CBM 1 – SECOND EXAM

Forms of Business Ownership

- Sole Proprietorship – singular

- Partnership – two or more
 General – contributes money, AKA Capital Partner
 Limited – contributes talent, AKA Industrial Partner
 Capital-Industrial Partner – contributes both
- Corporation – enterprise, has most of the legal rights, rights to business, own/sell, borrow,
sue/sued

AREAS OF CONCERN SOLE PROPRIETORSHIP PARTNERSHIP CORPORATION

Liability of the owner Unlimited Limited/unlimited Limited

Ease of expansion Not easy Not easy Easy

Life of firm Owner Dependent Partner Dependent Independent

Decision making Quickly Made Slower Slowest

Taxation of income Once Once Twice

Ease of formation Easiest Easy Not easy

Other Forms of Business Ownership

- Cooperative – banded organization of individuals/small businesses, reap benefits of larger

organization
 Credit Union – accepts deposit, lends w/ reasonable interest
 Producers – procurement of raw-mat
 Marketing – assist marketing
 Consumer – provide quality goods/services
 Service – service, readily available

- Mutual Companies – considers its policyholders or customers as its owners

 Mutual savings bank
 Mutual insurance company
- Joint Stock Company – divided capital, owned by its shareholders, can buy and sell
shares freely
 - Joint Venture – partnership for a specific undertaking
- Business Trust – appointed trustee to manage business

Decision Making – defining problems, choosing alternatives

Decision Making Process

- Diagnose problem
- Analyze environment
- Develop alternatives
- Evaluate ^
- Choice making – select best alternative
- Implement decision
- Evaluate/adapt ^ result
- Feedback – checking each stage
- Control – actions to ensure activities match goals

Approaches in Decision Making

- Qualitative – intuition, subjective judgment

 Problem is simple, familiar, cheap, needs immediate decision
- Quantitative – rational, analytical, quantifiable
 Inventory Model – avoid huge cost
 Queuing Theory – minimize waiting time/service cost
 Network Model – task broken to smaller pieces
- Program Evaluation Review Technique (PERT) Times
 Optimistic - best
 Most Likely - normal
 Pessimistic - worse
- Critical Path Method (CPM)
 Critical Path – longest path, mustn’t delay
- Forecasting – prediction
- Regression Analysis – examines two or more variables
- Simulation – model that presents reality
- Linear Programming – produce solution w/ imposed bounds/constraints
- Sampling Theory – population samples
- Statistical Decision Theory – rational way to solve problems
 Planning - selecting best course of action

Plan – output of planning

Planning at Various Management Levels

- Strategic – Top, determining major goals, policies, strategies obtaining resources

- Intermediate – Middle, determining sub-unit contributions
- Operational – Lower, how task can be accomplished on time

Planning Process

- Set goals, precise and concrete results

- Develop strategies, course of action ensuring achievement of objectives
- Tactic – adjust to negative external influences
- Determine resources
- Set standards, quanti/qualitative measuring device

Types of Plans

- Functional Area – prepared to the needs of:

 Marketing Plan – marketing activity blueprint
 Production Plan – quantity of output
 Financial Plan – financial situation, needs, recommendation
 Human Resources Plan – HR needs
- Time Horizon
 Short Range – less than a year
 Long Range – more than
- Frequency of Use
 Standing Plans – intended to be used repeatedly
 Policies - guidelines
 Procedures – exact series of action to be taken
 Rules – requires/forbids action
 Single Use Plans – specific purpose
 Budget – set expenditure
 Program – coordinate large set activities
 Project – prepared to support program
Planning Barriers

- Manager’s inability to plan

- Improper planning process
- Lack of commitment to the planning process
- Improper information
- Focusing on the present at the expense of the future
- Too much reliance on the planning department
- Concentrating on controllable variables

Parts of the Various Functional Area Plan

- MARKETING PLAN
 Executive summary
 Table of contents
 Situational analysis and target market
 Marketing objectives and goals
 Marketing strategies
 Schedule and budgets
 Financial data and control
- PRODUCTION PLAN
 Production capacity
 Number of employees required
 Quantity of materials needed
- FINANCIAL PLAN
 Evaluation on current financial condition
 Sales forecast
 Cash budget
 Financial statements
 External financing plan
- HUMAN RESOURCES PLAN
 Personnel requirements
 Recruitment and selection plan
 Training plan
 Retirement plan
- STRATEGIC PLAN
 Corporate mission
 Objectives and goals
 Strategies