Stuvia 1423568 bsm1602 Exam Pack 2023

BSM1602 EXAM PACK 2023
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BSM1602
EXAM PACK

Chapter 1: Introduction to business management for the entrepreneur
Question 1
Effective supervision and motivation of employees within an enterprise, refers to as a

fundamental management task.
1) planning
2) leading
3) organising
4) control
Answer: The correct answer is 2

Refer: Tutorial letter 201/1/2017; Prescribed Textbook, pg. 4
Reasoning: Effective supervision and motivation of employees within an enterprise, refers toleading as a
Question 2
Which one of the following statements is NOT correct?
1) Public enterprises are created to make a profit.

2) Public enterprises are funded by provincial administrations.
3) Public enterprises are responsible for providing the basic requirements for efficient functioning
of the economy.
4) Public enterprises are funded by government and local authorities.

Reasoning: Public enterprises are funded and managed by government, provincial administrations or
local authorities, and they are not created to make a profit. Public enterprises are
responsible for providing the basic requirements for the efficient functioning of the economy
and meeting the needs of the society. Option 1
is therefore incorrect as public enterprises are not created to make a profit.
Chapter 2: The general management function
Question 3
The process of transferring responsibilities for a specific business function from an employee group to a non‐
employee group, is known as .
1) public relations
2) organising
3) outsourcing
4) globalization


Reasoning: Outsourcing is the process of transferring responsibilities for a specific business

function from an employee group to a non‐employee group.
Question 4
Which one of the following problem‐solving techniques would be the best to use if individuals want to act
independently, and the ideas of each individual are sought?
1) The Delphi technique

2) The nominal group technique
3) Brainstorming
4) Fishbone diagrams

Reasoning: When following the Nominal Group Technique to solve problems, the staff members
involved are only a group in name. All the members of the group act independently, and the
ideas of individuals are sought, not the ideas of the group as
a whole.
Chapter 3: The financial function
Question 5
The ratio that will measure how efficiently profits are being generated from the assets employed in the
enterprise, is known as the ratio.
1) return on assets
2) net profit margin
3) gross profit margin
4) return on equity

Reasoning: The return on assets ratio is a measure of an enterprise’s success in earning a return for all
providers of capital. This ratio also measures how efficiently profits are being generated
from the assets employed in the enterprise, with its own previous
performance or with enterprises in a similar industry.
Question 6
During which step, of the development of effective long‐term plans, would you identify ways to improve the
enterprises’ productivity and profitability?
1) Step 2
2) Step 3
3) Step 4
4) Step 5



Reasoning: To develop effective and long‐term plans, one should take the following steps:
determine your personal objectives and how they affect your willingness and ability
to pursue financial goals for your business; set goals and objectives for the
business;develop long‐range plans that enable you to attain your goals and
objectives; focus on the financial, human and physical requirements; study methods
of operation in
order to identify ways to improve the business’s productivity and profitability.
Chapter 4: The marketing function
Question 7
Which one of the following statements is correct?
1) A mission statement is an enterprise’s declaration of its reason for being.

2) A vision statement defines the fundamental unique purpose of the enterprise.
3) A mission statement only identifies the products, services and customers of an enterprise.
4) A vision statement gives direction to possible realistic business objectives.

Reasoning: An enterprise is defined by its mission statement. Only a clear definition of the mission
and purpose of an enterprise makes realistic business objectives possible. The mission
statement defines the fundamental unique purpose of the enterprise. A mission statement
does not only identify the products, services and customers.
Option 1 is therefore the only correct option.
Question 8
Which one of the following is NOT a criterion on which a market can be evaluated?
1) Size of the market

2) Level of completion
3) Market growth potential
4) Geographical location

Reasoning: The criteria used to evaluate market attractiveness are: size of the market, growth
potential of the market, how easy it is to reach customers, whether customers can afford
the product, how easy it is to enter the market and level of competition.
Geographical location is not one of the criteria used to evaluate market attractiveness.
Option 2 should however have read: level of competition. Due to this typing error, this
question was not marked and all students were awarded the
mark.
Chapter 5: Operations management
Question 9
The primary functions of operations management are:
a) Production planning and control

b) Product and service design

c) Demand and capacity planning
d) Operations system design
Choose the correct combination:
1) a, b, c
2) c, d
3) b, d
4) a, b, c, d

Reasoning: The primary functions of operations management are: product and service design, demand
and capacity planning, operations system design, production planning and
control, improvement, problem solving and maintenance.
Question 10
Match the term in Column A with the correct description on Column B:
Column A Column B
a) Process (i) The ideal series of transformational processes whereby each step increases
management the value of an item.
b) Capacity (ii) Reducing the number of products or service components and processes to
only those needed by the operations manager.
c) Operations (iii) Utilising human resource potential and creativity by investing in human
design capital.
d) Value (iv) Aiming for streamlining and simplicity by making it easy to provide goods and
chain services without error
(v) Organising resources into multiple chains of customers each focused on a
product or service.
1) a (ii), b (i), c d (v)

(iv),
2) a (i), b (iii), c (v), d (ii)
3) a (iv,) b (iii), c (v), d (i)
4) a (ii), b (v), c (iii), d (iv)

Reasoning: Process management entails aiming for streamlining and simplicity by making it easy to
provide goods and services without error. Capacity involves utilizing humanresource
potential and creativity by investing in human capital. Operations design entails organising
resources into multiple chains of customers each focused on a
product or service.
Chapter 6: The purchasing function
Question 11

In an enterprise that follows a decentralised purchasing function, purchasing is done by .
1) the purchasing manager

2) each business unit
3) personnel responsible for purchasing
4) the financial manager

Reasoning: In an enterprise that follows a decentralised purchasing function, purchasing isdone by
each business unit.
Question 12
To which one of the following control points used to gauge the efficiency of the purchasing activities, does the
statement below refer?
“Monitor diligent execution of requests to the purchasing function.”
1) Timeliness
2) Cost savings
3) Relationship with other functions in the business
4) Relationship performance with suppliers

Reasoning: Monitoring diligent execution of requests to the purchasing function refers to the
control point known as the relationship with other functions in the business.
Chapter 7: The human resources function
Question 13
How can a temporary shortage of staff in an enterprise be overcome?
a) Have existing employees work overtime.

b) Increase existing employees’ job duties.
c) Train existing employees.
d) Subcontracting and outsourcing.
1) a, b, c
2) a, c, d
3) b, d
4) a, b, c, d

Reasoning: A temporary shortage of staff can be overcome by having the existing employees work
overtime, training existing employees, subcontracting and outsourcing.
Increasing existing employees’ job duties is not one of the methods used to overcome a
shortage in staff.

Question 14
A discussion between an applicant and an employer, aimed at obtaining further information regarding
the applicant, is known as the .
1) selection interview
2) application interview
3) recruitment campaign
4) assessment campaign

Reasoning: A selection interview involves a discussion between the applicant and the employer,
which is aimed at obtaining further information on the applicant.
Question 15
Proficiency surveys form part of the component of human resource provision.
1) induction
2) recruitment
3) selection
4) employment

Reasoning: Internal recruitment methods include job posting, self‐selection, proficiency surveys
and references.
Chapter 8: Information management
Question 16
Interview findings can be classified as a/an in the human resource management

transformation process.
1) input
2) output
3) finding
4) functional process

Reasoning: The inputs in the transformation process of human resource management are: advertising of
vacancies, shortlisted candidates, interview findings and personal
information.
Question 17
The suggested time period for the retention of accounting records and registers are years.

1) five
2) ten
3) twelve
4) fifteen

Reasoning: The normal suggested time period for the retention of accounting records and
registers is fifteen years.
Question 18
Which one of the following information systems focuses on helping an enterprise manage its relationship with
suppliers, to optimise the planning, manufacturing, and delivery of a product?
1) Customer relationship management system

2) Executive support system
3) Supply chain management system
4) Decision support system

Reasoning: Supply chain management systems are outward‐facing and focuses on helping an
enterprise manage its relationship with suppliers, to optimise the planning,
manufacturing and delivery of a product.
Chapter 9: The public relations function
Question 19
Which step in the public relations process will answer the question of how it must be done, and how it must be
communicated?
1) Define the problem or opportunity

2) Planning and programming
3) Taking action an communicating
4) Evaluating the campaign

Reasoning: During the third step of the public relations process, taking action and communicating,
questions such as how it should be done and how it must be
communicated are answered.
Question 20
Happy employees with a high morale will project a positive image outside of the enterprise. Communication and
the relationship with employees are extremely important, and employees must therefore:
a) strive for customer satisfaction

b) know the enterprise’s objectives

c) know where the enterprise is going
d) form part of the decision‐making process
1) c, d
2) b, d
3) a, b, c
4) a, b, c, d

Reasoning: To ensure that staff members are happy with a high morale, one needs to communicate
with the employees. Employees must know where the enterprise is going, what the
enterprise’s objectives are, assist with decision‐making and strive
for customer satisfaction.
Assignment 02 – Semester 01 – 2017

CASE STUDY: COOL CATZ
In October 2015, South Africa experienced extremely hot conditions when a heat wave hit the major parts of
Gauteng, Limpopo and Mpumalanga. After months of consideration, thorough research to determine consumer
needs and careful planning, Chris Delphi decided to enter the lucrative market of air‐conditioning. He started his
own enterprise offering a small range of air‐conditioning units at prices affordable to both households and small
businesses. His product range includes: mounted units, portable units, and second‐hand units. In addition to
selling the units, he also does the installation, maintenance and repairs of any air‐conditioning units. The
mounted air‐conditioning units have a life span of approximately fifteen years, given that maintenance and
services are done at regular intervals. The portable air‐conditioning units have a life span of approximately eight
years.
Chris decided to register his new enterprise as a sole proprietorship under the name, Cool Catz. It was fairly
easy for him to start this type of enterprise as initial start‐up costs were low.
Chris also found the ideal office and storage space available to rent for R12 000 per month. The lease agreement
was granted for 12 months, and renewable each year after that. The office was close to his home, in
Johannesburg, and had more than enough storage space to keep inventory at optimum levels. He had a small
truck that he inherited from his father which would be perfect for deliveries and installations. Chris had personal
savings of R200 000 in his bank account. He used this money to cover the costs of: the first consignment of
mounted and portable units he had to import from China, the second hand units he purchased to fix from a local
shop, office furniture, computers, stationery and the first month’s rent and electricity. Chris soon realised that he
needed more capital to meet the recurring monthly obligations of the enterprise towards employees and trade
creditors and applied for an additional loan of R200 000 from the bank.
Chris soon realised that he would not be able to handle the workload on his own and decided to approach his
sister Candice, and ask her if she would like to come and work for Cool Catz. Candice was in dire need of
employment and immediately indicated that she would love to work in his new enterprise. Candice would have
to handle all the enquiries, general over‐the‐counter sales, administration, placing orders with the suppliers and
import arrangements for Cool Catz. Chris also

advertised the positions of technicians and a technical supervisor, on an online job portal. He appointed a team
of three technicians and one technical supervisor who would be responsible for the delivery, assembly and
installation of the mounted air‐conditioning units, as well as the repairs and maintenance of any other units.
Once inventory arrives at the office, Candice and the technicians have to unpack the products and Chris does
the final quality inspection, checking the orders against the invoices and handling any discrepancies. Chris is
also responsible for the financial function, purchasing function, overall supervision and management of Cool
Catz.
Cool Catz works on an order basis. Clients need to contact Candice and indicate what product/s they need, how
many they need and when they need it. Chris then works out a schedule for the technical team indicating where
they have to be and what they need to install. The technical team is then sent out to the clients to do final
assembly and installation. It takes the technical team one hour to fully assemble and install one mounted air‐
conditioning unit and approximately two hours to do a full service, maintenance and repairs. The maximum
number of installations
the team can handle on one day is five and two full services. After the installations have been done Chris
personally checks them to ensure that everything is in working condition and that clients are satisfied with the
finished product.
Chris is well aware of the fact that if Cool Catz wants to survive over the long term, he will need to extend the
target market to other suburbs. He also realises that competition in the market is on the increase. Although the
current demand for air‐conditioning units is on the increase with the extremely high weather conditions, Chris will
need to consider an additional product range to supply products during the upcoming winter months as well. This
means that Chris will have to launch a marketing campaign to make potential consumers in neighbouring
suburbs aware of Cool Catz’s current and new products and services.
Question 1
Why can Chris Delphi be classified as an entrepreneur?
a) He spotted an opportunity in the market.

