Business Management

Sample Paper 3
Questions and Suggested Solutions

NOTES TO USERS ABOUT SAMPLE PAPERS Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding the style and type of question, and their suggested solutions, in our examinations. They are not intended to provide an exhaustive list of all possible questions that may be asked and both students and teachers alike are reminded to consult our published syllabus (see www.AccountingTechniciansIreland.ie) for a comprehensive list of examinable topics. There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the only correct approach, particularly with discursive answers. Alternative answers will be marked on their own merits. This publication is copyright 2011 and may not be reproduced without permission of Accounting Technicians Ireland.

Accounting Technicians Ireland, 2011.

INSTRUCTIONS TO CANDIDATES

Answer FOUR questions in total. QUESTION 1 IN SECTION A IS COMPULSORY AND MUST BE ANSWERED. Answer ANY THREE questions in Section B. If more than the requisite number of questions are answered, then only the requisite number, in the order filed, will be corrected. Candidates should allocate their time carefully and should note that 1 mark equates to 1.65 minutes. Answers should be illustrated with examples, where appropriate. Question 1 begins on page 2 overleaf.

SECTION A (COMPULSORY QUESTION)

QUESTION 1 (COMPULSORY) (a) You are a member of the management team of a medium sized organisation. Your Managing Director has expressed concern about the nature of the IS threats (intentional and unintentional) facing medium sized organisations. Draft a short paper for the next meeting of the Board on the nature of these threats. 10 Marks (b) Explain how Cost Benefit Analysis may be used to assess the economic feasibility of IS projects. 10 Marks (c) Distinguish between B2C, B2B, B2E and C2C modes of eCommerce. 5 Marks Total 25 Marks

SECTION B (ANSWER ANY THREE QUESTIONS IN THIS SECTION) QUESTION 2 (a) You work in the marketing department of a large motor distributor based in Dublin. The company is a subsidiary of a large international motor corporation and distributes a range of motor vehicles (non-commercial) through a dealer network of garages spread across the country. Your organisation has responsibility for marketing the brand nationwide. At a recent meeting you attended it was suggested that As our products are high involvement goods, understanding buyer behaviour analysis is pivotal to our success

You have been requested to draft a short response in relation to the above suggestion addressing the following issues. (i) Describe the five stages consumers typically go through when purchasing high involvement products. 10 Marks (ii) Illustrate how the five stages might apply in the scenario presented, that is, the purchasing of new motor vehicles. 10 Marks (b) Outline the benefits of branding to consumers and sellers, drawing on examples from your own experience. 5 Marks Total 25 Marks

QUESTION 3

(a)

Describe Adams equity theory of motivation. 10 Marks

(b)

Comment on its relevance in todays business environment, making reference to organisations with which you are familiar. 10 Marks

(c)

Training is an important element of human resource management Explain how you would evaluate training in an organisation. 5 Marks Total 25 Marks

QUESTION 4 (a) Describe the Trait theory of Leadership and comment on its merits and limitations as a theory of leadership. 10 Marks (b) Identify two strengths and two weaknesses of an employee performance appraisal system with which you are familiar. Outline how the process could be improved. 10 Marks (c) Describe two common sources of employee resistance to change 5 Marks Total 25 Marks

QUESTION 5 (a) You work in the Hotel sector in Ireland. At a recent marketing seminar you attended it was suggested that Greater attention should be given to making full use of the extended marketing mix for services by mangers of medium sized hotels in Ireland. Your manager who accompanied you to the meeting suggested that you draft a short response in relation to the above suggestion addressing the following issues. (i) Explain what is meant by the extended marketing mix for services. 10 Marks (ii) Discuss its relevance to the activities of medium sized hotels. 10 Marks (b) Distinguish between primary and secondary market research. 5 Marks Total 25 Marks QUESTION 6 (a) Describe the scientific management theory of Fredrick Taylor and comment on its contribution to management as well as its limitations

10Marks

(b)

You are a member of the management team of a large firm of solicitors. At a recent meeting it was suggested that the firm should consider adopting a matrix form of organisational structure. Set out your views on the merits and limitations of this proposal.

