BS Answering Skills

“A”LEVEL BUSINESS STUDIES
REVISION GUIDE
ANSWERING SKILLS BOOKLET
PAPER 1
PAPER 2
CASE STUDIES/ DATA RESPONSES
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KEY EXAMINATION WORDS YOU NEED TO KNOW
STATE , LIST OR GIVE
As in “State three factors which might influence the price of a product.” The key words mean
‘write down without explaining or expanding upon’
 Costs involved
 Competition
 Demand for the product
 Government policy
 Target market
Accept any two factors
EXPLAIN
As in “explain your answer.” here the examiner is asking you to give more detail than just
listing or stating points. A common example of this type of question would ask you to “ state
and explain two advantages to a business of developing new products.” here you are expected
to list the two factors that you consider to be advantages and go on to explain why you think
they are advantages to the business
EXPLAIN CONTINUED
 FACTOR
New products will take the place of older products in the market.
 EXPLANATION
If a business develops new products then these goods can take over from older products,
the sales of which may be falling due to loss of consumer interest.
ANALYSE
As in “analyse the impact of a new competitor opening a shop close to your business
which sells fresh flowers.” This also requires an explained answer. You will have to
examine or explain how a new competitor will affect an existing business.

ANALYSE CONTINUED
A possible answer could be : as the new competitor is trying to get established, it may offer
fresh flowers at very low prices to start with. This could force existing businesses to lower
prices too. Sales will increase but the profit on each sale will be less than before.
EVALUATE
 as in “evaluate the arguments for and against the business locating its factory in
the north east of the country.” this is asking you to show advanced skills. you
should first list and explain/analyse the advantages and disadvantages. then you
should weigh them up or compare them and come to a final recommendation.
EVALUATE CONTINUED
CONCLUSION
On the other hand there are advantages to building in the north east, such as cheap land whilst
there are also disadvantages such as distance from customers. however, on balance the
factory should be built in the north east because it requires a large site so the cost of the land
is important. the finished product can be easily transported to consumers who are in several
different parts of the country.

QUESTIONS AND ANSWERS
1. Identify any two factors that may cause a firm to relocate. [2]
 Dying market
 Exhausted raw materials
 Stiff competition
 Political influence
 Increase in costs of production in the area
2 a) List three stakeholders that might wish to compare the size of one business to another. [3]
 Business owner
 Customer
 Investors
b) State and explain any two factors that are taken into consideration when measuring the size
of a business. [4]
 Market size
 Number of employees
 Size of capital
 Volume of sales
Plus explanation
3 a) What is the importance of small business operations in your country? [4]
 Developing personal relationships

Small businesses are well placed to build personal relationships with customers,
employees, and suppliers. With a small business you know who you are dealing with;
you can 'put a face' to the person you are in contact with. Person-to-person interaction
is as important as ever in building strong relationships.
 Responding flexibly to problems and challenges

In a small business there is little hierarchy or chain of command. Large businesses
may have set ways of operating and establish procedures that are hard to change.
Small businesses are often far more flexible. It can also reach a quick decision on
whether or not it can do what is required.
 Inventiveness and innovation

Small businesses are well positioned to introduce and develop new ideas. This is due
to their owners not having to report or seek approval from anyone else.
 Low overheads
Due to the small scale of operation, small businesses have lower overhead costs. They
operate in small premises with low heating and lighting costs, and limited rent and
rates to pay. Low costs result in lower prices for consumers.

 Catering for limited or niche markets
Large firms with high overheads must produce high levels of output to spread costs.
By contrast, small firms are able to make a profit on much lower sales figures.
b) Explain the difficulties faced by small firms in their operations. [4]
 Lack of planning and research

 Money management
4 Musendo Pvt Ltd sells computers to small businesses around the country. It is suffering cash
flow problems at the moment. How might this firm improve on its cash flow? [4]
 Cut stocks
Reduce the amount of cash tied up by buying and holding raw materials or goods for
resale. This can be done by (a) ordering less stock from suppliers and/or (b) offering
discounts on stocks held to encourage customers to buy (ideally for cash).
 Delay payments to suppliers

A dangerous game, but widely used in business. By taking longer to pay bills owed, a
business can reduce cash outflows (at the risk of damaging relationships with
suppliers though).
 Reduce the credit period offered to customers

This is easier said than done. By asking customers to pay for their purchases quicker,
a business can accelerate cash inflows. However, there is no guarantee that customers
will agree. They may need to be given a financial incentive, such as a prompt-
payment discount.
5 a) Distinguish between marketing and selling. [4]
Marketing refers to the analysis and evaluation of information about human needs and
wants in order to satisfy them effectively whereas selling refers to getting a product to
a customer at a given price
b) Explain any two factors that influence demand for a product. [4]
 Price
Usually viewed as the most important factor that affects demand. Products have different
sensitivity to changes in price. For example, demand for necessities such as bread, eggs
and butter does not tend to change significantly when prices move up or down
 Income levels
When an individual’s income goes up, their ability to purchase goods and services
increases, and this causes demand to increase. When incomes fall there will be a decrease
in the demand for most goods

 Consumer tastes and preferences
Changing tastes and preferences can have a significant effect on demand for different
products. Persuasive advertising is designed to cause a change in tastes and preferences
and thereby create an increase in demand.
 Competition
Competitors are always looking to take a bigger share of the market, perhaps by cutting
their prices or by introducing a new or better version of a product
 Fashions
When a product becomes unfashionable, demand can quickly fall away.
6 Explain two ways in which a football club might reduce its break-even level. [4]
 Increasing selling prices of tickets as long as the number of tickets sold will not decline
significantly.
 Reducing the amount of fixed costs
7 Mr B. Banda is an old and experienced tailor who uses job production in making suits for his
customers.
Outline the advantages and disadvantages he is likely to encounter in his business. [6]
Advantages
 Product usually high quality

 Producer meets individual customer needs
 Greater job satisfaction – involved in all stages of production
Disadvantages
 Cost of producing one unit or job is higher

 Labour –intensive
 Requires investment in skills and training
8 a) State two sources of internal and two sources of external finance for a firm. [4]
Internal sources of finance include :
 Sale of Stock,
 Sale of Fixed Assets,
 Retained Earnings
 Debt Collection.
External sources of finance include:
 Loan from banks,

 Debenture,
 Trade Credit,
 Factoring,

b) Outline the factors considered by a firm when sourcing finance. [4]
 The amount required

 Type of expenditure/Purpose for which the capital is required
 The length of time for which the money is required
 The size, status and ability of the business to borrow
 The business’s current level of gearing
 The business’s level of reserves and profits
 The cost of the source of finance
9 To what extent are published accounts of a firm useful to a potential investor? [4]
Benefits of published accounts
Profit utilisation - firms have to give their shareholders an acceptable return on their
investment, otherwise they will sell their shares and the market value of the firm will
fall. Investors will be interested in the ratio between dividends and retained profits.
Profit quality - identify any changes in profit and ask where any profit comes from.
For instance, identifying whether the profit generated is from improved trading or
from the sales of assets.
Limitations of published accounts
Accounts are documents required by law, and are open for all to see. Their value is
limited, however, as they are prepared with this knowledge in mind. Although, in
theory, there can be no secrets in these accounts the accounts show the 'headline
figures' rather than the specific detail.
Accounts are backward looking (historic) . They report what has happened , not what
is going to happen. Accounts, when issued, may be up to 6 months out of date. Only
management accounts, which are intended for internal use, look forward. These
accounts are used as planning and navigation documents for the management and are
not available to the general public.
Window dressing
Window dressing is presenting the accounts of a business in the best possible, or

most, flattering way. In public companies, this type of "creative accounting" can
amount to fraud.
There are several 'tricks of the trade' - some legal and others not - whereby companies
try to make their businesses look more successful than they are. Remember accounts
are produced on a single day at the end of the financial year. The position may be
different the day before or the day after! The timing of various transactions can be
manipulated to influence the appearance of the accounts just before they are prepared.

10 a) What is a training programme? [2]
Training is a program that helps employees learn specific knowledge or skills to
improve performance in their current roles. Development is more expansive and
focuses on employee growth and future performance, rather than an immediate job
role.
b) State and explain any two reasons for high labour turnover in an organisation. [4]
 Poor remuneration
 Inappropriate leadership style
 Poor working conditions
11 a) What is an autocratic leadership style? [2]

Autocratic leadership is a management style wherein one person controls all the
decisions and takes very little inputs from other group members. Autocratic leaders
make choices or decisions based on their own beliefs and do not involve others for
their suggestion or advice.
b) Explain the circumstances in which an autocratic management style may be

appropriate. [4]
This type of leadership style is only effective in organisations where the nature of
work requires quick decision-making. The sole responsibility of the decision and the
outcome is with the leader. It is considered to be a flexible leadership style but some
would argue that it is outdated now.
Autocratic leadership will be helpful in situations where a business faces constant

change or a crisis. It will be able to react to the situation promptly compared to other
leadership styles, because of streamlined organizational structure and quick decision-
making ability.
12 a) State and explain any two non-financial methods of motivation. [4]

 Job Enlargement
Involves adding extra, similar, tasks to a job. In job enlargement, the job itself
remains essentially unchanged. However, by widening the range of tasks that need to
be performed, hopefully the employee will experience less repetition and monotony.
With job enlargement, the employee rarely needs to acquire new skills to carry out the
additional task. A possible negative effect is that job enlargement can be viewed by
employees as a requirement to carry out more work for the same pay!
 Job Rotation
Involves the movement of employees through a range of jobs in order to increase
interest and motivation.
For example, an administrative employee might spend part of the week looking after
the reception area of a business, dealing with customers and enquiries. Some time

might then be spent manning the company telephone switchboard and then inputting
data onto a database.
Job rotation may offer the advantage of making it easier to cover for absent
colleagues, but it may also reduce' productivity as workers are initially unfamiliar
with a new task. Job rotation also often involves the need for extra training.
 Job Enrichment
Job enrichment attempts to give employees greater responsibility by increasing the
range and complexity of tasks they are asked to do and giving them the necessary
authority. It motivates by giving employees the opportunity to use their abilities to the
fullest. Successful job enrichment almost always requires further investment in
employee training.
b) Comment on Herzberg’s ideas on motivation. [3]
According to the Two Factor Theory of Frederick Herzberg people are influenced by
two factors. Satisfaction and psychological growth was a factor of motivation factors.
Dissatisfaction was a result of hygiene factors.
Hygiene factors are needed to ensure an employee does not become dissatisfied.
They do not lead to higher levels of motivation, but without them there is
dissatisfaction.
Motivation factors are needed in order to motivate an employee into higher

performance. These factors result from internal generators in employees.
13. a. State two factors which indicate falling morale in a firm
 increased rates of accidents

 increased labour turnover
 increased customer complaints
 increased machinery breakdown
b. Explain why management of a firm would wish to maintain a high level of morale
among its workers.
This will be done so as achieve
 low rate of labour turnover

 low levels of absentism
 low rate of accidents
 low levels of machinery breakdown

14. a. What are the main causes of high labour turnover
 poor working conditions

 inappropriate leadership style
 hostile relationship with superiors or peers
 unclear company policies and objectives
 poor remuneration
 lack of job security
 ineffective recruitment
b. How might management reduce high labour turnover?
 Overhaul pay structure

 Improve working conditions
 Improve communication and information sharing
 Adopting appropriate leadership style
 Revising remuneration systems
15. a. Why might a profitable business experience liquidity problems
 Selling on credit
 Buying non-current assets using limited resources
 Overtrading
 Financial mismanagement
 Poor debt collection methods
b. Evaluate methods a business might use to improve liquidity problems
 Selling on cash only

 Reducing trade receivables collection period
 Negotiating for increased trade payables payment period
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16 a. Distinguish between short term and long term sources of finance for busines
Short-term financing refers to business or personal loans that have a shorter-than-

average time span for repaying the loan, typically one year or less. Long-term
financing refers to business or personal loans that have Longer time span for repaying
the loan, more than a year. [4]
b. Explain any two factors considered when selecting an appropriate source of

finance.
Purpose
Amount required
Expalnations required [4]
17 a. Explain the meaning of market segmentation.
Market segmentation is the process of dividing a market of potential customers into

groups, or segments, based on different characteristics. The segments created are
composed of consumers who will respond similarly to marketing strategies and who
share traits such as similar interests, needs, or locations. [2]
b. Why may businesses wish to segment markets for their product?

 Better Satisfy Customer Needs and Wants
Through segmentation, a company can match customers’ needs and wants. Since all
customers have differing needs, they must be handled in different ways.
Segmentation enables identification of the different customer segments and their
preferences. Then, a solution can be customized for each segment using the
company’s products or services. As customers grow older, their preferences and
buying behaviors change. By identifying these changes, solutions can be provided to
customers throughout their ‘life cycle’ by adopting the product or service to the
segment’s needs. This is a great way to retain customers as they change their
behaviors over time.
 Better Communication
A marketing message needs to be targeted to specific customer segments for it to be
effective. Since customers have different needs and wants, solutions to each segment
need to be communicated separately. Mass marketing causes some target customers to
miss the intended message. Also, too much money is spent on advertising to
customers who will never purchase the product. Through segmentation, customers can
be reached with a specific marketing message that is designed to solve their individual
problems, which is less costly for the company.
 Opportunity for Growth
Segmentation enables identification of potential customers who wouldn’t normally
buy a product. By segmenting the market, a company can create its own ‘niche’ and
attract customers who normally would look to alternative sources for a solution to
their problem. If these unique problems are identified, companies can adjust their
product offering to provide a solution. Also, segmentation can increase sales as
customers are introduced to new versions and upgrades of their current product. If
they try out a product with a lower price point and like the product, they can upgrade
to a more premium version.
 Increased Innovation
With segmentation, smaller segments in the market that have similar needs and wants
can be identified. Although these segments may not be traditional customers,
identifying new needs can stimulate innovative ideas to solve new problems. With
newly developed products and services to meet these needs, problems, premium
prices can be charged and the advantage in the market can be sustained.
 Higher Profits/Market Share

Consumers have different price sensitivities so by segmenting the market, different
prices can be charged to extract the most consumer surplus. In doing this, profits are
increased. Since segmentation supports niche strategies, highly attractive segments
can be identified and market leadership can be achieved. A competitive position
results from this place in the market, along with improved relationships and a stronger
brand presence. Also, competitive production and decreased marketing costs are
associated with segmentation. Due to all of these factors, profitability increases .
Accept any two explanations [4]
18 How are businesses affected by an increase in taxation?

Taxation policy affects business costs. For example, a rise in corporation tax (on
business profits) has the same effect as an increase in costs. Businesses can pass some
of this tax on to consumers in higher prices, but it will also affect the bottom line.
Other business taxes are environmental taxes (e.g. landfill tax), and VAT (value
added tax). VAT is actually passed down the line to the final consumer but the
administration of the VAT system is a cost for business. [4]
19 a. Why are most governments keen to promote exports?
Exports earn foreign currency , which can be use to buy imports. More exports means
more people needed to produce them, increasing employment and standards of living.
Successful exporters earn more money and have to pay more profits tax . [4]
b. Outline any 3 drawbacks of import controls [3]

 lack of variety of products
 promote sub-standard goods in the local market
20 a. Why might a firm employ part time workers?
Employing part-time workers has a range of potential business benefits, such as:
 Being an efficient way to keep costs down in areas where you don't yet need
full-time cover
 increasing recruitment and retention of staff by offering family-friendly
working practices
 being able to show potential clients and customers that you value having a
diverse workforce and ethical employment practices
 allowing you to bring in highly skilled and experienced staff members even
when you have a fixed budget and can't afford to bring someone in on a full-
time basis
 expanding the pool of potential recruits - part-time work tends to attract
parents with younger children and older people, who may not want to work
full time but can bring a wealth of skills, experience and expertise
 increasing the ability of your business to respond to change and peaks of
demands - for example, you can use more workers at peak times and extend
your operating hours by using part-time workers in the evening or at weekends
 helping to reduce the workloads of other workers, eg when you don't have
enough work for a new full-time position but are regularly using overtime to
meet demands - this can reduce your overtime costs and help prevent the
negative effects of stress and fatigue
Any three explanations [3]
b. What may be the disadvantages of hiring part time workers?

There are also some disadvantages when employing part-time staff:
recruitment costs may be greater than if you were taking on a single full-time worker
there could be additional costs in terms of pension provision, benefits and training
the job-sharers' manager may spend more time supervising two workers instead of
one [3]
21 Highlight any 3 factors a firm should consider when choosing a supplier

A key criterion in selecting the right supplier is value. Cost should not be the lone
driver; you should instead look at the total cost of ownership, which looks at the
supplier’s:
• Customer service
• Delivery commitments
• Reliability and responsiveness
• Resource savings (hard and soft) [3]
22 a. How might branding help in the successful marketing of a product?
Increased credibility.
Brand work can help increase your credibility by improving the perception of your
business. People buy more from companies they trust.
It can make you appear more established.
Increase the value of your business (if you plan to sell). If you present a well-rounded
business package, including marketing materials and graphics, your business will look
more complete and more attractive to potential buyers.
Brands are one of the most valuable assets a company has, as brand equity is one of
the factors that can increase the financial value of a business to potential buyers.
Many companies put the value of their brand on the balance sheet. [3]
b. Assess the usefulness of desk research

 Usefulness
The first advantage of using secondary data (SD) has always been the saving of time .
Not enough with this, in the so called Internet Era, this fact is more than evident. In
the past, secondary data collection used to require many hours of tracking on the long
libraries corridors.
Strongly connected to the previous advantage is the saving of money . In general, it is

much less expensive than other ways of collecting data. One may analyzed larger data
sets like those collected by government surveys with no additional cost.
 Disadvantages
Inappropriateness of the data . Data collected by oneself (primary data) is collected
with a concrete idea in mind. Usually to answer a research question or just meet
certain objectives. In this sense, secondary data sources may provide you with vast
amount of information, but quantity is not synonymous of appropriateness. This is
simply because it has been collected to answer a different research question or
objectives. The inappropriateness may be, for instance, because of the data was
collected many years ago, the information refers to a entire country when one aims to
study a specific region, or the opposite, one aims to study an entire country but the
information is given in a region wide. [3]
23 a. How might workers actively resist change?
Employees resist change in the workplace because of various reasons. The major
reason why employees resist change at work is because of bad management of change,
fear of the unknown, fear of losing responsibility. [3]
b. Explain any 2 consequences of a poor organisation structure

 Poor Communication
A poor organizational structure can lead to miscommunication because people might
not be sure who needs information or where to send important messages. For example,
a sales manager at a small company might create a new customer sign-up form to help
new clients start ordering more easily, getting approval from the owner of the
company to use the form. If the new form isn’t shared with the bookkeeper, she might
not know how to qualify new customers for credit or invoice them properly. This can
lead to delayed orders and long waits for payment from clients. This also can result in
customers not getting product, forcing them to find another supplier.
 Reduced Productivity
When your organization isn’t set up to create effective communications or doesn’t
foster creative strategic management, you can miss opportunities, allow problems to
continue and reduce employee morale. An employee who has two superiors might get
conflicting directions and not want to follow either until she gets approval from
higher up. When employees aren’t happy, they might not volunteer new ideas or
might leave for a better job. Poor organizational structure can lead to a reduction in
productivity, decreasing your growth potential. For example, when sales people don’t
communicate with production managers about large orders they know will be coming
in the months ahead, the production department can’t make the most effective
scheduling plans, leading to a lack of production capacity, labor availability,
warehouse storage space and shipping efficiencies. [4]
24 a. Show how any 2 elements of the marketing mix might help in achieving the
marketing objectives of a firm.
A good quality product outshines its competitors easily. However, a good product also
needs to be complemented with a good price and great promotions. Sometimes,
having one of the four elements strong, makes up for any weakness in the other areas.
Like you offer great quality and people are willing to pay higher prices. Your quality
or your prices become the talk of the town and you automatically reap its benefits and
do not have to struggle with the promotions part. So, a deep understanding of these
elements helps you achieve the best thing — sales and revenue because after all you
want to earn profits from your product and brand. Here, I will discuss the role these
elements play in your marketing strategy.
Product:
This is the central element in your marketing strategy. Not just the success of your
marketing strategy but the image of your brand too depends on the success of your
product. Nowadays competition has become more intense you need to have a great
quality product to shine on the shelf. Otherwise your product gets lost in the crowd of
brands every customer comes across in the market. So, you do not want you product
to be a loser. You must fill it with quality. Consider the example of Apple. It is its
product range that has made the brand a celebrity. The case of Starbucks also proves
that good quality products are easier to sell.
Price:
Pricing is also an important part of a brand’s marketing strategy. Many times your
pricing strategy is the most effective part of your marketing strategy. So, you must
keep your target market and your competition in mind before pricing your products.
This does not just help you attract the right customers but also helps you build distinct
image.
Promotion:
After pricing, it is the promotional part. Despite getting the rest elements of your
marketing mix right, you might need to do some marketing to let your customers have
a better glimpse of your product and its features and quality. You have a great product
and a smart pricing strategy but still you need to reach your target market and help it
know and understand your brand and its value proposition. It is because there is a lot
of competition and you have to reach your customers before others do. This is the
importance of your promotional strategy and being smart at it means achieving higher
sales and penetrating your target market deeper than the competitors.
Marketers must focus on all these aspects of their marketing mix to get the desired
results from their marketing campaigns. It is not all about promotion because without
a great product all the promotion will return no results. So, focus on making all these
aspects strong and if you can truly outshine your customers in a few areas, it might
lead to a need for less investment in the others. Even an average product can sell
given your pricing, placement and promotional strategies are right. [4]
b. List any four ways in which a business may attempt to extend the maturity
phase of a products life cycle.
1. Keep Refining Your Offers to Maximize Profitability
Maximizing profits is the main goal of your business; but how you go about it is key.
When a product is already in its market, there are several factors to maintain and
refine it for optimum profitability, these include:
 Pricing Adjustments
 Advertising and Promotion
 Increasing Penetration with Customer Base
 Finding New Customer Segments
A great way to maximize profitability with an existing product is to introduce a
“follow-up” product – one that is considered an enhancement or add-on for your
already thriving offer. The idea here is to keep your product competitive and refined
in the marketplace, adding additional value for your customers.
2. Update Products to Keep and Escalate Customer Relationships
You should never underestimate the value and power of a loyal customer base. By
keeping relationships fresh with updated products, you will continue to see repeat
purchases and satisfied consumers; this is something that money just cannot buy.
Customer relationships are what aid in promoting your business effectively.
One way of going about keeping and escalating your customer relationships is by
updating products and services. Offering something valuable in exchange for their
business is crucial for maximizing positive relationships. Large improvements or
additions don’t have to be necessary. This might just include a new bonus, providing
insights or advice on the usefulness of your product or staying in touch with your
consumer.
Another method of updating your products may include technology or R&D (research
and development) efforts to introduce an updated, yet very similar product or service.
3. Constantly Innovate and Improve Your Products and Services

