hierarchy of objectives
mission statement and corporate aims
corporate objectives
functional objectives
business objectives
- set objectives to enable them to achieve their mission
- everyone is working towards a goal, coordination should improve
- useful in decision making
- compare performance with their objectives to measure the success
corporate objectives
- the goals of the business as a whole
- the objective will depend on the size of the business
- new shop owner might focus on trying to survive, while big international company will want to grow bigger and diversify product range
functional objectives
- objectives of each department
- more detailed than corporate objectives - specific to each department
- will help them achieve their corporate objective
objectives should be smart
(specific)
more specific - businesses more likely to achieve them
objectives should be smart
(measurable)
- if the objective isn’t measurable the business wont know what they’re supposed to be aiming for.
‘increase profit by 5%’ instead of ‘increase profit’
objectives should be smart
(agreed)
- everyone involved in achieving the objective needs to know about it and agree to it
objectives should be smart
(realistic)
- no point setting objectives that are too ambitious
- impossible objectives demotivate staff
objectives should be smart
(timely)
- a specific time frame
- if the is no limit staff wont see the objective as urgent
profit objectives
- businesses that are currently making a loss might aim to become profitable
- established businesses that are already profitable might want to increase their profits
- may set functional objectives to minimise costs
growth objectives
- the larger the business grows the more it is able to use its position in the market to earn higher profits.
- growth objectives can be based on increasing revenue, market share or expansion
survival objectives
- main objective for new businesses - becomes key objective during periods of strong competition from other companies or when the economy is declining
cash flow objectives
- money that moves in and out of the business
- set cash flow objectives to improve cash flow
- increasing cash flow gives greater chance of survival
social objectives
- relate to benefiting society or people in need
ethical objectives
based on moral principles about how businesses treat people and the environment
why are non-profit organisations set up
to achieve social or ethical objectives (housing associations)
long term objectives
- set the direction of a business - affect the big decisions that senior managers make.
- things like long term growth
short term objectives
- include things like short term survival and making short term profit.
- often require a business to cut back on its long-term objectives
mission statements tell you about a business’s intentions - its overall purpose or main corporate aims
- tells you the purpose of the business, its values, standards and what makes it unique.
- give staff a sense of shared purpose, work towards a common goal
- having cooperation of all the staff makes it more likely that a business will achieve its aims
fixed costs
- business costs that occur regardless of output level e.g. rent, salaries.
- will not change whether the business produces one or one thousand units.
variable costs
- costs that fluctuate as output changes e.g. raw materials or shipping.
- a business that understands how each cost changes and interacts with its production can more effectively minimize costs to improve its business
total variable costs formula
variable costs per unit x number of units sold
total costs formula
fixed costs = variable costs
profit formula
total revenue - total costs