Distinguish between expert and referent power.

10Marks
5 Marks Total 25 Marks

(c)

QUESTION 7 (a) You are an employee in a large multi-storey pub in Dublin that sells both food and drink. The manager focuses on the keeping services up to speed but has little interest in the financial side of the business. A colleague of his in the same line of business in Cork suggested he should be making greater use of ratio analysis as a mechanism for monitoring the financial side of the business Draft a short report to the manager of this large pub in Dublin outlining how he could make greater use of ratio analysis as a financial control mechanism. 10 Marks (b) Discuss the merits of debentures and factoring as sources of finance. 10 Marks (c) Distinguish between fixed and variable budgets and revenue and capital budgets. 5 Marks Total 25 Marks

Suggested Solutions
Section A
Question 1 Part A To: Managing Director

From: Joe Smith Re: IS Threats

Date: xx/xx/xxxx

I refer to our recent discussion on the above and now detail below a short note on the nature of the threats to Information Systems facing medium sized organizations. One of the most important topics related to IT operations is how much security is necessary for protecting the site and how much actually exists. Perfect security is unattainable at any price; however different types and levels of security are appropriate for different types of organisation. A number of steps can be taken within a single site, ranging from limiting physical access to sensitive areas and installing complex, encrypted codes to deny entry to data to unauthorised personnel etc. Other procedures one would expect are back up procedures, disaster recovery plans, effective virus protection and password procedures. Computer security can be considered under two general headings 1) securing the physical assets (i.e. the machines and associated hardware) and 2) securing the data. Generally data is considered the most valuable asset, as it is the most difficult to replace and has the most potential value to competitors and fraudsters.

Anything that causes a loss of data or a corruption of data can be considered a security threat. There are two broad categories (i) intentional (where some one deliberately tries to harm your system or take your data) and (ii) unintentional (e.g. accidents) Intentional Threats There are many ways in which computer systems can be attacked, especially when extensive use is made of eCommerce. Some of the more common threats include Hacking Viruses Worm Trojan Spyware Phishing Denial of service Trap door

Unintentional Threats There are many threats that may occur to a system without any deliberate act. These include User error

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Spillages Natural disasters Power cuts Fire

Every medium sized organization is exposed to IS threats. The magnitude of the threats vary depending on the range, use and spread of the organisations IT activities. These threats are real and appropriate steps need to be put in place to minimize the companys exposure. I would be delighted to discuss the matter further with you. Part B The economic dimension is an important element of the feasibility study of an IT project. It entails assessing the costs and benefits of the project. That is, all costs and benefits, tangible and intangible. Cost benefit analysis (CBA) is normally the technique that is deployed. Tangible costs include: hardware and software, wages and salaries, consultancy fees, and on going maintenance costs. Tangible benefits include improved efficiency, reduction in errors and reduction in costs. Intangible costs cannot be measured accurately and may not even occur. Some examples may include loss of employee morale, disruption to the organization.

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All benefits must also be included, including intangible benefits. These may include gaining a competitive advantage, improved employee morale and faster decision making. Costs tend to arise immediately whereas these intangible benefits usually take time to accrue. Part C B2C Business to Consumer This is where a business offers products / services via some electronic means (usually online). For example, most airlines operate a B2C model by allowing passengers to book flights online. Other common examples of B2C are online banking facilities, and electronic storefronts. (sometimes called e-tailing, for electronic retailing). B2B Business to Business This is where two businesses engage in transactions using electronic means. In a sell-side model, transactions are conducted on the sellers website. A simple example of B2B e-commerce would be a supermarket placing orders with their wholesale supplier. The stages involved in a B2B transaction will generally be the same as B2C, however it is likely that there would be the addition of a negotiation stage, which is less common in B2C. B2E Business to Employee This is where businesses offer employees certain services / information electronically. Examples might include a HR system that allows employees to apply for holidays or reserve spaces on training courses. Some companies may offer their products for sale with employee discounts, and even offer other products / services, such as travel offers etc.

