IB Business and Management Vocabulary
For IB exams
Terms in this set (230)
Businesses involved in the extraction of natural resources, such as farming, mining, fishing, etc.
Business activity is concerned with the construction and manufacturing of physical products.
Business activity is concerned with the provision of services to customers
Part of the economy under the control of private individuals and businesses, rather than the government. (sole traders, partnerships, corporations)
Part of the economy under the control of the government
There is a legal difference between the owners of a company and the business itself. Ensures that the owners are safeguarded against any losses made by the companies.
Restriction on the amount of money that can be lost from the owners of a business if it goes into bankrupcy
No limit to how much debt a sole trader is legally responsible to pay if failure
Non - governmental organization (NGO)
Any private sector organization that does not primarily aim to make profit. Instead, they operate for the benefit of others in society
Private Limited company
Business organization owned by shareholders with limited lability but whose shares cannot be bought or sold to the general public (stock exchange)
Public Limited company
Incorporated business organization that allows the general public to buy and sell shares in the company via stock exchange
Form of private sector business owned by 1 - 20 people. They share the responsibilities and burdens of running and owning the business.
Self - employed person. He or she runs the business on their own and has sole responsibility for its success or failure.
The owner is legally the same as the business (he or she is treated as a single entity) Owner is personally responsible for all debts
Outlines a business's aspirations (where it wants to be) in the distant future
A simple declaration that broadly states the underlying purpose of an organization's existence
General long - term goals of an organization.
Short term and more specific goals of an organization based on its aims.
Short - term objectives that affect a segment of the organization. Specific goals that guide the daily functioning of certain operations that are in line with the primary objectives of the business
Long term aims of a business organization. For example: profit maximization, growth, image and reputation, and market standing.
Specific, measurable, agreed, realistic and times
Corporate Social Responsibility
Businesses that act morally towards their stakeholders such as their employees and the local community.
Independent assessment of how a firm's actions affect society
Any person or organization that has a direct interest in and is affected by the performance of a business
Employees, shareholders, managers and directors of the organization
Suppliers, customers, special interest groups, competitors and the government
Allows managers to assess how to deal with conflicting stakeholder objectives
A framework used to analyse the opportunities and threats of the political, economical, social and technological environments on business activity
Analytical tool used to assess the internal strengths and weaknesses and the external opportunities and threats of an organization or a decision
Decision making framework
Systematic process of dealing with business problems, concerns or issues in order to make the best decision
Quantitative decision-making tool that allows firms to calculate the probable values of different options if they are pursued
Identifying the root causes of a problem or issue
Economies of Scale
Lower average costs of production as a firm operates on a larger scale
Internal economies of scale
Technical, Financial, Managerial, Specialization, Marketing, Monopsony, Commercial, Risk-bearing
External economies of scale
Those that arise form outside the firm due to its favorable location or growth in the industry.
Diseconomies of scale
Cost disadvantages of growth. Unit costs are likely to eventually rise as a firm grows in size due to internal factors and external factors
External diseconomies of scale
An increase in the average costs of production as a firm grows due to factors beyond its control
Internal (organic) growth
When a business grows internally, using its own resources to increase the scale of its operations and sales revenue
Dealings with outside organizations.
Two or more businesses seek to form a mutually beneficial affiliation by cooperating in a business venture.
Form of business ownership whereby a person or business buys a license to trade using another firm's name, logo, brands, and trademarks
Porters generic strategies
Outlines the ways that any business can gain a competitive advantage
Analytical tool that helps managers to devise their product and market growth strategies
The growing integration and interdependence of the worlds economies
Multinational corporation (MNC)
Business organization that operates in two or more countries.
Regional trading blocs
A group of countries that agree to freer international trade with each other through the removal of trade barriers
When two or more businesses decide to split the costs, risks, control and rewards of a business project.
Formal process of evaluating the contributions and performance of an employee, usually conducted through observations and an interview with the appraisees line manager.
When some decision-making authority and responsibility is apssed onto others in the rganization
Flat organizational structure
There are only a few layers in the organizational hierarchy and hence managers have a wide span of control
Tall organizational structure
There are many layers in the organizational hierarchy and hence managers have a narrow span of control
flexible organization of employees from different departments within an organization temporarily working together on a particular project.
