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Summary Unit 1 The business environment Cambridge technical level 3 Revision notes
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My notes cover the content from Cambridge Technicals Unit 1, the business environment, some exam questions, and the answer.
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Ctec business unit 1, 1.1 different types of business 3.2 elements of organisational structures, i.e.
division of work the task that a business needs to do are shared out across the workforce in most business the division of work is based on functional areas
6.1
-primary sector the direct use of natural resources. Business who extract raw materials. span of control is the number of employees for who am a manager is responsible/ in control of at any time. To include
2.1 key tasks of functional areas in a business chain of command the formal hierarchy of a business that describes who is in charge of who am permission must be obtained
Example mining • social factors such as demographic issues, attitudes to work, disposable income, social trends, cultural beliefs
E.g.oil ,coal, fruit Different businesses may have different names for some of these functions, for example, Finance may be called What determines the span of control. • technological factors such as automation, communication, purchasing/sales, mobile
-nature of the work involved
-secondary sector activities concerned with manufacturing and construction. Business involved in Accounting, Business Support Services may be called IT or Administration, HR may be called Personnel and -Degree of autonomy granted to employees • environmental factors such as energy management, carbon emissions, waste reduction, recycling, pollution
-number of layers in the hierarchy. Flatter structures have encouraged wider span of control
manufacturing. Products made to sell to the general public and to businesses. Operations Management may be known as Production. • political factors such as political instability, change of government, government initiatives.
E.g.construction of a house The tasks should be limited to the key activities:
Benefits of span of control allows for closer supervision of employees, more layers in the hierarchy required , helps more effective communication.
Benefits of wide span of control gives more subordinates the chance for autonomy, more appropriate if labour costs Are significant reduce number of managers , consistent with flatter structure
• legal factors to include purpose and main provisions of itemised legislation. By current legislation we mean the
Example factories and construction legislation specified or its equivalent should it be revised during the lifetime of the qualifications in which this unit is
-tertiary sector activities involved in service. A business that provides a service. They provide
• finance – financial control and record keeping
3.3 how the elements of the organisational structures impact on businesses operations, i.e. taught
expertise and assistance to Cary out particular action or deeds • marketing – promoting the business using different and relevant forms of media, including social media • communication paths the way commands flowing downwards and reports (flowing upwards) travel along the chain of command
• accountability (the requirements to be answerable for the quality and quantity of work done / not done )authority (the power which accompanies a job role for example the right to give orders or the right to use
Examples retailers , business services • sales – selling business products/services the firms resources.authority can be delegated to subordinates) and responsibility( the particular tasks or set of tasks that an employee in any given job role must ensure is completed) The implication of failing to meet legal requirements to include legal (e.g. fine) and non- legal implications (e.g. effect
• delegation( the passing down of the authority to do a task an employee of a lower rank
E.g.supermarkets, health services • human resources (HR) – planning recruitment, redundancies, remuneration and reward systems empowerment (enabling workers to make their own decisions and work autonomously without having to refer decisions to supervisors ) on reputation).
• operations management – converting inputs to outputs Implications include:
• ethical to be taken to mean doing what is morally right, by acting above and beyond what the law requires. To
• authority can be delegated; responsibility cannot. include ways in which a specific business can improve its ethical profile (e.g. a restaurant could buy fair trade
1.2 different sector operations • customer services – liaising with customers, managing expectations and resolving queries span of control may increase if chain of command is shorter or a flat structure is adopted.
products).
-private sector are owned by one or more individuals. They exist to make a profit for their owners. • business support service – managing resources, maintaining equipment, providing IT support, providing 3.4 the use of organisation charts to show: To include both positive and negative impacts of a business operating in an ethical manner.
• elements of the organisational structure
Example Tesco plc, JD sports administrative support • the status of different levels of job role, i.e. To include both positive and negative impacts of a business not operating in an ethical manner.
