1
Q
How is Centering defined?
A
A method used in the calculation of a moving average where the average is plotted or calculated in relation to the central figure.
2
Q
How is Correlation defined?
A
The relationship between two sets of variables.
3
Q
How is Correlation Coefficient defined?
A
A measure of the extent of the relationship between two sets of variables.
4
Q
How is Moving Average defined?
A
A succession of averages derived from successive segments (typically of constant size and overlapping) of a series of values.
5
Q
How is Scatter Graph defined?
A
A graph showing the performance of one variable against another independent variable on a variety of occasions. It is used to show whether a correlation exists.
6
Q
How is Time Series Analysis defined?
A
A method that allows a business to predict future levels from past figures.
7
Q
What are the four main components of Time Series Data?
A
- Trend
- Seasonal Fluctuations
- Cyclical Fluctuations
- Random Fluctuations
8
Q
How can you identify the trends?
A
- Moving Average –> to calculate this you add the number or sales up per year/quarter etc. then divide by the same amount you have added up
- four-period centred moving average –> can be used by finding the midpoint of a four-year moving total and a eight-year moving total.
- to work this out divide the eight year moving total by eight
9
Q
How can you predict future trends from a graph?
A
- Using a line of best fit
- by plotting the values from the four-period moving average onto a graph accurately and then adding the line of best fit ‘by eye’, so that points fit equally either side of the line.
- This line can be extended should help give a reasonable prediction
10
Q
What equations can you use to help draw the line of best fit?
A
- when drawing a line of best fit it should pass through the coordinates (X,Y), where X is the average of the years and Y is the average sales:
- X = (the sum of the years)/ (number of years)
- Y = (the total sales in the trend)/ (the number of years)
11
Q
How can we calculate the variation from the trend?
A
- predictions may not be accurate because it is taken from the trend, and the trend ‘smoothed out; variations in sales.
- To make an accurate prediction the business will have to fine the average variation over the period and take this into account.
- To find out how much variation there is we must –> V= Actual Sales - Trends
12
Q
How can we use trends from Seasonal Variation to make more accurate predictions?
A
- trends are the smoothed out figures that smoothed out the variation.
- If a set of data has been sorted with four-period centred average using the financial Quarters in the year we can make a more accurate prediction by calculating the average seasonal variation in the each quarter ( e.g. average of the 4th Quarters from the data etc.)
13
Q
When is Quantitative Sales Forecasting likely to be more reliable?
A
- The forecast is for a short period of time in the future, such as six months, rather than a long time. such as five years
- The are revised frequently to take account of new data and other informaiton
- The market is slow changing
- Market research data, including test marketing data, is avaible
- Those preparing the forecast have a good understanding of how to use data to produce a forecast
- Those preparing the forecast have a good ‘feel’ for the market and can adjust the forecast to take account of their hunches and guesses about the future
14
Q
How can some forecasting account for changes even if the forecast should be reliable?
A
- by creating a forecast range
- by preparing 3 set of figures –> a optimistic, a pessimistic and a central forecast
- these give the best and worst case scenarios aswell as the central forecast, the one that is most likely to occur
- this give the departments in a business an indication of the possible variations they might have to face.
15
Q
How can we use Causal Modelling with Time Series Analysis?
A
- Time series analysis only describes what is happening to information
- Casual modelling tries to explain data, usually by finding a link between on set of data and another
- this can be done by plotting the two variables on a scatter graph and looking at the correlations which can be show better with a line of best fit
16
Q
What is the Correlation Coefficient?
A
- It can be calculated form two sets of data that would usually go on a scatter graph
- it is possible to calculate the extent of the relationship through the following formula;
r = ΣXY/sqrt((ΣX^2) x (ΣY^2))
17
Q
What does a Correlation Coefficient of 1 mean?
A
- means that there is an absolute positive relationship between the two variables.
- All points in the scatter graph fall on the line best fit and the line slopes upwards from left to right.
- As the value of the independent variable, increase so do the dependent variable values
18
Q
What does a Correlation Coefficient of 0 mean?
A
means that there is no relationship between the variables
19
Q
What does a Correlation Coefficient of -1 mean?
A
- means that there is an absolute negative relationship between the two variables.
- All points in the scatter graph fall on the line of best fit and the line slopes downwards from left to right.
- As the value of the dependent variable falls
20
Q
Why may a business what to be careful when basing there decisions on Coefficient Correlation?
A
- Any value that falls below 0.7 make it difficult to see any correlation from the scatter graph
- A large rise in one of the Variable may be unrelated to other other factors and could have been affect by something completely different
- There are sometimes examples of ‘nonsense correlations’. These are correlation coefficients that appear to show a strong relationship between two variables, when in fact the relationship between the figures is pure coincidence
21
Q
When would a Business use Qualitative Forecasting?
