Alfaisal University Final Exam Study Guide PDF

FINAL EXAM - STUDY GUIDE Monday, 16 Dec (12:30 – 3:30 PM) CHAPTER 1 THE CONCEPT OF BUSINESS AND PROFIT Business is an organization that provides goods or services to earn profits. Profit is the difference between a business’s revenues and its expenses. Profit...

FINAL EXAM - STUDY GUIDE Monday, 16 Dec (12:30 – 3:30 PM) CHAPTER 1 THE CONCEPT OF BUSINESS AND PROFIT Business is an organization that provides goods or services to earn profits. Profit is the difference between a business’s revenues and its expenses. Profit is the amount of money gained after selling goods and services minus the expenses.  DIMENSIONS OF THE EXTERNAL ENVIRONMENT 1. Domestic Business Environment. The domestic business environment refers to the environment in which a firm conducts its operations and derives its revenues. (customers, suppliers, competitors) 2. Global Business Environment. The global business environment refers to the international forces that affect a business; various factors affect the global environment at both the general and immediate levels. (international suppliers, cultures, currencies) 3. Technological Environment. The technological environment generally includes all the ways by which firms create value for their constituents; technology includes human knowledge, work methods, physical equipment, electronics and telecommunications, and various processing systems. (mobile apps for online shopping)  DIMENSIONS OF THE EXTERNAL ENVIRONMENT 4. Political-Legal Environment. The political-legal environment reflects the relationship between business and government, usually in the form of government regulation of business. (employment laws, tax policies, safety and health standards) 5. Sociocultural Environment. The sociocultural environment includes the customs, mores, values, and demographic characteristics of the society in which an organization functions. (acceptable to society or not, recycling) 6. Economic Environment. The economic environment refers to relevant conditions that exist in the economic system in which a company operates. (economic system, spending power of consumer, inflation, unemployment)  FIVE FACTORS OF PRODUCTION Factors of production the resources that a country’s businesses use to produce goods and services  WHAT IS AN ECONOMIC SYSTEM? An economic system is a nation’s system for allocating its resources among its citizens, both individuals, and organizations. North Korea, China U.S & Japan  TYPES OF ECONOMIC SYSTEMS 1. Planned Economy An economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions. Example: Communism 2. Market economy An economy where the ownership of both the factors of production and the actual businesses is private. It creates an environment in which producers and consumers are free to sell and buy what they choose. Example: Capitalism  Shortage – when quantity demanded exceeds quantity supplied. Surplus – when quantity supplied exceeds quantity demanded Gross domestic product (GDP) The total value of all goods and services produced within a given period by a national economy through domestic factors of production Measure of aggregate output CHAPTER 2 Ethics People’s beliefs about what is right and wrong or good and bad in actions that affect others. Ethical behavior Unethical behavior Behavior that Behavior that conforms to conforms to individual beliefs and individual beliefs and social norms about social norms about what’s right and what is defined as good wrong and bad  THE STAKEHOLDER MODEL OF RESPONSIBILITY Most companies that strive to be responsible to their stakeholders concentrate first and foremost on FIVE main groups: Employees Customers Investors Local and Suppliers international communities  COMPANY PRACTICES AND BUSINESS ETHICS Two of the most common approaches to formalizing top management commitment to ethical business practices: 1- Adopting Written Codes 2- Instituting Ethics Programs THE GOVERNMENT AND SOCIAL RESPONSIBILITY CHAPTER 3 IMPORTANCE OF SMALL BUSINESS IN AN ECONOMY Small businesses are an Job Creation important source of new jobs. Revolutionary ideas and Innovation inventions. Contributions to Small business provide many Big Business services and raw materials to big businesses.  ENTREPRENEURSHIP Entrepreneurship The process of seeking business opportunities under conditions of risk. Venture Capital Company Group of small investors who invest money in companies with rapid growth potential.  UNDERSTANDING DISTINCTIVE COMPETENCIES An organization’s distinctive competencies are the aspects of business that the firm performs better than its competitors. The distinctive competencies of small business usually fall in THREE areas: 1. Identifying Niches in Established Market - A niche is a segment of a market that is not currently being exploited. 2. Identifying New Markets - Discovering whole new markets: Transfer well-established products or services to another geographic market. Create an entire new industry. 3. First-mover advantage - Any advantage that comes to a firm because it exploits an opportunity before any other firm does.  