrepreneurs reduce operational and legal risks?
By using planning and professional advice (accountants/lawyers/mentors) and setting up reliable systems early.
Advice + systems.
State one advantage of operating as a sole trader.
An advantage is complete control: the owner can make decisions quickly without consulting partners or shareholders.
Control + fast decisions
Name three key features of a sole trader.
Three key features are: one owner, unlimited liability, and no separate legal identity between owner and business.
Pick 3: one owner, unlimited liability, no legal identity, no continuity
Define a sole trader.
A sole trader is a business owned and run by one person.
1 owner, runs the business
In BM exams, what is the difference between a feature and an advantage of a sole trader?
A feature describes what it IS (e.g. one owner, unlimited liability). An advantage describes what is GOOD about it (e.g. easy to set up, quick decisions).
IS vs GOOD
What is the biggest personal risk of being a sole trader?
The biggest personal risk is unlimited liability, where personal assets may be used to pay business debts.
Unlimited liability
What does unlimited liability mean for a sole trader?
Unlimited liability means the owner is personally responsible for all business debts, so personal assets can be used to pay creditors.
Business debts can affect personal assets
If a question says "State two features of a sole trader", give two correct feature points.
Two valid features are: one owner makes decisions; unlimited liability (owner personally responsible for debts).
Use features, not advantages
State one disadvantage of operating as a sole trader.
A disadvantage is unlimited liability: the owner's personal assets may be used to pay business debts.
Personal risk
Give one example of how workload can be a disadvantage for a sole trader.
One person often does many roles (marketing, finance, operations), which can cause long hours and burnout, reducing effectiveness.
One person = many roles
Why do BM exams often test "features" of sole traders?
Because features are objective and legal/structural, and many students mistakenly write advantages instead. Examiners want precise definitions like unlimited liability and one owner.
Common trap: features vs advantages
Explain what is meant by "no legal distinction" for a sole trader.
There is no separate legal identity: the owner and the business are treated as the same legal entity.
Owner = business in law
Why is "easy to set up" NOT a feature of a sole trader in exams?
Because it is an advantage (a benefit). A feature must describe the legal/structural characteristics, such as one owner or unlimited liability.
Examiners penalise mixing these up
Give a quick real-life example showing unlimited liability.
A sole trader owes €20,000 after the business fails. If the business cannot pay, creditors can claim the owner's personal savings or assets to recover the debt.
Debt can follow the owner personally
Give a strong 2–3 sentence explanation of one disadvantage of a sole trader for a 4-mark style response.
Unlimited liability means the owner is personally responsible for business debts. If the business fails, creditors can claim the owner's personal assets, increasing personal financial risk and making the owner more cautious about expansion.
Define + consequence
Explain why a sole trader may find it hard to raise finance.
They cannot sell shares and lenders may view the business as higher risk because it depends on one person, limiting access to large funding.
No shares + higher lender risk
What is meant by "no legal continuity" for a sole trader?
The business has no legal continuity: it usually ends if the owner dies, retires, or becomes unable to operate it.
Business may end if owner leaves
What is the simplest one-line summary of a sole trader for revision?
One owner runs the business and keeps the profit, but carries all the risk because liability is unlimited.
1 owner + keeps profit + unlimited risk
Give one example of how privacy can be an advantage for a sole trader.
In many countries, sole traders have fewer requirements to publish detailed financial accounts, so competitors have less access to performance information.
Fewer reporting requirements
Give one example of a finance limitation of a sole trader.
A sole trader cannot sell shares, so they often rely on personal savings and bank loans, which can limit growth.
No shares → limited finance
What is a safe exam structure when asked to explain an advantage/disadvantage?
Use: (1) Identify the point, (2) Explain how it works, (3) State the impact on the business/owner.
Point → how → impact
State two features of a partnership (exam-ready).
(1) Owned by two or more partners who share profits. (2) Partners typically have unlimited liability for the partnership's debts.
Keep it short: 2 bullet-style points.
Quick summary: What is a partnership in one sentence?
A partnership is a business owned by two or more people who share profit, risk and decision-making, usually under a deed of partnership.
One sentence = definition + deed.
Define a partnership.
A partnership is a business owned by two or more people who share profit, risk and decision-making.
Definition: 2+ owners + shared profit/risk/decisions.
Explain one advantage of a partnership over a sole trader.
A partnership can raise more finance because multiple partners can contribute capital, which can fund growth or investment more easily than one person alone.
Make the comparison explicit: better THAN sole trader.
State two features of a partnership.
Two or more owners (partners) share profits, and partners typically have unlimited liability for the partnership's debts.
Features = what it IS (not advantages). Give 2 clear points.
What is the role of a deed of partnership in exam answers?
It sets clear rules (profit share, roles, capital, dispute resolution, exit rules), reducing misunderstandings and helping resolve conflicts between partners.
Role = prevents/solves conflict by setting rules.
What is the biggest financial risk for partners?
Unlimited liability: personal assets may be used to pay partnership debts, including debts caused by other partners.
Name the risk + consequence.
Give one disadvantage of a partnership.
Partners have unlimited liability and may be liable for debts caused by another partner's decisions, increasing personal risk.
Key idea: responsible for others' actions too.
What is the key benefit of partnerships vs sole traders?
More resources: partnerships can combine capital and skills, enabling growth and better decision-making than a sole trader relying on one person.
Capital + skills = the safe combo answer.
What does unlimited liability mean in a partnership?
Unlimited liability means partners are personally responsible for the partnership's debts, so personal assets can be used to pay creditors.
Use the phrase: personal assets at risk.
Define an active (general) partner.
An active (general) partner is involved in running the business day-to-day and usually has unlimited liability.
Active = manages day-to-day.
What is a common exam mistake when asked about partnerships vs sole traders?
Students describe the partnership but forget to compare explicitly to the sole trader, so they lose application marks.
Use the phrase: than a sole trader.
Give an exam-style explanation of one advantage of a partnership.
Access to more skills: partners can specialise (e.g. one handles finance, one marketing), improving decisions and performance compared with one sole trader doing everything.
Mechanism + comparison = strong marks.
What is a deed of partnership?
A deed of partnership is a legal agreement that sets out how the partnership will operate, such as profit shares, roles, capital contributions, and how disputes or exits are handled.
Think: rules document for partners.
Sleeping partner vs limited partner: what is the difference?
A sleeping partner does not manage but usually still has unlimited liability. A limited partner has limited liability but cannot manage the business.
Sleeping = no management. Limited = limited liability.
Define a sleeping (silent) partner.
A sleeping (silent) partner invests capital but does not take part in daily management; they still usually have unlimited liability.
Sleeping = invests, no management, still risky.
Define a limited partner.
A limited partner can only lose the amount invested (limited liability) but is not allowed to manage the business.
Limited = limited liability + limited control.
Give one example of shared decision-making in a partnership.
Example: partners vote on whether to expand (open a second outlet) and agree how to fund it, rather than one person deciding alone.
Use an operations/finance decision example.
In one line, what does a deed of partnership help prevent?
It reduces disputes by clearly stating rules for profit sharing, roles, decision-making, and what happens if a partner leaves.
Clear rules → fewer conflicts.
Give an exam-style explanation of one disadvantage of a partnership.
Disagreements can slow decisions and damage relationships, reducing efficiency; conflicts may arise over workload, strategy, or profit share.
Use: conflict → slower decisions → lower performance.
Define a public limited company (PLC).
An incorporated business whose shares are sold to the general public on a stock exchange; shareholders have limited liability.
Public shares + stock exchange.
What is the key difference between an Ltd and a PLC in how shares are sold?
Ltd shares are sold privately to selected investors; PLC shares are sold publicly and traded on a stock exchange.
Private vs public shares.
Define a private limited company (Ltd).
An incorporated business owned by shareholders, where shares are sold privately and shareholders have limited liability.
Incorporated + private shares + limited liability.
State two features of a private limited company (Ltd).
Shares are sold privately to selected investors, and shareholders have limited liability.
Give 2 clear features (what it IS).
State two similarities between an Ltd and a PLC.
Both are incorporated businesses with separate legal identity, and both provide limited liability to shareholders.
Similarities: incorporated + limited liability.
State two features of a PLC.
Shares are traded on a public stock exchange, and the business is owned by shareholders with limited liability.
Give 2 features: public shares + limited liability.
Which type of company typically has greater access to finance, and why?
PLCs typically have greater access to finance because they can raise funds from a wider public share issue.
PLC = bigger investor pool.
What does limited liability mean for shareholders in an Ltd?
Shareholders can only lose the value of their investment (their shares) and are not personally responsible for company debts.
Personal assets protected.
Why can a PLC raise more finance than an Ltd?
Because it can sell shares to the general public, giving access to a much larger pool of investors.
Public share issue = bigger capital.
Explain what is meant by separate legal identity in an Ltd.
The company is legally separate from its owners, so it can own assets, enter contracts, sue and be sued in its own name.
Company = separate legal person.
Why do PLCs usually have less privacy than Ltd companies?
They must meet strict disclosure rules (such as publishing financial accounts) for transparency to investors and regulators.
PLC = more reporting.
Which type of company is more likely to keep control within a small group of owners?
Private limited companies (Ltd) are more likely to keep control because shares are not sold to the general public.
Control stays with selected shareholders.
What is meant by legal continuity in a private limited company?
The business continues to exist even if owners change, leave, or die.
Continuity = continues despite owner changes.
What is a hostile takeover risk for a PLC?
Another company or investor can buy enough shares to gain control, potentially against the wishes of current directors.
Public shares can be bought by others.
Which type of company has a higher risk of hostile takeover?
PLCs have a higher risk of hostile takeover because shares are publicly traded and can be bought by outside investors.
Public trading increases takeover risk.
Define a cooperative.
A business owned and run by its members for their mutual benefit.
Owned by members.
What is the main ownership feature of a cooperative?
It is owned by its members, who use the business and share the benefits.
Member ownership.
Give one advantage of the cooperative structure.
Members are often highly motivated because they directly benefit from the cooperative’s success.
Motivation comes from shared benefits.
What does "one member, one vote" mean in a cooperative?
Each member has equal voting rights regardless of how much money they invested.
Democratic control.
State two features of a cooperative.
It is owned by members, and decisions are made democratically (one member, one vote).
Give 2 features: member ownership + democracy.
Give one disadvantage of cooperatives linked to decision-making.
Decision-making can be slower because members must be consulted and voting is democratic.
Democracy can slow decisions.
Why is raising finance often a weakness for cooperatives?
They have limited ability to attract external investors compared with companies that can issue shares.
Harder to access external equity.
How are profits typically used in a cooperative?
Profits are shared among members or reinvested to improve benefits and services for members.
Profits benefit members.
Why can cooperatives find it harder to raise finance than companies?
They cannot easily sell shares to external investors, so access to capital is more limited.
Limited access to external equity.
State one key exam takeaway about cooperatives.
Cooperatives combine business activity with democratic member control, which can increase motivation but reduce speed and access to finance.
Balance: motivation vs speed/finance.
What is the key exam takeaway about social enterprises and profit?
Profit is used as a tool to support the mission, and is mainly reinvested rather than paid out to owners.
Profit supports mission.
Define a social enterprise.
A business with a social or environmental mission that earns revenue through trading and reinvests profits into its mission.
Mission + trading + reinvestment.
State two features of a social enterprise.
It operates like a business by selling goods/services, and it reinvests profits to achieve a social or environmental mission.
Give 2 features: trading + mission.
State two characteristics of social enterprises.
They prioritise a mission (social/environmental), and generate revenue from trading to fund that mission.
Mission + trading.
How is a social enterprise different from a charity?
A social enterprise mainly earns income from trading, while charities typically rely more on donations and grants.
Trading vs donations.
Why are social enterprises not the same as charities?
They are businesses that trade for income, rather than depending mainly on donations.
Trading is the key difference.
Why must social enterprises be financially sustainable?
They need sufficient revenue to cover costs and continue delivering their mission long term.
Mission needs money to survive.
Why are social enterprises not the same as for-profit firms?
For-profit firms mainly aim to maximise profit for owners, while social enterprises prioritise impact and reinvest profits into the mission.
Impact first vs profit first.
State one key exam line for 1.2.5.
Social enterprises blend business methods with a mission, using trading revenue to fund impact and reinvesting most profits.
Blend: business + mission + reinvest.
Give one example of a social enterprise activity.
Selling products or services (e.g., reusable bottles) and using profits to fund a social goal (e.g., clean water projects).
Business activity + mission impact.
Vision statements are mainly ______-focused.
Future-focused.
One word: future.
In exams, what is the safest way to explain the difference between vision and mission?
State that vision is future aspiration (where the business wants to be), while mission is present purpose (what it does now, for whom, and how).
Give both time focus + meaning.
Define a vision statement.
A vision statement describes where a business wants to be in the future. It is a long-term aspiration.
Vision = future destination.
Give one reason why a mission statement helps decision-making.
Managers can use it as a filter by asking whether a decision supports the mission and values of the business.
Mission guides choices.
Define a mission statement.
A mission statement explains what the business does now, who it serves, and why/how it operates.
Mission = what we do now.
A good mission statement answers what three questions?
What do we do, who do we serve, and how do we do it.
What + Who + How.
How can vision/mission statements motivate employees?
They create purpose and meaning, making employees feel they are working toward something important.
Purpose = motivation.
When writing a mission statement in an exam, what three questions should it answer?
What do we do, who do we serve, and how do we do it (approach/values/unique method).
Mission = What + Who + How.
If a question asks whether actions align with a mission, what should you do first?
Identify the mission’s key promises/values, then compare the business’s actions in the stimulus to those promises.
Extract mission keywords, then test actions.
State one difference between a vision and a mission statement.
Vision is future-focused (where the business wants to be). Mission is present-focused (what the business does today and for whom).
Vision = future. Mission = present.
State two stakeholders that vision/mission statements can influence positively.
Customers (brand identity/values) and investors/partners (clarity of purpose and direction).
Think: who chooses to support the business?
State one reason vision/mission statements matter for strategy.
They provide direction and help align decisions and actions across the business.
Direction + alignment.
What is a common mistake when students write mission statements in exams?
Writing something vague that does not specify what the business does, who it serves, or how it operates.
Avoid generic phrases.
State two characteristics of a strong vision statement.
It should be inspiring and ambitious, and it should be short and memorable.
Vision qualities: inspiring + future aspiration.
True or false: A mission statement is useful even if it is never communicated to employees.
False. If it is not communicated, employees cannot use it to guide behaviour.
If no one knows it, it cannot guide.
What happens if a business’s actions do not match its mission?
Stakeholders may see the business as hypocritical, causing loss of trust and reputation damage.
Actions must match words.
State one exam tip for writing a mission statement from stimulus material.
Use the stimulus to pull specific products/services, target market, and the business’s values or unique approach.
Use the case facts.
State one reason a mission statement can become ineffective over time.
If it is not updated as the business changes, it may become irrelevant and stop guiding behaviour.
Mission must evolve.
What is the exam rule when using vision/mission in answers?
Always link the vision/mission to the specific business and its context in the question.
Apply to the case.
Complete this: Vision = WHERE we are going. Mission = _____.
WHAT we do every day to get there.
Vision where, mission what.
SMART objectives must be time-_____.
Time-bound.
Time-bound = deadline.
Define a marketing objective.
A specific goal for the marketing function that supports overall business objectives (e.g. awareness, market share, loyalty).
Marketing objective supports business goals.
Define a business objective.
A specific, measurable goal a business sets to achieve its mission.
Objective = measurable goal.
How do objectives typically change as a business moves from start-up to maturity?
Start-ups focus on survival, growth-stage firms focus on market share/revenue growth, and mature firms focus more on profit maximisation.
Life cycle drives objectives.
Give one external factor that can force a business to change objectives.
Economic recession (a business may shift from growth to survival).
Think PEST factors.
State two marketing objectives.
Increase brand awareness and increase market share.
Safe pair for 2 marks.
Strategic objectives are generally (short-term / long-term).
Long-term.
Strategic = big picture.
What does SMART stand for?
Specific, Measurable, Achievable, Relevant, Time-bound.
SMART acronym.
Give one reason objectives change over time.
Businesses evolve through different life-cycle stages and face changing external conditions (competition, technology, economy).
Life cycle + external changes.
What is the difference between strategic and tactical objectives?
Strategic objectives are long-term, big-picture goals set by senior management. Tactical objectives are short-term steps that support the strategy.
Long-term vs short-term steps.
How can a new competitor entering the market affect objectives?
The business may shift focus toward maintaining or increasing market share through pricing, promotion, or differentiation.
Competition changes priorities.
Which part of SMART requires a deadline?
T = Time-bound.
Time-bound = deadline.
State two common business objectives.
Profit maximisation and growth (such as increasing sales or market share).
Pick 2 from profit, growth, market share, survival, ethical.
Why might a crisis push a firm back toward “survival” objectives?
Because cash flow becomes critical, so the firm may cut costs, delay expansion, and restructure to stay solvent.
Survival = protect cash flow.
State two common objectives for mature businesses.
Profit maximisation and shareholder value (or maintaining profitability).
Mature = profit focus.
Why is “measurable” important in objectives?
It allows progress to be tracked using data (numbers), so managers can judge success and adjust actions.
If you cannot measure it, you cannot manage it.
Turn this into a SMART objective: “Sell more products.” (Give one improvement.)
Add a number and timeframe, e.g. increase online sales of Product X by 15% within 12 months.
Add metric + deadline.
Why is “survival” a common objective for start-ups?
Because early-stage businesses must cover costs and maintain cash flow before they can focus on growth or profit.
Start-ups need cash flow.
Exam skill: What should you do first when asked what objectives a business should have in a scenario?
Identify the business stage (start-up/growth/maturity) and the external pressures, then propose objectives that fit that context.
Context first, then objectives.
Exam rule: When writing objectives in an answer, what must you link them to?
The specific business context in the stimulus (resources, stage, market conditions).
Always apply to the case.
Ethical objectives mean doing the ______ thing.
Right.
One word: right.
Define Corporate Social Responsibility (CSR).
CSR is when a business voluntarily goes beyond legal requirements to benefit society and the environment.
CSR = beyond the law, voluntary.
What is meant by ethical objectives?
Ethical objectives involve doing the right thing: treating people fairly, being honest, and minimising harm.
Ethics = right thing, not just profit.
State one immediate impact of unethical behaviour on a business.
Reputation damage and negative publicity, which can quickly reduce sales.
Short-term impact: reputation and sales.
How can unethical behaviour affect employees?
Staff morale can drop because employees feel embarrassed or unfairly treated, reducing motivation and productivity.
Morale and motivation fall.
State two common ethical issues in business.
Fair treatment of workers and ethical sourcing (avoiding child labour or exploitation).
Pick 2: workers, marketing honesty, environment, data privacy, sourcing.
CSR means going beyond ______ requirements.
Legal.
CSR = beyond the law.
State two examples of CSR actions.
Reducing carbon footprint (e.g. renewable energy) and supporting local communities (e.g. training or sponsorships).
CSR examples: environment + community.
State one consequence of ethical failures.
Loss of stakeholder trust and long-lasting reputation damage.
Trust is hard to rebuild.
Give one long-term impact of ethical failures on recruitment.
Talented applicants may avoid the business, making it harder and more expensive to recruit.
Reputation affects hiring.
Why do businesses adopt CSR? Give one reason.
To improve reputation and customer loyalty (ethical behaviour attracts and retains customers).
CSR often strengthens the brand.
Why might ethical objectives increase costs in the short term?
Because fair wages, safer conditions, and certified suppliers often cost more than minimum legal standards.
Ethics can raise costs short-term.
Why can CSR support long-term profitability?
It can increase loyalty, strengthen brand reputation, and improve employee motivation, reducing costs linked to turnover and crises.
Long-term brand + loyalty effects.
Give one example of ethical sourcing.
Choosing suppliers that can prove fair labour standards and no child labour, even if the inputs cost more.
Ethical supply chain.
Why can unethical behaviour reduce shareholder value?
Fines, legal costs and falling sales reduce profits, and investors may sell shares, lowering the share price.
Profit drop + investor confidence.
How can CSR reduce risk for a business?
Ethical practices lower the chance of scandals, lawsuits, fines, and damaging media attention.
CSR = risk management.
Exam skill: In an “ethical impacts” question, what should you always include?
At least 2 stakeholder groups and a clear explanation of how each is affected in the given business context.
Stakeholders + applied impact.
Explain “doing well by doing good” in a CSR context.
CSR can improve long-term profits through stronger reputation, loyalty, and motivated employees, even if it costs more initially.
Long-term gains from ethical behaviour.
Exam rule: When discussing ethics/CSR, what should you always do?
Apply the point to the specific business and name the stakeholders affected.
Apply + stakeholders.
In exams, what is the best way to score on ethics questions?
Identify the stakeholder(s) affected and explain the impact on the specific business in the scenario.
Stakeholders + application.
In an exam, what is Step 1 when answering an objectives conflict question?
Identify the two conflicting objectives clearly (name them).
Name both objectives first.
True or false: Business objectives often conflict.
True. Many objectives pull in different directions and require trade-offs.
Trade-offs are normal.
State one example of conflicting business objectives.
Profit maximisation versus ethical objectives (e.g. cutting costs could worsen working conditions).
Profit vs ethics is the classic conflict.
State one way managers deal with conflicting objectives.
Prioritisation: deciding which objective is most important at that time.
Pick the priority for NOW.
State one common conflict involving ethics.
Profit versus ethics (lower costs vs fair treatment/environmental protection).
Profit vs ethics.
Why can growth conflict with quality?
Rapid expansion can overstretch staff and systems, reducing product quality or customer service standards.
Fast growth can reduce control.
How do you move from “listing” to “analysis” in a conflict answer?
Explain WHY the objectives clash (show the mechanism), not just that they conflict.
Use “because…” with a mechanism.
What is meant by compromise in objective conflicts?
Partially satisfying competing objectives rather than maximising only one (e.g. moderate profit plus higher ethical standards).
Not perfect, but balanced.
What makes a conflict answer “applied” to the case study?
Link each objective and trade-off directly to facts in the stimulus (industry, costs, stakeholders, market conditions).
Use stimulus facts as evidence.
Name one strategy managers use to handle conflicting objectives.
Prioritise, compromise, or sequence objectives over time.
Pick: prioritise / compromise / time-based.
Explain a time-based strategy for conflicting objectives.
Focus on one objective first (e.g. survival/cash flow), then shift to another later (e.g. growth) when conditions improve.
Sequence objectives over time.
Explain how a market share objective can conflict with profitability.
Lowering prices to gain market share can reduce profit margins, so profitability may fall even if sales rise.
Market share via price cuts hits margins.
State two factors that influence which objective is prioritised.
Stage of the business life cycle and economic conditions (e.g. recession vs growth).
Context decides the priority.
What determines which objective should dominate?
Context: business stage, economic conditions, competition, stakeholder pressure, and legal/ethical constraints.
Context decides.
State one reason shareholder objectives may conflict with employee objectives.
Shareholders may want higher dividends, while employees want higher wages and better conditions, increasing costs.
More pay vs more dividends.
For 8–10 mark conflict questions, what should you include before the conclusion?
Discuss consequences of prioritising each objective and show the trade-offs.
Show BOTH sides, then judge.
Exam rule for conflict answers: what must you show?
Awareness of trade-offs and a justified decision, applied to the business in the question.
Trade-offs + justification + case.
Give one example of short-term profit conflicting with long-term objectives.
Cutting training to reduce costs boosts short-term profit but reduces long-term productivity and service quality.
Short-term savings can create long-term damage.
Why is communication important when objectives conflict?
Explaining trade-offs reduces misunderstanding and helps maintain stakeholder support and trust.
Explain the trade-off.
What should a top-mark conclusion on conflicts avoid?
Claiming there is a perfect solution. Instead, justify a realistic decision and acknowledge trade-offs.
No “perfect solution”. Justify.
Define a stakeholder.
Any individual or group that affects or is affected by a business’s actions and decisions.
Stakeholder = affects / affected.
Stakeholders can be internal or external. What does internal mean?
Internal stakeholders are inside the business and directly involved in operations (employees, managers, owners).
Inside the business.
Why might customers and owners have conflicting interests?
Customers want low prices and high quality, while owners often want higher profit margins (which may require higher prices or lower costs).
Low price vs high profit.
What is Step 1 of the “name, interest, impact” approach?
Name the specific stakeholder group (e.g. employees, customers, government).
Be specific.
State two internal stakeholders.
Employees and owners/shareholders (or managers).
Internal = inside the business.
Name two external stakeholders.
Customers and government (also suppliers, community, banks, pressure groups).
External = outside.
What do suppliers usually want from a business?
Regular orders, prompt payment, and long-term contracts.
Suppliers want reliability and payment.
In stakeholder answers, why is “people” a weak term?
It is too vague. Examiners reward specific stakeholder groups (e.g. local residents, employees, suppliers).
Specific stakeholder names score better.
How can delaying payment help a business but harm suppliers?
It improves the business’s cash flow, but it can create cash flow problems for suppliers who rely on timely payment.
Cash flow trade-off.
Why do stakeholder interests often conflict?
Because different groups want different outcomes (e.g. higher wages vs higher dividends, low prices vs high margins).
Different priorities.
What should you do after stating a stakeholder’s interest?
Explain how the specific business decision affects that stakeholder in the scenario.
Always link to the decision.
State two external stakeholders.
Customers and suppliers (also government, community, banks, pressure groups).
External = outside the business.
State one common stakeholder question type in exams.
Identify two stakeholders affected by this decision (2 marks).
Expect identify / explain / discuss.
What is the 3-step exam approach to stakeholder questions?
Name the stakeholder, state their interest, explain the impact.
Name + interest + impact.
What do employees typically want from a business?
Fair pay, job security, good working conditions, and career progression.
Employees: pay + security + conditions.
What does the local community typically want from a business?
Jobs and positive contribution with minimal pollution/noise/traffic problems.
Community wants benefits, not harm.
What do shareholders typically want?
Profit, growth, dividends, and increasing business value.
Shareholders want returns.
What makes stakeholder answers “top band” for extended response?
They compare impacts on multiple stakeholders, show conflict/trade-offs, and apply to the case facts.
Multiple stakeholders + trade-offs + application.
Exam rule: What should you avoid when listing stakeholders?
Avoid generic groups (e.g. “people”). Use relevant, specific stakeholders from the case.
Specific beats generic.
Exam skill: What is the best way to write about stakeholders?
Use: name the stakeholder, state their interest, then explain the impact of the decision on them.
Name + interest + impact.
Why do some stakeholders have more influence than others?
Because they have greater power (ability to affect decisions) through finance, legal authority, collective action, or public pressure.
Power = influence.
State one common stakeholder conflict in business.
Owners/shareholders versus employees (cost minimisation versus higher wages and better conditions).
Owners vs employees is the classic conflict.
How can communication reduce stakeholder conflict?
Keeping stakeholders informed about decisions and reasons reduces misunderstanding and builds trust.
Explain the “why”.
Stakeholder conflicts arise mainly because stakeholders have different ______.
Interests.
Different priorities.
For stakeholder conflict exam questions, what is Step 1?
Identify the specific stakeholder groups involved.
Name the groups.
Name one common stakeholder conflict.
Owners/shareholders versus employees.
Classic conflict.
How can governments influence businesses?
They can pass laws, set regulations, increase taxes, or impose penalties that force businesses to change.
Government = regulation power.
Why can a business conflict with the local community?
Expansion may increase noise, traffic, or pollution, while the community wants a clean, quiet environment.
Growth can create negative externalities.
What is negotiation in stakeholder conflict management?
Finding a compromise where each group gains something (e.g. smaller pay rise plus better benefits).
Give-and-take.
What should you do after identifying stakeholder groups in a conflict question?
Explain what each stakeholder wants (their interests) in this situation.
Interests drive conflict.
What is the “clash” part of a stakeholder conflict answer?
Explaining where and why the stakeholder interests conflict (who gains, who loses).
Show winners and losers.
State one strategy to reduce stakeholder conflict.
Negotiation (finding a compromise).
Pick: communication / negotiation / transparency / CSR.
Why might a large customer have strong bargaining power?
If they account for a big share of revenue, they can demand better terms or threaten to switch suppliers.
Big customer = leverage.
Explain why shareholders and managers may conflict.
Shareholders may want higher dividends now, while managers may prefer reinvesting profits for long-term growth.
Dividends now vs reinvest for later.
How can transparency reduce conflict with stakeholders?
Publishing clear information on performance and impacts helps stakeholders trust decisions and reduces suspicion.
Data reduces distrust.
How can suppliers and a business conflict?
Suppliers want prompt payment, while the business may want to delay payment to improve cash flow.
Cash flow creates tension.
Give one strategy you could suggest to reduce stakeholder conflict in an exam.
Offer retraining or redeployment to reduce employee opposition to automation (but explain cost trade-offs).
Suggest + explain trade-off.
How do trade unions increase employee influence?
They represent employees collectively and can organise industrial action such as strikes.
Collective voice = power.
Why is stakeholder mapping useful?
It helps managers focus on high power, high interest stakeholders who can strongly affect outcomes.
Prioritise key stakeholders.
What is stakeholder mapping used for?
To identify stakeholders by power and interest so managers focus effort on the most influential/concerned groups.
Power + interest matrix.
Exam rule for stakeholder conflict answers: what should you always do?
Apply the conflict and any solutions to the specific business in the scenario.
Always apply to the case.
For 8–10 mark stakeholder conflict answers, what must you include?
At least two stakeholder groups, clear conflict analysis, a proposed resolution, and evaluation of whether it works.
Analyse + resolve + evaluate.
What does a stakeholder power-interest map help managers decide?
Which stakeholders need the most attention (high power and high interest).
High power + high interest = priority.
Give one reason short-term and long-term stakeholders may conflict.
Short-term shareholders may want quick returns, while employees and communities benefit from long-term stability and investment.
Time horizon conflict.
Exam tip: How should you write conflict-reduction strategies?
Link each strategy to the specific conflict in the case and explain how it reduces tension.
No generic lists.
Stakeholders influence decisions AND experience ______ from decisions.
Impact.
Influence + impact.
Why do business decisions create “winners and losers” among stakeholders?
Because a decision can benefit one group while harming another (e.g. cost cuts help profits but can cause redundancies).
One decision, different impacts.
How can an ethical failure affect customers?
Customers may lose trust and switch to competitors, reducing sales and damaging loyalty.
Trust drives purchases.
How do shareholders influence business decisions?
They vote at AGMs, elect directors, and approve major decisions.
Votes drive governance.
Give one example of stakeholder influence by customers.
Buying or boycotting products to reward or punish business behaviour.
Customers vote with spending.
How can an ethical failure affect employees?
Morale may drop, productivity can fall, and talented staff may leave due to disagreement with the business’s values.
Ethics affects morale.
Give one stakeholder impact of cost-cutting.
Employees may face redundancies (negative) while shareholders benefit from higher profits (positive).
Cost cuts shift benefits.
Give one way employees can influence decisions.
Through trade unions and industrial action (e.g. strikes) or suggestion schemes.
Collective action = power.
Give one example of stakeholder influence by government.
Changing regulations or taxes that force the business to adapt.
Law shapes behaviour.
Why can ethical issues trigger regulatory action?
Regulators may investigate, impose fines, and add compliance requirements, increasing costs and limiting operations.
Ethics can become legal risk.
How can price increases impact customers and owners differently?
Customers may switch to competitors (negative), while owners may gain higher revenue per unit (positive).
Price up: customers unhappy, margins up.
How can customers influence a business?
By purchasing (or boycotting), leaving reviews, complaining, and switching to competitors.
Customers vote with money.
In stakeholder analysis, what should you show besides the “winner”?
Show the loser too: explain both positive and negative impacts on different groups.
Always show both sides.
How can ethical failures affect investors/shareholders?
Investors may sell shares due to reputational risk, reducing share price and firm value.
Confidence drives valuation.
How can expansion into new markets affect the local community?
It can create jobs (positive) but also increase traffic, noise, and pollution (negative).
Community impact has both sides.
How does government influence business behaviour?
By setting regulations, changing tax policy, offering incentives, or imposing penalties.
Rules + taxes shape decisions.
Exam rule: What makes stakeholder influence answers strong?
They apply influence and impact to the case and show effects across multiple stakeholders.
Apply + multiple stakeholders.
Exam tip: In an ethical impact answer, how many stakeholder groups should you cover?
At least 2–3 stakeholder groups, each with a clear impact linked to the case.
Show the ripple effect.
Exam skill: What should you always do when asked about stakeholder impact?
Explain both positive and negative effects and link them to the case facts.
Show BOTH sides.
How can pressure groups influence business decisions?
They run campaigns and use media/public opinion to pressure the business to change behaviour.
Reputation pressure.
State two reasons why businesses grow.
Economies of scale and increased market share (others include diversification, new markets, survival).
Pick 2 and be clear.
Internal growth is usually ______ and lower risk.
Slower.
Slow and steady.
What is horizontal integration?
Merging with or acquiring a competitor at the same stage of production.
Same level = competitor.
What is external growth?
External growth is growing by joining with or buying other businesses (mergers, acquisitions, joint ventures, alliances).
Grow by combining/buying.
What is internal (organic) growth?
Internal growth is expanding using the business’s own resources (e.g. opening new outlets, developing new products, increasing marketing).
From within, using own resources.
External growth is usually ______ but riskier.
Faster.
Fast but complex.
What does “economies of scale” mean as a growth benefit?
As the business grows, average costs per unit fall due to bulk buying, specialisation, and higher efficiency.
Bigger can be cheaper per unit.
What is forward vertical integration?
Buying a business closer to the customer (e.g. manufacturer buys retail chain).
Forward = toward customer.
What is a merger?
Two businesses of roughly equal size agree to combine into a new entity (both sets of shareholders approve).
Agreed combination.
Give one example of internal growth.
A local café opens a second location funded by retained profit.
New branch using own money.
State one risk of growing too fast.
Cash flow problems: the business must invest before extra revenue arrives, creating liquidity pressure.
Growth needs cash first.
Name two external growth methods.
Merger and acquisition (others: joint venture, strategic alliance).
Name 2 clearly.
What is backward vertical integration?
Buying a business closer to raw materials/suppliers (e.g. manufacturer buys component supplier).
Backward = toward supplier.
What is an acquisition (takeover)?
One business buys another and takes control (can be friendly or hostile).
One buys, takes control.
State one advantage of internal growth.
Lower risk and easier to manage because the business grows gradually and keeps its culture.
Slow = manageable.
Name the four integration types.
Horizontal, forward vertical, backward vertical, conglomerate.
Hor / Fwd / Bwd / Cong.
What is a common people/culture risk in external growth?
Culture clash: different values and working styles can reduce productivity and increase conflict after a merger/acquisition.
Integration is human too.
What is conglomerate integration?
Merging with or acquiring a business in a completely unrelated industry.
Unrelated industry.
What is a joint venture?
Two or more businesses create a new separate entity for a specific project, sharing resources and risk.
New shared entity.
State one disadvantage of internal growth.
It is slow and may be limited by available finance/resources, so competitors may grow faster.
Time + resources limit growth.
Which 3 risks are most common in fast external growth?
Culture clash, integration difficulties, and cash flow/finance strain (plus redundancies).
People + systems + money.
Exam tip: When asked to discuss growth strategies, what must you do?
Balance advantages against risks and apply points to the specific business in the question.
Always weigh both sides + apply.
Quick check: A car maker buys a chain of dealerships. What type of integration is this?
Forward vertical integration (moving closer to the customer).
Toward customer = forward.
What is a strategic alliance?
Businesses cooperate on specific activities while staying independent (no new merged company).
Cooperate, stay separate.
Internal vs external growth: which is usually lower risk?
Internal growth is usually lower risk; external growth is faster but riskier.
Risk-speed trade-off.
Fill the gap: Merger = agreed combination of ______.
Equals (similar-sized firms).
Merger = “equals”.
How can M&A help a business enter a new geographic market?
By buying a local firm with existing customers, premises and distribution.
Buy local access.
Give one reason why a business might acquire a competitor.
To increase market share quickly and reduce competition.
Buy competitor = more share.
Name one benefit of M&A and one risk of M&A.
Benefit: speed/market share/economies of scale. Risk: culture clash/integration/high cost.
Always balance pros and cons.
Why might regulators block a merger or acquisition?
Competition authorities may block deals that reduce competition too much (creating monopoly power).
Too much market power = blocked.
In a merger, what must usually happen before it goes ahead?
Both sets of shareholders must approve the merger.
Shareholder approval matters.
What is “culture clash” in M&A?
When employees from two firms have different values/ways of working, causing conflict and lower productivity.
People problems kill deals.
What is a merger?
When two businesses agree to combine into one new entity (typically of similar size).
Merger = agreed combination.
In an acquisition, who ends up in control?
The acquiring company gains control of the target.
Buyer controls target.
True/False: A takeover can be friendly or hostile.
True — it depends whether the target agrees.
Friendly vs hostile.
Why can debt-funded acquisitions be risky?
Interest payments increase fixed costs and can create cash flow problems if performance falls.
Debt increases pressure.
What does “eliminate competition” mean as a reason for acquisitions?
Buying a rival removes them from the market, potentially increasing pricing power.
Less rivalry = more power.
Fill the gap: Acquisition = one firm ______ another.
Buys (and takes control of).
Acquisition = buy control.
Why can redundancies be a problem after an acquisition?
Duplicate roles may lead to job losses, damaging morale, reputation, and community relations.
Job cuts = morale + PR risk.
How can M&A create economies of scale?
By combining operations to lower average costs (bulk buying, shared facilities, shared admin).
Combine = lower unit costs.
What is an acquisition (takeover)?
When one business buys another and takes control (can be friendly or hostile).
Acquisition = one buys another.
What is the “core” meaning of synergy?
The combined firm should create extra value compared with operating separately.
Extra value from combining.
What is a common operational risk after M&A?
Disruption while integrating systems and processes can reduce service quality or output temporarily.
Integration disrupts operations.
Why might a firm acquire technology via M&A instead of developing it?
It can be faster and reduce uncertainty compared to in-house R&D.
Buy innovation fast.
What is a “friendly” takeover?
The target company agrees to the purchase and cooperates with the buyer.
Friendly = agreed.
Name two common reasons for M&A.
Economies of scale and increased market share (also: diversification, speed, resources).
Reasons: scale + share.
What are “integration difficulties” in M&A?
Problems combining IT systems, processes, supply chains and management structures (often costly and slow).
Integration is hard + expensive.
Why might a business use M&A for speed?
M&A is faster than organic growth for entering markets or gaining capabilities.
Speed is a key advantage.
What does “hostile takeover” mean?
The target company resists the takeover, but the buyer tries to gain control anyway (often by appealing to shareholders).
Hostile = target resists.
Which is usually more expensive upfront: M&A or organic growth?
M&A is usually more expensive upfront because it involves buying an existing firm.
Purchase price is big.
Why can M&A reduce staff motivation?
Uncertainty about redundancies and new management can increase anxiety and reduce engagement.
Uncertainty hurts morale.
How can M&A improve distribution and sales reach?
The buyer gains the target’s distribution channels, retail presence or customer base.
Distribution is an asset.
After an acquisition, what might happen to the acquired firm’s brand/name?
It may keep its name or be absorbed/rebranded by the buyer.
Brand may stay or change.
Name two common risks of M&A.
Culture clash and integration difficulties (also: redundancies, high cost, regulation).
Risks: people + systems.
Why is “high cost” a risk in acquisitions?
They often require large funding (sometimes debt), increasing interest costs and financial risk.
Big price tag = higher risk.
How does M&A support diversification?
It lets a business enter new products or markets, spreading risk if one market declines.
Diversify = spread risk.
Why do buyers often pay a “premium” in an acquisition?
To persuade shareholders to sell by offering more than the current market price.
Premium = incentive to sell.
One-line exam rule for M&A evaluation answers?
State a benefit, state a risk, apply both to the case, then judge which is stronger.
Balance + apply + judge.
Exam comparison: name two dimensions to compare organic growth vs M&A.
Speed and risk (also: cost and control).