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C2C Consumer to Consumer This is where individual consumers buy and sell to each other. Web-sites that offer online auctions, such as e-Bay, are good examples of C2C e-commerce websites.

Section B
Question 2
Part A (i) Every business must have an understanding of the end consumer of their products. Each consumer goes through a decision-making process in terms of recognising a need, searching for information, evaluating alternative products, deciding on a purchase, and evaluating their purchase after the event. The firm has some influence through its marketing mix on various stages of this decision making process, but this influence is far outweighed by outside influences relating to the personality of the consumer and the way in which they purchase goods. The following psychological, socio-cultural and situational influences are all factors in the decision-making process Psychological motivation. Socio-cultural influences, such as reference groups, family, social class, culture. Situational influences, such as type of purchase, social surrounding, physical surrounding and previous experience influences, such as perception, attitude, learning and

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Stages The consumer decision making process identifies five stages through which consumers move when making decisions. 1. Problem / Need Recognition This stage emerges within a consumer senses a gap between his/ her actual and desired state. It may be stimulated by internal or external factors or events. 2. Search Behaviour / Search for Information This refers to the actions taken to identify and obtain information to solve a common problem. It will be influenced by internal memories or experiences and relevant external information on the matter (e.g. commercial sources, personal networks etc.) 3. Evaluation of alternatives During this phase people compare options and choose between brands on the basis of price, location, reliability and other features. 4. The Consumer Choice Process / Purchase Having chosen a brand the consumer then makes other decisions on issues such as quantity, timing, payment method etc. 5. Post Purchase Evaluation Consumer satisfaction is the overall attitude consumers have towards a good or service after they have acquired and used it. Outcomes may be grouped as follows: it will have met their expectations and they will be satisfied.

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it will have exceeded their expectations and they will be delighted. it falls short of their expectations and they will be dissatisfied.

Part A (ii) Students would be expected to indicate how the decision making process relates to the purchase of new motor vehicles. Each of the stages should be explored and related to the context. (e.g. How problem and need recognition emerges, what search behaviour is likely to be undertaken, what features are likely to come into play in the evaluation, what criteria will influence choice and what sort of post evaluation activity is likely to be undertaken). Part B A brand is defined as a name, symbol or design that identifies the goods or services of one seller and distinguishes them from those of competitors. Think of the strength and importance to the firm of brand names such as Ballygowan, Heinz, Coke-Cola, Guinness and Microsoft. It can be a letter, a word, a group of words or a symbol. (e.g. Nike). A product manager co-ordinates all the efforts for a particular product (or product line) or brand. An important part of the brand image of a product is the packaging that is utilised. Branding Makes goods easily identifiable and gives them a distinctive appearance. If the quality of goods is maintained, it gives the consumer reassurance that they know what they are buying. It facilitates advertising and promotion and new product development.

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A brand is also known as an identity indicator. It should ideally evoke positive associations, be easy to pronounce and remember, suggest product benefits, be distinctive and not infringe on existing brand names. Benefits to the consumer typically include easier product identification, reduction of risk, simplified evaluation processes and the reinforcement of perceived features, benefits and positioning. Benefits to the organization include an increase in loyalty, scope for premium / differential pricing, protection from competition and the enhancement of targeting and market positioning.

Question 3

Equity theory Equity theory says that people will be motivated at work, where they perceive that they are being treated fairly. In particular, equity theory stresses the importance of perceptions. So, regardless of the actual level of rewards people receive. They must also perceive that, relative to others, they are being treated fairly. The basic components of equity theory are inputs, outcomes, and referents. Inputs are the contributions the employees make to the organisation. According to the equity theory process, employees compare their outcomes, the rewards they receive from the organisation, to their inputs and their contributions to the organisation. This comparison of outcomes to inputs is called the outcome /input ratio. When people perceive that their outcome /input ratio is different from their referents ratio, they conclude that they have been treated inequitably or unfairly. People who perceive that they have been under-rewarded try to restore equity by decreasing or withholding their inputs. Another method of restoring equity is to