b) He had the courage to take a risk to start Cool Catz.
c) He had a strong external locus of control.
d) He had a clear vision of what he wanted to do and showed creativity.Choose
the correct combination:
1) a, d
2) a, b, c
3) a, b, d
4) b, c, d

Reasoning: The characteristics of an entrepreneur are: spots opportunity in the market, organises
resources to create a new enterprise, has the vision, business skills and courage to take
risks, possesses the necessary leadership qualities to overcome problems, a strong internal
locus of control, self‐confidence, passion, determinationand management skills to plan and
control the entrepreneurial process. Chris can
therefore be classified as an entrepreneur because he spotted an opportunity in the

market, had the courage to take a risk to start Cool Catz, had a clear vision of what
he wanted and showed creativity.
Question 2
The consumer needs that Chris identified, is a variable that forms part of Cool Catz’s
environment.
1) macro
2) market
3) micro
4) social

Reasoning: The market environment of an enterprise comprises the following: competitors,
intermediaries, suppliers, purchasing power, needs and consumer behaviour. The consumer
needs that Chris identified, is therefore a variable that forms part of Cool
Catz’s market environment.
Question 3
Chris Delphi decided to start Cool Catz as a result of extremely hot conditions and the heat wave that hit Gauteng.
Such conditions are variables that form part of the environment which Cool Catz
has control over.
1) macro ; no
2) market ; no
3) micro ; full
4) market ; limited

Refer: Tutorial letter 201/1/2017; Prescribed Textbook, pp. 9‐11
Reasoning: The macro‐environment of an enterprise is classified according to six variables, which an
enterprise has no control over. These variables are: political environment, social
environment, physical environment, economic environment, technological environment and
the international environment. The physical environment includesessential resources
required by people and enterprises including water, land and natural resources and extreme
conditions such as heatwaves and cold fronts, which
Cool Catz has no control over.
Question 4
The supplier that Chris uses in China, from which he imports the air‐conditioning units, forms part of the
environment of Cool Catz.
1) micro
2) macro
3) market‐
4) technological


Reasoning: The market environment of an enterprise comprises the following: competitors,
intermediaries, suppliers, purchasing power, needs and consumer behaviour. The
supplier that Chris uses in China forms part of Cool Catz’s market environment.
Question 5
The daily activity of the installation and maintenance of air‐conditioning units at Cool Catz, takes place on the
level of management.
1) operational
2) functional
3) tactical
4) strategic

Reasoning: On the operational level of management within an enterprise, an entrepreneur is concerned
with all the activities regarding the daily tasks of the enterprise. The dailyactivity of the
installation and maintenance of the air‐conditioning units at Cool
Catz, takes place on the operational level of management.
Question 6
During which step of the planning process would Chris have formulated the business objectives of Cool Catz?
1) Step 1
2) Step 2
3) Step 3
4) Step 4

Reasoning: Planning takes place in the following steps: identify opportunities and threats, formulate
objectives, make assumptions and draw up plans of action accordingly, identify alternative
plans of action, analyse and consider alternative plans of action,choose a final plan, draw
up a budget and implement the plan. Chris would have formulated the business objectives
of Cool Catz during step 2 of the planning
process.
Question 7
Chris will be responsible for setting the plans and objectives for Cool Catz.
1) functional
2) operational
3) strategic

4) tactical

Reasoning: Chris, as the entrepreneur, forms part of Cool Catz’s top management team. Chris will
therefore be responsible for setting the strategic plans and objectives for Cool
Catz.
Question 8
When Chris allocates activities, duties and responsibilities to main divisions and subdivisions, he needs to
follow certain steps in a logical order. Which one of the following shows the correct order of the first four steps
that he should follow?
1) Identify and analyse activities; divide the unit’s activities into meaningful tasks, gather the required
information, assign authority and responsibility.
2) Gather the required information, identify and analyse the activities, divide the activities into meaningful
units, divide the unit’s activities into meaningful tasks.
3) Obtain what is necessary and make the rules known, gather the required information, assign authority
and responsibility, divide the unit’s activities into meaningful tasks.
4) Gather the required information, divide the unit’s activities into meaningful divisions, assign authority
and responsibility, identify and analyse the activities.

Reasoning: Allocating activities, duties and responsibilities to main divisions and subdivisions, is known
as organising. The first four steps in the organising process are: gather the required
information, identify and analyse the activities, divide the activities into
meaningful units and divide the unit’s activities into meaningful tasks.
Question 9
Which financial statement will Chris use if he has to get an idea of the assets that Cool Catz owns, as well as the
liabilities of the enterprise?
1) Pro‐forma statement of comprehensive income

2) Statement of comprehensive income
3) Statement of financial position
4) Cash budget

Reasoning: The statement of financial position provides a picture of the finances or capital of an
enterprise at a given point in time. This statement lists in detail the tangible assets as well
as the liabilities and owners’ equity of an enterprise. For Chris to gain a better idea of Cool
Catz’s assets and liabilities, he needs to consult the statement
of financial position.
Question 10

The office space that Chris is renting, is an example of Cool Catz’s .
1) current assets
2) current liabilities
3) non‐current assets
4) non‐current liabilities

Reasoning: According to the case study, Chris is renting office space at R12 000 per month with an
initial lease agreement of 12 months. Funds acquired for an enterprise through loans and
the purchase of property or leasing, are known as liabilities. The office space can be
regarded as a current liability, as it is money owed to a creditor that is
due within one year or twelve months.
Question 11
Which one of the following calculations will Candice use to measure the working capital of Cool Catz?
1) Working capital = Total assets – Total equity

2) Working capital = Current assets – Inventory
3) Working capital = Non‐current assets – Non‐current liabilities
4) Working capital = Total current assets – Total current liabilities

Reasoning: The formula used to calculate the working capital of an enterprise is: Working
capital = Total current assets – Total current liabilities.
Question 12
According to the case study, what was the cause for the additional capital need of R200 000 at CoolCatz?
1) Efficiency drives.
2) Low retained profits.
3) Local economic conditions.
4) The need for cash for business growth.

Reasoning: There are many factors that could create a need for additional capital in an enterprise.
According to the case study, Chris had to take out an additional loan of R200 000 to meet the
recurring monthly obligations of Cool Catz towards its employees and trade creditors. Chris
therefore took out an extra loan as he needed
the cash for business growth.
Question 13

The increase of competitors within the area of Cool Catz’s is an example of a/an in the
SWOT analysis of Cool Catz.
1) opportunity
2) weakness
3) strength
4) threat

Refer: Tutorial letter 201/1/2017; MO001, pg. 72; Prescribed Textbook, pg. 105
Reasoning: For an enterprise to be successful, it must be aware of the influences that variableshave on
the enterprise. An increase in the number of competitors can be seen as a
threat in the SWOT analysis of Cool Catz.
Question 14
Which of the following are ways in which Chris and Candice could do market segmentation?
a) The demographic division of consumers according to their level of education, occupation or income.
b) The division of the market according to the strengths, weaknesses, opportunities and threats in
the business environment.
c) The division of the total market into smaller segments with certain similarities or common
characteristics.
d) The geographic division of consumers according to their location, occupation and income.
1) a, b
2) a, c, d
3) b, d
4) a, b, c, d

Reasoning: Market segmentation is known as the identification of subsets of buyers within a market
who share similar needs and who have similar buying processes. Market segmentation
can be done in terms of the following:
 Geographic segmentation: the market is divided into geographic
regions/locations.
 Demographic segmentation: dividing the market according to criteria such asage,
gender, religion, race, income, family and lifestyle.
 Psychographic segmentation: examining how a person thinks, feels and
behaves.
 Behavioural/behaviouristic segmentation: based on behavioural measures such as
benefits sought, user status, usage rate and loyalty status.
Options a, c and d are correct.
Question 15

The specific market group at which Cool Catz will direct its products and services, is called a
market.
1) target
2) service
3) product
4) potential

Refer: Tutorial letter 201/1/2017; MO001, pg. 75; Prescribed Textbook, pg. 103
Reasoning: The target market of an enterprise consists of consumers with certain needs for products and
services who are willing to sacrifice something to satisfy those needs.
The target market is the people to whom products and services are sold.
Question 16
When Chris decided to gather information to identify the needs of the consumers, he conducted
.
1) a marketing observation
2) a marketing strategy
3) a SWOT analysis
4) market research

Reasoning: Market research is essential to the success of an enterprise. When gathering data and
more information to determine consumer needs, one would be engaged in
market research.
Question 17
The employees, capital, building and equipment, are examples of in the transformation
process of Cool Catz.
1) inputs
2) outputs
3) service means
4) production means

Reasoning: The employees, capital, building and equipment, are examples of inputs in the
transformation process of Cool Catz.
Question 18
It takes the technical team one hour to fully assemble and install one mounted air‐conditioning unit.This is an
example of the time as a primary‐lead time element in Cool Catz.

1) queue
2) waiting
3) processing
4) transportation

Reasoning: Processing time is known as the actual time needed to process the job. When it takes the
technical team one hour to fully assemble and install one mounted air‐
conditioning unit, it refers to the processing time as a primary‐lead time element.
Question 19
The maximum number of installations the technical team at Cool Catz can handle on one day is five. This refers
to Cool Catz’s .
1) capacity planning
2) master scheduling
3) aggregate planning
4) operations scheduling

Reasoning: Capacity refers to the limited means of a productive unit to manufacture a certain quantity
of products within a particular fixed period. The technical team can install a maximum
number of 5 units in a day at Cool Catz. This refers to Cool Catz’s
capacity planning.
Question 20
The mounted air‐conditioning units have a life span of approximately fifteen years, given that maintenance and
services are done at regular intervals. The portable air‐conditioning units have a life span of approximately
eight years. This refers to the of the products sold at Cool Catz.
1) performance
2) conformance
3) aesthetics
4) durability

Reasoning: The quality dimension of a product, known as durability, refers to the length of theuseful
life of the product (lifespan).
Question 21
According to the case study, how is the purchasing function organised in Cool Catz?
1) Centralised purchasing function

2) Distributed purchasing function

3) Decentralised purchasing function
4) Combination of centralised and decentralised purchasing function

Reasoning: According to the case study, Chris is responsible for the financial function, purchasing
function and overall supervision at Cool Catz. Because Chris is responsible for the
purchasing function on his own, Cool Catz follows a centralised purchasing function. The
centralised purchasing function is done at one place by the
purchasing manager.
Question 22
The totality of the features and characteristics of the air‐conditioning unit that bears the ability to satisfy the
stated needs of consumers is known as .
1) the need‐satisfying cycle

2) specialisation
3) specification
4) quality

Reasoning: Quality is known as the totality of features and characteristics of a product that bears
the ability to satisfy stated or implied needs.
Question 23
Which of the following are external factors that could influence the timing of purchases at Cool Catz?
a) Lead time for the imported units from China

b) Reliability of the supplier in China
c) Government regulations
d) Seasonality
1) a, b
2) a, c, d
3) b, d
4) a, b, c, d

Reasoning: External factors that could influence the timing of purchases are: market conditions,
government regulation, seasonality, lead time and reliability of suppliers.
Question 24

Workload, supplier performance, price and inventory holding are examples of that can
effectively be applied in the control of the purchasing function at Cool Catz.
1) business objectives
2) purchasing objectives
3) key performance indicators
4) alternative purchasing measures

Reasoning: The key performance indicators that can be effectively applied in the control of thepurchasing
function are: price, supplier performance, timeliness, cost savings, inventory holding,
relationship performance with suppliers, relationship with other
functions in the business and workload.
Chapter 7: The human resource function
Question 25
According to the case study, what type of recruitment did Chris use when he appointed Candice?
1) External recruitment
2) Internal recruitment
3) Proficiency survey
4) Self‐presentation

Reasoning: According to the case study, Chris approached his sister Candice and asked her if she
would like to join the company. He therefore approached his own family, whichis seen as
references, which forms part of the internal recruitment component of
the enterprise.
Question 26
According to the case study, what type of recruitment did Chris use when he appointed the technicians
and the technical supervisor?
3) Proficiency surveys

Reasoning: According to the case study, Chris advertised the positions of the technicians and technical
supervisor, on an online job portal. Online advertisements are seen as part
of the external recruitment component of the enterprise.
Question 27

Once the new technicians were appointed at Cool Catz, they had to be introduced to Cool Catz, its
procedures, environment, work situation, their colleagues and supervisors. This is known as
.
1) training
2) orientation
3) introduction
4) development