Involves relocating business functions and processes to another country
The act of finding external people or businesses to carry out non-core functions of a business
Transfer of information between different people and business organization
The methods or routes through which information is passed form the sender to the recipient. Open channels are used when information is not confidential and can be shared by anyone. Restricted channels of communication are used when information is confidential and is directed only to those who need to know.
A diagram representing the communication structure within an organization
A method of improving communication by reducing the number of levels in an organizational hierarchy
The official channels of communication that are established by an organization
Unofficial channels of communication naturally established by people from within an organization, often based on their common interest
Any form of communication other than oral communication. (electronic systems such as email, written methods such as letters, visual stimulus such as body language)
Communication via the use of spoken works, such as meetings, interviews, and appraisals
Communication methods that use visual images and stimuli, such as poster displays and a person's body language
Managers and leaders that adopt an authoritarian style by making all the decisions rather than delegating any responsibility to their subordinates. They tell others what to do.
Leadership model based on the belief that the best leadership style for a business depends on a range of interconnected factors, such as the size, skills, and abilities of the workforce
Decision-maker who takes into account the views of employees.
The skill of getting things done through other people by inspiring, influencing and motivating them
The practice of achieving an organization's objectives by using the available resources of the business, including human resources
Management by objectives
Management technique whereby employees set their own objectives, with the help and advice of their manager. Subordinates then decide how they will achieve these targets. Progress towards meeting these objectives is then tracked with follow-up meetings with the manager
Managers and leaders treat their employees as if they were family members by guiding them through a process of consultation. In their opinion, they act in the best interest of their workers.
The belief that there is no distinct or unique approach to leadership and management which suits all organizations and all employees. The best style depends on different situations, such as the culture and attitudes of managers and workers
The traditions and norms within an organization such as: dress code, work ethos and attitude towards punctuality
When there is conflict between two or more cultures within an organization. This may exist, for example, when two firms integrate via a merger or takeover
Difference between the existing culture of an organization and its desired culture. Management will use different strategies to reduce this gap
Negotiation process whereby trade union representatives and employer representatives discuss issues with the intention of reaching a mutually acceptable agreement
Process that involves an independent person or body, known as the arbitrator, deciding on an appropriate outcome to dispute.
Course of action taken to resolve conflict and differences in opinion
A situation where there has been a failure to reach a satisfactory compromise in the negotiation process
Form of industrial action that involves employees working at the minimum pace allowable under their employment contract
How to deal with a crisis to ensure the continuity of the business.
The responses of an organization's management team to a crisis situation. It involves setting up measures to allow instantaneous and constructive action to be taken in the even of a crisis
Being reactive to events and changes that might cause serious disruptions and damage to a business.
Wealthy and entrepreneurial investors who risk their money in small to medium sized businesses that have high growth potential. Their hand-on approach, experience and financial investment can have a large impact on the success of business start-ups
Spending by businesses on fixed assets such as the purchase of land and buildings. Such expenditure is seen as vital to the growth and survival of businesses in the long run.
Individuals or organizations that the business owes money to that needs to be settled within the next 12 months.
Long-term loan to a business with the promise of fixed annual interest payments to the debenture holders. The vast majority of these loans are also repayable on maturity, although some are indefinite so are classed as permanent capital to the firm as there is no maturity date.
Getting sources of finance from outside the organization such as through debt, share capital, or funding from the government
Is suitable if a firm needs to use expensive assets such as equipment or vehicles. The leasing company owns the equipment and hires it out to the customers. Lessees do not have to commit to large amounts of their own capital
A service offered by financial institutions that allow a business to spend in excess of the amount in its account, up to a predetermined limit.