Benefit - gain more profit, trying out new ideas • research and development – developing new products and services in response to research findings
o chief executive assign duties to employees explaining how to carry out these duties
o directors decide what work needs to be done to meet departments aims and objectives
Drawback - competition o managers lead and develop a business long term strategy • competitive factors such as the strength of competition, market share of business and competitors, competitor
-Public sector are owned by the state government
purchasing/procurement – sourcing and providing materials or services. o supervisors oversee a department ensuring the company policies are implemented
o assistants/operatives compete tasks as directed behaviour and position in market.
Examples NHS ,education
Benefit - free NHS, helps less income citizens, free access
Drawback - people get taxed more , government makes the decision 2.2 how business functions interrelate with other business functions
4.1 what is meant by the terms:
• cost (including fixed and variable costs) costs are amounts that a business incurs in order to make a good or service
-third sector is organisation led by charitable organisation. Organisation who run for social benefit Total costs = fixed costs + variable costs
Variable cost costs which change as output varies e.g. raw materials , wages based on hours
that are owned by the government. Fixed cost costs which do not change as output varies e.g. rent , salaries , advertising
Examples the British Red Cross, water aid .-Functional areas do not operate in isolation • revenue the money earned from selling goods or service this calculated by multiplying the selling price by the quantity sold
Revenue =price x quantity sold
Benefit -good reputation, increase in awareness -Functional areas must cooperate with each other and work together, e.g. when Marketing has finished re- • cash flow
Cash inflow examples cash sales , receipts from trade debtors , sales of fixed assets , interest on bank balance
Drawback - not everyone’s wants to donate and trust the business designing the company’s logo, Business Support Services needs to ensure that it is prominently displayed on Cash outflow examples payment to suppliers , wages and salaries , tax on profit , interest on loans
• net cash flow the difference between money coming into the business and money coming out
the company letterhead and website. • closing balance net cash flow + opening balance
• profit the surplus left over from revenue after paying total costs
1.3 different forms of legal business ownership
-Good communication is needed to coordinate the activities of different functional areas, e.g. as soon as the Profit =total revenue - total costs
• break-even the level of of sales in which sales revenue equal total costs. No profit of loss has been achieved
-sole trader is an individual who retains all profit generated by the business. The owner has Operations Management functional area realises that it has despatched a faulty batch of goods to customers, it Why is breakeven important? It covers all costs and avoids bankruptcy
Break even = fixed costs / (selling price -variable costs per unit)
unlimited liability. Full control of business. must immediately inform Customer Services so that Customer Services can recall the products and deal with Tip 1: per annum is yearly fixed costs
Operates in the private sector any complaints.
: per good/ service is variable costs
Tip 2: breakeven is always measured in output not pounds
Benefits- keep all the profits, responsible for all decisions, do not have to share profits with other Tip 3: if answer is a decimal round up to the next whole number
owners
-l Poor performance by one business function is likely to impact on other business functions, as well as the -margin of safety the amount of sales in excess of the break even point
-insolvent when a business is unable pay its debt
Drawbacks- personally liable for any debts incurred in the business (unlimited liability), shortage of business as a whole. For example, if Finance failed to source enough funding, this could mean that Research What may lead to business experiencing insolvency
-taking out a huge loan and you can’t pay it back
finance, skills shortage and Development could not develop a new version of the product, leading to the company losing out to the • paying production and not making enough profit to pay it back
-partnership is two or more owners who have joint control in a business. The business operates in competition.
• Market clash
a private sector. Cash flow forecast
Why is cash flow forecast important
Benefits workload is shared, multiple skills , increase in ideas, increase in source of finance • Cash flow is a dynamic and unpredictable part of life for most business particularly small business
Drawback disputes which decreases productivity and harms reputation, profits must be shared, • cash flow problem are the reason businesses fail
• regular and reliable cash flow forecast can address many of the problems
unlimited liability
What are the two reasons cash forecast is produced.