FORMS OF LEGAL OWNERSHIP Sole Proprietorship The sole proprietorship is owned and usually operated by one person. General Partnership Business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts. Corporation A legal entity that is entirely separate from its owners and is liable for its own debts; owner’s liability extends to the limits of their investment. CHAPTER 4 THE GLOBAL ECONOMY Globalization - The process by which the world economy is becoming a single interdependent system. Balance of Trade: Total economic value of all the products a country exports minus the total economic value of all products it imports. A positive balance of trade results when a country exports more than it imports. A negative balance of trade results when a country imports more than it exports.  LEGAL AND POLITICAL DIFFERENCES Local Content Law - Requirements that products sold in a country be at least partly made there. Either through direct investment or take on a domestic partner. (joint ventures) Business Practice Laws – Host countries govern business practices within their jurisdiction through regulation. Quota - A quota restricts the number of products of a certain type that can be imported into a country. Embargo – The Ultimate Quota - A government order banning exportation or importation of a particular product from a specific country. Tariff (direct tax) -Taxes on imported products. Subsidy (indirect tax) - Government payment to help a domestic business compete with foreign firms. CHAPTER 5 THE MANAGEMENT PROCESS Management is the process of planning, organizing, leading, and controlling an organization’s resources to achieve its goals. 1. Planning - Management process of determining what an organization needs to do and how best to get it done. (determine goals and strategy) 2. Organizing - Management process of determining how best to arrange an organization’s resources and activities into a coherent structure. 3. Leading - Management process of guiding and motivating employees to meet an organization’s objectives (inspiring, supporting, and team building) 4. Controlling - Management process of monitoring an organization’s performance to ensure that it is meeting its goals. (monitor progress and keep team on track)  FIVE BASIC MANAGEMENT SKILLS 1. Technical skills Skills needed to perform specialized tasks 2. Human relations skills Skills in understanding and getting along with people 3. Conceptual skills Abilities to think in the abstract, diagnose and analyze different situations, and see beyond the present situation 4. Decision-making skills Skills in defining problems and selecting the best courses of action 5. Time management skills Skills associated with the productive use of time CHAPTER 6 WHAT IS ORGANIZATIONAL STRUCTURE? An organizational structure is the system of hierarchy and relationships that defines how a company is organized and how it operates. It encompasses formal relationships, job roles and responsibilities, and organizational communication channels. It provides a clear framework for decision-making and resource allocation, enabling a company to operate effectively and achieve its goals. The structure can vary widely depending on the size of the company, its industry, and its culture, among other factors. It determines how work is divided and coordinated and how employees interact with each other and with management  ORGANIZATION CHART An Organization Chart is a diagram depicting a company’s structure and showing employees where they fit into its operations THE THREE BUILDING BLOCKS OF ORGANIZATIONAL STRUCTURE DISTRIBUTING AUTHORITY: CENTRALIZATION AND DECENTRALIZATION Establishment of a Decision-Making Hierarchy deciding who will be empowered to make which decisions and who will have authority over others Centralized Organization organization in which most decision-making authority is held by upper-level management Decentralized Organization organization in which a great deal of decision-making authority is delegated to levels of management at points below the top CHAPTER 7 DIFFERENCES BETWEEN GOODS AND SERVICES Goods Services Tangible (perishable and durable) Intangible: pleasure, gratification, experience Rely on machines and physical skills Rely on people and communication skills Customer presence not necessary during Customer participation and interaction (High production process contact - Low contact) Services cannot be stored as inventory Physical goods can be stored or shelved (wasted) Goods production is not necessarily near the Service facility needs to be in close proximity customer to the customer  BUSINESS STRATEGIES THAT WIN CUSTOMERS FOR FOUR COMPANIES Companies select their operations processes based on their business strategy. Strategy for Company Attracting What the Company Does to Implement Its Customers Strategy Toyota Quality Cars perform reliably, have an appealing fit and finish, and consistently meet or exceed customer expectations at a competitive price Save-A-Lot Low cost Foods and everyday items offered at savings up to 40 percent less than conventional food chains 3M Flexibility Innovation, with more than 55,000 products in a constantly changing line of convenience items for home and office FedEx Dependability Every delivery is fast and on time, as promised  OPERATIONS PLANNING Operations Managers start by planning on how to transform resources into products effectively and efficiently. 