Free Essay

Business

In: Business and Management

Submitted By wencheng2400
Words 3212
Pages 13
The Five Traps of

Performance
Measurement
Jude Buffum

| by Andrew Likierman

96 Harvard Business Review

1524 Oct09 Likierman layout.indd 96

|

October 2009

|

hbr.org

9/4/09 12:38:55 PM

I

of Frasier, the television sitcom that follows the fortunes of a Seattle-based psychoanalyst, the eponymous hero’s brother gloomily summarizes a task ahead: “Difficult and boring – my favorite combination.” If this is your reaction to the challenge of improving the measurement of your organization’s performance, you are not alone. In my experience, most senior executives find it an onerous if not threatening task. Thus they leave it to people who may not be natural judges of performance but are fluent in the language of spreadsheets. The inevitable result is a mass of numbers and comparisons that provide little insight into a company’s performance and may even lead to decisions that hurt it. That’s a big problem in the current recession, because the margin for error is virtually nonexistent.
IN AN EPISODE

So how should executives take ownership of performance assessment? They need to find measures, qualitative as well as quantitative, that look past this year’s budget and previous results to determine how the company will fare against its competitors in the future. They need to move beyond a few simple, easy-to-game metrics and embrace an array of more sophisticated ones. And they need to keep people on their toes and make sure that today’s measures are not about yesterday’s business model.
In the following pages I present what I’ve found to be the five most common traps in measuring performance and illustrate how some organizations have managed to avoid them. My prescriptions aren’t exhaustive, but they’ll provide a good start.
In any event, they can help you steal a march on rivals who are caught in the same old traps.

hbr.org

1524 Oct09 Likierman layout.indd 97

|

October 2009

|

Harvard Business Review 97

9/4/09 12:39:06 PM

The Five Traps of Performance Measurement

trap

Measuring
Against Yourself

The papers for the next regular performance assessment are on your desk, their thicket of numbers awaiting you.
What are those numbers?
Most likely, comparisons of current results with a plan or a budget. If that’s the case, you’re at grave risk of falling into the first trap of performance measurement: looking only at your own company. You may be doing better than the plan, but are you beating the competition? And what if the estimates you’re seeing were manipulated? To measure how well you’re doing, you need information about the benchmarks that matter most – the ones outside the organization. They will help you define competitive priorities and connect executive compensation to relative rather than absolute performance – meaning you’ll reward senior executives for doing better than everyone else.
The trouble is that comparisons with your competitors can’t easily be made in real time – which is precisely why so many companies fall back on measurements against the previous year’s plans and budgets. You have to be creative about how you find the relevant data or some proxy for them.
One way is to ask your cusIN BRIEF tomers. Enterprise, the car-rental
» Most senior executives find company, uses the Enterprise performance measurement
Service Quality Index, which difficult if not threatening, and measures customers’ repeat purthey’re reluctant to engage with chase intentions. Each branch it in a meaningful way. As a result, of the company telephones a companies routinely fall into random sample of customers five traps. and asks whether they will use
» Specifically, they use themEnterprise again. When the index selves rather than competitors goes up, the company is gaining as benchmarks, focus on past market share; when it falls, cusindicators of success, overvalue tomers are taking their business numbers at the expense of qualielsewhere. The branches post retative measures, set easy-to-game metrics, and cling to systems that sults within two weeks, put them have outlived their usefulness. next to profitability numbers on monthly financial statements,
» This article addresses each of and factor them into criteria for the traps in turn, offering advice promotion (thus aligning sales about how to avoid them and examples of organizations that have goals and incentives). successfully done so.
Of course you have to make sure you don’t annoy your cus-

IDEA

98 Harvard Business Review

1524 Oct09 Likierman layout.indd 98

|

October 2009

|

tomers as you gather data. Think about how restaurant managers seek feedback about the quality of their service: Most often they interrupt diners’ conversations to ask if everything is OK; sometimes they deliver a questionnaire with the bill. Either approach can be irritating. Danny Meyer, the founder of New York’s Union Square Hospitality Group, gets the information unobtrusively, through simple observation. If people dining together in one of his restaurants are looking at one another, the service is probably working. If they’re all looking around the room, they may be wowed by the architecture, but it’s far more likely that the service is slow.
Another way to get data is to go to professionals outside your company. When Marc Effron, the vice president of talent management for Avon Products, was trying to determine whether his company was doing a good job of finding and developing managers, he came up with the idea of creating a network of talent management professionals. Started in 2007, the New Talent Management Network has more than 1,200 members, for whom it conducts original research and provides a library of resources and best practices.