Reasoning: Orientation is the process whereby new employees are introduced to the enterprise, its
procedures, environment, work situation, co‐workers, subordinates
and superiors.
Question 28
Chris appointed Candice mainly to help with general administration duties. Apart from that, she handled all the
enquiries, general over‐the‐counter sales, placing orders with the suppliers and import arrangements for Cool
Catz. All these duties, responsibilities and the job status are included in Candice’s job .
1) specification
2) description
3) evaluation
4) analysis

Reasoning: The job description contains information on the job status, job title, job summary,
job duties and responsibilities.
Question 29
It is essential that the working conditions at Cool Catz are pleasant and safe, as unsafe and unpleasant
conditions may result in an employee being injured or becoming ill. Accidents caused by human error refer to
unsafe and accidents resulting from technical failure refer to unsafe
.
1) conditions ; practices
2) practices ; equipment
3) conditions ; acts
4) acts ; conditions

Reasoning: Accidents caused by human error refer to unsafe acts/practices, and accidents
resulting from technical failure refer to unsafe conditions.
Question 30

Chris had to consider certain factors to determine Candice’s salary before she started working at Cool Catz.
Which of the following are factors that he had to consider?
a) The supply and demand of labour

b) The interest rates on loans
c) Cool Catz’ ability to pay Candice
d) The prevailing minimum wage
1) a, b
2) a, b, c, d
3) a, c, d
4) b, c, d

Reasoning: The following are factors that will help to determine how much an employee should be paid:
the supply and demand of labour, the enterprises ability to pay and the
prevailing minimum wage.
Question 31
Chris and Candice would have to make sure that the filing is up to date and that information that no longer adds
any value to the enterprise is discarded. It is, however, important that they keep all guarantee documents of air‐
conditioning units for at least year/s.
1) one
2) five
3) seven
4) ten

Reasoning: The normal suggested time period for the retention of guarantee documents is five
years.
Question 32
Which of the following are examples of internal information Chris would need for the purchasing function?
a) Stock levels
b) Production costs
c) Production quantities
d) Rate of consumption
1) a, b

2) a, c, d
3) b, c, d
4) a, b, c, d

Reasoning: Functional managers within each department of an enterprise require different information
from both internal and external sources. Internal information requiredby the purchasing
manager are: stock levels, rate of consumption, production
quantities and machine utilisation.
Question 33
Which one of the following information systems will be best suited for Cool Catz, if Chris wants a system to
provide him with reports, access to Cool Catz’s current performance, as well as historical data?

3) Management information system

Reasoning: There are many types of information systems that serve different functions, to be used in
an enterprise. The management information system serves at management level, providing
an entrepreneur, like Chris, with reports and online access to the
enterprises current performance and historical records.
Question 34
The process of identifying, collecting, storing and transforming data and information into an intellectual
asset which is available to all staff members of Cool Catz, is known as .
1) data processing
2) information technology
3) knowledge management
4) organisational management

Reasoning: Knowledge management is known as the process of identifying, collecting, storing and
transforming data and information into an intellectual asset, which is available
to all staff members.
Question 35
The increase in competition close to Cool Catz resulted in a change in the market place. Chris therefore needs
to have knowledge, in order to know how to react in this situation where different
variables are involved.

1) tacit
2) explicit
3) cognitive
4) situational

Reasoning: There are two different types of knowledge that can be identified within an enterprise,
namely explicit knowledge and tacit knowledge. Tacit knowledge refers to experience on
how to react to a situation when many different variables are involved. Chris therefore
needs to have tacit knowledge in order to know how to
react to the increase in competition and a change in the market place.
Question 36
If consumers are satisfied with the service and products received at Cool Catz, they will tell other people
about it. To which factor of forming public opinion does this refer?
1) The type of relationship that interest groups have with Cool Catz
2) The reception and atmosphere at Cool Catz
3) Previous experience with Cool Catz
4) External interest groups of Cool Catz

Reasoning: There are various factors that affect and influence the formation of public opinion.When
consumers share their good experiences with others, it is known as word of
mouth. This refers to the previous experience with the enterprise.
Question 37
Which one of the following is NOT a function of public relations within Cool Catz?
1) Promoting goodwill.
2) Releasing information to the public.
3) Selling Cool Catz’s products and services.
4) Directly promoting Cool Catz’s products and services.

Refer: Tutorial letter 201/1/2017; MO001, pg. 165
Reasoning: The tasks of the public relations function are: promoting goodwill, releasing information to the
public, creating and reinforcing an image, directly promoting a
product, counteracting negative publicity, handling internal communication and promoting and
planning events..
Question 38
Choose the correct order of the steps that Chris has to follow in the public relations process of Cool Catz:

a) Defining the problem or opportunity

b) Taking action and communicating
c) Planning and programming
d) Evaluating the campaign
Choose the correct order:
1) a, c, b, d
2) b, a, c, d
3) a, b, c, d
4) b, d, a, c

Reasoning: The four steps in the public relations campaign are: defining the problem or opportunity,
planning and programming, taking action and communicating and
evaluating the campaign.
Question 39
There are five functional stages in the public relations campaign. If Cool Catz shows it cares for the homeless
by donating meals to the shelters in the community, the enterprise is active in the
stage.
1) legitimacy
2) distribution
3) participation
4) identification

Reasoning: During the legitimacy stage of the public relations campaign, an enterprise needs to
establish legitimacy. This can be done by donating meals to a shelter for example.
Question 40
Chris decided to include Candice in the decision‐making process of Cool Catz. This describes the
principle of towards the of Cool Catz.
1) social responsibility; employees

2) responsibility; environment
3) goodwill; employees
4) loyalty; community

Reasoning: Social responsibility implies that a business is motivated by more than just self‐ interest and it
is an activity that aims to promote the interest of the society at large.When including Candice
in the decision‐making process, Chris shows how social
responsibility could be exercised towards the employees of Cool Catz.

Chapter 1: Introduction to business management for entrepreneurs
Question 1
Which of the following represents the factors of production that an entrepreneur needs to start an enterprise?
1) Labour, knowledge, profit, natural resources and entrepreneurship.

2) Natural resources, labour, capital and intrapreneurship.
3) Entrepreneurship, capital, labour, natural resources and knowledge.
4) A need satisfying product/service, labour, capital, and entrepreneurship.

Refer: Study Guide, pg. 3
Reasoning: The entrepreneur starts the enterprise by using the four factors of production
(entrepreneurship, capital, labour and natural resources) to provide
products/services to satisfy consumers' needs.
Question 2
The self‐employed entrepreneur has to secure contracts through and on an

ongoing basis, as without this, failure could become a reality.
1) marketing ; accountability
2) marketing ; networking
3) planning ; communication
4) planning ; control

Refer: Prescribed Textbook, pg. 7
Reasoning: The self‐employed have to secure contracts through marketing and networking
on an ongoing basis, because without this work there will be no income andfailure will be
a reality.
Question 3
The functional management area that is responsible for transferring products and services to customers,
to satisfy their needs, is known as management.
1) general
2) operations
3) procurement
4) marketing

Reasoning: Operations management refers to the management process used in manufacturing
businesses, as well as in service businesses. Operations management can be

described as those management activities that take place so that products and
services can be provided to satisfy the needs of the consumer.
Question 4
The ability to draw and attract people to you, because you have a vision, and to communicate an
extraordinary focus of commitment, is known as the management of .
1) attention
2) meaning
3) trust
4) self

Reasoning: Management of attention
Leaders must have the ability to draw people to them, because they have a vision, a dream,
a set of intentions, an agenda and a frame of reference. They communicate an
extraordinary focus of commitment, which attracts people to them.
Question 5
The accounting equation, as the basic premise of accounting, can be determined with the following formula:
1) Assets = Total current assets + Liabilities

2) Assets = Total current assets ‐ Liabilities
3) Assets = Owner’s equity – Liabilities
4) Assets = Owner’s equity + Liabilities

Reasoning: Assets = Owner’s Equity + Liabilities
This formula is known as the accounting equation, and it is the basic premise of accounting.
If a business owes more money to creditors than it possesses in value ofassets owned, the
net worth, or owner’s equity, of the business will be a negative
number.
Question 6
Which of the following are the major factors that need to be considered when evaluating a credit applicant?
a) Applicant’s willingness to pay.

b) Potential profitability of the applicant’s account.
c) Applicant’s proof of residence.
d) Applicant’s ability to pay.

1) a, c, d
2) a, b, d
3) b, c
4) a, b, c, d

Reasoning: There are three major factors to consider in evaluating a credit applicant.
• The first is the applicant’s ability to pay, based upon income and other
financial obligations; for example, if the applicant has already taken out other
credits.
• The second is willingness to pay, which can be determined from the
applicant’s credit history.
• The third factor is the potential profitability of the account.
Question 7
The advantages of having competitors within the market are:
a) Competition can stimulate higher profitability.

b) Competition can reduce staff turnover figures.
c) Competition can help to keep excessive profits in check.
d) Competition encourages technological innovation.
1) a, c, d
2) a, b, d
3) b, c
4) a, b, c, d

Reasoning: Competition has its positive aspects. It can help to keep excessive profits in check; it
stimulates higher profitability; and it leads to better service and encourages
technological innovation.
Question 8
Which one of the following statements is true?
1) Product analysis describes how attractive the market for your product is.
2) Market segmentation is the identification of subsets of buyers who have similar needs and buying
processes.
3) Market research is done to identify the stakeholders who are willing to cooperate in making the
enterprise successful.
4) The market analysis briefly describes the marketing plan as well as the marketing strategies and tactics
of the enterprise.


Reasoning: Market segmentation can be defined as the identification of subsets of buyers
within a market who share similar needs and who have similar buying processes.
Question 9
An enterprise operating within a volatile market, with a high profit margin, usually has a
product variety, and follows a/an supply operations design.
1) low ; lean
2) low ; agile
3) high ; agile
4) high ; lean

Refer: Prescribed Textbook, Table 5.3
Reasoning:
Question 10
Manpower, materials, money, and machines form part of the in the transformation
process, when products are manufactured or services rendered.
1) transformation and outputs

2) outputs
3) inputs and outputs
4) inputs

Reasoning: Business capacity is the greatest workload, or input, that a business can handle
(transform into output). The ‘Ms’ are used to describe the limits of any operation, and
consist of the following: methods, machines, money, material and manpower
(including management).
Question 11
The process of making materials, methods, practices and techniques uniform, is known as .

1) specification
2) standardisation
3) quality
4) total quality management

Reasoning: Standardisation is an aid when describing quality. It is the process of making
materials, methods, practices and techniques uniform.
Question 12
Which inventory control system focusses on a specific item and replacing that item only when the inventory
level reaches an ordering point, and the same quantity is ordered every time?
1) The cyclical ordering system

2) The just‐in‐time system
3) The fixed‐order‐quantity system
4) The materials requirement planning system

Reasoning: The advantage of the fixed‐order‐quantity system is that it focuses on a specific item only
when the inventory level reaches the ordering point, and the same quantity is ordered
every time. This system, however, is unsuitable for items whose
consumption or lead times are unreliable.
Question 13
Self‐selections form part of the component of human resource provision.
1) planning
2) selection
3) internal recruitment
4) external recruitment

Reasoning: Internal recruitment methods include job posting, self‐selection, proficiency surveys and
references. Self‐selection involves advertising the position within the
business. Any employee who meets the requirements may apply.
Question 14
Job content, the aptitudes of the incumbent, and the behaviour required of an incumbent, are identified
and investigated .
1) at assessment centres
2) by doing background checks

3) during psychometric tests

4) during selection interviews

Reasoning: At assessment centres the job content is investigated and the aptitudes and
behaviour required of the incumbent are identified.
Question 15
Which one of the following acts aims to promote and achieve equality in the workplace?
1) Basic Conditions of Employment Act

2) Employment Equity Act
3) Labour Relations Act
4) Skills Development Act

Reasoning: Employment Equity: This Act aims to promote and achieve equality in the
workplace by encouraging equal opportunity for all workers.
Question 16
Middle‐level managers provide strategies and guidelines for managers.
1) operational ; strategic
2) functional ; top
3) operational ; lower‐level
4) functional ; first‐line

Reasoning: Middle‐level (functional) management formulate tactical plans and objectives.
They provide functional strategy and guidelines for first‐line managers.
Question 17
Devices that are used to capture information and commands are known as devices,
whereas devices that are used to hear or accept the results of information processing requests are known as
devices.
1) central processing ; storage

2) storage ; central processing
3) input ; output
4) output ; input


Reasoning: • Input devices are used to capture information and commands. Here we
distinguish between manual input devices and automated input devices.
Manual input devices are keyboards, mice and pointing devices, touch pads,
touch screens and game controllers. Automated input devices are image‐,
bar code‐ and biometric scanners, optical mark‐ and optical character
readers, digital still‐ and digital video cameras, webcams, microphones and
point‐of‐sale terminals.
• Output devices are used to see, hear or accept the results of the
information processing requests, such as monitors, printers, or
speakers.
Question 18
Which one of the following statements is true?
1) Knowledge management can boost revenues by getting products and services to the market faster.
2) Tacit knowledge is readily detailed in procedural manuals and databases.
3) Explicit knowledge, which resides in the head of employees, is more difficult to encapsulate.
4) Knowledge is unconditional and easy to move.