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rationalise or distort inputs or outcomes. Instead of decreasing inputs or increasing outcomes, employees may restore equity by making mental or emotional adjustments to their outcome / input ratios or to the outcome /input ratios of their referents. It is likely that these people would still be angry or frustrated with their position even though they have rationalised it. (e.g., I still have a job). Managers can use equity theory to motivate workers by looking for and correcting major inequities, reducing employees inputs, and emphasising procedural as well as distributive justice. Part B Motivation is a complex concept. There are a variety of factors which influence the meanings people give to a situation and which prompt them to act in particular ways. Similarly, there is no one universally accepted theory of motivation. Broadly speaking the theories, may be categorised into two groups, need and cognitive theories of motivation. Adams theory falls into the latter category. It takes an egalitarian perspective towards motivation. It argues that the system for measuring performance must be fair and robust. The outcome / input ratios must be seen to be fair and applied in an equitable manner, otherwise the system risks loosing credibility. It assumes people make conscious decisions about the equality of their treatment with regard to others in discharging their effort. It argues that it is the equality and robustness of the system which links effort to performance and rewards that is fundamental to motivation. The model certainly has intuitive and practical appeal and there is a body of evidence to suggest that relativity is vital to motivation.

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The model like most theoretical frameworks does not necessarily hold for all people in all situations. Peoples needs vary from individual to individual, from culture to culture and there is a temporal dimension to motivation in that different needs will assume varying degrees of importance at different stages of peoples lives. The nature of the task environment also influences the appropriateness of the framework. The tangibility of the outputs and the ability to design systems that achieve equality impacts its relevance. If a robust system cannot be developed management may take the view that the level of potential friction out weights the potential benefits. Overall, no one theory of motivation covers all of the complexities of reality, but in appropriate conditions and circumstances, equity theory has a significant part to play in the way motivation systems are designed and implemented in work environments. Part C There are a number of ways in which training may be evaluated in work environments, including methods that are training centered, reaction centered, learning centered, job focused, and organizationally centered. Training centred evaluation aims to assess the inputs to training i.e. whether we are using the correct methods of training Reaction centred evaluation, which is probably the most widely used approach, seeks to obtain and assess the reactions of trainees to the learning experiences they have been put through Learning centred evaluation seeks to measure the degree of learning that has been achieved. This is usually undertaken by testing trainees following their training, as in a driving test for example.

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Job related evaluation is aimed at assessing the degree of behaviour change, which has taken place on the job after returning from a period of training. It is a measure of learning, which has applied in the workplace.

Organisation changes can be brought about by training, and here the evaluation is linked to an organisation change programme. It attempts to assess the extent to which training has impacted the overall organisation.

Question 4
Part A Trait theory is one way to describe who leaders are. Trait theory suggests that effective leaders possess a similar set of traits or characteristics. Traits are relatively stable characteristics, such as abilities, psychological motives, or consistent patterns of behaviour. Trait theory is also known as the great person theory because early versions of the theory stated that leaders are born not made. For some time it was thought that trait theory was wrong and that there are no consistent trait differences between leaders and non leaders, or between effective and ineffective leaders. However, more recent evidence shows that successful leaders are not like other people, that successful leaders are indeed different from the rest of us. More specifically leaders are different from non leaders in the following traits; drive, the desire to lead, honesty / integrity, self-confidence, emotional stability, cognitive ability, and knowledge of the business. Traits alone arent enough for successful leadership, however, leaders who have these traits (or many of them) must also behave in ways that encourage people to achieve group or organizational goals. Two key leader behaviours are initiating structure, which improves subordinate performance, and consideration, which improves subordinate satisfaction. There is no best combination of these behaviors. The best leadership style depends on the situation.

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For example, Fiedler assumes that leaders will be more effective when their leadership styles are matched to the proper situation. More specifically, Fiedler defined situation favourableness as the degree to which a particular situation either permits or denies the leader the chance to influence the behaviour of group members. In highly favourable situations, leaders find that their actions influence followers, but in highly unfavourable situations leaders have little or no success influencing the people they are trying to lead. In general, the relationship-orientated leaders, are better leaders under moderately favourable conditions, while task-orientated leaders are better leaders in highly favourable and highly unfavourable situations. Traits alone are arent enough for successful leadership but people who have the appropriate traits must strive to ensure they use them productively in encouraging people to use them to achieve overall organizational goals.