There are many reasons why you should be continuously innovating and improving
upon your products and services. By doing so, you are improving upon the success of
your business. Those businesses that fail to innovate face the risk of losing to their
competitors, losing the customers that they have built long-lasting relationships with
and also risk reaching the ‘decline’ stage in the Product Life Cycle. Innovation and
new product launches can be an essential factor between becoming a market leader or
just another general product provider.
Below are some very simple steps to incorporate to continuously innovate and
improve upon your products and services:
Respond to trends and competition within your industry
Taking a product you already have and building upon it
Develop a unique selling point and use that in your marketing
4. Explore New Markets and Niches

By exploring new markets and niches, you are making every effort to help your
business grow. Incorporating diversification and unique market categories, your
business will strive. Staying in the same market or niche for too long risks the
dangers of entering the ‘decline’ stage of the Product Life Cycle much quicker than
not. In the challenging economic times that we are currently in, it is evermore
important to constantly find new products or services to provide for new and
prospering markets. Not only will this diversify your business, it will also allow for
new and improved revenue streams.
However, this may be a risky strategy to focus on. Many business owners are finding
that diversifying products or trying to incorporate new markets all at one time is a
delicate balance. Try to focus on your new product through mindful processing of
information gained from your initial target market. My one tip for you when trying to
expand to other areas is to carefully and strategically focus on one issue at a time.
This will help reduce the amount of adjustments needed in future ventures. Spotting
and exploiting new market opportunities for your products allows for your offering to
enter into uncharted territory, and the positive results could be that of remarkable
success. [4]
25 a. What do you understand by the following terms:

i. Recruitment
Recruitment (hiring) refers to the overall process of attracting, shortlisting,
selecting and appointing suitable candidates for jobs (either permanent or
temporary) within an organization or Recruitment is the process of
identifying that the organisation needs to employ someone up to the point
at which application forms for the post have arrived at the organisation.
ii. Selection
Selection then consists of the processes involved in choosing from
applicants a suitable candidate to fill a post. [2]
b. Justify the need for induction training in an organisation
The main purpose of induction training is to integrate new employees into the
company and make them understand the systems and procedures followed by the
organization. Induction training helps new employees settle down quickly in the new
work environment, and gives them a sense of belonging.
Let’s now look at the benefits of induction training, both from the perspective of the
firm and the new employee.
Benefits of effective induction training to the organization
1. Saves a lot of money and time:
Induction training is the first training program in which the employee participates
after he joins the organization. Induction training provides him all the information
needed to start performing his duties. If an employee is trained well in the induction
program, he can easily adapt to his new role and start delivering results quickly –
that’s how it saves the organization a lot of money and time.
2. Reduces employee turnover:

People join a company with a lot of expectations, and at the same time, they have lot
of questions about the organization. All these queries must be answered in the
induction training. Ineffective induction training leaves new employee confused about
the job. Employees may feel frustrated and helpless, if they are not trained properly.
On the other hand, effective induction training goes a long way in increasing staff
retention rate and reducing employee turnover in a big way.
3. Ensures operational efficiency:

A good induction training program covers all aspects of the company thoroughly. It
helps new employees become familiar with the organization’s work culture, vision,
mission, and goals. At the same time, new employees understand their own role in
achieving the goals of the company. This will help enhance the efficiency of
employees quickly, as they adjust to the work culture of the organization and get
involved in their job. Overall, it greatly helps increase the operational efficiency of
the organization.
4. Makes the new employee feel respected and valued:

Good induction training gives a warm welcome to the employee and focuses on
clarifying all his doubts about the organization and his job. It ensures that the new
employee feels comfortable in the organization. It also makes him feel that he is
welcomed, respected, and valued. This motivates the new employee greatly.
5. Provides the necessary information:
A comprehensive induction training program helps the new employee get all the
necessary information about the company and clarifies the organization’s expectations
on him. This helps him understand the culture, work norms, policies and procedures
of the organization, and thus enables him to quickly adapt to the work environment.
6. Helps in establishing good communication:

Induction training helps the new employee in establishing good communication with
the organization. As part of the induction training program, the new employee is
introduced to his direct supervisor, other employees, leads, and directors of the
organization. This makes him more comfortable when he has to communicate with
them later. [4]
26 Distinguish between fixed and variable costs giving examples of each.

Fixed Cost is the cost which does not vary with the changes in the quantity of
production units whereas Variable Cost is the cost which varies with the changes in
the number of production units. Fixed cost are time-related, i.e. they remains constant
over a period unlike Variable Cost which are volume related, i.e. they change with the
change in volume. Examples of fixed costs are rent, tax, salary, depreciation, fees,
duties, insurance, etc. Whereas examples of variable cost are packing expenses,
freight, material consumed, wages, etc. [4]
27 List any two basic economic systems excluding mixed economy.

Market economy
Traditional economy [2]
28 a. Define management by objectives.

Management by objectives (MBO) is a management model that aims to improve the
performance of an organization by clearly defining objectives that are agreed to by
both management and employees. According to the theory, having a say in goal
setting and action plans encourages participation and commitment among employees,
as well as aligning objectives across the organization. [2]
b. Identify any two Internal Economies of Scale
 Technical economies of scale
 Monopsony power
 Managerial economies of scale
 Financial economies of scale
Accept any two [2]
29 a.State any two forms of assistance given to small businesses by the government
ofyour country.
Economic Development
Loan Programs
Research and Development
Infrastructure Improvement
Education and Training
Accept any two [2]
b. Assess the importance of parastatals to the economy of your country.
Advantages
 The government controls the provision of strategic products.
 Provides products at cheap prices.
 Provides employment to people.
 Reduces duplication of resources .
 Implement government policies i.e. in terms of setting the prices of
products.
 Provide a source of income for the government thus reducing the tax
burden.
Disadvantages
 Operate at below full capacity , oftentimes at a loss.
 They are oftentimes inefficient and waste resources.
 Tend to provide poor quality products since they are monopolies e.g.
ZESA and its frequent power cuts.
 There is political interference in their operation.
 They are expensive to maintain and run.
 There is a lot of bureaucracy which lead to further inefficiency. [4]
30. Explain any three qualities of a good leader. [6]
 Appreciative – A wise leader values their team and the person. Success is only
achieved with the help of others. What’s more, genuine appreciation provides
encouragement, develops confidence, and builds on strengths.
 Confident – Trust and confidence in leadership is a reliable indicator of

employee satisfaction. Good leaders aren’t afraid of being challenged. Their
confidence inspires.
 Compassionate – Compassion is a strength. A good leader uses compassion to

perceive the needs of those they leads and to decide a course of action that is
of greatest benefit to the person and the team.
 Courageous – Perhaps I should have put this at the top of my list? A

courageous leader is prepared to take risks when no one else will. A
courageous leader has faith in other people. A courageous leader raises
difficult issues, is ready to give difficult feedback, and share unpopular
opinions.
 Fair – Fairness is what people want. Good leaders don’t have favourites in the
team. They reward for results not partiality; they promise fairness.
 Flexible – The good leader is able to flex. They alter and adapt their style
according to the situation, context and circumstances they experience. They
welcome new ideas and change.
 Honest – Wise leaders are not afraid of communicating the truth to their
people. Honesty is about being truthful, having integrity, and building trust.
Honesty leads to better more productive relationships.
 Impartial – Good leaders are impartial. They recognise their biases, prejudices,
and predispositions. They also recognise biases in others and face them.

Responsive – Good leaders are responsive to the needs of those they lead.
They adjust their behaviour to best match the situation. They listen to their
team; they value their team.
Accept any 3 [6]
31. a. Name any two methods of communication.
 Verbal
 Verbal communication (written and oral communication). [2]
b. Discuss the impact of informal communication to a clothing manufacturing

firm
Informal communication is information exchange that occurs outside of the official

communication processes of an organization such as events, meetings, formal
messages and documentation. The following are common types of informal
communication.
Grapevine
Information that is secret or speculative that is nonetheless spread through networks
of social connections. For example, rumours of a restructuring that spread to everyone
in a firm before its officially announced. The grapevine is often highly inaccurate. As
such, organizations may try to prevent grapevine rumours by communicating official
information as early as possible.
Influence
Influence based on social connections as opposed to the
authority structures of an organization. For example, a manager who has more
influence than most executives in a firm due to their social network and influencing
skills.
Team Building
Informal communication is an essential element of employee engagement and team
building. Social connections and experiences can be one of the main benefits of a job
[5]
32. a. What is meant by the term demand?
Demand is an economic principle referring to a consumer's desire and willingness to

pay a price for a specific good or service. [2]
b. To what extent is the Product Life Cycle (PLC) concept useful to a marketing
manager?
The Benefits of Product Life Cycle

Strategies – The number one benefit of Product life cycle is that it can help you to
define the strategies which can be used based on the life cycle stage. So if a product is
in growth stage, then naturally a lot of advertising and investments are needed to keep
the product in the growth stage. Thus, strategizing becomes easier with the Product
life cycle.
Decision making – Whenever you are presented with multiple options, you need more
data to take a decision on which direction to move in. Product life cycle helps
managers with such decision making because it has the sales data as well
performance over time data. The combination of these 2 can help managers take
decisions faster.
Limitations of the Product Life Cycle

Fluctuations in sales data – One major problem in the Product life cycle is that the
graph is completely dependent on sales data. Thus if there are fluctuations in the sales
data, then the graph is useless and cannot be used to predict precisely the movement
of products or the overall product rise and decline. Such fluctuations can arise due to
production issues, seasonal sales of the product or due to any other reason.
Delay in sales data – Another limitation for the product life cycle is that there is delay
in collecting and analysing the sales data. Sales is generally recorded after the
movement of goods and besides this, the actual movement of one product from one
life cycle to another might be recorded months down the line. This is because of delay
in analytics.
Varying market conditions – There may be a variance in the sales data due to varying
market conditions. Therefore products which are hit in one place, might not be hit in
other regions or territories due to the differences in consumption patterns of those
territories. [4]
33. a. Why might a firm find it beneficial to carry out market research?
Marketing research can help a business do one or more of the following:
Gain a more detailed understanding of consumers’ needs – marketing research can

help firms to discover consumers’ opinions on a huge range of issues, e.g., views on
products’ prices, packaging, recent advertising campaigns
Reduce the risk of product/business failure – there is no guarantee that any new
idea will be a commercial success, but accurate and up-to-date information on the
market can help a business make informed decisions, hopefully leading to products
that consumers want in sufficient numbers to achieve commercial success.
Forecast future trends – marketing research can not only provide information
regarding the current state of the market but it can also be used to anticipate future
customer needs. Firms can then make the necessary adjustments to their product
portfolios and levels of output in order to remain successful. [4]
b. Discuss the importance of market segmentation to a sportswear supplier.
Marketers must remember that a market can be viewed and segmented in several
different ways. The biggest benefit of using segmentation approaches like
demographic or benefit segmentation is to understand the overall market and identify
the unfulfilled needs of the customer [5]
34. Distinguish between Last In First Out (LIFO) and First In First Out (FIFO)
methods of stock valuation.
A method of stock valuation in which last received lot in hand is issued first is known
as LIFO. FIFO is a short form for First in, first out in which the inventory produced or
purchased first, is disposed off or sold out first. In LIFO, the stock in hand represents,
oldest stock while in FIFO, the stock in hand is the latest lot of goods. In LIFO, the
cost of goods sold (COGS) shows current market price while in the case of FIFO the
cost of unsold stock shows current market price. [4]
35. Explain any two benefits of motivation to a business enterprise.

Increase in productivity,
Reducing cost of operations, and
Improving overall efficiency.
Accept any two [4]
36. State any three ways of resolving disputes in a business enterprise.

 Consider the views of all parties involved
 Get to the root of the issue
 Accept people for who they are and who they are not
 Implement regular feedback meetings
 Have the team create a conflict resolution protocol where everyone buys in
 Have the team adopt communication
Accept any three [3]
37. Discuss the importance of decision trees in planning for a business enterprise.
Decision trees assist managers in evaluating upcoming choices. The tree creates a
visual representation of all possible outcomes, rewards and follow-up decisions in one
document. Each subsequent decision resulting from the original choice is also
depicted on the tree, so you can see the overall effect of any one decision. As you go
through the tree and make choices, you will see a specific path from one node to
another and the impact a decision made now could have down the road.
A drawback of using decision trees is that the outcomes of decisions, subsequent

decisions and payoffs may be based primarily on expectations. When actual decisions
are made, the payoffs and resulting decisions may not be the same as those you've
planned for. It may be impossible to plan for all contingencies that can arise as a
result of a decision. This can lead to an unrealistic decision tree that could guide you
toward a bad decision. [6]
ESSAY TYPE QUESTIONS
1. a) Explain the factors that are likely to determine the price of a product. [10]
Pricing is often one of the most difficult things to get right in business. There are several
factors a business needs to consider in setting a price:
Competitors – a huge impact on pricing decisions. The relative market shares (or market
strength) of competitors influences whether a business can set prices independently, or
whether it has to follow the lead shown by competitors
Costs – a business cannot ignore the cost of production or buying a product when it comes to
setting a selling price. In the long-term, a business will fail if it sells for less than cost, or if its
gross profit margin is too low to cover the fixed costs of the business.
The state of the market for the product – if there is a high demand for the product, but a
shortage of supply, then the business can put prices up.
The state of the economy – some products are more sensitive to changes in unemployment
and workers wages than others. Makers of luxury products will need to drop prices especially
when the economy is in a downturn.
The bargaining power of customers in the target market – who are the buyers of the
product? Do they have any bargaining power over the price set? An individual consumer has
little bargaining power over a supermarket (though they can take their custom elsewhere).
However, an industrial customer that buys substantial quantities of a product from a business
may be able to negotiate lower or special prices.
Other elements of the marketing mix – it is important to understand that prices cannot be
set without reference to other parts of the marketing mix. The distribution channels used will
affect price – different prices might be charged for the same product sold direct to consumers
or via intermediaries. The price of a product in the decline stage of its product life-cycle will
need to be lower than when it was first launched.
b) To what extent is price the most important factor in the successful marketing of a
firm’s products?[15]
Price is important to marketers because it represents marketers' assessment of the value

customers see in the product or service and are willing to pay for a product or service. The
other elements of the marketing mix (product, place and promotion ) may seem to be more
glamorous than price, and thus get more attention, but determining the price of a product or
service is actually one of the most important management decisions. Here's why.
While product, place and promotion affect costs, price is the only element that affects
revenues, and thus, a business's profits . Price can lead to a firm's survival or demise.
Adjusting the price has a profound impact on the marketing strategy, and depending on the
price elasticity of the product, it will often affect the demand and sales as well. Both a price
that is too high and one that is too low can limit growth. The wrong price can also negatively
influence sales and cash flow .
Problems occur if the marketer fails to set a price that complements the other elements of the
marketing mix and the business objectives, as pricing contributes to how customers perceive
a product or a service. A high price indicates high quality. The term luxury comes to mind. If,
however, a firm wants to position itself as a low-cost provider, it will charge low prices. Just
as they do with high-end providers, consumers know what to expect when they see low
prices.
So, as you can see, it is important that a company sets the right price. A company's success
can depend on it. However, with so many factors to consider along with the lack of a crystal
ball that will show the effect of a price change, It isn't so easy to do.
2. “Break even analysis is of limited value to business.” To what extent is this statement
true? [25]
Breakeven Analysis
Break-even analysis is a practical and popular tool for many businesses, including start-ups.
However, you also need to know about the limitations of the method. Here is a summary of
the key issues from the perspective of a start up or new business, for whom breakeven
analysis is particularly relevant and important.
Strengths of breakeven analysis
Focuses entrepreneur on how long it will take before a start-up reaches profitability – i.e.
what output or total sales is required
Helps entrepreneur understand the viability of a business proposition, and also those who will
lend money to, or invest in the business
Margin of safety calculation shows how much a sales forecast can prove over-optimistic
before losses are incurred
Helps entrepreneur understand the level of risk involved in a start-up
Illustrates the importance of a start-up keeping fixed costs down to a minimum (higher fixed
costs = higher break-even output)
Calculations are quick and easy – great for giving quick estimates
Limitations of breakeven analysis
Unrealistic assumptions – products are not sold at the same price at different levels of output;
fixed costs do vary when output changes
Sales are unlikely to be the same as output – there may be some build up of stocks or wasted
output too
Variable costs do not always stay the same. For example, as output rises, the business may
benefit from being able to buy inputs at lower prices (buying power), which would reduce
variable cost per unit.
Most businesses sell more than one product, so break-even for the business becomes harder
to calculate
Break-even analysis should be seen as a planning aid rather than a decision-making tool
3. Evaluate the significance of setting objectives to a business organisation. [25]
Provides direction for the customer and organisation

It’s important to be on the same page as your customer to create a common sense of purpose.
The customer feels like they are a part of the brand, not separated from it, when they are able
to see the course the brand is taking . Providing direction for the customer makes them feel
more secure and gives your organisation guidance for promotional activities.
Fundamental for human motivation within the organisation

Employees need guidance and motivation. By providing them with a target you give them a
reason to prove themselves. Nobody wants employees running around the office like a bunch
of lunatics because they have no idea where they’re supposed to go. Setting objectives
motivates them to achieve.
Keeps your performance in check

How do you know that your strategies producing epic results when you don’t have any
objectives to measure your results against? Of course, there’s a chance you may not be
meeting your objectives, but that’s okay, because now that you keep yourself in check, you
can improve your performance before anyone even notices that you were slacking.
Allows you to organise various marketing techniques towards a common goal

Within the marketing process, there are many factors that need to be accomplished such as
campaigns, strategies, research, reporting, content creation and development. If you have set
common goals then you will be able to aim and integrate all of these factors in the same
direction. Establishing this will make your brand that much stronger.
Encourages frequent communication within the organisation

Setting objectives leads to good communication. The organisation needs to constantly be
reassessing and re-evaluating the objectives they have set and how they can be increased or
improves. This means that the various departments have to communicate and coordinate with
one another in order to achieve this.
Bridges the gap between customer expectations and reality

Realistic and attainable objectives assure that your customer will not have expectations that
are impossible for you to meet. This allows you to set goals that are achievable and
measurable, and when you do achieve them, it builds up the customers trust in you. By not
setting objectives, you could be aiming for a successful campaign while the customer has
been preparing for world domination. Set objectives that bridge that gap.
Key driver of your strategies