Refer: Prescribed Textbook, pp. 234‐236
Reasoning: Explicit knowledge refers to processes and procedures. Therefore option 3 isincorrect.
Tacit knowledge is experience on how to react to a situation when many different variables
are involved. It is more difficult to encapsulate this knowledge, which often resides in the
heads of employees. Therefore option 2 is incorrect.
Knowledge is hard to move, situated (enmeshed in a business’s culture) and
contextual (works only in certain situations). Therefore option 4 is incorrect. We can
say that knowledge management:
• fosters innovation by encouraging the free flow of ideas
• improves customer service by streamlining response time
• boosts revenues by getting products and services to market faster
• enhances employee retention rates by recognising the value of employees’
• knowledge and rewarding them for it
• streamlines operations and reduces costs by eliminating redundant or
• unnecessary processes
• preserves organisational memory by capturing and storing the lessons
learnt, and best practices of key employees.
Question 19
Which one of the following is NOT a factor that determines public opinion?
1) Previous experience
2) Perception
3) Reception and atmosphere
4) Communication


Reasoning: Public opinion is determined by:
• Type of relationship
• Previous experience
• Reception and atmosphere
• Communication
Question 20
Which one of the following is an example of how an enterprise can practice social responsibility?
1) An enterprise that grants financial study aid to the children of employees.

2) An enterprise that maximises its profit by introducing promotions.
3) An enterprise that pays corporate taxes.
4) An enterprise that gives employees performance bonuses.

Reasoning: The term ‘social responsibility’ implies that a business is motivated by more than just self‐
interest and it is an activity that aims to promote the interests of society at large. All
entrepreneurs have a social responsibility towards the people who contribute to their
success. It is useful to follow the principle that, by helping others, you help yourself. The
responsibility is not limited to the environment within which the business trades, but it also
includes employees of the business.
Employees
A good workforce is necessary to keep the business functioning. It is, therefore, paramount
that the employer creates the right supportive climate in the business tosatisfy employees’
needs and to ensure that they perform as well as possible. One way to achieve this is by
granting financial study aid to children of employees, or to employees themselves. This will,
in turn, contribute indirectly to an improvement in
work performance.

CASE STUDY: CREATIVE DESIGNS
Creative Designs is a company that specialises in custom wedding stationery in Pretoria. Creative Designs’
product range includes: wedding invitations, save‐the‐dates, wedding websites, wedding programmes and
logos. Everything that is designed by Creative Designs is completely custom made according to the clients’
needs and specifications, and is subject to copyright.
Amber Black established Creative Designs in June 2011 after being in the corporate world for over ten years.
Among others, she worked as the assistant design manager in the communications division of a large design
and media relations company.
Creative Designs employs the following people:
 Amber is the founder and CEO, head designer and responsible for the approval of the final
products.
 Two graphic designers, Vusi & Thandi, who specialise in graphic design, calligraphy and
marketing.

 One website designer, Sam, who specialises in Flash multimedia and web development.
 Kathy is the manager responsible for finances, purchasing and human resources.
 Katlego is the office administrator and receptionist.
 Rose is an intern who is employed on a temporary basis during university holidays.
Creative Designs operates from an industrial office space in Pretoria. Amber signed an initial six‐ month
renewable lease, and after one year decided to purchase the office space for R 700 000, using her personal
savings. Initially they did not require many machinery and equipment, but as the enterprise grew she soon
realised that they need better equipment, to improve their current technological infrastructure and to reduce the
cost of providing their products and services. For this reason, Creative Designs had to take out a loan of R 300
000, payable within five years. As a result, Amber and Kathy had to make sure that their long‐term financial plans
and forecasting are in place and updated at regular intervals.
As the owner and CEO, Amber is responsible for setting the objectives of Creative Designs and developing
schemes to achieve these objectives. She must also coordinate the activities by assigning authority and
responsibility to the correct people so that the objectives of the enterprise can be achieved. Amber has a clear
vision and is determined to be listed as one of the top wedding stationery companies in South Africa within the
next five years. She communicates this vision to the employees to ensure that there is alignment for them to be
motivated to do their work voluntarily and to work together to achieve the objectives of the enterprise.
Due to the nature of the business, Creative Designs strongly relies on social media, wedding blogs, trade expo’s
and word‐of‐mouth advertising as marketing tools. This way it ensures that they reach the specific group of
consumers who have the need for customised products offered by Creative Designs. Creative Designs currently
operates in an extremely competitive environment where the demand and awareness for customised wedding
stationery are on the increase, and as a result their profits are also increasing.
With the increase in demand, Amber decided that she had to appoint another graphic designer. She asked Kathy
to place an advertisement at the University, the local newspaper as well as contact a recruitment agency. They
received seven applications and decided to conduct interviews with the top three candidates. After the interviews
and capability tests, Amber and Kathy decided to offer the job to Madison, a university graduate who showed
enormous potential during the capability tests.
Amber strongly believes that a team approach will ensure quality and success throughout the design process.
Meetings are held on a weekly basis to discuss any design problems, and open the floor for inputs from all the
staff members to find the appropriate solution.
To date, Creative Designs has been recognised as one of the top wedding stationery vendors in Gauteng,
and they are reaping the fruits of their efforts to reach their vision.
Question 1
According to the National Small Business Amendment Act 26 of 2003, Creative Designs can be classified
as a enterprise.
1) small
2) micro‐
3) very small

4) medium‐sized

Reasoning:
Question 2
The needs, specifications and requirements of the clients of Creative Designs, form part of the
environment.
1) micro‐
2) market
3) macro‐
4) mega‐

Reasoning:

Question 3
Which of the following characteristics, of the environment in which Creative Designs operates, are true?
a) Variables within the business environment are interdependent.

b) Management at Creative Designs has limited control over the macro‐environment.
c) Management at Creative Designs has direct control over the micro‐environment.
d) The establishment, growth and continued existence of Creative Designs are indirectly influenced
by the business environment.
1) a, c
2) b, d
3) a, c, d
4) a, b, c, d

Refer: Prescribed Textbook, pg. 10; Study Guide, pp. 6‐7
Reasoning:  It should be noted that the three environments are interdependent. A change in
the micro‐environment may have an influence on the market environment, and
vice versa, and a change in the macro‐environment mayhave a direct or indirect
influence on the micro‐environment. Therefore alternative a is correct.
 The micro‐environment or the internal environment refers to the aspects that are
under direct control of the management of the enterprise. The market
environment is external to the enterprise, and the management of the enterprise
has only limited control over it. Therefore alternatives b andc are correct.
 The establishment, growth and continued existence/survival of the enterprise
are directly influenced by the business environment. Thereforealternative d is
incorrect.
Question 4
Which one of the following factors of production is represented by the paper that is used for the wedding
invitations and wedding programmes made at Creative Designs?
1) Entrepreneurship
2) Natural resources
3) Capital
4) Labour
Question 5

Who will be responsible for setting the functional plans and objectives of Creative Designs?
1) Katlego
2) Amber
3) Kathy
4) Vusi

Reasoning: On the tactical level the entrepreneur focuses on tactical activities to ensure that the
strategic plans can be implemented. On the tactical level, the entrepreneur is primarily
responsible for implementing the policy, plans and strategies and for
the allocation of resources. Medium‐term or functional planning takes place on this
level and this involves all the functional strategies and plans made in the various departments
of the business.
Question 6
Amber is responsible for setting the objectives of Creative Designs, and developing schemes toachieve
these objectives. This statement refers to as part of general management.
1) organising
2) planning
3) leading
4) control

Reasoning: Planning is chiefly concerned with setting objectives and with devising the
necessary schemes to achieve these objectives.
Question 7
Which one of the following leadership competencies does Amber show in the case study?
1) Management of meaning
2) Management of attention
3) Management of trust
4) Management of self

Reasoning: Management of meaning: To make their vision clear to others, and to align peoplewith them,
leaders must communicate their vision.
“Amber has a clear vision and is determined to be listed as one of the top wedding
stationery companies in South Africa within the next five years. She communicatesthis
vision to the employees to ensure that there is alignment for them to be motivated to do
their work voluntarily and to work together to achieve the
objectives of the enterprise.”
Question 8

According to the case study, which one of the following problem‐solving techniques is followed in Creative
Designs?
1) Research
2) Brainstorming
4) The Delphi Technique

Reasoning: Brainstorming is a technique used to get input from the members of staff who are involved
in the problem. It takes the form of a group discussion in which staff members participate
to find answers to questions regarding the problem.
“Amber strongly believes that a team approach will ensure quality and success throughout
the design process. Meetings are held on a weekly basis to discuss anydesign problems, and
open the floor for inputs from all the staff members to find
the appropriate solution.”
Question 9
The process whereby Amber persuades her employees to do their work voluntarily and to the best of their
ability, is known as .
1) communication
2) coordination
3) delegation
4) motivation

Reasoning: Although we usually see and study people as individuals, we should not lose sight of the fact
that people are social beings. People can only exist within the framework ofsocial
institutions and through contact and interaction with other people. This interaction takes
place by means of communication. Communication involves the transfer of messages
between the business and its external and internal environment.
“She communicates this vision to the employees to ensure that there is alignment for them to
be motivated to do their work voluntarily and to work together to achieve the objectives of
the enterprise.”
Question 10
Everything that is designed at Creative Designs is completely custom made according to the needs and
specifications of the clients, and it is subject to copyright. Copyright is an example of Creative Designs’ .
3) owners’ equity

4) other assets

Reasoning: Other assets include intangible assets, such as patents, royalty arrangements,
copyrights, licences and notes receivable from managers and employees.
Question 11
The initial lease that Amber signed for the industrial office space in Pretoria, formed part of Creative Designs’
.
1) current assets

Reasoning:  Current liabilities are accounts payable, notes payable to banks, accrued
expenses (wages, salaries), taxes payable, the current portion (due withinone
year) of long‐term debt and other obligations owing to creditors due within one
year.
• Non‐current (long‐term) liabilities are amounts owed by the company overlong
periods of time. Examples include mortgages, intermediate and long‐
term bank loans, equipment loans and any other obligation for money dueto a
creditor with a maturity longer than one year.
Question 12
What would the first step be that Kathy needs to do, to develop effective long‐term plans?
1) Set the goals and objectives of Creative Designs.

2) Study methods of operation, new market opportunities and other factors.
3) Develop long‐range plans that will enable her to attain the goals and objectives of Creative Designs.
4) Determine her personal objectives and how they affect the willingness and ability ofCreative
Designs to pursue its financial goals.

Reasoning: The first step to develop effective long‐term plans would be to determine your
personal objectives and how they affect your willingness and ability to pursue
financial goals for your business.
Question 13
The cause for the additional capital need of R300 000 at Creative Designs was because of .
1) low retained profits

2) quantity discounts

3) efficiency drives
4) seasonal factors

Reasoning: “Initially they did not require many machinery and equipment, but as the enterprisegrew she
soon realised that they need better equipment, to improve their current technological
infrastructure and to reduce the cost of providing their products and services. For this reason,
Creative Designs had to take out a loan of R 300 000, payable within five years.”
• Efficiency drives. By utilising new technologies, SMEs can reduce their costof
providing goods and services, that is, they can be more efficient. This, however,
comes at a very high cost. New technologies are quite expensive,and if the new
equipment does not deliver the desired results, this can
exacerbate the problem.
Question 14
Which one of the following formulas will Kathy use if she wants to determine how reliant Creative Designs is
on debt financing?

Reasoning: The debt/worth, or leverage ratio indicates the extent to which the business is reliant
on debt financing (creditor money versus owners’ equity):
Question 15
Creative Designs operates in the market.