trap

Looking Backward

Along with budget figures, your performance assessment package almost certainly includes comparisons between this year and last. If so, watch out for the second trap, which is to focus on the past. Beating last year’s numbers is not the point; a performance measurement system needs to tell you whether the decisions you’re making now are going to help you in the coming months.
Look for measures that lead rather than lag the profits in your business. The U.S. health insurer Humana, recognizing that its most expensive patients are the really sick ones (a few years back the company found that the sickest 10% accounted for 80% of its costs), offers customers incentives for early screening. If it can get more customers into early or even preemptive treatment than other companies can, it will outperform rivals in the future.
The quality of managerial decision making is another leading indicator of success. Boards must assess top executives’ wisdom and willingness to listen. Qualitative, subjective judgments based on independent directors’ own experience with an ex-

hbr.org

9/4/09 12:39:13 PM

ecutive are usually more revealing than a formal analysis of the executive’s track record (an unreliable predictor of success, especially for a CEO) or his or her division’s financial performance. (See
“Evaluating the CEO,” by Stephen P. Kaufman, HBR
October 2008.)
It may sound trite, but how the company presents itself in official communications often signals the management style of top executives. In August
2006 the Economist reported that Arijit Chatterjee and Donald Hambrick, of Pennsylvania State University, had devised a narcissism index on which to rate 105 company bosses, based on the prominence of the CEO’s photo in the annual report, his or her prominence in press releases, the frequency of the first person singular in interviews with the
CEO, and his or her compensation relative to that of the firm’s second-highestpaid executive.
Finally, you need to look not only at what you and others are doing but also at what you aren’t doing. The managers of one European investment bank told me that they measure performance by the outcomes of deals they’ve turned down as well as by the outcomes of deals they’ve won. If the ones they’ve rejected turn out to be lemons, those rejections count as successes. This kind of analysis seems obvious once stated, but I’ve noticed a persistent bias in all of us to focus on what we do over what we don’t do. Good management is about making choices, so a decision not to do something should be analyzed as closely as a decision to do something. ers to include personal data, and in many cases the employees who provided the service watch them fill out the forms. How surprised should you be if your employees hand in consistently favorable forms that they themselves collected? Bad assessments have a tendency to mysteriously disappear.
Numbers-driven companies also gravitate toward the most popular measures. If they’re looking to compare themselves with other companies, they feel they should use whatever measures others use.
The question of what measure is the right one gets lost. Take Frederick Reichheld’s widely used Net

At one investment bank, if the deals that managers have rejected turn out to be lemons, those rejections count as successes.

trap

Putting Your Faith in Numbers

Good or bad, the metrics in your performance assessment package all come as numbers. The problem is that numbersdriven managers often end up producing reams of low-quality data. Think about how companies collect feedback on service from their customers.
It’s well known to statisticians that if you want evaluation forms to tell the real story, the anonymity of the respondents must be protected. Yet out of a desire to gather as much information as possible at points of contact, companies routinely ask custom-

Promoter Score, which measures the likelihood that customers will recommend a product or service. The NPS is a useful indicator only if recommendations play the dominant role in a purchase decision; as its critics point out, customers’ propensity to switch in response to recommendations varies from industry to industry, so an NPS is probably more important to, say, a baby-food manufacturer than to an electricity supplier.
Similar issues arise about the much touted link between employee satisfaction and profitability.
The Employee-Customer-Profit Chain pioneered by
Sears suggests that more-satisfied employees produce more-satisfied customers, who in turn deliver higher profits. If that’s true, the path is clear: Keep your employees content and watch those profits soar. But employees may be satisfied mainly because they like their colleagues (think lawyers) or because they’re highly paid and deferred to (think investment bankers). Or they may actually enjoy what they do, but their customers value price above the quality of service (think budget airlines).
A particular bugbear of mine is the application of financial metrics to nonfinancial activities. Anxious to justify themselves rather than be outsourced, many service functions (such as IT, HR, and legal) try to devise a return on investment number to