Compare on 4: speed/risk/cost/control.
What is a “strategic defence” reason for M&A?
Buying a target to prevent competitors acquiring it first and gaining an advantage.
Buy to block rivals.
Why is the line between “merger” and “acquisition” sometimes blurry in reality?
Because one partner is often dominant, even if the deal is labelled a merger.
“Merger” can be PR.
Exam comparison: Which is usually faster — organic growth or M&A?
M&A is usually faster (but higher risk/cost).
Speed vs risk trade-off.
What does “failure to achieve synergies” mean?
The expected cost savings or revenue gains do not happen, so the deal underperforms.
Synergy is not guaranteed.
What does “access to resources” mean as a reason for M&A?
Buying a firm for its technology, patents, skilled staff, brand, or distribution network.
Acquire capabilities fast.
What are “synergies” in mergers and acquisitions?
When the combined business is worth more than the two businesses separately (e.g. cost savings or higher revenues).
Synergy = 1 + 1 > 2.
Give one reason why communication worsens as firms grow very large.
More layers of management mean messages travel further and can be delayed or distorted.
More layers = more noise.
Fill the gap: Economies of scale mean average costs ______ as output increases.
Fall.
Scale = lower unit cost.
Write the 4-step structure for economies of scale questions.
1) Name the type. 2) Explain the mechanism. 3) Apply to the case. 4) If relevant, mention diseconomies.
Name + how + apply + balance.
Fill the gap: Diseconomies of scale mean average costs ______ when the firm becomes too large.
Rise.
Too big = costs up.
If a business gets cheaper inputs because it buys more, is that internal or external?
Internal economy of scale.
Firm-driven benefit.
What are purchasing economies of scale?
Bulk buying allows negotiation of discounts, reducing input cost per unit.
Bigger orders, cheaper inputs.
In an economies of scale answer, what is Step 1?
Name the specific type (e.g. purchasing, technical, marketing).
Name the TYPE first.
What is the difference between internal and external economies of scale?
Internal come from the firm’s own growth; external come from growth of the whole industry.
Firm vs industry.
What are diseconomies of scale?
When a business becomes too large and its average costs start rising instead of falling.
Too big = costs rise.
What are economies of scale?
When a business grows and its average cost per unit falls as output increases.
Bigger output, lower unit cost.
Name one internal economy of scale.
Purchasing economies (bulk buying reduces input cost per unit).
Name the TYPE.
If a business benefits from a larger pool of skilled labour because the industry cluster grew, is that internal or external?
External economy of scale.
Industry-driven benefit.
In an economies of scale answer, what is Step 2?
Explain the mechanism: how growth reduces average cost per unit.
Explain HOW it works.
Name two internal economies of scale and explain them briefly.
Purchasing: bulk discounts reduce input cost. Marketing: spread ad costs over more units.
Name + how.
Give a strong 1-sentence “purchasing economy” mechanism.
Buying inputs in larger quantities allows discounts, reducing input cost per unit and lowering average cost.
Bulk buy = lower unit cost.
How can coordination issues increase average costs?
Teams may duplicate work or make inconsistent decisions, wasting time and resources.
Misalignment wastes resources.
What are financial economies of scale?
Large firms can access cheaper finance (lower interest rates) because lenders view them as lower risk.
Lower interest for big firms.
Name the SIX internal economies of scale.
Purchasing, technical, financial, marketing, managerial, risk-bearing.
Memorise the 6.
Give an example of an internal economy of scale.
Purchasing economy: bulk buying reduces input cost per unit.
Internal = firm grows.
How can communication problems cause diseconomies of scale?
Messages get delayed or distorted through many layers, causing errors and slower responses.
More layers, worse communication.
List two common causes of diseconomies of scale.
Communication problems and coordination difficulties (also: bureaucracy, demotivation).
Think: complexity.
Why does “apply to the business” score marks?
Because it links the concept to real case facts (inputs, output scale, market, operations), showing AO2 application.
Case facts = marks.
What does “external economies” mean in one sentence?
Cost advantages that come from the growth of the industry, not just one firm.
Industry growth helps firms.
How does bureaucracy create diseconomies of scale?
Extra rules, approvals and paperwork slow decisions and raise administrative costs.
More rules, more cost.
What are managerial economies of scale?
Large firms can hire specialist managers (finance, marketing, HR) who improve efficiency and decisions.
Specialists improve performance.
What are diseconomies of scale in one line?
When average costs rise because the business has become too large.
Too big = inefficiency.
In an economies of scale answer, what is Step 3?
Apply it to the business in the question (use the case facts).
Always apply to the case.
Give an example of an external economy of scale.
An industry cluster creates more specialist suppliers or a larger pool of skilled labour, lowering costs for firms in that area.
External = industry grows.
How can coordination difficulties increase costs in very large firms?
Departments may work at cross-purposes, creating duplication and inefficiency.
Harder to align teams.
What are technical economies of scale?
Large firms can afford specialised machinery and use it efficiently at high output, lowering average cost.
Tech + high output.
Internal vs external economies: which comes from industry growth?
External economies of scale.
Industry-driven.
What is a weak exam statement about economies of scale?
“The business will get economies of scale.” (No type, no mechanism, no application.)
Too vague.
What is glib but wrong in an exam: “external economies come from exporting”?
Wrong — external economies come from industry growth (suppliers, labour, infrastructure), not exporting itself.
External = industry conditions.
Why can large firms lose the “personal touch” as they grow?
They become less flexible and may provide weaker customer relationships/service quality.
Big firms can feel distant.
What are technical economies of scale (in exam wording)?
Specialised machinery becomes cost-effective at high output, lowering average cost per unit.
High output justifies machines.
List two causes of diseconomies of scale.
Communication problems and bureaucracy (also: coordination issues, demotivation).
Think: people + systems.
Exam warning: What is a common mistake in economies of scale questions?
Writing “the business will get economies of scale” without naming the type or explaining the mechanism.
Be specific.
Why are most exam questions about economies of scale focused on internal economies?
Because students can clearly name and explain specific internal types (purchasing, technical, etc.) and apply them to a firm.
Name the type + mechanism.
How can motivation issues lead to diseconomies of scale?
Employees may feel like a small cog, reducing effort and increasing absenteeism/turnover.
Low pride = low productivity.
What are marketing economies of scale?
Advertising/marketing costs are spread over more units sold, reducing average marketing cost per unit.
Same ad, more sales.
One-line exam rule for top marks on economies of scale?
Always name the specific type, explain the mechanism, and apply it to the business.
Name + how + apply.
When might you add diseconomies to an evaluation?
If rapid growth could reduce service quality, slow decisions, or raise admin costs — show trade-offs.
Growth has limits.
Exam tip: When asked about economies of scale, what should you focus on first?
Internal economies (name the type + mechanism), then add external if relevant.
Internal first.
Quick contrast: Economies of scale vs diseconomies of scale?
Economies: average costs fall as output rises. Diseconomies: average costs rise because the firm is too large.
Fall vs rise.
Exam warning: When asked to “state two internal economies of scale”, what must you do?
NAME the types (e.g. purchasing and marketing), not just say “economies of scale”.
Name the type.
What is the key exam rule for economies of scale questions?
Name the type and explain the mechanism, then apply it to the business.
Name + how + apply.
When should you mention diseconomies of scale in an exam answer?
If the question asks for drawbacks or if growth is rapid/large enough that “too big” problems are relevant.
Show balance if relevant.
Quick check: If lower costs come from more local suppliers because the industry expanded, is that internal or external?
External economy of scale.
Industry-driven benefit.
Why can large firms become slower at decision-making?
Bureaucracy increases with more management layers, delaying decisions and implementation.
Bureaucracy slows action.
What are risk-bearing economies of scale?
Large firms can diversify into different products/markets, spreading risk if one area performs badly.
Diversify to spread risk.
Give one advantage of franchising for the franchisee.
An established brand reduces marketing risk because customers already know and trust the name.
Brand reduces risk.
For a franchisee, why is training/support valuable?
It reduces mistakes and helps them run the business using a proven system, improving survival chances.
Support reduces risk.
Fill the gap: The franchisee pays an initial fee and ongoing ______ to the franchisor.
Royalties.
Upfront + ongoing.
Fill the gap: A franchisor earns money from the franchisee through fees and ______.
Royalties.
Upfront + ongoing.
What is a franchise?
An agreement where a franchisor lets a franchisee use its brand and business system in return for fees and royalties.
Brand + system for payments.
In franchising, who is the franchisee?
The person or business that buys the right to operate an outlet using the franchisor’s brand and systems.
Franchisee runs the outlet.
What does the franchisee gain from the franchisor besides the brand?
Training, support, systems/know-how, and often national marketing.
Brand + system + support.
For a franchisee, what is a key disadvantage besides fees?
Less freedom — they cannot easily change products, pricing or decor without permission.
Rules limit choices.
Why must franchisees follow strict rules?
To ensure consistent quality, branding and customer experience across all outlets.
Consistency protects brand.
Give one disadvantage of franchising for the franchisee.
They must pay fees and royalties, reducing profit, and have less freedom to change how the business operates.
Fees + less freedom.
Who owns the brand and IP in franchising?
The franchisor owns the brand, business model and intellectual property.
Franchisor = owner of brand.
Why is franchising often lower risk for a franchisee than starting an independent business?
Because the model is proven and the franchisor provides training, systems and brand recognition.
Proven system + support.
Why is franchising often called external growth?
Because the firm expands by adding outlets run by independent owners rather than growing only from within.
Expansion via others.
For a franchisor, why are franchisees often “motivated operators”?
Because they invest their own money, so they have strong incentives to work hard and protect profits.
Own money = motivation.
How does franchising help the franchisor grow?
It enables rapid expansion using franchisees’ capital instead of the franchisor funding each outlet.
Grow fast with others’ money.
Give one advantage of franchising for the franchisor.
Rapid expansion without funding every new outlet because franchisees invest their own money.
Grow fast with less capital.
What payments does a franchisee typically make?
An initial franchise fee plus ongoing royalties (often a percentage of revenue).
Upfront fee + ongoing royalty.
What is one common item covered in a franchise contract?
Territory (where the franchisee can operate) and conditions for renewal/termination.
Territory + exit terms.
What is a key risk for the franchisee linked to the whole system?
Brand reputation risk from other franchisees’ poor performance.
Other outlets can hurt you.
For a franchisor, what is a major operational challenge?
Monitoring quality across many outlets is difficult, increasing reputation risk.
Hard to control everyone.
What is the typical form of ongoing payment in franchising?
A royalty, usually calculated as a percentage of sales revenue.
% of revenue.
Why can one poor franchisee harm the whole franchise system?
Because customers judge the brand as a whole, so one outlet’s bad quality damages reputation everywhere.
Brand reputation spills over.
Give one disadvantage of franchising for the franchisor.
Less direct control over daily operations and reputation risk if one franchisee performs badly.
Control + reputation risk.
What does the franchisor usually provide to the franchisee?
Training, marketing support, and operational guidance (systems and know-how).
Support + systems.
Exam rule: In franchising questions, what must you link to marks?
The correct viewpoint (franchisor vs franchisee) and the contract-based nature (fees, royalties, rules).
Viewpoint + contract.
Exam tip: When evaluating franchising, what balance should you show?
Benefits and drawbacks for BOTH franchisor and franchisee, linked to the case.
Two viewpoints + case link.
Give a simple example of franchising.
A burger chain lets an individual open an outlet using the brand for an upfront fee and monthly royalties, plus training/support.
Brand + fee + support.
Franchising is a form of what growth strategy?
External growth (expanding by working with independent franchisees).
External growth method.
Exam tip: In franchising answers, what must you always specify?
Whether you are discussing the franchisor or the franchisee, because the impacts differ.
Pick the viewpoint.
What is a franchise agreement?
A legal contract covering fees, territory, duration, standards, training, and termination conditions.
Contract sets the rules.
Give one reason why a business becomes multinational.
To access larger markets and increase potential sales revenue.
More customers.
Fill the gap: An MNC operates in more than one ______.
Country.
Multi-country.
Fill the gap: MNC challenges include exchange rates, time zones, and ______ differences.
Legal and cultural.
Rules + culture.
Why can political instability be a problem for MNCs?
Policy changes, unrest or corruption can disrupt operations and increase risk/costs in host countries.
Political risk.
Give one legal/regulatory challenge faced by MNCs.
Laws and regulations differ across countries (employment, environment, consumer protection), increasing compliance complexity.
Different rules in each country.
State one resource-based reason an MNC enters a host country.
To access resources or talent that are available in that location (raw materials or skilled labour).
Go where the resources are.
State two key features of an MNC.
HQ in a home country and operations in host countries; operates at large scale across borders.
HQ + host operations.
What is a multinational company (MNC)?
A business that operates in more than one country, with headquarters in a home country and operations in host countries.
Home country + host countries.
How can culture and language be a challenge for MNCs?
Marketing messages and management styles may not transfer well across cultures, causing misunderstandings or poor demand.
Local culture matters.
How can host-country regulation affect MNC impact?
Stronger regulation can reduce exploitation and environmental damage, shaping outcomes for stakeholders.
Rules shape impact.
Name two common reasons why firms become multinational.
Access larger markets and lower costs; they may also avoid trade barriers or spread risk.
Markets + costs are safest.
Give one coordination challenge of running an MNC.
Managing long-distance operations increases communication delays and makes control/monitoring harder.
Distance reduces control.
How can tax advantages encourage multinational expansion?
Some countries offer lower corporation tax or incentives to attract foreign investment.
Incentives attract firms.
How can becoming multinational help a business avoid trade barriers?
Producing locally in a market can avoid import tariffs and quotas.
Local production avoids tariffs.
What is meant by the “home country” of an MNC?
The country where the MNC’s headquarters is located (where it is based).
HQ location.
How can an MNC reduce costs globally?
By moving production to countries with cheaper labour, materials, energy or favourable taxes.
Costs vary by country.
Why do MNCs sometimes face ethical criticism?
They may use lower labour or environmental standards in some host countries, harming people or ecosystems.
Ethical gap risk.
Give two common challenges for MNCs.
Different laws/regulations and cultural barriers; also time zones and exchange rate risk.
Rules + culture.
How can one scandal in a host country affect the whole MNC?
Reputational damage can spread globally through media, reducing trust and sales across markets.
Global brand = global fallout.
Why are time zones a challenge for MNCs?
Coordinating teams and decisions across different time zones slows communication and operations.
Coordination is harder.
Why can multinational expansion increase potential revenue?
Because selling in multiple countries increases the size of the customer base.
More markets = more sales.
How does going multinational spread risk?
Operating in multiple economies reduces dependence on one country’s demand or growth.
Don’t rely on one market.
What does “economies of scale across borders” mean for an MNC?
Buying, producing and selling globally can lower average costs through bulk purchasing and high output.
Global scale lowers unit cost.
What is meant by the “host country” of an MNC?
A country where the MNC has operations such as factories, offices or retail outlets outside its home country.
Operations abroad.
What is the safest way to structure an MNC “discuss/evaluate” answer?
Make 2–3 positives and 2–3 negatives, apply to the case, then give a justified conclusion.
Positives + negatives + conclusion.
Why do good exam answers on MNCs need balance?
Because multinational expansion has both advantages and disadvantages depending on context and regulation.
Not automatically “good”.
Why do cultural differences affect product strategy?
Customer preferences vary, so a product/marketing approach that works at home may fail abroad without adaptation.
Preferences differ.
How can exchange rates affect an MNC’s profits?
Currency fluctuations change the value of overseas revenues and costs when converted back to the home currency.
FX risk.
How does producing locally help an MNC compete in a foreign market?
It can reduce delivery costs and time, improve responsiveness, and avoid tariffs.
Closer to customers.
Give one cost-based reason for becoming multinational.
To lower production costs using cheaper labour, materials or energy in another country.
Lower input costs.
Why do MNCs face more complexity than domestic firms?
They must handle different laws, taxes, cultures and languages across countries.
Different rules everywhere.
State one feature of MNC operations.
They operate across borders with activities such as production, marketing, or sales in multiple countries.
Multi-country operations.
Quick check: HQ in home country + operations in host countries = ______.
Multinational company (MNC).
Definition shortcut.
What is one factor that makes MNC strategy harder than domestic strategy?
They must adapt to different laws, cultures, and market conditions across countries.
Multiple environments.
Exam tip: What should you show when discussing MNCs?
Balance benefits and challenges, and apply points to the specific country/context in the question.
Balance + application.
Why can ethical concerns create reputational risk for MNCs?
Using lower labour or environmental standards abroad can trigger criticism and damage the global brand.
Ethics travels globally.
Exam skill: When asked “reasons to go multinational”, what do you do?
Give 2–3 reasons and briefly explain HOW each increases revenue, reduces costs, or reduces risk.
Reason + mechanism.
Why might a business “follow competitors” into global markets?
To protect market share and avoid being left behind if rivals expand internationally.
Defensive strategy.
Give an example of multinational activity.
HQ in one country, components/production in others, and sales across many countries (multiple host countries).
Think: global supply chain.
Why do MNCs often have significant market power?
Because they operate at large scale with strong brands and financial resources, giving influence in markets and sometimes politics.
Scale + resources = power.
State one benefit of an MNC to a host country.
Job creation (direct jobs in the MNC and indirect jobs through suppliers and services).
Think: employment.
Give one positive impact of an MNC on its home country.
Profits can flow back, boosting shareholder returns and the home economy.
Profit inflow.
State one host-country positive impact of MNCs.
Investment and technology transfer can raise productivity and wages over time.
Investment spillovers.
Host-country benefit: MNCs can create ______.
Jobs.
Employment is a key benefit.
Why might an MNC increase national prestige for the home country?
Global success can strengthen the country’s brand image and reputation for innovation or quality.
“National champion” effect.
How can an MNC exploit workers in a host country?
By paying low wages or offering poor conditions compared to home-country standards, especially where regulation is weak.
Labour standards gap.
What is “profit repatriation” and why is it a drawback for a host country?
Profits are sent back to the home country instead of being reinvested locally, limiting local economic benefit.
Money leaves the host economy.
How can MNC investment affect local suppliers in a host country?
Local suppliers may get more orders and learn higher standards, boosting local business growth.
Linkages to suppliers.
Host-country drawback: Profits sent back to the home country is called ______.
Profit repatriation.
Profit leaves host.
State one host-country negative impact of MNCs.
Local firms may be driven out by stronger competition from the MNC.
Local business pressure.
Give one “trade-off” example of home-country impact from offshoring.
Home country may lose jobs (negative) while shareholders gain higher profits from lower costs (positive).
Winners and losers again.
Give one negative impact of offshoring on the home country.
Jobs may move overseas, increasing unemployment and reducing local incomes.
Jobs shift abroad.
Why can MNCs have political influence in host countries?
They may lobby for favourable laws or tax breaks due to their investment and job creation power.
Economic power = influence.
How can MNCs damage local businesses in a host country?
They may outcompete smaller local firms using lower prices, stronger branding and bigger budgets, forcing closures.
Unequal competition.
Why can MNCs increase competition in host countries?
They raise competitive pressure, pushing local firms to improve efficiency, quality and innovation.
Competition effect.
How can an MNC improve productivity in a host country?
By bringing investment, modern equipment and technology that local firms may not have.
Capital + tech transfer.
Why is weak regulation a risk with MNCs in host countries?
It can allow poor labour conditions or environmental harm because enforcement is limited.
Weak rules = higher harm risk.
State one home-country positive impact of MNCs.
Profits and dividends returning to shareholders can increase national income.
Profit inflow.
How might consumers in the home country benefit from multinational operations?
They may get cheaper goods if production costs fall and prices drop (or more choice).
Cost savings can pass through.
How can MNCs contribute to “cultural erosion” in a host country?
Local traditions and businesses may be replaced by global brands and standardised products.
Global brand dominance.
Home-country drawback: Moving production abroad is known as ______.
Offshoring.
Jobs can move.
How can MNCs improve a host country’s balance of payments?
Producing for export earns foreign currency and can increase export revenues.
Exports bring FX.
How do MNCs increase host-country government revenue?
Through corporation tax and employee income taxes that fund public services.
Tax base expands.
How can multinational profits support the home economy?
They can increase dividend income, investment, and spending within the home country.
Profits recycle back.
State one home-country negative impact of MNCs.
Domestic jobs may be lost if production is offshored to lower-cost countries.
Offshoring risk.
Why is MNC impact not always positive?
Because the impact depends on regulation and how responsibly the MNC behaves (benefits vs exploitation).
Context + behaviour.
Why is “tax revenue loss” a common evaluation point for home-country impacts?
Even if the firm is “from” the home country, profits may be taxed elsewhere, reducing public revenue.
Where profits are taxed matters.
Why might the home country lose tax revenue from MNC activity?
Profits may be booked in low-tax countries rather than taxed fully at home.
Tax base can shift.
Why is “profit repatriation” a common exam point for host-country drawbacks?
It explains why GDP/jobs can rise but long-term local wealth creation may be limited if profits leave the country.
Benefits can leak out.
Give one environmental drawback of MNC activity in a host country.
Pollution, resource depletion or deforestation from production, especially if standards are low.
Environment can be externalised.
Why might host-country workers benefit beyond wages?
They may gain training, career development and transferable skills that increase future earnings.
Human capital gains.
Give one infrastructure benefit an MNC may create in a host country.
Improved roads, power, communications, or logistics networks linked to the investment.
Spillover benefits.
One sentence evaluation: What determines whether MNC impact is “good”?
The balance depends on regulation, stakeholder outcomes, and how the MNC manages ethics and reinvestment.
Regulation + behaviour + stakeholders.
Exam rule: What makes a top answer on MNC impact?
It balances positives and negatives for host and home countries and applies to the case context.
Balance + application.
Exam skill: In “impact on home country” answers, what must you do?
Balance positives and negatives and link them to specific stakeholders (workers, consumers, government, shareholders).
Balance + stakeholders.
How can MNC offshoring affect domestic suppliers in the home country?
Domestic suppliers may lose contracts when production moves abroad, reducing local business activity.
Supplier demand falls.
Exam skill: How do you write a strong “host-country drawbacks” point?
State the drawback, explain the mechanism, then show a consequence for a stakeholder (workers, local firms, government).
Drawback + mechanism + consequence.
What is “dependency” as a drawback of hosting an MNC?
If the MNC leaves, the local economy can suffer sharply due to job losses and reduced demand for suppliers.
Too reliant on one investor.
Exam skill: How do you score well on “benefits to host country” questions?
Name a benefit and explain the mechanism (HOW it helps), then apply to the specific country and industry.
Benefit + mechanism + application.
How can MNCs support skills transfer in a host country?
By training local workers and managers, raising human capital and employability.
Training = skills.
Give one example of a service that must adapt to local laws.
Banking/insurance services must comply with local regulations and consumer protection rules.
Services are regulation-heavy.
Why are products usually easier to standardise globally than services?
Products are tangible and can be produced centrally and shipped worldwide with more consistent quality.
Goods travel; services happen locally.
Standardisation is usually ______ and keeps a consistent global brand image.
Cheaper.
One campaign costs less.
Products are easier to standardise; services often need more ______.
Local adaptation.
Services are local.
Give one real-world example of glocalisation.
A fast-food chain keeps the same logo and core menu globally but adapts some items to local tastes (e.g. vegetarian options).
Core same, details local.
Define standardisation in global marketing.
Using the same product and marketing strategy across all countries.
Same everywhere.
Standardisation usually improves economies of scale and brand ______.
Consistency.
Same brand worldwide.
Adaptation improves local fit but is usually more ______.
Expensive.
More versions = higher cost.
Give one factor that pushes a firm toward adaptation.
Legal requirements such as labels, ingredients rules, or safety standards that vary by country.
Law forces change.
Why do “people” matter more for services than products?
Service quality depends on staff behaviour and skills, so training and culture shape customer experience.
People deliver the service.
Why are services harder to standardise across countries?
Service delivery depends on people, processes, and local culture/laws, so quality and expectations vary by market.
People + culture matter.
Give one advantage of standardisation.
Lower costs because one product design and one marketing campaign can be used globally.
Economies of scale.
Most MNCs use ______: standardise the core, adapt the details.
Glocalisation.
Mix strategy.
How can local purchasing power affect global marketing strategy?
Prices and product versions may need adaptation to match what customers can afford in each market.
Income levels change pricing.
Define adaptation in global marketing.
Modifying the product and/or marketing to suit each local market.
Change for local needs.
What is “physical evidence” in services marketing?
The tangible cues that signal quality (e.g. store design, uniforms, cleanliness, website/app design).
Signals build trust.
Give one reason services often must be delivered locally.
You cannot store or ship most services (e.g. haircuts, hotel rooms), so they are produced and consumed in the same place.
Inseparable delivery.
Adaptation helps with cultural fit and legal ______.
Compliance.
Fit the rules.
Glocalisation is best described as a ______ strategy.
Hybrid.
Mix of both.
Services rely heavily on the extended marketing mix, especially people, process and ______.
Physical evidence.
Tangible cues build trust.
Why might strong local competitors push a firm toward adaptation?
Local rivals may already match customer preferences, so the MNC must adapt to compete effectively.
Competition drives localisation.
Give one advantage of adaptation.
Better fit with local tastes, culture, and legal requirements, increasing acceptance and sales.
Local fit increases demand.
Why is “process” critical for global service consistency?
Standardised processes reduce variability and help deliver the same experience across locations.
Process = consistency.
Which marketing mix is especially important for services and why?
The extended marketing mix (7Ps) because people, process and physical evidence strongly affect service quality and trust.
Services rely on 7Ps.
What’s the fastest way to structure an evaluation of standardisation vs adaptation?
Compare pros/cons, then choose one with a justification linked to the market conditions in the case.
Pros/cons + case link.
Exam rule: Global marketing answers should mention legal, cultural, economic and ______ factors.
Competitive.
Competition shapes strategy.
Exam skill: How do you evaluate standardisation vs adaptation?
Compare costs and brand consistency (standardisation) against local fit and compliance (adaptation), then justify the best choice for the case.
Trade-off + case context.
What is glocalisation?
Standardising the core brand/product while adapting specific elements for local markets.
Mix of both.
Exam tip: What is a common mistake in global services answers?
Only discussing product standardisation and ignoring people/process/physical evidence and local delivery constraints.
Do not treat services like products.
Exam skill: What should you consider first in a global marketing answer?
Whether the firm sells products, services, or both, because it changes standardisation, delivery and marketing decisions.
Start with product vs service.
HRM manages employees from recruitment through to ______ the business.
Leaving.
Whole journey.
Define Human Resource Management (HRM).
HRM is the strategic management of a business’s workforce, including recruitment, training, appraisal, rewards and employee relations.
People are the key asset.
What is strategic HRM?
Long-term HR planning that aligns staffing and HR policies with the business’s overall objectives.
Long-term alignment.
Strategic HRM aligns people policies with business ______.
Objectives.
Align HR to goals.
What is operational HRM?
Day-to-day HR activities such as payroll, scheduling, handling grievances and running interviews.
Daily people ops.
Give one HRM function related to hiring.
Recruitment and selection — attracting applicants and choosing the most suitable candidate.
Hiring the right person.
Operational HRM focuses on ______-to-day people tasks.
Day.
Daily HR tasks.
Give one example of strategic HRM.
Planning workforce needs and training for a new factory opening in two years.
Future workforce plan.
Give one HRM function related to improving skills.
Training and development — improving employees’ skills and knowledge to raise performance.
Skills up = performance up.
Name any two HRM functions.
Recruitment and selection; training and development.
Two functions = easy marks.
Give one example of operational HRM.
Processing payroll or resolving an employee grievance this week.
Immediate issue.
What is performance management in HRM?
Monitoring employee performance against targets, giving feedback and setting new objectives.
Measure + feedback + goals.
Exam tip: What makes HRM answers score higher?
Link the HRM function to the specific business context and explain the impact on performance/motivation/costs.
Always apply to the case.
Why is strategic HRM important for business success?
It helps the business have the right number of employees with the right skills to meet future goals and stay competitive.
Right people, future goals.
Why is HRM considered strategic?
Because managing employees effectively helps the business achieve long-term objectives and remain competitive.
Right people = success.
Recruitment means finding and ______ suitable candidates.
Attracting.
Find + attract.
What is internal recruitment?
Filling a vacancy with an existing employee (e.g. promotion or transfer).
Inside the business.
Define recruitment.
Recruitment is the process of finding and attracting suitable candidates to fill a job vacancy.
Find + attract.
What is the purpose of a job analysis?
To identify what the role involves and what skills/qualifications are needed before hiring.
Understand the role first.
Give one advantage of internal recruitment.
It is faster and cheaper, and the employee already understands the business culture.
Known candidate.
Job description is about the ______.
Job.
Tasks/conditions.
Person specification is about the ______.
Person.
Skills/qualities.
Give one disadvantage of internal recruitment.
It limits the pool of candidates and can create resentment or another vacancy elsewhere.
Limited pool.
Job description: is it about the job or the person?
About the job — duties, responsibilities, conditions, hours, location and pay.
Job = tasks/conditions.
Internal recruitment is usually cheaper and ______ than external recruitment.
Faster.
Speed advantage.
What is external recruitment?
Filling a vacancy with someone from outside the business (e.g. job adverts, agencies).
Outside hire.
Person specification: is it about the job or the person?
About the person — qualifications, experience, skills and personal qualities needed.
Person = qualities/skills.
Give one disadvantage of external recruitment.
It is more expensive and risky because the new employee may not fit the culture and needs induction.
Cost + risk.
Outline the final step in the recruitment process after advertising.
Shortlist applicants and select the best candidate (often using interviews/tests).
Shortlist then choose.
Exam tip: For recruitment questions, what should you always do?
State the method (internal/external), explain one advantage and one disadvantage, then apply to the case.
Pro + con + case.
Give one benefit of training for the business.
Higher productivity because employees work more efficiently and make fewer mistakes.
Productivity up.
Define training in HRM.
Training is developing employees’ skills and knowledge to improve job performance.
Skills for the job.
Induction training is mainly for ______ employees.
New.
First days.
What is induction training?
Training given to new employees when they join, covering policies, health and safety, and basic job procedures.
First days training.
On-the-job training means learning while ______.
Working.
Learn by doing.
How can training reduce labour turnover?
Employees feel valued and see progression opportunities, so they are less likely to leave.
Investing builds loyalty.
Give one cost of training.
Financial cost such as course fees, trainer time, materials and lost working time.
Training is an investment.
What is on-the-job training?
Learning while doing the job, usually guided by an experienced colleague.
Learn by doing.
Off-the-job training happens ______ from the workplace.
Away.
Courses/workshops.
Training can improve productivity, quality and employee ______.
Motivation.
People feel valued.
Why is training described as an investment rather than just a cost?
Because returns can come through higher quality, productivity, motivation and retention over time.
Returns later.
Give one advantage of on-the-job training.
It is practical and directly relevant to the role, and is usually cheaper than external courses.
Practical + cheaper.
What is a risk for a business after training employees?
Employees may leave and take their new skills to a competitor.
No guarantee of retention.
Give one disadvantage of off-the-job training.
It can be expensive and employees are away from productive work while training.
Cost + time away.
Exam tip: What should you always do in a training answer?
Choose the most suitable training type, explain one benefit and one limitation, and apply to the case.
Type + pro + con + case.
Give one benefit of appraisal for employees.
They receive feedback and know how to improve, which can increase motivation and performance.
Feedback motivates.
Define performance appraisal.
A formal process where an employee’s performance is assessed against agreed targets and standards, usually in a meeting with their manager.
Formal review meeting.
Performance appraisal is a ______ assessment of employee performance.
Formal.
Formal review.
How can appraisal help the business make fair decisions?
It creates a formal record of performance to support pay rises, promotions or training decisions.
Written evidence.
What is formative appraisal?
Ongoing feedback focused on development and improvement, identifying training needs and setting new goals.
Develop, don’t judge.
Formative appraisal focuses on ______ and improvement.
Development.
Grow skills.
Give one limitation of appraisal.
It can be time-consuming and costly, especially in large organisations.
Time + admin.
What is summative appraisal?
A summary judgement of performance over a period (e.g. annual review), often linked to pay, promotion or disciplinary action.
Judgement + decisions.
Summative appraisal is often linked to pay and ______ decisions.
Promotion.
Pay/promo decisions.
Why can appraisal be unfair?
Bias or personal preferences can affect a manager’s judgement, so ratings may not reflect true performance.
Bias risk.
What is 360-degree appraisal?
Feedback collected from multiple sources such as managers, peers, subordinates and sometimes customers to give a rounded view.
Multiple viewpoints.
360-degree appraisal uses feedback from ______ sources.
Multiple.
Many viewpoints.
Exam tip: In appraisal answers, link to the case and discuss ______.
Motivation.
Motivation is key.
Exam skill: What should you always mention in appraisal questions?
The impact on motivation — a well-run appraisal motivates, but a poorly run one demotivates.
Motivation effect.
Name two common activities in an appraisal meeting.
Review performance against objectives and set new targets (also discuss strengths, improvements and training needs).
Review + set goals.
Dismissal happens because of the employee’s ______ or performance.
Behaviour.
Employee fault.
What is Step 1 in a fair dismissal process?
Investigation — gather facts about the alleged misconduct or poor performance.
Investigate first.
Define dismissal.
Dismissal is when an employer ends employment because of the employee’s behaviour, misconduct or poor performance.
Employee issue.
What is Step 2 in a fair dismissal process?
Formal warning — inform the employee in writing about the issue and expected improvement.
Warn in writing.
Define redundancy.
Redundancy is when a job role is no longer needed, so employment ends for reasons not caused by the employee.
Job disappears.
Redundancy happens because the ______ no longer exists.
Job.
Role disappears.
In a fair dismissal, the first step is to ______ the issue.
Investigate.
Facts first.
What is Step 3 in a fair dismissal process?
Disciplinary hearing — a formal meeting where the employee can present their case (with representation).
Hearing = employee response.
What is the key difference between dismissal and redundancy?
Dismissal is due to the employee’s behaviour/performance; redundancy is because the job no longer exists (not the employee’s fault).
Fault vs role.
In a fair dismissal, the employee must be given a right of ______.
Appeal.
Appeal at end.
What is Step 4 in a fair dismissal process?
Decision — employer decides the outcome (no action, warning, or dismissal).
Decide outcome.
Give one common cause of redundancy.
Outsourcing, automation, business downsizing, restructuring, relocation, or falling demand.
Role not needed.
What is Step 5 in a fair dismissal process?
Right of appeal — the employee must have the chance to appeal the decision.
Appeal option.
What is unfair dismissal?
When an employee is dismissed without a valid legal reason and/or without following a fair procedure.
Reason + process.
Exam tip: In dismissal/redundancy questions, what should you always do?
Clearly identify whether it is dismissal or redundancy, then explain the impacts/costs and apply to the case.
Name it + apply.
Give one benefit of low labour turnover.
Lower recruitment and training costs because fewer employees need replacing.
Fewer hires needed.
Define labour turnover.
Labour turnover is the rate at which employees leave a business over a period of time, usually expressed as a percentage.
Leavers rate.
Labour turnover is expressed as a ______.
Percentage.
Rate as %.
Turnover formula uses leavers divided by ______ number of employees.
Average.
Use average staff.
Why can low labour turnover improve productivity?
Long-serving employees are experienced, make fewer mistakes and work more efficiently.
Experience = efficiency.
State the labour turnover formula.
(Number of leavers during the period / Average number of employees) x 100.
Leavers / average x100.
Push factors ______ employees away from the business.
Drive.
Push = drive.
Give one drawback of low labour turnover.
The business may lack new ideas and become resistant to change.
Stale culture risk.
What is a push factor in labour turnover?
A push factor is a problem at the current job that drives employees away (e.g. low pay, poor conditions, poor management).
Push = drives away.
Pull factors ______ employees to other jobs.
Attract.
Pull = attract.
Give one cost of high labour turnover.
Increased recruitment, selection and training costs from repeatedly hiring replacements.
Hiring is expensive.
What is a pull factor in labour turnover?
A pull factor is an attraction elsewhere that encourages employees to leave (e.g. higher pay, better role, relocation).
Pull = attracts away.
Exam tip: What should you do in labour turnover impact questions?
Give both positive and negative impacts, explain why, and apply to the case business.
Both sides + case.
Why can high labour turnover reduce service quality?
New employees take time to learn standards, so mistakes increase and customer experience can worsen.
Learning curve.
Why do businesses monitor labour turnover?
High turnover increases recruitment and training costs and can reduce productivity, quality and customer service.
Turnover has costs.
Flexible working changes where, when, or how ______ employees work.
Much.
Time/place/amount.
Define flexible working.
Flexible working offers alternatives to traditional working hours/locations, such as when, where or how much employees work.
Flex = time/place/amount.
Give one example of flexible working.
Teleworking (remote working) where employees work from home using ICT to stay connected.
Remote via tech.
Name any two types of flexible working.
Teleworking and flexitime.
Two types = quick marks.
Give one benefit of flexible working.
Wider recruitment pool and higher retention because roles suit parents/carers and others needing flexibility.
Attract + keep staff.
What is flexitime?
Employees choose start and finish times within agreed limits, often with core hours everyone must work.
Core hours + choice.
Give one limitation of flexible working.
Not all jobs suit it (e.g. manufacturing/retail) and communication may suffer.
Not always suitable.
Give one benefit of flexible working for a business.
It can reduce absenteeism and improve motivation because employees can balance work with personal commitments.
Flex boosts morale.
Exam tip: What should you always judge in a flexible working question?
Whether flexible working is suitable for the specific role and the business, with one benefit and one drawback.
Suitability first.
Give one challenge of flexible working for managers.
Supervision and communication can be harder, reducing team cohesion and control.
Harder to manage.
Labour turnover formula?
(Number of staff leaving ÷ Average number of staff) × 100
Leavers ÷ avg staff × 100
Four appraisal types?
Formative (ongoing), summative (end), 360-degree (all directions), self-appraisal.
F-S-360-Self
Three causes of high labour turnover?
Low pay, lack of progression, poor management, boring work, better opportunities elsewhere.
Pay, progression, management
What is appraisal?
The formal process of assessing an employee's performance — different methods suit different purposes.
Formal performance assessment
Labour turnover = (leavers ÷ avg staff) × ___
100 — expressed as a percentage.
100
Formative appraisal = ___
Ongoing, developmental feedback during the year — focuses on improving performance through coaching.
Ongoing + developmental
Three costs of high labour turnover?
Recruitment costs, training costs, lost productivity, loss of experienced staff, damaged morale.
Recruit, train, productivity
200 employees, 30 leave. Labour turnover?
(30 ÷ 200) × 100 = 15%
15%
Always discuss both ___ AND ___ of turnover in exams
Causes and consequences — explain why it's high AND what it costs.
Causes + consequences
Summative appraisal = ___
End-of-period evaluation measuring overall performance against targets — often linked to pay/promotion.
End-of-period + targets
Loss of institutional knowledge means ___
Experienced leavers take expertise and relationships that are hard to replace.
Expertise walks out
High turnover means ___; low turnover means ___
Many staff leaving (costly). Staff staying (stable, experienced workforce).
Leaving vs staying
360-degree appraisal = ___
Feedback from managers, peers, subordinates and sometimes customers — complete picture but time-consuming.
All directions
Recruitment costs include ___
Advertising, interviewing, agency fees — all before the new person even starts.
Ads + interviews + fees
Some turnover is healthy because ___
Brings in new ideas, skills and fresh perspectives.
New ideas + skills
Self-appraisal = ___
Employees evaluate their own performance — encourages reflection but may lack objectivity.
Self-evaluation
High turnover can damage team ___ as remaining staff feel unsettled
Morale — constant departures create uncertainty and extra workload.
Morale
Always consider WHY turnover is high: ___
Poor pay, bad management, lack of progression, or competitive labour market.
Pay, management, progression, market
Define organizational structure.
An organizational structure shows how roles, responsibilities and authority are arranged in a business, including who reports to whom and how information flows.
Who reports to whom.
In a tall structure, is the chain of command usually long or short?
Long.