Part B Appraisal is carried to assess the employees performance. It is a task requiring some degree of managerial judgement and this places considerable responsibility on the managers involved. It is important that appraisal be objective. To this end someone from outside the organisation who is qualified in the particular area would be ideal, though this may not always be possible. Performance appraisal should help identify employee strengths and weaknesses enable employees to improve their performance highlight training needs benefit the manpower planning process motivate employees encourage employees to think about their career paths

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Systematic approaches tend to commence with the completion of an appropriate appraisal form by the manager of the employee concerned. This will be followed by an appraisal interview in which the manager discusses progress with the member of staff involved, based on the contents of the appraisal form. Typically this will involve reviewing key work objectives, goals and overall performance drawing on examples of specific events (positive and negative) over the period in question. A discussion of the underlying causes and possible avenues for improvement are generally then discussed. The result is some form of agreed action, either by the staff member alone or jointly with his manager Some of the problems associated with appraisals can be avoided by accurately measuring job performance and effectively sharing performance feedback information with employees. One way to minimise rating errors is to use better appraisal measures, such as objective measures of performance or behavioural observation scales. Another is to increase the training to those involved. One approach to overcoming the inherent difficulties with sharing appraisal feedback information is to provide 360 degree feedback, in which feedback is obtained from four sources: the boss, subordinates, peers and coworkers, and the employees themselves. Limitations however include the amount of time and effort involved in collecting, processing and providing feedback on all the data. Also the validity of some this feedback may be open to question. Feedback tends to be more credible when it is heard from several sources. In all cases the system will have to be sensitive to the circumstances of each individual organisation.

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Part C Organisational conflict can take many forms; it may be active and overt, or passive and covert. It can occur at all levels for a wide range of reasons. It may relate to tasks, processes or relationships. It tends to be most pronounced when the organisation is undertaking changes in direction and / or the services it provides. There may be resistance to change from groups within the organisation or individuals. Individuals may feel their working habits are being disrupted or that they are not being adequately briefed, involved or compensated etc. Likewise sections of the organisation may feel their expertise or power is being undermined or their needs are being ignored and so on. Employees may resist change therefore for a number of reasons ranging from self-interest, fear, group pressure and / or inertia. The organisational universe is a highly politicised and moralised social space. It is and will always be, to a certain extent, a contested terrain,. It is highly unlikely that conflict will be eliminated; indeed it could be argued that a degree of constructive conflict is beneficial to the organisation. Change is also pervasive in business today. A well-managed change process can reduce anxiety and help in securing the commitment of those who are most likely to be affected. This is turn is likely to reduce tensions and the likelihood of conflict. Common to various change models is the recognition of the need for phased strategies to unlock the inertia of the status quo, usually involving research, feedback and adjustments; while monitoring the results of the change process. A well managed change process should include a strategic picture of its aims, a coherent set of phases, the maximum involvement of those most closely affected, an emphasis on securing the commitment of everyone involved and perhaps a change in the behaviour of employees and in the culture of the organisation.

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There are no universal remedies to the resolution of conflict in organisations. Each case is unique and context dependent. Whilst particular approaches may be more conducive to certain settings than others, thereby facilitating better management of issues, there are no guarantees or panaceas that such conflict can be eliminated.

Question 5
Part A Most organisations define their Consumer Benefits Package within the parameters of the 4Ps, price, product, place and promotion. The Services Revolution has added three more Ps namely, participants, physical evidence and process.

Participants This refers to the people who actually deliver the service at the point of customer contact. In essence, the other 6Ps only play a support role to participants in a service environment. Whether it be on a one-to-one basis, over the phone, or via the Internet, the professionalism, politeness and credibility of these participants is critical. Participants in general require training in personal selling, human interaction skills and customer problem resolution.