1) government
2) consumer
3) industrial
4) reseller

Reasoning: Consumer markets. These are individuals and households who buy goods and
services for personal consumption.
Question 16
“This way it ensures that they reach the specific group of consumers who have the need forcustomised
products.” This statement refers to Creative Designs’s .
1) marketing objective
2) micro‐environment
3) reseller market
4) target market

Reasoning: The target market consists of consumers with certain needs for products and
services and who are willing to sacrifice something (money) to satisfy those needs.
Question 17
The identification of subsets of buyers within a market who share similar needs and have similar buying
processes, is the definition of .
1) the marketing strategy

2) market segmentation
3) consumer markets
4) the marketing mix

Reasoning: Market segmentation can be defined as the identification of subsets of buyers
within a market who share similar needs and who have similar buying processes.
Question 18
According to the case study, Creative Designs is currently in the stage of the product life
cycle.
1) introduction
2) maturity
3) growth
4) decline


Reasoning: All products and services have a life cycle that moves through four stages:
• introduction, where the product/service is new, with few, if any,
competitors;
• growth, where the demand for the product, awareness in the market and profit
increase;
• maturity, where there are many competitors, some of whom leave the
market; and, finally,
• the decline phase, where the need for the product wanes fast and profitsare
greatly reduced.
Since there is an increase in demand, Creative Designs is in the growth phase.
Question 19
Amber needs to utilise the human resource potential and creativity of Creative Designs, by investing in human
capital. This statement refers to .
1) process management
2) operations design
3) streamlining
4) capacity

Reasoning: Capacity involves utilising human resource potential and creativity by investing in human
capital (as the internal customer); ‘quality of work‐life’ (QWL) means
investing in cross‐training for mastery of multiple skills.
Question 20
Creative Designs manufactures wedding stationery according to the needs and specifications of the consumers,
which requires a highly skilled team of designers and calligraphy specialists. What operations system would
therefore be the most suitable to use in Creative Designs?
1) Job
2) Project
3) Repetitive
4) Continuous


Reasoning:
Question 21
Creative Designs currently operates in an extremely competitive market where the demand for wedding
stationery is on the increase. As a result, Amber is scared that her current capacity will be too small to satisfy
the increasing demand. Which of the following are strategies that she could consider implementing in this
situation?
a) Introduce overtime.
b) Integration of products.
c) Opt for differentiation of products.
d) Increase capacity by acquiring additional fixed assets.
1) a, c, d
2) b, c
3) b, d
4) a, b, c, d

Reasoning: The productive unit can consider the following strategies if its capacity is too small to
satisfy demand for the product:
• It could opt for differentiation of product.
• It could also consider increasing capacity by acquiring additional fixed
assets.
• The business could introduce overtime.
• An additional shift could be introduced. This, too, is a relatively cheap
alternative, because the fixed costs have already been covered.

• Temporary means of production can be used. This phenomenon is often

found in the case of seasonal productive units, such as hotels, which
employ additional staff during busy holiday periods.
• Divisions experiencing a shortage of capacity could generate that capacity
by a transfer of surplus capacity from other divisions.
• Specialisation of product can be considered if there are too many types of
products and/or services.
• Additional machines could be obtained.
The productive unit can consider the following strategies if capacity is greater than
demand:
• Workers can be scaled down or even phased out.
• The unit can work fewer shifts.
• Integration of product is an effective strategy at management’s disposal.
• Management may decide to close a section of the factory and lay off some
of the workers.
• The business can decide to phase out the temporary means of production.
• The business can move surplus capacity that was brought in from another
department back to that department.
Question 22
The machinery and equipment used in Creative Designs are subject to a substantial degree of wear,due to
constant use. Which of the following are consequences of defective machinery and equipment?
a) Threats to safety
b) Customer dissatisfaction
c) Increased production costs
d) Reduced production capacity
e) Lower‐quality products and services
1) a, b, e
2) a, c, d
3) b, c, e
4) a, b, c, d, e

Reasoning: The consequences of defective machinery and equipment are:
• Reduced production capacity. Machinery and equipment failures mean thatno
production can take place, and this leads to a reduction in capacity.
• Increased production costs. Failures in machinery and equipment result in ahigher
hourly cost. Machine operators are idle while the machinery and equipment are
being repaired; moreover, the salaries and wages of the maintenance teams, as
well as the cost of replacing the broken components, have to be discounted.
Sometimes, backup machinery must be hired or purchased, which also means
extra cost.
• Lower‐quality products and services.
• Threats to safety.

• Customer dissatisfaction.
Question 23
If the purchasing function of Creative Designs succeeds in attaining the purchasing objectives of the right
quantity, quality and time, it will receive the required amount of material when it is needed for manufacturing. This
is known as the principle.
1) scalar
2) just‐in‐time
3) cyclical‐ordering
4) materials‐requirement

Reasoning: If the purchasing function succeeds in attaining the purchasing objectives of the‘right
quantity, quality and time’ a business will receive the required amount
of material when it is needed for manufacturing or for the customers of a shop.
This is known as the ‘just‐in‐time’ principle.
Question 24
From the case study, it is clear that Creative Designs follows a purchasing function, since
is responsible for the purchasing function.
1) decentralised; Kathy
2) centralised; Kathy
3) centralised; each business unit
4) decentralised; each business unit

Reasoning: In a business with a centralised purchasing function, purchasing is done at one placeby the
purchasing manager and the personnel responsible for purchasing.
In a business with a decentralised purchasing function, each business unit, branch or
plant performs its own purchasing.
Question 25
Amber and Kathy would like to implement a system to check inventory at fixed intervals, and place orders to
replenish the inventory to maximum levels. Which inventory control system will be the best to implement in this
situation?
1) ABC method
2) Three bin method
3) Cyclical ordering system
4) Fixed‐order‐quantity system


Reasoning: With a cyclical ordering system, each item of inventory is checked at fixed intervals (say,
weekly or monthly) and an order is placed to replenish the inventory level to
its maximum level.
Question 26
During which step of the purchasing cycle will Kathy inspect the quantities and conditions of materials
received?
1) Step 5
2) Step 6
3) Step 7
4) Step 8

Reasoning: Step 6: Receipt, inspection and distribution
Question 27
Which one of the following is NOT an external factor that could influence the timing of purchases at Creative
Designs?
1) Seasons
2) Market conditions
3) Purchasing policies
4) Government regulations

Reasoning: External factors that influence the time of purchase are market conditions
(availability, recessions, booms), government regulations and seasons.
Question 28
When Amber decided to appoint another graphic designer, Kathy had to collect all the important information
about the job. This included the duties, responsibilities, skills needed, outcomes and working environment.
This is known as the job .
1) specialisation
2) specification
3) description
4) analysis


Reasoning: Job analysis: A process to collect all the important data about the job. This includes
duties, responsibilities, skills needed, outcomes and working environment. From
this a job description and job specifications are drawn up.
Question 29
Which form of recruitment did Amber and Kathy make use of when they decided to appoint Madison?
4) Self‐selection

Reasoning: Examples of external recruitment sources and methods are:
• Training institutions such as schools, colleges, and universities.
• Self‐presentation where job‐seekers present themselves at employment
offices.
• Advertisements in newspapers, magazines and electronic media.
• Employment agencies who recruit on behalf of businesses. The following are
examples of such agencies in South Africa: ‘Find A Student’, ‘Employ SA’,
‘Jobfinder’, and ‘Affirmative Portfolios’. Of course, recruitment agencies are not
free, and they will charge the company a fee equal to a percentage of the salary of
the appointed person. Some also negotiate a placement fee or recruitment
commission.
• Professional institutions
Question 30
What should Amber and Kathy do before Madison starts working at Creative Designs?
a) Send Madison a formal letter of welcome with important information on Creative Designs.
b) Congratulate Madison on her appointment.
c) Inform the other employees at Creative Designs about Madison, and what her
responsibilities will be.
d) Ensure that Madison’s workspace is in order and has the needed furniture and
stationery.
1) b, d
2) a, d
3) a, b, c
4) a, b, c, d

Reasoning: Before new employees arrive at the business

Congratulate the appointees. Send formal letters of welcome and information
brochures about the business to the successful candidates. Information such as
working hours, dress code, schools and estate agents in the area and the general
policy of the business is usually appreciated. Ensure that their office or workspace is
in order and that the necessary furniture, equipment and stationery are in place
before they arrive. Inform the other employees about the newcomers and explain
what they will be doing.
Question 31
Which one of the following is NOT an objective of training and development at Creative Designs?
1) To orient Madison with regards to her tasks.

2) To increase productivity and improve performance at Creative Designs.
3) To allow Kathy to make independent decisions without consulting with Amber.
4) To prepare Rose for possible appointment and promotion at Creative Designs.

Reasoning: The basic objectives of training and development are:
• to orient new employees with regard to their tasks
• to improve performance and increase productivity
• to maintain a performance level in spite of changes in the work itself or in
technology
• to prepare the employee for promotion.
Question 32
The quality of the decisions taken by Amber with regard to the employees of Creative designs, is dependent
on the:
a) availability of information
b) accuracy of information
c) flexibility of information
d) completeness of information
1) a, c, d
2) b, c
3) a, b, d
4) a, b, c, d

Reasoning: The quality of decisions taken by management with regard to employees is dependent on the
availability, completeness and accuracy of information pertaining
to each person.

Question 33
Which one of the following represents the correct sequence of the stages of processing data in Creative
Designs?
1) Collection of data, processing of data, storage and retrieval of data, distribution of

information, discarding of information.
2) Collection of data, processing of information, storage and discarding of information, distribution
of data, retrieval of information.
3) Collection of data, processing of data, distribution of information, storage and retrieval of data,
discarding of information.
4) Collection of information, processing of information, storage and retrieval of data, distribution
of information, discarding of information.

Reasoning:
Question 34
Information that is gathered from the external environment is known as information,

whereas information distributed to the external environment is known as information.
1) secondary ; primary
2) primary ; secondary
3) intelligence ; public
4) public ; intelligence

Reasoning: Intelligence information is gathered from the external environment.
Public information is distributed to the external environment
Question 35
Kathy would need certain internal information that could be useful for both the purchasing function as well as the
financial function. Which one of the following is the information that Kathy would need?
1) Turnover
2) Stock levels
3) Production costs
4) Production quantities

Reasoning: Purchasing internal information:
• Stock levels

• Rate of consumption
• Production quantities
• Machine utilization
Financial internal
information:
• Stock levels
• Turnover
• Information to calculate the financial ratios to ensure sound financial
management
Question 36
The process of identifying, collecting, storing, and transforming data into an intellectual asset, which is available
to all staff members of Creative Designs, is known as management.
1) customer relationship
2) supply chain
3) information
4) knowledge

Reasoning: Knowledge management can be defined as the process of identifying, collecting, storing
and transforming data and information into an intellectual asset that is
available to all staff members.
Question 37
The main objective of the public relations function is to of Creative Designs.
1) sell the products

2) increase the sales
3) improve the image
4) reach the broad public

Reasoning: The main objective or aim of public relations is to enhance and improve the image of the
business among the various publics and to establish a healthy relationship
between the business and the public.
Question 38
To which factor of forming public opinion does the following statement refer?
Positive word‐of‐mouth refers to customers telling other people about their satisfaction of the products and
services offered at Creative Designs.
1) The type of relationship that interest groups have with Creative Designs.
2) The reception and atmosphere in Creative Designs.
3) Previous experience with Creative Designs.

4) Communication with Creative Designs.

Reasoning: Previous experience of specific transactions with the business: The most important
advertisement for a business is when consumers share their good experiences with
one another: this is called ‘word of mouth’.
Question 39
During which stage of the public relations campaign must Creative Designs show that it is actively involved in
charity events?
1) Identification stage
2) Participation stage
3) Penetration stage
4) Legitimacy stage

Reasoning: Participation stage. The business in this stage attempts to involve those who were
previously not involved.
Question 40
How could Creative Designs have performed their social responsibility towards their employees?
1) By giving employees donations in the form of Creative Designs’s products.

2) By including the employees in the decision‐making process.
3) By giving financial donations to community projects.
4) By participating in the upliftment of the community.