Many levels = long chain.
Organizational structure determines who reports to ______.
Whom.
Reporting lines.
Tall structure usually has many levels and a ______ chain of command.
Long.
Tall = long chain.
What does an organizational structure help a business achieve?
Clear reporting lines and coordination, so decisions and communication happen efficiently and responsibilities are clear.
Clarity + coordination.
In a tall structure, is the span of control usually narrow or wide?
Narrow.
Tall = narrow span.
Give one disadvantage of a tall structure.
Communication and decision-making can be slow because messages pass through many levels.
Slow + bureaucratic.
State one feature of a hierarchical (tall) structure.
Many levels of management with a long chain of command.
Tall = many levels.
Flat structure usually has few levels and a ______ chain of command.
Short.
Flat = short chain.
Matrix structures can create confusion because employees may report to ______ managers.
Two (or more).
More than one boss.
Give one advantage of a flat structure.
Faster communication and decision-making because there are fewer management layers.
Fewer layers = faster.
State one feature of a flat structure.
Few levels of management with a short chain of command and often a wide span of control.
Flat = few levels.
Exam tip: For structure questions, what should you always do?
Name the structure, state one advantage and one disadvantage, then apply to the business context.
Name + pro + con + case.
Give one disadvantage of a flat structure.
Managers may be overloaded due to a wide span of control, making supervision harder.
Wide span = overload.
What is a matrix structure?
A structure where employees report to more than one manager (for example, both a functional manager and a project manager).
More than one boss.
What is an organizational chart?
A diagram that shows the structure of a business, including hierarchy, reporting lines and departments.
Visual structure map.
Chain of command shows the path of ______.
Authority.
Top to bottom.
Span of control refers to how many employees a manager ______ supervises.
Directly.
Direct supervision.
What does the chain of command show on an organizational chart?
The line of authority from the most senior manager down to lower-level employees.
Authority line.
Wide span of control usually means a ______ structure.
Flatter.
Wide = flat.
Define span of control.
The number of subordinates directly supervised by one manager.
How many report to one boss.
What does delegation mean in an organizational chart context?
Passing authority to a subordinate to carry out specific tasks, while the manager remains accountable.
Authority ≠ accountability.
Narrow span of control usually means a ______ structure.
Taller.
Narrow = tall.
Exam tip: When analysing an org chart, what should you comment on?
Levels of hierarchy, span of control, chain of command and possible advantages/disadvantages for the business.
Structure + impact.
Why are organizational charts useful for managers?
They clarify roles, avoid duplication of tasks and improve communication across departments.
Clarity prevents confusion.
Define delegation.
Delegation is when a manager gives authority to a subordinate to carry out a specific task, while the manager remains accountable.
Authority ≠ accountability.
Delegation gives employees ______ to make decisions.
Authority.
Not accountability.
Give one advantage of delegation.
It frees up manager time to focus on strategic decisions and higher-level responsibilities.
Manager time saved.
Wide span of control means one manager supervises ______ employees.
Many.
Wide = many.
Narrow span of control usually results in a ______ structure.
Taller.
Narrow = tall.
Give one disadvantage of delegation.
Tasks may be completed poorly if the employee lacks skills or experience.
Risk of mistakes.
Define span of control.
Span of control is the number of subordinates directly supervised by one manager.
How many report directly.
A long chain of command can lead to ______ communication.
Slower.
More levels = slower.
Define chain of command.
The chain of command is the line of authority from senior management down to lower-level employees.
Authority pathway.
Exam tip: In delegation questions, what should you explain?
How delegation affects motivation, efficiency and control, and apply it to the case context.
Impact + case.
Define centralisation.
Centralisation is when decision-making authority is kept at the top of the organisation by senior managers.
Decisions at the top.
Centralisation means decisions are made at the ______ of the organisation.
Top.
Top = centralised.
Define decentralisation.
Decentralisation is when decision-making authority is passed down to lower levels and local managers/teams.
Decisions pushed down.
Decentralisation pushes decision-making ______ to lower levels.
Down.
Down = decentralised.
Give one advantage of centralisation.
It ensures consistent policies and decisions across the whole business.
Consistency.
Centralisation often leads to slower decision-making because approvals take ______.
Time.
More approval steps.
Give one advantage of decentralisation.
It enables faster decision-making because local managers can respond quickly to local conditions and customer needs.
Speed + local knowledge.
Decentralisation can increase motivation because managers feel ______.
Trusted.
Empowerment.
Give one disadvantage of decentralisation.
Decisions may become inconsistent across departments/locations, making coordination harder.
Inconsistency risk.
Exam tip: When evaluating centralisation vs decentralisation, what must you consider?
The business size, locations, manager skills, and whether decisions need consistency or fast local responses.
Fit to context.
What is Handy's shamrock organization?
Three types of workers like three leaves: core workers, flexible workers, outsourced workers.
3 leaves = 3 worker types
What is a project-based structure?
Teams formed around specific projects, disbanded when complete — temporary, cross-functional.
Temporary project teams
Two advantages of project-based structures?
Flexible, brings diverse expertise together, clear focus on deliverables, encourages innovation.
Flexible + diverse + focused
Core workers = ___
Full-time, permanent professionals — well-paid, committed, hard to replace.
Permanent + essential
Flexible workers = ___
Part-time, temporary or contract — cheaper but less committed.
Part-time + temporary
Two disadvantages of project-based structures?
Lack of stability, knowledge lost when teams disband, conflicts with functional managers, hard to build culture.
Unstable + knowledge loss
Project-based is common in ___
Consulting, construction, film, software development.
Consulting, construction, film, tech
Outsourced workers = ___
Specialists contracted for specific tasks (IT, cleaning, accounting) — expertise without permanent cost.
Specialists for tasks
Shamrock benefit: keeps costs ___ while maintaining key ___
Low; expertise — core workers provide stability, others provide flexibility.
Low costs + expertise
Link to motivation: core workers are more ___; flexible workers may feel ___
Committed; insecure — different worker types have different motivation needs.
Committed vs insecure
Define management.
Management is the process of planning, organising and controlling resources to achieve business objectives.
Processes + resources.
Management involves planning, organising and ______.
Controlling.
POLC.
Define leadership.
Leadership is the ability to inspire, motivate and guide people toward achieving a shared vision or objective.
Inspire + guide.
Leadership focuses on inspiring and ______ people.
Motivating.
People + vision.
State one key difference between management and leadership.
Management focuses on systems and processes (doing things right); leadership focuses on people and vision (doing the right things).
Systems vs people.
Managers maintain the status quo; leaders often drive ______.
Change.
Transform.
Complete the exam phrase: Managers aim to do things ______; leaders aim to do the ______ things.
Right; right.
Doing things right vs doing the right things.
Give one example of a management task.
Creating staff schedules, setting budgets, or monitoring performance against targets.
Systems + control.
How do you score higher in “management vs leadership” exam questions?
Define both terms, give one clear difference, then apply to the business context (who did what and why it mattered).
Define + difference + apply.
Why do businesses need both management and leadership?
Because businesses need efficient systems and control (management) and motivated employees with direction and vision (leadership).
Both skills needed.
What is situational leadership?
Situational leadership is the idea that leaders adapt their leadership style depending on the situation and the needs of the team.
Adapt style to context.
Autocratic leadership = leader decides ______.
Alone.
No consultation.
Define autocratic leadership.
Autocratic leadership is a style where the leader makes decisions alone without consulting employees.
Leader decides alone.
Define democratic (participative) leadership.
Democratic leadership is a style where the leader consults employees and considers their views before making decisions.
Leader consults team.
Why is laissez-faire suitable for creative teams?
Because skilled, self-motivated employees perform better when given autonomy and freedom to innovate.
Creativity needs freedom.
Democratic leadership involves employee ______.
Consultation.
Two-way input.
Why might autocratic leadership be suitable for an unskilled workforce?
Because employees may require close supervision and clear instructions to perform tasks correctly.
Needs direction.
Define laissez-faire leadership.
Laissez-faire leadership is a style where employees are given freedom to make decisions with minimal supervision.
High autonomy.
Laissez-faire leadership gives employees high ______.
Autonomy.
Freedom.
What is one weakness of laissez-faire leadership?
It can lead to confusion and lack of direction if employees are not self-motivated.
Too little control.
There is no single best leadership style — it depends on the ______.
Situation.
Context matters.
Give one advantage of democratic leadership.
It increases employee motivation and commitment because employees feel involved in decision-making.
Involvement = motivation.
Exam tip: For 6-mark leadership questions, what must you include?
Benefits of the style, possible drawbacks, and application to the specific case.
Pros + cons + apply.
Exam tip: In leadership style questions, what should you explain?
Explain why the chosen style is suitable for the specific business situation, not just define it.
Style + why.
Give one situation where autocratic leadership is suitable.
During a crisis or emergency when quick decisions are needed.
Crisis = fast decisions.
What is the planning function of management?
Planning is setting objectives, developing strategies and creating action plans (deciding what to do and how to do it).
Objectives + plan.
Management functions can be remembered using ______.
POLC.
Plan-Organise-Lead-Control.
What is the organising function of management?
Organising is arranging resources (people, money, materials) and allocating tasks so the plan can be implemented (deciding who does what).
Resources + roles.
Planning is mainly about setting ______.
Objectives.
Goals first.
Organising involves allocating resources and ______.
Tasks.
Who does what.
What is the leading/directing function of management?
Leading/directing is motivating, guiding and communicating with employees so they perform tasks and achieve objectives.
Motivate + guide.
What is the controlling function of management?
Controlling is monitoring performance against targets and taking corrective action when results do not match plans.
Check + correct.
Controlling checks whether ______ match plans.
Results.
Measure vs target.
What does POLC stand for?
Planning, Organising, Leading/Directing, Controlling.
POLC = 4 functions.
Exam tip: If asked to outline management functions, what should you do?
Use POLC and briefly define each function, then apply to the business case.
POLC + define + apply.
Scientific thinking in management uses ___
Data, evidence and systematic analysis — objective, evidence-based, reduces bias.
Data + evidence + systematic
Intuitive thinking relies on ___
Experience, gut feeling and instinct — fast but subjective.
Experience + gut + instinct
Intuitive is best for ___
Fast, creative, novel situations where data is unavailable or time is limited.
Fast + creative + novel
Scientific tools include ___
Statistics, decision trees, financial ratios, forecasting — quantitative analysis.
Stats, decision trees, ratios
Scientific thinking is best for ___
High-stakes, complex, repeatable decisions — thorough but slow.
High-stakes + complex
Intuitive risk: prone to ___ and ___
Bias and emotion — hard to justify or replicate decisions.
Bias + emotion
Scientific example: before launching a product, use ___
Sales forecasting, break-even analysis and market research.
Forecast + BE + research
Steve Jobs example of intuitive management?
Relied on intuition for product design — believed customers didn't know what they wanted until they saw it.
Jobs + product design
Best managers combine ___ approaches
Both scientific AND intuitive — data-driven analysis with experienced judgement.
Both
Scientific advantage: can be ___ and ___
Replicated and tested — other people can verify the analysis.
Replicated + tested
What is the main idea of Maslow’s hierarchy of needs?
People have five levels of needs, and lower needs must be satisfied before higher needs can motivate.
Lower first, then higher.
Give one strength of Maslow’s theory for managers.
It is a simple framework that helps managers identify different employee needs and choose suitable motivators.
Simple framework.
Maslow has ______ levels of needs.
Five.
5-level pyramid.
Physiological needs in business are mainly met through adequate ______.
Pay.
Basic survival.
List Maslow’s five levels from bottom to top.
Physiological, safety, social (belonging), esteem, self-actualisation.
Bottom → top order.
Give one limitation of Maslow’s hierarchy.
Not everyone follows the same hierarchy; people can prioritise different needs at different times.
Not universal.
Give one workplace example of a safety need (Maslow).
Job security, safe working conditions, contracts, or health and safety protection.
Security at work.
Why can cultural differences be a limitation for Maslow?
Some cultures may prioritise social belonging over individual esteem, so the hierarchy may not apply in the same order.
Culture changes priorities.
Teamwork and workplace culture mainly address Maslow’s ______ needs.
Social (belonging).
Belonging.
Give one workplace example of an esteem need (Maslow).
Recognition, praise, responsibility, promotion, awards, or status/job title.
Respect + recognition.
Why is Maslow difficult to test or measure in the workplace?
It is hard to prove which level an employee is at, and people can be motivated by several needs at once.
Hard to measure.
Recognition programmes mainly address Maslow’s ______ needs.
Esteem.
Respect + status.
Which Maslow level is linked to creativity, autonomy and personal growth?
Self-actualisation.
Full potential.
If safety needs are threatened, why might bonuses fail to motivate (Maslow)?
Because employees focus on security first; higher-level rewards do not motivate if basic needs are unmet.
Security first.
Exam tip: When using Maslow in an answer, what should you always do?
Identify the relevant need level and apply it to the specific business context.
Level + case.
What is Herzberg’s key idea about motivation?
Satisfaction and dissatisfaction come from different factors: motivators create satisfaction, hygiene factors prevent dissatisfaction.
Two-factor theory.
What is job enrichment?
Making work more meaningful by adding challenge, responsibility and variety (targets Herzberg motivators).
Enrich = deeper work.
Herzberg has ______ types of factors.
Two.
Two-factor theory.
Give two examples of motivators (Herzberg).
Achievement and recognition (also: responsibility, advancement, personal growth, the work itself).
Motivators = satisfaction.
What is empowerment as a motivator?
Giving employees authority and autonomy to make decisions about their work.
Autonomy builds motivation.
Hygiene factors mainly prevent ______.
Dissatisfaction.
Hygiene = prevent dissatisfaction.
Why is “paying employees more will motivate them” a common exam mistake (Herzberg)?
Because pay is a hygiene factor; it prevents dissatisfaction but does not create lasting motivation.
Pay = hygiene.
Give two examples of hygiene factors (Herzberg).
Pay and job security (also: conditions, policies, relationships, status).
Hygiene = prevent dissatisfaction.
Motivators mainly create ______.
Satisfaction.
Motivators = satisfaction.
Why does raising pay not guarantee long-term motivation (Herzberg)?
Because pay is a hygiene factor: it removes dissatisfaction but does not create lasting satisfaction on its own.
Money ≠ lasting motivation.
Give one business method that targets Herzberg motivators.
Recognition programmes, promotion/advancement opportunities, job enrichment, or giving more responsibility.
Motivators in action.
Pay is a ______ factor in Herzberg’s theory.
Hygiene.
Money prevents dissatisfaction.
Which type of factor creates satisfaction: hygiene factors or motivators?
Motivators.
Motivators = satisfaction.
Exam tip: When applying Herzberg, what should you do first?
Identify whether the issue is dissatisfaction (hygiene) or true motivation (motivators), then apply to the case.
Hygiene vs motivators.
Exam tip: Best Herzberg answers link actions to motivators AND/or ______ factors.
Hygiene.
Two-factor application.
Give one factor to consider when choosing a reward system.
Nature of the work, employee preferences, business objectives, cost, culture, or motivational impact.
Match system to context.
What is the difference between wages and salary?
Wages are usually paid per hour/units; salary is a fixed annual amount paid monthly regardless of hours.
Hourly vs fixed.
Salary is usually ______ (fixed/variable) pay.
Fixed.
Certainty.
What is commission?
Pay linked to sales value or volume, common for sales roles.
Sales-linked pay.
Why might salary suit quality-focused work better than commission?
Salary supports consistent standards; commission may encourage aggressive selling over quality.
Quality vs sales pressure.
Commission is pay linked to ______.
Sales.
Sales-based reward.
How can profit sharing support business objectives?
It aligns employees with overall business performance and encourages teamwork toward profitability.
Align incentives.
What is profit sharing?
Employees receive a share of business profits, aligning employee interests with business performance.
Share profits.
Profit sharing links employee reward to business ______.
Profit.
Align interests.
Fringe benefits are ______ rewards with financial value.
Non-cash.
Benefits, not cash.
Why can variable pay reduce risk for the business?
Bonuses/commission can turn fixed labour costs into variable costs that fall when sales/profits fall.
Fixed → variable.
What is performance-related pay (PRP)?
Pay linked to meeting specific performance targets (often set during appraisal).
Targets = pay.
Why should reward-system answers link to motivation theory?
Because rewards affect motivation differently (e.g., Herzberg: money prevents dissatisfaction but motivators create true motivation).
Use theory + apply.
Exam tip: Best reward answers consider business costs AND employee ______.
Motivation.
Impact on people.
Give two examples of fringe benefits.
Company car, private healthcare, pension contributions, gym membership, subsidised housing.
Non-cash benefits.
Non-financial rewards often target Herzberg’s ______.
Motivators.
Recognition, responsibility, growth.
What are non-financial rewards?
Methods that motivate employees without directly increasing pay, such as recognition, autonomy and job enrichment.
Not money-based.
What is job enrichment?
Making work more challenging and meaningful by adding variety, responsibility and autonomy.
Add depth, not just tasks.
Job enrichment adds challenge and ______.
Responsibility.
Deeper work.
What is the difference between job enlargement and job enrichment?
Enlargement adds more tasks (wider). Enrichment adds more responsibility/challenge (deeper).
Wider vs deeper.
Teamworking mainly supports Maslow’s ______ needs.
Social (belonging).
Belonging.
Give one example of recognition as a motivator.
Public praise, employee of the month awards, thank-you messages, or celebrating achievements.
Recognition boosts esteem.
True or false: Money alone creates lasting motivation (Herzberg).
False — money mainly prevents dissatisfaction.
Hygiene factor.
Give one cause of employee demotivation.
Poor management, lack of recognition, boring work, unfair policies, poor conditions, or no progression opportunities.
Why people disengage.
Exam tip: For motivation questions, what should you always do?
Use a motivation theory (e.g., Maslow/Herzberg) and apply it to the business context.
Theory + apply.
Equity theory explains why ___ and ___ systems matter
Pay transparency; fair reward — if employees discover unfairness, motivation drops sharply.
Transparency + fairness
What is Adams' equity theory?
People compare their inputs (effort, skills) and outputs (pay, recognition) to others — unfairness causes demotivation.
Compare input/output ratios
Inputs include ___; outputs include ___
Inputs: effort, experience, skills, time. Outputs: salary, bonus, recognition, promotion.
Effort/skills vs pay/recognition
Link equity theory to Maslow: relates to ___ needs
Esteem — feeling valued and fairly treated.
Esteem needs
Link equity theory to Herzberg: relates to ___
Hygiene factors — pay and conditions must be perceived as fair.
Hygiene factors
If my input/output ratio equals yours, I feel ___
Equity (fair) — motivated and satisfied.
Equity = fair
If I give more but get the same as you, I feel ___
Inequity (unfair) — demotivated, may reduce effort or demand more.
Inequity = unfair
Five responses to perceived inequity?
Reduce effort, demand more pay, change comparison person, leave, rationalize.
Reduce, demand, change, leave, rationalize
Pink's three intrinsic motivators?
Autonomy (freedom), Mastery (getting better), Purpose (meaningful mission). A-M-P.
Autonomy, Mastery, Purpose
Pink works best for ___ work, less for ___
Complex, creative, problem-solving; routine, mechanical work.
Creative vs routine
Autonomy means ___
The desire to direct our own lives — freedom over what, when, how and with whom we work.
Freedom to direct own work
External rewards (bonuses) can ___ motivation for creative tasks
Reduce — extrinsic rewards can undermine intrinsic motivation.
Reduce
Mastery means ___
The urge to get better at something that matters — learning, developing skills, facing challenges.
Get better + develop
Pink assumes basic ___ needs are already met
Financial — similar to Maslow's higher needs being relevant only after lower needs satisfied.
Financial
Purpose means ___
The yearning to do work in service of something larger than ourselves — a meaningful mission.
Larger mission
Compare Pink with: Maslow = ___, Herzberg = ___, Adams = ___
Self-actualization; motivators; equity — all relate to higher-level motivation.
Self-act, motivators, equity
Google's 20% time is an example of ___ + ___
Autonomy + mastery — engineers spent one day/week on personal projects, creating Gmail and Google Maps.
Autonomy + mastery
No culture type is inherently better — it depends on ___
The business context — size, industry, strategy, environment.
Context
What is organizational culture?
Shared values, beliefs, norms and behaviours — 'the way we do things here'. Often unwritten, felt rather than stated.
Values + norms + 'how we do things'
Power culture = ___
Control from a central figure — fast decisions but dependent on one person. Common in small businesses.
Central leader
Culture can be a competitive ___ or a barrier to ___
Advantage; change — strong culture aligns everyone, but can resist new ideas.
Advantage vs barrier
Culture links to leadership, motivation, and ___
Organizational structure — all interconnect and affect each other.
Structure
Role culture = ___
Defined by rules, procedures, job descriptions — stable but slow to adapt. Common in bureaucracies.
Rules + procedures
Task culture = ___
Teams form around projects — flexible and creative but can lack structure. Common in consulting/tech.
Teams + projects
Apple culture example?
Innovation, secrecy and design excellence — drives quality but creates intense pressure.
Innovation + secrecy + pressure
Culture affects: decisions, interactions, and ___
Change management — how easily the business adapts to new circumstances.
Change management
Person culture = ___
Individuals see themselves as more important than the organization — common in law firms, medical practices.
Individual expertise
Mnemonic: Power = one ___. Role = ___. Task = ___. Person = individual ___
Leader; rules and structure; teams and projects; expertise.
Leader, rules, teams, expertise
Changing culture is ___ and ___ — requires leadership commitment
Slow and difficult — takes years, not months.
Slow + difficult
Culture clash happens when ___
Two businesses merge and their cultures conflict — different styles, norms, values.
Mergers + conflicting cultures
Culture affects six business areas:
Motivation, recruitment, decision-making, innovation, customer service, change management.
M-R-D-I-C-C
Culture-clash is a major risk in ___
Mergers and acquisitions — often underestimated.
M&A
Open cultures encourage ___; rigid cultures ___
New ideas/innovation; stifle them.
Ideas vs stifle
Many mergers fail because of ___, not financial reasons
Culture clash — employees resist, turnover rises, productivity drops.
Culture clash
In exams, don't just describe culture — explain how it ___ the business
Helps or hinders — link to specific outcomes like profit, retention, growth.
Helps or hinders
Daimler-Chrysler example?
German engineering precision met American flexibility — widely considered a failure due to cultural differences.
German vs American culture
Flexible culture adapts more easily to ___
Change — crucial in fast-moving industries.
Change
Five triggers for culture change?
Poor performance, merger/acquisition, new leadership, external changes (tech, regulation), ethical crisis.
Performance, merger, leader, external, crisis
Methods: leadership modelling, recruitment, rewards, ___, ___
Communication and training — all must reinforce the new culture consistently.
Communication + training
Five methods to change culture?
Leadership modelling, new recruitment, revised rewards, clear communication, training. And patience.
Model, recruit, reward, communicate, train
Culture change is often ___ by employees
Resisted — people are comfortable with familiar ways of working.
Resisted
'Walk the talk' means ___
Leadership must model the new values — employees follow what leaders DO, not just what they say.
Leaders model values
Culture change takes ___, not ___
Years; months — consistent, long-term commitment is essential.
Years, not months
What is formal communication?
Communication through official channels (e.g. reports, official emails, meetings) with an identifiable source.
Official channels.
Communication is the transfer of ______ from sender to receiver.
Information.
Message transfer.
What is communication in business?
The transfer of information from a sender to a receiver so the message is understood and acted upon.
Sender → receiver.
Give one advantage of formal communication.
It is clear, professional and creates a record, reducing confusion.
Record = clarity.
Give one advantage of verbal communication.
It is fast and allows immediate feedback and clarification.
Quick + feedback.
Written communication provides a permanent ______.
Record.
Keep evidence.
Give one advantage of written communication.
It provides a permanent record and can be shared consistently with many people.
Record + consistency.
What is informal communication?
Communication outside official channels (the grapevine), such as casual conversations or chat groups.
Grapevine.
Downward communication flows from managers to ______.
Subordinates.
Top-down.
The grapevine is a form of ______ communication.
Informal.
Unofficial.
What is downward communication?
Information sent from managers to subordinates (e.g. instructions, policies, feedback).
Top-down.
Give one disadvantage of informal communication.
It can spread rumours, become distorted and has no reliable record.
Fast but unreliable.
Effective communication means the message is understood and ______ upon.
Acted.
Understood + action.
What is horizontal (lateral) communication?
Communication between employees at the same level, often for coordination and teamwork.
Same level.
Exam tip: When analysing communication, what two things should you mention?
Direction (up/down/horizontal/external) and whether it is formal or informal.
Direction + type.
What is a communication barrier?
Anything that prevents a message from being received and understood correctly.
Blocks understanding.
One barrier type is using the wrong ______ (e.g. text for a sensitive issue).
Channel.
Right method matters.
Language and cultural differences are common barriers for ______ businesses.
International.
MNC issues.
Give one example of a language barrier at work.
Jargon/technical terms the receiver does not understand, or different first languages.
Keep language simple.
How can a long chain of command create barriers?
Messages can be delayed, filtered or distorted as they pass through many layers.
Layers distort.
Encouraging ______ helps check the message was understood.
Feedback.
Confirm understanding.
Give one solution to overcome communication barriers.
Use clear language, choose the right channel, encourage feedback, use visual aids, or train staff.
Solution + barrier.
Reducing layers in the chain of command can reduce message ______.
Distortion.
Less filtering.
Exam tip: In barrier questions, what must you always do?
Identify the specific barrier and suggest a realistic way to overcome it.
Barrier + fix.
What is information overload?
Too much information at once, making it hard for the receiver to identify what matters.
Too much to process.
Give one communication challenge caused by remote working.
Isolation, misinterpretation of written messages, time-zone issues, technology dependence, or reduced spontaneity.
Remote = extra barriers.
Remote working can increase employee ______ because people are physically separated from the team.
Isolation.
Distance hurts belonging.
Why can remote teams misinterpret messages more easily?
Written messages lack tone and body language, increasing misunderstandings.
No tone cues.
Written messages can be misinterpreted because they lack ______ and body language.
Tone.
Text is risky.
Give one solution to reduce isolation in remote working.
Regular video calls, virtual social events, and planned team check-ins.
Maintain connection.
One way to reduce isolation in remote teams is regular ______ calls.
Video.
Face-to-face helps.
Remote working can affect motivation by reducing belonging (Maslow Level ______).
3.
Belonging needs.
Exam tip: For a remote-working communication question, what must you always do?
Identify the specific barrier, suggest a practical solution, and apply it to the business and role.
Barrier + fix + case.
Five sources of industrial conflict?
Pay/conditions, working hours/contracts, job security, health/safety, management style.
Pay, hours, security, safety, style
Five types of industrial action?
Strike, work-to-rule, go-slow, overtime ban, lockout (employer).
Strike, WTR, go-slow, OT ban, lockout
Collective bargaining = ___
Negotiation between employer and trade union reps on behalf of all workers.
Union negotiates for all
Work-to-rule = ___
Employees do only the minimum required by contract — slows everything without technically striking.
Minimum only
Industrial relations covers the relationship between ___
Employers and employees — and how conflicts are prevented or resolved.
Employers + employees
Conciliation vs arbitration?
Conciliation: neutral party helps communicate. Arbitration: independent person makes a BINDING decision.
Help talk vs binding decision
Employee participation methods?
Works councils, worker directors — involving workers in decisions.
Councils + worker directors
Lockout differs from strike because ___
Lockout is by the EMPLOYER — preventing workers from entering the workplace.
Employer action
Industrial action is a last resort because ___
It damages both sides — workers lose pay, businesses lose revenue and reputation.
Both sides lose
No-strike agreement = ___
Union agrees not to strike in exchange for binding arbitration — prevents disruption.
No strike, binding arbitration
Union membership is ___ in many countries but still important ___
Declining; globally — especially in manufacturing and public sectors.
Declining but important
What is a trade union?
An organization of workers that collectively negotiates with employers over pay, conditions and rights.
Workers negotiate collectively
Two advantages of unions for employees?
Stronger bargaining power, better pay/conditions, legal protection, health/safety support.
Power + pay + protection
Link unions to motivation, communication, and ___
Organizational structure — unions affect how decisions are made and communicated.
Structure
Two impacts of unions on businesses?
Can increase labour costs and slow decisions, BUT can improve relations and reduce turnover.
Costs + slow BUT relations + retention
Single point of contact benefit?
Negotiating with one union is more efficient than dealing with individual employees separately.
Efficiency in negotiation
Define finance in Business Management.
Finance is the money available to a business to fund its activities, operations and growth.
Money used to run/grow.
Finance is the ______ a business uses to fund its activities and growth.
Money.
Simple definition.
What is start-up finance used for?
Start-up finance is used to cover initial costs before the business earns revenue (e.g., equipment, premises, initial stock).
Costs before sales.
What does “adequate finance” mean?
Having the right amount of finance available at the right time to meet the business’s needs.
Right amount, right time.
State one consequence of not having enough finance to pay suppliers.
Suppliers may stop delivering inputs, causing production or sales to halt.
Suppliers stop supply.
State one reason why a business needs finance at start-up.
To pay initial set-up costs such as equipment, premises and initial stock before revenue is earned.
Before sales start.
What is operating finance (working capital) used for?
Operating finance is used to pay day-to-day running costs such as wages, bills, rent and inventory purchases.
Daily running costs.
Start-up finance covers costs before the business earns ______.
Revenue.
Before sales income.
What is expansion finance used for?
Expansion finance is used to grow the business (e.g., new locations, new products, new markets, acquisitions).
Money for growth.
State one reason why a business needs finance for day-to-day operations.
To pay running costs such as wages, rent, utilities and suppliers.
Keep operations running.
State one consequence of not having enough finance to pay employees.
Staff may leave (higher labour turnover), reducing productivity and service quality.
Unpaid staff leave.
Working capital is finance used for day-to-day ______.
Operations.
Running costs.
Give one example of start-up finance.
Buying initial equipment such as an oven for a bakery or computers for a new office.
Initial assets.
State one reason why a business needs finance for growth.
To fund expansion such as opening new branches, entering new markets or developing new products.
Expansion needs cash.
Why can a profitable business still fail?
Because it may run out of cash (cash-flow problems) and be unable to pay short-term obligations.
Profit ≠ cash.
A profitable business can still fail without adequate ______ flow.
Cash.
Profit ≠ cash.
Exam skill: What three purposes of finance should you always distinguish?
Start-up finance, operating (working capital) finance, and expansion finance.
3 purposes.
What does the phrase “finance is the fuel of a business” mean?
Without finance a business cannot buy resources, pay costs or invest, so operations stop and the business cannot survive.
No money = no business.
Give one example of operating finance.
Paying monthly wages and rent while waiting for customers to pay invoices.
Cash gap.
State one reason why inadequate finance can limit competitiveness.
The business may be unable to invest in new equipment, marketing or product development, allowing competitors to overtake it.
No investment.
State the main difference between capital and revenue expenditure.
Capital expenditure buys/improves non-current assets lasting more than one year; revenue expenditure pays day-to-day running costs used up within one year.
Long-term vs day-to-day.
Classify: Buying a delivery van.
Capital expenditure (a non-current asset used for several years).
Long-term asset.
Define capital expenditure (capex).
Capital expenditure is spending on non-current assets that will be used by the business for more than one year.
Long-term asset spend.
Define revenue expenditure (opex).
Revenue expenditure is spending on day-to-day running costs that are used up within a short period (usually within one year).
Running costs.
Capital expenditure is spending on ______ assets lasting more than one year.
Non-current.
Long-term assets.
Give one example of revenue expenditure.
Wages, rent, utilities, advertising, raw materials, or routine repairs and maintenance.
Used up quickly.
Which type of expenditure appears on the balance sheet?
Capital expenditure (as non-current assets).
Asset on BS.
Classify: Petrol for the delivery van.
Revenue expenditure (used up quickly as a running cost).
Running cost.
Give one example of capital expenditure.
Buying machinery, vehicles, land/buildings, or an IT system used for several years.
Lasts years.
Revenue expenditure is day-to-day running costs used up within ______ year.
One.
Short-term costs.
Where is revenue expenditure recorded in the final accounts?
As an expense on the profit and loss account for the period.
P&L expense.
Which type of expenditure appears on the profit and loss account?
Revenue expenditure (as expenses).
Expense on P&L.
Classify: Monthly internet subscription.
Revenue expenditure (a recurring running cost).
Recurring cost.
Capital expenditure appears on the ______ sheet.
Balance.
Assets on BS.
What is the key test to identify capital expenditure?
Ask whether the spending creates or improves an asset that will last more than one year.
Lasts > 1 year?
Where is capital expenditure recorded in the final accounts?
As a non-current asset on the balance sheet (with depreciation over time).
Balance sheet asset.
What is the “one-year” test used for?
To decide if spending is capital (benefits last > 1 year) or revenue (used up within 1 year).
>1 year vs within year.
Why does capital expenditure affect accounts differently from revenue expenditure?
Capital items provide benefits over several years, so their cost is spread over time through depreciation rather than expensed immediately.
Depreciation spreads cost.
Revenue expenditure appears on the profit and ______ account.
Loss.
Expenses on P&L.
Classify: Building an extension to a factory.
Capital expenditure (adds long-term value to a non-current asset).
Improves long-term asset.
What is a common exam trap when classifying expenditure?
Repairs and maintenance are usually revenue expenditure because they do not create a new long-term asset.
Repairs ≠ new asset.
Why is capital expenditure important for business growth?
It helps the business increase capacity, efficiency or quality using long-term assets (e.g., new machinery).
Invest to grow.
Why can misclassifying revenue expenditure be a problem?
It distorts profit figures and financial statements, leading to poor decisions.
Wrong profit.
Classify: Repainting the office.
Revenue expenditure (maintenance, not a new long-term asset).
Maintenance.
Exam skill: When classifying a cost, what question should you ask first?
Does it create or improve a long-term asset lasting more than one year? If yes → capital; if no → revenue.
Long-term asset test.
How does selling assets provide finance?
The business sells unwanted or underused assets to raise cash (e.g., old machinery or vehicles).
Sell assets for cash.
Define retained profit as a source of finance.
Retained profit is the portion of net profit kept in the business for reinvestment rather than paid out to owners/shareholders.
Profit kept inside.
Define internal sources of finance.
Internal sources of finance are funds raised from within the business itself, without using external lenders or investors.
From inside the business.
Internal finance comes from ______ the business.
Within.
Inside the business.
How does reducing stock levels raise finance?
Selling excess inventory frees up cash that was tied up in unsold goods.
Free cash from stock.
What is tighter credit control?
Improving the speed of collecting money owed by customers (trade receivables) to increase cash inflows.
Collect debts faster.
State one advantage of internal finance.
It does not increase debt or interest payments and does not dilute ownership.
Low risk.
State one advantage of retained profit.
No interest is paid and ownership/control is not diluted.
No interest, no dilution.
Retained profit is the most common internal source for ______ businesses.
Established.
Needs profits.
State one disadvantage of raising finance by selling assets.
The business loses the asset permanently and may reduce capacity; it may also receive a low price in a quick sale.
Lose asset / low price.
State one method of improving credit control.
Send invoices promptly, set clear payment terms, and follow up late payments quickly.
Chase payments.
Selling assets raises cash but the business loses the ______ permanently.
Asset.
One-off source.
State one disadvantage of internal finance.
It is often limited in amount and may be insufficient for large investments.
Usually limited.
State one disadvantage of retained profit.
It is only available if the business is profitable and may be limited.
Needs profit.
What are personal funds as a source of finance?
Personal funds are the owner’s own savings invested into the business (common for sole traders and partnerships).
Owner savings.
Why might shareholders dislike heavy use of retained profit?
It may reduce dividends paid to shareholders in the short term.
Lower dividends.
State one advantage of using personal funds.
No interest or repayments are required and it shows commitment to the business.
No repayments.
Personal funds are especially common for ______ traders.
Sole.
Owner savings.
Why are internal sources often described as low-risk?
They do not increase debt/interest and do not dilute ownership or control.
No debt, no dilution.
Why do many businesses prefer internal finance first?
Because it is cheaper and lower risk than external finance, and it avoids giving up control to outsiders.
Cheaper + control.
Which is usually larger: internal or external finance?
External finance usually provides larger amounts than internal finance.
External = bigger.
Why can internal sources be insufficient for large projects?
Because the amounts raised internally are often limited and may not cover major capital investments.
Limited amounts.
Can a start-up usually use retained profit?
No. Start-ups usually have no retained profit because they have not made profits yet.
No profits yet.
State one limitation of personal funds.
The amount is limited to the owner’s savings and increases personal financial risk.
Limited + personal risk.
Exam skill: Why can’t a start-up use retained profit?
Because it has not made profits yet, so there is no profit to retain.
No profits yet.
External finance comes from ______ the business.
Outside.
From lenders/investors.
What is a bank loan?
A bank loan is a fixed sum borrowed and repaid over an agreed period with interest.
Fixed sum, fixed term.
Define external sources of finance.
External sources of finance are funds raised from outside the business, such as lenders, investors, or the government.
From outside the business.
What is microfinance?
Microfinance provides small loans to entrepreneurs who cannot access traditional banking, often in developing countries.
Small loans.
Define trade credit.
Trade credit is when suppliers allow a business to buy now and pay later (e.g., 30–90 days).
Buy now, pay later.
What is share capital as a source of finance?
Share capital is money raised by a limited company by selling shares (ownership) to investors.
Sell ownership.
What is the main advantage of external finance?
It can provide larger amounts of funding than internal sources, supporting major investment or rapid growth.
Usually larger amounts.
What is a business angel?
A business angel is a wealthy individual who invests their own money in a start-up in exchange for equity, often providing mentoring.
Individual investor.
State one advantage of a bank loan.
It provides a large lump sum for planned investment with a clear repayment schedule.
Planned + predictable.
State one advantage of share capital.
It raises permanent finance with no repayment and can provide large sums for expansion.
No repayment.
How does trade credit help a business?
It improves cash flow by delaying payments to suppliers, freeing cash for other short-term needs.
Helps cash flow.
Bank loans are suitable for large, ______ purchases.
Planned.
Longer-term, fixed.
State one disadvantage of external finance.
It has a cost (interest or sharing ownership) and can increase financial risk or reduce control.
Cost or control.
State one disadvantage of share capital.
It dilutes ownership/control and shareholders may expect dividends and influence over decisions.
Dilution.
Define crowdfunding.
Crowdfunding is raising small amounts of money from many people, usually via online platforms.
Many small investors.
State one advantage of a business angel.
They provide funding plus expertise, contacts and mentoring to help the start-up grow.
Money + advice.
Overdrafts are best for short-term ______ flow gaps.
Cash.
Flexible short-term.
State one disadvantage of a bank loan.
Interest increases total cost and the business must repay even if sales fall; security may be required.
Interest + repayments.
External sources can be divided into which two main types?
Debt finance (borrowing) and equity finance (selling shares/ownership).
Debt vs equity.
State one disadvantage of using a business angel.
The owner gives up equity and may face investor influence over decisions.
Dilution + influence.
Define venture capital.
Venture capital is finance invested by specialist firms into high-growth, high-risk businesses in exchange for equity.
Equity + expertise.
Define a government grant.
A government grant is funding from the government that does not need to be repaid, usually for a specific purpose and with conditions.
Free but conditional.
What is a bank overdraft?
An overdraft allows a business to withdraw more money than it has in its account up to an agreed limit.
Flexible short-term.
Selling shares raises permanent funds but dilutes ______.
Ownership.
Control reduced.
Which type of external finance requires repayment with interest?
Debt finance, such as bank loans and overdrafts.
Borrowed money.
Business angel vs venture capitalist: state one difference.
A business angel is an individual investing their own money; a venture capitalist is an investment firm investing pooled funds (often larger amounts).
Individual vs firm.
Exam skill: When recommending external finance, what must you always evaluate?
The advantages and disadvantages and how well the source matches the business context (purpose, amount, time period, control, risk).
Link to context.
Why might venture capital be attractive beyond the money?
Venture capitalists often provide expertise, contacts and strategic guidance, helping the business grow.