-private limited company (ltd) limited . Is an organisation owned by shareholders who have each
invested a sum into the business. Shares in the business are sold to raise finance to the 3.1 different organisational structures, i.e. • advance warning of cash shortage
• Make sure business can pay suppliers
stakeholders. • flat structures a business hierarchy with a few levels • Provide reassurance to investors the business is being managed properly
Benefit can raise funds by selling shares, owners can choose who to share, the owner can keep • hierarchical/tall structures the organisation of job roles ranked
control of the business as long as they have a increase in shares compared to others and • centralised structure a business structure in which decisions are made by those at the top of the hierarchy 4.2 how to calculate: • profit/loss
decrease the amount of shares being realised from the business
Drawback expensive and shares cannot be sold to public, time consuming to set up, dividends
• decentralised structure a business structure in which decisions are made slower down in the hierarchy • break-even point/output
need to be shared to shareholders • matrix structure a business structure in which teams of people from different functional areas work together on 4.3 how to interpret financial statements, i.e.
-public limited company (plc) a company that shares its shares of stock to the general specific projects. • an income statement are produced to report the profit or loss the business has made.
Key components = revenue and cost and expenses
public.shares are sold on the stock market. • a statement of financial position are produced to show what a business is worth at a given moment
Key components = assists( what the business’ owns ), liabilities (what the business owns ) , capital ( owners fund that are financing the business )
Benefits shares can be sold to the stock markets to gain large amounts of capital, plc has a high Flat structure few layers between the top and bottom layer, the chain of command tends to be short and span of • a cash flow statement are used to show the historic flow of funds into and out of a business. They are documents which show the actual cash inflow and actual cash out flow over a period of time.
• a cash flow forecast shows the expected flows of funds into and out of a business in the future . These are prediction of what the cash inflow and outflow are likely to be over a future period of time.
profile so easier to find new customers and suppliers and banks willing to lend them money ,wide
range of skills and experience control wide Key components of a cash flow forecast / statement are
Drawbacks risk of takeover , more competition, cannot control who shares go too Flat structure is best suited for smaller business • cash inflow funds flowing into the business I.e receipts
• Cash outflow funds flowing out of a business I,e payments
-state government owned (public sector) a business owned by the state and controlled by the Advantages due to short of command communication flow tends to be efficient, information can be passed • Net cash flow the difference between cash inflow and cash outflow
• Opening balance the amount of funds available at the start of the time period (usually a month)
government quickly, great communication , increase in productivity, authority is delegated to employees so decisions can be • Closing balance the amount of funds available at the end of time
Aims and objectives set by the government
Benefits support from the government ensuring survival ,funds supported from taxes ,wide range
made more quickly A cash flow statement is a record of actual cash inflows and outflows, whereas a cash flow forecast is a prediction.
of expertise Disadvantage wide span of control means employees at the bottom are not supervised closely, which means more Interpretation of statement of financial position would be limited to a comparison between different time periods.
6.2 to identify how the external environment can impact on a business and its stakeholders
Drawbacks industries may be insure net due to diseconomies of scales and higher prices may be mistakes, fewer leaders means less promotion means demotivation
High employment , social trends , exchange rate , high interest rates , increase in living wage
charge to consumers , slow decision making , business can be used for political gain 5.1 who the main stakeholders are, i.e.
• internal stakeholders and their objectives include owners sole traders(make enough profit , achieve business growth , be competitive ) , partners , employees , chief executive , directors , managers ,
-charity (third sector) a business with charitable aims.
Hierarchical structure supervisors , assistant. Employees and trade union (job security , good working conditions ,high pay )Internal stakeholders are based within the business.
• external stakeholders and their objectives customer ,(low prices, good choice of products , high quality products ) suppliers (high prices, regular orders , being paid on time), shareholders and potential 7.1 why businesses plan, i.e.