Reasoning: A good workforce is necessary to keep the business functioning. It is, therefore, paramount
that the employer creates the right supportive climate in the business tosatisfy employees’
needs and to ensure that they perform as well as possible. One way to achieve this is by
granting financial study aid to children of employees, or to employees themselves. This will,
in turn, contribute indirectly to an improvement in work performance.
It is also important that the employer allows employees to participate in decision‐ making
processes, provides training, allows them to acquire skills and motivates them. A well‐
informed workforce is happier and more loyal than uninformed staff. They have greater
enthusiasm for the objectives of the business for which they work because they
understand that their personal success depends on the success
of the business.

Question 1

How many of the following are the main reason/s why small businesses fail in South Africa?
o Insufficient management
o Lack of negotiation skills
o Lack of capital
o Insufficient marketing
1) One
2) Two
3) Three
4) Four

Refer: Prescribed Textbook, pg.
Reasoning: It is a fact that in South Africa, small businesses fail mainly because of a lack of capital,
insufficient management, marketing, technical and negotiation skills. All of the options given
are correct. Please refer to page 5 in the prescribed textbook.
Question 2
Which one of the following economies is characterised by competition, where each enterprise has to compete for
its share in the market.
1) Free market economy

2) Command economy
3) Mixed economy
4) Socialist economy

Reasoning: The free market economy is characterised by competition, where each enterprise must
compete for its share in the market. Please refer to page 12 in the prescribed textbook.
Question 3
At which management level is the entrepreneur responsible for implementing the policy, plans, strategies
and the allocation of resources?
1) Top management
2) Operational
3) Strategic
4) Tactical

Reasoning: At the tactical level of management, the entrepreneur is responsible for implementing the
policy, plans, strategies and the allocation of resources. Please refer to page 24 in the
prescribed textbook.
Question 4
When an entrepreneur ensures that plans and instructions are carried out, it is known as .
1) planning
2) leading

3) organising
4) control

Reasoning: Control is exercised when management ensures that its plans and instructions are carried
out. Please refer to page 35 in the prescribed textbook
Question 5
Which of the following statements are TRUE?
a) Financial statements are a structured presentation of the financial performance and position of
an enterprise.
b) The financial period of business ranges from one to twenty four months.
c) Financial statements allow the entrepreneur to diagnose the enterprise’s strengths and
weaknesses.
d) Financial records provide a written summary of all financial activities during a specific financial
period.
1) a, b, c, d
2) a, c, d
3) b, c
4) a, b, d

Reasoning: Financial statements are structured presentations of the financial performance and position of
an enterprise. Financial statements allow the entrepreneur to diagnose the enterprise’s
strengths and weaknesses. Financial records provide a written summary of all financial
activities during a specific financial period. The financial period of an enterprise ranges from
one to twelve months. For this reason, Option d is not correct.
Question 6
Inventory, trade and other receivables will be classified as in the statement of financial position.
3) current assets

Reasoning: Inventory, trade and other receivables will be classified as current assets in the statement of
financial position.
Question 7
Which one of the following is a tool that can be used to do short‐term financial planning?
1) Break‐even analysis
2) Strategic planning
3) Profit planning

4) Ratio analysis

Reasoning: Short-term financial planning is generally concerned with profit planning or budgeting. Long-
term planning is generally strategic, setting goals for sales growth and profitability over a
minimum of three to five years.
Question 8
If a buyer is of the opinion that the price charged for an item is acceptable, and the buyer is willing to pay the
amount for it, the gap between production and consumption is overcome.
1) time
2) value
3) space
4) ownership

Reasoning: If a buyer is of the opinion that the price charged for an item is acceptable and the buyer is
willing to pay the amount for it, the value gap between production and consumption is
overcome.
Question 9
Which one of the following statements best describes the target market of an enterprise?
1) Consumers who have similar needs for a specific product or service, and who are willing to sacrifice
money to satisfy their needs.
2) A group of consumers who are willing to pay a premium price for products and services.
3) Collective consumer behaviour within a specific enterprise.
4) Heterogeneous consumers within the market with different needs for products and services.

Reasoning: A target market consists of consumers who have certain similar needs for products and
services, and who are willing to sacrifice money to satisfy their needs. For this reason, option
1 is the best suited answer.
Question 10
The idle time between the processing of a job and its passage to the next work centre, is known as
time.
1) queue
2) waiting
3) processing
4) transportation


Reasoning: Waiting time is described as the idle time between the processing of a job and its
passage to the next work centre
Question 11
The ability to be agile, to change and to adapt, describes the objective of operations
management.
1) dependability
2) speediness
3) flexibility
4) quality

Reasoning: The flexibility objective of operations management is described as the ability to be agile, to
change and to adapt.
Question 12
The determination of the quantity of jobs and sequence in which jobs and activities are to be completed
within the manufacturing plant, is known as .

Reasoning: Operations scheduling refers to the determination of the quantity of jobs and sequence in
which jobs and activities are to be completed within the manufacturing plant.
Question 13
Which one of the following is the most important factor when deciding to purchase goods from a supplier?
1) Delivery
2) Price
3) Quality
4) Quantity

Reasoning: There are various factors that should be taken into consideration when deciding to purchase
goods from a supplier, but quality is considered as the most important factor.
Question 14
Which one of the following statements, regarding the selection of suppliers, is NOT true?

1) Existing suppliers with a good performance record should receive preference when a new contract
has to be concluded.
2) The aim of selecting the right suppliers is to establish a short‐term relationship to ensure theefficient
flow of the correct materials.
3) New suppliers need to be evaluated to ensure that an existing supplier is still competitive.
4) Much care needs to be taken to choose the correct supplier when purchasing customised materials.

Reasoning: The selection of suppliers is a vital task of the purchasing function and the aim of selecting the
right supplier is to establish a long-term relationship to ensure the efficient flow of the correct
materials. Existing suppliers with a good performance record should receive preference when
a new contract has to be concluded, new suppliers need to be evaluated to ensure that an
existing supplier is still competitive, and care needs to be taken to choose the correct supplier
when purchasing customised materials. For this reason, option 2 is incorrect.
Question 15
What is the primary objective of the human resource manager?
1) To ensure that enterprise employs the right number and type of employees, at the right time.
2) To recruit potential employees for the enterprise.
3) To maintain the labour force as a production factor in the enterprise.
4) To minimise staff turnover, as a means to improve productivity.

Reasoning: The primary objective of the human resource manager is to ensure that the enterprise
employs the right number and type of employees, at the right time
Question 16
A list of general questions, aimed at collecting an applicant’s biographical data and specific questions related to
the job, is known as a/an .
1) application form
2) selection interview
3) assessment card
4) background investigation

Reasoning: A list of general questions, aimed at collecting an applicant’s biographical data and specific
questions related to the job, is known as an application form.
Question 17
Which one of the following statements is CORRECT?
1) Information relates to facts in their unprocessed form.

2) Data refers to information that has been processed to be usable in a specific situation.
3) Information cannot be used in the decision‐making process.

4) Data cannot be used in its current state, in the decision‐making process.

Reasoning: Data relates to facts in an unprocessed form that cannot be used in the decision-making
process. Information refers to data that has been processed to be usable in a specific
situation. Option 4 is, therefore, the only correct option.
Question 18
Which one of the following is an example of an output device?
1) Keyboard
2) Monitor
3) Mouse
4) Touchpad

Reasoning: Output devices are used to see, hear or accept the results of the information processing
requests, such as monitors, printers, speakers and sound cards.
Question 19
A group of people with common interests or values in a specific organisation, is known as a .
1) consumer
2) target market
3) public
4) shareholder

Reasoning: A group of people with common interests or values in a specific organisation, is known as a
public. Please refer to page 245 in the prescribed textbook.
Question 20
A campaign that aims to change the audience’s attitude, knowledge and practices, is known as a/an
campaign.
1) attitude reinforcement
2) attitude alteration
3) advocacy
4) behaviour modification

Reasoning: A behaviour modification campaign aims to change the audience’s attitude, knowledge and
practices. Please refer to page 254 in the prescribed textbook.
Assignment 02 ‐ Semester 01 – 2020

CASE STUDY: DESIGNS BY MAGGIE

Maggie Smith holds a B.Tech Degree in Clothing Technology which she obtained from the Tshwane University
of Technology. Her biggest dream has always been to start her own enterprise, but she did not have the
resources to do so. As a result, Maggie started working as a textile creator for a clothing factory in
Johannesburg, right after she obtained her degree. She has been working at the factory for approximately eight
years.
Although Maggie enjoyed her job, she still had an intense desire to start and manage her own enterprise. Maggie
has been fond of needlework and embroidery since the age of 12, and has practiced this hobby whenever she
had free time to do so. She soon realised that this was what she wanted to do on a full‐time basis. After
consulting with her family and friends, Maggie decided to make a life‐changing decision to leave her current job,
to start her own enterprise called Designs by Maggie. Designs by Maggie specialises in embroidery and fine
needlework for sportswear, corporate items, and special event clothing according to individual consumer needs.
Designs by Maggie’s main aim is to satisfy consumer needs while simultaneously meeting the business
objectives.
For start‐up financing, Maggie decided to withdraw her entire pension from her previous job, as well as use her
savings, totalling to R200 000. This was however still not sufficient and she needed to take out an additional loan
of R200 000 from the bank, payable within five years. The bank did however require some form of security on the
money lent to Designs by Maggie, and Maggie put her vehicle up as security for the business loan.
As Maggie was only doing embroidery and needlework as a hobby on a small scale, she had to buy the
necessary equipment in order to handle larger orders. These included: a laptop, printer, furniture and an
industrial embroidery machine to start with. She also had to purchase a micrographics computer programme
to assist with larger scale design ideas, and keep up with modern technological advancements. Maggie
immediately found a space in a popular shopping centre in Johannesburg that was available for a six month,
renewable, lease. Maggie already had a contract with a supplier in Cape Town from whom she could order her
textiles, ribbon, needles, thread and beads.
Maggie realised very early on that she would not be able to cope with the workload on her own. She therefore
decided to advertise two positions for assistants. The first advertisement was placed in the local newspaper, and
the second advertisement was placed on the community’s Facebook page.
Several candidates applied for the available positions, and Maggie decided to appoint Dora and Cecile. Dora
was responsible for the administration function, placing of orders of textiles, receiving of orders and
bookkeeping. Cecile would assist with the design of and embroidery of products, as well as the occasional
market research. Cecile immediately started to compile a catalogue with examples and also did some market
research in the area to identify potential clients and to determine if there was a need for embroidery of logos on
caps, sportswear, jackets and bags.
In order to differentiate herself from her competitors and to improve her skills, Maggie attended various
needlework and embroidery courses. These courses provided her with the necessary ‘know‐how’ to deliver top
quality products for her consumers. She also sent Cecile on various courses in order to improve her
performance and productivity levels.
Designs by Maggie’s main forms of advertising are weekly ads in the local newspaper, pamphlets distributed to
local schools and social media marketing. Because Designs by Maggie is still considered to be a fairly new
enterprise, with very few competitors within the industry, Maggie hadto make sure that she would reach as many
consumers as possible. Together with her team, they

need to be on the constant lookout to attract new customers in order for the enterprise to be successful.
As part of Maggie’s effort to improve the public relations of Designs by Maggie, they have launched a campaign
that aims to educate the community on the importance of saving electricity, by providing the public with some
useful tips on how to live more energy efficient. The campaign was launched as a printed information leaflet that
was sent out with all orders. In order to show that the enterprise was living up to its promise to be more energy
efficient, Maggie and her team have been making use of solar panels to power the embroidery machines, to
reduce their electricity usage.
Maggie’s dream of owning her own enterprise finally became a reality, and she is looking forward to growing with
this new venture.
Question 1
Which of the following are reasons why Maggie can be regarded as an entrepreneur?
a) Maggie had a strong external locus of control.

b) Maggie had the courage to take the risk to start Designs by Maggie.
c) Maggie organised various resources to create Designs by Maggie.
d) Maggie possessed leadership qualities to overcome problems.
1) a, b, c
2) b, c, d
3) a, d
4) a, b, c, d

Reasoning: An entrepreneur is described as someone who spots an opportunity in the market, and
organises resources to create a new enterprise. Entrepreneurs have the vision, business skills
and courage to take risks and possess the necessary leadership qualities to overcome
problems. Entrepreneurs have a strong internal locus of control, self-confidence, passion,
determination and the management skills to plan and control the entrepreneurial process.
Options b, c and d are, therefore, correct.
Question 2
The resources that Maggie used to start and manage the enterprise, forms part of Designs by Maggie’s
environment.
1) micro‐
2) macro‐
3) market
4) mega