Money + support.
State one disadvantage of grants or crowdfunding.
Grants are competitive and come with conditions; crowdfunding may fail to reach the target and can take time to run.
Not guaranteed.
Why is an overdraft considered risky?
The bank can withdraw the facility at any time and interest rates are often higher than loans.
Callable + high interest.
Define long-term finance.
Long-term finance is funding raised for more than one year, often to fund major investment and growth.
More than 1 year.
Short-term finance is for less than ______ year.
One.
< 1 year.
State two factors that affect the choice of finance.
Purpose of finance and cost (interest/fees or dilution). Other factors: time period, risk, business type, amount needed.
Purpose + cost.
What does the matching principle in finance mean?
Match the time period of finance to the life of the asset or the duration of the need.
Time period must fit.
Define short-term finance.
Short-term finance is funding needed for less than one year, usually to cover day-to-day working capital needs.
Less than 1 year.
Long-term finance is for more than ______ year.
One.
> 1 year.
Give two examples of short-term finance.
Bank overdraft and trade credit (others include short-term loans and factoring).
Overdraft + trade credit.
Give two examples of long-term finance.
Bank loans and share capital (others include retained profit, leasing, mortgages, venture capital).
Loans + shares.
Why is using an overdraft to buy a factory a problem?
It is short-term finance for a long-term asset; the bank can withdraw it, creating serious liquidity risk.
Short-term for long-term = risky.
Why does business type matter when choosing finance?
Sole traders/partnerships cannot issue shares, while limited companies can raise equity through share capital.
Some sources not available.
Why is a bank loan suitable for long-term investment?
Because it provides a large lump sum to buy long-life assets and can be repaid over several years to match the asset’s use.
Matches long-life assets.
Why is an overdraft suitable for short-term needs?
It is flexible: the business can borrow only what it needs up to a limit and repay quickly when cash comes in.
Flexible for cash gaps.
Give one example of matching finance correctly.
Using a long-term loan or mortgage to buy a building/factory that will be used for many years.
Long-term for long-life.
How does risk tolerance affect the choice of finance?
More debt increases financial risk due to fixed repayments; more equity reduces repayment risk but can reduce control.
Debt = higher risk.
Matching principle: match finance term to the ______ of the asset/need.
Life.
Time fit.
Why is the amount needed important?
Small short gaps may suit overdrafts/trade credit, while large investments may require loans, share capital or venture capital.
Small vs large.
Using short-term finance for long-term assets increases ______ risk.
Liquidity.
Cash squeeze.
What is factoring?
Factoring is selling unpaid invoices (trade receivables) to a third party for immediate cash, usually for a fee.
Sell invoices for cash.
What is leasing as a source of long-term finance?
Leasing is renting an asset for regular payments so the business can use it without buying it outright.
Use without owning.
Which source is often best to fund seasonal stock purchases?
Trade credit or an overdraft, because the need is short-term and the stock is used up quickly.
Stock = short-term need.
State one drawback of long-term finance (debt).
Interest increases total cost and long repayment commitments increase financial risk if revenue falls.
Long commitment.
State one risk of relying too much on short-term finance.
It can be expensive and risky if lenders withdraw facilities; it may create cash flow pressure if repayments are due quickly.
Short-term pressure.
Exam tip: In finance recommendations, always evaluate cost, control and ______.
Risk.
Pros/cons in context.
When asked to recommend a finance source, what should your final paragraph do?
Make a clear recommendation and justify it using purpose, time period (matching), cost, risk and control in the case context.
Recco + justify.
What is the key exam skill when recommending a source of finance?
Justify why the source matches the purpose and time period, and evaluate cost, risk and control in context.
Justify + evaluate.
Define leasing (as a way of acquiring an asset).
Leasing means renting an asset for a set period by making regular payments, without owning it.
Rent, don’t own.
Purchasing means buying an asset outright. State the missing word: ______.
Outright.
Own it fully.
Define purchasing (as a way of acquiring an asset).
Purchasing means buying an asset outright so the business owns it completely.
Buy outright = own.
When is purchasing usually the better option?
When the business has strong cash reserves and expects to use the asset for a long time.
Cash + long-term use.
State one advantage of purchasing an asset.
The business owns the asset and can use it long-term and potentially sell it later.
Own + can resell.
State one advantage of leasing an asset.
It avoids a large upfront cost and preserves cash flow through fixed regular payments.
Preserve cash flow.
Leasing means renting an asset for regular payments. State the missing word: ______.
Renting.
Use but don’t own.
When is leasing usually the better option?
When cash flow is tight, the asset is needed short-term, or technology changes rapidly.
Tight cash or fast tech.
State one disadvantage of purchasing an asset.
It requires a large upfront payment, which can reduce cash flow.
Big upfront cost.
State one disadvantage of leasing an asset.
It is usually more expensive over time and the business never owns the asset.
Pay more, no ownership.
Why might a business lease vehicles rather than purchase them?
Leasing makes it easier to upgrade vehicles regularly and avoids large upfront payments.
Upgrade + no big upfront.
Which option usually preserves short-term cash flow better?
Leasing, because it avoids a large upfront payment.
No big upfront.
Leasing is especially suitable for assets that become outdated quickly, such as IT equipment. State the missing word: ______.
IT.
Fast-changing tech.
Purchased assets appear on the balance sheet. State the missing word: ______.
Balance.
Owned assets = balance sheet.
Which option is usually cheaper in the long run (if the asset is used for years)?
Purchasing, because the business owns the asset and can avoid ongoing lease payments.
Own = cheaper long-run.
If an asset is needed for a limited time, leasing is often better than purchasing. State the missing word: ______.
Leasing.
Short-term need.
Why can purchasing be cheaper in the long run than leasing?
Because once the asset is paid for, there are no ongoing lease payments and the business can still sell the asset later.
No monthly payments later.
Give one reason a business might still purchase technology equipment.
If it has strong cash flow and expects to use the equipment long-term, purchasing may be cheaper overall.
Cheaper long-term if stable.
Give one reason leasing can reduce risk for a start-up.
It reduces the cash-flow strain from large purchases and makes budgeting easier with predictable monthly payments.
Lower upfront strain.
In 6-mark evaluation questions on leasing vs purchasing, what should you compare?
Compare cost over time, cash-flow impact, flexibility/obsolescence risk, and link your recommendation to the business context.
Cost + cash flow + flexibility.
Define fixed costs.
Fixed costs are costs that do not change with the level of output or sales in the short run.
Same even if output changes.
Define variable costs.
Variable costs are costs that change in direct proportion to the level of output or sales.
More output = higher cost.
State the formula for total costs (TC).
Total costs (TC) = Fixed costs (FC) + Variable costs (VC).
TC = FC + VC.
State the formula for average cost per unit.
Average cost per unit = Total costs ÷ Number of units produced.
AC = TC / Q.
What is the zero-output test for classifying costs?
If the cost is still paid when output is zero, it is fixed; if it falls to zero, it is variable.
Zero output check.
Fixed costs do not change with ______.
Output or sales.
Same at different output levels.
Rent is paid even when the factory produces nothing. Classify this cost.
Fixed cost.
Still paid at zero output.
Variable costs change in proportion to ______.
Output or sales.
Move with activity.
Give one example of a variable cost.
Raw materials used to make the product.
Materials rise with output.
Define semi-variable (mixed) costs.
Semi-variable costs have both a fixed component and a variable component.
Fixed base + variable part.
Give one example of a fixed cost.
Rent for business premises.
Rent stays the same.
Why does average cost often fall when output increases?
Because fixed costs are spread over more units, reducing cost per unit.
Spread fixed costs.
If total costs are $15,000 for 1,000 units, what is the average cost per unit?
$15 per unit.
Divide TC by units.
Give one example of a semi-variable cost.
An electricity bill with a standing charge plus charges per unit used.
Standing charge + usage.
Why are fixed costs sometimes called overheads?
Because they must be paid even if the business produces or sells nothing.
Paid even at zero output.
State the total cost formula.
Total costs = Fixed costs + Variable costs.
TC = FC + VC.
Raw materials increase when more units are produced. Classify this cost.
Variable cost.
Moves with output.
If output falls to zero, what happens to most variable costs?
They fall to zero because no units are being produced.
No output = no variable cost.
Semi-variable costs contain a ______ part and a ______ part.
A fixed part and a variable part.
Two components.
Why is sales commission usually a variable cost?
It increases when more sales are made and decreases when sales fall.
Linked to sales volume.
If output doubles, what usually happens to total fixed costs (short run)?
They usually stay the same.
Fixed = unchanged.
A firm’s average cost falls from $15 to $10 when output rises. State one likely reason.
Fixed costs are being spread across more units (or economies of scale).
More units share fixed costs.
A phone bill has a fixed monthly charge plus extra call charges. Classify this cost.
Semi-variable cost.
Fixed base + variable usage.
A sales employee receives a base salary plus commission. What type of cost is this?
Semi-variable, because it has a fixed part (salary) and a variable part (commission).
Salary + commission.
Explain why fixed costs per unit fall when output increases.
Fixed costs are spread across more units, reducing the fixed cost per unit.
Spread fixed costs.
In a per-unit model, what is usually true about variable cost per unit?
It is roughly constant per unit (each extra unit adds a similar extra cost).
Cost added per extra unit.
A firm has FC=$10,000 and VC=$5 per unit. It produces 2,000 units. Calculate total costs.
VC = 2,000 × $5 = $10,000. TC = $10,000 + $10,000 = $20,000.
TC = FC + (VC/unit × units).
Why is average cost useful for pricing decisions?
It helps a business judge whether its selling price covers costs and what margin might be earned per unit.
Pricing needs cost info.
Exam trap: Wages can be fixed or variable. Give one example of variable wages.
Piece-rate wages where workers are paid per unit produced.
Paid per unit.
Average cost per unit equals total costs divided by ______.
Units produced.
AC = TC / Q.
Fill in the blank: Revenue = Price × ______.
Quantity sold.
P × Q.
Define revenue.
Revenue is the total income a business earns from selling its goods or services.
Also called turnover or sales revenue.
State the formula for total revenue.
Total revenue = price × quantity sold.
TR = P × Q.
Define a revenue stream.
A revenue stream is a distinct source of income for a business.
One specific way a business earns money.
Why is relying on one revenue stream risky?
If that income source falls (e.g. demand drops), the business may lose most of its income and struggle to survive.
One stream fails = big problem.
What is one common mistake students make with revenue?
They confuse revenue with profit, even though revenue is before costs are deducted.
Revenue is not profit.
How do multiple revenue streams reduce risk?
If one stream declines, other streams can compensate, making overall income more stable.
Diversification.
Give one example of a subscription revenue stream.
Customers pay a recurring fee for continued access, such as Netflix or Spotify subscriptions.
Recurring payment.
State another term used for revenue in Business Management.
Revenue can also be called turnover or sales revenue.
Think: sales income.
A business sells 200 coffees at $3.50 each. Calculate revenue.
Revenue = 200 × 3.50 = $700.
Multiply quantity by price.
State the formula for revenue.
Revenue = price per unit × quantity sold.
R = P × Q.
Give one example of commission as a revenue stream.
A business earns a percentage of each transaction, such as an estate agent taking commission on house sales.
Percent of a sale.
How can subscriptions help a business’s cash flow?
Subscriptions provide predictable recurring income, which stabilises cash flow and improves planning.
Predictable monthly income.
Define profit in one sentence.
Profit is the amount remaining after all costs are deducted from revenue.
Profit = revenue − costs.
A business sells 150 cakes at $4.00 each. Calculate revenue.
Revenue = 150 × 4.00 = $600.
Multiply quantity by price.
Why are multiple revenue streams useful for a business?
They reduce risk and can stabilise cash flow by providing more than one source of income.
More than one income source.
A shop sells 500 T-shirts at $20 each. Calculate revenue.
Revenue = 500 × 20 = $10,000.
Use price × quantity.
Give one example of licensing or royalties as a revenue stream.
A business earns income by allowing others to use its brand, product, or intellectual property in return for a fee.
Paid permission to use IP.
Why might multiple revenue streams attract investors?
Diverse income sources can make the business appear lower risk and more resilient, which investors prefer.
Lower risk = more attractive.
A café sells 200 coffees at $3.50 and 150 cakes at $4.00. Calculate total revenue.
Coffee revenue = $700 and cake revenue = $600, so total revenue = $1,300.
Add revenue from each product.
Apple earns money from iPhones, Apple Music, App Store commission and licensing. What does this show?
It shows Apple has multiple revenue streams, earning income in different ways rather than relying on one source.
Multiple income sources.
Why should you show workings in revenue calculations in exams?
Because method marks can be awarded even if the final answer is incorrect, as long as the correct process is shown.
Method marks.
Why is revenue not the same as profit?
Revenue is the total money coming in before costs are deducted, while profit is what remains after costs are subtracted.
Revenue before costs.
Explain the “stool legs” analogy for revenue streams.
Revenue streams are like legs on a stool: the more legs (income sources), the more stable the business is if one leg weakens.
More legs = more stable.
In exam calculations, what should you do before writing the final revenue figure?
State the formula and show the calculation steps clearly before the final answer.
Formula then working.
Define net profit.
Net profit is gross profit minus operating expenses.
Gross profit − expenses.
State the key difference between profit and cash.
Profit is revenue minus costs over a period. Cash is the actual money available in the bank at a point in time.
Profit is an accounting measure; cash is money in the bank.
Define profit.
Profit is the financial surplus remaining after all costs are deducted from revenue.
Revenue minus costs.
Define gross profit.
Gross profit is sales revenue minus cost of goods sold (COGS).
Revenue − COGS.
State the formula for gross profit.
Gross profit = Revenue − Cost of goods sold (COGS).
Revenue minus direct costs.
State the formula for gross profit.
Gross profit = Sales revenue − Cost of goods sold.
Direct costs only.
State the basic formula for profit.
Profit = Revenue − Costs.
Simple core formula.
Give two examples of operating expenses.
Rent, wages, utilities, marketing, insurance, depreciation.
Overheads.
State the formula for net profit.
Net profit = Gross profit − Expenses (overheads).
Gross profit minus overheads.
Give one reason a profitable business might have cash flow problems.
Customers may not have paid yet (credit sales), so profit is recorded but cash has not been received.
Think: timing, credit sales.
Why is profit important for most businesses?
Profit provides a reward for risk-taking, funds future growth, and ensures long-term survival.
Risk + growth + survival.
What costs are included in COGS?
Direct costs such as raw materials, direct labour and purchase cost of stock.
Direct costs only.
Gross profit = $40,000. Expenses = $25,000. Calculate net profit.
Net profit = $40,000 − $25,000 = $15,000.
Subtract overheads.
A business makes $20,000 profit but customers still owe $25,000. Why might it struggle to pay suppliers?
Because the profit includes credit sales that are not yet cash, so it may not have enough liquid funds to pay suppliers on time.
Profit can include unpaid sales.
Which profit measure reflects trading efficiency: gross profit or net profit?
Gross profit, because it focuses on revenue and direct costs of goods sold.
Trading = buying/selling.
Can a business have cash but not be profitable? Explain briefly.
Yes. For example, it may have received a bank loan or sold an asset, creating cash inflow even if operating profit is low or negative.
Loans or asset sales can boost cash.
A business has revenue of $80,000 and total costs of $65,000. Calculate profit.
Profit = $80,000 − $65,000 = $15,000.
Subtract total costs.
Which profit measure reflects overall performance after overheads?
Net profit, because it deducts operating expenses from gross profit.
Overall = after all operating costs.
What does net profit show?
It shows overall business performance after all costs are deducted.
Bottom line.
Revenue = $100,000 and COGS = $60,000. Calculate gross profit.
Gross profit = $100,000 − $60,000 = $40,000.
Subtract COGS.
What does gross profit show about a business?
It shows how efficiently the business is trading — buying and selling products.
Trading efficiency.
Name one non-cash item included in profit but not cash flow.
Depreciation.
Common non-cash expense.
Why can a business be profitable but still fail?
Because it may not have enough cash to pay short-term debts, even if it makes profit on paper.
Cash ≠ profit.
What is a very common exam mistake when calculating or explaining profit?
Confusing revenue with profit, or confusing profit with cash flow.
Revenue ≠ profit; profit ≠ cash.
Why might a business have high gross profit but low net profit?
Because operating expenses are too high and reduce the final profit.
Overhead problem.
If costs increase and revenue stays the same, what happens to profit?
Profit decreases because total costs rise while revenue is unchanged.
Profit = revenue − costs.
If a business increases its price, what are the two main effects?
Revenue per unit rises, but demand may fall.
Price up: unit revenue up, quantity may down.
State the formula for break-even output (units).
Break-even output = Fixed costs ÷ (Price − Variable cost per unit).
Contribution per unit = price − variable cost.
What is the overall impact of rising costs on profit?
Rising costs reduce profit margins and may force the business to raise prices, cut costs, or accept lower profit.
Costs up = margins down.
Give one way a business might respond if its costs rise.
It could raise prices, cut costs elsewhere, or find cheaper suppliers to protect profit margins.
Think: raise prices, cut costs, change supplier.
If a business decreases its price, what are the two main effects?
Revenue per unit falls, but demand may rise.
Price down: unit revenue down, quantity may up.
Why can raising prices be risky?
Because higher prices may reduce demand, leading to lower sales revenue and loss of market share.
Price up can reduce quantity sold.
If variable costs rise and price stays the same, what happens to break-even output?
Break-even output increases because contribution per unit falls.
Denominator gets smaller.
Why can total revenue rise or fall after a price increase?
It depends on how much demand falls. If demand falls slightly, total revenue may rise; if it falls a lot, total revenue may drop.
Think: demand response.
What happens to profit margins when costs increase?
Profit margins shrink, and the business may make a loss if costs rise enough.
Margins = profit per sale.
If price rises and costs stay the same, what happens to break-even output?
Break-even output decreases because contribution per unit increases.
Denominator gets bigger.
If costs fall and prices stay the same, what happens to break-even output?
Break-even output decreases because profit per unit (contribution) increases.
Need fewer sales to cover fixed costs.
What concept determines how demand responds to a price change?
Price elasticity of demand.
Elasticity = sensitivity to price.
If costs decrease and price stays the same, what happens to profit?
Profit increases because the business keeps more of its revenue after paying costs.
Lower costs = higher profit (if price unchanged).
In exam questions about new break-even, what should you always do?
Recalculate step by step using the updated price or costs, showing working to earn method marks.
Update only affected figures, then recalc.
Fixed costs are $30,000. Price is $25. Variable cost is $15. Calculate break-even output.
Contribution per unit = $25 − $15 = $10. Break-even output = $30,000 ÷ $10 = 3,000 units.
Compute contribution first.
Why does break-even change when price or variable cost changes?
Because both affect contribution per unit (Price − Variable cost), which changes how quickly fixed costs are covered.
Contribution drives break-even.
What is the key idea linking price/cost changes to break-even?
Price and variable cost changes affect contribution per unit, which shifts the break-even output.
Contribution is the link.
Why might cutting costs improve competitiveness?
Lower costs can allow a business to reduce prices or invest more in marketing/quality while still maintaining profit.
Lower costs create strategic options.
Give one example of a product with relatively inelastic demand.
Essential goods such as basic food items, medicine, or utilities tend to have inelastic demand.
Essentials = less sensitive to price.
List the income statement structure from top to bottom
Sales revenue → minus COGS → Gross profit → minus Expenses → Net profit → minus interest/tax → Profit for the year.
Revenue at top, subtract layers
State the three key income statement formulas
GP = Revenue − COGS. NP = GP − Expenses. COGS = Opening stock + Purchases − Closing stock.
Three formulas: GP, NP, COGS
High gross profit but low net profit suggests what?
Expenses (overheads) are too high — poor cost control.
Overhead problem
What is the formula for COGS?
COGS = Opening stock + Purchases − Closing stock
Opening + Bought − Left over
Revenue $120,000, COGS $48,000. What is gross profit?
$120,000 − $48,000 = $72,000
Revenue minus COGS
What is a profit and loss account?
A financial statement showing revenue, costs and profit/loss over a specific period (usually one year). Also called an income statement.
Also called an income ___
What is another name for the profit and loss account?
Income statement — the IB uses both terms interchangeably.
Think income
What is the formula for gross profit?
Gross profit = Sales revenue − Cost of goods sold (COGS)
Revenue minus direct costs
Low gross profit suggests what?
COGS is too high or selling prices are too low.
Pricing or COGS issue
What two skills must you master for income statement questions?
Construction (building the statement) AND interpretation (explaining what figures mean).
Build it + explain it
Gross profit $72,000, total expenses $52,000. What is net profit?
$72,000 − $52,000 = $20,000
GP minus expenses
Opening stock $10k, purchases $50k, closing stock $8k. Calculate COGS.
$10,000 + $50,000 − $8,000 = $52,000
Add opening + purchases, subtract closing
Name two ways to put profit figures in context
Compare with previous years (improving or declining?) and compare with competitors (above or below industry?).
Time + rivals
What key question does the income statement answer?
Did the business make money or lose money over the period?
Make or ___?
What is the formula for net profit?
Net profit = Gross profit − Expenses (overheads)
GP minus indirect costs
What do you always start with at the top of an income statement?
Sales revenue — then subtract costs layer by layer to reach net profit at the bottom.
Top line is always ___
What does COGS represent?
The direct cost of products actually sold during the period — not everything purchased.
Cost of what was actually sold
What is the difference between gross profit and net profit?
GP only deducts COGS (direct costs). NP also deducts all expenses/overheads (indirect costs).
Direct vs all costs
Name two stakeholders who use the income statement
Managers (decision-making) and investors (assess profitability). Also banks, employees, suppliers and tax authorities.
Who cares about profit?
What does COGS stand for?
Cost of Goods Sold — the direct costs of the products actually sold during the period.
Direct costs of products
In the exam, what should you do beyond stating numbers?
EXPLAIN what they mean and SUGGEST what the business should do — this reaches higher mark bands.
State → Explain → Suggest
Why compare profit figures rather than look at them alone?
Raw numbers lack context — comparisons over time and with competitors reveal the real story.
Context through comparison
Why subtract closing stock in the COGS formula?
Closing stock is still unsold in the warehouse — it hasn't been used up in sales yet.
Still on the shelf
If net profit is negative, what does this mean?
The business made a net loss — total costs exceeded total revenue.
Negative profit = ___
This period's closing stock becomes next period's ___?
Opening stock — it carries forward as the starting inventory.
Closing becomes ___
Give two examples of expenses (overheads)
Rent, wages, marketing, utilities, depreciation — any indirect cost of running the business.
Indirect running costs
Why is neat presentation important when constructing an income statement?
Clear labels and showing every calculation step earns marks and reduces errors.
Labels + every step
What does a net loss tell you?
Total costs exceed revenue — the business is losing money and must increase revenue or cut costs.
Costs > Revenue
Quick recall: Revenue minus COGS = ?
Gross profit
First profit line
Does the income statement cover a point in time or a period?
A period of time (e.g. year ending 31 Dec 2025) — unlike the balance sheet which is a snapshot.
Period vs snapshot
What are current assets?
Items converted to cash within one year — stock (inventory), trade receivables (debtors), cash.
Cash within 1 year
What happens if you don't use the IB prescribed balance sheet format?
Maximum 3 out of 4 marks — you MUST use the exact IB structure for full marks.
Max 3/4 without correct format
What are non-current assets?
Items owned for more than one year that help generate income. Also called fixed assets.
Owned for 1+ years
What is a balance sheet?
A snapshot of what a business owns (assets), owes (liabilities) and the owner's equity at a specific point in time. Also called a statement of financial position.
Snapshot of owns, owes, equity
What are non-current liabilities?
Long-term debts not due within one year — bank loans, mortgages, debentures.
Debts due after 1+ year
State the accounting equation and what each part means
Assets (owns) = Liabilities (owes) + Equity (owners' stake). Must always balance.
Owns = Owes + Owners'
What is the time dividing line between current and non-current items?
One year — current = within 1 year, non-current = more than 1 year. Applies to assets and liabilities.
1 year
What are current liabilities?
Debts the business must pay within one year — trade payables (creditors), overdrafts, tax owed.
Pay within 1 year
What is the correct order of sections in the IB balance sheet?
Non-current assets → Current assets → Total assets → Current liabilities → Non-current liabilities → Total liabilities → Net assets → Equity
NCA, CA, CL, NCL, Equity
State the accounting equation
Assets = Liabilities + Owner's equity. This ALWAYS balances.
A = L + ___
What is owner's equity?
The value belonging to owners after all liabilities are paid. Includes share capital and retained profit.
What's left for owners
Give three examples of non-current assets
Land/buildings, machinery/equipment, vehicles, IT systems, intangible assets (goodwill, patents, trademarks).
Long-term tools of business
What is depreciation?
The reduction in value of tangible non-current assets over time due to wear and tear or obsolescence.
Value drops over time
How does the balance sheet differ from the income statement in terms of time?
Balance sheet = snapshot at ONE point in time (photo). Income statement = period of time (video).
Photo vs video
Why practise constructing balance sheets from scratch?
Speed and accuracy under exam conditions — know the structure by heart.
Practise = speed + accuracy
What must the heading of a balance sheet include?
Business name AND the specific date ('as at [date]') — not a period.
Name + 'as at' date
What is the formula for working capital?
Working capital = Current assets − Current liabilities
CA minus CL
What two components make up equity?
Share capital (money invested by shareholders) and retained profit (accumulated profits kept in the business).
Invested + kept profits
What does negative working capital mean?
The business cannot pay its short-term debts from current assets — a danger sign for liquidity.
Can't pay short-term bills
Balance sheet = snapshot (photo). Income statement = ?
A period of time (video) — showing performance over the year.
Photo vs video
Why is it called a 'balance' sheet?
Because assets always equal liabilities + equity — everything owned was funded by borrowing or owners' money.
A = L + E always
What is net book value?
Original cost minus accumulated depreciation — how non-current assets appear on the balance sheet.
Cost minus depreciation
How do you calculate equity from the accounting equation?
Equity = Assets − Liabilities
A minus L
What key check must you do after constructing a balance sheet?
Net assets must equal total equity. Also: Total assets = Total liabilities + Equity.
Net assets = Equity
How is net assets calculated?
Net assets = Total assets − Total liabilities. Must equal total equity.
Total A minus Total L
Quick recall: Working capital = ?
Current assets − Current liabilities
CA minus CL
If your balance sheet doesn't balance, what should you do?
Recheck all figures — Assets MUST equal Liabilities + Equity. An imbalance means there's an error.
A = L + E always
What is another name for a balance sheet?
Statement of financial position — the IB uses both terms.
Statement of financial ___
Trade receivables vs trade payables — what's the difference?
Receivables (debtors) = money owed BY customers. Payables (creditors) = money owed TO suppliers.
Owed to you vs you owe
Depreciation is for tangible assets. What is the equivalent for intangible assets?
Amortisation — the gradual write-off of intangible assets like patents and goodwill.
Amortisation
Name two questions the income statement answers
Is the business profitable? Are costs under control? Are sales growing?
Profit + cost control
Three steps when asked to 'analyse' accounts?
1) State what figures show, 2) Compare (over time/competitors), 3) Note limitations.
State → Compare → Limit
What are 'final accounts'?
The income statement and balance sheet together — the complete set of financial statements.
IS + BS = final accounts
Name three limitations of final accounts
Historical data (past not future), window dressing (manipulation), non-financial factors ignored (morale, brand).
Past, dressed up, missing factors
Why do banks use final accounts?
To decide whether to approve loans — checking if the business can repay and has assets as security.
Can it repay?
What is window dressing?
When businesses present figures in the best possible light — a form of manipulation to look more attractive.
Making figures look better
What do final accounts NOT tell you?
Non-financial factors: staff morale, brand reputation, innovation, customer satisfaction.
The human/intangible side
Name two questions the balance sheet answers
What does it own/owe? Can it pay short-term debts? How much debt vs equity?
Owns/owes + liquidity
Income statement = performance (video). Balance sheet = ?
Position at one moment (photo). Performance over time vs position at a point.
Performance vs position
Why do shareholders use final accounts?
To assess profitability and decide on dividends or further investment.
Profit? Dividends?
Why do different accounting methods limit comparisons?
Different depreciation or stock valuation methods produce different figures — hard to compare like with like.
Different rules = different numbers
Should accounts be analysed in isolation?
No — always compare over time (trends) and against competitors for meaningful analysis.
Compare, compare, compare
What does gearing refer to?
How much debt compared to equity — high gearing = heavy reliance on borrowed money.
Debt vs equity ratio
Why might one year's accounts be misleading?
One-off events (pandemic, big contract) distort a single year — always look at multiple years.
One year ≠ trend
What do employees look for in final accounts?
Job security and evidence for pay rises — is the business stable and profitable?
Job security + pay
Name the six main stakeholder groups using final accounts
Managers, shareholders, banks, employees, suppliers, government/tax authorities.
M-S-B-E-S-G
How can final accounts show business growth?
Balance sheet: growing asset base. Income statement: increasing revenue and profit over time.
Growing assets + growing profit
Quick recall: Income statement shows ___, balance sheet shows ___
Income statement = performance over a period. Balance sheet = financial position at one point.
Performance vs position
Why mention limitations in evaluation answers?
Shows the examiner you understand accounts are useful but not perfect — critical for top marks.
Useful but not perfect
Why do different stakeholders focus on different parts?
Banks focus on liquidity, shareholders on profit, employees on stability, suppliers on bill payment.
Different needs = different focus
What is the NPM formula?
NPM = (Net profit ÷ Sales revenue) × 100
NP over Revenue × 100
What do profitability ratios measure?
How effectively a business turns revenue into profit — expressed as a percentage of revenue.
Revenue → profit efficiency
What is the GPM formula?
GPM = (Gross profit ÷ Sales revenue) × 100
GP over Revenue × 100
High GPM but low NPM suggests what?
Overheads eating into gross profit — trading is fine but the business has an expense problem.
Overhead problem
Revenue $500k, COGS $300k, Expenses $150k. Calculate GPM and NPM.
GP=$200k, GPM=40%. NP=$50k, NPM=10%. Gap suggests high overheads.
GP=200k, NP=50k
State both profitability ratio formulas
GPM = (GP ÷ Revenue) × 100. NPM = (NP ÷ Revenue) × 100.
GP/Rev and NP/Rev × 100
What is the 4-step approach for ratio questions?
Calculate → State → Interpret → Suggest improvements. Earns top marks.
Calc → State → Interpret → Suggest
Both GPM and NPM declining — what does this signal?
Serious concern — less profitable at both trading and overall level.
Danger at both levels
How to improve GPM?
Reduce COGS (cheaper suppliers, bulk buying) or raise selling prices.
COGS down or prices up
Why are ratios more useful than raw profit figures?
They allow meaningful comparisons between years and businesses of different sizes.
Percentages level the field
Revenue $200k, NP $20k. Calculate NPM.
($20k ÷ $200k) × 100 = 10%. The business keeps 10 cents profit per dollar.
20/200 × 100
Revenue $200k, GP $80k. Calculate GPM.
($80k ÷ $200k) × 100 = 40%. Means 40 cents of every dollar covers expenses and profit.
80/200 × 100
What does a high GPM indicate?
The business earns well on each sale after direct costs — efficient at buying/selling.
Good trading efficiency
How does NPM differ from GPM?
NPM deducts ALL costs (overheads, interest, tax), not just COGS. It's the 'bottom line'.
All costs, not just direct
GPM measures ___ efficiency; NPM measures ___ efficiency
GPM = TRADING efficiency. NPM = OVERALL efficiency.
Trading vs overall
GPM 40%, NPM 10%. What does the 30pp gap mean?
30% of revenue consumed by expenses — overheads are high relative to revenue.
Overheads consuming 30%
$100k profit on $10m revenue — is this good?
No — only 1% margin. Raw profit needs context; ratios reveal the real picture.
1% margin
How to improve NPM beyond GPM?
Cut overheads (rent, waste) and increase sales volume to spread fixed costs.
Cut overheads + volume up
Why analyse both margins together?
Reveals whether problems are in trading (COGS) or overheads — pinpoints where to fix.
Pinpoint the problem area
Name two ways to improve NPM beyond GPM methods
Reduce overheads (renegotiate rent, cut waste) and increase sales volume to spread fixed costs.
Cut overheads + sell more
Why must you never just calculate a ratio?
Interpretation is worth more marks than the calculation — always explain what the number means.
Interpretation > calculation
Name the two IB profitability ratios
Gross Profit Margin (GPM) and Net Profit Margin (NPM).
GPM and NPM
Higher margins = better. What must you always compare with?
Previous years (trends) and competitors (benchmarks). A ratio alone is meaningless.
Time + rivals
Name two ways to improve GPM
Increase selling prices (if demand allows) or reduce COGS (cheaper suppliers, bulk buying).
Price up or COGS down
Why is NPM called the 'bottom line'?
Net profit appears at the bottom of the income statement — after ALL costs deducted.
Last line on the statement
Quick recall: High GPM + Low NPM = ?
Overhead/expense problem — trades well but spends too much on running costs.
Overhead problem
GPM specifically measures what type of efficiency?
Trading efficiency — how much is left from each sale after paying direct costs (COGS).
Trading efficiency
Why can ratios compare a corner shop with a multinational?
Percentages make size irrelevant — both can be compared on efficiency.
Size-neutral comparison
Low GPM suggests what kind of problem?
A pricing or COGS problem — not enough made on core sales.
Price too low or COGS too high
'40 cents of every dollar' — what does this GPM phrase mean?
After paying for COGS, 40 cents from each dollar of revenue remains for expenses and profit.
What's left after direct costs
State both liquidity formulas and ideal ranges
CR = CA ÷ CL (1.5–2:1). AT = (CA − Stock) ÷ CL (~1:1).
CR: 1.5-2. AT: ~1
What is liquidity?
The ability of a business to meet its short-term debts as they fall due — can it pay bills on time?
Pay bills on time?
What is the current ratio formula?
Current ratio = Current assets ÷ Current liabilities (expressed as ratio e.g. 2:1)
CA ÷ CL
What is the acid test ratio formula?
Acid test = (Current assets − Stock) ÷ Current liabilities
CA minus Stock ÷ CL
Name three ways to improve liquidity
Collect debts faster, negotiate longer supplier terms, sell excess stock, inject capital, arrange overdraft.
Cash in faster, out slower
CA $45k (Stock $25k, Rec $15k, Cash $5k), CL $30k. Both ratios?
CR = 45/30 = 1.5:1 ✓. AT = (45-25)/30 = 0.67:1 ⚠️ below ideal.
CR 1.5, AT 0.67
Key difference between current ratio and acid test?
Acid test excludes stock — it's stricter because stock may not sell quickly.
AT removes stock
How does collecting debts faster improve liquidity?
Reduces receivables and brings cash in sooner — increasing liquid current assets.
Receivables → cash sooner
Why does the acid test exclude stock?
Stock may be hard to sell quickly and isn't truly liquid — tests if debts can be paid WITHOUT selling stock.
Stock isn't liquid
CR 1.5:1 but AT 0.67:1 — what's the problem?
Without selling stock, can't cover debts. Heavily reliant on inventory — risky if stock doesn't sell.
Stock-dependent
CA $60k, CL $30k. Calculate current ratio.
$60k ÷ $30k = 2:1. Business has $2 of current assets per $1 of short-term debt.
60/30 = 2:1
True or false: A profitable business can never run out of cash
False — it can be profitable but illiquid if cash is tied up in stock or receivables. Liquidity ≠ profitability.
Profitable but no cash
What are liquid assets?
Cash or near-cash items that can quickly pay debts — cash in bank, receivables (NOT stock).
Cash or quickly converted
Why calculate BOTH liquidity ratios?
A healthy CR can hide a weak AT if the business holds lots of stock.
CR can mask AT weakness
How do longer supplier payment terms help liquidity?
Delays cash outflows — more time to collect income before paying bills.
Pay later = keep cash longer
What is the ideal current ratio range?
1.5:1 to 2:1 — enough to pay debts with a buffer but not too much idle cash.
1.5 to 2
CA $60k, Stock $20k, CL $30k. Calculate acid test.
($60k − $20k) ÷ $30k = 1.33:1
40k ÷ 30k
Liquidity = ability to pay ___-term debts
Short-term
Short
Current ratio below 1:1 means what?
Danger — the business cannot cover short-term debts with current assets.
Can't pay bills
Why does context matter for liquidity ratios?
Different industries have different norms — supermarkets safely run low acid tests due to fast turnover.
Industry norms vary
Why might a profitable business still fail?
If it lacks enough liquid assets to pay suppliers, staff and short-term obligations on time.
No cash to pay bills
Healthy CR but weak AT means what?
Lots of stock relative to other current assets — depends on selling inventory to pay bills.
Too much stock
What is the ideal acid test ratio?
Around 1:1 — can pay debts without relying on selling stock.
Around 1:1
Summarise liquidity improvement in one phrase
Get cash IN faster and push cash OUT slower — it's all about timing.
In faster, out slower
Why might a current ratio much above 2:1 be bad?
Too much cash/stock sitting idle — the business is inefficient with its resources.
Idle resources
After calculating ratios, always do these three things:
State the ideal range, explain if above/below/within it, say what the business should DO.
Ideal → Compare → Action
Most common liquidity ratio exam mistake?
Just calculating without interpreting — always state ideal, compare, and recommend.
Calculate + interpret + recommend
Why sell stock at a discount for liquidity?
Converts illiquid stock into immediate cash — solves short-term crisis even at reduced prices.
Cash now > full price later
Why can supermarkets survive with very low acid test ratios?
They sell stock quickly for cash every day — their stock IS liquid in practice. Industry context matters.
Fast turnover = OK
Can a loss-making business have plenty of cash?
Yes — e.g. if it received a large loan or sold assets. Cash ≠ profit.
Loan gives cash
What is trend analysis?
Comparing the same ratio across multiple years to spot if performance is improving or declining.
Same ratio, many years
Name three limitations of ratio analysis
Historical data, window dressing (accounts manipulated), non-financial factors ignored.
Past, manipulated, incomplete
More marks: calculation or interpretation?
Interpretation and comparison — don't stop at the number, explain what it means.
Interpretation > calculation
Why is a ratio on its own meaningless?
Only useful when compared — with previous years, competitors, or benchmarks.
No comparison = no meaning
What four things when commenting on a ratio change?
Direction (up/down), Magnitude (by how much), Possible causes (why), Recommended actions.
Direction → Size → Why → Action
GPM dropped 45% to 38%. How to comment?
Fell 7pp — COGS likely increased (e.g. rising material prices). Should renegotiate with suppliers.
7pp drop, investigate COGS
Trend analysis shows ___; inter-firm shows ___
Trend = direction over time. Inter-firm = relative performance vs competitors.
Direction vs position
Why can't ratios predict the future?
Based on historical data — past performance doesn't guarantee future results.
Past ≠ future
What is the 5-step ratio approach?
Calculate → State → Explain → Compare → Recommend
C-S-E-C-R
What is inter-firm comparison?
Comparing ratios with similar businesses in the same industry for relative performance.
Your ratio vs competitors
After stating 'GPM is 35%', what next?
Explain: '35 cents per dollar after COGS', then compare with previous years or competitors.
Explain + compare
How do external factors affect ratios?
Recessions, regulations, pandemics affect results but aren't captured in ratios.
Economy, laws, shocks
Name the 5-step ratio approach
Calculate → State → Explain → Compare → Recommend
C-S-E-C-R
What does 'magnitude' mean for ratio changes?
The size of the change — measured in percentage points (e.g. 'fell by 7 percentage points').
How big is the change?
How many years needed for good trend analysis?
At least 3 years — shows a meaningful pattern, not just year-to-year fluctuation.
3+ years
Why must inter-firm comparisons be 'like with like'?
Different industries, sizes, and methods distort comparisons — compare similar businesses.
Same industry + size
What is the final step in ratio interpretation?
Recommend action — what should the business DO to improve or maintain?
What should they do?
Why is one year's ratio unreliable alone?
One-off events can distort — need multiple years to see the real trend.