A
- uses people’s opinions or judgements rather than numerical data
- a business could base its prediction on the views of so-called experts, or on the opinions of experience managers
- these methods are useful when there is insufficient numerical data or where figures date quickly because the market is changing rapidly
22
Q
How is Average Rate of Return or Accounting Rate of Return (ARR) defined?
A
A method of investment appraisal that measures the net return per annum as a percentage of the initial spending.
23
Q
How is Capital Cost defined?
A
The amount of money spent when setting up a new venture.
24
Q
How is Discounted Cash Flow (DCF) defined?
A
A method of investment appraisal that takes interest rates into account by calculating the present value of future income.
25
How is Investment defined?
The purchase of capital goods.
26
How is Investment Appraisal defined?
The evaluation of an investment project to determine whether or not it is likely to be worthwhile.
27
How is Net Cash Flow defined?
Cash inflows minus cash outflows.
28
How is Net Present Value (NPV) defined?
The present value of future income from an investment project, minus the cost.
29
How is Payback Period defined?
The amount of time it takes to recover the cost of an investment project.
30
How is Present Value defined?
The value today of a sum of money available in the future.
31
What is Investment?
Investment or Capital Investment describes the process of purchasing fixed assets, such as new buildings, plant, machinery and office equipment. It refers to the purchase of any asset which the business plans to own, and will pay for itself, over a period of more than 1 year.
This may include:
- Replacement or renewing existing assets that have worn out (depreciated) or become obsolete
- Introduce new assets to meet changes in demand
32
What is Investment Appraisal?
- describes how a business might objectively evaluate an investment project to determine whether or not it is likely to be profitable
- It also allows businesses to make comparisons between different investment projects
- There are several quantitative methods that a business might use when evaluating a project
- However, they all involve comparing the capital cost of the project with the net cash flow
33
What is the Payback Method?
the payback period refers to the amount of time it takes for a project to recover or pay back the initial outlay.
- The payback period can also be found by calculating the Cumulative Net Flow.
- it is a measure of time, ie days, weeks or years
34
What are the Strengths to the Payback Methods?
There are certain advantages to a business of the use the payback method to appraise the potential success of an investment
- This method is useful when technology changes rapidly as it is important to recover the cost of investment before a new model or equipment is designed.
- It is simple to use
- Firms might adopt this method if they have cash-flow problems. This is because the project chosen will 'payback' the investment more quickly than other
- Emphasises cash flow requirements - help planning
35
What is Average Rate of Return (ARR)?
- This method measure the net return each year as a percentage of the capital cost of the investment
- Firms want to achieve as high a percentage as possible, certainly higher than they could achieve by keeping the assets invested in a bank as cash.
36
How do you calculate Average Rate of Return?
(Net return (profit)) / ((initial cost) x (time)) x 100
| - If the ARR is greater than the return available investment markets, ie cash or giving debentures, then its worth it
37
What are the strengths of Average Rate of Return (ARR)?
- it clearly shows the profitability of an investment project
- Not only does it allow a range of projects to be compared, the overall rate of return can be compared to other uses for investment funds.
- % result makes it easy to compare against other investment choices
- Can show true profitability as takes account of all expenditure at face value
- % terms are easily understood by non accountants
38
What is Net Present Value (NPV)?
- Money in the future is worth less than the same amount now (the present value )
- This is because money available today could be invested and it could earn interest
- Note that is a completely different idea to the fact that money in the future can also because devalued due to the effects of inflation
- Discounted Cash -flow techniques just deal with one of these, the effect of interest rates
39
What is Discount Cash Flow?
- The payback and ARR methods assume the timing of payments and receipts are not important, they ignore the time value of money
- As such, any payment you receive in the future are discounted (reduced) to reflect their lower future value.
- in essence, it is taking a discount rate of the investment now and adding the total present values together to give you the total return on investment
- the higher the rate of discount the less the present value of cash flow in the furture
40
How do you calculate Discounted Cash Flow?
- take the discount rate. starting at 1 each year after divide by the discount rate
- multiple each year's total revenue by their relevant discount factor to give you the present value
- total the present values to give you the net present value
- take the net present value and take away the initial cost to give you the value
41
What are the strengths of Discounted Cash flow?
- Only method that considers time value of money
- As future monies are discounted heavily, less risk if incorrect
- Only system to give precise answer
42
What are the weaknesses of the Payback method?
- Calculation ignores revenues or costs that occur after point of payback
- Estimates over long periods can be inaccurate
- Takes no account of the future value of money
- Long payback terms may put off investment, leading to short-termism
43
What are the weaknesses of the Average Rate of Return?