And by key driver, we mean absolutely, one hundred percent necessary. By setting
objectives, you are able to come up with well-defined strategies that are guaranteed to make
you look like a marketing guru ( because that is what you are of course). Without setting
objectives, your strategies have no purpose and that’s definitely not what you’re going for. .
Challenges you to think creatively and strategically
We all care what we look like. So if you’re going to set bland, easy objectives that don’t
challenge you, you won’t look very impressive. We know you want your customers to be
blown out of the water, so setting objectives that require you to get your creative skills and
strategic thinking caps on, will undoubtedly produce an outcome that will be far greater than
the alternative.
Increases customer loyalty
As you begin to smash the objectives you set out of the ball park, your customers admiration,
satisfaction and loyalty towards your brand will begin to increase. You will be set apart, and
look better than everyone else.
4. Assess the importance of the following activities in an organisation.
a) Job evaluation [9]
Job evaluation is the systematic process for assessing the relative worth of jobs within an
organization. A comprehensive analysis of each position’s tasks, responsibilities, knowledge,
and skill requirements is used to assess the value to the employer of the job’s content and
provide an internal ranking of the jobs. It is important to remember that job evaluation is a
measurement of the internal relativity of the position and not the incumbent in the position.
This analysis can also contribute to effective job design by establishing the organizational
context and value of the job, and to hiring and promotion processes by providing job analysis
on skill and competencies required to successfully meet job requirements.
Job evaluation provides a rational and consistent approach for determining the pay of
employees within an organization. Paying fairly based on internal relative worth is called
Internal Equity. Job evaluation can be used independently, although it is usually part of a
compensation system designed to provide appropriate salary ranges for all positions. This
process will ensure an equitable and defensible compensation structure that compensates
employees fairly for job value.
b) on-the-job training [8]
On-the-job training is a form of training taking place in a normal working situation. It is a

one-on-one training located at the job site, where someone who knows how to do a task
shows another how to perform it. In antiquity, the work performed by most people did not
rely on abstract thinking or academic education. Parents or community members, who knew
the skills necessary for survival, passed their knowledge on to the children through direct
instruction.
On the Job Training is still widely used today. It is a frequently used method of training
because it requires only a person who knows how to do the task, and the tools the person uses
to do the task. It may not be the most effective or the most efficient method at times, but it is
normally the easiest to arrange and manage. Because the training takes place on the job, it can
be highly realistic and no transfer of learning is required. It is often inexpensive because no
special equipment is needed other than what is normally used on the job. One drawback is
that On the Job Training takes the trainer and materials out of production for the duration of
the training time. In addition, due to safety or other production factors, it is prohibitive in
some environment.
c) collective bargaining [8]
Collective bargaining is a process of negotiation between employers and a group of

employees aimed at agreements to regulate working salaries, working conditions, benefits,
and other aspects of workers' compensation and rights. The interests of the employees are
commonly presented by representatives of a trade union to which the employees belong. The
collective agreements reached by these negotiations usually set out wage scales, working
hours, training, health and safety, overtime, grievance mechanisms, and rights to participate
in workplace or company affairs.
The union may negotiate with a single employer (who is typically representing a company's
shareholders) or may negotiate with a group of businesses, depending on the country, to reach
an industry-wide agreement. A collective agreement functions as a labour contract between
an employer and one or more unions. Collective bargaining consists of the process of
negotiation between representatives of a union and employers (generally represented by
management, or, in some countries such as Austria, Sweden and the Netherlands, by an
employers' organization ) in respect of the terms and conditions of employment of
employees, such as wages, hours of work, working conditions, grievance procedures, and
about the rights and responsibilities of trade unions.
5 a) Explain the distinction between financial and management accounting. [5]
Financial accounting has its focus on the financial statements which are distributed to
stockholders, lenders, financial analysts, and others outside of the company. Courses in
financial accounting cover the generally accepted accounting principles which must be
followed when reporting the results of a corporation's past transactions on its balance sheet,
income statement, statement of cash flow, and statement of changes in stockholders' equity.
Managerial accounting has its focus on providing information within the company so that its
management can operate the company more effectively. Managerial accounting and cost
accounting also provide instructions on computing the cost of products at a manufacturing
enterprise. These costs will then be used in the external financial statements. In addition to
cost systems for manufacturers, courses in managerial accounting will include topics such as
cost behaviour, break-even point, profit planning, operational budgeting, capital budgeting ,
relevant costs for decision making, activity based costing, and standard costing.
b) Discuss the importance of ratio analysis to the following stakeholders:[20]
Ratios as a tool of financial analysis provide symptoms with the help of which any analyst is
in a position to diagnose the financial health of the unit. Financial analysis may be compared
with biopsy conducted by the doctor on the patient in order to diagnose the causes of illness
so that treatment may be prescribed to the patient to help him recover. Ratio analysis serves
the purposes of various interested parties of the financial statements. The interested parties
are top management, shareholders, creditors, employees, government and tax authorities.
With the use of ratio analysis, one can measure the financial condition of the business
concern and assess as whether the condition is strong, questionable or poor. As, already
hinted different groups of persons are interested in the affairs of any business entity,
therefore, significance of ratio analysis for various groups is different and may be discussed
as follows:
i) Creditors
Creditors may broadly be classified into short-term and long term. Short-term creditors are
trade creditors, bills payables, creditors for expenses etc., they are interested in analyzing the
liquidity of the unit. Long-term creditors are financial institutions, debenture holders,
mortgage creditors etc., they are interested in analyzing the capacity of the unit to repay
periodical interest and repayment of loans on schedule. Ratio analysis provides, both type of
creditors, answers to their questions.
ii) Shareholders
Existing as well as prospective owners or shareholders are fundamentally interested in the (a)
long-term solvency and (b) profitability of the unit. Ratio analysis can help them by
analyzing and interpreting both the aspects of their unit. Long term solvency ratios ensure the
growth of the business concern and possibility of getting back their investments. Ratio
analysis will be useful for deciding whether the present financial position warrants further
investments or not.
iii) Workers
Employees are interested in fair wages, adequate fringe benefits and bonus linked with
productivity/profitability. Ratio analysis provides them adequate information regarding
efficiency and profitability of the unit. This knowledge helps them to bargain with the
management regarding their demands for improved wages, bonus etc. If financial position is
strong, then, the employees are getting wages, salaries and perquisites in time. They can get
adequate financial increment and promotion in time. There is a guarantee in employment.
iv) Management
Ratio analysis helps the management to assess the performance of the business concern and
improve the management functions such as planning, coordination and control. Some ratios
are calculated for a number of years. These are working as guide to the management.
Meaningful conclusions can be drawn from these ratios. The financial strength and weakness
of the business concern can be find out through calculating some ratios. It means that
communication is facilitated by ratios. If financial position is very weak, better co-ordination
is formulated by the top management for improving efficiency. Standard ratios can be used
for finding variations or deviations. Such variations can be found by comparing the actual
with the standards so as to take a corrective action at the right time.
v) Government
The government can prepare the industrial policies on the basis of financial position
information available from various units. Various loan scheme with subsidies can be chalked
out by the government. The government can assess the economic condition of the nation. The
contribution of each industrial sector to GDP is also identified by the government.
6. Why firms need finance
Businesses need finance to:-
Start a business-a new business will need finance to buy assets, materials and employ staff.
There will also need to be money to cover the running costs. (running costs = ongoing costs
such as electricity, rent, insurance)
Finance expansions to production capacity-As a business grows, it needs to be able to

produce more and new technology and machinery to cut costs and keep up with competitors.
To develop and market new products- a business needs to spend money on developing and
marketing new products e.g. to do marketing research and test new products in “pilot”
markets.
To enter new markets-When a business grows it may sell products into new markets. These
can be new geographical areas to sell to (e.g.export markets) or new types of customers.
This costs money in terms of research and marketing e.g. advertising campaigns and setting
up retail outlets.
Take-over or acquisition-When a business buys another business, it will need to money to

pay for the acquisition (acquisitions involve significant investment).
To pay for the day to day running of business-A business needs money to pay for day to
day items such as paying a supplier for raw materials or paying the wages or buying a new
printer cartridge.
7. Ratio Analysis Importance and Limitations
Ratio analysis is an important and useful technique to check upon the efficiency of an
organization. The management can arrive at important decisions by using ration analysis. The
ratio is used for expressing the mutual relation to different accounts consisting in the financial
statement.
In fact, any given data in the financial statements are not important in itself. To make its real
importance clear, it is to be expressed in referring to other figures. With the help of ratio, the
big figure or groups can be made short and simple. From this, the business activities are made
possible to analyze systematically.
Importance of Ratio Analysis
Helpful in assessing operating efficiency of the Business-The ratio can be used as the
measuring rod of efficiency. With the help of this, the evaluation of changes during different
period can be performed. In this way, the comparative efficiency of company can be
informed.
Helpful in measuring financial solvency-Ratios are useful tools for evaluating the liquidity
and solvency position of a concern. They point out the liquidity position of an organization to
meet its short and long term obligations.
Helpful in future forecasting-Ration analysis is very helpful in financial forecasting and

planning. The ration calculation of past years works guide line for the future.
Helpful in decision making-Ratio analysis is also very helpful for decision making. The
information provided by ration analysis is very useful for making decision on any financial
activity.
Helpful in corrective action-Ratio analysis can also point out the deficiencies of the
business so that corrective steps may be taken accordingly.
Helpful in comparing inter firm performance-Due to inter firm comparison, ratio analysis
also serves as a stepping stone to remedial measures. It helps management evolving future
'market strategies'.
Helpful in communication-Ratio is an effective means of communication. Different

financial ratios communicate the strength and financial standing of the firm to the internal
and external parties.
Helpful in cost control-From the use of ratio, it is possible to control the different costs of
the concern.
Limitations of Ratio Analysis
The ratio analysis contributes a lot to portray the financial position of a business. But they
suffer from various limitations.
Limited use of single ratio-A single ratio in itself is not important. It would not be able to
convey anything. For making a meaningful conclusion, a number of ratios which makes
confusion to analyst is to be calculated.
Difficult to interpreter-It is very difficult task to fix an adequate standard for compression
purpose. There are no rules of thumb for all ratios which can be accepted as norm. It renders
interpretation of the ration difficult.
Ignored qualitative factors- Ratio analysis is related to the quantitative analysis only but
not with a qualitative analysis because it is ignored by ratio analysis.
Limitation of accounting record-Ratio analysis is related to financial statement. Financial

statement itself is subject to limitations. This ratio analysis also suffers from the inherent
weakness of the financial statement.
Mislead by accounting procedure-There must be uniformity in the accounting procedure

used by the concerns which are going to be taken as a window dressed. So the analyst must
be very careful on making decision from ratio calculated from such financial statement.
Wrong conclusion-The analyst or the user must have knowledge about the concern whose
statements have been used for calculating the ratios. Only then the conclusion may be draw.
The conclusion may be wrong if it has been drawn.
Price level changes-While making comparisons of ratios, no allowance for changes in

general price level is made. A change in price level can seriously affect the validity of
comparisons of ratios computed for different periods.
Personal Bias-Ratios have to be interpreted and different people may interpret the same ratio
in different ways. Ratios are means to achieve a particular and but not an end itself. It totally
depends upon the user as what conclusion he draws on the basis of ratio calculation.
8. Causes of Cash Flow Problems
A cash flow problem arises when a business struggles to pay its debts as they become due.
Note that a cash flow problem is not necessarily the same as experiencing a cash outflow. A
business often experiences a net cash outflow, for example when making a large payment for
raw materials, new equipment or where there is a seasonal drop in demand. However, when
cash flow is consistently negative and the business uses up its cash balances, then the
problem becomes serious.
The main causes of cash flow problems are:
Low profits
There is a direct link between low profits or losses and cash flow problems. Remember -
most loss-making businesses eventually run out of cash.
Over-investment in capacity
This happens when a business spends too much on production capacity. Factory equipment
which is not being used does not generate revenues – so is often a waste of cash.
Too much stock

Holding too much stock ties up cash and there is an increased risk that stocks become
obsolete (that is it can't be sold).
Allowing customers too much credit

Customers who buy on credit are called "trade debtors" Offering credit to customers is a good
way to build revenue, but late payment is a common problem and slow-paying customers put
a strain on cash flow.
Overtrading (growing too fast)

This occurs where a business expands too quickly, putting pressure on short-term finance.
For example, a retail chain might try to open too many stores too quickly before each starts to
generate profits.
Seasonal demand
Predictable changes in seasonal demand create cash flow problems – but because they are
expected, a business should be able to handle them.
9. Compare and contrast the various methods of investment appraisal. To what
extent would it be true to say there is a place for each of them (25)
As capital investment decisions usually involve significant amounts of finance, it is important
to fully evaluate each decision using sound appraisal techniques. The main methods used to
evaluate investment in capital projects are:
Accounting rate of return.

Payback method.
Net present value.
Internal rate of return
These methods use different approaches to evaluating the value of an investment for an
organisation. While three of the methods focus on cash flow, the accounting rate of return
uses accounting profit in its appraisal calculation, providing a view of the overall profitability
of the investment.
The accounting rate of return method calculates the estimated overall profit or loss on an
investment project and relates that profit to the amount of capital invested and to the period
for which it is required. It is the profit that is directly related to the investment project that is
used in the appraisal process and thus costs or revenues generated elsewhere in the business
are excluded. A business will have a required minimum rate of return for any investment.
This is related to the cost of capital of the business. If an investment yields a return greater
than the cost of capital, then the investment would be considered suitable and profitable.
Accounting rate of return
The accounting rate of return is an average rate of return calculated by expressing average
annual profit as a percentage of the average value of the investment.
Its main advantages are
- It takes account of the overall profitability of the project.

- It is simple to understand and easy to use.
- Its end result is expressed as a percentage, allowing projects of differing sizes to be
compared.
Its main disadvantages are

-It is based on accounting profits rather than cash flows. The calculation of profit and capital
employed depend on which items of expenditure are treated as capital (on the balance sheet)
and as revenue (charged to the profit and loss account). Despite guidelines in this area, it can
be quite subjective. Also different accounting policies (depreciation) can produce different
profit and capital employed figures, thus allowing the profit and balance sheet figures to be
somewhat manipulated. It is for this reason that capital projects are also evaluated in terms of
cash flows.
-The ARR does not take into account the timing of cash flows. For example, project A may
give an ARR of 20 per cent compared to project B’s 18 per cent. However project A may be
an eight year project whereas project B may be a five year project. Investors may choose a
project that is slightly less profitable but which generates cash earlier.
- The ARR does not take into account the time value of money. It does not take into account
the cost of waiting to recoup the investment.
- The ARR takes no account of the size of the initial investment. A five per cent return on an
investment of $25,000 might be acceptable, however it may not be an acceptable return on an
initial investment of $10 million.
The payback method
The payback method of investment appraisal simply asks the question ‘ how long before I get
my money back? ’ In other words how quickly will the cash flows arising from the project
exactly equal the amount of the investment. It is a simple method, widely used in industry
and is based on management’s concern to be reimbursed on the initial outlay as soon as
possible. It is not concerned with overall profitability or the level of profitability.
Based on this method a business will simply reject a project with a payback period longer
than that required.
The advantages of payback are
-It is simple to understand and apply.

- It promotes a policy of caution in investment.
- It takes no account of the timing of cash flows ($100 received today is worth more than
$100 received in 12 months time). This is known as the time value of money and will be
considered in more detail below.
- It is only concerned with how quickly the initial investment is recovered and thus it ignores
the overall profitability and return on capital for the whole project. The accounting rate of
return incorporates the overall profitability of the investment.
The Net Present Value
The net present value approach involves discounting all cash outflows and inflows of a
capital investment project at a chosen target rate of return or cost of capital. The present value
of the cash inflows minus the present value of the cash outflows is the net present value. If
the NPV is positive, the project is likely to be profitable, whereas if the NPV is negative, the
project is likely to be unprofitable.
Its main advantages are
- It takes into account the time value of money.

- Profit and the difficulties of profit measurement are excluded.
- Using cash flows emphasises the importance of liquidity.
- It is easy to compare the NPV of different projects.
The main disadvantages associated with this method are
-It is that it is not as easily understood as the payback and accounting rate of return.
- Also, the net present value approach requires knowledge of the company’s cost of capital,
which is difficult to calculate.
Internal Rate of Return

The IRR method calculates the exact rate of return which the project is expected to achieve
based on the projected cash flows. The IRR is the discount factor which will have the effect
of producing a NPV of 0. It is the return from the project, taking into account the time value
of money. Its decision rule is to accept the project if it’s IRR is greater than the cost of
capital.
It main advantage is that the information it provides is more easily understood by managers,
especially non-financial managers.
-It is possible to calculate more than two different IRR’s for a project. This occurs where the
cash flows over the life of the project are a combination of positive and negative values.
Under these circumstances it is not easy to identify the real IRR and the method should be
avoided.
- In certain circumstances the IRR and the NPV can give conflicting results. This occurs
because the IRR ignores the relative size of investments as it is based on a percentage return
rather than the cash value of the return. As a result, when considering 2 projects, one may
give an IRR of 10 per cent and the other an IRR of 13 per cent. However the project with the
lower IRR may yield a higher NPV in cash terms and thus would be preferable.
Overall all four methods provide different approaches to investment appraisal and can
provided a difference outlook on a proposed investment. Thus it would seem prudent that
management should use all four methods in assessing investment projects. However the NPV
approach is the one approach with the least amount of weaknesses or disadvantages and
hence this approach should be used as the main guide in evaluating investment projects.
10. Define privatization. What are the advantages and disadvantages of
privatization?(25)
Privatization is the process of transferring ownership of a business, enterprise, agency, public

service or property from the public sector (government) to the private sector or to private
non-profit organizations. The term is also used in a quite different sense, to mean government
out-sourcing of services to private firms.
Government takes this step whenever any government enterprise does loss continuously or if
the enterprise decreases profit alarmingly or if the government thinks the enterprise would cut
more profit if it was operated by the private governing body.
Advantage of privatization
 Privatization places the risk in the hands of business or private enterprise.

 Private enterprise is more responsive to customer complaints and innovation.
 The government should not be a player and an umpire.
 Privatization provides a one off cash boost for govt. this can be spent on hospitals etc.
 Privatization leads to lower prices and greater supply.
 Competition in privatization increases differentiation.
Disadvantage of privatization
 Privatization is expensive and generates a lot of income in fees for specialist adviser
such as banks.
 Public monopolies have been turned into private monopolies with too little
competition, so consumers have not benefited as much as had been hoped.
 The nationalized industries were sold off too quickly and too cheaply. With patience a
better price could have been had with more beneficial results on the government’s
revenue. In almost all cases the share prices rose sharply as soon as dealing began
after privatization.
 The privatized businesses have sold off or closed down unprofitable parts of the
business and so services.
 Wide share ownership did not really happen as many small investors took their profits
and didn’t buy anything else.
However, there are also several reasons for what the government doesn’t give over an
enterprise to the private sector even after experiencing loss years after years.
11. What is labout turnover and its main causes of Labour Turnover?
Labour turnover is defined as the proportion of a firm’s workforce that leaves during the
course of a year.
The causes of labour turnover may be put into two groups, i.e.,
(1) Avoidable causes and
(2) Unavoidable causes
(a) Avoidable causes - These include:
(i) Dissatisfaction with jobs,

(ii) Dissatisfaction with remuneration,
(iii) Bad working conditions,
(iv) Odd hours of work,
(v) Lack of incentives and promotional avenues,
(vi) Lack of adequate recreational facilities,
(vii) Inadequate housing and medical facilities,
(viii) Poor worker-supervisor relationship,
(ix) Poor group relations,
(x) Discrimination between one worker and another, etc.
(b) Unavoidable causes - Unavoidable causes may be personal or impersonal. These

include:
(i) Personal betterment,
(ii) Retirement, death or disablement,
(iii)Domestic responsibilities, i.e., to look after old parents,
(iv)Discharge due to factors like unsuitability, insubordination, and negligence,
(v) Marriage in case of women workers, etc.
Every organisation must see that leaving due to avoidable causes is prevented.
CASH FLOW PROBLEMS AND SOLUTIONS
Most small businesses encounter a cash flow problem at one time or another. Fortunately,
most cash flow problems can be prevented with a bit of preparation and the right strategy.
This article lists the 5 most common cash flow problems, along with ways to solve them.
1. High overhead expenses
Overhead expenses are the costs of running a business that are not tied directly to selling a
specific product or service. Examples of overhead include rent, telephone, utilities, etc.
Sometimes overhead expenses get out of hand relative to the revenue the business produces.
High overhead expenses can hurt your business’s cash flow.
High overhead expenses are particularly challenging because they are persistent. These
expenses affect your cash flow every day until the problem is corrected.
Solution
The solution to this problem is simple, but it is not easy. Audit your expenses and cut back
where you can. Be careful not to cut too much, as that approach could also hurt the company.
If you cannot cut back, consider cheaper options. In fact, every business should audit
expenses regularly to ensure that overhead expenses stay in line.
2. Slow-paying invoices
Slow-paying invoices are a common cause for cash flow problems. As a small business, you
have to offer 30-day to 60-day payment terms to clients. However, small companies can’t
always afford to wait this long for payment. They need money sooner. Eventually, slow
payments create a financial problem that can seriously affect your business even if it’s
growing quickly .
Solution
There are two ways to solve this problem. One solution is to provide clients with an incentive
to pay faster. Offering a 2% discount in exchange for a payment in 10 days can motivate
clients to pay quickly. However, this incentive needs to be negotiated directly with each
client.
An alternative is to use invoice factoring to finance slow-paying invoices. This method

improves cash flow immediately and enables you to offer payment terms with confidence. To
learn more about factoring, read this article.
3. Excess inventory
This problem can affect companies that manufacture goods or re-sellers that keep a
warehouse stocked with products. If too much product is made or purchased, it ends up
sitting on shelves and tying up cash flow.
Solution
Fine-tune your inventory so that you stock items for the shortest possible time before being
sold or used in the manufacturing process. The amount of product you keep in stock depends
on your volume, sales forecasts, available cash, and supplier capabilities. Monitor inventory
levels carefully. Having key products out of stock is a sure way to lose clients.
Companies that re-sell products can also use purchase order financing to finance large sales
that exceed their cash flow capabilities. When used correctly, purchase order financing can
improve your cash flow and allow you to finance the supplier expenses associated with large
orders.
4. Too much bad debt
Bad debt occurs when you sell product, or provide a service, to a client who does not pay.
Bad debt presents an obvious harm to your cash flow and your profitability.
Solution
The solution to this problem is to review the commercial credit of your clients before you
extend payment terms. Provide terms only to clients who have good credit and a solid
payment record. Others should prepay until they have built a track record with your company.
This strategy may cost you some sales. However, it will only cost you clients who were
deemed credit risks to begin with.
5. Insufficient gross margins
Small businesses sometimes sell their products and services for such low prices that they
have low, or negative, gross margins. This scenario often happens in highly competitive
environments with constant pricing pressure. It usually affects small business owners who do
not have a clear understanding of their costs.
Solution
To solve this problem, audit all your products and services to determine the all-inclusive cost
of delivering your products and services. This step is difficult but necessary. Once you have
determined the all-inclusive cost, do the following:
1. If you can, raise the prices of products/services that have weak margins
2. If you can’t raise prices, consider dropping products/services that have weak margins
3. Ensure that all proposals price your products according to their cost
WHY BUSINESSES NEED FINANCE
Right from the moment someone thinks of a business idea, there needs to be cash. As the business
grows there are inevitably greater calls for more money to finance expansion. The day to day running
of the business also needs money.
The main reasons a business needs finance are to:
Start a business
Depending on the type of business, it will need to finance the purchase of assets, materials and
employing people. There will also need to be money to cover the running costs. It may be some time
before the business generates enough cash from sales to pay for these costs. Link to cash flow
forecasting.
Finance expansions to production capacity