Spending on the day-to-day running of a business such as, rent, wages and utility bills
Sources of finance
General term used to refer to where or how businesses obtain their funds, such as from working capital, commercial lenders and/or government assistance
Day-to-day money that is available to a business. It is calculated as the difference between a firm's liquid assets (the value of cash, stocks and debtors) and its short-term debts (such as creditors, tax and overdrafts)
Financial decision-making tool that helps managers to assess whether certain investment projects should be undertaken based mainly on quantitative techniques
Net present value
An investment appraisal technique that calculates the total discounted cash flows, minus the initial cost of an investment project. If the figure is positive, then the project is viable and should be undertaken
An investment appraisal technique that calculates the total discounted cash flows minus the initial cost of an investment project. If the figure is positive, then the project is viable and should be undertaken.
Qualitative investment appraisal
Refers to judging whether an investment project is worthwhile through non-numerical means, such as whether an investment decision is in line with the corporate culture.
Quantitative investment appraisal
Appraisal refers to judging whether an investment project is worthwhile through numerical means
The amount of finance available to a business for its daily operations.
Resources that belong to a business that are intended to be used within the next twelve months, such as cash, debtors and stocks
Net cash flow
The cash that is left over after cash outflows have been accounted for from the cash inflows. If it is positive, then this means the value of cash inflows exceeds that of cash outflows.
The costs not directly associated with the production process but necessary for providing and maintaining business operations
The value of cash left in a business at the end of the month
closing balance= opening balance + net cash flow
Debts owed by a business. Current liabilities are short-term debts such as an overdraft which need to be repaid within twelve months from the balance sheet date.
Long-term liabilities such as mortgages and bank loans are repayable over a long period
Ability of a business to convert assets into cash quickly and easily without a fall in its value
A cash flow emergency situation where a business does not have enough cash to pay its current liabilities
Financial plan for expected revenue and expenditure for an organization for a given period of time
Any discrepancy between actual outcomes and budget outcomes.
Favorable variances exist when the variance is beneficial for the business, such as sales being higher than budgeted or costs turning out to be lower than expected. The opposite is true for adverse (unfavorable) variances
The final section of a profit and loss account which shows how the net profits of a business are distributed. Profits are appropriated in three ways: taxation, dividends and retained profits
Financial statement showing a firm's assets and liabilities at a specific point in time. It shows the sources of funds, such as long-term loans and owners equity, which must be balanced with the uses of funds, such as the purchase of fixed assets
The value of an asset as shown on a balance sheet. The market value of assets may be higher than its book value because of intangible assets
Value of all long-term sources of finance for a business, such as bank loan, share capital and any reserves that the business holds
Cost of goods sold
Shown in the trading account of the profit and loss account. It represents the direct costs of producing or purchasing a particular level of stock that has actually been sold to customers.
The fall in value of fixed assets over time. The main cause of depreciation is wear and tear (loss of value due to the asset being used) although some assets can become obsolete (outdated or out of fashion)
First in, First out (FIFO)
Method of stock valuation whereby stock is valued based n the order in which it was purchased by the business. This method ensures that any unsold stock is more realistically valued a its replacement cost
Items of monetary value that are owned by a business but are not intended to be sold within the next twelve months. They can be used repeatedly to generate revenue for the business
The difference between the sales revenue of a business and its direct costs incurred in manufacturing or purchasing the products that have been sold to its customers. It is calculated by using sales revenue - COGS
When the value of a firm exceeds its book value (the value of the firms net assets).
Type of fixed asset but do not exist in physical form.
Last in, Last out (LIFO)
Method of stock valuation that uses the most recent batches of stock first. It is a suitable method for stock that does not need to be rotated. This method raises the value of COGS
Show the value of a business by calculating the value of all its assets minus the long-term liabilities.
Is the surplus that a business makes after all expenses have been paid for out of gross profit. Calculating: Expenses - gross profit
Profit and Loss Account
Financial statement of a firm's trading activity over a period of time.
Appears at the top section of the profit and loss account and shows the difference between a firms sales revenue and its direct costs of trading.
Legal act of manipulating financial information to make the results look more flattering.
Short - term liquidity ratio that calculates the ability of a firm to meet its debts within the next twelve months. It is worked out by: current assets/current liabilities
Creditor days ratio
An efficiency ratio that measures the number of days it takes, on average, for a business to pay its creditors
Debtor days ratio
An efficiency ratio that measures the average number of days it takes for a business to collect the money owed from its debtors
Earnings per share (EPS)
Shareholders raio which shows the amount of money that stockholders could receive per share if the company allocated all its after - tax profits to the shareholders.