Reasoning: The internal micro-environment of an enterprise consists of the aspects that an enterprise and
managers can control directly and include the vision, mission, objectives, resources, people
and management systems
Question 3

Maggie had to purchase a micrographics computer programme in order to keep up with modern technological
advancements. These technological advancements form part of Designs by Maggie’s
environment, which Maggie has control over.
1) market; limited
2) macro‐; limited
3) market; no
4) macro‐; no

Reasoning: Changes in technology have a dramatic influence on an enterprise. New inventions, new
computer systems and updated software, all have an effect on existing products, and form part
of the technological environment of Designs by Maggie. These technological advancements
form part of Designs by Maggie’s macro-environment, which Maggie has no control over.
Question 4
A change in the repo rate, will result in a change of the interest rate of the loan granted by the bank. This can be
classified as a/an variable in the macro‐environment of Designs by Maggie.
1) accounting
2) capital
3) economic
4) financial

Reasoning: The economic environment of an enterprise is influenced by various other environments. The
essence of the economic environment lies in the country’s economic growth and wealth. A
change in the repo rate, will have a direct impact on the micro-environment of Designs by
Maggie, and is a variable that forms part of the macro-, economic environment of the
enterprise.
Question 5
Maggie would be responsible for setting the plans and ‐term objectives for Designs by
Maggie.
1) strategic; long
2) strategic; medium
3) tactical; long
4) tactical; medium

Reasoning: Maggie, who was identified as the entrepreneur, forms part of the top management team at
Designs by Maggie. Top management would, therefore, be responsible for setting the strategic
plans and long-term objectives of the enterprise
Question 6
The success of Designs by Maggie depends on striving to maintain a positive image and have asteady
growth in sales volumes. These are examples of Designs by Maggie’s objectives.
1) operational
2) strategic
3) functional

4) tactical

Reasoning: Strategic objectives are determined by the entrepreneur and form part of the hierarchy of the
enterprise. Strategic objectives are the reasons the enterprise exists but need to be linked to
the activities that must be carried out to achieve the objectives. Examples include: delivering a
good service to customers, establishing and consolidating a positive image of the enterprise,
and a steady growth in sales volumes. The example given, will be considered a strategic
objective of Designs by Maggie.
Question 7
One of the schools in the area ordered embroided caps for the rugby tour that will take place during the July
2020 school holiday, and the order was placed in October 2019. As part of Designs by Maggie’s time
management, this task can be regarded as .
1) not urgent but important

2) not urgent and not important
3) urgent but not important
4) urgent and important

Reasoning: Time management is of extreme importance in an enterprise, and the urgency and importance
of a task is determined by the goals and objectives of the enterprise. When the order for the
embroidered caps was placed in October of 2019 for July 2020, the task was not urgent, as it
need not be completed immediately, but was still of importance as it is one of the primary
sources of income for Designs by Maggie and a service offered by the enterprise.
Question 8
If Maggie needs the input of Cecile and Dora to solve a problem and they decide to hold a group discussion
where everybody participates to find a solution, it refers to as a problem‐solving
technique.
1) the Delphi‐technique
2) fishbone diagrams
3) the Nominal group technique
4) brainstorming

Reasoning: Brainstorming is a problem-solving technique that is used to get input from staff members who
are involved in the problem. It takes the form of a group discussion in which staff members
participate to find answers to questions regarding the problem. The scenario best describes
the brainstorming problem-solving technique.
Question 9
Maggie will use the statement of if she has to get an idea of the assets and liabilities of Designs by
Maggie at a given point in time.
1) cash flows
2) changes in equity
3) financial position
4) comprehensive income


Reasoning: The statement of financial position shows the enterprise’s relationship between its assets,
liabilities and equity as at a specific date.

Question 10
Maggie used her pension and personal savings of R200 000 to cover some of the initial expenses of starting
Designs by Maggie. She also took out a R200 000 bank loan. Which one of the following is another source of
capital that Designs by Maggie could have used?
1) Disposal of non‐current assets

2) Borrowed funds from banks
3) Trade debtors
4) Externally generated capital

Reasoning: According to the case study, Maggie had already borrowed funds from the bank (R200 000
business loan) which is regarded as externally generated funds. Maggie also made use of
internally generated capital by investing her pension and personal savings of R200 000. Trade
debtors are not considered a source of capital, therefore, the only other option Maggie could
make use of as another source of capital was the disposal of non-current assets.
Question 11
If Designs by Maggie owes more money to creditors than it possesses on value of assets owned, the
will be a negative figure.
1) net worth
2) gross profit
3) return on assets
4) accounts receivable

Reasoning: If an enterprise owes more money to creditors than it possesses on the value of assets
owned, the net worth or owner’s equity will be a negative figure
Question 12
If Maggie negotiates with the suppliers of the textiles used in Designs by Maggie to buy her stock on credit, it
refers to as a source of capital.
1) borrowed funds from banks or other lenders

2) internally generated capital
3) buying at own risk
4) trade creditors or suppliers of inventory

Reasoning: Trade creditors and suppliers of inventory are another source of capital. Entrepreneurs, in
many instances, negotiate with the supplier to buy stock on credit.
Question 13
The ratio that will measure how efficiently profits are being generated from the assets employed in Designs by
Maggie, is known as the ratio.
1) gross profit margin

2) return on assets
3) net profit margin

4) return on equity

Reasoning: The return on assets ratio is a measure of an enterprise’s success in earning a return for all
providers of capital. This ratio measures how efficiently profits are being generated from
assets employed in the enterprise.
Question 14
Maggie’s experience and work in the clothing factory in Johannesburg can be seen as a/an in the
SWOT analysis of Designs by Maggie.
1) strength
2) weakness
3) opportunity
4) threat

Reasoning: A SWOT analysis is described as a useful instrument for helping managers to identify internal
strengths and weaknesses of an enterprise, and external opportunities and threats facing the
enterprise. Maggie’s experience in the clothing industry is an advantage to the enterprise as
she has gained the necessary knowledge and skills within the industry, and can be regarded
as a strength in the SWOT analysis of Designs by Maggie.
Question 15
According to the case study, Designs by Maggie follows a ‐ oriented approach to marketing.
1) production
2) sales
3) marketing
4) profit

Reasoning: According to the case study, Designs by Maggie’s main aim is to satisfy consumer needs
while simultaneously meeting the business objectives. This is described as the philosophy of a
marketing-orientated approach. For this reason, Designs by Maggie, follows a marketing
orientated approach to marketing.
Question 16
When advertising the products and services of Designs by Maggie on social media and in the
newspaper, it bridges the gap between production and consumption.
1) space
2) time
3) information
4) value

Reasoning: The information gap between production and consumption is described as the ways in which
to inform the market of the enterprise’s offerings. If the customer is not informed about the
product, they cannot purchase it. When Designs by Maggie advertised the products and
services on social media and in the newspaper, the information gap between production and
consumption was overcome, as she made information about the products available to the
customers.

Question 17
According to the case study, Designs by Maggie is currently in the stage of the product life cycle.
1) introduction
2) maturity
3) growth
4) decline

Reasoning: All products and services have a life cycle that moves through four stages: introduction,
growth, maturity and decline. The introduction phase is characterised by few, if any,
competitors and the product/service is new to the market. The case study describes Designs
by Maggie as a fairly new enterprise, with very few competitors within the industry. Designs by
Maggie is, therefore, currently in the introduction phase of the product life cycle as the product
and enterprise are fairly new, with very little competition.
Question 18
Which one of the following represents the ideal series of transformational processes, where each step
increases the value of items sold at Designs by Maggie?
1) Value analysis
2) Value chain
3) Quality chain
4) Quality circle

Reasoning: A value chain is described as the ideal series of transformational processes whereby each
step increases the value of an item.
Question 19
Designs by Maggie operates in a volatile market in which there is a large variety of products available and clients
sometimes demand immediate product delivery. Which operations design is applicable to this situation?
1) Lean supply
2) Agile supply
3) Quantitative supply
4) Algorithmic supply

Reasoning: Designs by Maggie operates in a volatile market in which there is a large variety of products
available and clients sometimes demand immediate product delivery. These characteristics
are associated with an agile supply operations design, as indicated in Table 5.3.
Question 20
The monthly costs of Designs by Maggie such as electricity, insurance and security, can be classified as
costs, which are components of inventory carrying costs.
1) holding; direct
2) holding; indirect
3) capital; direct
4) capital; indirect


Reasoning: Direct inventory carrying costs are divided into capital costs and inventory holding costs.
Capital cost is described as interest or opportunity cost. Holding cost refers to the cost
involved in renting storage facilities, warehouse equipment, electricity, insurance, security,
handling, bookkeeping, warehousing labour and damage. The monthly cost of electricity,
insurance and security will be classified as holding costs of direct inventory carrying costs at
Designs by Maggie.
Question 21
The concept that describes Designs by Maggie’s operations and how well it performs in terms of value,
effectiveness, efficiency, utilisation, impact and quality, is known as productivity.
1) macro‐
2) individual
3) performance
4) micro‐

Reasoning: Micro-productivity refers to an individual enterprise’s operations and focusses on how well
operations perform in terms of value, effectiveness, efficiency, utilisation, impact and quality.
Question 22
A defective embroidery machine and other equipment used in Designs by Maggie can pose several threats and
consequences to the employees. Which one of the following CANNOT be considered as a consequence of
defective machinery?
1) Threats to safety
2) Lower‐quality products and services
3) Decreased production costs
4) Customer dissatisfaction

Reasoning: The consequences of defective machinery and equipment are: reduced production capacity,
increased production cost, lower quality products and services, threats to safety and customer
dissatisfaction. Decreased production cannot be considered a consequence of defective
machinery.
Question 23
If the purchasing function of Designs by Maggie succeeds in attaining the purchasing objectives of the right
quantity, quality and time, it will receive the required amount of material when it is needed for manufacturing. This
is known as the principle.
1) scalar
2) just‐in‐time
3) cyclical‐ordering
4) materials‐requirement

Reasoning: If the ‘just-in-time’ principle is successfully executed, enterprises do not have to carry large
inventories or stock. Efficient purchasing can therefore improve the enterprise’s financial
position regarding inventory holding. The ‘just-in-time’ principle refers to attaining the
purchasing objectives of the right quantity, quality and time.

Question 24
During which step of the purchasing cycle must Dora check the quantities and conditions of the textiles
received from the suppliers, sign the delivery notes and compile inspection reports?
1) Paying for the order

2) Handling errors and discrepancies
3) Closing the order
4) Receipt, inspection and distribution

Reasoning: During step six of the purchasing cycle (receipt, inspection and distribution), the quantities and
condition of the materials that are received from the suppliers need to be checked and delivery
notes should be signed.
Question 25
In a manufacturing enterprise, such as Designs by Maggie, the need for textiles and services develops mainly
in the operations function. Which one of the following documents will identify anddescribe these needs?
1) Quotation
2) Requisition
3) Invoice
4) Order form

Reasoning: A requisition form will specify what products, materials or services are required, in what
quantities and by when they are needed by an enterprise.
Question 26
Maggie decided to take out insurance against fire and theft as a preventative measure. This is an example of
costs.
1) inventory ordering
2) inventory carrying
3) long‐term
4) short‐term

Reasoning: Inventory-carrying costs/ inventory holding costs are associated with all the costs of keeping
inventory. This could include storage, salaries of warehouse staff, insurance, property tax,
write-offs, theft, wear and tear, interest on capital and opportunity cost.
Question 27
If Maggie would like to implement a system to check inventory at fixed intervals, and place orders to replenish the
inventory to maximum levels, which inventory control system will be the best to implement?
1) ABC method
2) Three bin method

3) Cyclical ordering system

4) Fixed‐order‐quantity system

Reasoning: The cyclical ordering system is used when each inventory item is checked at fixed intervals
and an order is placed to replenish inventory levels to their maximum. This system would be
most suitable for Designs by Maggie in the given situation.
Question 28
When Maggie decided to increase the staff capacity, she had to collect all the important information about the
job. This included the duties, responsibilities, skills needed, outcomes and working environment. This is known
as the composition of the job .
1) specialisation
2) specification
3) description
4) analysis

Reasoning: The process to collect all the important data about a job, is known as a job analysis. A job
analysis includes the duties, responsibilities, skills needed, outcomes and working
environment of an employee. From the job analysis, a job description and a job specification
are drawn up.
Question 29
Maggie could have asked Cecile to do a logo on a textile so that she could evaluate her embroidery skills.
During which stage of the selection process would she have performed this activity?
1) The preliminary selection interview