As a business grows, it needs higher capacity and new technology to cut unit costs and keep up with
competitors. New technology can be relatively expensive to the business and is seen as a long term
investment, because the costs will outweigh the money saved or generated for a considerable period
of time. And remember new technology is not just dealing with computer systems, but also new
machinery and tools to perform processes quicker, more efficiently and with greater quality.
To develop and market new products

In fast moving markets, where competitors are constantly updating their products, a business needs to
spend money on developing and marketing new products e.g. to do marketing research and test new
products in "pilot" markets. These costs are not normally covered by sales of the products for some
time (if at all), so money needs to be raised to pay for the research.
To enter new markets

When a business seeks to expand it may look to sell their products into new markets. These can be
new geographical areas to sell to (e.g. export markets) or new types of customers. This costs money in
terms of research and marketing e.g. advertising campaigns and setting up retail outlets.
Take-over or acquisition
When a business buys another business, it will need to find money to pay for the acquisition
(acquisitions involve significant investment). This money will be used to pay owners of the business
which is being bought.
Moving to new premises

Finance is needed to pay for simple expenses such as the cost of renting of removal vans, through to
relocation packages for employees and the installation of machinery.
To pay for the day to day running of business

A business has many calls on its cash on a day to day basis, from paying a supplier for raw materials,
paying the wages through to buying a new printer cartridge.
CHOOSING THE RIGHT SOURCE OF FINANCE
A business needs to assess the different types of finance based on the following criteria:
Amount of money required – a large amount of money is not available through some sources and
the other sources of finance may not offer enough flexibility for a smaller amount.
How quickly the money is needed – the longer a business can spend trying to raise the money,
normally the cheaper it is. However it may need the money very quickly (say if had to pay a big wage
bill which if not paid would mean the factory would close down). The business would then have to
accept a higher cost.
The cheapest option available – the cost of finance is normally measured in terms of the extra
money that needs to be paid to secure the initial amount – the typical cost is the interest that has to be
paid on the borrowed amount. The cheapest form of money to a business comes from its trading
profits.
The amount of risk involved in the reason for the cash – a project which has less chance of leading
to a profit is deemed more risky than one that does. Potential sources of finance (especially external
sources) take this into account and may not lend money to higher risk business projects, unless there
is some sort of guarantee that their money will be returned.
The length of time of the requirement for finance - a good entrepreneur will judge whether the
finance needed is for a long-term project or short term and therefore decide what type of finance they
wish to use.
FEATURES OF FORMAL ORGANIZATION
Formal organization has the following features:
Deliberately created structure : It is deliberately created organization structure that defines

official relationships amongst people working at different job positions.
Job-oriented: It focuses more on jobs than people. It allocates jobs to people and defines the
structure of relationships amongst them for achieving the formal organizational objectives.
Division of work : Work load is divided into smaller units and assigned to individuals on the
basis of their skills and abilities. Decision of work amongst people results in specialization
and increases organizational output.
Departmentation: Departmentation is the basis or foundation of organization structure that

is, organization structure depends upon departmentation. Departmentation refers to division
of work into smaller units and their re-grouping into bigger units (apartments) on the basis of
similarity of activities. The functional departmentation divides organization structure into
production, finance, personnel and marketing departments. Departmentation helps in fixing
responsibly of various department heads.
Formal authority : People at various positions exercise authority by virtue of their position
in the organizational hierarchy. Authority is linked to position within the organization, and,
though it, in the person occupying the positing. It involves the right to command, to perform,
to make decisions and to spend resources.
Delegation: Work is officially delegated from top levels to lower levels. The work load is
divided into various units, a part is assigned to subordinates and authority is given to them to
carry out the assigned task. This concept of division of work and tits assignment to people
down the scalar chain is called delegation. “Delegation is the process by which a manager
assigns tasks and authority to subordinates who accept responsibility for those jobs. “
Coordination: Managers coordinate or integrate the activities of individual and units into a
concerted effort so that departments and individuals work towards common goals. It is
necessary for manages to coordinate the activates of organization by communicating
organizational goals to each department, setting departmental goals and liking the
performance of each department with others so that a all the departments collectively
contribute towards the organizational goals. Coordination is “ the process of linking the
activities of the various departments of the organization.”
Based on principles of organizing : Formal organization is based on formal principles of

organizing.
FEATURES OF INFORMAL ORGANIZATION
Informal organization has the following features:
Unplanned structure: This structure is not planned by top managers. It arises spontaneously
out of formal interactions amongst people. When people formally interact with each other,
they tend to discuss their interests, attitudes, hobbies, beliefs etc.and in the course of doing
so, form groups whose goals are different from formal organizational goals. Their informal
relationships gradually develop an informal organization that co-exists with the formal
organization.
Fulfilment of social needs: The basic purpose of informal organization is fulfillment of

social and personal needs of people. People share common thoughts, feelings and interests
different from formal organizational goals. Their social needs of friendship, love and support
are strengthened by informal organization.
No formal organization structure: A formal organization has a definite saturate, It is

depicted by lines and boxes on the organization chart (organization chart is a visual
representation of organization structure). Informal organizaiton does not have any formal
structure; It cannot be precisely shown on the organization chart. Relationships amongst
people change according to changes in their interests and liking or each other. Workers of
production department may consult sales managers for solving their personal problems rather
than production managers and vice versa. There are no superiors and subordinates in informal
organization. People contact each other in all forms; vertical, horizontal and diagonal.
Informal leaders: Leaders are informally elected by group members. They strongly
influence group activities and contribute to formal goals positively or negatively.
Informal communication system: The system of communication is informal; It does not

follow the chain of command. It operated along with formal channels of communication and
works faster than the formal channel. It transmits the messages at a much faster spread
though rumors may also spread along with formal massages.
Communication flows in every direction; vertical, horizontal, diagonal and connects propel
throughout the organization.
No rules and regulations: It has no fixed rules and regulations that govern functions of the
organization. Rules are framed and changed by people according to their convenience.
No fixed tenure: It is formed at the will of the people and dissolves at their will. It does not
operate for a fixed time period. Desolation of informal organization also does not follow any
legal procedure.
STAFF TRAINING
One important aspect of business is training the staffs as they are one of the valuable assets. It
is mandatory to train the staffs with skill and knowledge required to meet the business
objectives. With the assistance of training, the best can be got from the staffs and they are
made even more productive. By this way job satisfaction is achieved and the staffs also
retains back which avoids recruitment.
Staff training plan is an important aspect of business and should be implemented at regular
intervals. Here are discussed a few aspects about staff training like importance , continuous
training advantages and disadvantages etc.
IMPORTANCE OF STAFF TRAINING:
Once orientation takes place, there is need for training of employees in any work place. In
order to improve the capabilities, skills and knowledge of the staff to do a specific job, staff
training is important.
With the help of such training the quality performance is gained as output from employees
and also the thinking of the staffs are moulded. Staff training is important for the following
reasons.
Enhancement in performance:
When weakness and shortcomings are identified, then employees are required to be trained.
Hence employee training is important as it amplifies skills and helps the staffs to gain new
skills. It has become important for companies to focus on training needs for individuals.
Enhanced productivity:
With the state of the art situations, productivity mainly depends on the technology being used
rather than the staffs. Training and development these days focuses how well the employees
are making use of technologies. The employees are trained on existing technologies where
they abandon the out-of-date ones. By this way of training, work runs in an efficient manner
and hence productivity increases.
Tackle shortcomings:
There are shortcomings faced by every staff and hence training for employees is important as
it helps them face any shortcomings . Training can be given appropriate to a specific group so
that they turn out to be skilled.
Employee satisfaction:
Training is important in an organization as organizations that arrange for training are said to
have satisfied their employees. Training must be ones that are relevant for employees and
they have something to educate themselves.
They are up-to-date:
Whether it is work, training, methods or legislation there are many things that keep changing
in work place. With the aid of continuous training, the staffs as well as business do not lag
behind and they work at the best every day and also in future.
Sharing higher knowledge:

Promotion and career growth are some parameters that are mandatory at workplace. By
conducting training, the employees are able to share knowledge about higher job postings and
the responsibilities they handle.
Retain star players:

Staff training important as they help to enhance skill set and improve performance of staffs.
By this way retention is increased and star players are kept back in the organization.
Consistency:
With the help of training program for employees, the employees possess a consistent
experience along with background knowledge. The consistency of an employee is associated
with the organizations policies and procedures.
Safety in industries:
Staff training is important so that they handle machinery in a safe manner . Such trained
staffs are well known about safety devices in the industry and result in less industrial
accidents.
BENEFITS OF TRAINING
Improves employee morale: With the help of training, the employees gain job satisfaction
and security. When a staff is very much satisfied, then his morale is greater. By this way the
employee contributes more to organizational success and hence the absenteeism and turn over
would be less.
Minimal supervision: When an employee is trained he is well accustomed to the job and
hence requires very less supervision. By this way times and efforts are reduced.
Opportunities for promotion: At times of training, employees get the chance to acquire
enhanced skills and knowledge which offers them a clear way and enhanced opportunity for
promotion. By this way they become an asset for the organization. This is one of the benefits
of training staff.
Productivity increases: With trained employees the efficiency is increased which in turn
increases the productivity. Quantity as well as quality performance is achieved by the
employees as they are well trained.
Better economic usage: Trained staff would have the knowledge to make best economic
usage of materials and equipment’s. There will be less wastage, apart from accidents;
damaged equipment’s in the organization would be minimal in the case of trained employees.
Uniform procedures: The best methods required for the specific work are standardized and
adopted by all the staff as an effect of training. With the assistance of standardization, there is
improved level of performance.
Systematic usage of skills: The main benefit of a training program in an organization is that
it helps to lessen the learning time so that a level of performance is reached. The employees
can learn from training methods instead of following others or by trial and error method.
New inventory skills are developed: An organization may be in need of new skills for its
operation and may face hindrance with employment. Training can be beneficial in picking out
the perfect fit and eradicating defects if present in the recruitment process.
Another good suggestion would be to pick employees from within the organization and train
them rather than recruiting new employees.
Updated with latest technology: There are constant changes with the industry and hence it
is important for employees to be updated with the latest trends. It is quite often that new
technology pops up and hence one off training session would not be complete.
In order to make sure that the organization is making use of latest technology, regular training
is conducted.
ADVANTAGES OF STAFF TRAINING:
There can be many training and development advantages of the staff as they could use it for
their company’s growth.
Stay ahead of competitors: In order to stay ahead of competitors it is mandatory to monitor

that your employees are advancing. By undergoing staff training, the organization with its
employees would definitely be ahead of their competitors.
Keep up with industry changes: In order to be parallel with all industries and not left
behind, staff training is necessary. With the help of staff training the industry is said to be
abiding by the industry regulations and also makes sure that the employees are updated with
the latest skills.
An opportunity to learn: When staff training is provided in the development path, the
employees would have the interest to learn, implement the new strategies learned.
Grabs in new talent: The aim for any organization would be to possess the best talents in
their industry. With the help of staff training not only employee retention is attained, best
talents from outside are also grabbed in. With staff training, good image is developed for
business which is desired by most job seekers.
Self-confidence: There is more of self-confidence for employees when staff training is

offered. There is more of adjustment amongst workers and the employees are not humiliated
in the presence of seniors. With self-confidence the employees are able to put in best efforts
for future.
Positive attitude: With the help of staff training, there is positive attitude amongst
employees, along with enhanced motivation levels which enhances the result of the
organization.
Group effort: Staff training not only trains the staff but also helps them understand about
working with a team with complete efforts. With such training group efforts are achieved.
Handles customers well: Trained staffs are ones who know the techniques to handle
customer in the right manner. By this way the business is run in the better manner where
customer inquiries, sales and lot more are handled effectively.
DISADVANTAGES OF STAFF TRAINING:
Waste of time and money: There is surely waste of valuable resources, as the organization
needs to spend money, time, and hire other people for training. They also need to pay wages
for both the trainer as well as the employees.
Increased stress: In order to keep the staffs up to date with latest trends and knowledgeable
in their specific area, training staffs for more number of hours can make them stressed. As
they are stressed, their job levels may go down too.
Too much of theory:
Training programs for certain departments are too much of theory than application. These
kinds of lectures make it tough for employees to learn the subject. Thus theoretical lectures
makes the whole training program boring when it’s for prolonged period.
Loss of interest: At times of training sessions which lead for long hours, employees are
bored and aren’t interested in their session. Data and information is thus not retained for
employees who do not listen. When training programs are conducted continuously with same
data or theory again and again, the employees lose interest .
Leave for new job: When an employee is trained and updated with all the latest knowledge
and skills. They are prepared and ready to jump to another organization which offers good
perks and salary.
Time requirements: The other main important disadvantages of employee training is that
there may not be enough time for staff training with the daily hectic schedule.
There are many organizations who dedicate very less time, which may not be helpful in
making the employee productive or knowledgeable. With very less time, the trainer usually
rushed through the main parts of job which is to be understood by the employees.
Control of training: When your responsibility of training for new employees is delegated to
some other trainer or employee, then it is mandatory to think about what the employees are
learning. The trainer may not be a skilled and talented one like you; hence the employees
may pick some bad habits and end up with quality less training. This would spoil the
complete training. Hence having a good control over training is necessary.
In conclusion the mentioned are a few advantages and disadvantages of staff training,
benefits and importance of staff training. Staff training is mandatory and can be forced to be
conducted in all organizations for the various benefits it brings in. The best part of staff
training is that the organization and productivity increases. The organization earns a special
image by providing quality training for the organization. Higher officials and managers must
thus focus on such training and make it mandatory in organizations at required sessions.
GROWTH STRATEGIES IN BUSINESS
Most small companies have plans to grow their business and increase sales and profits.
However, there are certain methods companies must use for implementing a growth strategy.
The method a company uses to expand its business is largely contingent upon its financial
situation, the competition and even government regulation. Some common growth strategies
in business include market penetration, market expansion, product expansion, diversification
and acquisition.
Market Penetration
One growth strategy in business is market penetration. A small company uses a market
penetration strategy when it decides to market existing products within the same market it has
been using. The only way to grow using existing products and markets is to increase market
share, according to small business experts. Market share is the percent of unit and dollar sales
a company holds within a certain market vs. all other competitors. One way to increase
market share is by lowering prices. For example, in markets where there is little
differentiation among products, a lower price may help a company increase its share of the
market.
Market Expansion
A market expansion growth strategy, often called market development, entails selling current
products in a new market. There several reasons why a company may consider a market
expansion strategy. First, the competition may be such that there is no room for growth
within the current market. If a business does not find new markets for its products, it cannot
increase sales or profits. A small company may also use a market expansion strategy if it
finds new uses for its product. For example, a small soap distributor that sells to retail stores
may discover that factory workers also use its product.
Product Expansion
A small company may also expand its product line or add new features to increase its sales
and profits. When small companies employ a product expansion strategy, also known as
product development, they continue selling within the existing market. A product expansion
growth strategy often works well when technology starts to change. A small company may
also be forced to add new products as older ones become outmoded.
Diversification Strategies
Growth strategies in business also include diversification, where a small company will sell
new products to new markets. This type of strategy can be very risky. A small company will
need to plan carefully when using a diversification growth strategy. Marketing research is
essential because a company will need to determine if consumers in the new market will
potentially like the new products.
Acquisition Strategies
Growth strategies in business can also include an acquisition. In acquisition, a company
purchases another company to expand its operations. A small company may use this type of
strategy to expand its product line and enter new markets. An acquisition growth strategy can
be risky, but not as risky as a diversification strategy. One reason is that the products and
market are already established. A company must know exactly what it wants to achieve when
using an acquisition strategy, mainly because of the significant investment required to
implement it.
ORGANIZATIONAL GROWTH
Growth is something for which most companies strive, regardless of their size. Small firms
want to get big, big firms want to get bigger. Indeed, companies have to grow at least a bit
every year in order to accommodate the increased expenses that develop over time. With the
passage of time, salaries increase and the costs of employment benefits rise as well. Even if
no other company expenses rise, these two cost areas almost always increase over time. It is
not always possible to pass along these increased costs to customers and clients in the form of
higher prices. Consequently, growth must occur if the business wishes to keep up.
Organizational growth has the potential to provide small businesses with a myriad of benefits,
including things like greater efficiencies from economies of scale, increased power, a greater
ability to withstand market fluctuations, an increased survival rate, greater profits, and
increased prestige for organizational members. Many small firms desire growth because it is
seen generally as a sign of success, progress. Organizational growth is, in fact, used as one
indicator of effectiveness for small businesses and is a fundamental concern of many
practicing managers.
Organizational growth, however, means different things to different organizations. There are
many parameters a company may use to measure its growth. Since the ultimate goal of most
companies is profitability, most companies will measure their growth in terms of net profit,
revenue, and other financial data. Other business owners may use one of the following
criteria for assessing their growth: sales, number of employees, physical expansion, success
of a product line, or increased market share. Ultimately, success and growth will be gauged
by how well a firm does relative to the goals it has set for itself.
MANAGEMENT BY OBJECTIVES
Management by Objectives ( MBO) is a personnel management technique where managers

and employees work together to set, record and monitor goals for a specific period of time.
Organizational goals and planning flow top-down through the organization and are translated
into personal goals for organizational members.
ADVANTAGES OF MANAGEMENT BY OBJECTIVES (M.B.O)
1. M.B.O. forces the managers not simply to plan activities but plan for results . The
managers define the objectives while formulating plans. When once goals are set up clearly,
they act as incentives and standards for control purposes.
2. M.B.O. enables the managers to concentrate on really important and profit influencing
tasks instead of on tasks which could have little impact on overall results.
3. M.B.O. makes clear organizational goals and structures . It identifies the key result areas
and make individuals who are in-charge of them responsible for the attainment of goals.
4. Employees commit themselves to perform the work assigned to them as agreed and
expected. They know their objectives clearly and also know how to move towards its
achievements. Thus they need not wait for any instructions, directions, guidance from their
superiors.
5. It helps to develop effective control. Control involves establishing own standards,

evaluating performance and taking necessary remedial action if there are any deviations. The
well defined objectives serve as the best standard for effective control.
6. It helps the management to formulate better management training programs on the basis of
performance reviews.
7. Since the subordinates participate and are directly involved in setting goals, there is a
greater commitment on their part for performance . People become willing and enthusiastic
masters of their own fate.
8. M.B.O. helps in more effective planning . Actionable objectives are established with
planning, and result-oriented planning makes real sense. It forces managers to think of
planning by results, rather than merely planning activities. To achieve given results, the
managers are also required to give full consideration to the question of the personnel and the
resources needed.
9. M.B.O. aids in developing effective controls: The standards/yardsticks or reach-points are

laid down for measurement of performance, through which actual performance can be
measured and deviations corrected in time. Through these standards, performance
measurement of different cadres of people can be possible.
DISADVANTAGES OF MANAGEMENT BY OBJECTIVES
1. The philosophy of M.B.O. should be well understood by managers. If the persons who are
to operate management by objectives do not fully understand the philosophy of M.B.O., it is
no wonder that M.B.O. fails.
2. If the goals are to be attainable, they should be realistic. If the goals are vague uncertain
and unambiguous managers may not be in a position to carry out their work successfully.
3. Setting up of verifiable goals is not an easy task . It involves lot of time , study, effort and
work.
4. M.B.O. lay emphasis on short-term goals and neglect the long range goals. But adequate
attention towards both the goals should be given.
5. Effective interactions between the superiors and subordinates may not be possible due to
differences in their status.
DIFFERENCE BETWEEN CHAIN OF COMMAND AND SPAN OF CONTROL
Chain of command and span of control are two important aspects in an organization related to
organizational hierarchy. Both terms may be confused as one and used interchangeably due to
their similarities in objective, which is to ensure that human capital within the organization is
managed effectively. The key difference between chain of command and span of control is
that the chain of command refers to the levels of authority in a company whereas the span of
control is the number of subordinates a manager is responsible for controlling.
DEFINE CHAIN OF COMMAND