1. Capacity Planning determining the amount of a product that a company can produce under normal conditions 2. Location Planning determining where production will happen based on costs and flexibility 3. Layout Planning planning for the layout of machinery, equipment, and supplies. 4. Quality Planning ensure that products are produced to meet the firm’s standards of quality 5. Methods Planning methods implemented to reduce waste inefficiency, and poor performance.  LEAN PRODUCTION SYSTEM Production system designed for smooth production flows that avoid inefficiencies, eliminate unnecessary inventories, and continuously improve production processes. Managers must take timing into consideration when managing materials, as well. Pioneered by Toyota, lean production systems are designed for smooth production flows that avoid inefficiencies, eliminate unnecessary inventories, and continuously improve production processes.  SUPPLY CHAIN MANAGEMENT The term supply chain refers to the group of companies and stream of activities that work together to create a product. A supply chain (or value chain) for any product is the flow of information, materials, and services that starts with raw- materials suppliers and continues adding value through other stages in the network of firms until the product reaches the end customer. Supply chain management (SCM) looks at the chain as a whole to improve the overall flow through a system composed of companies working together. Because customers ultimately get better value, supply chain management gains competitive advantage for each of the chain’s members. CHAPTER 8 FORMS OF EMPLOYEE BEHAVIOR Employee Behavior The pattern of actions by the members of an organization that directly or indirectly influences the organization’s effectiveness. Performance behavior - The total set of work-related behaviors that the organization expects employees to display. Organizational citizenship - The behavior of individuals who make a positive overall contribution to the organization beyond performance requirements of the job. Counterproductive behavior - Employee behavior that goes against the legitimate interests of an organization. For Example: Absenteeism, Turnover, Resignations, Violence, Harassment, Poor Quality of work, theft or misuse of property, etc.  BASIC MOTIVATION CONCEPTS AND THEORIES Motivation - The set of forces that cause people to behave in certain ways. 1. Classical Theory of Motivation - Theory holding that workers are motivated solely by money. 2. Hawthorne Effect - A tendency for productivity to increase when workers believe they are receiving special attention from management. 3. Theories X - Theory of motivation holding that people are naturally lazy and uncooperative. 4. Theories Y - Theory of motivation holding that people are naturally energetic, growth-oriented, self-motivated, and interested in being productive. 4. Hierarchy of Needs - According to Maslow, needs are hierarchical because lower-level needs must be met before a person will try to satisfy higher-level needs. Once a set of needs is satisfied, it ceases to motivate behavior.  TECHNIQUES FOR ENHANCING MOTIVATION Positive Reinforcement Providing a reward when people exhibit desired behaviors. Punishment Presenting people with unpleasant consequences if they exhibit undesirable behavior. Social Learning People observe behavior of others, recognize their consequences, and alter their own behavior. Participative Management and Empowerment Method of increasing job satisfaction by giving employees a voice in the management of their jobs and the company. CHAPTER 9 EARLY APPROACHES TO LEADERSHIP Behavioral Approach 1. Task-Focused Leader Behavior Leader behavior focusing on how tasks should be performed in order to meet certain goals and to achieve certain performance standards 2. Employee-Focused Leader Behavior Leader behavior focusing on satisfaction, motivation, and well-being of employees  LEADERSHIP 1. Transformational Leadership The set of abilities that allows a leader to recognize the need for change, to create a vision to guide that change, and to execute the change effectively. 2. Transactional Leadership It involves routine, regimented activities, basic management transactions such as assigning work, evaluating performance and making decisions. 3. Charismatic leadership Type of influence based on the leader’s personal charisma, a form of interpersonal attraction that inspires support and acceptance.  LEADERSHIP Cross-Cultural Leadership Effects of an individual’s native culture on his or her approach to leadership when functioning in another culture. Strategic Leadership Leader’s ability to understand the complexities of both the organization and its environment and to lead change in the organization to enhance its competitiveness. Ethical Leadership Leader behaviors that reflect high ethical standards by: 1. Maintaining high ethical standards for their own conduct. 2. Holding others in the organization to the same standards. Virtual leadership Leadership in settings where leaders and employees work remotely in locations far from one another.  