Benefits same as sole trader, such groups are easy to set up and can make immediate
impact ,good brand awareness , tax advantages exemptions Advantage employees know there job roles and who they are accountable for, authority is delegated from above so investors (Hugh dividends , high share prices , voting rights ), banks and lenders (high interest rates, being paid on time , business loyalty) , local residents (minimise pollution , reduce traffic congestion , more
jobs), central government(minimise pollution , reduce traffic congestion , more jobs ) pressure groups(stop child labour, preserve the woodlands , stop product testing), local government (environmental health ,
• to survive/avoid business failure (poor financial control , lack of knowledge)
Drawbacks depending on volunteers, expensive , relies on volunteers, harm image if people don’t that employees feel empowered to make decisions in there area of work , decision making is made quickly which building control) • to develop business ideas
o where business ideas come from (e.g. problem solving, innovation or accidental discovery, from employees,
get the message speed up responses A stakeholder is any person, group or organisation which has an interest in a business because they are affected by, or may be affected by, the activities of that business.
-company interest companies (CIC) limited companies that aim to benefit the comminuted or inventors, entrepreneurs)
Disadvantage response to problems can be slow as information is passed down one level to another, whilst Internal stakeholders include owners (sole trader, partners), employees (e.g. chief executive, directors, managers, supervisors, assistants), and trade union
• to avoid unnecessary risk
trade with a social purpose rather than earning high profits for shareholders.
Benefits reputation of business can be enhanced
authority can be delegated responsibility isn’t , communication can be poor due to long chain of command 5.2 the ways in which different stakeholder groups attempt to alter business behaviour o attitude to risk and uncertainty
Drawbacks financial accounts not private Consider practical examples from real businesses, (e.g. an environmental pressure group could protest about the expansion plans of a business, causing negative media publicity and a customer boycott or
to meet objectives
Centralised denial of planning permission
Business fail reasons poor financial control , lack of knowledge , competitive behaviour , lack of unique selling point ,
Advantages strong leadership allows quick response to potential threats, people at the top tend to be more Stakeholders attempt to alter business behaviour in different ways ,employees refuse to work overtime, trade unions call on strike , customers decide to boycott the business, pressure groups protest
1.4 factors which inform business ownership, i.e. flawed business plans)
experiences so less mistakes are made , decisions made tend benefit the whole business rather individual 5.3 how businesses respond to the different and sometimes conflicting objectives of different stakeholders
Business performs better with a business plan improving the chances of business survival , steering a business
• legal status whether the business is a separate entity from its owners. Sole traders and
partnerships do not have separate legal identity. Incorporated businesses, such as companies departments Business response includes:
• the degree of influence individual stakeholders possess is likely to determine how businesses respond to the individual stakeholder’s objectives towards its objectives , avoid unnecessary risk , provides new ideas to keep the business competitive
and charities, do have separate legal identity. Being a separate legal entity means that the Disadvantage people lower down the hierarchy may feel demotivated as decisions made for them without their • conflict resolution and conflict management of stakeholder objectives
Conflict can harm a business = decrease in profit , bad publicity , damaged reputation
business can sue, and be sued, in its own right. consolation, people lower down the hierarchy may understand customer way more before the top of the hierarchy the benefits and drawbacks of meeting stakeholder needs. 7.2 to determine appropriate sources of finance for
• liability The level of financial risk is much higher when you are a sole trader. businesses, i.e. • savings
which isn’t out into consideration 5.4 the consequences to a business of not listening to its stakeholders
Refusing to listening to stakeholders can have a serious affect on a business. Bad publicity , weaker cash flow position , loss of market share , fewer investors , lawsuits , fines , demotivated staff, loss of
• funding consideration needs to be given to how much finance consumer
• reserves retained profit , long term source of finance , internal source of finance ,
a business needs and the finance options available. A public sector organisation may be financed Advantages no need to pay it back , low cost , no interest to pay back
from taxation. A third sector organisation may receive grants and donations. A private sector Decentralised structure 6.1 the factors which comprise the external business environment,
Disadvantages not available to business in their first year of trading , not available to all business who have made a
organisation is more likely to secure funds by borrowing or by taking on additional owners. Advantages employees feel more empowered and motivated as they have more responsibility and are able to • social factors
• technological factors
loss, may not have enough retain profit
• control/decision making he form of ownership will affect the control and decision-making in the make certain decisions for themselves, people at the top can have more time to focus on important decisions that • economic factors, i.e. • overdraft short term of finance , external source of finance
o interest rates
business. This includes whether it is the owner or someone else that makes the business Advantage can help with short term cash flow problems , spend money when you have no money in your card
decisions. This affects the complexity of decision-making, the speed of decision making and the
affect the whole business , quicker response to customers o exchange rates o inflation
o unemployment o taxation
Disadvantage have to pay interest , it can be expensive
actual decisions made. Disadvantage decisions made might not reflect those valued by the whole business sending confusing message to • environmental factors
• political factors • loan long term , external source of finance
-legal/administrative requirements stakeholders, the quality of decisions made relies on the expertise and experience of people lower down the • legal factors, i.e.