Chain of command refers to the levels of authority in a company, i.e. how the organizational
hierarchy is designed. Chain of command is important to understand who reports to whom. In
the organizational hierarchy, each position is connected to one above it from top to bottom.
The way authority is flowing in a vertical line, position to position, reveals the chain of
command. The chain of command not only establishes accountability, it lays out a company’s
lines of authority and decision-making power. Chain of command can be easily understood
by looking at the organizational chart, which illustrates the company’s structure.
The chain of command establishes clear lines of authority, accountability, and responsibility
enabling decision making power. A well-established chain of command is a priority to ensure
that tasks are completed in a timely manner where subordinates take responsibility for their
actions. This also assists managers in evaluating employee performance since the chain of
command is considered in preparing job descriptions . However, employee flexibility and the
ability to make decisions fast also are very important at times where it is necessary to serve
the customers in a timely manner. Thus, the managers should be accessible to subordinates at
all times.
DEFINE SPAN OF CONTROL

Span of control is the number of subordinates a manager is responsible for controlling. Span
of control is principally decided based on whether the company adopts a tall or flat
organizational structure .
TALL STRUCTURE
In a tall structure, the span of control is narrow. High control, ease of supervision of the work
of subordinates and more opportunities for promotion are core advantages of a narrow span
of control. However, the speed of decision making is slow due to the many layers of
management and may cause communication issues and delays. Therefore, it may be difficult
for some market-oriented firms to operate with a narrow span of control and efficiently cater
to customer demand in a timely manner. Tall structures are commonly seen in public sector
organizations.
FLAT STRUCTURE
Flat structure is characterized by a wide span of control; thus, there are a limited number of
levels of hierarchy. Since the number of employees reporting to one manager is high, more
work is delegated to subordinates which in turn increase their responsibility and motivation,
providing a sense of autonomy. Decision making is fast in nature with a flat structure and is
highly responsive to the changes in the market. However, the workload for managers may be
excessive with a wide span of control and issues of direct supervision may arise. From the
perspective of the subordinates, there are fewer opportunities for promotion. The flat
structure has become very popular in many companies and industries where time to market
and customer satisfaction is a key deciding factor.
In addition to the organization structure, the size of the organization also affects the span of
control where many subordinates report to one manager and there is a scarcity of personnel
with managerial skills.
SUMMARY – CHAIN OF COMMAND AND SPAN OF CONTROL
The difference between chain of command and span of control depends on the levels of
authority in a company (chain of command) and the number of subordinates a manager is
responsible for supervising (span of control). Despite the differences, both chain of command
and span of control is designated to achieve a similar objective, which is to ensure that
subordinates are held accountable for their duties and can reach their managers when they
want to discuss any matters due to various organizational differences.
PRICE SKIMMING
Price skimming is a pricing strategy which companies adopt when they launch a new product,
in this strategy while launching a product company sets high price for a product initially and
then reduce the price as time passes by so as to recover cost of a product quickly.
An example of price skimming would be mobiles which have some added features and due to
those features they are sold initially at higher prices and then prices began to decline as time
passes by, another example of price skimming would be 3D televisions which are right now
being sold. Given below are some of the advantages and disadvantages of price skimming –
Advantages of Price Skimming
 Price skimming helps the company in recovering the research and development costs
which are associated with the development of new product.
 If the company caters to consumers who are quality conscious rather than price
conscious than this type of strategy can work in a great way for a company.
 A high price establishes the product as a must have item
 Customers want exclusivity
 Innovation is expensive so charging high prices will be able to pay off those costs
Disadvantages of Price Skimming
 This strategy can backfire if there are close competitors and they also introduce same
products at lower price than consumers will think that company always sells the
products at higher prices which will result in consumers abandoning other products of
the company also.
 Price skimming is not viable option when there are strict legal and government
regulations regarding consumer rights.
 If the company has history of price skimming than consumers will never buy a
product when it is newly launched, they would rather wait few months and buy the
product at lower price.
 Customers may be deterred by high prices
 Customers may become disloyal to the brand after prices fell from such a high price
 When firms decide to cut prices their image may suffer
CRITICAL PATH ANALYSIS
Critical path analysis is required in order to predict the timing of project’s completion.
Advantages of CPM:
 Involves managers in detailed planning which helps reduce the risk of delays
 Resources needed for each activity may be made available at the appropriate time,
reducing costs
 Time can be saved by operating certain activities simultaneously
 The information from CPA assists managers in making high quality decisions
 The method visualizes projects in a clear graphical form.
 It defines the most important tasks.
 Saves time and helps in the management of deadlines.
 Helps to compare the planned with the real status.
 Identifies all critical activities that need attention.
 Makes dependencies clear and transparent.
Limitations of Critical Path Method
 Complex activities may be impossible to represent accurately on a network

 The project still requires management because external factors may change
 CPA relies on estimates for the expected duration of activities - if these are inaccurate
the whole process may be invalidated
 It is believed that the methodology was developed for routine and complex projects
with the possibility of a minimum change in the completion time of tasks. CPM loses
its usefulness in more chaotic projects.
 There are alternatives, for example, PERT-diagrams, which allow changing the
duration of each activity.
 A critical path imitates events and activities in a project, presenting them in an
interconnected network. Activities are rendered as “nodes,” and the beginning and
end of the activities look like arches and lines between nodes.
WINDOW DRESSING
Window dressing is a set of actions or manipulations with financial or other information in

financial documents (financial statements, reports, etc.) to make this information look more
attractive to its users. Even though window dressing can occur at any time, it is commonly
used at the end of a period.
Window dressing can be used by companies and mutual funds.
A company can use window dressing when preparing financial statements to improve the
appearance of its performance or liquidity. In this case, window dressing may consist of
changing asset depreciation or valuation policies, making short-term borrowings, or engaging
in sales and leaseback transactions at the end of a period. By doing so, management
embellishes the company’s results or liquidity and obtains some benefits.
Other examples of window dressing by companies may include advertising, selling, and
marketing. In these cases, window dressing occurs when positive characteristics of products
or services are a little exaggerated to increase demand for them while negative characteristics
are not mentioned or kept hidden.
Mutual funds use window dressing when preparing periodic (quarterly, yearly) reports.
Window dressing by mutual funds consists of selling underperforming stocks and buying
well-performing stocks near the reporting period end. This practice makes a fund portfolio
look more profitable and thus more attractive to its (prospective) clients.
Reasons and beneficiaries of window dressing
In most cases, beneficiaries of window dressing are those who use this practice, i.e.,
companies and mutual fund managers. In many cases, managers’ remuneration (i.e., salaries
and bonuses) depend on how well their companies or mutual funds performed; so there is a
direct interest in making financial results or liquidity look better than they really are.
Evaluate the usefulness of the Boston Matrix as a decision-making tool for a business
such as Botanic Inns Ltd.
Advantages
The Boston Matrix is particularly beneficial to firms who are trying to manage a product
portfolio as they must ensure a balance between the number of products in each category and
quadrant of the matrix. Botanic Inns Ltd. has an extensive portfolio that includes pubs,
bar/restaurants, hotels and off -sales. In total it has 16 products to manage.
The Boston Matrix positions each product on a grid thus allowing management to make key
decisions at each stage depending on Whether the product attracts a high or low percentage of
market Share or potential growth rates are high or low. Botanic Inns Ltd. has been adding to
its portfolio since the 1990s so products are at various stages. For instance, The Botanic Inn is
likely to be the firm’s Cash cow while The King’s Head and bar Apartment are stars. Horatio
Todd’s is the latest addition so is therefore the problem child although winning an award is a
good indicator that it may prove successful.
Using the Boston Matrix helps management to identify the appropriate time for launching
new products onto the market. Management in Botanic Inns Ltd. would have used revenue
generated by the cash cows and stars to finance the opening of Horatio Todd’s Bar/restaurant
The information provided by the Boston Matrix can indicate the Likely cash flow position of
each product within the context of its Market. Management in Botanic Inns Ltd. may use this
to inform Future decisions relating to closure should any of the outlets no longer Perform at
an acceptable level. Such a product would be considered as a dog in the matrix
Simple business tool
Highlights when remedial action is needed
Visual tool/simple
Disadvantages
 using the Boston Matrix for decision making and managing the Product portfolio is no
guarantee of success for Botanic Inns Ltd.
 Critics suggest that the analysis provided is too simplistic and does not reflect
economic reality. The Boston Matrix is a theoretical model only and therefore cannot
take account of all economic activity
 The hospitality environment is very volatile so making decisions based on the
predicted cash flows for each product in the portfolio can be risky
 Analysis can be affected by bias
 Ignores qualitative data
 Relies on expertise for analysis
 Difficult for management to decide where to place each product.
LEAN PRODUCTION
Advantages
 Lead times are cut

 Damage, waste and loss of stocks/equipment are lowered
 A greater focus on customer needs
 Improved quality through the introduction of kaizen and quality circles
 Lower costs and contribute to improved profits
 Staff are more involved and potentially more motivated
 Working environments are safer and cleaner
Disadvantages
 The business may struggle to meet orders if their suppliers fail to deliver raw
materials on time
 The business is unlikely to 'bulk buy' its raw materials and, therefore, it may lose the
benefit of achieving economies of scale
 Buffer stocks are minimal and this may lead to the business having to reject customer
orders requiring delivery immediately
Evaluation
Lean production reduces waste and the costs involved in stock, therefore improving profits.
However, the business will need to build a good relationship with the supplier because they
will be reliant upon them. if they are not this could lead to a bad reputation and damaged
brand image.
WHAT IS EMPLOYEE PARTICIPATION
Employee participation, also known as participative management is an effective tool which

can be used to motivate all employees.
When the subordinates have been involved in the process of decision making at all levels, it
is also known as participation.
ADVANTAGES OF EMPLOYEE PARTICIPATION
It motivates the other person

With employee participation automatically comes motivation. When you are participating
with a group of others in an environment, you will create an environment that is more
positive. The employees may also have the chances of showing more creativity as well as
analytical ability. Such opportunities shall make them all the more motivated.
If you are working in an environment that is motivated and enthusiastic, there are bigger
chances of seeing positivity and changes. After all, that is what we want to see.
Costs less and handles time

Another benefit of employee participation is that it costs less time and much lesser money.
In fact, it is one of the most simple and effective ways to handle money without having to
waste too much time. After all, that is what participatory decisions do.
So you will have much lesser time in order to implement them. And at the cost of such
participation, you will be able to benefit the case of entire success participation.
Makes you more creative

The third benefit of employee participation is that it makes you more creative and innovative.
In fact, these two happen to be some of the biggest and most essential benefits that come with
participative management.
By simply allowing a diverse group of people to have input into making decisions, the
organization benefits from the synergy comes with a much wider range of options as well.
When all the employees instead of executives and managers have the opportunity to
participate, the chances will also increase at the same time.
Boosts influence and capacity

Employee participation also boosts mutual faith, cooperation, and understanding . In that
way, the employees will hardly have any disagreements with the decisions of the manager.
It will indicate that the manager may easily influence the employees so that various other
decisions can be implemented.
When people are participating together and work, they are able to boost capacity easily and
influence each other in a much positive and better way.
Proper work environment
With effective management and employee participation comes a proper working
environment.
The manager will listen more to their staff, ask some of their friends for a few opinions and
take them more seriously.
Apart from that, the employees will also consider getting themselves into a part of some
organization. This will result in a better and much more positive environment at workplace.
Makes a more effective decision

Finally, we come to the topic of a decision. With effective employee participation, you will
also be able to make better decisions which help in creating and selecting the best
alternatives.
For every single problem, different people will give you different kinds of solutions. And that
will benefit the workplace that you are in drastically. Therefore the participation shall
facilitate the process of decision making.
Boosts productivity as well

The best part about employee participation is that it will boost productivity in the working
environment.
An increased say in decision making will always mean that there is a strong feeling of
association now. There shall be employees who will take responsibility of their actions and
take charge of what they have done.
The working hours shall be stretched out easily on its own and the force from the
management shall also be handled easily. All of this shall easily lead to and boost
productivity.
DISADVANTAGES OF EMPLOYEE PARTICIPATION
Despite employee participation being one of the best methods of management in companies,
it also comes with several disadvantages you must learn about.
Risks of security
The sad part of employee participation is that it comes with security risks. Typically, this also
means that sharing critical data and information with a larger chunk of employees.
Most of the information is needed to make bigger decisions and is always of a sensitive
nature and the company may have some concerns about the employees that are speaking
about it outside the organization as well.
The more people who know about sensitive information, the higher there will be a risk of
getting out.
Objections may come from the union

There could be a few objections from the union as well. There are some labor representatives
who are concerned that the organization shall use the participation of employees or program
of involvement that may deter the employees from using the independent union
representation.
The law must also continue to stop companies from setting up labor organizations.
It must also be a proper labor practice for employees to be able to establish programs that can
use or even manipulate an existing one with the whole idea of frustrating the efforts of the
employees so that they may obtain independent representation.
Management authority that is traditional

Another huge disadvantage that comes with participative management is that all employees
end up having a hard time when it comes to finding the distinction between the employment
levels and the management.
While removing the defined barrier between the management as well as the employees, it
happens to be a part of the management and purpose, the company will have to designate the
leaders to avoid the potential for uncertainty and chaos of command when the situations are
challenging.
DIFFERENT METHODS OF PRODUCTION
JOB PRODUCTION
Custom made clothes are an example of job production.
This type of production makes a single, unique, product from start to finish. The product is
mostly based on the requirements of the customer. Job production tends to be labour
intensive, and often highly skilled labour is required. Examples include building ships,
bridges and buildings, handmade crafts like furniture and made-to-measure clothes.
Advantages
 Unique, high quality products are made.

 Workers are often more motivated and take pride in their work.
 Products are made according to individual customer needs, hence improves customer
satisfaction
 Production is easy to organise
Drawbacks
 Very labour intensive, so selling prices are usually higher.

 Production can take a long time and can be expensive, for instance if special materials
or tools are required.
 More expensive product.
 Unit cost are very high
BATCH PRODUCTION
A bakery is an example of a business that normally produces in batches.
In this type of production, products are made in batches. For example, a shoe factory could
make different batches of shoes based on the size and colour of them. This method is suited
to products that are identical to each other, but are only produced in limited quantities, or for
a limited amount of time. Employees focus on one aspect of production, so labour is not
usually highly-skilled. Batch production can also allow for the use of automation.
Advantages
 Since larger numbers are made, unit costs are lower.
 Offers the customer some variety and choice.
 Materials can be bought in bulk, so they are cheap.
 Production is flexible since different batches are made
 Workers specialize in one process
Disadvantages
 Workers are often less motivated because the work becomes repetitive.
 Goods have to be stored until they are sold, which is expensive.
 Initial set-up costs are high.
 Expensive to move products around the workplace. Storage space will be needed to
store raw materials. Expensive.
MASS (FLOW) PRODUCTION
An example of a production line, producing doughnuts
In mass production, large numbers of identical products are made. Production is often
continuous, and is suited to high demand, mass market products. Examples include cars,
chocolate bars, and electronic goods.
Advantages
 Labour costs are usually lower.
 Materials can be purchased in large quantities, so they are often cheaper.
 Large number of goods are produced.
 Unit cost are relatively low
Disadvantages
 Machinery is very expensive to buy, so production lines are very expensive to set up.
 Workers are not very motivated, since their work is very repetitive.
 Not very flexible, as a production line is difficult to adapt.
 If one part of the line breaks, the whole production process will have to stop until it is
repaired. Delay the production process
 Maintenance cost are very high
 Expensive at first place
IMPORTANCE OF EMPLOYEE MOTIVATION
There are several reasons why employee motivation is important. Mainly because it allows
management to meet the company’s goals. Without a motivated workplace, companies could
be placed in a very risky position.
Motivated employees can lead to increased productivity and allow an organisation to achieve
higher levels of output. Imagine having an employee who is not motivated at work. They will
probably use the time at their desk surfing the internet for personal pleasure or even looking
for another job. This is a waste of your time and resources.
Note that this is based on one employee. Try picturing the majority of your employees doing
the same thing. This is not a position anybody wants to be in.
Benefits of Motivated Employees
Employee motivation is highly important for every company due to the benefits that it brings
to the company. Benefits include:
Increased employee commitment

When employees are motivated to work, they will generally put their best effort in the tasks
that are assigned to them.
Improved employee satisfaction

Employee satisfaction is important for every company because this can lead towards a
positive growth for the company.
Ongoing employee development

Motivation can facilitate a worker reaching his/her personal goals, and can facilitate the self-
development of an individual. Once that worker meets some initial goals, they realise the
clear link between effort and results, which will further motivate them to continue at a high
level.
Improved employee efficiency

An employee’s efficiency level is not only based on their abilities or qualifications. For the
company to get the very best results, an employee needs to have a good balance between the
ability to perform the task given and willingness to want to perform the task. This balance
can lead to an increase of productivity and an improvement in efficiency.
How to Increase Employee Motivation
Communication
The easiest way to increase employee motivation is by having positive communication at the
workplace. Not relying only on emails but by making sure they talk to their employees in
person and even on a personal level, if possible.
Try setting aside some time each day to talk with employees or you can join them during
coffee breaks instead of sitting at your desk. By doing so, you actually make employees feel
as though you are part of the team; a leader instead of just the boss.
Employees also want to see the company that they are working for succeed. Many have
excellent ideas, ranging from money saving to operational improvements. Management must
make an effort to take some time to ask and listen to suggestions. Nothing is more
worthwhile than feeling valued.
Value Individual Contributions

Management should ensure their employees on how their individual efforts and contribution
plays an important part of the company’s overall goals and direction. Employees will take
pride and be engaged in their work if they are aware how their efforts create an impact the
organisation; regardless of how big or small their contributions are.
Management does not have to reward their employees with gifts every single time they did a
good job at a task. At times, a simple “Thank You” or “Great job” will suffice. These
meaningful words acknowledge effort, build loyalty and encourage people to work even
harder.
Positive Workplace Environment

Sometimes, the employees lack motivation because their workplace does not have a positive
work environment. To fix this, management could sent out surveys and get feedback from
employees in order to solve the issues that they may face.
Management could also post a positive quote or picture by the copier, coffee machine or
somewhere else that is visible and that receives high foot traffic so that others can see. Flora
and fauna also helps create a serene workplace environment for your employees, so why not
add a couple of plants around the office.
In Summary
A positive workplace is the basic element that will get your company to the top. We
understand that it may be time consuming and difficult to encourage employee motivation at
the workplace. However, in order to achieve a high level of employee productivity,
management needs to encourage a positive workplace environment.
Ensure that your employees feel that their work and efforts is an important contribution to the
company’s success. Remember to always keep an ‘open-door’ policy and have an
approachable management team.
CAPACITY UTILISATION
Capacity Utilisation is basically how much the business is making divided by how much the
business can potentially make.
Advantages of working at Full Capacity
 Lower average costs (the fixed costs are spread over more output).
 Improves image amongst customers (business looks successful, busy customers).
 Increases Staff Motivation and Job Security.
Disadvantages of working at Full Capacity
 Cannot produce any more which means you could miss out on lucrative orders from
customers.
 Training and Maintenance increases (increased pressure on staff and machines and a
lack of time generally).
 Strain on Resources.
Subcontracting or Outsourcing
Subcontracting is when you take orders and produce ‘things’ for other businesses.
Subcontracting will increase capacity utilisation as you are now making more not just for
your business but for other businesses as well.
LABOUR-INTENSIVE AND CAPITAL-INTENSIVE PRODUCTION
LABOUR-INTENSIVE PRODUCTION
In Economics, labour is the all human efforts in the production. Labour does not only mean
the labourers in an industrial site. If we take an example of a tourist resort, labour includes
the receptionists, bell boys, bartenders, waiters, admin assistants, telephone operators etc.
Labour-intensive production means that the way that a good or service is produced depends
more heavily on labour than the other factors of production, such as capital.
Labour intensive method of production is usually used for individual or personalised

products, or to produce on a small scale.
Examples of labour-intensive production are hotels, restaurants, small scale farming, pole-
and-line fishing, mining etc.
Advantages of labour-intensive production
 Staff (labour), unlike machinery can be used flexibly to meet changing levels of
consumer demand, e.g. temporary workers.
 Can provide a ‘personal touch’ and be more in-tune with customer needs and wants.
 Can provide tailor made products / services for different customer needs and wants.
Machinery is not flexible enough to provide custom made products / services for
individual customers.
 Labour can provide feedback, that provides ideas for continuous improvement.
Workers can adapt to introduce new ideas.
 Labour is always required to takeover in any event of breakdown of machinery.
Disadvantages of labour intensive production
 Relatively expensive in the long-term when compared to machinery – higher per unit
costs due to lower levels of productivity.
 Relatively inefficient and inconsistent levels of effort.
 Labour relation problems, e.g. may go on strike.
 There could be a shortage of skilled labour, unlike machinery.
 Problems in personal life could easily affect the performance at work.
CAPITAL-INTENSIVE PRODUCTION
‘Capital’ refers to the equipment, machinery, vehicles and so on that a business uses to make
its product or service. This meaning is also consistent with the meaning that the capital is the
resources provided by the owner/owners to the business to do the business.
Capital-intensive processes are those that require a relatively high level of capital investment
compared to the labour cost.
These processes are more likely to be highly automated and to be used to produce on a large
scale.
An industry that is capital intensive is – oil refining, manufacturing.
Advantages of capital intensive production
 Reduces human error – more accurate production.