hbr.org

1524 Oct09 Likierman layout.indd 99

|

October 2009

|

Harvard Business Review 99

9/4/09 12:39:20 PM

The Five Traps of Performance Measurement

help their cause. Indeed, ROI is often described as the holy grail of measurement – a revealing metaphor, with its implication of an almost certainly doomed search.
Suppose an HR manager undertakes to assign an ROI number to an executive training program.
Typically, he or she would ask program participants to identify a benefit, assign a dollar value to it, and estimate the probability that the benefit came from the program. So a benefit that is worth $70,000 and has a 50% probability of being linked to the program means a program benefit of $35,000. If the program cost $25,000, the net benefit is $10,000 – a
40% ROI.
Think about this for a minute. How on earth can the presumed causal link be justified? By a statement like “I learned a production algorithm at the program and then applied it”? Assessing any serious executive program requires a much more sophisticated and qualitative approach. First you have to specify ahead of time the needs of the program’s stakeholders – participants, line managers, and sponsors – and make sure that the syllabus meets your organizational and talent-management objectives. Once the program has ended, you have to look beyond immediate evaluations to at least six months after participants return to the workplace; their personal feedback should be incorporated in the next annual company performance review. At the soft drinks company Britvic, HR assesses its executive coaching program by tracking coachees for a year afterward, comparing their career trajectories with those of people who didn’t get coached.

trap

Gaming Your Metrics

In 2002 a leaked internal memo from associates at
Clifford Chance, one of the world’s largest law firms, contended that pressure to deliver billable hours had encouraged its lawyers to pad their numbers and created an incentive to allocate to senior associates work that could be done by less expensive junior associates.
Lawyers aren’t the only ones: A number of prominent companies have been caught trying to manipulate their numbers. Since 2004 Royal Dutch Shell has paid $470 million to settle lawsuits relating to its overstatement of reserves. Morgan Stanley was reportedly willing to lose €20 million on a securi-

100 Harvard Business Review

1524 Oct09 Likierman layout.indd 100

|

October 2009

|

ties trade for the Finnish government just before closing its books for 2004 in order to improve its position in the league table for global equity capital market rankings.
You can’t prevent people from gaming numbers, no matter how outstanding your organization. The moment you choose to manage by a metric, you invite your managers to manipulate it. Metrics are only proxies for performance. Someone who has learned how to optimize a metric without actually having to perform will often do just that. To create an effective performance measurement system, you have to work with that fact rather than resort to wishful thinking and denial.
It helps to diversify your metrics, because it’s a lot harder to game several of them at once. Clifford Chance replaced its single metric of billable hours with seven criteria on which to base bonuses: respect and mentoring, quality of work, excellence in client service, integrity, contribution to the community, commitment to diversity, and contribution to the firm as an institution. Metrics should have varying sources (colleagues, bosses, customers) and time frames. Mehrdad Baghai and coauthors described in “Performance Measures: Calibrating for
Growth” (Journal of Business Strategy, July–August
1999) how the Japanese telecommunications company SoftBank measured performance along three time horizons. Horizon 1 covered actions relevant to extending and defending core businesses, and metrics were based on current income and cash flow statements. Horizon 2 covered actions taken to build emerging businesses; metrics came from sales and marketing numbers. Horizon 3 covered creating opportunities for new businesses; success was measured through the attainment of preestablished milestones. Multiple levels like those make gaming far more complicated and far less likely to succeed. You can also vary the boundaries of your measurement, by defining responsibility more narrowly or by broadening it. To reduce delays in gate-closing time, Southwest Airlines, which had traditionally applied a metric only to gate agents, extended it to include the whole ground team – ticketing staff, gate staff, and loaders – so that everyone had an incentive to cooperate.
Finally, you should loosen the link between meeting budgets and performance; far too many bonuses are awarded on that basis. Managers may either pad their budgets to make meeting them easier or pare them down too far to impress their bosses. Both practices can destroy value. Some com-

hbr.org

9/4/09 12:39:27 PM

panies get around the problem by giving managers leeway. The office supplier Staples, for example, lets them exceed their budgets if they can demonstrate that doing so will lead to improved service for customers. When I was a CFO, I offered scope for budget revisions during the year, usually in months three and six. Another way of providing budget flexibility is to set ranges rather than specific numbers as targets.