Snapshot vs trend
Three things that limit ratio analysis?
Historical bias, window dressing, non-financial factors missed.
Past, dressed, missing
Why suggest CAUSES when analysing ratio changes?
Shows analytical thinking — explaining WHY it happened, not just describing the change.
Why > what
How many limitations to mention in evaluation?
2-3 shows excellent critical thinking and earns top mark bands.
2-3 for top marks
Commenting on changes: Direction + ___ + ___ + ___
Direction + Magnitude + Causes + Actions
D-M-C-A
A ratio is improving but still below industry average. Good enough?
Not necessarily — both trend AND benchmark matter. Improving is positive but below average shows room for growth.
Trend + benchmark both matter
GPM of 20% — good or bad?
Depends on industry! Excellent in supermarkets (thin margins), poor in luxury fashion (high margins).
Industry norms differ
What must you always finish a ratio analysis with?
A recommendation — what should the business DO about it?
Always end with action
Two ways to improve stock turnover?
JIT stock management, promotions to clear slow stock, better demand forecasting, reduce product range.
JIT + promotions + forecasting
Debtor days formula?
(Trade receivables ÷ Sales revenue) × 365. Lower is better — faster cash collection.
Receivables ÷ revenue × 365
Stock turnover (times) formula?
Cost of goods sold ÷ Average stock. Higher = stock sells faster.
COGS ÷ avg stock
What do efficiency ratios measure?
How well a business manages its assets and liabilities — specifically stock, debtors and creditors.
Asset/liability management
Stock turnover: higher = ___. Debtor days: lower = ___. Creditor days: higher = ___
Better (faster sales); better (faster collection); keeps cash longer (but respect suppliers).
Better, better, longer
Efficiency ratios measure the ___ of money flowing through the business
Speed — faster is usually better.
Speed
Stock turnover (days) formula?
(Average stock ÷ COGS) × 365. Lower days = stock doesn't sit around long.
Avg stock ÷ COGS × 365
Creditor days formula?
(Trade payables ÷ COGS) × 365. Higher keeps cash longer — but don't upset suppliers.
Payables ÷ COGS × 365
Two ways to reduce debtor days?
Early payment discounts, tighten credit terms, chase overdue invoices, use factoring.
Discounts + chase + factoring
If debtor days are high and liquidity is low — the connection is ___
Cash is stuck with customers who haven't paid — directly causing the liquidity problem.
Cash stuck with debtors
COGS $200k, avg stock $25k. Stock turnover?
$200k ÷ $25k = 8 times/year. Days: ($25k ÷ $200k) × 365 = 46 days.
8 times, 46 days
How to manage creditor days?
Negotiate longer terms with suppliers, but always pay within agreed terms to maintain relationships.
Longer terms + keep relationships
Receivables $40k, revenue $400k. Debtor days?
($40k ÷ $400k) × 365 = 37 days.
37 days
Three efficiency ratios to know?
Stock turnover, debtor days, creditor days.
Stock, debtors, creditors
Always compare ratios ___ and against ___
Over time (trends) and against industry norms (benchmarks).
Time + industry
Supermarkets have ___ stock turnover; jewellers have ___
Very high (fast-selling perishables); low (expensive slow-moving items) — context matters!
High vs low
Ideal: creditor days ___ debtor days. Why?
Greater than — collect from customers BEFORE paying suppliers = free cash flow.
Creditor > debtor
Six factors affecting gearing decisions?
Interest rates, business risk, growth stage, asset base, industry norms, owner preference.
Rates, risk, growth, assets, industry, owner
Gearing ratio formula?
(Non-current liabilities ÷ Capital employed) × 100. CE = NCL + total equity.
NCL ÷ CE × 100
Three risks of high gearing?
Higher interest payments reducing profit, vulnerable to rate rises, less flexibility, insolvency risk if profits fall.
Interest + rates + insolvency
High gearing: high risk but potential for ___. Low gearing: safe but may limit ___
Higher returns (leverage); growth opportunities.
Returns vs growth
Stable businesses (utilities) can handle ___ gearing than volatile ones (startups)
Higher — predictable income can reliably cover interest payments.
Higher
Two benefits of high gearing?
Interest is tax-deductible (cheaper than dividends); owners keep full control (no dilution).
Tax-deductible + control
Link gearing to ___ and ___ analysis
Sources of finance (debt vs equity); liquidity analysis.
Finance + liquidity
High gearing = above ___%. Low gearing = below ___%
50% (high debt reliance, high risk); 25% (mostly equity, low risk). 25-50% = moderate.
50% high, 25% low
No single 'correct' gearing level — what matters is ___
Whether the business can comfortably meet interest payments from operating profit.
Can it pay interest?
Gearing measures how reliant the business is on ___
Debt to finance its operations — proportion of capital from long-term borrowing.
Debt reliance
Three benefits of low gearing?
Lower financial risk, more attractive to cautious investors, greater flexibility to borrow later.
Low risk + attractive + flexible
NCL $300k, equity $700k. Gearing?
CE = $1m. Gearing = ($300k ÷ $1m) × 100 = 30% — moderately geared.
30%
NCL $600k, equity $400k. Gearing?
CE = $1m. Gearing = ($600k ÷ $1m) × 100 = 60% — highly geared, higher risk.
60%
Why is cash the 'lifeblood' of a business?
Without cash, can't pay suppliers, employees or costs — even if profitable on paper.
No cash = can't function
Three key cash flow formulas?
Net CF = Inflows − Outflows. Closing = Opening + Net CF. Cash flow ≠ Profit.
Net, closing, ≠ profit
Formula for closing balance?
Closing balance = Opening balance + Net cash flow
Opening + net flow
Key difference between cash flow and profit?
Profit = accounting measure (revenue minus costs). Cash flow = actual money moving in/out of the bank.
Accounting vs actual
What is cash flow?
The movement of money into and out of a business over a period of time.
Money in and out
What is the #1 cause of small business failure?
Running out of cash — more fail from this than from being unprofitable.
Cash flow failure
Example of profit but negative cash flow?
Builder completes $50k project (profit) but customer pays 3 months later — no cash for workers.
Sold but not paid yet
Formula for net cash flow?
Net cash flow = Total inflows − Total outflows
In minus out
Opening $5k, inflows $12k, outflows $14k. Closing balance?
Net = $12k − $14k = −$2k. Closing = $5k + (−$2k) = $3,000
5k + (-2k) = 3k
Cash flow ≠ Profit in one sentence
Profit = revenue minus costs; cash flow = actual timing of money entering/leaving the bank.
Accounting vs movement
Give two examples of cash inflows
Cash sales, credit sales received, loans, investments, interest received.
Money coming IN
#1 cause of small business failure?
Cash flow problems — running out of cash even if profitable.
Cash flow kills
Name three things a business needs cash to pay
Suppliers, employees, daily operating costs (rent, utilities, insurance).
Suppliers, staff, costs
Example of positive cash flow but a loss?
Business receives a large loan (cash in) but costs exceed revenue — has cash, making a loss.
Loan gives cash, still losing
This month's closing balance = next month's ___
Opening balance — carries forward automatically.
Closing → Opening
Profit includes depreciation but cash flow doesn't. Why?
Depreciation is a non-cash accounting entry — no money actually leaves the bank.
No cash movement
Give two examples of cash outflows
Rent, wages, stock purchases, loan repayments, utilities.
Money going OUT
Quick: Closing balance = ?
Opening balance + Net cash flow
Opening + net
Why must a business pay suppliers on time?
To maintain relationships and supply chains — late payment can mean no more deliveries.
Relationships matter
What does a negative closing balance mean?
Business has run out of cash — needs additional finance to pay bills.
No cash left
Quick: Net cash flow = ?
Total inflows − Total outflows
In minus out
Can a profitable business still fail?
Yes — if it runs out of cash to pay bills. Profit ≠ cash.
Profitable but cashless
'Explain cash flow vs profit' — why prepare for this?
One of the most frequently asked exam questions. Need a clear answer with an example.
Top exam question
Three key cash flow balance terms?
Opening balance (start), net cash flow (in minus out), closing balance (end).
Start + flow = end
Cash flow is about ___, not when sales are recorded
Timing — when money actually enters/leaves the bank, not when transactions are recorded.
When cash moves
What is a cash flow forecast?
A prediction of expected cash inflows and outflows over a future period — usually 12 months, month by month.
Future cash prediction
Jan: Inflows $8k, Outflows $9k, Opening $3k. Closing?
Net = −$1k. Closing = $3k + (−$1k) = $2,000. Negative net but opening covers it.
3k + (-1k) = 2k
Cash flow forecast structure in order?
Inflows → Outflows → Net cash flow → Opening balance → Closing balance
I-O-N-O-C
Name three limitations of cash flow forecasts
Based on predictions not facts, unexpected costs arise, external shocks unpredictable.
Predictions, surprises, shocks
Three sections of a cash flow forecast?
1) Cash inflows, 2) Cash outflows, 3) Net cash flow + Opening/Closing balances.
Inflows → Outflows → Balances
Why create a cash flow forecast?
To anticipate cash shortages and plan ahead — arrange finance before problems hit.
Plan for shortages
Why might a forecast give false security?
Overly optimistic assumptions make it look good, but reality may be much worse.
Optimism ≠ reality
Negative closing balance signals what?
Potential cash crisis — business will run out of money and needs urgent action.
Cash crisis ahead
What is the most important number in a forecast?
Closing balance — negative means the business will run out of cash that month.
Closing balance
Rule for amending a forecast?
Change ONLY affected figures, recalculate net cash flow and closing balance. Don't touch unaffected figures.
Only change what's impacted
'Sales increase 10% in March' — how to amend?
Increase March inflows by 10%, recalculate March net CF and closing. Leave other months alone.
Adjust inflows → recalculate
Name two uses of a cash flow forecast
Identify low-cash months, and support loan applications/investor pitches.
Spot problems + secure funding
A forecast is a ___, not a guarantee
Plan — smart businesses update regularly as new information comes in.
Plan, not guarantee
How is net cash flow calculated in a forecast?
Total inflows − Total outflows for that month.
Inflows minus outflows
Three forecast exam skills?
Complete missing figures, amend for changes, interpret results.
Complete + amend + interpret
A cash flow forecast is like checking the ___ before a hike
Weather forecast — prepare for bad conditions before they happen.
Be prepared!
How can external shocks undermine forecasts?
Recessions, pandemics, new competitors make all predictions wrong.
Uncontrollable events
How is closing balance calculated?
Opening balance + Net cash flow
Opening + net
Negative net cash flow in January — out of cash?
Not necessarily — a large opening balance can cover it. Check the CLOSING balance.
Opening may cover it
Quick: Closing balance = ?
Opening balance + Net cash flow
Opening + net
Why do forecasts help with loan applications?
Show the bank you've planned ahead and can predict repayment — reduces their risk.
Shows planning ability
Typical time period for a cash flow forecast?
12 months, broken down month by month.
12 months, monthly
Common forecast exam tasks?
Complete missing figures, amend for changes, interpret what results mean.
Complete, amend, interpret
What makes a good cash flow forecast?
Realistic assumptions, regular updates, scenario planning for best/worst cases.
Realistic + updated + scenarios
Where does each month's opening balance come from?
Previous month's closing balance — carries forward automatically.
Last month's closing
Name three external causes of cash flow problems
Economic downturn, seasonal demand, late payments, competition, supplier price rises, interest rate rises.
Economy, seasons, competition
Most commonly tested internal cause?
Overtrading — growing too fast without enough cash.
Overtrading
Five warning signs of cash flow problems in data?
Negative net CF several months, declining closing balance, negative closing balance, large one-off outflows, inflows below target.
Negative, declining, below target
What is overtrading?
Growing too fast without enough cash to support expansion — sales grow but cash can't keep up.
Growing faster than cash allows
Three-step cash flow data analysis?
Identify PROBLEM → Explain CAUSE → Suggest SOLUTION = full marks.
Problem → Cause → Solution
How does seasonal demand affect cash flow?
Sales fluctuate — a ski resort has 6 months low inflows but pays rent all year.
Low season + fixed costs
Name three internal causes of cash flow problems
Overtrading, poor credit control, too much stock, over-investment, poor planning, high overheads.
Over-trade, over-stock, over-spend
One bad month vs three bad months?
One = possible blip. Three in a row = trend needing action.
Blip vs trend
How does poor credit control hurt cash flow?
Customers take too long to pay — cash is tied up in receivables while bills still need paying.
Sold but no cash yet
Declining closing balance tells you what?
Cash reserves eroding month by month — heading toward crisis.
Cash draining away
Internal causes: overtrading, poor credit control, excess ___
Stock — cash locked in unsold inventory.
Stock
How do interest rate rises cause cash flow problems?
Loan repayments become more expensive, increasing outflows with no matching increase in inflows.
Higher repayments
How does increased competition affect cash flow?
Competitors take market share, reducing sales and cash inflows.
Less share = less cash
Busy restaurant can't pay suppliers — why?
Over-invested in expensive fit-out plus generous credit terms to clients — cash locked up despite being busy.
Big spend + slow collection
Negative closing balance means?
Business has literally run out of cash — can't pay bills without extra finance.
No cash left
External causes: downturn, seasons, late payments, ___
Competition — rivals taking market share.
Competition
When analysing cash flow data, look for ___
Patterns — are problems one-off or recurring over multiple months?
Patterns and trends
Always distinguish between ___ and ___ causes
Internal (controllable) and external (uncontrollable) — shows analytical depth.
Internal vs external
Key difference: internal vs external causes?
Internal = within business's control (decisions). External = outside control (economy, rivals).
Controllable vs uncontrollable
Why is 'too much stock' a cash flow problem?
Cash tied up in unsold inventory — can't pay bills until stock sells.
Stock = frozen cash
Three ways to obtain additional finance?
Overdraft, short-term loan, sell assets, owner's capital injection, sale and leaseback.
Borrow, sell, inject
Customers paying late — best strategy?
Tighten credit control (shorter terms) or use factoring for immediate cash.
Tighten credit + factoring
Trade-off with factoring?
Immediate cash but factor keeps a percentage — receive less than full invoice value.
Fast cash at a cost
Three approaches to improving cash flow?
1) Increase inflows, 2) Reduce outflows, 3) Obtain additional finance.
In more, out less, get more
Three ways to reduce cash outflows?
Longer supplier terms, reduce stock (JIT), cut costs, lease not buy, delay non-essential spending.
Delay, reduce, lease
Three ways to increase cash inflows?
Reduce credit terms, offer early payment discounts, chase debts, factoring, increase sales.
Faster + more cash in
Trade-off with selling assets?
Raises cash but reduces capacity to generate future revenue.
Cash now, less capacity
What is factoring?
Selling unpaid invoices to a factor for immediate but reduced cash — instant money, lose a percentage.
Sell invoices for instant cash
What is sale and leaseback?
Sell an asset (e.g. warehouse) for cash, then lease it back to keep using it. Cash up, rent ongoing.
Sell it, rent it back
How does leasing help cash flow vs buying?
Spreads cost over time in smaller payments — preserves cash instead of one big outflow.
Small payments vs lump sum
Overtrading — best strategy?
Slow down growth, arrange longer-term finance to match expansion pace.
Slow growth + long-term funding
How to earn big marks on strategy questions?
2-3 strategies, explain HOW each works, link to cause, evaluate pros/cons.
2-3 + how + pros/cons
How do early payment discounts work?
Offer e.g. 2% off if paid within 7 days instead of 30 — encourages faster customer payment.
Discount for quick payment
High stock levels — best strategy?
Clearance sale + switch to JIT ordering to reduce tied-up cash.
Clear stock + JIT
Why is delaying supplier payments risky?
Damages relationships, loses early payment discounts — saves now, costs more later.
Relationships + discounts lost
When is an overdraft most useful?
Short-term temporary cash gaps — flexible but expensive due to high interest.
Short-term, flexible, costly
Why is cutting marketing risky long-term?
Saves cash now but may lose customers — lower future inflows.
Short gain, long pain
Speed up inflows: tighten credit, discounts, chase debts, ___
Factoring — sell invoices for immediate cash.
Factoring
Business sells warehouse for $500k, pays $3k/month rent. Strategy?
Sale and leaseback — large cash injection but ongoing monthly expense.
Sale and leaseback
What is JIT stock management?
Order less stock, more frequently — reduces cash tied up while meeting demand.
Less stock, more often
Seasonal sales dip — best strategy?
Overdraft to cover gap, or build reserves during peak months.
Overdraft or save in peaks
What makes the BEST exam answer on strategies?
Evaluate BOTH the short-term cash benefit AND potential long-term consequences.
Short-term + long-term
Slow outflows: negotiate terms, cut costs, ___
Lease instead of buy — spreads costs over time.
Leasing
Getting money in faster ≠ earning more. What does it mean?
Getting what you're already owed sooner — timing, not total revenue.
Same money, just faster
Why LINK strategy to the specific problem?
Generic solutions score lower — showing WHY it fixes the specific cause = deeper understanding.
Match to cause
Trade-off with overdrafts?
Flexible for short-term but high interest — expensive if used long-term.
Flexible but costly
What to always consider when evaluating strategies?
Trade-offs — short-term gains may have long-term costs.
Every strategy has a trade-off
Negotiating 60 vs 30-day supplier terms does what?
Delays outflows — keep cash longer before paying, improving short-term liquidity.
Pay later = keep cash
How does owner's capital injection help?
Owner puts personal money in — increases cash without debt or selling assets.
Personal money, no debt
Reducing credit terms from 30 to 14 days helps how?
Customers pay sooner — cash arrives earlier, less tied up in receivables.
Faster collection
When is payback most useful?
Tight cash flow businesses, fast-changing industries (tech), start-ups, or as a quick screening tool.
Cash-tight, fast-change, start-up
Key payback formula for uneven flows?
Years completed + (Remaining ÷ Year's cash flow) × 12 months
Years + (remaining/flow) × 12
What is the payback period?
The time it takes for an investment to generate enough cash inflows to recover the initial cost.
Time to get money back
Two advantages of payback?
Simple to calculate/understand; focuses on cash flow — good for cash-limited businesses.
Simple + cash-focused
How to calculate payback with uneven cash flows?
Use cumulative cash flow — add up year by year until you pass the initial cost.
Cumulative method
Machine costs $30k, generates $10k/year. Payback?
$30k ÷ $10k = 3 years
30/10 = 3
Two disadvantages of payback?
Ignores cash flows after payback; ignores time value of money.
Post-payback + time value ignored
Cost $50k. Y1:$15k, Y2:$20k, Y3:$25k. Payback?
Cumulative: Y1=$15k, Y2=$35k, Y3=$60k. Need $15k more at Y3 start. 2 + (15/25)×12 = 2 years 7.2 months.
During Year 3
Shorter payback = ___ risk
Lower — money comes back faster, less time exposed to uncertainty.
Lower
Why is payback good for tech industries?
Equipment becomes obsolete fast — need to recover investment quickly before technology changes.
Obsolescence risk
Payback ignores what two things?
Cash flows AFTER payback and the time value of money.
Post-payback + time value
Why is ignoring post-payback cash flows a problem?
May reject very profitable long-term investments that generate huge returns after the payback point.
Misses long-term returns
Formula to interpolate payback month?
Years + (Remaining ÷ That year's cash flow) × 12
Years + remaining/flow × 12
Shorter or longer payback preferred?
Shorter — lower risk, money back faster.
Shorter = less risk
Should payback be the ONLY method used?
Rarely — it's a good starting point but should be combined with ARR for a complete picture.
Starting point, not the whole picture
What is the time value of money?
$1 today is worth more than $1 next year — you could invest today's dollar and earn interest.
Money now > money later
Always show this column for payback questions:
Cumulative cash flow — shows your working and when payback occurs.
Cumulative column
Why do start-ups prefer payback?
They have limited finance and need their money back quickly to survive.
Limited cash = need fast return
What question does payback answer?
How long before I get my money back?
When do I break even?
Why show the cumulative cash flow column?
Makes it easy to spot payback and earns method marks.
Working + marks
What is cumulative cash flow?
A running total of all cash inflows received to date.
Running total
Why is payback the simplest investment appraisal?
Quick to calculate, easy to understand, clear time-based answer.
Quick + easy + clear
Payback focuses on risk and ___; ARR focuses on ___
Payback = risk and cash flow. ARR = profitability.
Risk vs return
Quick: Payback measures ___ while ARR measures ___
Payback = time to recover cost. ARR = average annual return as percentage.
Time vs return %
Payback is good for comparing projects how?
Shorter payback = lower risk. Useful as a quick screening tool before deeper analysis.
Quick risk comparison
Two advantages of ARR?
Considers total profitability over full life; percentage makes comparison easy (vs bank rates, other projects).
Total profit + easy comparison
What is the ARR formula?
ARR = (Average annual profit ÷ Initial investment) × 100. Average annual profit = Total profit ÷ Number of years.
Avg profit / Investment × 100
Invest $80k. Y1:$25k, Y2:$30k, Y3:$35k, Y4:$20k. Calculate ARR.
Total flows=$110k. Total profit=$110k−$80k=$30k. Avg annual=$30k÷4=$7,500. ARR=($7,500÷$80k)×100=9.4%
Don't forget to subtract cost!
ARR formula — state it
ARR = (Average annual profit ÷ Initial investment) × 100
Avg profit / Cost × 100
Higher or lower ARR preferred?
Higher — means a higher percentage return on the investment.
Higher = better
What does ARR measure?
The average annual profit from an investment as a percentage of the initial cost.
Annual return as %
What should you compare ARR against?
Bank interest rate (should beat it) and a target/criterion rate set by the business.
Bank rate + target rate
Most common ARR student mistake?
Forgetting to subtract the initial investment. Total cash flows ≠ total profit!
Flows − cost = profit
Total profit = Total cash flows minus ___
Initial cost — don't forget to subtract the investment!
Initial cost
Two disadvantages of ARR?
Ignores timing of cash flows; ignores time value of money. Uses averages that hide year-to-year differences.
Timing + time value ignored
How does ARR differ from payback?
ARR considers total profitability over the investment's entire life; payback only considers time to recover cost.
Total profit vs time
ARR advantage over payback?
Considers TOTAL profitability, not just time to recover cost.
Total profit focus
Why is ignoring timing a problem for ARR?
A project where all profit comes in Year 1 is treated the same as one where it comes in Year 5 — timing matters!
Early cash > late cash
Step 1 of ARR calculation?
Add up ALL net cash flows over the investment's life to get total inflows.
Sum all flows
If ARR is negative, what should the business do?
Reject the investment — it loses money overall.
Reject
ARR uses averages — why is this a limitation?
Can hide big year-to-year differences — one great year can mask several poor ones.
Averages smooth reality
ARR shares this limitation with payback:
Ignores the time value of money — both treat future cash as equal to today's cash.
Time value ignored
Why express ARR as a percentage?
Easy to compare with bank interest rates and other investments — if ARR beats the bank, invest!
Compare with bank rate
Step 2 of ARR?
Subtract initial cost from total flows to get TOTAL PROFIT.
Total flows − cost = profit
Project A: ARR 15%. Project B: ARR 9%. Bank rate 5%. Choose?
Both beat bank rate. Project A preferred — higher return (15% > 9%).
Highest ARR wins
Steps 3 and 4 of ARR?
Divide total profit by years = average annual profit. Then (avg ÷ initial cost) × 100 = ARR%.
Avg profit ÷ cost × 100
Quick: Higher ARR = ___ return
Better — higher percentage return on investment.
Better
ARR focuses on PROFIT; payback focuses on ___
Cash flow — ARR looks at overall returns, payback looks at when cash comes back.
Cash flow
Why compare ARR to bank interest rate?
If ARR is lower than the bank rate, the business would be better off just saving the money.
Investment must beat the bank
ARR of 12% vs bank rate of 5%. What should the business do?
Invest — the project returns 12%, beating the 5% bank rate.
ARR > bank rate = invest
Five-step recommendation structure?
1) Calculate payback + ARR, 2) Compare quantitative results, 3) Consider qualitative factors, 4) Recommend + justify, 5) Acknowledge limitations.
Calc → Compare → Qual → Recommend → Limits
Payback focuses on ___; ARR focuses on ___
Payback = cash flow and risk. ARR = profitability.
Cash vs profit
Name three qualitative factors in investment decisions
Corporate objectives (strategy fit), risk/uncertainty, environmental/ethical impact, staff implications, market conditions.
Strategy, risk, ethics, staff, market
What does payback focus on vs ARR?
Payback = how QUICKLY money comes back (risk + cash flow). ARR = how PROFITABLE overall (return).
Speed vs profit
Why does a recommendation WITHOUT justification score poorly?
Examiner wants to see WHY you chose it — the reasoning matters more than the choice itself.
Reasoning > choice
For 10+ mark questions, you MUST use what?
Both quantitative (calculations) AND qualitative (non-financial) factors — missing either limits marks.
Quant + qual required
Short payback but low ARR — what does this mean?
Recovers cash fast but isn't very profitable overall.
Fast return, low profit
Why can't numbers alone make the decision?
Non-financial factors (strategy, ethics, risk, market) can't be captured in calculations but matter enormously.
Numbers miss the big picture
Qualitative factors include: strategy, ethics, risk, ___
Market conditions and staff implications — non-financial factors affecting the decision.
Market + staff
Why consider environmental/ethical impact?
Poor choices can damage reputation, attract regulation, or alienate customers — hurting long-term profit.
Reputation + regulation risk
Long payback but high ARR — what does this mean?
More profitable overall but ties up cash for longer — more risk.
High profit, slow return
What should Step 5 of a recommendation include?
Acknowledging limitations — the forecast could be wrong, results depend on assumptions.
Uncertainty + assumptions
The 'best' investment on paper isn't always best in practice. Why?
Qualitative factors (risk, strategy, ethics, market conditions) can tip the balance.
Paper vs reality
Why acknowledge uncertainty in your recommendation?
Cash flow predictions may be wrong — showing awareness of this demonstrates mature analysis.
Predictions aren't guarantees
When recommending, use both ___ and ___ analysis
Quantitative (calculations) and qualitative (non-financial factors) — missing either limits marks.
Quant + qual
Project X: PB 2yr, ARR 8%. Project Y: PB 4yr, ARR 18%. Who chooses X vs Y?
Cash-strapped start-up → X (needs cash back fast). Well-funded business → Y (higher return).
Context determines choice
How do competitor actions affect investment decisions?
If rivals are investing in similar things, not investing could mean falling behind competitively.
Keep up or fall behind
Quick: They may conflict — payback says X, ARR says Y. Then what?
Consider which measure matters more given the business's context (cash needs, risk appetite, strategy).
Context decides
Even if the choice seems 'obvious', what must you do?
Explain your reasoning — the examiner wants to see the thought process, not just the answer.
Show your thinking
Payback and ARR may give ___ recommendations
Different/conflicting — which matters more depends on the business's situation and priorities.
Different answers possible
Two advantages of NPV over payback?
Considers time value of money; uses ALL cash flows (not just until payback point).
Time value + all cash flows
What is NPV?
Net Present Value — the present value of all future cash flows minus the initial cost. Accounts for time value of money.
Present value of future CFs - cost
NPV = sum of discounted CFs minus ___. Positive = ___
Initial investment; accept.
Investment; accept
NPV calculation steps?
Multiply each year's net cash flow by its discount factor, then sum all results minus initial investment.
CF × DF for each year, then sum
Time value of money means ___
Money today is worth more than the same amount in the future — because you could invest it now.
Today > future
Investment $100k. Y1=$40k(×0.909), Y2=$50k(×0.826), Y3=$40k(×0.751). NPV?
$36,360 + $41,300 + $30,040 - $100,000 = +$7,700. Positive → accept!
+$7,700
Two disadvantages of NPV?
Complex; relies on estimated cash flows; discount rate is subjective; hard to explain to non-financial managers.
Complex + estimates + subjective rate
Compare NPV with ___ and ___ in evaluation questions
Payback period and ARR — each has different strengths.
Payback + ARR
The discount rate choice significantly affects ___
The NPV result — a higher rate reduces present values, potentially turning positive NPV negative.
The result
Positive NPV → ___. Negative NPV → ___. Zero NPV → ___
Accept (earns more than required return). Reject. Breakeven (earns exactly the required return).
Accept, reject, breakeven
Discount factors will be ___ in the exam
Given — you don't calculate them. Just multiply each year's cash flow by the given factor.
Given
Four limitations of budgets?
Based on estimates, can demotivate (unrealistic targets), inflexible, gaming (easy targets), time-consuming, quickly outdated.
Estimates + demotivate + inflexible + gaming
Six purposes of budgets? (PCCMCD)
Planning, Coordination, Control, Motivation, Communication, Decision-making.
Plan, Coordinate, Control, Motivate, Communicate, Decide
What is a variance?
Difference between budgeted and actual figures — favourable (better than expected) or adverse (worse).
Budget vs actual
Variance = budgeted − actual. Favourable = ___. Adverse = ___
Better than expected; worse than expected.
Better; worse
What is a budget?
A financial plan setting expected income and expenditure over a period — usually one year. A target, not a record.
Financial plan = target
Favourable variance: revenue ___ than budget OR costs ___ than budget
Higher; lower — both are good news.
Revenue up OR costs down
Revenue vs costs variance rule is ___
Opposite! Higher revenue = fav, but higher costs = adverse.
Opposite
'Gaming' in budgets means ___
Managers deliberately set easy targets to guarantee a favourable variance — undermines the process.
Easy targets on purpose
Budgets motivate staff by ___
Giving targets to aim for — but only if set at realistic levels.
Realistic targets
Four types of budget?
Revenue budget, expenditure budget, profit budget, departmental budgets.
Revenue, expenditure, profit, departmental
Adverse variance: revenue ___ than budget OR costs ___ than budget
Lower; higher — both are bad news.
Revenue down OR costs up
A budget is a PLAN, not ___
A record of what actually happened — actual results are compared to the budget to spot variances.
Not actual results
Best businesses use ___ budgets that are updated as conditions change
Flexible — rather than rigidly sticking to a plan made months ago.
Flexible
Budgets help coordination by ___
Ensuring all departments work toward the same financial goals.
Aligned goals
Budget sales $50k, actual $55k. Variance?
$5,000 favourable — actual revenue exceeded budget.
$5k favourable
For REVENUE: actual > budget = ___. For COSTS: actual > budget = ___
Favourable; adverse. Don't mix them up!
Fav; adverse
What is market orientation?
Find out what customers want FIRST, then develop a product to match.
Customer needs first
Define marketing
The process of identifying, anticipating and satisfying customer needs — profitably.
Identify, anticipate, satisfy — profitably
Key difference: marketing goods vs services?
Goods = tangible (see/touch). Services = intangible (rely on reputation, trust).
Tangible vs intangible
Marketing in one line?
Identifying, anticipating and satisfying customer needs profitably.
Identify, anticipate, satisfy
Goods = tangible. Services = ?
Intangible — rely on reputation, reviews and trust.
Intangible
Marketing is NOT just advertising. What else?
Research, product development, pricing, promotion, distribution, customer relationships.
The whole process
What is product orientation?
Develop a product FIRST, then try to sell it.
Product first, sell later
Why are services harder to market?
Intangible, harder to standardise, each experience varies.
Can't touch or test
Which orientation is lower risk? Why?
Market orientation — research confirms demand before you invest.
Research reduces risk
What extra Ps do service businesses need?
People, Process, Physical evidence (7 Ps instead of 4).
People, Process, Physical evidence
Market orientation starts with ___; product with ___
Market = customer needs. Product = the product itself.
Customer vs product
What is the role of marketing?
Connects the business to its customers — identifies needs, develops products, sets prices, promotes, distributes.
Business ↔ customer
Which orientation do most successful businesses use?
Market orientation — research needs before developing products.
Market orientation
Smartphone marketing focuses on ___; gym on ___
Smartphone = features/design (tangible). Gym = experience/staff/atmosphere (intangible).
Features vs experience
When might product orientation work?
Highly innovative or luxury brands — breakthrough products customers didn't know they wanted.
Innovation + luxury
Name four things marketing helps a business do
Identify needs, develop matching products, set right price/place/promotion, build loyalty.
Identify, develop, deliver, retain
Without marketing, even the best product won't ___
Sell — marketing connects products to people who need them.
Sell
Market = 'What do customers want?' Product = ?
'Look what we made!' Most businesses succeed with market orientation.
Look what we made!
Case study sells services — think about what beyond 4 Ps?
People, process and physical evidence — the extended marketing mix.
Extended mix
Quick: 4 Ps of marketing?
Product, Price, Place, Promotion.
P-P-P-P
State the market share formula
(Company sales ÷ Total market sales) × 100
Company/Total × 100
What is a market?
Any place where buyers and sellers meet to exchange goods/services — physical or online.
Buyers + sellers meet
Market size by value vs volume?
Value = total $ revenue. Volume = total units sold.
$ vs units
Market share formula?
Market share (%) = (Company sales ÷ Total market sales) × 100
Company / Total × 100
What is market share?
One company's sales as a percentage of total market sales.
Company / total × 100
Growing markets offer what?
Opportunities for expansion — more potential customers and sales.
Opportunity to grow
Company $15m, market $60m. Share?
($15m ÷ $60m) × 100 = 25%
15/60 × 100
A market = where ___ and ___ meet
Buyers and sellers — to exchange goods or services.
Buyers + sellers
Declining markets mean what?
Fewer customers, tougher competition, harder to grow.
Less demand
Market share by value or by ___?
Volume (units sold) — question will specify which.
Volume
Growing market share signals?
Competitive advantage — gaining ground on rivals.
Gaining ground
What is market size?
Total value ($) or volume (units) of sales in a market.
Total $ or units
Market size measured by ___ or ___
Value ($) or volume (units).
Value or volume
Can you grow share in a declining market?
Yes — by taking customers from competitors even as overall market shrinks.
Steal share from rivals
What is the market leader?
The business with the largest market share.
Biggest share
Why does market share matter?
Shows competitive position — growing = advantage, falling = losing to rivals.
Competitive indicator
Quick: Market share by value or ___?
Volume — read the question carefully!
Volume
Market $500bn, company sells $100bn. Share?
($100bn ÷ $500bn) × 100 = 20%
100/500 × 100
Advantages of being market leader?
Higher prices, more investment, stronger brand recognition.
Price + investment + brand
Why monitor market growth trends?
To plan ahead — invest in growth, change strategy in decline.
Future planning
Brand = name/logo/design that makes product ___
Recognisable and different from competitors.
Recognisable
What is brand loyalty?
Customers repeatedly choosing the same brand — reducing price sensitivity.
Repeat choice, less price sensitive
Three benefits of strong branding?
Loyalty, premium pricing, easier launches, competitive edge, brand value as asset.
Loyalty, premium, launches, edge, value
What is a brand?
A name, symbol, design or reputation that makes a product recognisable and different from competitors.
Recognisable + different
Benefits of brand loyalty?
Repeat purchases, stable revenue, less price sensitivity.
Stable + pricing power
How does branding enable premium pricing?
Customers trust the brand — willing to pay more than for unbranded equivalents.
Trust = pay more
Brand awareness = how well customers ___ a brand
Recognise and recall it.
Recognise + recall
What is brand awareness?
How well customers recognise and remember a brand — by name, logo, colours or jingle.
Recognition + recall
High brand awareness means?
Customers think of your brand FIRST when they need that product.
Top of mind
What is brand value?
The financial worth of the brand name alone — appears as goodwill on balance sheet.
Financial worth of name
Five benefits of branding?
Loyalty, premium pricing, easier launches, competitive edge, brand value.
L-P-L-C-V
Why does branding make launches easier?
Existing trust transfers to new products — customers willing to try.
Trust transfers
How to strengthen brand loyalty?
Loyalty programmes, consistent quality, good customer service.
Programmes + quality + service
How is brand awareness built?
Advertising, social media, sponsorship, word of mouth — takes time and investment.
Ads, social, sponsorship, WOM
Brand loyalty reduces customer ___
Price sensitivity — won't switch for cheaper rivals.
Price sensitivity
Branding example: premium pricing?
Branded trainers cost far more than identical unbranded ones — brand power.
Trainers
How does branding create competitive edge?
Makes product stand out in a crowded market.
Stand out
Quick: Brand value = ___ worth of the brand
Financial — the brand name as an asset.
Financial
Brand journey: ___ → ___ → ___
Awareness → Loyalty → Value. Build awareness first.
A → L → V
Define brand awareness for exam
The extent to which customers recognise and can recall a brand by its name, logo or other features.
Recognise + recall
Three benefits of segmentation?
Products match needs better, marketing more cost-effective, identifies gaps, charge different prices.
Match, target, gaps, price
What is market segmentation?
Dividing a market into groups of customers with similar characteristics, then targeting them with tailored marketing.
Divide into groups + target
Four segmentation bases?
Demographic, Geographic, Psychographic, Behavioural.
D-G-P-B
Segmentation = dividing market into groups with shared ___
Characteristics that influence purchasing behaviour.
Characteristics
Four bases: D-G-P-B stands for?
Demographic, Geographic, Psychographic, Behavioural.
Did George Play Basketball
Mnemonic for segmentation bases?
'Did George Play Basketball?' — Demographic, Geographic, Psychographic, Behavioural.
DGPB
What is a market segment?
A group of consumers sharing characteristics that influence purchasing behaviour.
Shared traits → similar buying
Two limitations of segmentation?
Expensive to research multiple segments, segments may be too small, preferences change.
Costly, too small, changing
Examples of demographic segmentation?
Age, gender, family size, income level, education, occupation.
Personal characteristics
Why can segmentation be expensive?
Separate research and campaigns for each group costs more than one generic approach.
Multiple campaigns = cost
Why segment rather than one-size-fits-all?
Tailored products and marketing are more effective — better match what groups want.
Targeted > generic
Benefits: better targeting, higher sales, identifies ___
Market gaps — opportunities for new products.
Gaps
Risk of over-segmenting?
Segments too small to be profitable — not enough customers per group.
Too small = unprofitable
Examples of psychographic segmentation?
Lifestyle, values, personality, interests, attitudes.
How people think + live
Segmentation targets ___ groups with ___ marketing
Specific groups with tailored marketing.
Specific + tailored
Limitations: costly, too small, preferences ___
Change over time — segments aren't permanent.
Change
Sportswear segmented by age, income, activity — which bases?
Age/income = demographic. Activity = behavioural.
Demographic + behavioural
Exam definition: market segment?
A group of consumers sharing one or more characteristics that influence purchasing behaviour.
Shared characteristics + buying
Quick: A market segment = customers sharing ___ that affect ___
Characteristics that affect purchasing behaviour.
Characteristics + buying
Why might segmentation miss customers?
Not everyone fits neatly into defined groups — some fall between segments.
People don't fit boxes
What are marketing objectives?
Specific, measurable goals a business sets for its marketing activities — clear targets to aim for.
Specific + measurable goals
Marketing objectives are ___, strategies are ___, tactics are ___
Objectives = what (goals). Strategies = how (plans). Tactics = specific actions.
What → How → Actions
What is a marketing strategy?
A long-term plan for how a business will achieve its marketing objectives.
Long-term plan
Objectives = WHAT. Strategies = HOW. Tactics = ?
Tactics = the specific ACTIONS taken (e.g. run social media ads in France).
Specific actions
Road trip analogy: Objective = get to Paris. Strategy = ?
Drive through France. Tactics = which roads to take and where to stop.
Route planning
Give two examples of marketing objectives
Increase market share by 5% within two years; boost online sales by 20% this year.
Specific numbers + timeframes
Name the four marketing strategies (Ansoff Matrix)
Market penetration, market development, product development, diversification.
Pen-Dev-Prod-Div
Four key marketing strategies?
Penetration, development, product development, diversification.
P-D-P-D
What is market development?
Taking existing products to new markets (e.g. new countries or demographics).
Existing products → new markets
Give an example linking objective, strategy and tactic
Objective: increase share by 10%. Strategy: enter new markets abroad. Tactic: run ads in France.
10% → abroad → French ads
What makes a BAD marketing objective?
Vague aims like 'sell more stuff' — objectives must be specific and measurable.