 Greater speed (efficiency) and uniform effort / output.
 Technical economies of scale – increased efficiency which could reduce average cost.
 No problems with labour shortages / planning labour.
Disadvantages of capital intensive production
 Initial high costs of investment and possible training costs.

 Lack of flexibility in responding to a change in demand. In contrast, labour can be
used flexibly, e.g. using temporary workers.
 Machinery lacks initiative, e.g: it is unlikely to be innovative, provide ideas on how to
improve production or take on extra responsibilities.
 Capital Intensive is better than labour intensive
TASK QUESTION
Discuss whether capital intensive is better than labor intensive to increase a firm's
productivity. [25]
Capital-intensive industry is an industry that requires large amounts of money and other
financial resources to produce a good or service. A business is considered capital intensive
based on the ratio of the capital required to the amount of labor that is required. Some
industries commonly thought of as capital intensive include oil production and refining,
telecommunications and transports such as railways and airlines. Labor-intensive is industry
that requires a large amount of labor to produce its goods or services. The degree of labor
intensity is typically measured in proportion to the amount of capital required to produce the
goods/services; the higher the proportion of labor costs required, the more labor intensive the
business.
There are some advantages by using more capital. First, it can cause benefits for the industry
as it reduces human error, this means that more accurate product is produced and it avoids
and prevents general mistakes that are usually caused by workers, so it lower the risks of
having problem in producing the goods. In that way, there will be a decrease in the amount of
waste produced which means that it higher the profit for the industry. Then, capital intensive
easily adopt to change compared to labour intensive because it suits modern trends during the
production due to flexibility they have. Some people aside industry like farmers use this
method as it is associated with the high level of output, meaning, the act or process of
producing goods, they choose this because it has higher technology and trusted when running
the production. Aside from having benefits in the industry alone, it is very useful for
countries especially less developed countries so that they can increase their pace of
developments.
To add on capital intensive is better than labor intensive in matter of productivity because
using machines to produce goods is much more faster, efficient, cheaper in long term
production, and to avoid human error, they are also very accurate which make capital
intensive is better than labor intensive in the matter of productivity.
Its stated that capital intensive is better than labour intensive to increase a firm's productivity
because many firms which they more prefer to use capital intensive rather than labour
intensive, because if a firm who use capital intensive, it may be an advantages for them
because if they use capital intensive, they will use more machines less than workers, because
sometimes machines are low cost and it works faster than people. Such as, if a firm who uses
robot, it would be an advantage for them because robots work quickly and more efficient, and
it may increase more customers and the firm will get many advantages and they can increase
their productivity more and they can increase their profit.
However, there are some disadvantage of using capital or machines because if there is a
single or one or tiny mistake, then it make the entire product wrong. If the capital or
machines is broken, the company need to pay amount of money to repair or fix the machines.
If the machines are broken, the working or the process of making the product is delayed or
postpone. Every year the company must pay to maintenance the machines. They need to be
daily service the machine, so it would not be broken. If there is an unexpected problem, the
machines cannot decide what to do, so this are the reasons to company to employ the worker,
so if the unexpected problem happen, worker can decide how to do or to solve or to adapt to
this problem.
In addition capital intensive equipment is expensive to buy and maintain, Lack of flexibility
in responding to a fall in demand. In contrast, labour can be used flexibly, for example using
temporary workers.
There are also disadvantages for firm which they use capital intensive rather than labour
intensive, such as when the first time they built their firm, it will be a disadvantage for them
because they have to spend a lot of money to buy good quality of machines to provide good
quality of goods and services, so its catagorized into a disadvantages.
On conclusion, one can say that capital intensive is better than labor intensive to increase
firm’s productivity in some reasons, however on another hand there are some disagreements
because it can affect the unemployment, and economic growth, urban-rural migration,
achievement of economies of scale in labor intensive, results in demand, and reducing the
cost of production in labor intensive. Also, in order to achieve sustainable economic
development, it is important that we should have the both methods.
FACTORS RESPONSIBLE FOR THE SURVIVAL OF THE SMALL SCALE PRODUCER
In spite of the disadvantages, the small-scale producer has not disappeared from the scene.
Competition from large businesses has failed to crush him. The small-scale producer still
survives.
There are several factors which are responsible for the survival of the small-scale producer:
Economies
The small-scale producer has certain advantages over the large business. He can give
personal attention to every detail. He can look after his customers and employees personally.
His management is much more economical.
Nature of Demand
In some cases, the nature of the demand is such that competition from large-scale business is
ruled out; especially if the demand is limited, local or fluctuating. In such cases, it is not
worth-while to have large-scale production. The field is free for the small producer.
Nature of Industry
Some industries are such that they must produce on a small scale. Here the personal factor is
important and sometimes, even indispensable, e.g., in tailoring and jewellery-making. In
some cases, there is little scope for the use of machinery and division of labour, e.g., in
agriculture, horticulture, poultry-rearing, dairying, etc. These industries furnish an ample
field for small-scale enterprise.
Help from Big Business

Sometimes the very existence of the large-scale business creates work for small-scale
enterprises, e.g., repairing of motor-cars, trucks and cycles. Small industries act as subsidiary
industries or industries supplementary to a large-scale industry. As such they have- ample
chance to survive.
Recent Developments
There are some recent developments which-have proved very helpful to the small producer:
(a) Advent of electricity is one such factor. It is not necessary now to generate power in each
factory. Cheap electricity has become available and payment is made for the current actually
consumed. In this respect, the large business has no special advantage,
(b) Technical journals have spread scientific knowledge all round so that it is no longer a
monopoly of big business,
(c) Co-operation also helps the small-scale producer. By working together in a group, the
small-scale producers can have all the economic advantages open to a big business.
AN INSIGHT INTO PRIMARY AND SECONDARY MARKET RESEARCH
PRIMARY RESEARCH
Is one of the two major market research methods used by most businesses across the world.
Primary research is the research that a business does on its own, without the help of any
previously collected data or information. The data collected in primary research is being
collected for the first time and is specific to the business’s purpose or objective. This is why
the information gathered can be referred to as ‘raw data’. Primary market research can be
done through many methods of which some include – focus groups, face to face interviews,
telephone interviews, surveys, questionnaires and observational techniques, etc.
One of the main benefits of conducting this kind of research is that it helps to gather only the
data needed and no extra information. This can be time taking and cost bearing but avoids the
need to cut back on several pieces of useless information. Primary market research is of two
major types: Quantitative research focuses more on hard facts, stats and figures whereas
qualitative research takes into account the feedback, opinions and emotions of the consumers.
BENEFITS OF PRIMARY MARKET RESEARCH

Specific data can be found: One of the most important benefits of primary market research is
that it can help find information that is customized according to the needs of the business and
is highly specific in nature. The research helps to investigate issues that the business may
need to know the most about and is flexible enough to leave out unwanted or useless
information. It helps to gauge customer behavior, the consumer likes/dislikes, their
expectations and market trends in a specific way.
Customized to personal needs:

Unlike secondary market research, the approaches used in primary market research methods
can be tailored according to the personal requirements and needs of the business. One has
total control over the manner of conducting the research and finding solutions. For example,
if a business needs to find out customer behavior in a particular age group, it can do so by
conducting surveys for that particular age group.
Targeted issues can be addressed:

Only those issues which the business is most interested in addressing can be touched through
the method of primary market research. No extra information needs to be collected or goes to
waste through this method. The research work is streamlined in such a way that its scope is
limited to the business’s interest. The efforts can thus be concentrated on specific matters and
not a whole array of other areas. This is another very important benefit of using the method of
primary market research as a part of a business’s research efforts.
Ownership of information:
Another important advantage of primary market research is that by using this method of
gathering information, a business can claim to own exclusive rights over collected data. This
means that no one else but that business can use the information, and it may choose to offer it
or not offer it to anyone else. The proprietary of information or ownership of information can
bring about further benefits for the business.
Better data examination:

When it comes to primary market research, the data collected or information gathered can be
better interpreted or evaluated by the business. The data can be examined based on the needs,
and this doesn’t have to depend upon the interpretation of the secondary data, which is
complex and time taking. This means that in primary research, the time taken to evaluate data
is less, and the process is more efficient.
Efficient spending:
In the case of primary market research, a business spends only on what is required and
doesn’t end up wasting money on data that may be useless or irrelevant. This means that a
business can spend smartly and efficiently when it chooses to conduct primary market
research. This helps to remain within budget and save on the overall costs.
DISADVANTAGES OF PRIMARY MARKET RESEARCH
Expensive to conduct:
One of the main disadvantages of opting for primary market research is that it can be very
expensive to conduct. One may be required to spend or invest huge amounts of money to
conduct interviews, surveys, organize focus groups and experiments and trials. Not all
businesses can afford to opt for these methods, especially or small scale organizations. They
may rather opt for secondary methods such as researching for free on the internet, etc.
Time taking:
Another negative associated with the process of primary market research is that it can be very
time-consuming. Conducting interviews, market surveys, and experiments, etc. may take a
long time. Moreover, evaluating the results and applying the obtained results on product
development, etc. may take further time. Those businesses that do not have the required time
may rather opt for less time taking alternatives like using secondary sources, etc.
Feedbacks may not always be accurate: The feedbacks obtained from audiences and
respondents may not always be honest and accurate. Not all respondents may be totally true
or honest in giving their opinions and feedback. Some may not state what they feel accurate
and this could mean evaluation of incomplete or wrong information. Thus, the entire process
of primary market research may topple over or lead to slightly incorrect findings.
Several sources needed:

In order to come up with results or final reports, the help or assistance of many different
sources may be needed. One may need to rely on several different methods including focus
groups, face to face interviews, online surveys, physical surveys and observational tactics,
etc. This may be even more time-consuming and expensive. This thus proves as another
negatively related to primary market research.
SECONDARY RESEARCH
Is a kind of a market research method that involves gathering already researched and
collected information. This technique tries to search for and compile information that is
already existing and can either be for free or for certain cost. This method of research does
not include finding any original or unique data and relies on information obtained through the
internet, libraries, government sources, trade associations, existing business documents,
competitor’s data, etc.
While it may be very time-saving and cost saving to find information through secondary
research, the amount of data gathered may not match the business’s requirements or may not
be specific to its needs. Secondary research is however still preferred and widely used across
industries and businesses. This method is also termed as ‘desk research’ since it can easily be
done from behind a desk, and one doesn’t need to step out for it. Most of the times, secondary
research is for free and hence very popular.
BENEFITS OF SECONDARY MARKET RESEARCH
Easy availability of information:

One of the main advantages or benefits of secondary market research is that all the
information gathered through it is very easily available and accessible. There are many
sources from which information can be taken, and this makes it easy for researchers to gather
relevant information. Unlike primary research, in this method, one tends to collect huge
amounts of information in lesser amount of time.
Less expensive:
As compared to primary market research, secondary market research is cheaper to conduct
and hence helps saves a lot of money. It allows businesses to remain within their budget
limits and requires spending of the petty amount of money. In fact, most of the information
can be found for free through secondary data sources like the web, public directories,
governmental organizations, and libraries. This very benefit makes it a popular choice among
small or new businesses and organizations.
Lots of available data:

Besides the easy and cheap availability of information, secondary market research also offers
the benefit of availability to lots of data. There is a gamut of data available for each business,
company and industry and several objectives can be fulfilled by making use of such
information. The abundance of secondary data sources is responsible for this in addition to
the fact that most information these days is stored on web search platforms like Google,
Yahoo or Bing, etc.
May highlight truths about conducting primary research:
Most of the times, the people who contribute data to secondary market research may point out
to the original sources, the time it took to collect the information, the difficulties and
challenges faced while gathering data and other information relevant to it. This may help
secondary researchers to know whether or not it was practical to conduct primary research in
the first place. This very fact makes secondary market research a beneficial process. It
highlights the truths about primary research.
Answers research questions:

Secondary data research or market research is a method that helps to bring together or align
the concentration of widespread primary research. When conducting this form of research
work, businesses or researchers often realize that the information they were looking for is
actually present for free and this may reduce the need for conducting primary or original
research work from scratch.
Lots of free information available:

Often, businesses can conduct secondary market research without spending even a single
penny. This is because of the availability of high amounts of free data. For some
organizations, the entire research can be conducted using this free information, and this
would mean zero expenses on market research.
Quicker to conduct:
Since most of the data is available easily and can be accessed without many efforts, the
process of secondary market research is much easier and convenient to conduct as compared
to primary market research. This type of research can be done within days or weeks,
depending upon the objectives of the business or the scale of information needed.
DISADVANTAGES OF SECONDARY MARKET RESEARCH
Difficult to cut back on useful information/not specific:

One of the main drawbacks of secondary market research is the difficulty in selecting some
pieces of useful information from the sea of data collected. Since lots of data is available but
specifically needed data is less, businesses may have to spend a lot of time and energy in
picking out information that is relevant to it. In fact, they may sometimes realize that they
haven’t found what they were exactly looking for due to variations in customer
demographics, location, and other factors.
Lots of non-credible sources create difficulty/lack of quality research:

Of course, there is a lot of secondary data available out there, but not all is offered through
credible or trusted sources. Most of the data on the web cannot be trusted, and the same holds
true for the information offered by directories, trade associations, etc. Thus secondary market
research may not always be quality research as sometimes it is difficult to know which source
is credible and which is not.
Incomplete information also available:
Besides the lack of credible sources and quality data, most of the information available
through secondary sources may be incomplete or lacking on some main points or statistics.
As they say, incomplete information can be dangerous; using incomplete data results can also
prove dangerous as far as market research goes. Especially when it comes to using competitor
data or information on the web, several links can be broken, and the true picture may not be
presented.
May not be updated:

Not all secondary data sources available offer the latest reports, data, and statistics. Some of
the data may be outdated; other may just not be valid according to the current situations like
economic climate, market trends, user demographics and other factors. This is a major
drawback of using secondary sources for market research. Old and outdated data may lead to
incorrect results or findings, and this very fact interferes with product development, service
enhancement, and other business processes.
CONCLUSION
When it comes to choosing primary or secondary market research, no one type of research
comes out as a winner. Both the research methods have their positives and negatives, and the
decision to choose one depends upon the individual business needs and requirements. Where
on one hand, secondary market research presents data which you may never be able to
uncover yourself, primary market research can help fill the gaps which secondary research
wasn’t able to answer. Neither of the research methods alone could help a business reach its
objectives, and the wise thing to do is to pick smartly both options, in the right proportions.
Relying on primary market research alone can lead to missed opportunities, incomplete
information, and limited data, using secondary data alone may leave you with vague answers
to specific questions. Both research works hold their importance and present beautiful
opportunities for businesses when combined well together. A successful business is one that
has learned to utilize these processes together and in the right amounts. Thus, it won’t be
wrong to say that no method is better than the other, and only the combination of both can
give a well-rounded view of the market or the industry.
IMPORTANCE OF PERFORMANCE APPRAISAL
Performance appraisal provides important and useful information for the assessment of
employee's skill, knowledge, ability and overall job performance. The following are the
points which indicate the importance of performance appraisal in an organization:
 Performance appraisal helps supervisors to assess the work performance of their

subordinates.
 Performance appraisal helps to assess the training and development needs of
employees.
 Performance appraisal provides grounds for employees to correct their mistakes, and
it also provides proper guidance and criticism for employee's development.
 Performance appraisal provides reward for better performance.
 Performance appraisal helps to improve the communication system of the
organization
 Performance appraisal evaluates whether human resource programs being
implemented in the organization have been effective.
 Performance appraisal helps to prepare pay structure for each employee working in
the organization.
 Performance appraisal helps to review the potentiality of employees so that their
future capability is anticipated.
DEFINITIONS OF DECENTRALISATION
According to Henry Fayol, "Everything that goes to increase the importance of the
subordinate’s role is decentralisation, everything that goes to reduce it is centralisation."
According to Louis Allen , "decentralisation refers to the systematic effort to delegate to the
lowest levels all authority except that which can only be exercised at central point."
This definition makes it clear that even in decentralisation, delegation to the lowest levels is
not complete as the basic functions in the management process are centralized.
INTRODUCTION TO DECENTRALISATION
Decentralisation of authority is another concept closely related to centralisation. The

delegation of authority by an individual manager is closely related to organization’s
Decentralisation of authority.
Decentralisation of authority means conscious/systematic effort to bring dispersal (spreading)

of decision making power to the lower levels of the Organisation. In decentralisation, only
broad powers will be reserved at the top level. Such powers include power to plan, organise,
direct and control and maximum powers will delegated to the authority at the lower level.
Decentralisation is just opposite to centralisation. Under centralisation, authority is mostly

concentrated at the top level management. Centralisation and decentralisation are mutually
dependent. In a large Organisation, the process of centralisation and decentralisation co-exist
and reinforce each other.
Decentralisation is a natural development when the Organisation grows large and complex.
Here, centralisation of management is neither possible nor desirable. The only practical
solution is to divide the Organisation into decision-making units and giving the powers to
take routine types of decisions in regard to the functioning of those units. This is
decentralisation in practice.
In decentralisation, systematic efforts are being made to delegate to the lowest levels all
authority except that which can only be exercised at the central points. Decentralisation is
delegation not from one individual to another but delegation to all units in an Organisation. A
company is said to be highly decentralized, when the delegation is company-wide in all
functions and divisions of the company and also for a wide range of authorities and
responsibilities.
Decentralisation is different from centralisation as in centralisation, the decision making

power is in the hands of one person only. We observe such centralisation in sole trading
concerns. It is also noted that centralisation is one feature of traditional management in India
while decentralisation is a normal practice under professional management.
ADVANTAGES / IMPORTANCE OF DECENTRALIZATION
Decentralisation helps to improve the quality of decisions/decision-making at the top

level management :
Decentralisation of authority among other executives at all levels in the Organisation relieves
the top executive of the excessive burden saving his valuable time, which he can devote to
more important and long-term problems. This is bound to improve the quality of his decisions
regarding such problems.
Decentralisation facilitates diversification of activities :

It is a matter of common experience that an Organisation with departmentation on the basis
of products facilitates diversification of products or market even when the authority is
centralized. Decentralisation takes this process a step further. Managers of semi-autonomous
product divisions are able to utilise their skills and experienced judgment. This has a bearing
on their products and the market. The enterprise also attains maximum possible growth.
Decentralisation is beneficial when new product lines or new activities are introduced in an
Organisation. Such policy creates self sufficient units under overall co-ordination of top level
management.
Decentralisation encourages development of managerial personnel :

Most companies find lack of managerial talent as a limiting factor in their growth. A
company cannot expand effectively beyond the scope and abilities of its managerial
personnel. Capable managers, however, can be developed only by giving managerial jobs to
suitable persons and delegating them the authority to make important decisions. Such wide
exposure gives them opportunity to grow and to have self development for higher positions.
The more talented and capable persons will learn and improve and qualify themselves for
higher managerial positions. Only a decentralized Organisation can offer such opportunities
to future managers without involving additional expenditure. A decentralized Organisation
also allows its managers adequate freedom to try new ideas, methods or techniques. In brief,
decentralisation creates a team of competent managers at the disposal of the company.
Decentralisation improves motivation :

Research conducted by social scientists has proved that the Organisation structure itself
exercises some influence on the motivation of the people working within it. An Organisation
structure which facilitates delegation, communication and participation also provides greater
motivation to its managers for higher productivity. Decentralized Organisation structure is
most favorable for raising the morale and motivation of subordinates which is visible through
better work performance.
Decentralisation makes decision-making quicker and better :

Since decisions do not have to be referred up through the hierarchy, quicker and better
decisions at lower levels can be taken. Divisional heads are motivated to make such decisions
that will create the maximum profit because they are held responsible for the effect of their
decisions on profits. Thus decentralisation facilitates quick and result-oriented decisions by
concerned persons.
Decentralisation provides opportunity to learn by doing :

Decentralisation provides a positive climate where there is freedom to make decisions,
freedom to use judgment and freedom to act. It gives practical training to middle level
managers and facilitates management development at the enterprise level.
LIMITATIONS OF DECENTRALIZATION
 Decentralisation may lead to the problem of co-ordination at the level of an enterprise

as the decision-making authority is not concentrated.
 Decentralisation may lead to inconsistencies (i.e. absence of uniformity) at the

Organisation level. For example, uniform policies or procedures may not be followed
for the same type of work in different divisions.
 Decentralisation is costly as it raises administrative expenses on account of

requirement of trained personnel to accept authority at lower levels. Even the services
of such highly paid manpower may not be utilised fully, particularly in small
organisations.
 Introduction of decentralisation may be difficult or may not be practicable in small

concerns where product lines are not broad enough for the creation of autonomous
units for administrative purposes.
 Decentralisation creates special problems particularly when the enterprise is facing

number of uncertainties or emergency situations. The decision-making process gets
delayed and even correct decisions as per the changing situations may not be possible.
ADVANTAGES OF PRIVATIZATION
Improved efficiency
The main argument for privatization is that personal firms have a profit incentive to chop
prices and be additional economical. If you’re employed for a government run business,
managers don’t sometimes share in any profits. However, a non-public firm is curious about
creating a profit, then it’s additional probably to chop prices and be economical. Since
privatization, firms appreciate BT, and British Airways have shown degrees of improved
potency and better profit.
Lack of political interference

It is argued governments build poor economic managers. They’re intended by political
pressures instead of sound economic and business sense. as an example, a state enterprise
might use surplus employees that is inefficient. The govt. is also reluctant to urge eliminate
the employees attributable to the negative content concerned in job losses. Therefore, state
owned enterprises usually use to several employees increasing unskillfulness.
Short term view

A government several assume solely in terms of the future election. Therefore, they will be
unwilling to take a position in infrastructure enhancements which can profit the firm within
the long run as a result of they’re a lot of involved regarding comes that provides a profit
before the election.
Increased competition
Often privatization of state owned monopolies happens aboard liberation – i.e. policies to
permit a lot of companies to enter the trade and increase the aggressiveness of the market. It’s
this increase in competition that may be the best spur to enhancements in potency.
parenthetically, there’s currently a lot of competition in telecoms and distribution of gas and
electricity.
However, privatization does not essentially increase competition, it depends on the character
of the market. E.g. there’s no competition in water as a result of it’s a natural monopoly.
There’s conjointly little or no competition at intervals the rail business.
Government can raise revenue from the sale

Selling state owned assets to the personal sector raised important sums for the united
kingdom government within the Nineteen Eighties. However, this is often a 1 off profit. It
conjointly suggests that we have a tendency to lose out on future dividends from the profits of
public corporations.
DISADVANTAGES OF PRIVATISATION
Natural Monopoly
A natural monopoly happens once the foremost economical variety of corporations in a trade
is one. as an instance, water has terribly important mounted prices. Thus there’s no scope for
having competition amongst many corporations. Therefore, during this case, privatization
would simply produce a personal monopoly which could look for to line higher costs that
exploit shoppers. Thus it’s higher to possess a public monopoly instead of a personal
monopoly which may exploit the patron.
Public interest
There are several industries that perform a crucial public service, e.g., health care, education,
and transport. In these industries, the profit motive shouldn’t be the first objective of
corporations and also the trade. as an instance, within the case of health care, it’s feared
privatizing health care would mean a larger priority is given to profit instead of patient care.
Also, in a trade like health care, arguably we tend to don’t want a profit motive to boost
standards. Once doctors treat patients, they’re unlikely to undertake tougher if they get a
bonus.
Government loses out on potential dividends.