trap

Sticking to Your
Numbers Too Long

As the saying goes, you manage what you measure. Unfortunately, performance assessment systems seldom evolve as fast as businesses do.
Smaller and growing companies are especially likely to fall into this trap. In the earliest stages, performance is all about survival, cash resources, and growth. Comparisons are to last week, last month, and last year. But as the business matures, the focus has to move to profit and the comparisons to competitors. It’s easy to spot the need for change after things have gone wrong, but how can you evaluate your measures before they fail you? The answer is to be very precise about what you want to assess, be explicit about what metrics are assessing it, and make sure that everyone is clear about both.
In looking for a measure of customer satisfaction, the British law firm Addleshaw Booth (now Addleshaw Goddard) discovered from a survey that its clients valued responsiveness most, followed by proactiveness and commercialmindedness. Most firms would interpret this finding to mean they needed to be as quick as possible.
Addleshaw Booth’s managers dug deeper into the data to understand more exactly what “responsiveness” meant. What they found was that they needed to differentiate between clients. “One size does not fit all,” an employee told me. “Being responsive for some clients means coming back to them in two hours; for others, it’s 10 minutes.”
The point is that if you specify the indicator precisely and loudly, everyone can more easily see when it’s not fit for the purpose. The credit-rating agencies have come under attack because they gave

AAA ratings to so many borrowers who turned out to be bad risks. The agencies have argued in their own defense that lenders misunderstood what the ratings meant. The AAA rating, they claim, was awarded on the basis of borrowers’ credit records, and it described the likelihood of default under normal market conditions; it did not factor in what might happen in the event of a massive shock to the financial system. Reasonable as this explanation may be, it is no consolation to those who thought they knew what the magic AAA represented.
•••

Why do organizations that excel in so many other ways fall into these traps? Because the people managing performance frameworks are generally not experts in performance measurement. Finance managers are proficient at tracking expenses, monitoring risks, and raising capital, but they seldom have a grasp of how operating realities connect with performance. They are precisely the people who strive to reduce judgments to a single ROI number. The people who understand performance are line managers – who, of course, are crippled by conflicts of interest.

The moment you choose to manage by a metric, you invite your managers to manipulate it.

A really good assessment system must bring finance and line managers into some kind of meaningful dialogue that allows the company to benefit from both the relative independence of the former and the expertise of the latter. This sounds straightforward enough, but as anyone who’s ever worked in a real business knows, actually doing it is a rather tall order. Then again, who says the CEO’s job is supposed to be easy?
Andrew Likierman (alikierman@london.edu) is

the dean of London Business School, a nonexecutive director of Barclays Bank, and the chairman of the
UK’s National Audit Office.
Reprint R0910L

To order, see page 143.

hbr.org

1524 Oct09 Likierman layout.indd 101

|

October 2009

|

Harvard Business Review 101

9/4/09 12:39:36 PM

Similar Documents

Premium Essay

Business to Business

...Social Networks and Media Conquer B2B Social Networks are a flourishing phenomenon in today’s generation. It has already entered and affected the B2C network. In B2C network the social networks have become a concerning factor and plays a major role in marketing and communications. As we are all familiar with the B2B network and what does it actually implies, the question arises whether the social networks can play an important role in B2B network and for B2B companies. Social networks are not another passing phenomenon; they have matured and have registered themselves highly in the minds of the customers. B2B network also gets conquered by the social networks the business houses that trade with each other are actually the customers of each other and they also engage themselves in social networking. Some useful statistics from the social networking world states that the total time spent on social media has increased from 6% in 2007 to 20% in 2011. The registered users will almost reach 2 billion people by 2014. These figures show relentless growth and usage of social media. Already 91% of the B2B companies are active on Facebook, 53% on Twitter and 47% on LinkedIn. These statistics reveal that social media has conquered B2B network and has entered in that chain as means of effective communication and presentation. B2B companies deal with people and not robots. So the influence of emotions before purchasing a product is applicable to them also as they are not immune to these...