Physical Evidence This relates to how facilities are designed and managed. Take for example, a cinema, a supermarket or a fast food outlet. The design of the interior and the exterior of these establishments are critical in the eyes of the consumer, as is the appearance and hygiene of the employees, the parking facilities etc.

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Process This refers to the efficiency and effectiveness of the service process involved in delivering the product / service mix. Most successful service providers develop detailed standards of performance for the facility, the process, the equipment and the jobs that deliver the consumer benefits package.

Part A (ii) Hotels are service organisations. Many of their interactions with their consumers are intangible, perishable (or uninventoriable), heterogeneous, and consumed at the point of production. Services are intangible: They are difficult to describe, to demonstrate to the buying public, or to illustrate in communications and promotional material. An organisations reputation and that of its sales people are more essential to service marketing than to goods marketing. Many factors influence the experience of a stay in a hotel. Tangible factors such as the quality of the food and facilities have an impact. But many other intangible factors also come into play. (e.g. these range from the atmosphere created by the dcor and the small touches in the layout of the room to the nature of the welcome at reception).

Services are only of immediate or single use. Most services are purchased and consumed simultaneously. For example, the experience of a meal in a hotel room cannot be inventoried or held in stock. It is a once off experience. The impressions created cannot be inspected like the products at the end of an assembly line. Services provide heterogeneous output. There can be a great deal of variability in the output of a services organisation. This arises, as it is more difficult to establish standards for output and even harder to ensure standards are being met

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each time the service is being delivered. Employees reactions to customers may vary with their levels of tiredness and fatigue. Services require simultaneous production and consumption. The consumer, such as a tourist listening to a tour guide, interacts with and participates in the service delivery system. Students should provide their own examples of how the elements of the extended marketing mix apply in the case of services provided by medium sized hotels.

Part B Primary research is research that is carried out for the first time and is used specifically for the particular problem or issue under study. It normally involves direct fieldwork using qualitative data collection techniques or surveys. Secondary research is research that has been previously been gathered for purposes other than addressing the issue or problem currently under study. It involves drawing on secondary sources of data such as Government data, EU data, trade data, market research agencies, published press etc.

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Question 6 Part A Scientific Management was developed primarily in the USA at the start of the twentieth century. It emphasised the need for a scientific approach to determining management practices as the solution to improving productivity. Frederick Taylor has been called the father of scientific management. Taylor emphasised that a more scientific and systematic approach to management was required. He focused on the management of work and workgroups in order to improve productivity, and this involved the precise measurement of the time each task took. The core aspects of his philosophy can be summed up as follows;

The systematic collection of knowledge about the work process of managers, The reduction of workers discretion and control over what they do The laying down of standard procedures and times for carrying out each job

According to Taylor managers should follow four scientific management principles. First, study each element of work to determine the one best way to do it. Second, scientifically select, train, teach and develop workers to reach their full potential. Third, cooperate with employees to ensure implementation of the scientific principles. Fourth, divide the work and responsibility equally between managers and workers. Above all, Taylor felt these principles could be used to align managers and employees by determining a fair days work, what an average worker could produce at a reasonable pace, and a fair days pay, what managers should pay workers for that effort. Taylor felt that incentives were the best way to align management and employees. Scientific management has been criticised for treating workers as human machines, for not appreciating the social context of work and the personal needs of workers.

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One cannot however ignore the contributions it made to modern management thought. First, it identified the importance of selection and training. Second, it demonstrated the need for adequate monetary compensation of workers. Third, it focused attention on the need for a careful analysis of job content and to set down job procedures. This perspective may seem inhuman and simplistic, but only with the benefit of hindsight. It did represent a quantum leap for management understanding at the time. An understanding that still has relevance today in various managerial contexts.

Part B Managers use a number of ways to group people together to perform their work. The functional, divisional and matrix approaches are the more traditional approaches that rely on the chain of command to define departmental groupings and reporting relationships. In recent years, two contemporary approaches, team and network, have emerged to meet organisational needs in a highly competitive global environment.

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Functional Approach People are grouped together in departments by common skills and work activities, such as in an engineering department or an accounting department.