Many of the privatized corporations within the United Kingdom are quite profitable. This
suggests the govt misses out on their dividends, instead of planning to loaded shareholders.
Short-termism of firms.
As well because the government is intended by short term pressures, this is often one thing
personal companies could do additionally. To please shareholders they will ask for to extend
short term profits and avoid investment in future comes. As an instance, the united kingdom
is affected by a scarcity of investment in new energy sources; the privatized corporations try
to create use of existing plants instead of invest in new ones.
MAJOR TYPES OF VISUAL PRESENTATION
Visual presentation refers to the expression of ideas about some matters while using visual
aids such as visual multimedia. From electronic media such as television screens and web
pages to environmental contexts such as retail displays and road signs, visual communication
is virtually everywhere. Visual presentations such as graphs, tables, charts, and diagrams
bring together the verbal and visual to add another dimension to the information and create a
totally new path towards understanding its meaning.
A presenter can, therefore, use visual interpretation of information to maximize the

effectiveness by making sure that the elements are presented as clearly as possible. The more
complex and detailed the information is, the more important the information will be. If used
well, visual presentation will support the presentation by strengthening audience involvement
and impact. However, if badly managed, they can interfere with the presentation. Most visual
presentations require prior preparation and should be operated with a lot of efficiencies. If
you wish to use such presentations in an unfamiliar room, you need to check the facilities that
are there in advance so as to plan your presentation well. Overall, the visual presentation
must focus on the relevant information.
Major Types of Visual Presentation
There are many different types of visual presentations. Here are main ones.
Whiteboards and Interactive Whiteboard

When it comes to explaining the sequence of routines and ideas, whiteboards can be very
useful. Whiteboards are good for developing diagrams and simple headings and for recording
the interaction with the audience during the sessions. Writing on whiteboards not only take
time but you will also have to turn your back to the audience in order to do so. While using a
whiteboard, ensure that your handwriting is aligned horizontally and is legible and large
enough for the audience to see. You should also ensure that you use nonpermanent instead of
permanent markers. You also need to know that the background of whiteboard can lead to
contrast issues for people with vision problems.
Flip Charts
A flip chart refers to a low cost, popular and low tech solution to record online meetings. A
flip chart is a very flexible and useful way to recording information during a presentation. To
help recap your main points, you can flip back through the pad. To show the progression
from one point to another, use the turning of the page. A flip chart is not only portable but
can also be prepared in advance. It requires no technical expertise or power source. They are
suitable for collecting responses and ideas from the audience. However, if you have a large
audience, a flip chart may be too small for everyone to see.
Paper Handouts
Handouts summarizing the main points are not only useful but also a good addition hence
must be relevant. If you are presenting packages such as power slides you can easily generate
handouts from your slides. Since giving out handouts at the start of the talk might consume
time you need to know the best time to give handouts. However, if your handouts have
complex figures and graphs, it's advisable to give the audience handouts before the
presentation starts. The audience may also be able to make their own notes during the
presentation. Overall, you need to consider the best method and time to distribute handouts
including either giving them at the end of the presentation or placing them on the seats prior
the start. If your presentation includes discussions and questions, this will give them enough
time to summarize them well.
Video
Video is a type of presentation that gives you an opportunity to show visual information. You
can use videos to bring pictures, movement, and sound into your presentation. When using
videos, it's important to ensure that the clip is relevant to your content. Avoid showing more
film than you need and ensure that your audience knows what to look for. If there is a
computer connected to the projector then videos can be shown as files through you tube or
from a DVD and other online sources. Videos can also be used to build presentations in
various video presentation software.
ezTalks Meetings
ezTalks is one of the best cloud video conferencing providers that will allow you to host a
number of videos in HD quality with over 100 participants. It also provides free audio
conferencing, instant messaging, file sharing, whiteboard collaboration, and remote control
apps for presentations. Once you have ezTalks you can choose a plan that's suitable for you.
It also gives you 24/7 customer support where you can contact their managers and get
solutions to your queries or problems. As compared to other video conferencing providers,
they have the best features and an excellent customer support.
Slides
Slides of excellent quality can also have a huge impact on any size or group. However, for
the images to be seen clearly and to create an eye contact with the audience, a good blackout
is needed. As compared to other methods of presentations, you will not add records or any
spontaneous notes to the slides. In case you are using slides, make sure that they are prepared
in the best way. The best way is to number them so that if one is dropped the slides can easily
be reordered. However, nowadays the use of slides has greatly been replaced by digital
photography.
Well, these are the different types of visual presentation. While choosing one, you need to
consider your preferences and the needs and your audience.
CASE STUDIES
AND
DATA RESPONSES
Section A: Data Response [25 marks] NO.1
Read the passage below and answer all the questions that follow.
Musendo Power
Musendo Power is a sole proprietorship established ten years ago by Power, a retiree from a
leading hotel. It provides catering services for special occasions like weddings, graduation
ceremonies and seminars. The business has a staff compliment of two chefs and four waiters.
Tom has always wanted his business to remain small. His major reason has been to allow him
to retain control of the business. He believes that sales and profit of the business have always
been steady due to his personal involvement. His employees, however, want Power to let the
business grow. They view growth as a way of ensuring higher salaries and job security.
Power’s philosophy of wanting the business to remain small contradicted with that of his
employees who expected the business to grow. He now intends to dispose of the business and
has made this known to his employees. The employees are worried about the possibility of
job losses, even though Tom has assured them that their jobs will be secure under a new
owner. Most these workers now regret having been employed by Musendo Power in the first
place.
Meanwhile, Power has engaged an accountant to prepare the final accounts of the business.
The following is an extract of The Statement of Financial Position (Balance Sheet) drawn by
the accountant.
Musendo Power
Statement of Financial Position (Balance Sheet) extract as at 31 December 2013
Non current assets: Equipment 50 000
Motor vans 40 000
Goodwill 10 000
Current Assets: Inventory (stock) 20 000
Trade receivables (debtors) 20 000
Cash 10 000
Current Liabilities: Trade payables 20 000
Power is looking forward to disposing of the business at the best possible value.
(a) From the information in the passage, calculate the
(i) current ratio, [3]
(ii) quick (acid test) ratio. [3]
(b) Comment on the liquidity position of Musendo Power, from your results in (a). [3]
(c) Explain why employees of Musendo Power should worry about the sale of the
business.[6]
(d) Evaluate the importance of growth to a business such as Musendo Power. [10]
(a) From the information in the passage, calculate the
(i) Current ratio,
Current assets / current liabilities
$50 000 / $20 000 = 2,5:1
[3]
(ii) Quick (acid test) ratio.
Current assets less inventory / current liabilities
$50 000 – $20 000 / $20 000 = 1,5:1

[3]
(b) Comment on the liquidity position of Musendo Power, from your results in (a).
 The company has enough working capital to meet its short term obligations
 The current ratio of 2.5:1 shows a safe liquid position since it is above the
recommended level of 1.5:1 – 2:1. However it is above the recommended level hence
the company might be keeping too much inventory
 The acid test ratio is also favourable but it shows that the company’s level of 1.5:1 is
above the recommended level of 1.2:1
[3]
(c) Explain why employees of Musendo Power should worry about the sale of the
business. [6]
PLEASE ATTEMPT THIS PART
(d) Evaluate the importance of growth to a business such as Musendo Power. [10]
PLEASE ATTEMPT THIS SECTION
T-Car LTD
T-Car Ltd is a leading car manufacturer in Zimbabwe. Tendai is the product manager for the
firm and she has to recommend a pricing strategy for a new model to be launched. This new
model will be a top of the range car with some important new features; light to drive, efficient
fuel use and speedy.
The marketing strategy for the new car is to target some market segments which the existing
cars have not fully penetrated. Although the new features give this model considerable
advantages, the car’s technical superiority is likely to be short-lived since the innovations are
the result of development by South African component manufacturers.
To take advantage of these technical advances and to keep fixed costs to a minimum, all
component s of the new car are to be imported. Only final assembly will take place in
Zimbabwe.
Tendai has received estimated costings for the components and the manufacturing process.
Assuming, an order for quantities for at least 10 000 cars, the total cost of components is $80
per car. The cost of assembling each vehicle will add a further $30. The promotional budget
has been set at $200 000 for the first year. A further allocation to central overheads to cover
Research and Development (R&D), central services and finance costs has been estimated at
$300 000 per annum. The final price of the car to the use will have to take into account the
retailer’s margins. Most of these retailers add a mark-up of 40% to their buying price.
“First, I must decide what my pricing strategy will be,” thought Tendai. “Do I take advantage
of the technical superiority of my new product and make good profits quickly through
pricing-up, in the market segment that I know will pay? Or do I look for longer term profits,
keep my price down and broaden my appeal to more segments in the hope that I can take
significant market share?”
a) Giving examples define the following terms:

i) marketing strategy [3]
ii) promotional budget [3]
b) Identify the factors that might influence pricing decisions in this case. [4]
c) Calculate the following:
i) total fixed cost

ii) total variable costs
iii) total costs [5]
d) Evaluate the two alternative pricing strategies that Tendai is considering to adopt. [10]
a) Giving examples define the following terms:
i) Marketing strategy – it refers to the various methods formulated by the marketing
department in order to archive long term objectives [3]
ii) Promotional budget- these are amounts set aside for promotional purposes, for
example in this scenario, $200 000 was allocated for advertising and sales
promotions. [3]
b) Identify the factors that might influence pricing decisions in this case.
 Competition
 Costs involved
 Target market
 Profit margin [4]
c) Calculate the following:
i) Total fixed cost

$
Promotional budget = 200 000
Central overheads = 300 000
= 500 000
ii) Total variable costs
Assembling costs $30 x 10 000 cars = 300 000

Component costs $80 x 10 000 cars = 800 000
1 100 000
iii) Total costs
$500 000 + $1 100 000 = $1 600 000 [5]
d) Evaluate the two alternative pricing strategies that Tendai is considering to adopt.
Price skimming - Advantages and Disadvantages
Penetration - Advantages and Disadvantages [10]
Furnitec Inc.
Furnitec Inc. is a manufacturing and supplier of home and office furniture. The company
manufactures the furniture at its head office in Harare and distributes it through its retail
shops in Bulawayo and Mutare.
The business’s main market has been local households and newly-established firms. The
company’s two furniture retail shops are strategically located near the borders to facilitate
supply of furniture to neighbouring countries if prospects arise. However, the economic
recession faced by the country is negatively affecting Furnitec Inc.’s operations. Worst
affected by viability problems is the company’s Mutare Branch.
Workers at Mutare branch are restless amid speculation of the possibility of retrenchment.
Consequently, staff motivation is at its lowest ebb and this has further reduced performance
of the branch. Rapid fall in consumer income has reduced demand for furniture and
competitors have responded by reducing furniture prices significantly.
Management has prepared interim accounts to analyse the impact of Mutare branch’s
viability problems on the performance of the company. Appendices below show extracts
from those accounts.
Appendix 1: Balance Sheet Extract of Furnitec Inc. as at 30 June 2006
$million
Current assets:
Stocks 3
Debtors 2
Cash 0.5
Current Liabilities:
Trade payables 10
Appendix 2: Table of Revenues and Costs for the Retail Branches

Mutare Bulawayo Total
$million $million $million
Sales 200 100 300
Variable Costs [140] [60] [200]
Allocated fixed costs [ 70 ] [20] [90]
Profit/(Loss) -10 20 10
a) From Appendix 1, calculate two different liquidity ratios and comment on this
liquidity position. [4]
b) i) From Appendix 2, calculate the contribution for each branch. [4]
ii) Using calculations from b) i) and any other calculations, advise Furnitec Inc’s
management whether to close down the Mutare branch or not.
c) Discuss other factors that might be considered before deciding whether or not to close
down the Mutare branch. [10]
a) From Appendix 1, calculate two different liquidity ratios and comment on this
liquidity position.
(i) current ratio,

Current assets / current liabilities
$5 500 000 / $10 000 000 = 0,55:1
(ii) quick (acid test) ratio.
Current assets less inventory / current liabilities

$5 500 000 – $3 000 000 / $10 000 000 = 0,25:1
[4]
b) i) From Appendix 2, calculate the contribution for each branch. [4]
Mutare Bulawayo
$ million $ million
Sales 200 100
Less :Variable Costs 140 60
Contribution 60 40
ii) Using calculations from b) i) and any other calculations, advise Furnitec Inc’s
management whether to close down the Mutare branch or not. [7]
After closing
Bulawayo Total
$million $million
Sales 100 100
Variable Costs [60] [60]
Allocated fixed costs [90] [90]
Profit/(Loss) (50) (50)
Before closing the Mutare Branch the company will be making an overal profit of $10
million, but if it close the Branch it will make a loss of $50 million. Basing on the
above calculations, Mutare Branch should not be closed since the Branch is making a
positive contribution which will be used in covering fixed costs. The company’s profit
will turn into a loss if the Branch is closed.
c) Discuss other factors that might be considered before deciding whether or not to close
down the Mutare branch.
Issued to be discussed include:
 Retrenchment packages for workers laid off
 How long will the economic recession take
 Competitor activities
 Try to find orders from neighbouring markets
 Find ways of reducing variable costs for the Mutare Branch. [10]
Section B [30 Marks] NO.4
Read the following case study and answer all the questions that follow.
National Railways of Zimbabwe (NRZ) strike costs economy millions of

dollars.
Zimbabwe’s imports and exports by rail to the sub-region came to a standstill yesterday as
the strike by the railway employees entered its second day, costing the country’s economy
millions of dollars-an official said. There appeared no end in sight to the strike after the
company manager ordered all striking workers not to go to their work stations if they were
not ready to resume work.
He told the strikers that the government had said it was consulting treasury to give the
parastatal $200 million the workers are demanding in backdated allowances.
NRZ sources said no goods or passenger trains were running yesterday as workers rejected an
appeal by management to return to work while negotiations were in progress. They said the
strike had adversely affected regional trade with all rail traffic between the neighbouring
countries affected.
“The NRZ handles about 1 400 tonnes of transit traffic a day from neighbouring countries.
These include maize from South Africa to Zambia and the Democratic Republic of Congo
and copper from Zambia to Durban in South Africa” a reliable source said.
“Internally Zimbabwe uses the railways to move tobacco, maize and oil.” he added. The
general manager admitted that the company is losing millions of dollars a day because of the
strike. Sources said if the strike continued until next week shortages in some commodities
would be felt. Industrialists said they were still counting their losses. The president of the
Confederation of Zimbabwe Industries said companies were making frantic efforts to find
alternative transport, which would be expensive, to move their goods. “The strike is very
disruptive. Companies are already feeling under pressure and this thing does not help the
economy at all.” he said in a telephone interview from the capital city. “Road transport is
more expensive because of handling costs.” We urge everybody to exercise maximum
restraint and hope that this thing is solved very soon.
Source: Chronicle 16 March 1999
13 Explain the problems that might be faced by any three stakeholders of this business
as a result of the strike. [10]
14 Discuss the importance of rail transport within this region. [10]
15 If you were in the management team, what motivational factors could you put into
practice to avoid the strike by railway workers? [10]
13 Explain the problems that might be faced by any three stakeholders of this
business as a result of the strike.
 Employees
 Managers
 Customers
 Competitors [10]
14 Discuss the importance of rail transport within this region.