Assets of a business that can be turned into cash quickly, without losing their value
Net profit margin
Profitability ratio that shows the percentage of sales revenue that turns into net profit
Gross profit margin
Profitability ratio that shows the percentage of sales revenue that turns into gross profit
A situation where a firm is unable to pay its short - term debts
Management tool that compares different financial figure. It requires the application of figures found in the balance sheet and profit and loss account of a business
Return on capital employed (ROCE)
Efficiency ratio. It measures the profit of a business in relation to its size. The higher the ROCE figure, the better it is for a business as it shows more profit being generated form the amount of money invested in the firm
Efficiency ratio that measures the number of times a firm sells its stocks within a year
Measures the value of a firms sales revenues as a percentage of the industry total
Management role of predicting, identifying and meeting the needs and wants of customers in a profitable manner
A review of a firms current marketing mi in terms of its strengths, weaknesses, opportunities and threats
Main elements of a firms marketing strategy. It consists of the 4 P's - product, price, promotion and place
The document outlining a firms marketing objectives and strategies for a specified time period
Visual aid that shows the customers perception of a product or brand in relation to others in the market
Involves data being collected by the researcher since the information does not currently exist
Sampling method that involves segmenting the population and then selecting a certain number of people in each market segment
Sampling method that gives every person in the population an equal chance of being selected
Strategy that involves changing the markets perception of a product or brand relative to those offered by rival firms
Quantitative technique that attempts to estimate the level of sales a business expects to achieve
Practice of selecting a representative group of a population for primary research purposes
Involves using data and information that has already been collected by another party
`Categorizing customers into distinct groups of people with similar characteristics and similar wants or needs for research and targeting purposes
Unique selling point
Any aspect of a product that makes it stand out form those offered by rival businesses
Tool used for analyzing the product portfolio of a business. It measures whether products have a high or low market share and operate in high or low market growth industries
Use of an exclusive name, symbol or design to identify a specific product or business
Refers to any product that generates significant sales revenue due to its large market share in a slowly expanding or mature market
Items bought by the final user for their own personal consumption
Refers to any strategy used to make a product appear to be dissimilar from others
Attempt by marketers to lengthen the product life cycle of a particular product
New product development
Process of getting the latest products onto the market
Product life cycle
Typical process that products go through form their initial design and launch to their decline and often their death
Range of products or strategic business units owned and developed by an organization
Absorption cost pricing
Type of cost-based pricing method that focuses on covering all costs of production. Indirect costs are apportioned to different departments based on a predetermined set of criteria
Competition based pricing
Pricing strategies based on the prices charged by the rivals in the industry
Cost based pricing
Setting prices based on the costs of production rather than on the level of demand or the prices set by competitors
Cost plus pricing
Takes place when a firm calculates its unit costs and then adds a percentage profit to determine the price
Cross price elasticity of demand (CED)
Measures the degree of responsiveness of the level of demand for one product due to a change in the price of a related good
Advertising elasticity of demand (AED)
Measures the impact on the demand for a firm's product following a change in its advertising expenditure
Income elasticity of demand (YED)
Measures the degree of responsiveness of changes in demand due to a change in consumer income levels
Marginal cost pricing
Calculates the cost of supplying an extra unit of output in order to determine a suitable price
Market - led pricing strategies
Based on the level of customer demand for a firm's products.
Market-led pricing strategy that involves a firm setting low prices to gain entry into a new market.
Competition-based pricing strategy that involves a firm setting prices so low that other competitors cannot compete at a profitable level
Pricing strategy that involves charging different prices to different groups of customers for the same product
Price Elasticity of demand (PED)
Measures the degree of responsiveness of changes in demand due to a change in the products own price
Market-lef pricing strategy that involves charging a high price for innovative or high-tech products for an initial period
Above the line promotion
Any form of paid-for advertising through the mass media in ordre to reach a wide audience
Method of informative and/or persuasive promotion that has to be paid for
Below the line promotion
Refers to promotional methods that do not directly use the mass media as a form of promotion
Form of promotional technique that relies on keen and knowledgeable sales staff directly helping and persuading customers to make a purchase
Component of the marketing mix. Refers to the methods used to inform, persuade or remind people about its products, brands or business.