Managing Director / CEO

Marketing

Production

Human Resources

Accounting

There is a high degree of division of labour and specialisation in this approach, which can yield economies of scale. However it requires a high degree of coordination between the various departments, which may result in delays in adapting to changes in the business environment.

Divisional Approach Departments are grouped together into separate, self-contained divisions based on a common product, programme or geographic region. Managing Director / CEO

Product Range A

Product Range B

Marketing Production Finance

Marketing

Production

Finance

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The divisional approach has the advantage that reporting lines and chain of command are directly in line with the primary activities of the organisation. This structure enhances accountability and provides a clear framework for channelling strategic effort and focus in accordance with strategic aims. The main disadvantages are that divisions can become compartmentalised and pursue narrowly focused divisional goals at the expense of the well-being of the overall organisation. Divisions may also become disconnected and be unaware of what other sections of the business are doing.

The Matrix Approach Functional and divisional chains of command are implemented simultaneously and overlay one another in the same department. Two chains of command exist and two employees report to two bosses. Managing Director / CEO

Marketing Product A Product B This approach attempts to

Production

Personnel

Accounting

capture

the

best

of

both

worlds,

functional

specialisation and expertise and primary activity / product grouping focus. Naturally the approach looks well on paper but implementation in the real world may prove a little more problematic as individuals experience divided loyalties between individual bosses. It is mainly used in large manufacturing environments.

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In general it is incorrect to state that one approach fits all circumstances. Different organisations require different types of structures. The structure needs to fit in with a variety of contingent factors such as strategic goals the business environment size of the organisation stage in product life cycle manufacturing and service technologies departmental interdependence geographic distribution

For example, research has shown that firms operating in a dynamic environment need a flexible structure, while those in a more stable environment may adopt a more rigid structure. The size of the firm is a major issue. Firms of solicitors range from sole practitioners to firms with hundreds of employees. In this scenario we know it is a large firm. The structure will depend on the nature of the work of the firm (commercial clients or individuals), and the degree of control the partnership wishes to put in place. Most firms like to divide their clients amongst their partners. Each partner in effect becomes a profit centre and is accountable for the quality and return from the segments of the firm falling within his / her remit. He / she takes responsibility for the client calling on the relevant expertise from the various sectors of the firm as the need arises (e.g. banking, property etc). In this way there is one person with overall responsibility for the client but specialists are drawn in for the various cases as and when they are required.

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Part C Power is generally described as the capacity or ability of a person to influence another. Position power is based on a mangers rank in an organizational structure. Personal power is based on a persons individual characteristics. Position power may be subdivided into legitimate power, reward power and coercive power. Legitimate power, for example, originates from the managers position within the organization hierarchy. The power is inherent in the hierarchical position the manager occupies. Personal power is a characteristic of the individual that stays with the individual regardless of the position he/ she holds. Expert and referent forms of power fall within this category. Expert power derives from the expert knowledge or information that an individual / manager has amassed. It may arise at all levels of the organization. Referent power originates from the charisma or identification that a manger has developed. It is visible through the actions of those who admire the manager, for example, they may talk, and dress and act like the manager. Attempts to generate this type of power can fail if it is viewed as manipulative.

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Question 7 Part A To: Manager From: Joe Bloggs Re: Ratios as a monitoring mechanism Date: xx/xx/xxxx

A ratio is a convenient way of comparing one figure with another. In a business context ratio analysis entails more than just a translation (as for example, when one is translating what someone says from French into English). It typically means to to give meaning to or to explain certain events or situations. In most business situations it is used to to give meaning to - what happened over a period of time - to explain the financial performance and/or financial position of an entity. A large number of ratios may be calculated, but they are generally grouped in to three categories (i) Liquidity, (ii) Profitability and (ii) Activity The liquidity ratios tell us if the company will be able to meet it short term cash needs and obligations as they fall due. The profitability ratios show us the margins and return on capital the business is generating. The activity ratios show us how well the company is utilizing its assets. Large businesses like ours are complex organizations to run. We need to know if we are making money in our various departments.(e.g. Food, parties, special offers