o the impact of current legislation on business operations, i.e. Advantage pay it back in a period of time , fixed instalments , long term
structure • Business framework, i.e.
• • Companies Act
Disadvantage have to pay interest , expensive
• Partnership Act • mortgage long term , external source of finance
• Consumer protection, i.e.
advantage can obtain premises that could not be afforded otherwise , payments are spread over a long period of time
Matrix structure • Sale and Supply of Goods Act
• Supply of Goods and Services Act • Consumer Protection Act
Disadvantage can be used to purchase a property only , if repayments are not kept up then the property will be
Advantages a very flexible arrangements teams can be removed as a project is completed relatively easily without • Employee protection, i.e.
• Equality Act repossessed
causing major disruption to the organisational structure, communication is good as employees work together, • Health and Safety at Work Act • Working Time Directive
• National Minimum Wage Act • credit card short term source of finance , external source of finance
increase in motivation as employees have a say in the work and contribute to ideas of there own • Data Protection Act
- Copyright, Designs and Patents Act Planning permission
Advantage if repaid within the payment period the borrowing is free, payment protection can be claimed backed if
Disadvantage team members can be given conflicting instructions from their department and project managers o the implications of a business failing to meet legal requirements there is a problem with a purchase
• ethical factors, i.e.
Disadvantage interest is charged if not repaid within the interest free period , high interest rates leads to spiral ding
which will lead to decrease in productivity and efficiency,having two managers is costly, sharing employees could o ways in which a business can act ethically, i.e.
• as an employer (e.g. not exploiting workforce, no child labour, pay above minimum wage, living wage, fair working practices)
debts
lead to unhealthy competitions. as a trader (e.g. fair trade, fair prices)
• environmentally friendly (e.g. waste • hire purchase short term source of finance , external source of finance
management, recycling, carbon emissions,
transport miles, energy use) Advantage payments are spread over a period of time , can obtain equipment that could be affordable
• sustainability (e.g. fossil fuels, land
management, green energy)
Disadvantage interest rates and additional charges make it expensive , can only be used to buy equipment and
• corporate social responsibility activities (e.g. machinery
charity donations, humanitarian aid, health and welfare schemes, sponsorship of sport/educational/ cultural events)
• o the impact on a business and its stakeholders of operating ethically • trade credit short term source of finance , external source of finance
The consequences for a business and its
• stakeholders of not operating ethically • competitor factors
Advantage
Disadvantage
• venture capitalist
1.5 differing business aims and objectives, i.e.
• share issue
• survival the ability to staying in the market and trading
crowd-funding
• financial reducing costs, increase profits and revenue whilst achieving break even
• growth when a business gets larger in size
o physical expansion
o increase in market share
o increase provision
• reputation (e.g. quality, offering value for money, being ethical, social responsibility, being
environmentally friendly) how the business is perceived by the public
being enterprising (e.g. own boss, pursue own interests, being competitive) creating new ideas to
fill in the market
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