DECISION-MAKING CONDITIONS State of Certainty When the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative State of Risk The availability of each alternative and its potential payoffs and costs are all associated with probability estimates. State of Uncertainty When the decision maker does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative  BEHAVIORAL ASPECTS OF DECISION MAKING Risk Propensity The extent to which a decision maker is willing to gamble when making a decision. High Risk-taking Managers (Risk Tolerance) make quicker decisions Use less information to make decisions Operate in smaller and more entrepreneurial organizations Low Risk-taking Managers (Risk Averse) Are slower to make decisions Require more information before making decisions Exist in large organizations with stable environments CHAPTER 10 HR PLANNING Job Analysis A systematic analysis of jobs within an organization. A job analysis results in two things: 1. Job Description – lists the duties and responsibilities of a job; its working conditions; and the tools, materials, equipment, and information used to perform it. 2. Job Specification – lists the skills, abilities, and other credentials and qualifications needed to perform the job effectively.  STAFFING THE ORGANIZATION Recruitment The process of attracting qualified candidates to apply for jobs that are open. 1. Internal Recruiting means considering present employees as candidates for openings. Recommendation or EIS 2. External Recruiting means attracting persons outside the organization to apply for jobs. Online job sites or company website  INCENTIVE PROGRAMS Incentive Programs for Individuals 1. Bonus: Individual performance incentive in the form of a special payment made over and above the employee’s salary 2. Merit Salary System: Individual incentive linking compensation (pay raises) to performance levels in non-sales jobs. 3. Pay For Performance (Variable Pay): Individual incentive that rewards middle managers for especially productive output CHAPTER 11 MARKETING Utility - The ability of a product to satisfy a human want or need. Consumer Behavior Study of the decision process by which people buy and consume products. Data Warehousing The collection, storage, and retrieval of customer data in electronic files. Data Mining The application of electronic technologies for searching, sifting and reorganizing pools of data to uncover useful information.  COMPETITIVE ENVIRONMENT Brand Competition The rivalry between companies offering similar line of products or services in the same target market and to the same target audience with the goal to have the higher market share, increased revenues, huge profits, and growth as compared to the contemporary brand at the marketplace. International Competition Competitive marketing of domestic products against foreign products  COMPONENTS OF THE MARKETING PLAN MARKETING STRATEGY All the marketing programs and activities that a business will use to achieve its marketing goals. Marketing strategy includes four basic components often called the 4 Ps: Product Pricing Place Promotion  PROMOTION Advertising Personal Selling Any form of paid, non-personal Person-to person sales communication used by an identified sponsor to persuade or inform potential buyers about a product. Sales Promotion Direct inducements such as premiums, coupons, and Public Relations package inserts to tempt consumers to buy products Communication efforts directed at building goodwill and favorable attitudes in the minds of the public toward the organization and its products. CHAPTER 14 BUSINESS COMMUNICATION TECHNOLOGIES USING THE INTERNET Intranet Extranet An organization’s private network A system that allows outsiders of internally linked websites limited access to a firm’s internal accessible only to employees. information network  INTERNET TECHNOLOGIES FOR BUSINESS COMMUNICATION Electronic Conferencing Internet Technology that allows groups of people to communicate simultaneously from various locations via e- mail, phone, or video e.g. Video Conferencing through Zoom VSAT (very small aperture terminal)Satellite Communications Network of geographically dispersed transmitter-receivers (transceivers) that send signals to and receive signals from a satellite, exchanging voice, video, and data transmissions  IT RISKS AND THREATS Hackers Cybercriminals who gain unauthorized access to a computer or network, either to steal information, money, or to tamper with data, install malware, or disrupt services. Identity Theft Unauthorized use of personal information (such as social security number and address) to get loans, credit cards, or other monetary benefits by impersonating the victim. phishing, pharming  IT PROTECTION MEASURES Firewalls are security systems with special software or hardware devices designed to keep computers safe from hackers. A firewall is located where two networks—for example, the Internet and a company’s internal network—meet. Combating viruses, worms, Trojan horses, and any other infectious software (collectively known as malware) has become a major industry for systems designers and software developers. Installation of any of