- Harder and more time consuming to calculate.
| - Takes no account of the future value of money
44
What are the weaknesses of Discount Cash flow?
- Time consuming and difficult to calculate
- Difficult to understand, particularly for non financially trained
- Flat discount rate is unrealistic.
45
How do companies account for risk?
Firms take the following actions to allow for the risks and uncertainties:
- Build in contingencies – allow extra funds to account for changes in costs so that would make the project run over budget.
- Calculate alternative scenarios – expected, best and worst case scenarios
- Set demanding targets – high ARR’s or short payback terms. Covering costs early removes future uncertainties.
46
What Qualitative Factors may influence a Investment decisions?
- The aims of the organisation – profit orientated organisations will look at the numerical returns, whereas socially responsible organisations may reject a highly profitable investment opportunity if it doesn’t meet ethical considerations.
- Reliability of the data – investment decisions are clearly based on the information gathered. If that data is inaccurate, then it may lead to flawed decisions.
- Risk – the higher the potential return, then usually the greater risk. A company may choose a project with lower, but more certain, returns
- Personnel – will changes in processes, brought about from an investment decision, impact on the existing staff? - Will there be increased training needs? Will you still need the same staffing levels?
- The economy – will forecasts for the wider economy impact on expected revenue streams.
- Image – will a decision over an investment have a negative impact on the corporate image? Transferring back office functions to an Indian call centre may save money, but can have negative PR implications.
- Subjective criteria – no 2 people are the same and we all have our own personal preferences. Different interpretations of data, or ‘gut feelings’ , will impact on the success of a decision.
47
How is Decision Tree defined?
a technique which shows all possible outcomes of a decision. the name comes form the similarity of the diagrams to the branches of trees
48
What are decision trees?
- A decision tree is a method of identifying all the alternative outcomes for a decision so that they can be compared to the results of undertaking an action.
- Numerical values are given to each potential option, then calculations can be used to determine the best outcome.
49
What are the different features of a decision tree?
- Decisions Points
- Outcomes
- Probability or Chance
- Expected Monetary Value
50
What is a Decision Point?
where a decision needs to be made. Represented by a square.
51
What is a Outcomes?
points where the different possible outcomes. Represented by circles and referred to as chance nodes.
52
What is a Probability or Chance?
- the likelihood of success or failure of an outcome.
- These probabilities will be assessed based on market research data and previous experience (using a businesses backdata)
53
What is Expected Monetary Values?
this is the financial outcome of the decision
54
How can you Calculated the Expected Monetary Values (EMV)?
EMV = S + F
S = probability of success x expected profit if successful
F = probability of failure x expected profit if it fails
If they are numerous outcomes you simply add all value of EMV together instead
55
What are the advantages of Decision Trees?
- Can be applied to complex scenarios to allow visual comparison
- May allow possible courses of action to be identified that have been considered.
- Numerical values helps decision making
- Helps identify the risks associated with decisions, allowing management to them to separate important decision from those not important
56
What are the Disadvantages of Decision Trees?
- Due to the reliance on probabilities, may not be accurate.
- Time lag – by the time decision made, information may be out of date
- It can be time consuming, although computerised modelling can be quicker.
- Decision makers may have an agenda which means they manipulate the probabilities to distort the results.
57
How is Earliest Start Time defined?
How soon a task in a project can begin. It is influenced by the length of time taken by tasks which must be completed before it can begin.
58
How is Critical Path defined?
The tasks involved in a project which, if delayed, could delay the project.
59
How is Critical Path Analysis (CPA)/ Network Analysis?
A method of calculating the minimum time required to complete a project, identifying delays which could be critical to its competition.
60
How is Free Float defined?
The time by which a task can be delayed without affecting the following task.
61
How is Latest Finish Time defined?
The latest time a task in a project can finish.
62
How is Network Diagram defined?
A chart showing the order of the tasks involved in completing a project, containing information about the times taken to complete the tasks.
63
How is Nodes defined?
Positions in a network diagram which indicate the start and finish times of a task.
64
How is Total Float defined?
The time by which a task can be delayed without affecting the project.
65
What is Nature and Purpose of Critical Path Analysis?
In business, the sooner a task is completed, the better. Once completed, the business can:
- re-direct resources to new projects,
- Satisfy the customer,
- Receive payment sooner, which
- Increases efficiency and profitability
- Critical Path Analysis (CPA) makes use of network diagrams to calculate the minimum time needed to complete a project.
- CPA will allow a business to identify areas where delays may occur and whether those delays may be crucial to the timely completion of a project.