Words: 798 - Pages: 4

Premium Essay

Business

...Unit Title: The Business Environment Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18 Learning Outcome 1 The learner will: Understand the significance of the environment on business activity. Assessment Criteria The learner can: 1.1 Explain the features of business activity. Indicative Content 1.1.1 Explain the business organisation as a transformation process. 1.1.2 Describe the different ways in which a business may structure its activities. 1.2 Discuss the complex interactions that operate between a business and its environment. 1.2.1 Discuss the complexity, volatility and uniqueness of an organisation's environment. 1.2.2 Explain the influence of shareholders on the internal environment of an organisation. 1.2.3 Outline the nature of the external environment (PEST). 1.3 Explain the need for change and its management within an individual business. 1.3.1 Discuss the need to monitor changes in the external environment. 1.3.2 Discuss the implications of environmental change for a business, its stakeholders and society. 1.3.3 Explain reasons for resistance to change by firms, managers and employees. 1.3.4 Describe ways in which resistance to change may be overcome. Learning Outcome 2 The learner will: Understand the structure and organisation of business. Assessment Criteria The learner can: 2.1 Discuss the impact of industrial and legal structure and size on organisational behaviour. Indicative Content 2.1.1 Classify businesses...

Words: 1138 - Pages: 5

Premium Essay

Business

...The Business Enterprise 1.) Discuss the common elements described in the theories/philosophies of Case, Kouzes, and Drucker including how their principles/strategies relate to the new definition of entrepreneurial leadership presented in Understanding Entrepreneurial Leadership in today’s Dynamic Markets. Case, Kouzes and Drucker each have good theories and philosophies on entrepreneurship and leadership. Each had different ways of stating what they thought made a good entrepreneur but for the most part focus on some of the same things and agreed that with the right balance of these characteristics then succeeding, as an entrepreneur would be possible. One of the common elements that each focused on was people. Interaction with people is important when it comes to entrepreneurship and leadership skills according to Case, Kouzes, and Drucker. Each inferred that if a person does not have people skills, then the person would not succeed as an entrepreneur or a leader. People skills would be the ability to motivate others and interact. A leader cannot lead without being able to interact with people. Starting a business requires interaction with people on some level. Another common element that they all thought were important was not being afraid to take risk. Taking a risk in order to monopolize an industry to succeed is important. The definition of entrepreneurial leadership is one of an enterprising, transformational leader who operates in a dynamic...

Words: 1383 - Pages: 6

Premium Essay

Business

...Business communication can take many forms, written and verbal. It can be between managers and employees within a company, or between a company and its customers, partners or suppliers. The purpose of business communication also varies, but it should always benefit your business. When carried out effectively, business communication can build your company's reputation, resolve and prevent conflicts, and contribute to strong relationships between your company, its customers and the business community. Build Customer Relationships Few businesses would grow or even survive without the benefits gained through marketing communications. You can take advantage of the wide variety of media available to let the public know about your products or services. Use business communications to establish your company as an authority or thought leader in your industry. Offer a white paper or online articles that discuss common problems business owners face and present your company's solution. A weekly or monthly newsletter to your prospects or established customers will help build trust by providing helpful tips and information. Occasionally sending out a direct mail or email survey will help you get to know your customers and better fill their needs. Freely sharing your expertise and gathering feedback from your customers will help you build a strong relationship with your customer base, and establish your company as a trusted expert in your industry. Motivate Team Good communication...