hundreds of anti-virus software products protects systems by searching incoming e-mail and data files for “signatures” of known viruses and virus-like characteristics. Contaminated files are discarded or placed in quarantine for safekeeping. CHAPTER 15 ACCOUNTING Comprehensive system for collecting, analyzing, and communicating financial information. Process of tracking and recording financial activity. WHO USES ACCOUNTING INFORMATION? Business managers use it to develop goals and plans, set budgets, and evaluate future prospects. Employees and unions use it to plan for and receive compensation benefits. Investors and creditors use it to estimate returns to stockholders, determine growth prospects, and decide whether a firm is a good credit risk. Tax authorities use it to plan for tax inflows, determine the tax liabilities of individuals and businesses, and ensure that correct amounts are paid on time. Government regulatory agencies rely on it to fulfill their duties toward the public.  FINANCIAL VERSUS MANAGERIAL ACCOUNTING Financial Accounting Managerial (Management) Accounting Field of accounting concerned with Field of accounting that serves external users of a company’s internal users of a company’s financial information. financial information. External Users – consumers, Internal Users – Managers, stockholders, suppliers, creditors, engineers, purchasing agents, sales government agencies. agents Focus on activities of a company as a Focus on departmental decisions, whole. costs to make operations decisions, negotiate with suppliers, sales data. CPA firms provide three kinds of services: 1. Audit Systematic examination of a company’s accounting system to determine whether its financial reports reliably represent its operations. 2. Tax Services Assistance provided by CPA’s for tax preparation, tax planning and provide advice in case of change in tax laws. 3. Management Advisory Services Assistance or consultancy provided by CPA firms in areas such as financial planning, information systems design, corporate mergers planning, AIS design, etc.  FINANCIAL STATEMENTS Financial Statements Reports summarizing a company’s financial status to stakeholders and aid in managerial decision-making. Balance Sheet (Statement of Financial Position) Financial statement that supplies detailed information about a firm’s assets, liabilities, and owners’ equity. Income Statement (Profit-and-Loss Statement) Financial statement listing a firm’s annual revenues and expenses so that a bottom line shows annual profit or loss. Statement of Cash Flows Financial statement describing a firm’s yearly cash receipts and cash payments. It shows the effects on cash of three aspects of a business: operations activities, investing activities, and financing activities. CHAPTER 16 WHAT IS MONEY? Money Object that is portable, divisible, durable, and stable, and that serves as a medium of exchange, a store of value, and a measure of worth. Portability- Light and easy to handle Divisibility- Divisible to smaller parts with fixed values Durability- neither dies nor spoils, replaceable if wears out Stability- stable and predictable, fluctuates sometimes  M-1: THE SPENDABLE MONEY SUPPLY M-1 - Measure of the money supply that includes only the most liquid or spendable form of money. Example: cash, checks, and checking accounts. Currency or Cash Government-issued paper money and metal coins. Check An order instructing a bank to pay a given sum to a specified payee Checking Accounts or Demand Deposits Bank account funds, owned by the depositor, that may be withdrawn at any time by check or cash.  M-2: M-1 PLUS THE CONVERTIBLE MONEY SUPPLY M-2 - Measure of the money supply that includes all the components of M-1 plus the forms of money that can be easily converted into spendable forms like short term investments. Time Deposits Bank funds that have a fixed term of time to maturity and cannot be withdrawn earlier or transferred by check. Money Market Mutual Fund Investment companies buy a collection of short-term, low-risk financial securities purchased with the pooled assets of investor- owners. Profits and losses are shared among the investors. Savings Accounts A savings account is an interest-bearing deposit account held at a bank or other financial institution.  FINANCIAL INSTITUTIONS 1. Commercial Banks Accept deposits to make loans, earn profits, pay interest and dividends. Example: SABB Bank, Arab National Bank, Alrajhi Bank 2. Savings Institutions They were established to promote the idea of savings in the general population. 3. Credit unions It is a non-profit, cooperative financial institution owned and run by its members, usually employees of a particular organization. It provides a safe place for its members to save and borrow money at a reasonable rate. Members pool their funds to make loans to one another. 4. Non-Deposit Institutions Financial institutions using inflowing funds for purposes other than earning interest.  FINANCIAL INSTITUTIONS 4. Non-deposit Institutions Financial institutions using inflowing funds for purposes other than earning interest. 4.1 Pension fund 4.2 Insurance companies 4.3 Finance companies 4.4 Securities Investment Dealers BEST OF LUCK!!