- It is commonly used in the construction, engineering, software design, aerospace and defence industries, amongst others.
66
Why would you use Critical Path Analysis?
- Efficiency
- Decision Making
- Time-based Management
- Working Capital Control
67
Why would you use Critical Path Analysis for Efficiency?
- Allows business to identify jobs that can be completed simultaneously and those dependent on others.
- Allows for accurate use and delivery of resources
- Can identify where delays may occur
68
Why would you use Critical Path Analysis for Decision Making?
- Use of models allows for more objective decision making
| - Past experience will guide development of plans to increase accuracy
69
Why would you use Critical Path Analysis For Time Based Management?
- Identifies tasks which can be completed together and those done in order
- Increases efficiency by allowing resources to be used elsewhere until needed
70
Why would you use Critical Path Analysis for Working Capital Control?
9 As with a cash flow forecast, it will allow you to see which resources are required at which time, allowing for more accurate use of working capital.
- this is especially important if a business operates a 'just-in-time' system of stock control
71
What are Networks?
- These are the name given to the diagrams used in Critical Path Analysis
- Some are relatively simple requiring activities to be complete in a certain sequence, other may have to have multiple tasks completed before moving onto the next one
72
What is Network Analysis?
- Business will frequently undertake large projects, which will require a series of tasks to be completed, in a certain order, for the project to be completed on time.
- Network allows a business to see which activities need to be completed at certain stages for the project to be completed on time, the “critical” tasks.
- It also allows businesses to see which jobs can be delayed and the project will still be completed on time.
- This allows a business to “path” the tasks that must be completed in order to ensure completion.
73
What are some Features of Network Analysis?
- Arrows and lines show tasks
- Some tasks can be completed at the same time (B&C can both be started after A)
- Arrows and lines cannot cross
- Each task takes a period of time
- Task must be completed in order
- Circles (nodes)show the start and end of each activity
There is always a node at the start and end of the project.
Nodes contain information about the timings of the project.
74
How can you calculate the Earliest Start Time?
- This is the earliest time you can start at task (EST)
- This can be calculated by going through the diagram from start to finish and working out all the possible times an activity can start and calculating the earliest one
- This goes in the top box on the node
- The start node is 0, and have 0 in both of its boxes (it can finish any later than 0)
75
How can you calculate the Latest Finish Times?
- This is the latest time a project must be finish in order to complete the task on time (LFT)
- We work back from the End node picking the largest value routes to go back on to calculate the LFT
- This goes in the bottom box on the node
- The end node has the same EST and LFT
76
What is the Critical Path?
- This shows the task which, if delayed, will lead to a delay in the project.
- To find the Critical Path it is the route where the Earliest Start Time and Latest Finish Time are the same
- But it also needs to be the route that takes the Longest time
77
What is Total Float?
- Once the network diagram has been completed and the CPA identified, businesses can identify the “total float” within the project. That’s how long a certain task can be delayed without the total project time being affected. It’s calculated by:
LFT of activity – EST of activity – duration
- The easiest way to remember this is the bottom number of the activity node minus the total number of the node before minus the weight of the time inbetween
- Total float only applies to task not on the critical path
78
What is Free Float?
- This is the amount of time by which a task can be delayed without affect the following task and is calculated by;
EST of the next task - EST start of this task - duration
- The easiest way to remember this is the top number in the activity node minus the top number in the previous node minus the weight of the line in the middle
79
What are the Limitations of Critical Path Analysis?
Whilst CPA is a valuable tool in project planning and project appraisal, there are limitations to the technique:
- Information used to create estimates may be incorrect.
- Changes may occur during the project, particularly those with long completion times.
- Businesses should factor in contingency plans to allow for this.
- Just because a resource has been identified in this project as being needed on a certain date, doesn’t mean to say its available. It may be being used somewhere else.
- The larger the project, the harder to manage, due to the increased volume of tasks to be completed.
Business Studies GCSE
flashcards
Decks in class (19)
# Cards
-
1.1 - Meeting Customer Needs65
-
1.2 The Market29
-
1.3 Marketing risk and Strategy86
-
1.4 Managing People100
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1.5 Entrepreneurs and Leaders110
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2.1 Raising Finance103
-
2.2 Financial Planning87
-
2.3 Managing Finance96
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2.4 Resource management126
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2.5 External Influences129
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3.2 Business Growth73
-
3.3 Decision-Making Techniques79
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3.4 Influences of Business Decisions128
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3.5 Assessing Competitiveness94
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3.6 Managing Change57
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4.1 Globalisation92
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4.2 Global Markets and Business Expansion73
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4.3 Global Marketing38
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4.4 Global Industries and Companies (Multinational Corporations)72