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etc.). Ratio analysis helps us with planning and making decisions in relation to these events and activities. We need to be able to judge the merits of our service offerings. We need to be able to monitor and control our margins against expectations and to identify areas that are not performing as expected. The industry we operate in is competitive and uncertain, but this only increases the importance of ratios in monitoring our activities. Furthermore ratios are a vital element of financial control. We need to ensure no frauds or excessive waste is taking place. We should be able to monitor this by ensuring appropriate margins are being made on a weekly basis. Ratios could also be used as a motivational device as a means to reward good performance by those responsible for the various decisions on our service offerings. (e.g. the chef could be given a bonus if certain target gross margin levels are achieved on food sales etc.) From the foregoing I trust you will see that ratio analysis is a useful mechanism for monitoring the financial side of our business. If you have any queries, please do not hesitate to contact me.

Part B Debentures: A debenture is a written acknowledgement of indebtedness by a company. Interest is paid at a fixed rate, normally at half- yearly intervals. Debentures are not part of the share capital of a company and debenture holders are not members of the company. A debenture holder is a creditor of the company. His interest is a debt of the company, payable irrespective of whether there are profits or not. Debentures may be redeemable or irredeemable. Redeemable debentures maybe an appropriate source of finance where a companys needs are temporary.

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Redeemable debentures must be redeemed by a fixed date or within a given time period. Irredeemable debentures are repayable only in the event of some specified contingency, such as the winding-up of a company or default in the payment of interest. Debentures may be secured or unsecured. Most debentures are secured by a

charge on the assets of the company. This charge may be fixed or floating. In the case of a fixed charge, the security relates specifically to a particular asset or group of assets. The company is not permitted to dispose of the asset or assets without providing equivalent security, or without the prior approval of the debenture holders. The terms of the debenture and the rights and responsibilities of the parties involved are set out in the Debenture Trust Deed. Matters outlined in this deed must be complied with by the company. The Debenture Trust Deed will contain, amongst others, the following:(1) (2) (3) (4) restrictions on additional lending matters pertaining to the disposal of assets on which the loan is secured insurance relating to the property on which the loan is secured provisions relating to the retention of title deeds of properties on which the loan is secured

Factoring of debtors Debtors factoring is a policy adopted by some companies for acquiring cash on the strength of their debtors balances at a date earlier than credit terms would normally indicate. In conjunction with providing cash advances some factoring agencies offer sideline services such as accounting, book keeping and insurance against debt default. There are two main types of factoring

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Confidential invoice factoring Sales ledger factoring

Confidential Invoice Factoring Under this method of factoring, the buyer of goods is unaware of any third party being involved. The client forwards a copy of all sales invoices to be factored. The factorer in turn advances monies on the strength on these invoices. This form of factoring requires the company itself to collect the debts and forward the cash, when collected to the factorer.

Sales Ledger Factoring Under this method of factoring, the factorer becomes responsible for credit control and debt collection. If required, for an additional premium, the factorer will accept the risks involved pertaining to debt default. Part C Fixed and Flexible Budgets A fixed budget is based on a certain level of activity. As such, all costs are related to this level of activity and if the activity level changes, cost control can be problematic. A flexible budget, by comparison, shows different levels of activities and costs allowing the budget to be "flexed" to actual activity levels. Flexible budgets recognise the behavioural patterns of costs and are useful for planning and control purposes.

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Revenue and Capital Budgets Organisations prepare both revenue and capital budgets for specific periods. Revenue expenditure is expenditure upon items whose value is used up immediately or during the year.

Capital expenditure is expenditure incurred on the acquisition of some object of lasting value to the organisation, usually described as an asset. This asset will contribute value to the organisation over a period of years. Cash Budgets To ensure the continued financial survival of organisations, the activities must generate sufficient cash to cover all expenses. Cash budgeting and cash management are equally applicable to the not for profit sector and the private sector as managers must ensure the provision and delivery of services by having sufficient funds available for that purpose. Cash budgets can be weekly or monthly and the steps in preparation will include: estimating cash receipts for the period establishing cash payments to staff and suppliers negotiation of maximum overdraft facilities.

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