Must be measurable
What is market penetration?
Selling more of existing products to existing customers — lowest risk strategy.
Existing products + existing customers
What is diversification and why is it risky?
New products for new markets — highest risk because both the product and market are unfamiliar.
New + new = highest risk
Why must marketing objectives be measurable?
So the business can track progress and know whether the objective has been achieved.
Track progress
Why is it important not to confuse objectives, strategies and tactics?
They operate at different levels — objectives guide strategies, strategies guide tactics. Mixing them up loses marks.
Three levels of planning
What is product development?
Creating new products for existing customers.
New products → existing customers
Name two long-term benefits of good marketing strategies
Sustained brand awareness, improved reputation, long-term sales growth, competitive advantage hard to copy.
Lasting reputation + steady growth
Name two more examples of marketing objectives
Grow brand awareness among 18-25 year olds; improve customer retention rates.
Awareness + retention
Quick: Which strategy has the highest risk?
Diversification — new products AND new markets.
Diversification
Which comes first: strategy or tactic?
Strategy — it's the overall plan. Tactics are the specific actions that carry out the strategy.
Strategy before tactics
What is a marketing plan?
A written document outlining marketing objectives, strategies and actions needed to achieve them — the roadmap for marketing.
Written roadmap
Name three benefits of having a marketing plan
Gives direction, helps allocate resources efficiently, provides benchmarks to measure success.
Direction + resources + benchmarks
A marketing plan = written document with ___
Objectives, strategies and actions needed to achieve marketing goals.
Objectives + strategies + actions
What are the five steps of marketing planning?
1) Analyse market, 2) Set objectives, 3) Choose strategies/tactics, 4) Implement, 5) Monitor and adjust.
Analyse → Set → Choose → Do → Check
What tools can be used in Step 1 (analyse the market)?
SWOT analysis, STEEPLE analysis, market research.
SWOT + STEEPLE + research
Name four key elements of a marketing plan
Objectives, market analysis, target market, marketing mix (4/7 Ps), budget, timescales, evaluation methods.
Objectives, analysis, mix, budget
Planning cycle: analyse → plan → implement → ___ → ___
Evaluate → Adjust. Then the cycle repeats.
Evaluate → Adjust
Why is a marketing plan useful for securing finance?
Investors and banks want to see a clear plan — it shows the business is organised and has thought ahead.
Investors want to see a plan
What does 'market analysis' include in a marketing plan?
Research on customers, competitors and market trends.
Customers + competitors + trends
Benefits of a marketing plan include direction, benchmarks and ___
Attracting investors — a clear plan shows the business is organised.
Attracting investors
Name two limitations of a marketing plan
Markets change fast (plan becomes outdated), relies on accurate research, may limit flexibility if followed too rigidly.
Outdated + rigid
Why is marketing planning a cycle, not a one-off event?
Markets constantly change — the plan must be monitored, evaluated and adjusted over time.
Continuous adaptation
Limitations include outdated data and ___
Reduced flexibility — following the plan too rigidly may miss new opportunities.
Rigidity
Why include evaluation methods in a marketing plan?
To measure whether the marketing activities are actually working — you need benchmarks for success.
Measure success
Why might a marketing plan limit flexibility?
If followed too rigidly, the business may miss opportunities or fail to respond to unexpected changes.
Too rigid = missed chances
Good marketing plans are ___ documents, not filed away
Living documents — they adapt when things change rather than being forgotten.
Living, not static
A marketing plan helps allocate ___ efficiently
Resources — budget, staff time and marketing spend are directed toward clear goals.
Resources
Quick: Marketing plan elements (name 4)?
Objectives, market analysis, target market, marketing mix, budget, evaluation.
O-A-T-M-B-E
Exam tip for marketing plan questions?
Pick TWO elements and explain them clearly with reference to the case study business.
Two elements + case study
Step 5 of marketing planning is?
Monitor, evaluate and adjust — check if it's working and change course if needed.
Monitor + adjust
Name three ways to measure market share
By value (revenue), by volume (units sold), by customers (% of total customers), and over time (tracking changes).
Value, volume, customers, time
Market share can be measured by value, volume or ___
Customers — the percentage of total customers in the market.
Customers
Name three uses of market share data
Compare with competitors, set objectives, evaluate marketing campaigns, attract investors.
Compare + set goals + evaluate + invest
High share by volume but low by value suggests what?
The business sells lots of cheap products — many units but low revenue per sale.
Cheap + popular
When is measuring by value better than by volume?
When comparing profitability — a premium brand may sell fewer units but earn more revenue.
Revenue comparison
How can market share data evaluate a marketing campaign?
If share grew after a campaign, it likely worked. If it didn't, the campaign may have failed.
Did the campaign work?
A budget airline has high share by volume but low by value. Why?
Lots of passengers (high volume) but cheap tickets (low revenue per sale).
Many passengers, cheap tickets
Two limitations: doesn't show ___ and data can be ___
Profitability; inaccurate or outdated.
Profit + accuracy
Name two limitations of market share data
Doesn't show profitability (high share ≠ high profit), data may be outdated, doesn't explain WHY share changed.
Not profitable + not explanatory
Market share formula recap?
Market share (%) = (Company sales ÷ Total market sales) × 100
Company / Total × 100
Why doesn't high market share guarantee profitability?
A business could have high share through low prices or heavy spending — share says nothing about margins.
Share ≠ profit
Growing market share shows what to investors?
Business strength and competitive advantage — makes the business more attractive for investment.
Strength signal
Why track market share over time?
To see trends — is market share growing, stable or shrinking? This guides strategy.
Spot trends
Quick: Market share is one metric — use alongside ___
Other data like profitability, customer satisfaction, and growth trends.
Other metrics
Should market share be the only metric used?
No — it's useful but doesn't tell the whole story. Use alongside profitability, customer satisfaction, etc.
One metric among many
What is primary market research?
Collecting new, first-hand data that didn't exist before — gathered directly from customers or potential customers.
New data, straight from source
Two advantages of primary research?
Specific to business needs; current and up to date; exclusive; targets the right people.
Specific + current + exclusive
Name five methods of primary research
Surveys/questionnaires, interviews, focus groups, observations, test marketing.
S-I-F-O-T
Primary research = ___ data collected by ___
New, first-hand data collected by the business itself.
New + first-hand
Need quick data from many people? Use ___
Online survey — fast, cheap, reaches large numbers.
Online survey
Five primary methods?
Surveys, interviews, focus groups, observations, test marketing.
S-I-F-O-T
What are focus groups?
Small group discussions led by a moderator — great for exploring opinions and testing ideas in depth.
Small group + moderator
Two disadvantages of primary research?
Expensive; time-consuming to collect/analyse; small samples can mislead; respondent bias.
Costly + slow + bias risk
Name two advantages of primary research
Tailored to the business's exact needs; up to date; exclusive (competitors can't access it); relevant.
Tailored + current + exclusive
Need detailed opinions? Use ___
Interviews or focus groups — allow in-depth exploration of views.
Interviews / focus groups
What is test marketing?
Launching a product in a small area first to test demand before a full launch.
Small area trial
Primary: ✅ specific, current, exclusive. ❌ ___
Expensive, slow, possible bias, small sample risk.
Costly + slow + bias
Want to see real behaviour? Use ___
Observation — watch what customers actually do, not what they say they do.
Observation
Why is primary data 'exclusive'?
Because the business collected it themselves — competitors don't have access to the same findings.
You collected it, they didn't
Why can small sample sizes give misleading results?
A small group may not represent the whole market — their views could be unusual.
Not representative
Testing a new product? Use ___
Test marketing — launch in a small area first to gauge demand.
Test marketing
What is respondent bias?
When people don't answer honestly — they may say what they think researchers want to hear.
Not honest answers
Primary research collects ___ data; secondary uses ___ data
Primary = new, first-hand data. Secondary = existing data collected by others.
New vs existing
Choose method based on ___
Business need, budget and time available.
Need + budget + time
What is observation as a research method?
Watching how customers actually behave (e.g. in a store) — shows real behaviour, not what people say they do.
Watching real behaviour
Why is primary research 'up to date'?
It's collected right now — not months or years ago like some secondary sources.
Collected now
Surveys are best for ___ samples; interviews for ___
Surveys = large samples (breadth). Interviews = detailed opinions (depth).
Breadth vs depth
Quick: Primary = new data. Secondary = ___
Existing data collected by others.
Existing
Primary research is expensive because ___
Surveys, interviewers and focus groups all cost money to design, run and analyse.
Design + run + analyse = cost
No single 'best' method — always match to ___
The business situation, budget and what they need to find out.
Situation + budget + need
Which should you start with: primary or secondary research?
Secondary — it's cheaper and faster for background understanding. Then use primary to fill gaps.
Secondary first, primary to fill gaps
What is secondary market research?
Using data that already exists — collected by someone else for a different purpose.
Existing, second-hand data
Two advantages of secondary research?
Cheap/free; quick to access; large-scale data; good starting point before doing primary research.
Cheap + fast + large-scale
Secondary research = using ___ data collected by ___
Existing data collected by others for a different purpose.
Existing + others
Sources: government stats, industry reports, ___
Competitor data, internal records (own sales/customer databases).
Competitors + internal
Name four sources of secondary research
Government statistics, industry reports, competitor websites/annual reports, internal sales records.
Gov + industry + competitors + internal
Two disadvantages of secondary research?
May be outdated; not tailored to specific needs; available to competitors; may be inaccurate.
Old + generic + shared
Most businesses use ___ types of research
Both — secondary for background, primary for specific answers. Best results come from combining them.
Both together
Why is secondary data 'not exclusive'?
It's publicly available — competitors can access the same information.
Everyone can see it
✅ cheap, fast, large-scale. ❌ ___
Outdated, not specific, available to competitors, may be unreliable.
Old + generic + shared
What counts as 'internal' secondary data?
The business's own past sales records, customer databases, financial reports — data it already has.
Own past data
Small budget — lean on ___. Bigger budget — add ___
Small = secondary research. Bigger = invest in primary too.
Secondary → add primary
Give two examples of external secondary sources
Government census data, trade journals, newspapers, academic studies, market research firm reports.
Gov + publications
Best approach: secondary first, then ___ to fill gaps
Primary research — get specific answers to your unique questions.
Primary
Secondary = second-hand (exists). Primary = ___
Original data you collect fresh yourself.
Original + fresh
Why is secondary research a good 'starting point'?
It helps understand the market cheaply before investing in expensive primary research.
Understand first, then invest
Best research approach combines secondary (background) + primary (___)?
Specific answers to unique questions the secondary data couldn't answer.
Fill the gaps
Exam classic: Explain one advantage and one disadvantage of secondary research — tip?
Always contextualise to the business in the case study, not just generic points.
Apply to the case study
Quick: Secondary = existing. Primary = ___
New, original data collected by the business.
New
Secondary research = borrowing information rather than ___
Creating it from scratch — using what's already available.
Borrowing, not creating
What is convenience sampling?
Choosing whoever is easiest to reach (e.g. people walking past). ✅ Fast/cheap. ❌ Not representative.
Easiest to reach
What is sampling?
Selecting a small group of people to represent the whole market — you can't ask everyone.
Small group = whole market
Low budget, quick results needed — which sampling?
Convenience sampling — fast and cheap, though less representative.
Convenience
Four sampling methods?
Convenience (easy), Random (equal chance), Quota (set numbers), Stratified (subgroups + random).
C-R-Q-S
Convenience: easy but ___. Random: fair but ___
Convenience = biased. Random = costly.
Biased vs costly
Need fair, unbiased representation — which sampling?
Random sampling — everyone has equal chance, reducing bias.
Random
Why do businesses use samples instead of surveying everyone?
Researching the entire market would be too expensive and time-consuming.
Cost + time
What is random sampling?
Everyone has an equal chance of being selected. ✅ Reduces bias. ❌ Expensive to organise.
Equal chance for all
Want specific groups represented — which sampling?
Quota or stratified — both ensure key demographic groups are included.
Quota or stratified
What makes a good sample?
Bigger and more representative = better, more reliable data.
Big + representative
What is quota sampling?
Researcher sets quotas for specific groups (e.g. 50 men, 50 women). ✅ Key groups represented. ❌ Selection within groups may be biased.
Set numbers per group
Bigger, more representative samples give ___
More reliable results that better reflect the whole market.
Reliable results
What is stratified sampling?
Population divided into subgroups, then random samples taken from each. ✅ Very representative. ❌ Needs detailed population data.
Subgroups + random from each
When discussing sampling in exams, always explain ___
WHY that method suits the specific business — don't just describe it.
Why it suits THIS business
Always match sampling method to ___
Business situation and budget — there's no single best method.
Situation + budget
A well-chosen sample gives ___ results
Reliable results that reflect the views of the whole market.
Reliable
Quick: Most representative method?
Stratified sampling — proportional random selection from each subgroup.
Stratified
Which sampling method is most representative?
Stratified — reflects the actual market structure by sampling proportionally from each subgroup.
Stratified
Small niche market — which sampling might be enough?
Convenience — in a small market, easily reachable people may already be representative.
Convenience
The bigger the sample, the ___ the data
More reliable — large samples are more likely to represent the whole market accurately.
More reliable
Qualitative = WHY (words). Quantitative = ___
HOW MANY (numbers/statistics/measurements).
How many
When to use qualitative research?
When you need to understand WHY customers feel a certain way — explore motivations and opinions.
Understand WHY
What is qualitative research?
Collects opinions, feelings and reasons — the 'why' behind customer behaviour. Methods: interviews, focus groups.
WHY — words + opinions
Qualitative methods: interviews, focus groups. Quantitative: ___
Surveys with closed questions, sales data, statistical analysis.
Surveys + data
What is quantitative research?
Collects numerical data — the 'how many' or 'how much'. Methods: surveys with closed questions, sales data.
HOW MANY — numbers + stats
When to use quantitative research?
When you need hard numbers to support a decision — measure demand, compare options.
Hard numbers for decisions
Launching a new product — which research first?
Start qualitative (explore ideas with focus groups), then quantitative (survey to test demand at scale).
Qual first → quant to confirm
Qualitative = quality of ___. Quantitative = quantity of ___
Qualitative = opinions (words). Quantitative = numbers (stats).
Words vs numbers
Most businesses use ___ for a complete picture
Both qualitative AND quantitative research together.
Both
Match the research type to ___
The question you need to answer — WHY (qual) or HOW MANY (quant).
The question
Why is qualitative data hard to analyse statistically?
It's words, opinions and feelings — subjective and varied, not easily turned into graphs or charts.
Subjective + varied
Writing a business plan — which type convinces investors?
Quantitative — investors want hard numbers, statistics and market size data.
Numbers convince investors
If a question asks about research methods, mention ___
Both types — explain which suits the situation better and why.
Both + explain preference
Qualitative uses ___ samples with ___ depth
Smaller samples with more depth — fewer people, richer insights.
Small + deep
Quick: Qual = words + depth. Quant = ___
Numbers + breadth.
Numbers + breadth
Key product concepts: USP, design, ___
Tangible vs intangible, product portfolio.
Tangibility + portfolio
Name the four stages of the product life cycle
Introduction (launch, low sales), Growth (rapid increase), Maturity (peak, stabilise), Decline (sales fall).
I-G-M-D
What is the 'product' in the marketing mix?
The good or service a business offers to customers — without a wanted product, nothing else matters.
Good or service offered
Why should a product portfolio be balanced?
Products at different life cycle stages reduce risk — if one declines, others carry the business.
Different stages = less risk
Life cycle: Introduction → Growth → ___ → ___
Maturity → Decline.
M → D
What is a USP?
Unique Selling Point — what makes the product different from competitors.
What makes it different
What happens in the Introduction stage?
Product launches, sales are low, heavy promotion needed, costs are high.
Launch + low sales + heavy promo
What is a product positioning map (perceptual map)?
A diagram showing where products sit vs competitors — usually with price and quality axes.
Price/quality diagram vs rivals
What can a positioning map help identify?
Gaps in the market — areas where no competitor currently operates.
Market gaps
What is a product portfolio?
The full range of products a business sells — a balanced portfolio reduces risk.
Full range of products
What happens in the Maturity stage?
Sales peak and level off, competition is intense, profits stabilise.
Peak sales + intense competition
Extension strategies keep products alive by ___
Updating, finding new markets, rebranding, cutting prices or new advertising.
Reviving interest
Name four key product concepts
USP, product design, tangible vs intangible products, product portfolio.
USP + design + tangibility + portfolio
When constructing a position map, always ___
Label BOTH axes clearly and plot ALL products/competitors mentioned in the data.
Label axes + plot all
What are extension strategies?
Actions to extend the life of a product to avoid decline — e.g. new features, new markets, rebranding, price cuts.
Keep product alive longer
Position maps show ___ using two axes
Where products sit versus competitors — usually price and quality.
Price/quality vs rivals
Name three extension strategies
Update/improve product, find new markets, change packaging/branding, reduce price, new ad campaigns.
Improve, new markets, rebrand
Quick: What is a USP?
Unique Selling Point — what makes the product different from competitors.
Unique + different
A product portfolio links to which analysis tool?
BCG Matrix (Unit 6) — stars, cash cows, question marks and dogs.
BCG Matrix
Product design includes what factors?
Features, aesthetics, function and quality — all affect customer choice.
Features, looks, function, quality
Why is price unique among the 4 Ps?
It's the only P that directly generates revenue — all others cost money.
Only P that earns money
Price is the only P that generates ___
Revenue — all other Ps cost money.
Revenue
What is cost-plus pricing?
Add a percentage mark-up to the cost of making the product.
Cost + mark-up %
New to market, need customers fast — which pricing?
Penetration pricing — low price attracts customers quickly.
Penetration
Penetration = LOW entry. Skimming = ___
HIGH entry price — opposite strategies for different situations.
High entry
Name four factors affecting pricing decisions
Costs, competitors' prices, customer demand/willingness to pay, brand image, product life cycle stage.
Costs + rivals + demand + brand
Innovative product, no competition — which pricing?
Price skimming — charge high while you're the only option, lower when rivals appear.
Skimming
What is penetration pricing?
Set a LOW price at launch to attract customers, then raise it later.
Low entry → raise later
Name all seven pricing strategies
Cost-plus, penetration, skimming, competitive, loss leader, premium, dynamic.
C-P-S-C-L-P-D
Why must price cover costs?
To make a profit — if price is below cost, the business loses money on every sale.
Below cost = loss
What is price skimming?
Set a HIGH price at launch (for early adopters), then lower over time.
High entry → lower later
Many competitors, similar products — which pricing?
Competitive pricing — match or slightly undercut rivals.
Competitive
Premium brand, loyal customers — which pricing?
Premium pricing — permanently high to reflect quality and exclusivity.
Premium
What is competitive pricing?
Match or slightly undercut competitors' prices.
Match rivals
How does brand image affect pricing?
Premium/strong brands can charge more because customers trust them and perceive higher value.
Strong brand = higher price
Pricing depends on costs, competitors, demand, ___ and ___
Brand image and life cycle stage.
Brand + life cycle
Name three more pricing strategies: loss leader, premium, dynamic
Loss leader = sell at a loss to attract buyers. Premium = permanently high for quality. Dynamic = prices change with demand.
Loss, premium, dynamic
When discussing pricing, always explain ___
WHY the strategy suits the specific business — don't just describe it.
Why it fits THIS business
How does life cycle stage affect pricing?
New products may use penetration or skimming; mature products may need competitive pricing.
Different stages = different strategies
Quick: Cost-plus pricing = cost + ___
Mark-up percentage.
Mark-up %
Direct distribution: ✅ higher margins + full control. ❌ ___
Limited reach + must handle all logistics yourself.
Limited reach + logistics
Name three factors affecting place decisions
Nature of product, target market preferences, cost, control, coverage needed.
Product, market, cost, control, coverage
What is 'place' in the marketing mix?
How the product gets from the business to the customer — distribution channels.
Distribution channels
Place = how the product reaches the ___ (distribution ___)
Customer; channels.
Customer + channels
Indirect distribution: ✅ wider reach. ❌ ___
Lower profit margins + less control over how the product is sold.
Lower margins + less control
What is a distribution channel?
The path a product follows from producer to final customer.
Producer → Customer path
E-commerce: direct sales, global reach, cuts out ___
Intermediaries — fewer middlemen = higher margins for the producer.
Intermediaries
Why do perishable goods need short distribution channels?
They spoil quickly — fewer intermediaries means faster delivery to customers.
Speed before spoilage
How does e-commerce change distribution?
Cuts out intermediaries (higher margins), reaches global customers 24/7, but competition and logistics are challenges.
Direct + global + 24/7
Direct = you sell it yourself (more ___). Indirect = others help (wider ___)
Direct = more control/profit. Indirect = wider reach.
Control vs reach
Direct = more control + profit. Indirect = wider ___
Reach — access to more customers through retailers/wholesalers.
Reach
Name the four distribution channel types
Direct (Producer→Customer), One intermediary (via Retailer), Two intermediaries (via Wholesaler+Retailer), Agent.
Direct, 1 middle, 2 middle, agent
More intermediaries means ___ profit per sale for the producer
Less — each middleman takes a cut, reducing the producer's margin.
Less profit per sale
Give an example of direct distribution
Online sales or farm shops — producer sells straight to customer, no middlemen.
Online + farm shops
When would direct distribution suit best?
Digital products, premium brands wanting control, or businesses with strong online presence.
Digital, premium, online
Choice depends on product type, target market, ___
Costs and how much control the business wants.
Costs + control
What is an intermediary in distribution?
A middleman between producer and customer — retailers, wholesalers or agents who help sell/distribute.
Middleman
Quick: Four channel types?
Direct, one intermediary (retailer), two intermediaries (wholesaler+retailer), agent.
D-1-2-A
When would indirect distribution suit best?
Mass-market products needing wide coverage — retailers and wholesalers extend reach.
Mass-market + wide coverage
If asked about 'place', also discuss ___
The shift to e-commerce and online distribution — it's increasingly important.
E-commerce shift
What is promotion in the marketing mix?
How a business communicates with customers to inform, persuade and remind them about products.
Inform + persuade + remind
What is Above the Line (ATL) promotion?
Mass media advertising aimed at a wide audience — TV, radio, newspapers, billboards. Expensive but broad.
Mass media, broad reach
What is social media marketing? (New 2024 syllabus)
Using platforms like Instagram, TikTok, X for organic posts, paid ads, influencer marketing, viral content.
Social platforms for promotion
Name five factors for choosing the right promotion
Budget, target audience, product type, life cycle stage, competitors.
Budget + audience + product + stage + rivals
Promotion = communicating to inform, ___ and ___
Persuade and remind customers about products.
Persuade + remind
What is Below the Line (BTL) promotion?
Targeted promotion for specific groups — sales promotions, direct mail, loyalty schemes, trade shows. Cheaper and targeted.
Targeted + cheaper
Young target audience? Best promotion method?
Social media and digital marketing — young people spend time online, not watching TV.
Social media
ATL = broad (mass media). BTL = ___. TTL = ___
BTL = targeted (specific groups). TTL = integrated mix of both.
Targeted + integrated
Name three advantages of social media marketing
Low cost vs traditional ads, reaches younger demographics, highly targeted, measurable (clicks, views, engagement).
Cheap + young + targeted + measurable
Name the six elements of the promotion mix
Advertising, sales promotion, personal selling, public relations (PR), direct marketing, digital marketing.
A-S-P-PR-D-D
Name two disadvantages of social media marketing
Brand reputation risk (influencer scandal), may miss older demographics, negative feedback is public.
Reputation risk + misses older groups
Social media: low cost, younger demographics, ___
Highly targeted and measurable (track clicks, views, engagement rates).
Targeted + measurable
What is Through the Line (TTL) promotion?
An integrated approach combining BOTH ATL and BTL methods for maximum impact.
ATL + BTL combined
What is sales promotion?
Short-term incentives like discounts, BOGOF, free samples, competitions — to boost sales quickly.
Short-term incentives
Luxury goods need what type of promotion?
Aspirational advertising — creating desire and exclusivity through premium imagery.
Aspirational ads
What is PR (public relations)?
Building a positive image through press coverage, events and sponsorships — not direct advertising.
Positive image building
Give an example of TTL promotion
TV campaign (ATL) combined with social media competitions and email follow-ups (BTL).
TV + social + email
What is influencer marketing?
Paying social media personalities to promote products to their followers.
Pay influencers to promote
At product launch, promotion should be ___
Heavy — lots of advertising and awareness-building because nobody knows the product yet.
Heavy at launch
Influencer risk: brand damage if influencer ___
Misbehaves or is involved in scandal — brand suffers by association.
Misbehaves
What is digital marketing?
Social media, SEO, influencer marketing, content marketing — online promotion methods.
Online promotion
Quick: Six promotion mix elements?
Advertising, sales promotion, personal selling, PR, direct marketing, digital marketing.
A-S-P-PR-D-D
Key influencer risk tested in May 2025 exam?
Brand reputation damage if the influencer misbehaves or is involved in scandal — the brand suffers by association.
Influencer scandal = brand damage
Don't just say 'advertise more' — instead ___
Be specific about WHICH method and WHY it suits this particular business.
Which + why
Most modern campaigns are ___ — using multiple channels
TTL (Through the Line) — integrating mass media with targeted digital methods.
TTL
7 Ps = Product, Price, Place, Promotion + ___
People, Process, Physical evidence.
P + P + PE
What is 'People' in the 7 Ps?
The staff who deliver the service — their skills, attitude and appearance shape customer experience.
Staff skills + attitude
Why do services need 7 Ps instead of 4?
Services are intangible — three extra Ps (People, Process, Physical evidence) help build customer confidence.
Intangible needs extra trust
Why do the extra 3 Ps build trust?
Services can't be tried before buying — People, Process and Physical evidence provide reassurance.
Trust before purchase
For service businesses, customer experience IS the ___
Product — the way the service is delivered IS what the customer is buying.
Product
What is 'Process' in the 7 Ps?
The systems and steps used to deliver the service — smooth processes = happy customers.
Systems for delivery
People = staff ___. Process = delivery ___. Physical evidence = tangible ___
Skills/attitude; systems/steps; quality clues (decor, uniforms, website).
Skills, systems, clues
What are the extra 3 Ps?
People, Process, Physical evidence — added to Product, Price, Place, Promotion for service businesses.
People + Process + Physical evidence
Why can't customers judge services before buying?
Services are intangible — you can't touch or see them. The extra Ps provide clues about quality.
Can't see or touch
What is 'Physical evidence' in the 7 Ps?
Tangible clues showing service quality — decor, cleanliness, uniforms, website design, packaging.
Tangible quality clues
Essential for ___ businesses where the experience IS the product
Service — hotels, airlines, restaurants, schools, etc.
Service
Small details like clean toilets and fast wifi can ___
Make or break a service business — physical evidence shapes perception.
Make or break
The extra Ps build ___ and help ___
Trust (before buying) and differentiation (from competitors).
Trust + differentiation
If the case study is a service business, you MUST discuss ___
People, Process and Physical evidence — not just the basic 4 Ps.
Extra 3 Ps
Give examples of 'Process'
Online booking systems, check-in procedures, delivery tracking, appointment scheduling.
Booking, check-in, tracking
The 7 Ps = 4 Ps + ___
People, Process, Physical evidence.
PPP
The 3 extra Ps help service businesses ___ from competitors
Differentiate — unique staff, smooth processes and distinctive environment set you apart.
Differentiate
Which type of business MUST use 7 Ps?
Service businesses — hotels, schools, airlines, restaurants, banks, etc.
Service businesses
Quick: A messy restaurant sends what message?
Poor quality — physical evidence shapes customer perception before they even taste the food.
Bad physical evidence
Luxury hotel example using all 3 extra Ps?
Friendly trained staff (People), seamless online booking (Process), elegant decor + quality toiletries (Physical evidence).
Staff + booking + decor
How might Product be adapted?
Redesign, add features, change quality level, rebrand for a new market.
Redesign + features + rebrand
Why must all Ps be consistent with each other?
They tell the same story — premium product + low price = confusing. All Ps must align.
Same brand story
The mix must adapt when markets, customers or ___ change
Circumstances — competition, technology, trends, business strategy.
Circumstances
Why must businesses adapt their marketing mix?
Markets, competition, customer preferences and circumstances constantly change — adapt or fall behind.
Markets change → must adapt
All 7 Ps can be adjusted: product, price, place, promotion, ___
People, process, physical evidence.
P-P-PE
How might Price be adapted?
Switch strategy (skimming → competitive), offer discounts, adjust for new market expectations.
New strategy + discounts
Premium product + low price = ___
Confusing brand message — customers won't trust it. Ps must be consistent.
Confusing message
Name three triggers for adapting the mix
Entering a new market, targeting a different segment, responding to a new competitor, technology changes, life cycle stage changes.
New market, segment, competitor, tech
When moving from B2B to B2C, what might change?
Product features, pricing, distribution channels and promotion methods all may need adjusting.
Most Ps change
Changing one P usually means adjusting ___
Others too — they're interconnected and must all tell the same story.
Other Ps change too
Changing one P usually requires ___ to others
Changes — for consistency. All Ps must tell the same brand story.
Changes to other Ps
How might Place be adapted?
Move online, find new retailers, expand internationally, change distribution channels.
Online + new retailers + international
Common exam mistake with the marketing mix?
Discussing each P in isolation — always explain how changes to one affect the others.
Show connections between Ps
The marketing mix isn't set in stone — it must be ___
Constantly adjusted in response to changes in markets, competition and customer needs.
Constantly adjusted
In exams, discuss at least ___ Ps and explain how they ___
Two Ps and how they connect/affect each other.
Two + connections
Guitar maker switching to hobbyists — what changes?
Lower price, simplify product, sell online (not specialist shops), advertise on social media (not music magazines).
Price, product, place, promotion all change
How might People/Process/Physical evidence change?
Retrain staff, improve delivery systems, refresh branding/premises/website.
Retrain, improve, refresh
A product reaching decline stage might trigger changes to ___
Price (reduce), promotion (new campaign), product (update features) or place (new channels).
Multiple Ps at once
Quick: Premium product + low price + mass distribution = ?
Inconsistent — confusing brand message. All Ps must align.
Inconsistent
Online distribution + no digital promotion = ___
Missed opportunity — the Ps aren't aligned. Need digital promotion to reach online customers.
Missed opportunity
What is dynamic pricing?
Prices change in real time based on demand, time, customer profile or supply. Used by airlines, Uber, hotels.
Real-time price changes
Dynamic pricing advantage + disadvantage?
Maximises revenue when demand high, fills capacity when low. BUT can damage trust if seen as unfair.
Max revenue BUT trust risk
Three HL pricing strategies?
Dynamic, competitive, contribution — each with different trade-offs.
Dynamic, competitive, contribution
Competitive pricing advantage + disadvantage?
Easy to implement, avoids price wars. BUT ignores costs — could sell at a loss.
Easy BUT ignores costs
Compare HL pricing with SL pricing: cost-plus, penetration, ___
Skimming, premium, loss leader — SL strategies focus more on market positioning.
Skimming, premium, loss leader
What is competitive pricing?
Setting prices based on what competitors charge, not costs. Used in highly competitive markets with similar products.
Based on competitor prices
Contribution pricing advantage + disadvantage?
Each unit contributes to fixed costs, useful for special orders. BUT doesn't guarantee profit.
Contributes to FC BUT no profit guarantee
What is contribution pricing?
Setting price above variable cost per unit so each unit contributes to fixed costs. Price must exceed VC.
Price > VC per unit
Airline ticket example of dynamic pricing?
Same seat: $200 in January, $800 in July — algorithm adjusts based on demand, booking time, remaining seats.
$200 vs $800 same seat
Entry choice depends on: budget, market knowledge, ___, ___
Risk tolerance, product type.
Risk + product
Five methods of entering international markets?
Exporting, licensing/franchising, joint venture, FDI, e-commerce.
Export, license, JV, FDI, e-com
Link market entry to ___ and growth strategies
STEEPLE (legal, cultural factors); Ansoff (market development quadrant).
STEEPLE + Ansoff
Exporting = ___
Selling domestic products abroad. Low risk but limited control over distribution.
Sell abroad, low risk
Joint venture = ___
Partnering with a local firm to share costs, risks and local knowledge.
Local partner, shared
FDI = ___
Foreign direct investment — setting up operations in another country. High control but high cost and risk.
Own operations abroad
Trade-off in market entry: more investment = more ___ but more ___
Control and profit; risk and cost.
Control vs risk
Link cultural differences to the 7 Ps: each P may need ___
Adaptation for international markets — product, price, place, promotion all affected.
Adaptation
Five cultural factors in international marketing?
Language, religious/social norms, consumer preferences, legal requirements, media habits.
Language, religion, preferences, law, media
Standardisation = ___. Adaptation = ___
Same product worldwide (cheaper); modified for local markets (better fit).
Same vs modified
What is glocalisation?
Think global, act local — maintaining global brand but adapting to local tastes. E.g. McDonald's local menus.
Global brand + local adaptation
McDonald's McSpicy Paneer (India) is an example of ___
Glocalisation — adapting the menu to respect local culture (no beef) while keeping the global brand.
Glocalisation
Always evaluate ___ sides of international marketing in exams
Both — opportunities AND challenges, linked to STEEPLE and growth strategies.
Both sides
Four opportunities of international marketing?
Larger markets, economies of scale, risk diversification, extended product life cycle.
Bigger, cheaper, diversified, longer PLC
Four challenges of international marketing?
Cultural misunderstandings, legal complexity, exchange rate fluctuations, logistics, political instability.
Culture, law, FX, logistics, politics
Extended PLC means ___
A product declining in one market can be launched in newer markets where it's still in growth phase.
New markets extend life
Key difference: goods are ___; services are ___
Goods = tangible (see, touch, store). Services = intangible (experienced, not held).
Tangible vs intangible
What is operations management?
How a business turns inputs into outputs — the transformation process.
Inputs → process → outputs
What does 'adding value' mean?
Making the output worth more than the cost of inputs — this is how businesses make profit.
Output value > input cost
Operations = turning ___ into ___
Inputs into outputs (the transformation process).
Inputs → outputs
Value added formula?
Value added = Selling price − Cost of inputs.
Selling price minus costs
Name the three stages of the transformation process
Inputs (materials, labour, capital) → Process (manufacturing, assembling) → Outputs (finished goods/services).
In → Do → Out
Adding value = output worth more than ___
The cost of inputs — the gap is profit potential.
Input cost
Goods can be stored; services are ___
Consumed immediately — you can't stockpile a haircut.
Consumed now
Goods are standardised; services often ___
Vary each time — each haircut or flight experience is slightly different.
Vary each time
Operations applies to both ___ and ___
Goods (tangible) and services (intangible).
Goods + services
Give an example of the transformation process
Bakery: flour, eggs, sugar (inputs) → mixing and baking (process) → cakes and bread (outputs).
Bakery example
Name three ways to add value
Better design/features, branding/packaging, convenience, quality/reliability, speed of delivery.
Design, brand, convenience, quality, speed
Coffee beans cost $2, latte sells for $5. Value added?
$5 − $2 = $3 value added through the barista's skill, hot water, milk and branding.
$3
Many businesses provide a mix of ___
Both goods AND services — e.g. a restaurant provides food (good) and table service (service).
Both together
Name three benefits of good operations management
Reduces waste/costs, improves quality, meets customer demand on time, gives competitive edge.
Waste, quality, demand, edge
Good operations → lower costs, better quality, meet ___
Customer demand on time — giving competitive advantage.
Customer demand
Quick: Inputs = materials, labour, ___
Capital (money and equipment).
Capital
Goods can be quality-checked before sale; services are ___
Harder to quality-check in advance — you can't inspect a service before it's delivered.
Hard to pre-check
Operations management applies to ___ AND ___
Both manufacturing businesses AND service businesses — not just factories.
Manufacturing + services
The bigger the gap between input cost and selling price, the more ___
Profit potential — adding value is the core of business profitability.
Profit potential
What is sectoral shift?
As countries develop, importance shifts from primary → secondary → tertiary sectors.
Primary → Secondary → Tertiary
Primary = extracting. Secondary = manufacturing. Tertiary = ___
Providing services.
Services
Primary sector operations focus on ___
Natural resources, location near raw materials, seasonal factors.
Resources + location + seasons
What is the primary sector?
Businesses that extract raw materials from the earth — farming, fishing, mining, forestry, oil drilling.
Extract raw materials
What is the secondary sector?
Businesses that process/manufacture raw materials into finished goods — factories, construction, food processing.
Manufacturing + processing
Secondary sector operations focus on ___
Production methods, economies of scale, machinery investment.
Methods + scale + machinery
Developing countries rely heavily on which sector?
Primary — extracting raw materials and agriculture.
Primary
Countries develop: primary → secondary → ___
Tertiary — the services sector dominates developed economies.
Tertiary
What is the tertiary sector?
Businesses that provide services — retail, banking, education, healthcare, tourism.
Provide services
As countries industrialise, which sector grows?
Secondary — manufacturing and processing industries expand.
Secondary
The sector affects operations decisions like ___
Location, resources needed, and quality focus.
Location + resources + quality
Tertiary sector operations focus on ___
Customer experience, staff training, convenient location.
Experience + training + location
Some businesses operate across ___ sectors
Multiple — e.g. a coffee company that grows (primary), roasts (secondary) and sells (tertiary).
Multiple sectors
Knowing the sector helps you answer exam questions because ___
It guides which operations factors matter most for that specific business.
Guides your answer
Chain example: farmer → bread factory → supermarket?
Primary (farmer) → Secondary (factory) → Tertiary (supermarket).
P → S → T
Quick: Farming = ___ sector
Primary — extracting raw materials from the earth.
Primary
Quick: A bank = ___ sector
Tertiary — providing financial services.
Tertiary
Which sector is biggest in developed economies?
Tertiary (services) — developed countries are service-dominated.
Tertiary
Sectoral shift is like climbing ___
Stairs — countries move up from primary → secondary → tertiary as they develop.
Stairs analogy
A factory's operations differ from a hotel's because ___
Factory (secondary) focuses on production efficiency; hotel (tertiary) focuses on customer experience.
Production vs experience
What is batch production?
Making a group of identical products together, then switching to a different product.
Groups then switch
What is job production?
Making one unique product at a time, specially designed for each customer — tailor-made.
One unique product
Name five factors influencing production method choice
Nature of product, level of demand, available budget, workforce skill level, need for flexibility.
Product, demand, budget, skills, flexibility
Three production methods?
Job (one unique), Batch (groups then switch), Flow (continuous line).
J-B-F
What is flow (mass) production?
Products move continuously along a production line, non-stop — assembly lines and conveyor belts.
Continuous line
What is changeover time in batch production?
Time lost resetting equipment between different batches — a key disadvantage.
Equipment reset time
Choice depends on product type, demand, budget, ___ and ___
Workforce skills and need for flexibility/variety.
Skills + flexibility
Two advantages of flow production?
Very low cost per unit (economies of scale); fast/efficient; consistent quality; meets high demand.
Low cost + fast + consistent
If a business switches from batch to job, what changes?
Costs increase, quality may improve, flexibility increases, worker motivation may improve.
Cost up, quality up, flex up
Give three examples of job production
Wedding cake, custom-built house, hand-made suit, piece of art.
Custom, unique items
Two advantages of job production?
High quality/unique products; workers are motivated (see finished result); can charge premium prices; flexible.
Quality + motivation + premium
Job = unique, low volume. Batch = some variety, medium volume. Flow = ___
Standardised, high volume, low cost per unit, consistent quality.
Standardised + high volume
Switching methods affects costs, quality, ___ and ___
Motivation and flexibility.
Motivation + flexibility
Two disadvantages of flow production?
Huge start-up costs; no variety (standardised); boring for workers; if line breaks, everything stops.
Expensive + no variety + fragile
Two advantages of batch production?
Can produce variety; cheaper per unit than job; flexible batch sizes; some skilled workers.
Variety + cheaper + flexible
Flow production: ___ volume, ___ cost per unit, ___ variety
High volume, low cost per unit, no variety (standardised).