Words: 763 - Pages: 4

Premium Essay

Business

...ecutive Summary The New Australian Company is a new red wine brand that will be introduced in Singapore. The brand is a unique and high quality red wine brand that meets the growing preference of consumers. It will be distributed to several hotels, restaurants, supermarkets, and wine boutiques/shops that are located in the commercial business districts of the city-state. The brand is managed and owned by a group of wine-lover businessmen who have tremendous experienced in business administration, marketing and sales management and customer service. The owners are now looking for additional investments in order to capitalize the project well. The company has already made several negotiations with successful business distributors in Singapore. The company is confident to compete with many large distributors because it is closely working with top-notch suppliers and manufacturers who are known as wine experts or cellar masters. The target market is the Generation Y or the millennial because it is 77 percent of the population. This group also consumes wines at a faster and higher rate. The sales forecasts for the New Australian Company begin with $700,000 for the first year, and this will increase to 50 percent ($1, 050,000) in the second year, and 60 percent ($1,680,000) in the third year of operation. The company will be expecting a profit margin of 30-40 percent, and at least 25 percent return of investment in the first operational year. The company wants to change...

Words: 1216 - Pages: 5

Premium Essay

Business

...Module-16 The role of business in The economy: M arkets and coMMerce TEACHER’S GUIDE P. 487 P. 491 P. 492 P. 492 P. 493 P. 496 P. 497 P. 501 Defined Content standards Materials Procedure Lesson outline Closure Assessment Overheads VISUAlS N Visuals for overhead projector. Copy to transparent paper for overhead. P. 502 NVisual-1: Market defined P. 503 NVisual-2: Business defined lESSonS 2 Copy and handout to students. P. 506 P. 513 P. 518 P. 522 2Lesson-I: I, Pencil 2Lesson-II: Specializing in production 2Lesson-III: Wal-Mart 2Lesson assessment the role of business in the econoMy Markets and coMMerce Module-16 Teacher DEFInED A market is a social arrangement that allows buyers and sellers to discover information and complete voluntary exchanges of goods and services. commerce consists of trading something of economic value such as a good, service, information, or money between two entities. business is the management and coordination of people and resources to accomplish particular production goals, usually for the purpose of making profit. business, commerce, and markets create many benefits for consumers, and as a result of business, commerce, and markets in the economy, consumers experience an increased standard of living. businesses obtain resources such as labor and equipment, and businesses specialize in the production of particular goods and services. As a result of business in the economy, the variety...

Words: 9175 - Pages: 37

Premium Essay

Business

...cover cover next page > Cover Business, Management and Finance Small Business; Entrepreneurship title author publisher isbn10 | asin print isbn13 ebook isbn13 language subject publication date lcc ddc subject : : : : : : : Entrepreneurship and Small Business Burns, Paul. 0333914732 9780333914731 9781403917102 : : : : cover next page > file:///Z|/_==%CF%CE%C8%D1%CA==/Entrepreneurship%.../0333914732__gigle.ws/0333914732/files/cover.html [06.10.2009 1:01:58] page_i < previous page page_i next page > page_i next page > Page i Entrepreneurship and Small Business < previous page file:///Z|/_==%CF%CE%C8%D1%CA==/Entrepreneurship%...0333914732__gigle.ws/0333914732/files/page_i.html [06.10.2009 1:02:00] page_ii < previous page page_ii next page > page_ii next page > Page ii < previous page file:///Z|/_==%CF%CE%C8%D1%CA==/Entrepreneurship%2...0333914732__gigle.ws/0333914732/files/page_ii.html [06.10.2009 1:02:00] page_iii < previous page page_iii next page > page_iii next page > Page iii Entrepreneurship and Small Business Paul Burns < previous page file:///Z|/_==%CF%CE%C8%D1%CA==/Entrepreneurship%2...333914732__gigle.ws/0333914732/files/page_iii.html [06.10.2009 1:02:00] page_iv < previous page page_iv next page > Page iv © Paul Burns 2001 All rights reserved. No reproduction, copy or transmission of this publication may be...