Combination of individual promotional methods used by business
Negotiators who help to sell the vendor's products, such as real estate agents selling residential property on behalf of their clients
Channels of distribution
The ways that a product gets from the manufacturer to the consumer
Is the fourth P in marketing mix, placement, refers to the process of getting product to customers at the right time and place in the most cost-effective way
Supply chain management
Art of managing and controlling the sequence of activities from the production of a good or service to its delivery to the end customer
The sellers of products to the general public that operate in outlets
Businesses that purchase large quantities of products form a manufacturer and then separate or break the bulk purchases into smaller units for resale to retailers
Business-to-business and refers to online trade conducted directly for the business customer rather than the end-user, such as Amazon supplying books to other book retailers
Business-to-consumer and refers to online business conducted directly for the end-user
Trading of good and services via the internet
Involves producing a collection of identical products
Production method that organizes workers into independent cells
Form of mass production whereby different operations are continuously and progressively carried out in sequence
Form of flow production whereby a product is assembled in various stages along a conveyor belt until a finished product is made
Manufacturing of large amounts of homogeneous product
Method of production that involves the production of a unique or one-off job
Refers ti the method of turning inputs into outputs by adding value in a cost-effective way
Buying of raw materials, components and/or equipment needed for the production process
The division of a large task or project into smaller tasks that allow individuals to concentrate on one or two areas of expertise
Means producing an identical or homogenous product in large quantities such as printing a particular magazine, book or newspaper
The costs that do not vary with the level of output (rent, salaries and interest repayments/bank loans)
Indirect costs (overheads)
Costs which do not directly link to the production or sale of a specific product
Money that a business collects from the sale of its good and services
Those that change in proportion to the level of output such as raw materials and piece rate earnings of production workers
Graph that shows a firms costs, revenues and profits at various levels of output
Position on a break-even chart where the total cost line intersects the total revenue line TC-TR
Break-even quantity (BEQ)
Level of output that generates neither any profit nor loss
Contribution per unit
Used to work out the break-even quantity
Margin of safety
The difference between a firms level of demand and its break-even quantity
The process of identifying best practice in an industry, in relation to products, processes, and operations
Those who stive for total quality culture
The approach used to eliminate waste in an organization.
Methods used by a business to reassure customers about the quality of their products in meeting certain quality standards
Traditional way of quality management that involves checking and reviewing work processes
Total quality culture (TQC)
In organizations that embed quality in all aspects of business activity, with every employee accustomed to being responsible for quality control and quality assurance
Total quality management (TQM)
The process that attempts to encourage all employees to make quality assurance paramount to the various functions of the organization
A business locates near other organizations that operate in similar or complementary markets
Term used to describe the transportation, communication and support networks in a certain area
The commercial development, use and exploitation of an invention or creative idea that appeals to the customers
Legal protection for a finite period of time to the registered producer or user of a newly invented product or process
Research and development (R&D)
Technological and scientific research that helps to generate a flow of new ideas and processes
A form of intellectual property right that uses signs or logos to represent a business or its brans and products
Cost - benefit analysis
Financial decision making tool. It compares the financial costs of a decision with the quantitative benefits
Is the traditional stock management system that recognizes the need to maintain large amounts of stock in case there are any emergencies or supply and demand fluctuations
Is the stock control system where materials and components are scheduled to arrive precisely when they are needed in the production service
Overseas firm in another country as the subcontractor
The practice of using external firms to provide goods or services as a method of reducing costs
Most efficient sequence of activities in a project which maximizes the time needed to complete a project
Critical path analysis
Project management tol, which serves to improve the efficiency in the production process by systematically scheduling tasks and resources
Earliest start time (EST)
When a particular activity can begin
Refers to spare time that is available
Latest finishing time (LFT)
The deadline for a particular activity so that the entire project can be completed in the minimum time