High-Low-None
Quick: Batch production involves ___ between batches
Changeover time — resetting equipment for a different product.
Changeover
Two disadvantages of job production?
Slow/time-consuming; high labour costs; no economies of scale; hard to produce in large quantities.
Slow + expensive + no scale
Two disadvantages of batch production?
Time lost in changeovers; work-in-progress ties up money; repetitive for workers; not as efficient as flow.
Changeover + WIP + boring
Custom product + low demand → which method?
Job production — one unique product at a time for each customer.
Job
Quick: Flow production = lowest ___ per unit
Cost — economies of scale from continuous production.
Cost
Job production: ___ volume, ___ cost per unit, ___ quality
Low volume, high cost per unit, high quality.
Low-High-High
Standard product + very high demand → which method?
Flow production — continuous line for maximum efficiency and lowest cost.
Flow
Batch production example?
Bakery making 50 chocolate cookies, then switching to 50 vanilla ones.
Bakery batches
Flow production examples?
Car assembly lines, bottling plants, smartphone manufacturing.
Cars, bottles, phones
Traditional line: workers specialise in ___. Cellular: workers do ___
Traditional = one task (fast but repetitive). Cellular = multiple tasks (varied but needs training).
One task vs multiple
Two advantages of cellular manufacturing?
Workers feel ownership/motivation; flexible (switch products quickly); quality improves; less WIP stock; isolated problems.
Motivation + flexible + quality
Cellular = small self-contained teams making a complete ___
Product or major part of a product.
Product/part
What is cellular manufacturing?
Organising production into small, self-contained teams (cells), each completing a whole product or major part.
Mini-factories in a factory
Two disadvantages of cellular manufacturing?
Needs multi-skilled workers (expensive training); duplicate equipment per cell; not ideal for mass production; reorganisation costs.
Training + duplicate equipment
Traditional is better for ___; cellular is better for ___
Traditional = huge volumes. Cellular = flexibility and variety.
Volume vs flexibility
Workers are multi-skilled and take ownership of ___
Quality — they see the whole product through from start to finish.
Quality
How does cellular differ from a traditional production line?
Workers are grouped into cells with all equipment needed, rather than products moving through sequential stages.
Cells vs sequential line
Often linked to lean production and ___
Continuous improvement (kaizen) — always looking for ways to improve.
Continuous improvement
Workers in cells are ___ (can do several jobs)
Multi-skilled — they perform multiple tasks within their cell.
Multi-skilled
Strongest advantage/disadvantage pair for exams?
Improved worker motivation vs higher training costs — a clear trade-off.
Motivation vs training cost
Cellular manufacturing is linked to ___ production
Lean production — reducing waste and improving flow.
Lean
Cellular = teamwork + ___ + quality focus
Flexibility — empowering small groups to own the whole process.
Flexibility
Why does quality improve in cellular manufacturing?
Teams take responsibility for their whole product — ownership creates pride and accountability.
Ownership → quality
Furniture factory example of cellular manufacturing?
One cell makes tables start to finish, another cell makes chairs — each is self-contained.
Tables cell + chairs cell
Quick: Cellular = mini-___ inside a big factory
Mini-factories — each cell is self-contained with its own equipment and team.
Factories
If one cell has a problem in cellular manufacturing, the rest ___
Keep working — problems are isolated, unlike a traditional line where one breakdown stops everything.
Keep going
Cells can work ___ of each other
Independently — a problem in one cell doesn't stop the whole factory.
Independently
Why is there less work-in-progress stock?
Each cell completes products fully, rather than items waiting between stages on a traditional line.
Complete within cell
Quick: Main trade-off of cellular?
Better motivation and quality vs higher training and equipment costs.
Motivation vs cost
Every business has an ___ size where average costs are lowest
Optimal — below it, economies of scale apply; above it, diseconomies kick in.
Optimal
What are economies of scale?
When a business grows bigger and its average cost per unit FALLS — more output = cheaper per unit.
Bigger → cheaper per unit
What are diseconomies of scale?
When a business gets TOO big and average costs start RISING — bigger isn't always better.
Too big → costs rise
What are purchasing economies?
Bulk buying discounts from suppliers — buy more, pay less per unit.
Bulk = cheaper
Economies = average cost ___ as output ___
Falls; increases.
Falls + increases
Growth brings economies BUT may also lead to ___
Diseconomies if the business grows too fast or too big — argue both sides in 10-mark questions.
Diseconomies
Types: purchasing, technical, financial, ___, ___
Managerial, marketing.
M + M
Why do average costs fall with scale?
Fixed costs spread over more units, plus bulk buying discounts and specialist equipment becomes worthwhile.
Spread FC + bulk + specialise
What are technical economies?
Using large-scale machinery and technology more efficiently — big machines produce more at lower cost per unit.
Big machines = efficient
Name three causes of diseconomies of scale
Communication problems, coordination difficulties, motivation drops, slow decision-making, waste/inefficiency.
Communication + coordination + motivation
Why does motivation drop in very large businesses?
Workers feel like a small cog in a big machine — less personal connection to the company.
Small cog, big machine
What are financial economies?
Banks offer lower interest rates to larger, safer businesses — cheaper borrowing.
Bigger = cheaper loans
What is the exam definition of economies of scale?
The reduction in average cost per unit as a business increases its scale of production.
Average cost falls with scale
Diseconomies caused by: communication, coordination, ___
Motivation problems — workers feel disconnected in huge organisations.
Motivation
Small → growing → ___ → too large → ___
Enjoys economies (costs fall) → diseconomies kick in (costs rise).
Economies → diseconomies
Businesses aim for the ___ size where costs are ___
Optimal size; lowest.
Optimal + lowest
Name two types of economies of scale
Purchasing (bulk discounts), Technical (efficient machinery), Financial (cheaper borrowing), Managerial (specialists), Marketing (spread ad costs).
P-T-F-M-M
What are managerial economies?
Hiring specialist managers for different departments — experts increase efficiency.
Specialists = efficient
Exam definition of diseconomy of scale?
An increase in average cost per unit as a business grows beyond its optimal size.
Average cost rises beyond optimal
The sweet spot is where ___
Average costs are at their lowest — the optimal scale of production.
Lowest average cost
Car manufacturer buying steel in huge quantities gets ___
Lower price per tonne than a small workshop — purchasing economies of scale.
Purchasing economies
Mnemonic for economies of scale types?
'Please Try Finding More Money' — Purchasing, Technical, Financial, Managerial, Marketing.
PTFMM
Quick: PTFMM = ?
Purchasing, Technical, Financial, Managerial, Marketing economies.
Please Try Finding More Money
In 10-mark questions about growth, argue ___
Both sides: economies of scale benefits AND potential diseconomies if growth is too fast.
Both sides
Global fast-food chain example of diseconomies?
Some locations waste food because head office can't monitor every store closely — inefficiency.
Can't monitor everything
Quality = meeting or exceeding ___
Customer expectations.
Expectations
What does quality mean in business?
The product or service meets or exceeds customer expectations.
Meets/exceeds expectations
What is quality control (QC)?
Checking products at the END of production to find and remove faulty ones — reactive.
Check at the end
What is quality assurance (QA)?
Building quality into EVERY stage of production — preventing defects rather than finding them.
Quality at every stage
Name three benefits of good quality
Customer loyalty/repeat purchases, good reputation, fewer returns (lower costs), premium pricing, competitive advantage.
Loyalty, reputation, fewer returns
QC = reactive (after). QA = ___ (throughout)
Proactive — building quality into every stage prevents defects.
Proactive
Good quality → loyalty, reputation, ___, lower costs
Higher prices — premium quality commands premium pricing.
Higher prices
QC = catch defects at the ___. QA = ___ defects throughout
QC = end. QA = prevent.
End vs prevent
Name three consequences of poor quality
Complaints/returns, bad reviews, wasted materials/rework, loss of market share.
Complaints, bad reviews, waste
Why is QA better than QC for reducing waste?
Problems are caught early (less wasted resources), rather than after production is complete.
Catch early = less waste
QA reduces waste because ___
Every worker checks quality at their stage — defects caught before resources are wasted.
Catch early
Good quality allows businesses to charge ___
Higher/premium prices — customers pay more for products they trust.
Higher prices
Poor quality leads to ___ costs (wasted materials, rework)
Higher costs — defective items waste resources and need fixing.
Higher costs
Quick: QC checks AFTER. QA builds quality ___
Into every stage of production.
Every stage
QA can lead to ___ certifications (e.g. ISO standards)
Quality certifications — proving to customers the business meets international quality standards.
ISO standards
Lean applies beyond manufacturing to ___
Services, hospitals (reduce patient waiting), retail (manage inventory), tech — any industry.
All industries
Five lean production tools?
JIT, Kaizen, cellular manufacturing, TQM, cradle to cradle.
JIT-K-Cell-TQM-C2C
Three benefits of lean production?
Lower costs, higher quality, faster production, more motivated workers, better use of space.
Costs + quality + speed
What is lean production?
Cutting waste and maximising efficiency — produce more value using fewer resources. If it doesn't add value, eliminate it.
Cut waste, max efficiency
Lean links to: JIT, Kaizen, cellular manufacturing, ___
TQM and cradle to cradle — all part of the lean philosophy.
TQM + C2C
All lean tools share the same goal: ___
Eliminate waste, improve quality, add more value for the customer.
Eliminate waste + quality + value
Six types of waste in lean thinking?
Overproduction, waiting time, excess inventory, defects, unnecessary movement, over-processing.
O-W-I-D-M-P
Three challenges of lean production?
Requires culture change, vulnerable to supply disruptions, high training costs, takes time, pressure on suppliers.
Culture + supply risk + training
Lean is vulnerable to supply disruptions because ___
Low stock means no buffer — if a supplier is late, production stops immediately.
No buffer stock
Lean = less waste, more ___
Value — every step should add value for the customer.
Value
JIT = lean, low storage, risky if ___. JIC = safe but ___
Supply fails; expensive to store.
Supply risk vs storage cost
What is JIC?
Just-in-case — holding extra stock as a buffer against supply delays or demand spikes. Safety-first approach.
Extra stock as buffer
JIT suits businesses with ___; JIC suits businesses with ___
Reliable suppliers and steady demand; unpredictable demand or unreliable supply chains.
Reliable vs unpredictable
What is JIT?
Just-in-time — ordering/receiving stock only when needed. No stockpiling. Right materials, right place, right time.
Stock only when needed
JIC advantages?
Buffer against delays, meets unexpected demand, less dependent on suppliers, bulk discounts possible.
Buffer + demand + bulk
Many businesses use ___
A mix of both JIT and JIC depending on the product.
Mix of both
JIT production is 'pulled' by ___
Customer demand — not pushed by forecasts.
Customer demand
JIC disadvantages?
High storage costs, cash tied up, stock may expire/become obsolete, more waste if demand falls.
Storage + cash + obsolescence
Three advantages of JIT?
Lower storage costs, less waste, cash not tied up in inventory, forces quality.
Storage + waste + cash
Three disadvantages of JIT?
No safety stock (supply disruption stops production), needs reliable suppliers, can't cope with demand spikes.
No buffer + reliable suppliers + spikes
Kaizen works best when combined with ___
Other lean tools like JIT and TQM — they reinforce each other.
JIT + TQM
What is Kaizen?
Japanese for 'continuous improvement' — small, regular improvements by ALL workers that add up to big results over time.
Continuous small improvements
Three benefits of Kaizen?
Improves quality/efficiency, low cost, motivates workers (feel valued), reduces waste, teamwork culture.
Quality + low cost + motivation
Kaizen links to: JIT, cellular manufacturing, ___
TQM and quality assurance — all lean tools work together.
TQM + QA
How Kaizen works?
All workers suggest improvements, changes are small/low-cost, teams meet regularly, improvements tested and measured.
All workers + small + regular + tested
Three challenges of Kaizen?
Slow results, needs culture shift, training required, hard to sustain enthusiasm, not for urgent large-scale changes.
Slow + culture + sustain
Kaizen = many small steps, not ___
One giant leap — progress, not perfection.
Small steps
Kaizen example: tool rack moved closer saves 30 seconds per product — ___
Small change, big impact over thousands of products.
Small × many = big
C2C links to: CSR, circular economy, ___ analysis
STEEPLE (environmental + ethical factors) — great evaluation point.
STEEPLE
Three benefits of C2C?
Reduces waste/environmental damage, attracts eco-customers, saves money long-term, meets regulations, competitive advantage.
Waste + customers + costs + regulations
What is cradle to cradle (C2C)?
Designing products so every part can be reused, recycled or returned to nature. No waste, continuous loop.
Reuse everything, no waste
C2C = opposite of cradle to ___. Everything is reused, recycled or ___
Grave; composted — nothing goes to landfill.
Grave; composted
Cradle to grave = ___. Cradle to cradle = ___
Make → use → throw away (linear, wasteful). Make → use → reuse/recycle → make again (circular).
Linear vs circular
Three challenges of C2C?
High initial costs, new suppliers needed, not all materials recyclable, customers may not pay more, requires design rethink.
Costs + suppliers + willingness to pay
C2C designs products with their ___ in mind from the start
'Next life' — what happens after the customer is done with it.
Next life
Location affects costs, revenue, ___ and ___
Operations and recruitment.
Operations + recruitment
Why is location a critical business decision?
It's long-term and expensive to change — affects costs, revenue, operations and recruitment.
Hard to reverse
Name six key location factors
Proximity to market, proximity to materials, labour availability, land/rent costs, transport links, government incentives.
Market, materials, labour, cost, transport, incentives
Quantitative location factors are ___
Measurable — rent costs, wage rates, transport costs, government grants.
Measurable numbers
Name four international location factors
Lower labour costs, access to new markets, fewer regulations/lower taxes, language/cultural barriers, political risk, exchange rates, trade agreements.
Cost, markets, regulations, barriers
Why move production to a developing country?
Lower wages — but must consider quality control, shipping costs and reputational risks.
Lower wages + trade-offs
Qualitative location factors are ___
Harder to measure — quality of life, brand image, manager preference, ethics.
Harder to measure
Location affects four things:
Costs (rent, wages), revenue (customer access), operations (supply chain), recruitment (skilled workers).
Costs, revenue, ops, recruitment
Key factors: market, materials, labour, costs, transport, ___
Government incentives.
Incentives
'Proximity to market' matters most for ___
Retail and service businesses — being close to customers is vital.
Retail + services
Why is it hard to change location once chosen?
Expensive to move, disrupts operations, may lose staff and customers — a long-term commitment.
Expensive + disruptive
Always apply location factors to ___
The specific business in the exam — don't just list generic factors.
The specific business
Political risk affects international location because ___
Unstable governments can change laws, seize assets or create uncertainty.
Uncertainty + asset risk
Good location decisions balance ___
Both quantitative (numbers) AND qualitative (intangible) factors.
Both quant + qual
'Proximity to raw materials' matters most for ___
Manufacturing and primary sector — reduces transport costs for heavy/bulky inputs.
Manufacturing + primary
International adds: political risk, exchange rates, ___
Language/cultural barriers and trade agreements/tariffs.
Barriers + trade
Name three 'other' location factors
Infrastructure (power, internet), legal regulations, competitor proximity, quality of life, climate/natural risks.
Infrastructure, regulations, competitors
A factory cares about different location factors than ___
A coffee shop — always apply factors to the specific business type.
Different businesses = different factors
Exchange rate fluctuations matter because ___
Currency changes can make costs or revenues unpredictable in international locations.
Unpredictable costs/revenue
Quality of life affects location because ___
It influences the business's ability to attract talented staff.
Attract talent
Location affects costs like ___
Rent, wages and transport — cheaper locations reduce fixed costs.
Rent, wages, transport
Being near competitors can be ___ or ___
Good (footfall/clustering benefits) or bad (increased rivalry).
Good or bad
Quick: Quantitative = measurable. Qualitative = ___
Harder to measure but still important (quality of life, ethics, preference).
Hard to measure
International location trade-off: lower costs vs ___
Quality control challenges, shipping costs, cultural barriers and reputational risks.
Quality + shipping + reputation
Manager's personal preference is a ___ factor
Qualitative — hard to measure but can influence the final decision.
Qualitative
What is outsourcing?
Hiring another company to do a task or process you used to do yourself.
Another company does it
Two advantages of outsourcing?
Lower costs + access to specialists; business focuses on core activities; flexible scaling.
Costs + specialists + focus + flex
Outsourcing = another ___. Offshoring = another ___
Company; country.
Company vs country
What is offshoring?
Moving part of a business's operations to another country, usually to reduce costs.
Operations → another country
Two disadvantages of outsourcing?
Loss of quality control; communication difficulties; risk of data/security breaches.
Quality + comms + security
Both aim to cut ___ and improve ___
Costs; efficiency.
Costs + efficiency
Name three reasons to outsource
Reduce costs, focus on core competency, access specialist skills/technology, increase flexibility.
Cost, focus, skills, flex
Outsourcing = giving work to ___. Offshoring = moving work to ___
Another company; another country. They can overlap ('offshore outsourcing').
Company vs country
What is a core competency?
What the business does best — outsourcing non-core tasks lets it focus on its strengths.
Best at + focus
Two advantages of offshoring?
Significant cost savings (lower wages); access to new markets/talent; 24/7 production across time zones.
Costs + markets + 24/7
Why is offshoring common in manufacturing, IT and customer service?
These tasks can be done remotely or in lower-wage countries — significant cost savings.
Lower wages + remote possible
Risks include loss of ___, communication problems and ___
Quality control; reputation damage.
Quality + reputation
Outsourcing example?
Tech company outsources customer service to a call centre — focuses on software development.
Tech + call centre
What is 'offshore outsourcing'?
Giving work to another company that is based in another country — combining both concepts.
Another company + another country
In exams, evaluate whether ___ outweigh the ___
Benefits; risks — for the specific business in the case study.
Benefits vs risks
Two disadvantages of offshoring?
Language/cultural barriers; quality harder to control; negative publicity (job losses at home); political risk.
Barriers + quality + publicity + risk
Quick: Can outsourcing and offshoring overlap?
Yes — 'offshore outsourcing' = hiring another company in another country.
Yes, offshore outsourcing
Offshoring can cause negative publicity because ___
Domestic job losses — customers and media may criticise the company for moving jobs overseas.
Job losses at home
Offshoring can enable 24/7 production by ___
Operating across different time zones — when one country sleeps, the other works.
Time zone advantage
Outsourcing increases flexibility because ___
Easy to scale up or down — just adjust the contract rather than hiring/firing staff.
Scale via contract
Name three reasons a business might relocate
Closer to customers/growing market, reduce costs, better infrastructure, forced by external factors.
Customers, costs, infrastructure, forced
How to structure a location comparison exam answer?
Identify key factors → Argue FOR Option A → Argue FOR Option B → Evaluate → Justified conclusion.
A → B → Evaluate → Conclude
Name three methods for evaluating location options
Cost-benefit analysis, quantitative scoring, break-even analysis, investment appraisal (payback/ARR).
CBA, scoring, break-even, appraisal
Methods: cost-benefit, scoring, break-even, ___
Investment appraisal (payback/ARR) — comparing long-term returns.
Investment appraisal
Relocation: can cut costs + access new markets but is ___ and ___
Risky and expensive — disrupts operations and may lose staff/customers.
Risky + expensive
Name three risks of relocation
High moving costs/disruption, loss of skilled staff, loss of customers, time to establish in new area.
Costs, staff loss, customer loss, time
Common exam mistake with location questions?
Listing generic factors without linking them to the specific business in the case study.
Must apply to the business
When comparing locations, use both ___ and ___ arguments
Quantitative (numbers) and qualitative (judgement) — for a balanced answer.
Quant + qual
Stakeholder analysis for location asks ___
How will each option affect employees, customers, shareholders and the local community?
Impact on each stakeholder
Relocation is a ___ risk, ___ reward decision
High risk, high reward — must be justified by long-term benefits outweighing short-term costs.
High-high
Quantitative scoring for location works by ___
Assigning numerical scores to key factors for each option and comparing totals.
Score + compare totals
Location exam: always use ___ and give a ___
Case study data; justified conclusion.
Data + conclusion
External factors forcing relocation include ___
Lease expiry, natural disaster, government policy changes.
Lease, disaster, policy
Break-even analysis for location calculates ___
How many sales are needed at each location to cover costs — lower BEP = safer.
Sales to cover costs
A justified conclusion is essential for ___
Top marks in 10-mark questions — state which option and explain WHY.
10-mark top marks
Compare locations using both ___ and ___ factors
Quantitative and qualitative — numbers AND judgement.
Quant + qual
Quick: Relocation = high ___, high ___
Risk, reward.
Risk + reward
Investment appraisal for location uses ___ or ___
Payback period or ARR — comparing long-term returns from different locations.
Payback or ARR
Always use ___ data in location exam answers
Case study data — specific numbers and facts from the scenario, not generic knowledge.
Case study data
Loss of skilled staff during relocation happens because ___
Some employees cannot or will not move to the new location — losing experience and knowledge.
Won't/can't move
What is the break-even point?
Where total revenue exactly equals total costs — no profit, no loss.
TR = TC
BEP = where TR = TC (no ___, no ___)
Profit; loss.
Profit + loss
Break-even output = the ___ of units at BEP
Number — how many units must be sold to cover all costs.
Number
Total revenue formula?
TR = Selling price × Quantity sold.
Price × quantity
What are fixed costs?
Costs that stay the same regardless of output — rent, insurance, salaries, loan repayments.
Same regardless of output
Why does break-even matter?
Tells how many units must be sold to avoid a loss; helps planning; useful for business plans; evaluates price/cost changes.
Min sales + planning + evaluation
What is the margin of safety?
Actual sales minus break-even sales — the buffer before losses start.
Actual − BEP
FC stay the same. VC change with ___
Output — more units = more variable costs.
Output
What is contribution per unit?
Selling price minus variable cost per unit — what each unit contributes toward fixed costs.
Price − VC per unit
What are variable costs?
Costs that change with output — raw materials, packaging, direct labour per unit.
Change with output
Total contribution formula?
Total contribution = Contribution per unit × Number of units sold.
CPU × units
Don't confuse contribution with profit! Contribution = ___. Profit = ___
Contribution = price − VC per unit. Profit = TR − ALL costs (FC + VC).
Per unit vs total
Total costs formula?
TC = Fixed costs + Variable costs.
FC + VC
Below break-even = ___. Above break-even = ___
Below = loss. Above = profit.
Loss vs profit
TC = FC + VC. Contribution = price − ___
Variable cost per unit.
VC per unit
Margin of safety = actual sales − ___
Break-even sales.
BEP sales
At break-even: Total Revenue = ___
Total Costs — exactly covering all costs, zero profit.
Total Costs
Fixed costs must be paid even if output is ___
Zero — rent and salaries are due whether or not anything is produced.
Zero
Once total contribution covers all fixed costs, you've hit ___
Break-even! After that point, each extra unit sold generates profit.
Break-even
Profit only exists ___ break-even
Above — below break-even, the business makes a loss.
Above
Quick: Contribution is the ___ to break-even
Building block — each unit's contribution chips away at fixed costs.
Building block
A loss occurs when ___
Total costs exceed total revenue — the business hasn't sold enough to cover costs.
TC > TR
On a graph: FC = horizontal line. VC starts at ___ and slopes ___
Origin (0,0); upwards — more output = more variable costs.
Origin + upwards
Break-even helps new businesses because ___
It shows investors/banks the minimum sales needed — essential for business plans.
Business plan tool
Price $10, VC $6. Contribution per unit = ___. FC $2000. BEP = ___
Contribution = $4. BEP = $2000 ÷ $4 = 500 units.
$4; 500 units
Profit zone on a break-even chart = area where ___
TR is ABOVE TC — to the right of BEP.
TR above TC
What is a break-even chart?
A graph showing TC and TR at different output levels — BEP is where the lines cross.
TC + TR graph
Step 1 of drawing a break-even chart?
Draw and label axes — x-axis = output (units), y-axis = costs/revenue ($).
Label axes
Break-even chart questions are typically worth ___ marks
4 marks: labelled axes (1), correct TR (1), correct TC (1), BEP identified (1).
4 marks
Break-even chart shows TC and TR at different ___
Output levels — visual way to see BEP, profit/loss zones and margin of safety.
Output levels
TC line starts at ___ and slopes ___
Fixed costs level (not zero); upward — because VC adds to FC as output increases.
FC level + upward
If question says 'to scale' but you don't draw to scale, max = ___
Usually 2 out of 4 — scale matters for accuracy marks.
2 out of 4
Why draw a break-even chart?
Visual way to see profit/loss zones, margin of safety, and impact of cost/price changes.
Visual planning tool
Loss zone on a break-even chart = area where ___
TC is ABOVE TR — to the left of BEP.
TC above TR
TC starts at ___; TR starts at ___
TC at fixed costs level; TR at the origin.
FC level; origin
To find profit at any output from the chart:
Read TR and TC at that point, then profit = TR − TC.
TR minus TC at that point
Use a ___ for neat, accurate lines
Ruler — makes it easier for the examiner to award marks.
Ruler
Always label axes, lines and ___
BEP — four marks typically available for a well-drawn chart.
BEP
TR line starts at ___ and slopes ___
Origin (0,0); upward — zero sales = zero revenue.
Origin + upward
On a break-even chart, x-axis = ___; y-axis = ___
X = output (units); Y = costs/revenue ($).
Units; $
BEP on the chart is where ___
TC and TR lines cross — read down to x-axis for break-even output.
Lines cross
Common chart mistakes that lose marks?
Forgetting to label axes, not starting TC at FC level, not drawing to scale.
Labels + TC start + scale
Break-even output: read ___ from BEP to the ___
Down; x-axis — gives the number of units.
Down to x-axis
Four things to always label on a break-even chart?
Axes, TR line, TC line, BEP.
Axes + TR + TC + BEP
Draw to scale if asked — otherwise max ___
2 marks out of 4.
2/4
Quick: BEP = where ___ and ___ lines cross
TC and TR.
TC + TR
Margin of safety on chart = distance between ___ and ___
BEP and actual output on the x-axis.
BEP to actual
Break-even chart shows margin of safety as ___
Distance along x-axis between BEP and actual output.
Gap on x-axis
Quick: Profit zone = right of BEP. Loss zone = ___
Left of BEP.
Left
After drawing TC and TR, mark the ___ where they cross
Break-even point — and label it clearly.
BEP
Profit formula (two versions)?
Profit = TR − TC. OR: Profit = Total contribution − Fixed costs.
TR−TC or TotContrib−FC
Target profit output formula?
Output = (Fixed costs + Target profit) ÷ Contribution per unit.
(FC + target) ÷ CPU
Break-even output formula?
BEP = Fixed costs ÷ Contribution per unit.
FC ÷ CPU
BEP = FC ÷ ___
Contribution per unit (price − VC per unit).
CPU
Margin of safety formula?
MoS = Actual (or estimated) sales − Break-even output.
Actual − BEP
1500 units × $50, VC $30, FC $20k. Profit?
TR=$75k. TVC=$45k. TC=$65k. Profit=$75k−$65k = $10,000.
$10,000
FC $20k, price $50, VC $30. BEP?
CPU = $50−$30 = $20. BEP = $20,000 ÷ $20 = 1,000 units.
1,000 units
BEP 1000, actual sales 1500. MoS = ___
1500 − 1000 = 500 units — sales could drop by 500 before losses start.
500 units
FC $20k, target profit $10k, CPU $20. Output needed?
($20k + $10k) ÷ $20 = 1,500 units.
1,500 units
MoS = actual sales − ___
Break-even output.
BEP
A small margin of safety is ___ because ___
Risky — a small drop in sales could push the business into a loss.
Risky + vulnerable
Profit = TR − TC, or Total contribution − ___
Fixed costs.
FC
Shortcut profit method?
CPU ($20) × units (1500) = $30k contribution − FC ($20k) = $10k profit. Same answer!
Contribution shortcut
Always show your working because ___
Even if the final number is wrong, you can earn method marks.
Method marks
Target price questions require you to ___
Work backwards: total costs + target profit = required revenue. Then price = revenue ÷ units.
Work backwards
Loss occurs when ___
Total costs exceed total revenue — business sold below break-even.
TC > TR
A large margin of safety means ___
Comfortable buffer — the business can absorb a significant sales drop and still profit.
Comfortable buffer
Required price = (TC + target profit) ÷ ___
Number of units expected to be sold.
Units
Contribution per unit formula?
CPU = Selling price − Variable cost per unit.
Price − VC
Target output = (FC + target profit) ÷ ___
Contribution per unit.
CPU
Target questions test your ability to ___
Read carefully, identify what you know and need to find, then work step by step.
Step by step
Quick: ALWAYS show working for ___ marks
Method marks — partial credit even if final answer is wrong.
Method
MoS tells you how far sales can ___ before ___
Drop; the business starts making a loss.
Drop; loss
BEP tells you the ___ number of units to sell to cover ___
Minimum; all costs (both fixed and variable).
Minimum; all costs
Negative profit means ___
A loss — the business needs to sell more, cut costs or raise prices.
Loss
FC up → TC shifts UP → BEP ___
Increases.
Increases
Name three limitations of break-even analysis
Assumes all output sold, assumes costs purely fixed/variable, assumes constant price, single product only, static model.
All sold + pure costs + one price + one product
FC increase → TC line shifts ___. BEP ___
UP (parallel). BEP increases — need to sell more.
Up + BEP increases
Price increase → TR line becomes ___. BEP ___
Steeper (more revenue per unit). BEP decreases. But may lose customers!
Steeper + BEP down
VC increase → TC line becomes ___. BEP ___
Steeper (starts same, rises faster). BEP increases — contribution falls.
Steeper + BEP increases
VC up → TC STEEPER → BEP ___
Increases.
Increases
Why is 'assumes all output is sold' a limitation?
In reality, not everything sells — unsold stock means actual revenue is lower than predicted.
Unsold stock
Price decrease → TR line becomes ___. BEP ___
Flatter (less revenue per unit). BEP increases. But may attract more customers!
Flatter + BEP up
FC change = TC shifts up/down (parallel). VC change = TC changes ___
Gradient (steepness) — different effects on the chart.
Gradient
Price up → TR STEEPER → BEP ___
Decreases.
Decreases
Why is 'single product only' a limitation?
Most businesses sell multiple products at different prices — break-even can't handle this complexity.
Multiple products
Price up → BEP down. Price down → BEP ___
Up — lower contribution per unit means more units needed to break even.
Up
When discussing price changes, always consider ___
Both the numbers (BEP change) AND the impact on demand (customers' response).
Numbers + demand
Mentioning limitations in exams shows ___
Critical thinking — can push answers into the top mark band.
Critical thinking
Rent goes up → which line moves? How?
TC shifts upward (parallel) — FC increased so whole line moves up.
TC shifts up
Price down → TR FLATTER → BEP ___
Increases.
Increases
Break-even is a ___ model — doesn't account for ___
Static; changes over time.
Static + no time changes
Price up → TR steeper → BEP lower. Price down → TR ___ → BEP ___
Flatter; higher.
Flatter + higher
Quick: Break-even limitations include assumes all sold, single product, constant ___
Prices — in reality businesses use discounts and change prices.
Prices
Raw materials cost more → which line changes? How?
TC becomes steeper — VC per unit increased so gradient increases.
TC steeper
Target profit output = (FC + target profit) ÷ ___
Contribution per unit.
CPU
Target profit output formula?
(Fixed costs + Target profit) ÷ Contribution per unit.
(FC + TP) ÷ CPU
Target price formula?
(FC ÷ forecasted output) + VC per unit + (Target profit ÷ forecasted output).
FC/output + VC + TP/output
Show all ___ in target profit/price exam calculations
Working — method marks available even if final answer is wrong.
Working
FC=$50k, VC=$10, price=$30, target profit=$20k. Target output?
CPU = $20. Target output = ($50k + $20k) ÷ $20 = 3,500 units.
3,500 units
FC=$50k, output=5000, VC=$10, target profit=$20k. Target price?
($50k ÷ 5000) + $10 + ($20k ÷ 5000) = $10 + $10 + $4 = $24/unit.
$24/unit
Target profit/price extends break-even by asking ___
How many units OR what price needed to achieve a SPECIFIC profit goal — beyond just covering costs.
Specific profit goal
What is SCM?
Supply chain management — coordinating all activities from sourcing raw materials to delivering the final product.
Raw materials → customer
SCM links to: location, outsourcing, ___, quality management
Reshoring — bringing production back to home country after supply chain problems.
Reshoring
Local supply chains: ___ lead times, easier ___ control
Shorter; quality — plus lower transport costs.
Shorter + quality
Global supply chains: lower ___ but more ___
Costs; complexity and risk.
Costs vs risk
COVID exposed the risks of ___
Relying on distant suppliers — global supply chain disruptions halted production worldwide.
Distant/global supply chains
Four elements of production planning?
Capacity planning, scheduling, stock control, quality planning.
Capacity, schedule, stock, quality
Production planning goal: right quantity, right time, minimum ___
Cost — balancing efficiency with meeting demand.
Cost
Capacity planning ensures ___
Production capacity matches demand — not too much (waste) or too little (missed sales).
Capacity = demand
Production planning links to: break-even, motivation, ___
Cash flow — stock levels directly affect how much cash is tied up.
Cash flow
Five steps for crisis response?
Act quickly, communicate transparently, take responsibility, protect people first, learn from it.
Fast, honest, responsible, people, learn
Crisis response: act fast, communicate, take responsibility, protect people, ___
Learn — review and update contingency plans.
Learn
What is a crisis?
An unexpected event threatening operations, reputation or survival.
Unexpected + threatening
Six types of crisis?
Natural disasters, product failures, data breaches, financial crises, reputational, supply chain disruptions.
Natural, product, cyber, financial, reputation, supply
Johnson & Johnson Tylenol crisis (1982) — textbook response?
Immediately recalled ALL products, communicated openly, introduced tamper-proof packaging.
Recall + open + tamper-proof
Protect ___ first — above profits
People (employee and customer safety) — ethics before money in a crisis.
People
Contingency plan = ___
A pre-prepared plan for dealing with a specific crisis — prepared in advance to reduce panic and speed response.
Pre-prepared crisis plan
Contingency plans must be regularly ___, reviewed and ___
Tested; updated — otherwise they become outdated and useless.
Tested + updated
Three advantages of contingency planning?
Faster response, reassures stakeholders, may reduce insurance costs, maintains operations.
Speed + confidence + insurance
Three disadvantages of contingency planning?
Costly/time-consuming, can't predict every crisis, plans become outdated, false sense of security.
Cost + unpredictable + outdated
What is R&D?
Research and development — systematic investigation to develop new products, improve existing ones, or find more efficient methods.
New/improved products + methods
R&D links to: PLC, finance, competitive advantage, ___
Innovation — R&D drives the product development stage of the PLC.
Innovation
Four reasons to invest in R&D?
Innovative products (competitive advantage), improve existing products, lower costs, patents create barriers to entry.
Innovation + improve + costs + patents
Three risks of R&D?
Very expensive, no guaranteed return, long time horizons, competitors may innovate faster, high failure rate.
Expensive + slow + failure
R&D is essential in fast-changing industries like ___
Tech and pharmaceuticals — innovate or die.
Tech + pharma
MIS = computer system for data-driven decision-making across ___
All business functions — finance, HR, marketing, operations.
All functions
What is MIS?
Management Information System — computer-based system collecting, processing, storing and distributing info for decision-making.
Computer system for decisions
Four things MIS does?
Collects data (sales, HR, ops), processes into info (reports, dashboards), stores history, distributes to right people.
Collect, process, store, distribute
Three benefits of MIS?
Better/faster decisions, improved coordination, early warning of problems, supports strategic planning.
Decisions + coordination + early warning
Three limitations of MIS?
Expensive, only as good as data input, staff need training, over-reliance ignores qualitative factors.
Cost + data quality + training + over-reliance
MIS links to ___ vs ___ management
Scientific vs intuitive — MIS supports data-driven (scientific) approach.
Scientific vs intuitive
S+W = internal. O+T = ___
External — things happening outside the business.
External
What does SWOT stand for?
Strengths, Weaknesses, Opportunities, Threats — a framework for understanding the business's current position.
S-W-O-T
Give three examples of strengths
Strong brand, loyal customers, skilled staff, good finances, unique products.
Brand, customers, staff, finance, products
Two benefits of SWOT analysis?
Simple/easy to understand; encourages thinking about internal AND external factors; useful starting point; highlights improvement areas.
Simple + comprehensive + starting point
SWOT is a useful ___ but is subjective and doesn't ___
Starting point; prioritise factors.
Starting point + no priority
S+W are ___. O+T are ___
Internal (controllable by the business). External (outside — must respond to).
Internal vs external
Two limitations of SWOT analysis?
Subjective (people disagree); doesn't prioritise; static snapshot; doesn't tell you WHAT to do.
Subjective + no priority + static
Give three examples of weaknesses
Poor cash flow, outdated technology, weak brand, high staff turnover.
Cash, tech, brand, turnover
Give three examples of opportunities
Growing market, new technology, competitor weakness, government incentives.
Growth, tech, rival weakness, incentives
SWOT is like a ___ for the business
Health check — identifying what's working, what's not, and what's coming.
Health check
Why is SWOT 'subjective'?
Different people may disagree on what counts as a strength or weakness — it depends on perspective.
People disagree
Quick: Strengths are internal ___; threats are external ___
Advantages; dangers.
Advantages vs dangers
SWOT shows a ___, not a dynamic picture
Snapshot — static at one point in time.
Snapshot
Strengths and weaknesses can be ___; opportunities and threats must be ___
Changed (internal control); responded to (external, can't control).
Change vs respond
Give three examples of threats
New competitors, economic downturn, changing laws, rising costs.
Rivals, recession, laws, costs
SWOT doesn't tell you ___
What to DO — it only identifies the situation. You need other tools for action planning.
No action plan
Strengths = internal ___. Opportunities = external ___
Advantages (competitive edge). Favourable factors (could help grow).
Advantages vs favourable factors
SWOT helps a business understand its ___ and plan for ___
Current position; the future.
Position + future
Quick: SWOT is best used WITH other tools like ___
STEEPLE, Ansoff, BCG.
STEEPLE + Ansoff + BCG
SWOT is often used alongside ___
STEEPLE, Ansoff matrix and BCG matrix for a more complete analysis.
STEEPLE + Ansoff + BCG
Use SWOT to evaluate options: does it match ___ and ___?
Strengths and opportunities.
S + O
Option A uses strengths + exploits opportunity = ___
Low risk, good fit — the option plays to what the business does well.
Low risk + good fit
Don't just quote numbers — explain what they ___
MEAN for the decision. '$2m cash' is a fact. 'Can fund the $1.5m expansion without borrowing' is analysis.
Explain the meaning
Name five stakeholders to consider in strategic decisions
Shareholders, employees, customers, community, suppliers.
Shareholders, staff, customers, community, suppliers
How is SWOT used for decision-making?
Evaluate options by asking: Does it play to strengths? Exploit opportunities? Expose weaknesses? Face threats?
Match options to SWOT
Support arguments with ___ from the stimulus material
Financial data — profit figures, ratios, cash flow.
Financial data
Shareholders care about ___; employees care about ___
Profits and share value; job security and morale.
Profits vs jobs
Option B requires overcoming weakness + faces threat = ___
High risk — the business lacks capability and faces external danger.
High risk
SWOT can evaluate options like ___
Expansion, takeovers, new products, entering new markets.
Expansion, takeovers, new products
Strong financial position (strength) makes risky options more ___
Feasible — the business can absorb potential losses.
Feasible
Consider stakeholder impact: shareholders, employees, ___
Customers, community, suppliers.
Customers + community + suppliers
Four SWOT questions for evaluating an option?
Does it use strengths? Expose weaknesses? Exploit opportunities? Face threats?
S-W-O-T questions
Strong brand (S) + growing market (O) → best option?
Expand into that market — uses the strength to exploit the opportunity.
Expand using brand
Mentioning stakeholder impact in 10-mark questions shows ___
Evaluation skills — helps reach the top mark bands.