Words: 182024 - Pages: 729

Premium Essay

Business

...CHANGING CLOTHES. CHANGING CONVENTIONAL WISDOM. CHANGING THE WORLD. Fast Retailing has the conviction and vision to face the challenge of creating a better world. PARIS Valerie Dassier, Head of E-Commerce and Customer Care, Comptoire des Cottonniers and Princess Tam Tam To become a leader, it’s not enough to do it a little bit better. Great leaders see a different reality. LONDON Kate Pierre, Store Manager, Uniqlo UK We are going to be the number one casual clothes company in the world. And we will look to our managers in the company to take on bigger roles in their local countries and abroad. MOSCOW Aleksandr Kurchatov, Store Manager, Uniqlo Your attitude and your smile go a long way. My philosophy is to give people the chance to smile and they will open up. NEW YORK Jennifer Parker, VP Store Management, Theory, NY More than any other retailer, FR empowers people to be the CEOs of their own four walls. They put the onus on the store manager to change themselves and make it the most important role. SAN FRANCISCO Daisuke Tsukakoshi, Director West Coast, Uniqlo USA In the U.S., the home of casual clothing, competition is fierce. We’ll need people who are willing to play major roles in opening up this effort. SHANGHAI Joanne Lam, Merchandising Director, Uniqlo, Hong Kong and Mainland China I always admired Coco Channel as a kid. She turned around the whole fashion industry of her time. I want to work in a big company that is prepared to make that...

Words: 6333 - Pages: 26

Premium Essay

Business

...- BTEC FIRST DIPLOMA BUSINESS - Unit 16: Business Enterprise Assignment [pic] [pic] • The due date for the whole assignment is Friday 25th May 2012 • You will have time allocated to complete the MERIT and DISTINCTION criteria only when the PASS criteria is completed • You will be able to gather evidence for Level 2 Key Skills in Communication, Application of Number and Information Technology from completing the assignment You will also be able to gather evidence for Key Skills Level 2 Improving Own Learning and Performance (LP2.1, Lp2.2 and LP2.3) as you plan, review and complete the assignment ASSIGNMENT TASKS The scenario You and some friends have always been interested in working for yourself rather than being an employee. You now feel it is the right time to start up a new business and so you begin to consider the idea and investigate the possibilities further with your friends. There are many ideas you have but before you can start the business you have decided to investigate what things you need to know about starting up a business. You and your friends are considering asking your bank manager to provide you with the finance for starting up the business and so it is important that you know exactly what is involved. You and your friends will have to present your business idea to the bank manager so it is important that you know what you have to do…! ______________________________________________________________ ...

Words: 905 - Pages: 4

Free Essay

Business

...to this issue. The latest issue can be found on the Edexcel website: www.edexcel.com References to third-party material made in this specification are made in good faith. Edexcel does not endorse, approve or accept responsibility for the content of materials, which may be subject to change, or any opinions expressed therein. (Material may include textbooks, journals, magazines and other publications and websites.) Authorised by Roger Beard Prepared by Susan Hoxley Publications Code BH029073 All the material in this publication is copyright © Edexcel Limited 2011 Edexcel BTEC Level 4 HNC Diploma in Business Edexcel BTEC Level 5 HND Diploma in Business Edexcel BTEC Level 5 HND Diploma in Business (Accounting) Edexcel BTEC Level 5 HND Diploma in Business (Management) Edexcel BTEC Level 5 HND Diploma in Business (Marketing) Edexcel BTEC Level 5 HND Diploma in Business (Human...

Words: 15079 - Pages: 61

Premium Essay

Business

...A business undertaking is an organisation which is engaged in some industrial or commercial activity. It represents an institutional arrangement for carrying on any kind of business activity. It may be owned and controlled by a single individual or by a group of individuals who have entered into a formal or informal agreement to jointly conduct the business. Every business undertaking is a separate and distinct business unit. It has its own identity and separate ownership. It can be distinguished from other undertakings on the basis of its ownership, management and control. According to Wheeler, a business undertaking is a concern, company or enterprise which buys and sells, is owned by one person or a group of persons and is managed under a specific set of operating policies". Thus, a business undertaking may be defined as an organisation operating under separate ownership, management and control and carrying on any business activity with independent risk- bearing. All business undertakings are directly or indirectly engaged in the transfer or exchange of goods and services for value. They deal in goods and services on a regular basis. Their main motive is to earn profits and they are exposed to various types of risks. Characteristics of a Business Undertaking The basic features of a business undertaking are as follows: 1. Separate identity: Every business undertaking has a separate identity. It has a distinct name and separate existence. Its assets and liabilities are...