Advantages
 Cheaper over long distances

 Suitable for carrying bulky goods, for example coal
 Can carry exports and imports from one country to another
Disadvantages
 Slow over short distances

 Travels on fixed routes and timetables hence not flexible
 Do not offer do to door delivery, so it will need other modes of transport to
deliver the goods to their final destination.
[10]
15 If you were in the management team, what motivational factors could you put
into practice to avoid the strike by railway workers?
 Ensuring job security

 Increase in remuneration
 Improving working conditions
 Involving workers in decision making processes
 Recruiting adequate staff
The answer need to involve theories, for example Maslow and Herzberg [10]
Section B [ 30 Marks ] NO.5
Read the following Case Study and answer all questions below.
Frontline Garments
Frontline Garments is a small-sized business producing fabrics and specialising in ladies
garments. Te business is located in the residential areas of Kuwadzana suburb in the outskirts
of Harare, and is the only one in the trade. Mr Kufa, the owner of the business, is the
Managing Director. His wife and his eldest daughter are the Marketing Manager and
Accountant respectively.
The business has been doing well, receiving orders from the local chain stores and also
individuals. The market share has been increasing since the last three months when the wife
signed contracts with two major chain stores in the city centre. The workers now had to work
in shifts to meet the increasing demand. Mr Kufa suggested increasing the number of workers
but feared increase in costs associated with the move. The costs include labour costs,
additional equipment and factory space.
The Chief Supervisor in the sewing department complained about the increase in machine
breakdown due to excessive use. In order to cover maintenance costs, Mrs Kufa suggested
increasing the price for fabrics and ladies garments by 30%. However, she feared loss of
customers.
13 a) Why may Frontline Garments be satisfied with operating in the Kuwadzana

residential area? [3]
b) Discuss the benefits that can be enjoyed by Frontline Garments if it expands. [7]
14 How can the Government assist small and medium enterprises in your country? [10]
15 Examine the issues Frontline Garments has to consider if it were to convert into a
public limited company. [10]
SOLUTION ON NEXT PAGE

13 a) Nearness to customers
Less competition
Low rental costs [3]
b) Discuss the benefits that can be enjoyed by Frontline Garments if it expands

[7]
Benefits
 Purchasing economies
 Labour economies
 Marketing economies
Demerits
 Motivation problems
 Coordination problems
 overtrading
14 - Giving soft loans

- Giving grants
- Ready built factories
- Research and development
- Tax holiday
Explanations for the above mentioned points is required [10]
15 Examine the issues Frontline Garments has to consider if it were to convert

into a public limited company.
Advantages
 Enjoy limited liability

 More capital can be raised on the Stock Exchange
 There is continuity
Disadvantages
 Accounts are published

 Takes time in making decisions
 The legal process is long and costly
A sound conclusion is required [10]

Section B [ 30 Marks ] NO.6
Read the following case study and answer all the questions that follow.
Plastic Trades Ltd

Plastic Trades Ltd is a company that manufactures quality plastic products in Zimbabwe
which sells profitably in the local market. Amongst its products are plumbing materials,
domestic utensils and gadgets, poultry and irrigation equipment. Most of the company’s raw
materials and chemicals are imported from South Africa and China.
In a recent strategic planning board meeting, several ideas were brought up and analysed. The
marketing manager suggested that the company would generate more revenue by opening up
trade opportunities in the Southern African Development Community (SADC).
However, the finance manager is worried about the financing of the project due to the current
unfavourable financial position of the company.
Mr Power, the Chief Executive Officer for Plastic Trades Ltd, keen to launch their products
in the neighbouring countries said, “ I am aware our firm is facing liquidity problems, but let
me assure you not to worry much because our long time friends in the finance sector are
prepared to give us the support we need. Our major challenge is the fluctuating exchange
rates.” She then advised the Finance Manager to file a loan application with their bank.
The bank requested the company’s financial statements in response to a loan application by
the company. The information submitted to the bank revealed that the company’s current
assets stood at $185 million and its current liabilities amounted to $190 million. The
company also owns a number of buildings in the city centre, machines of high value and
shares in other reputable companies.
13 (a) (i) Calculate Plastic Trades Ltd’s current working capital. [2]
(ii) Why would a profitable company like Plastic Trades Ltd have liquidity
problems? [4]
(b) Briefly comment on the usefulness of any two items of financial information
required by the bank before it issues a loan to Plastic Trades Ltd. [4]
14 To what extend will Plastic Trades Ltd find the internet useful in marketing its
products? [10]
15 “Our major challenge is the fluctuating exchange rates.” How are fluctuations in
exchange rates likely to affect production at Plastic Trades Ltd? [10]
SOLUTION ON NEXT PAGE

13 (a) (i) $ 185million - $ 190 million = - $ 5 million [2]
(ii) There might be too much capital tied up in inventory or trade receivables
Too much cash purchases against too much credit sales
Acquisition of expensive equipment using limited cash resources [4]
(b) (i) Income Statement - help in assessing the performance of Plastic Trades Ltd
(ii) Statement of financial position – help in assessing the value of the assets,
checking on liquidity or financial position at any given time. [4]
14 Benefits
- opens up worldwide sources of information
- offers a platform for electronic transactions, for example Electronic Commerce
- unlimited communication over any distance
Demerits
-there is no physical contact between buyers and sellers
- not all customers have computers
- computers can be affected by viruses
A sound evaluation is needed at the end [10]
15 Exchange rate will either appreciate or depreciate

Advantages of appreciation
 Cheap to access local currency

 Output can increases
 Company is able to increase inventory to meet demand
Disadvantages of appreciation
 Exports will become less competitive

 Export revenues will fall
Advantages of depreciation
 Expensive to acquire foreign currency

 Cost of production will go up
 Quality may be compromised
Disadvantages of depreciation
 Exports become competitive

 More stocks can be purchased
 There will be rise in demand for Plastic Trades’ products
A sound evaluation of fluctuations of the exchange rates in context is required.
[10]

KEY DEFINITION TERMS
 Privatisation – it refers to the transfer of ownership from the public sector into the
hands of private players / sector
 Industrialisation – It refers to the growth in the importance of manufacturing sector.
 Nationalisation – It is whereby the government possesses some privately owned
companies
 Commercialisation – It is the transfer of government companies into private
companies so that they can operate profitably
 Going public – It is the conversion of private limited companies into public limited
companies
 Public sector – It is that part of the economy that is owned by the government with the
aim of maximising people`s welfare
 Private sector – It refers to that part of the economy that is owned by the private
players with an aim of maximising profits
 Franchise – It is an agreement whereby one business agrees to use another trader`s
name to carry out trading activities whilst paying some royalties over a given period
of time
 Demerger – It refers to the splitting of a company that once amalgamated into several
companies
 Divestment – It refers to the selling of dogs in order to concentrate on cash cows
 Corporate culture – It refers to norms, traditions, personality or character that evolves
in an organisation that forces organisational members to have in a charismatic way
without necessarily thinking about it
 Multinational company – It is a large corporation with many subsidiaries in different
countries
 Indigenisation policy – It refers to government action of empowering the local people
to be the owners of the means of production in the country
 International Business - It is a large corporation with many subsidiaries in different
countries
 International trade – It refers to the buying and selling of goods and services between
different countries
 Management by out – It is whereby managers of a company by shares from existing
shareholders and become owner managers
 Contracting out – It is whereby a company cedes some noncore-activities to another
company so that it concentrates on core activities
 Management By Objectives – It is a form of worker participation whereby workers
are included in decision making and objective setting
 Power – It refers to the ability to do work
 Responsibility – it refers to the individual`s obligation to carry out assigned tasks
which will have been assigned by the superior
 Accountability – it refers to holding a subordinate answerable for responsibility and
authority given to them by superiors
 Centralisation – it refers to the extent to which authority to make decisions has been
retained by top management

 Delegation – it is the appointing of a subordinate by a superior in order to carry out
assigned tasks on behalf of the superior
 Decentralisation – it refers to the degree or extend to which authority to make
decisions has been lowered to the peripherals of management
 Span of control – refers to the number of subordinates that a manger can direct
effectively and efficiently
 Broad Span Of Control – refers to a large number of subordinates under one manager
 Exploitative-Authoritative leadership style – is whereby the manager demands
unquestionable obedience from the subordinates on the basis that the leader knows
best. There is a total exclusion of subordinates in decision making and communication
is one way
 Motivation – it is a process of energising, channelling, sustaining and triggering
worker behaviour to like work and increase productivity
 Job Designing – refers to restructuring or redesigning of work
 Job Enrichment/Vertical Work loading – refers to adding complexities onto a piece of
work inorder to make it more challenging and interesting
 Job Enlargement/Horizontal work loading – it is the grafting of old jobs into new one
in order to make it more challenging and interesting
 Job Rotation – it is the systematic and planned movement of workers from one work
to another so as to gain a variety of skills and reduce boredom
 Line Staff Organisation – it is one where specialist managers are hired by top
management in order to give specialist advice to line managers
 Matrix organisational structure – it is one in which employees report to both
functional divisional managers and to a group manager
a) Marketing – it refers to the analysis and evaluation of information about human
needs and wants in order to satisfy them effectively.
b) Selling – it refers to getting a product to a customer at a given price
c) Price – it refers to the monetary value attached to a product
 Market research – it is the collection, analysis and evaluation about the needs and
wants of customers
 Marketing research – it refers to the gathering analysis and evaluation of information
about needs and wants of the customers including competitor activities and other
environmental issues
 Market segment – it is a sub group which is made up of consumers with similar
characteristics
 Market segmentation – it is the sub division of a total heterogeneous market into
smaller homogeneous markets made up of consumers with similar characteristics such
as sex
 Forecasting – it refers to the prediction of the future behaviour of a variable such as
sales
 Quantitative techniques of forecasting – these are groups of predicting the future
behaviour of a variable based on human judgement in no quantitative terms e.g Delphi
and panel concensus
 Halo effect – it is the result of using family brands whereby if one product bearing a
family brand has been very successful, the other products under the same brand will
also be successful. The reverse is also true

a) Hawthorne effect – it refers to the conclusions made by Elton Mayo from his
Hawthorne experiment which are workers would increase productivity when they
are singled out due to group motivation
b) Production would increase if workers perceive that management is concerned
about their welfare
c) Productivity would rise if workers are working under sympathetic supervisors
 Marketing strategy – it refers to the various methods formulated by the marketing
department in order to archive long term objectives
 Marketing mix – is a strategy of manipulating 4P`s (Product, Price, Promotion and
Place) which is adopted by management to meet the needs and wants of the target
market
 Mass marketing – it refers to the provision and selling of products to an
undifferentiated market made up of consumers with different needs and wants
 Niche marketing – it refers to the identification and serving of untapped segment
never exploited by big firms
 Target marketing – it refers to the provision and selling of products concentrating on a
particular segment made up of consumers with similar characteristics
 Test marketing – it refers to the launch of a few products in a small segment to obtain
customers reaction to a new product
 Customer services – it refers to the assistance given to customers before, during or
after a transaction. For example free delivery
 Market share – it refers to sales of a company expressed as a percentage of total sales
in an industry
 Market size – it refers to total sales in an industry
 Productivity – it refers output per unit of input
 Worker productivity – it refers to productivity/man/hour
 Flow production – it is whereby goods are produced in a continuous process
 Batch production – it is whereby similar goods are produced in separate lots
 Job production – it is whereby goods are produced according to customer
specification
 Break even quantity – it refers to the level of output that a firm can make and produce
zero losses /zero profits
 Fixed costs – these are costs that remain constant even when output is changed .e.g
rentals
 Variable costs – these are costs that change proportionally to the level of output
 Marginal cost pricing – is whereby a firm puts a value to its products after considering
variable costs only
 Absorption cost pricing – is whereby a firm put a value to its products after
considering both fixed and variable costs
 Buffer stock – is the minimum safety stock that management considers desirable and
is kept for unforeseen eventualities
 Economic order quantity – it refers to the amount of stock that can be re-ordered that
minimises ordering costs and keeping costs down
 Lead time – is the period or duration that lapses between the initiation of an order and
the time of receiving that particular order

 Lean production – is a series of techniques that are designed to reduce costs or
wastages and enhance quality e.g quality circles
 Quality – is the fitness for purpose intended
 Investment appraisal – it refers to the assessment of viability of a project in order to
see the wisdom behind undertaking or rejecting it
 Product positioning – is the replacing of the good in the market with customers needs
in mind relative to other goods
 Product position – it refers to the gap that a product occupies in the market relative to
other products
 Efficiency – is doing things right
 Effectiveness – is doing right things
 Liquidity – it refers to the ability of a business to meet its short term financial
obligations using its short term financial resources
 Profitability – is the ability for a business to generate sufficient revenue in order to
cover its costs of sales and expenses
 Depreciation (applied to finance) – is the fall in the external value of the currency due
to market forces and demand and supply
 Cost centre – it is an area /department where costs are calculated/incurred
 Profit centre – it is an area/department where profits are calculated
 Gearing/financial leverages – it refers to the degree to which a business depends on
borrowed funds
 Devaluation – is the deliberate lowering of the external value of a currency by
monetary authorities in order to stimulate exports
 Payback period technique – refers to non- discounting method of investing appraisal
used to calculate the time taken by a project to generate sufficient funds/inflows to
recoup its initial outlay
 Payback period – it refers to the time taken by a project in order to generate sufficient
inflows to recoup its initial outlay
 Work study – it refers to the systematic analysis and measurement of a task in order to
determine the best method and standard time of performing it
 Method study – refers to the systematic recording and evaluation of ways of doing
proposed and existing work in order to identify the most effective way of performing
a job
 Time study – refers to the systematic measurement of work so as to determine the
standard time of performing a task
 Piece rate system – it is the method of payment whereby earnings of a worker are
found by multiplying rate/unit by the total output produced
 Time rate system – is a method of payment whereby earnings of a worker is found by
multiplying rate per hour by the total hours spent at work
 Value engineering – is a technique in new product developed to gain customer
acceptance of a product by producing low cost goods highly accepted by the
consumers
 Benchmarking – it refers to the setting of standards with reference to a remarkable
competitor in order to improve the quality of the firm`s products
 Diversify – means provision of variety of products in addition to those in existence
 Product portfolio – is a collection of goods supplied by a company

 Training programme – is the one designed to impart skills to workers so as to improve
job performance
 Induction training – is the introduction of a new worker to the new job and the new
job to the new worker and also to the organisation
 Recruitment – the provision of a pool/group of candidates i.e large enough to let
mangers select the qualified employees they need
 Selection – it refers to the choosing of candidates in order to fill in a vacancy
 Quality circles – these are groups of 6-8 members from the same department who
meet regularly discussing issues on how to increase productivity and quality
 Cell working – is the production in self -contained units whereby machines and
workers are grouped in about 6-15 members and are responsible for whole work units
 Budget – it is a plan in financial terms
 Budgeting – it is planning in financial terms
 Zero budgeting it refers to an approach of operating a business without setting some
financial plans but dealing with an issue as it comes
 Planning is predetermining future course of action designed to give sense, purpose
and direction to an organisation
 Quality assurance – refers to the measure that business undertake in order to
guarantee consumers that the product is suitable for the intended purpose
 Quality control – refers to the series of techniques that managers employ in order to
make sure that the final product satisfies the consumers, for example training, quality
raw materials
 Deindustrialisation – refers to the growth in the importance of the tertiary sector and
the decline of manufacturing sector
 Denationalisation – is the restoration of companies previously acquired by the
government back into the hands of private owners
 Stake holder – is anyone who has a say or an effect in a business
 Shareholder – is an internal stakeholder who have invested his capital through buying
shares of the company e.g. ordinary shareholder
 Horizontal integration – is the fusion of two or more companies operating at the same
stage of production, producing similar products and are direct competitors into one
company e.g. TM and OK Form TMOK
 Lateral integration – is the fusion of two or more companies operating at the same
stage of production, using similar marketing techniques but are not direct competitors
into one company e.g. The merging of TV and Radio Seller
 Vertical integration refers to the growth of a company by acquiring services of either
its customers or supplier
 Merger - is the fusion of two or more companies into one company
 Takeover - is a contested merger
 Training programme –it is one designed to impart skills into the workers to improve
current job performance
 Democratic leadership style – it is whereby subordinates are included in decision
making and communication is two way
 Autocratic leadership style – is whereby managers do no include subordinates in
decision making and communication is one way
 Margin of safety – is the difference between current output and break even point

 Intangible assets – these are those resources without any physical form but bring
revenue to a company e.g. goodwill
 Critical path – refers to the longest route on the network diagram which gives the
shortest possible duration to finish the project
 Dummy activity - is an imaginary activity that consumes neither time nor resources
and is included to show logical dependence
 Inflation – is the continuous rise of prices of basic commodities in the economy
 Product differentiation – means the way sellers try to make their products unique from
those of its competitors
 Profit – is the excess of revenue over expenditure
 Cash – it is a current asset
 Contribution – it is the excess of over variable cost
 Debt factoring – refers to selling debt at a discount or buying debt at a discount
 Delayering - refers to the removal of some levels of management from the
organisational structure to create flatter structures
 Import quota – is a quantitative restriction on goods imported over a given period of
time
 Import tariff – is an amount of tax that is charged on good imported in order for them
to be more expensive than local goods
 Economies of scale - a fall in cost per unit as output increases
 Diseconomies of scale – a rise in cost per unit as output increases
 Job evaluation – is the systematic analysis of work in order to determine its standing
relative to others in non-financial terms
 Pilot production – production of goods on a smaller scale so as to test whether or not
the product can be manufactured economically
 Organising – it is a process of monitorisation, departmentalisation and reorganisation
of work
 Policy – is a frame work that regulates the way things are done in an organisation
 Mode – refers to the number that is appearing most or a number with the highest
frequency
 Median – refers to roughly the middle term whenever the numbers are arranged in
ascending or descending order
 Mean – refers to the average of the distribution
 Capacity utilisation – refers to an extend at which the company is using its resources
 Development Programme –is a process designed to impart/develop skills necessary
for future work activities
 Skimming pricing – is the charging of introductory price to a new and unique product
to cover research and development costs
 Penetration pricing – it refers to the charging of low introductory price to a new
unique product in order to gain a place in the market
 Labour turnover –is the rate at which workers join and leave the organisation
 Debenture holders – these are creditors to a business who would have lend long term
capital to the business and they receive fixed interest rates
 Price elasticity of demand – it refers to the degree of responsiveness of quantity
demanded of a good due to a change in price

 Promotional elasticity of demand – it refers to the degree of responsiveness of
quantity demanded of a good due to a change in money spend on advertising
 Elasticity of demand – it refers to the degree of responsiveness of quantity of a good
or service due to a change in any variable that cause demand to change
 Plan – it is a pre-determined course of action designed to give sense purpose and
direction to the organisation
 Float – it refers to the time that can be added to an activity without affecting the
commencement of the succeeding activity that its earliest starting time
 Total float – it refers to aggregated time that can be added to activities without
affecting the overall completion time of the project
 Dog – refers to a loss making product with a low market share and growth
 Cash cow – is a firm`s profitable product that is generating sufficient cash in a slowly
growing market
 Position description – it is the written document of a management post covering title,
duties and location on the organisational chart
 Hiring specification – is a written description showing the qualifications, age,
experience and the nature of the work
 Blending technique – is a decision making tool that can be used by managers to
identify different possible combinations of goods that can be produced to increase the
firm`s revenue and profits
 Job analysis – it refers to the systematic assessment of work in order to make it
possible to write a job description and a hiring specification
 Business plan – it is a written document that enables business to start business from
scratch. It contains name of business natures and expected revenues and can be used
when sourcing bank loans
 Leasing – it is whereby a business agrees to use another business`s asset for a given
period of time whilst paying some royalties to the lessor
 Market – is the set of all actual and potential buyers and sellers of a product
 Going private – it is the transfer of a public limited company into a private limited
company
 Level of production – it refers to the amount of output a firm is producing
 Overtrading – is the situation whereby a business rapidly over-expands through stock
piling thereby ending up facing liquidity problems
 Market penetration – it is a growth strategy of increasing sales by selling more of
existing products in existing markets
 Job description – it is written document of a non- management position covering its
title, duties and responsibilities and including its location on the organisational chart
 Diversification – it is growth strategy of increasing sales by developing and selling
new products in new markets
 Market extension – it is growth strategy of increasing sales by selling more existing
products in new markets
 Product development – it is a growth strategy of increasing sales by selling new
products in existing markets
 Authority – it is the right to command
 Chain of command – it is the downward flow of authority in an organisation from the
top management to the shop flow workers

 Grapevine – it refers to informal communication channels through which informal
communication passes
 Job description – it is a written document of a non-management occupation, covering
title duties and its location on an organisational chart
 Working capital – it is the amount of money needed in the day to day running of the
business
 Organisation chart – it refers to a pictorial representation of formal organisational
structures
 Debt financing – it refers to sourcing business funds through long term borrowing
 Equity financing – it refers to sourcing business funds through ordinary shares
 Desk research/Secondary research – it refers to gathering information from readily
available sources such as files
 Field/Primary research – it refers to gathering first hand information from the
consumers
 Capital intensity – is when a business uses a production method that employs more
machines than labour
 Labour intensity – is when business uses a production method that employs more
workers that machines
 Selling – is getting a product to the consumer at a price
 Price – is the monitory value attached to a product
 Joint venture – is a business formed by two or more established company through
contributing capita to finance a common project
 Venture capital – is money contributed by two or more established businesses to
finance a common project

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“A”LEVEL BUSINESS STUDIES

ANSWERING SKILLS BOOKLET

CASE STUDIES/ DATA RESPONSES

1|Page TINOFAMBA NEVANOFAMBA

STATE , LIST OR GIVE

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3 a) What is the importance of small business operations in your country? [4]

 Developing personal relationships

 Responding flexibly to problems and challenges

 Inventiveness and innovation

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b) Explain the difficulties faced by small firms in their operations. [4]

 Lack of planning and research

 Delay payments to suppliers

 Reduce the credit period offered to customers

5 a) Distinguish between marketing and selling. [4]

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 Product usually high quality

 Cost of producing one unit or job is higher

External sources of finance include:

 Loan from banks,

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 The amount required

Benefits of published accounts

Limitations of published accounts

Window dressing is presenting the accounts of a business in the best possible, or

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11 a) What is an autocratic leadership style? [2]

b) Explain the circumstances in which an autocratic management style may be

Autocratic leadership will be helpful in situations where a business faces constant

12 a) State and explain any two non-financial methods of motivation. [4]

8|Page TINOFAMBA NEVANOFAMBA

b) Comment on Herzberg’s ideas on motivation. [3]

Motivation factors are needed in order to motivate an employee into higher

13. a. State two factors which indicate falling morale in a firm

 increased rates of accidents

 low rate of labour turnover

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 poor working conditions

b. How might management reduce high labour turnover?

 Overhaul pay structure

15. a. Why might a profitable business experience liquidity problems

b. Evaluate methods a business might use to improve liquidity problems

 Selling on cash only

Short-term financing refers to business or personal loans that have a shorter-than-

b. Explain any two factors considered when selecting an appropriate source of

17 a. Explain the meaning of market segmentation.

Market segmentation is the process of dividing a market of potential customers into

b. Why may businesses wish to segment markets for their product?

 Higher Profits/Market Share

18 How are businesses affected by an increase in taxation?

19 a. Why are most governments keen to promote exports?

b. Outline any 3 drawbacks of import controls [3]

b. What may be the disadvantages of hiring part time workers?

21 Highlight any 3 factors a firm should consider when choosing a supplier

b. Assess the usefulness of desk research

Strongly connected to the previous advantage is the saving of money . In general, it is

b. Explain any 2 consequences of a poor organisation structure

3. Constantly Innovate and Improve Your Products and Services

4. Explore New Markets and Niches

25 a. What do you understand by the following terms:

b. Justify the need for induction training in an organisation