Evaluation skills
Poor cash flow (weakness) may rule out ___
Expensive options — the business can't afford them without risky borrowing.
Expensive options
Customers care about ___; community cares about ___
Product/service quality; environmental and social impact.
Quality vs social impact
Don't just quote data — explain what it ___
Means for the decision.
Means
The real value of SWOT comes from ___
USING the analysis to evaluate options and choose the best path — not just filling in a box.
Using it, not just making it
When comparing options A and B, SWOT provides ___
Structure — systematically assessing which option fits the business better.
Structure for comparison
Market growth data (opportunity) supports ___ arguments
Expansion — growing demand means more potential customers.
Expansion
A strong option aligns with ___ and ___ while minimising ___
Strengths and opportunities; threats.
S+O aligned, T minimised
Suppliers: will relationships ___ or ___?
Strengthen or weaken — depending on the strategic option chosen.
Strengthen vs weaken
Quick: Best option = strengths + opportunities, minimal ___
Threats and weakness exposure.
Threats
The best choice aligns strengths with ___ while avoiding ___
Opportunities; exposing weaknesses to threats.
Opportunities; weakness exposure
The strongest exam answers combine SWOT with ___
Numbers from the case study — data-backed arguments score highest.
Case study numbers
10-mark: both sides, case study evidence, ___
Justified conclusion.
Conclusion
A strong conclusion makes a clear ___ supported by ___
Choice ('I recommend Option A because...'); evidence from the case study.
Choice + evidence
Six common exam mistakes for recommendations?
One-sided argument, no conclusion, generic answers, listing SWOT without impact, ignoring data, too much description.
One-sided, no conclusion, generic
Structure for 10-mark recommend questions?
Step 1: Argue FOR A. Step 2: Argue FOR B. Step 3: Evaluate. Step 4: Conclude with recommendation.
A → B → Evaluate → Conclude
Structure: For A → For B → ___ → Conclude
Evaluate — weigh up which is best.
Evaluate
A strong conclusion acknowledges ___
Trade-offs — 'Although Option B offers X, Option A is better because...'
Trade-offs
You CANNOT get full marks without a ___
Justified conclusion — 'it depends' without a final recommendation won't reach the top band.
Justified conclusion
'Sitting on the fence' (no conclusion) gets ___
Low marks — you must make and justify a choice.
Low marks
Don't just list SWOT points — explain their ___
Impact on the decision — how does each factor affect the choice?
Impact
10-mark questions need: both sides, evidence, and ___
A justified conclusion — clearly state which option and WHY.
Justified conclusion
A strong conclusion considers ___ AND ___ impact
Short-term AND long-term — not just immediate effects.
Short + long term
Strong conclusions: clear choice, evidence, trade-offs, ___
Stakeholders and short vs long term.
Stakeholders + timeframe
A strong conclusion mentions key ___
Stakeholders who will be affected by the decision.
Stakeholders
Avoid: one-sided, no conclusion, generic, ___
Ignoring data and writing too much description.
Data + description
Use ___ factors and ___ data to argue for each option
SWOT factors; case study data.
SWOT + case study
Magic formula for top marks?
Balanced arguments + Case study evidence + Stakeholder impact + Justified conclusion.
Balance + evidence + stakeholders + conclusion
Too much ___ and not enough ___ loses marks
Description; evaluation — examiners want analysis, not retelling the case study.
Description vs evaluation
Step 3 (evaluate) means weighing up which option is ___
BEST for this specific business — considering short-term and long-term.
Best for THIS business
Model conclusion format?
'I recommend A because it uses [strength] to exploit [opportunity], supported by [data]. Although B offers [benefit], A is better because [reason].'
Recommend + justify + acknowledge
Quick: Can you get full marks without a conclusion?
No — a justified conclusion is essential for top marks.
No
Rank Ansoff strategies by risk (lowest to highest)
Penetration (lowest) → Development (medium) → Product development (medium) → Diversification (highest).
P → D → PD → Div
Market penetration = ___ product + ___ market
Existing product + existing market — sell more to current customers. Lowest risk.
Existing + existing
Ansoff = 2×2 grid: products (existing/new) vs ___
Markets (existing/new).
Markets
Buying a competitor in same market = Ansoff ___
Market penetration — same products, same market, increasing share.
Penetration
What is the Ansoff matrix?
A 2×2 grid mapping four growth strategies based on existing/new products and existing/new markets.
2x2: products vs markets
Why is diversification the highest risk?
Both the product AND market are unfamiliar — everything is new and uncertain.
Both new + uncertain
Buying a company in a new country = Ansoff ___
Market development — existing products, new geographic market.
Development
The two axes of the Ansoff matrix?
Products (existing/new) and Markets (existing/new).
Products vs Markets
Market development = ___ product + ___ market
Existing product + new market — take current products to new customers/locations. Medium risk.
Existing + new
Four strategies: penetration, development, ___, ___
Product development, diversification.
PD + Div
Product development = ___ product + ___ market
New product + existing market — create new products for current customers. Medium risk.
New + existing
Why is penetration the lowest risk?
You know the product AND the market — familiar territory.
Both familiar
Buying a company making different products for your customers = ___
Product development — new product, existing market.
Product development
Risk: penetration (lowest) → diversification (___).
Highest.
Highest
Ansoff is like a ___ for growth
Sat-nav — showing different routes with different risk levels.
Sat-nav
Used to evaluate ___ strategies including ___
Growth; takeovers.
Growth + takeovers
The Ansoff matrix helps businesses decide ___
How to grow — which combination of products and markets to pursue.
How to grow
Diversification = ___ product + ___ market
New product + new market — everything unfamiliar. Highest risk.
New + new
Risk increases as you move away from ___
What you know — the further from existing products/markets, the more uncertain.
What you know
Buying a company in a totally different industry = ___
Diversification — new product AND new market.
Diversification
Methods for market penetration?
Increase advertising, lower prices, loyalty schemes — aim to increase market share.
Ads, price cuts, loyalty
Quick: Existing product + new market = ___
Market development.
Development
For takeover questions: identify the ___ and explain ___
Quadrant; WHY the takeover fits that category.
Quadrant + why
Name the four Ansoff strategies
Market penetration, market development, product development, diversification.
P-D-P-D
Diversification can be very rewarding IF ___, but many ___
Successful; fail — it's high risk, high reward.
Reward if success, many fail
Five steps to apply Ansoff in exams?
1) ID product (existing/new) 2) ID market (existing/new) 3) Place in quadrant 4) Explain risk 5) Evaluate suitability.
Product → Market → Quadrant → Risk → Evaluate
Worked example: food company buys same-snack company abroad. Quadrant?
Market development — existing product (same snacks), new market (different country).
Market development
Name three limitations of the Ansoff matrix
Only considers products/markets (ignores finance, competition); oversimplifies; doesn't show HOW to implement.
Products only + simple + no 'how'
Apply Ansoff: identify product/market → place in ___ → explain ___
Quadrant; risk level.
Quadrant + risk
Ansoff assumes risk increases equally, but ___
Some diversifications are less risky than others — it depends on context.
Context matters
The takeover gives instant ___ to the new market, reducing risk vs ___
Access; starting from scratch.
Access vs starting fresh
Always link to the specific ___ — don't just describe the model
Business in the case study.
Business
Exam questions want you to ___ Ansoff, not just ___
Apply it to the specific scenario; describe it.
Apply, not describe
Real decisions are rarely neatly in ___
One quadrant — reality is more complex than a 2×2 grid.
One quadrant
Step 1: Is the product ___?
Existing or new — what is the business selling?
Existing or new
Always explain BOTH the knowledge (which ___) AND the application (why ___)
Quadrant; it fits this specific business.
Quadrant + why it fits
Limitations: oversimplifies, ignores ___, no implementation guide
Finance and competition.
Finance + competition
Step 2: Is the market ___?
Existing or new — who are they selling to?
Existing or new
Ansoff is best used alongside ___
SWOT, STEEPLE and financial analysis — it's a starting point, not the whole answer.
Other tools
Best used alongside ___, ___ and financial data
SWOT and STEEPLE.
SWOT + STEEPLE
Risk of market development = medium because ___
Product is proven but the new market is unfamiliar — customer preferences may differ.
Proven product, unknown market
Ansoff doesn't show ___
How to implement the strategy — just identifies which type of growth it is.
Implementation
Step 5: Evaluate whether the strategy ___
Suits this specific business — consider its strengths, resources and risk tolerance.
Suits THIS business
A takeover can reduce market development risk by ___
Providing instant access, local knowledge and existing customer base in the new market.
Instant access + local knowledge
Quick: New product + existing market = ___
Product development.
Product development
STEEPLE = seven ___ factors
External — Social, Technological, Economic, Environmental, Political, Legal, Ethical.
External
What does STEEPLE stand for?
Social, Technological, Economic, Environmental, Political, Legal, Ethical — seven external factors.
S-T-E-E-P-L-E
STEEPLE helps anticipate ___ in the external environment
Changes — both opportunities and threats before they become problems.
Changes
University STEEPLE: Social = ___
Changing student demographics (more mature students, international demand).
Student demographics
S = Social means ___
Changing demographics, lifestyles, attitudes, health trends, ageing populations.
Demographics + lifestyles
STEEPLE supports ___ planning
Strategic — preparing for opportunities and threats over the long term.
Strategic
Links to ___ and ___ in SWOT
Opportunities and Threats.
O + T
T = Technological means ___
New tech, automation, AI, e-commerce, social media, digital disruption.
Tech + AI + digital
Car manufacturer STEEPLE: Technological = ___
Electric vehicles, autonomous driving — must adapt or lose competitiveness.
EVs + autonomous
All STEEPLE factors are ___
External — things the business cannot control but must respond to.
External + uncontrollable
STEEPLE helps businesses ___
Identify external factors that affect decisions — scan the environment for opportunities and threats.
Scan environment
E = Economic means ___
Interest rates, inflation, recession, exchange rates, unemployment, growth.
Rates, inflation, recession
STEEPLE factors feed into SWOT's ___ and ___
Opportunities and Threats — use them together for stronger answers.
O + T
Fast food STEEPLE: Social = ___
Health-conscious consumers — demand for healthier menu options.
Health trends
Always apply to the ___
Specific business — don't just list generic factors.
Specific business
Quick: Economic factors include ___
Interest rates, inflation, recession, exchange rates, unemployment.
Rates, inflation, recession
Don't just list factors — always explain ___
HOW each factor affects the specific business in the case study.
How it affects THIS business
STEEPLE links to which part of SWOT?
Opportunities and Threats — STEEPLE factors feed into the O and T of SWOT.
O + T of SWOT
E = Environmental means ___
Climate change, pollution, sustainability pressure, natural disasters, resource scarcity.
Climate + sustainability
STEEPLE identifies ___ before they become problems
Risks — early warning system for external changes.
Risks
P = Political, L = Legal, E = Ethical?
Political: gov stability, trade, tax. Legal: employment law, data protection. Ethical: fair trade, CSR, working conditions.
Gov + law + ethics
Use STEEPLE and SWOT ___ for stronger answers
Together — STEEPLE feeds into SWOT's external factors.
Together
Quick mnemonic for STEEPLE?
'Seven Tricky External Elements Pushing Limits Everywhere'
STEEPLE mnemonic
Generic STEEPLE answers score ___
Low — always apply to the specific business.
Low
Quick: Legal factors include ___
Employment law, health/safety, consumer protection, data protection.
Laws + regulations
Formula for a strong STEEPLE answer?
Name the factor → Describe the specific issue → Explain impact on THIS business.
Name → Describe → Impact
Name → describe → explain ___ on THIS business
Impact — the three-step formula for STEEPLE answers.
Impact
You don't need all seven — pick the most ___
Relevant factors to the business in the case study.
Relevant
STEEPLE + SWOT: factors feed into ___
Opportunities and Threats in SWOT.
O + T
STEEPLE + Ansoff: external factors affect which ___ is feasible
Growth strategy — e.g. political instability may rule out market development abroad.
Growth strategy
Choose most relevant factors, not all ___
Seven — depth matters more than breadth.
Seven
Example: 'Economic' → 'rising inflation' → ___
'Increases cost of materials, squeezing profit margins for this manufacturer.'
Impact on margins
Two well-explained factors beat ___
Seven vaguely mentioned ones — depth over breadth.
Seven vague ones
Combine STEEPLE with SWOT, Ansoff, ___
Marketing mix and financial data for stronger answers.
Marketing mix
STEEPLE + marketing mix: external changes may force ___
Changes to the 7 Ps — e.g. new technology changes promotion methods.
Changes to Ps
Expansion abroad → think about ___ and ___ factors
Political and legal — government policies, regulations, trade barriers.
Political + legal
Generic answers score low because ___
They don't show understanding of how the factor affects the specific business.
No specific connection
Two well-explained > ___ vague ones
Seven.
Seven
When asked to 'outline two STEEPLE factors', you must ___
Name, describe and explain impact — not just list the letters.
Name + describe + impact
STEEPLE is rarely used alone — combine with ___
Other tools for the strongest exam answers.
Other tools
Cost pressures → think about ___ factors
Economic — inflation, interest rates, exchange rates.
Economic
Quick: Use case study to guide your choice of ___
STEEPLE factors — which external issues are mentioned or implied?
Factors
STEEPLE + location: ___ and ___ factors affect where to locate
Political and economic — tax, regulations, labour costs.
Political + economic
Reputation issues → think about ___ factors
Ethical — fair trade, CSR, environmental responsibility.
Ethical
Connect theory to the ___
Case study — always refer to the specific business scenario.
Case study
Three limitations of the BCG matrix?
Only two measures; assumes high share = high profit; hard to measure accurately; static; dogs may still be valuable.
Two measures + assumption + static
What is the BCG matrix?
A 2×2 grid classifying products by market share (high/low) and market growth (high/low) — manages the product portfolio.
Share vs growth grid
A healthy portfolio has ___ funding ___ and promising ___
Cash cows funding stars and promising question marks.
Cows fund stars + ?s
Stars = ___ share + ___ growth. Strategy?
High share + high growth. Invest to maintain position — future cash cows.
High+high → invest
BCG: Stars = invest. Cash Cows = milk. Question Marks = ___. Dogs = ___
Decide (invest or divest). Divest/discontinue.
Decide; divest
Cash Cows = ___ share + ___ growth. Strategy?
High share + low growth. Milk them — use profits to fund Stars and Question Marks.
High+low → milk
BCG helps answer which two questions?
Which products should we invest in? Which should we drop?
Invest or drop?
Healthy portfolio: cash cows funding ___
Stars and promising question marks.
Stars + ?s
Too many dogs means the business needs to ___
Innovate — it has too many declining products and no growth prospects.
Innovate
BCG assumes high market share = high profitability. Why isn't this always true?
A business could have high share through heavy spending — share doesn't guarantee margins.
Share ≠ profit
BCG axes: x-axis = ___, y-axis = ___
Market share (high/low). Market growth (high/low).
Share (x), growth (y)
No stars means ___
No future growth products — the business faces long-term decline.
No future growth
Limitations: only two measures, static, ignores ___
Profitability and brand strength.
Profitability
Question Marks = ___ share + ___ growth. Strategy?
Low share + high growth. Invest selectively or divest — uncertain potential.
Low+high → decide
Dogs may still be valuable because ___
They serve a niche market or complete the brand range — strategic reasons to keep them.
Niche + brand completeness
Hotel chain BCG example: luxury suites = ___
Star (high share, growing market). Standard rooms = Cash Cow. Budget range = Question Mark.
Star, Cow, ?
Name the four BCG quadrants
Stars, Cash Cows, Question Marks, Dogs.
Stars, Cows, ?s, Dogs
Dogs = ___ share + ___ growth. Strategy?
Low share + low growth. Divest or discontinue — unless they serve a niche.
Low+low → divest
BCG is a ___ snapshot — products move between quadrants over ___
Static; time — today's star could become tomorrow's cash cow or dog.
Static + time
Use alongside ___ and ___
SWOT and product life cycle analysis.
SWOT + PLC
BCG manages the business's ___
Product portfolio — the full range of products it sells.
Product portfolio
BCG helps prioritise where to ___ and where to ___
Invest; cut — directing resources to the most promising products.
Invest vs cut
Stars need heavy investment because ___
The market is growing fast — competitors are fighting for share and you must invest to stay ahead.
Fast growth = invest to compete
Quick: High share + high growth = ___
Star.
Star
BCG ignores ___, ___ and brand strength
Profitability; brand strength — only looks at share and growth.
Profit + brand
Draw 2×2, share (x), growth (y), label ___ quadrants
Four: Stars (top-left), Question Marks (top-right), Cash Cows (bottom-left), Dogs (bottom-right).
4 quadrants
How to draw a BCG matrix (5 steps)?
2×2 grid, x-axis = share (high LEFT), y-axis = growth (high TOP), label quadrants, place products using data.
Grid → axes → labels → plot
BCG construction questions are typically worth ___ marks
4 marks: 2 for correctly labelled matrix, 1 per product correctly classified.
4 marks
Star products → recommend ___
Continued investment and marketing support to maintain/grow position.
Invest + support
Common BCG mistake: getting the ___ wrong
Axes — market share is horizontal, growth is vertical. High share is on the LEFT.
Share horizontal, growth vertical
[2 marks] for correctly labelled matrix means ___
Axes labelled (share, growth) and all four quadrants named (Stars, ?, Cows, Dogs).
Axes + quadrant names
High share = LEFT. High growth = ___
TOP.
Top
Cash cows → recommend ___
Maintain current approach, use profits to fund growth elsewhere.
Maintain + fund growth
High market share goes on the ___ side
Left — not the right! This is a common exam error.
Left
You MUST use case study data to ___
Justify your classification — don't just guess where products go.
Justify with data
Question marks → recommend ___
Careful evaluation — invest if potential is high, divest if not.
Evaluate + decide
Use case study data to ___ classification
Justify — explain why each product belongs in its quadrant.
Justify
High market growth goes on the ___
Top — high growth above, low growth below.
Top
Each product placed correctly = ___ mark
1 mark each — based on case study evidence.
1 mark
Dogs → recommend ___
Discontinue or reposition — unless there's a strategic niche reason to keep them.
Discontinue unless niche
Use BCG to support strategic ___
Recommendations — which products to invest in, maintain, or drop.
Recommendations
Missing quadrant labels = ___
Lost marks — always label Stars, Cash Cows, Question Marks, Dogs.
Lost marks
In 10-mark questions, use BCG to support ___
Your recommendation — 'Product X is a Star and should receive priority investment...'
Recommendation support
Place products based on ___ data and justify ___
Case study; your classification — explain WHY each product belongs there.
Data + justify
Quick: Low share + high growth = ___
Question Mark.
Question Mark
Two limitations of a business plan?
Based on predictions (uncertain), can become outdated quickly, time-consuming, may give false confidence, some succeed without one.
Predictions + outdated + time
What is a business plan?
A formal written document outlining goals, strategies and how the business will achieve them — a blueprint for success.
Written blueprint
Business plan = formal document with goals, strategies, ___
And financial forecasts — the blueprint for the business.
Finances
Name four key elements of a business plan
Executive summary, business description, market analysis, marketing strategy, operations plan, HR plan, financial forecasts, sources of finance.
Summary, market, marketing, finances
Executive summary = ___
Brief overview of the whole plan — the first thing investors read.
Brief overview
Name three reasons to write a business plan
Attract investors/finance, think through the idea, set goals/milestones, identify problems, guide decisions.
Investors, goals, problems, guide
Plans can give false confidence if ___
Based on optimistic assumptions — rosy projections aren't reality.
Optimistic assumptions
Purpose: attract investment, plan ahead, set ___, identify ___
Milestones; risks.
Milestones + risks
In fast-changing markets, plans become ___ quickly
Outdated — the market moves faster than the document.
Outdated
Banks and investors want to see a plan because ___
It shows the business is organised, has thought ahead, and is worth investing in.
Shows credibility
Market analysis includes ___
Target market, competitors, demand — understanding who you're selling to.
Target, competitors, demand
Limitations: based on predictions, outdated, ___
Time-consuming to create and may give false confidence.
Time-consuming
Some entrepreneurs succeed without a plan because ___
They adapt quickly and rely on intuition — but this is riskier for most.
Intuition + adaptation
Financial forecasts include ___
Cash flow forecast, projected P&L, break-even analysis, start-up costs, sources of finance.
Cash flow, P&L, break-even
A business plan forces the entrepreneur to ___
Think through the idea carefully — testing assumptions before spending money.
Think it through
Essential for start-ups seeking ___
Finance — banks and investors require a credible plan.
Finance
Quick: Key elements include executive summary, market analysis, ___
Marketing strategy and financial forecasts.
Marketing + finances
If asked to 'state two elements', pick from list and ___
Give a brief explanation of each — not just the name.
Name + explain
Creating a good plan is ___ but worth it for ___
Time-consuming; attracting finance and avoiding costly mistakes.
Time vs benefits
A business plan guides decision-making as ___
The business grows — providing a reference point for strategic choices.
Reference for growth
Marketing strategy section answers: who is your ___?
Target market — who are you selling to?
Target market
What do investors care about most in a business plan?
The financial section — it shows whether the business can survive and grow.
Financials
Financial: cash flow, P&L, break-even, ___
Start-up costs and sources of finance.
Start-up + sources
Marketing section includes: target market, marketing mix, ___, ___
Competitive strategy, USP — how you'll differentiate and compete.
Competition + USP
Marketing: target market, USP, marketing mix, ___
Competitive strategy — how you'll compete with existing businesses.
Competitive strategy
Five financial elements in a business plan?
Cash flow forecast, projected P&L, break-even analysis, start-up costs, sources of finance.
CF, P&L, BE, start-up, sources
Cash flow forecast predicts ___
Cash coming in and going out each month — shows when the business might run short.
Monthly cash in/out
Operations section answers: how will you ___ the product/service?
Produce or deliver — the practical 'how it works' details.
Produce/deliver
Operations: production method, location, ___, ___
Suppliers; equipment/technology.
Suppliers + equipment
Financial forecasts are educated guesses — they won't be ___
Perfectly accurate, but they show you've done your homework.
Not perfect but prepared
All sections must be ___ and evidence-based
Realistic — optimistic assumptions undermine credibility with investors.
Realistic
Operations section includes: production method, ___, suppliers, ___
Location; equipment/technology needed.
Location + equipment
Quick: Investors focus heavily on the ___
Financial forecasts — they want to see numbers.
Financial forecasts
Sources of finance in the plan include ___
Loans, personal savings, investors, grants — how the business will be funded.
Loans, savings, investors, grants
What makes your product different = your ___
USP (Unique Selling Point) — essential for the marketing section.
USP
What is a decision tree?
A diagram mapping choices, outcomes, probabilities and financial values — helps decide based on expected value, not gut feeling.
Choice diagram + probabilities
Two benefits of decision trees?
Visual (easy to see all options); quantitative (uses numbers); forces risk assessment; compares expected values.
Visual + quantitative + risk
Decision trees: □ = decision, ○ = chance, branches = ___
Options and outcomes with probabilities and financial values.
Options + outcomes
Read a decision tree: start from the ___ at the □
Left — follow branches to see options, then outcomes at chance nodes.
Left
Two limitations of decision trees?
Probabilities are estimates (may be wrong); ignores qualitative factors; complex; gives false precision.
Estimates + no qual + complex
Square □ on a decision tree = ___
Decision node — a point where the manager makes a choice.
Decision point
Compare expected values — the highest is usually the best, BUT ___
Always consider qualitative factors and risk tolerance too.
Qual + risk tolerance
EV = outcome × probability (sum all at each node)
Expected value calculation — multiply and add.
Multiply + add
When evaluating, don't just pick the highest EV — also discuss ___
Risk, stakeholders and non-financial factors.
Risk + stakeholders + non-financial
Decision trees give a 'false sense of precision' because ___
The calculations look exact but are based on estimated probabilities — garbage in, garbage out.
Estimates look precise
Circle ○ on a decision tree = ___
Chance node — a point where different outcomes can happen with probabilities.
Chance/outcome point
Benefits: visual, quantitative, forces ___
Risk assessment — managers must think about probabilities.
Risk assessment
Decision trees don't consider ___
Qualitative factors — ethics, reputation, morale, stakeholder impact.
Qualitative factors
Probabilities at each chance node must add up to ___
1 (or 100%) — if they don't, something is wrong.
1.0
At chance nodes, look at ___ and ___
Probabilities and payoffs — to calculate expected values.
Probabilities + payoffs
Limitations: estimates, ignores ___, false precision
Qualitative factors (ethics, reputation, morale).
Qualitative
Expected value = outcome × ___
Probability — for each outcome, then sum all results at that node.
Probability
Quick: □ = ___. ○ = ___
Decision node; Chance node.
Decision; Chance
A risk-averse business may prefer ___ EV with more ___
Lower; certainty — safer option even if mathematically inferior.
Lower EV + more certainty
Probabilities are ___, so EVs are only as good as ___
Estimates; the estimates used — they may be wrong.
Estimates; estimate quality
Expected value formula?
EV = Σ (outcome × probability) — add up all outcome×probability pairs at a chance node.
Sum of (outcome × prob)
EV = Σ (outcome × probability). Net EV = EV − ___
Cost of the option.
Cost
Draw decision trees ___ to right, calculate ___ to left
Left; right — build the diagram forward, calculate backward.
Draw → , calculate ←
Net expected value formula?
Net EV = Expected value − Cost of the option.
EV minus cost
The highest net EV is mathematically best, BUT consider ___
Reliability of probabilities, affordability of losses, stakeholder impact, ethics, risk appetite.
Reliability + loss + stakeholders + ethics
'How much can the business afford to lose?' relates to ___
Risk tolerance — if failure means bankruptcy, even high EV may be too risky.
Risk tolerance
Option A: success $100k (0.6), failure $20k (0.4). EV?
EV = ($100k × 0.6) + ($20k × 0.4) = $60k + $8k = $68,000.
$68,000
Option A costs $50k, EV = $68k. Net EV?
$68k − $50k = $18,000 net expected gain.
$18,000
Step 1: Start with a ___ on the left
Decision node (square □) — the starting choice.
Square □
Draw left to right, calculate ___
Right to left.
Right to left
In 10-mark questions, use decision tree calculation PLUS ___
Qualitative evaluation — numbers alone aren't enough for top marks.
Qualitative evaluation
Probabilities at each node must add to ___
1.0.
1.0
Always check that probabilities at each node add to ___
1.0 — if not, there's an error.
1.0
Compare ___ EVs to choose between options
Net EVs — accounts for the different costs of each option.
Net
Mark rejected options with ___
Two diagonal lines across the branch — shows which option was NOT chosen.
Two diagonal lines
A risk-averse business prefers ___ EV with more ___
Lower; certainty/predictability.
Lower + certain
Always evaluate beyond numbers: discuss ___, ___, qualitative
Risk and stakeholders.
Risk + stakeholders
Why mark rejected branches?
Shows the examiner you understand the decision process — Nov 2024 markscheme awarded marks for this.
Marks for showing rejection
Highest net EV isn't always best if it's also the ___
Riskiest — a risk-averse business may prefer lower net EV with more certainty.
Riskiest
EV tells you the ___ financial return of each option
Weighted average — not what you'll definitely get, but the statistical expectation.
Weighted average
Calculate from the ___ side first, then move ___
Right (outcomes); left (to compare at decision node).
Right → left
Quick: Mark rejected branches with ___
Two diagonal lines.
Two lines
Show working in EV calculations for ___
Method marks — even if the final number is wrong.
Method marks
Don't just report the EV — also evaluate ___
Whether the probabilities are reliable and what qualitative factors matter.
Reliability + qualitative
Net EV shows the expected ___ from choosing that option
Net gain (or loss) — after accounting for the cost of the investment.
Net gain
Mean = total ÷ count (affected by ___). Median = middle (___). Mode = most frequent.
Outliers; not affected by outliers.
Outliers; unaffected
When to use mean?
Evenly spread data with no extreme outliers — the standard 'average'.
No outliers
What are measures of central tendency?
Ways to find the 'middle' or 'typical' value — mean, median and mode.
Middle value: mean, median, mode
Data: 5,8,8,10,12,15,50. Mean?
(5+8+8+10+12+15+50) ÷ 7 = 108 ÷ 7 = 15.4
15.4
When to use median?
When outliers could distort the average — e.g. wages, house prices.
Outliers present
Mean formula?
Add up all values ÷ number of values. Uses every data point but distorted by outliers.
Total ÷ count
Choose the right measure for the data — ___ matter!
Outliers — they determine whether mean or median is more appropriate.
Outliers
Data: 5,8,8,10,12,15,50. Median?
10 — the 4th value (middle of 7 ordered values).
10
Always show your ___ in calculations
Working — method marks available even if answer is wrong.
Working
What is the median?
Middle value when data is ordered. Not affected by outliers — good for skewed data.
Middle when ordered
Data: 5,8,8,10,12,15,50. Mode?
8 — appears twice, more than any other value.
8
When to use mode?
Finding the most popular item — e.g. best-selling shoe size or product.
Most popular
Mean = add and divide. Median = ___. Mode = ___
Middle of ordered list; most frequent.
Middle; most frequent
What is the mode?
Most frequent value. Can have no mode, one, or multiple. Useful for popularity.
Most common
The mean (15.4) is pulled up by the outlier (50). Better measure?
Median (10) — more representative of the typical value.
Median
Quick: Outlier present → use ___
Median instead of mean.
Median
Quick: Most popular item → use ___
Mode.
Mode
Mean is distorted by ___ but median is not
Outliers (extreme values) — mean gets pulled toward them.
Outliers
For salary data, ___ is usually better than mean
Median — a few very high salaries pull the mean up, giving a misleading average.
Median
If data has an obvious outlier, comment on ___ and suggest ___
How the mean is distorted; the median as a better measure.
Mean distorted → use median
Range formula?
Highest value − Lowest value. Simple but only uses two data points.
Highest − lowest
Range = highest − lowest (simple but ___). SD = average distance from mean (more ___)
Limited; reliable.
Limited vs reliable
Low dispersion in sales means ___
Consistent, predictable revenue — easier to plan and budget.
Predictable + easy to plan
What does standard deviation measure?
How far each value is from the mean on average — uses ALL data points.
Average distance from mean
Low dispersion = consistent. High dispersion = ___
Variable and risky — harder to predict and manage.
Variable + risky
High dispersion in sales means ___
Volatile, unpredictable revenue — harder to forecast and manage cash flow.
Volatile + hard to forecast
Low SD means ___; High SD means ___
Low = data clustered close to mean (consistent). High = data spread widely (variable).
Clustered vs spread
Low dispersion in quality means ___
Consistent products — good for reputation and customer trust.
Consistent + trust
You ___ SD in exams, you don't ___ it
Interpret; calculate.
Interpret
Quick: Businesses prefer low dispersion because ___
It means consistency — easier to plan, budget and maintain quality.
Consistency
Two shops: both average $10k/week. Shop A: $9k-$11k. Shop B: $3k-$17k. Which is easier to manage?
Shop A — low spread means predictable, easier to plan staffing and stock.
Shop A (low spread)
Range is limited because ___
It only uses two values (highest and lowest) — ignores everything in between and distorted by outliers.
Only 2 values
Businesses prefer ___ dispersion in sales and quality
Low — consistency is easier to manage and builds customer confidence.
Low
You won't need to ___ SD in the exam — just ___
Calculate; understand what high or low SD means for the business.
Interpret, not calculate
Quick: SD uses ___ data points; range uses only ___
All; two.
All vs two
Statistics: identify trends, compare, forecast, spot problems, ___
Support data-backed decisions.
Support decisions
You must be able to CONSTRUCT ___ and ___ in exams
Bar charts (simple + stacked) and pie charts — not just read them.
Bar charts + pie charts
Three limitations of using statistics?
Small/biased samples can mislead; shows WHAT not WHY; past ≠ future; can be cherry-picked; ignores qualitative.
Sample + what not why + past
Name four ways statistics help managers
Identify trends, compare performance, forecast future, spot problems, support data-backed decisions.
Trends, compare, forecast, problems
Must construct: bar charts (simple + stacked) and ___
Pie charts — calculate degrees and draw accurately.
Pie charts
Statistics show WHAT happened, not ___
WHY — numbers don't explain the reasons behind the data.
Why
Pie chart: calculate degrees formula?
(Value ÷ Total) × 360 degrees.
Value/total × 360
High average satisfaction (4.2/5) but high SD means ___
Inconsistency — some customers love it, others hate it. The variation is the real problem.
Inconsistency is the problem
Bar chart must include: title, labelled axes, ___, ___
Equal width bars, drawn to scale, key/legend if multiple categories.
Equal bars + scale + key
Data-backed arguments are more convincing than ___
Gut feelings — statistics provide objective evidence for decisions.
Gut feelings
Limitations: past ≠ future, can mislead, ignores ___
Qualitative factors — always combine quant with qual judgement.
Qualitative
Past data doesn't guarantee ___
Future results — trends can change unexpectedly.
Future
Statistics help spot problems by showing ___
Unusually high or low figures that signal something needs attention.
Unusual figures
Numbers can be ___ to support a preferred conclusion
Manipulated or cherry-picked — selective use of data is misleading.
Cherry-picked
Not to scale = maximum ___ out of 4 marks
3 — scale matters for accuracy marks.
3/4
Bar charts: labelled axes, to scale, equal width, ___
Key if needed, clear title.
Key + title
Statistics support ___ based on past data
Forecasting — predicting future demand, revenue or costs using historical trends.
Forecasting
Statistics are a tool, not the answer — combine with ___
Context, judgement and qualitative factors.
Context + judgement + qualitative
Stacked bar chart: bars divided into ___ showing subcategories
Segments — each segment shows a different subcategory, total height = total value.
Segments
Quick: Pie chart degrees = value ÷ total × ___
360.
360
Name all FIVE circular business models
Circular supply, Resource recovery, Product life extension, Sharing, Product service system (PSS).
CS-RR-PLE-S-PSS
Linear model = ___, ___, ___
Take, make, dispose — resources used once then thrown away. Wasteful.
Take-make-dispose
Linear = take, make, dispose. Circular = reuse, repair, ___
Recycle — sustainable, keeping resources in the loop.
Recycle
Five key principles of circular models?
Design out waste, keep materials in use, regenerate natural systems, share/lease models, use renewable energy/materials.
Design, keep, regenerate, share, renew
Two benefits of circular models?
Reduces waste/environmental damage; lower long-term costs; attracts eco-conscious customers; builds reputation; future-proofs.
Waste + costs + reputation
Two challenges of circular models?
High initial investment; new supply chains needed; customers may not pay more; complex to implement.
Investment + supply chains + complexity
'Design out waste' means ___
Products designed so nothing is wasted — every part has a use or can be recycled.
Zero waste by design
Circular model keeps resources ___
In use for as long as possible through reuse, repair, recycling, regeneration. No waste.
In use → no waste
Five models: circular supply, resource recovery, ___, ___, PSS
Product life extension, sharing.
PLE + sharing
Circular supply model = using ___ inputs
Renewable, recyclable or biodegradable inputs in a continuous loop.
Renewable/recyclable inputs
Linear: extract → produce → use → ___. Circular: design → produce → use → ___ → use again
Throw away; repair/recycle.
Dispose vs recycle
'Keep materials in use' means ___
Repair, refurbish, reuse, recycle — extending the life of materials.
Repair + reuse + recycle
Resource recovery model = recovering ___ from waste
Useful resources or energy from discarded products — waste becomes input.
Resources from waste
Circular models future-proof because ___
Resources become scarcer — businesses designed for reuse are better positioned.
Scarcity protection
Know when each model DOES and ___ apply
Does NOT — exam may ask why a model is unsuitable for a specific situation.
Does not
Benefits: lower costs, reputation, ___. Challenges: investment, ___
Future-proofing; complexity.
Future-proofing; complexity
Share and lease models: customers pay for ___, not ___
Use; ownership — the company retains the product.
Use, not ownership
Circular example: furniture company designs chairs that can be ___
Disassembled, with parts recycled into new furniture instead of landfill.
Disassembled + recycled
Product life extension = extending useful life through ___
Repair, refurbishment, remanufacturing, repurposing — products stay in use longer.
Repair + refurbish + repurpose
Customers may not value sustainability enough to ___
Pay more — willingness to pay a premium varies by market.
Pay more
Sharing model: why NOT suitable for tyres? (May 2025 exam)
Tyres wear out with use (safety risk), are size-specific, can't be meaningfully shared between users.
Safety + size-specific + wear
PSS model example: Rolls-Royce 'power by the hour'?
Airlines pay for engine flight hours, not buying engines. RR maintains them — selling the function, not the product.
Sell function, not product
The goal of circular models is to eliminate ___ and keep materials ___
Waste; cycling through the economy.
No waste + cycling
Quick: Sharing model = multiple users share ___
Access to one product — maximising its use.
One product
Circular models link to ___ and ___
Cradle to cradle (5.3.4) and CSR — sustainability principles.
C2C + CSR
Name four business benefits of sustainability
Attracts customers, reduces costs (long-term), meets regulations, attracts talent, improves investor appeal, builds reputation.
Customers, costs, regulations, talent
What is sustainability in business?
Meeting today's needs without damaging the ability of future generations to meet theirs — long-term responsibility.
Today without harming tomorrow
What is CSR?
Corporate Social Responsibility — a business takes responsibility for its impact on society and the environment.
Responsible for social/environmental impact
Sustainability = meeting today's needs without harming ___
Future generations.
Future generations
Name four practical sustainability strategies
Energy efficiency, waste reduction, digital delivery, ethical sourcing, sustainable packaging, carbon offsetting, employee engagement.
Energy, waste, digital, ethical
University sustainability example?
Digital learning materials, solar panels, reduced single-use plastics, local ethical food suppliers.
Digital + solar + plastics + ethical
Sustainability covers three areas:
Environmental, social and economic responsibility — all for the long term.
Environmental + social + economic
CSR covers: environmental responsibility, ethical labour, ___, ___
Community involvement, fair trading.
Community + fair trading
ESG investing is growing — ESG stands for ___
Environmental, Social, Governance — investors increasingly value responsible businesses.
Environmental + Social + Governance
Strategies: energy efficiency, waste reduction, digital delivery, ___
Ethical sourcing, green packaging, carbon offsetting.
Ethical + green + carbon
Sustainability means operating in a way that is ___
Environmentally, socially and economically responsible — not just green.
Responsible across all three areas
Ethical sourcing means ___
Buying from fair trade or environmentally responsible suppliers.
Fair trade suppliers
Sustainability isn't just 'nice to have' — it makes ___
Good business sense — short-term costs often pay for themselves long-term.
Business sense
Argument against CSR: increases ___ and reduces ___
Costs; short-term profits.
Costs + profits
CSR = taking responsibility for social and ___ impact
Environmental impact — closely linked to sustainability.
Environmental
Carbon offsetting means ___
Investing in projects that compensate for emissions — e.g. tree planting.
Compensate emissions
The classic sustainability definition mentions ___
Future generations — the key concept is intergenerational fairness.
Future generations
Argument for CSR: boosts ___, ___ and long-term profitability
Reputation; customer loyalty.
Reputation + loyalty
Business case: saves costs, attracts customers, meets ___, builds ___
Regulations; reputation.
Regulations + reputation
Energy efficiency and waste reduction save ___ long-term
Money — lower bills and material costs over time.
Money
Employees prefer to work for ___ companies
Responsible — sustainability helps attract and retain talent.
Responsible
For CSR exam questions: argue both ___ costs AND ___ benefits
Financial; reputational/ethical — balanced evaluation is key.
Costs vs reputation/ethics
Sustainability in business isn't just about the environment — also ___
Social responsibility (workers, communities) and economic viability (staying profitable long-term).
Social + economic
Quick: Exam questions often ask you to evaluate sustainability vs ___
Short-term profits — argue both sides.
Short-term profits
Employee engagement in sustainability means ___
Training staff and involving them in sustainability goals — making it part of the culture.
Train + involve staff
Track your progress with spaced repetition
Sign up free to get personalised review schedules and see exactly which cards you need to practice most.
Get Started Free