Words: 1147 - Pages: 5

Premium Essay

Business

...Gerri Bednarcyk Ch 1 Assign - Business Now: Change is the Only Constant Respond to these questions in a Word document. You do not have to include the question, but make sure to number the response.  You need to use complete sentences and correct grammar.  Once you have answered all the questions, save it as Chapter 1 – [your name] and upload it as an attachment. Watch the lecture video:  Make sure you have read Chapter 1 and have posted in the discussion forum. 1. What factors contribute to the rapid pace of change in business? Is the pace likely to accelerate or decrease over the next decade? Why? The factors that contribute to the rapid pace of change in business are Human Resources, Capital, Natural Resources, Entrepreneurship, and Technology. The factors are more than likely to increase because all factors listed are increasing at a fast pace. I feel that factors are increasing because they are definitely in high demand at this time in our economy. 2. Explain the term "business".  A business is any organization or activity that provides goods and services in an effort to earn a profit. Businesses are leading in capitalist economies, where most of them are privately owned and ran to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit or state-owned 3. Explain the role of business in the economy. The economies of the country depends upon the employment provided by big and small businesses and produces the goods and provide...

Words: 908 - Pages: 4

Premium Essay

Business

...Recording Transactions Keeping business records accurate and up to date is important for the smooth running of a business. The business owner must record all of the money coming into the business from successful sales of the product and all of the money going out, such as expenses including money owed for storage, wages that are paid and money to purchase the stock. If a business fails to do this it may find itself not chasing payments, forgetting to pay bills or, even in trouble with HM Revenue and Customs. If the business does not record its transactions correctly, it cannot report its financial performance accurately and therefore tax payments may be wrong. By recording the sales made, the business owner is given a clear indication of what’s popular and so it becomes clear what products should have increased stock or altered price. In your case, it is very important that you monitor your sales as a new business will most likely not make any profit straight away, so it’s vital to record your transactions so you are able to at least breakeven until more customers become aware of your business and you can start to make a profit. Furthermore, since you have negotiated a one month credit with a supplier, it is important to record your transactions so you know that you can repay the supplier after the month has passed and avoid any consequences. It would be beneficial to you if you could keep your credit supply as then you will have money coming in from your customers to then...

Words: 274 - Pages: 2

Free Essay

Business

...The United States exists in a capitalistic economy meaning that private enterprise is based on fair competition, economic freedom, and private ownership therefore; business is the heartbeat of our economy. Everything from manufacturing, health care, sales, and agriculture involves business in some way. Businesses provide jobs and produce goods and services that we depend on every day (What Role Does Business Play in Our Economy..?). They pay state and federal taxes to the government on their services provided. The taxes paid by businesses and the people employed by them allow the government to function. Looking at businesses in this way you can clearly see that business is a pivotal part of the economy. Within our economy two types of business organizations exist: for-profit and nonprofit. A for-profit organization will produce goods or services in the hopes of making revenue off its products. Most organizations you think of today are probably a for-profit establishment. Organizations that are classified as not-for-profit or nonprofit often operate under the guise of the emotional appeal of compassion but can also become major economic engines. They are business like establishments but unlike a for-profit business, their primary goals do not include making monetary profits. For profit businesses operate to generate revenue under the idea to have more profit than loss at the end of the day. Unlike for- profit businesses, nonprofits are organizations that are classified...

Words: 1532 - Pages: 7

Premium Essay

Business

...offer the bases in preparing, presenting and displaying even in interpreting general-purpose financial statements. There are some important accounting concepts that support the readiness and preparation of any accounting arrangement or financial statements such as Going Concern Concept, Consistency Concept, Prudence Concept, and Accruals Concepts. For example, Going Concern Concept is a company or organizations will not be going to bankrupt unless there have a confirmation and evidence to the contrary and this is supported by accountants. Purpose of Accounting Conventions An accounting convention refer to regular and common practices which are all around followed in recording and exhibiting accounting data and information of the business entity. They are taken after like traditions, convention, and so forth in a general public. Accounting conventions are evolved through the normal and consistent practice throughout the years to encourage uniform recording in the books of accounts. Accounting conventions help in contrasting accounting information of various specialty units or of the same unit for various...

Words: 645 - Pages: 3