2) The process of selection tests
3) The medical examination
4) The final interview

Reasoning: The process of selection tests involves testing an applicant’s ability to perform certain tasks,
which cannot be determined from the application form. If Maggie asked Cecile to do a logo on
a textile, it would have served as a selection test for her.
Question 30
During a performance assessment, it came to light that Cecile’s performance and productivity was not up to
standard. Maggie sent Cecile to embroidery classes that were offered in the area, in order to improve her
performance and productivity. This statement refers to human resource .
1) development
2) orientation
3) promotion
4) training


Reasoning: Human resource training is described as the systematic process by which employees
acquire knowledge, skills, aptitudes and information necessary to achieve the
enterprise’s objectives. The aim of training is to improve the employee’s working habits
and levels of performance so that they will become more productive. When Cecile was
sent for embroidery classes, she was involved in human resource training, as the aim
was to increase her productivity levels within the enterprise.
Question 31
According to the case study, what type of recruitment did Maggie use to appoint Dora and Cecile?
1) Self‐selection
2) Job posting

Reasoning: According to the case study, Maggie placed an advertisement in the local newspaper, and the
second advertisement was placed on the community’s Facebook page. Both these methods
are considered as external recruitment methods.
Question 32
Maggie had to consider certain factors to determine Cecile’s salary before she started working at Designs by
Maggie. Which of the following are factors that she had to consider?
a) The supply and demand of labour

b) The interest rates on loans
c) Designs by Maggie’s ability to pay Cecile
d) The prevailing minimum wage
1) a, b
2) a, b, c, d
3) a, c, d
4) b, c, d

Reasoning: When deciding what salary an employee should be paid, one needs to take the following into
consideration: the supply and demand of labour, the enterprise’s ability to pay and the
prevailing minimum wage. The interest rates received on loans, need not be consulted when
determining an employee’s salary.
Question 33
The orders that are placed for embroidery, can be classified as in the transformation process of
Designs by Maggie.
1) inputs
2) outputs
3) functional processes
4) administrative activities

Reasoning: Processing means converting or transforming data into useful outputs by means of a
transformation process. In the transformation process, inputs are described as raw material for

a process that will produce a particular output. As part of the inbound logistics of Designs by
Maggie, the orders placed for embroidery will be classified as inputs in the transformation
process.

Question 34
Dora and Cecile’s salary slips, can be classified as in the transformation process of Designs by
Maggie.
1) inputs
2) outputs

Reasoning: Outputs, as part of the transformation process, are described as the finished product or
service created by the system. An output may take many forms, including information,
products and services. With specific focus on human resource management, salary slips will
be considered outputs in the transformation process of Designs by Maggie.
Question 35
Maggie is on the constant lookout to reach more customers in various ways and to stay in close touch with
the customers, by sending short updates to a web application. Which one of the following methods will
allow her to do this?
1) Micro‐blogging
2) Cloud computing
3) Blogging
4) Instant messaging

Reasoning: Micro-blogging is described as a web application that allows members to report on what they
are doing throughout the day, by sending short text updates to the web application.
Question 36
Which one of the following can be used to facilitate communication within Designs by Maggie and to manage
internal business processes?
1) E‐mails
2) Intranet
3) Extranet
4) Wireless transmission

Reasoning: The intranet facilitates communication within an enterprise, to manage many internal business
processes, and provides just-in-time information to any part of the enterprise. The intranet will
facilitate communication within the enterprise and manage internal business processes.
Question 37
The bank from which Designs by Maggie took out a business loan, forms part of the enterprise’s
public.
1) internal
2) external

3) primary
4) secondary

Reasoning: The external public of an enterprise consists of consumers, financial institutions and suppliers.
The bank, from which Designs by Maggie took out a business loan, would be considered an
external public as they form part of financial institutions
Question 38
When the consumers translate the public relations message from symbol into meaning, it is knownas .
1) communication
2) encoding
3) decoding
4) feedback

Reasoning: Decoding involves translating the message from symbols into meaning by the receiver.
Please refer to page 251 in the prescribed textbook.
Question 39
According to the case study, what type of public relations campaign is Design by Maggie involved in?
1) Public information campaign

2) Public education campaign
3) Attitude reinforcement campaign
4) Advocacy campaign

Reasoning: A public education campaign aims to educate and teach the target audience about something.
According to the case study, Designs by Maggie launched a campaign that aimed to educate
the community on the importance of saving electricity, by providing the public with some useful
tips on how to live more energy efficient. The enterprise, therefore, employed a public
education campaign.
Question 40
According to the case study, Designs by Maggie is currently at the phase of the public relations
campaign.
1) identification
2) participation
3) penetration
4) distribution

Reasoning: According to the case study, Designs by Maggie wants to show that the enterprise is living up
to its promise to be more energy efficient, and Maggie and her team have been making use of
solar panels to power the embroidery machines, to reduce their electricity usage. This is
described as the distribution stage of the public relations campaign, where the enterprise
needs to show that it is living up to its promise.


Question 1
Taking decisions on how to divide up the work that is to be completed within an organisation, refers to as a
1) planning
2) organising
3) leading
4) controlling

Reasoning: Management is also a business management function and involves the coordination of all
the business functions. The fundamental management tasks include the following:
• Planning: Adequate planning is needed; in the long, medium and shortterm.
• Organising: This means taking decisions on how to divide up the work thatis to
be completed.
• Leading: This involves the effective supervision and motivation of
employees.
 Control: This includes monitoring performance, in other words, comparingwhat
should have been done with what was actually done. Corrective action should be
considered if a gap is found to exist.
Question 2
It is important for an enterprise to function under a code of business ethics. These business ethicsform part of
an enterprise’s environment.
1) micro‐
2) macro‐
3) market
4) internal

Reasoning: Social environment (part of Macro environment)
This environment consists of many dimensions, including culture, language, religionand
customs. Society and culture influence individual behaviour and, accordingly, have a direct
influence on the preferences and spending patterns of individuals.
These elements are also constantly changing. There are, however, many factors that
influence society, namely, demographic trends (which include age distribution), the size of
the economically active population and literacy skills. These trends should be noted by the
entrepreneur. Further factors include crime and security, HIV/AIDS, the role of women in
society, social responsibility, poverty, unemployment,
business ethics, the workforce, cultural diversity and the rights of the customer.
Question 3

The process of transferring responsibilities for a specific business function from an employee group to a non‐
employee group, is known as .
1) human resource management

2) general management
3) outsourcing
4) recruitment

Reasoning: The entrepreneur can also outsource some of these functions to a business or person.
Outsourcing is ‘the process of transferring responsibilities for a specific
business function from an employee group to a non‐employee group’.
Question 4
Carrying out an enterprise’s managerial work by drawing on the human, financial, information and material
sources from several countries, requires global awareness competency. Global awareness competency
includes:
a) integrity and ethical conduct

b) cultural sensitivity
c) cultural knowledge and understanding
d) self‐awareness and development
1) b, c
2) a, b, c
3) a, d
4) a, b, c, d

Reasoning: Global awareness competency includes:
• cultural knowledge and understanding
 cultural sensitivity.
Question 5
Which one of the following is NOT a condition that is assumed for volume and cost estimates?
1) Administrative and office expenses will remain the same at all sales volume levels.
2) Cost of goods sold will increase in direct proportion to an increase in sales volumes.
3) Overtime and wages will decrease in direct proportion to a decrease in sales volumes.
4) A change in sales volume will affect the selling price per unit.

Reasoning: Generally, the volume and cost estimates assume the following conditions:

• a change in sales volume will not affect the selling price per unit
• fixed expenses (rent, salaries, administrative and office expenses, interest
and depreciation) will remain the same at all volume levels
• variable expenses (cost of goods sold, variable labour costs, including
overtime wages and sales commissions) will increase or decrease in direct
proportion to any increase or decrease in sales volume.
Question 6
How often should the pro forma statement of financial position be prepared?
1) Once a month
2) Once a year
3) Every three months
4) Every six months

Reasoning: As part of the preparation of a strategic plan, there is a need to forecast the future
statement of the financial position (pro forma statement of financial position) or the
statement of comprehensive income (pro forma statement of comprehensive income).
These are usually prepared over annual periods of three to five years into
the future.
Question 7
Which one of the following is a tool that can be used to do short‐term financial planning?
1) Profit planning
3) Strategic planning
4) Ratio analysis

Reasoning: Short‐term planning is generally concerned with profit planning or budgeting. Long‐
term planning is generally strategic, setting goals for sales growth and profitability
over a minimum of three to five years. We shall look at these two
concepts briefly in turn.
Question 8
Identifying a subset of consumers, based on their personality and lifestyle, is known as

segmentation.
1) geographic
2) psychographic
3) behavioural
4) demographic


Reasoning: Geographic segmentation: the market is divided into geographic regions, such as
provinces, towns, cities and suburbs.
Demographic segmentation: dividing the market according to criteria such as age,gender,
religion, race, income and family.
Psychographic segmentation: examines how a person thinks, feels and behaves,and
uses personality, lifestyle and values as segmenting variables.
Behavioral segmentation: based on a number of behavioral measures, such as
benefits sought, purchase occasions, user status, usage rate and loyalty status.
lifestyle.
Question 9
Which one of the following elements of the marketing mix describes how the entrepreneur makes the product
available to the market?
1) Product
2) Price
3) Distribution
4) Marketing communication

Reasoning: The four Ps
• Product: the product is the offering made to the market based on an identified
need or opportunity. The product includes, among other things, the physical item,
the colour, size, packaging, guarantees, aftersales service, installation and quality.
For an entrepreneur this will be the product/service that they will sell to the client.
• Price: this is the value attached to the item by the entrepreneur, i.e. what the
customer must pay for the item. Price should, at the very least, cover the cost of
the product and make a contribution to profit, but, at the same time, it must also
be competitive and in line with the quality and image of the product.
• Distribution (place): making the product available to the market. The
entrepreneur might decide on a single location, or multiple locations.
Distribution bridges the gap between manufacturing and consumption.
• Marketing communication (promotion): for the entrepreneur to be able to sell his
or her products the market needs to be informed – i.e. you need to communicate
with the potential consumers. The methods that can be used include
advertisements placed in the media; sales promotions, such as special offers,
discount coupons and gifts; the sales staff that you train and
use, and the publicity that you obtain from sponsorships.
Question 10
The idle time between the processing of a job and its passage to the next work centre, is known as
time.

1) queue
2) waiting
3) processing
4) transportation

Reasoning: • Queue time: The period during which a job stays in the queue at a work
centre.
• Processing time: The actual time needed to process the job.
• Set‐up time: The time needed to prepare equipment for processing a newjob.
• Waiting time: The idle time between the processing of a job and its passage to the
next work centre.
Question 11
Which of the following are ways to ensure that productivity is increased within an enterprise?
a) More output with the same amount of input

b) More output with an increased amount of input
c) Less input with the same amount of output
d) Outputs equal to the amount of inputs
1) a, b, c, d
2) a, b, c
3) b, d
4) a, c

Reasoning: More output with the same amount of input increases productivity, but the same level of
output using less input also increases productivity.
There are many configurations, but the bottom line is that sustainable profitability is
impossible without productivity. This means the output value (usable outputs), after being
exposed to a uniquely designed transformation process, must be higher
than the value of the separate pieces of available inputs (resources).
Question 12
Which one of the following layout types will be best suited for a unique, single product that requires a labour force
that has a high degree of adaptability?
1) Fixed‐position layout
2) Process layout
3) Cell layout
4) Product layout


Reasoning: The operations design for a unique functional need, low‐volume (one item) with
high flexibility will suit a project mode of operation. The layout is temporary, withno
clear flow lines and because the product position is fixed,
the layout is referred to as a fixed‐position layout.
Question 13
When each business unit within an enterprise performs the purchasing function on their own, the enterprise
makes use of a purchasing function.
1) centralised
2) decentralised
3) combination of centralised and decentralised
4) none of the above

In a business with a decentralised purchasing function, each business unit, branchor
plant performs its own purchasing. However, there is a third option, namely a
combination of centralised and decentralised functions, whereby some materials,
products and services are bought on a centralised basis and others on a
decentralised basis.
Question 14
The description of non‐standard materials that are able to perform certain functions, are known as
.
1) specifications
2) standardisation
3) quality

Reasoning: Specifications are the most general method of describing quality. A specification is a
description of non‐standard materials that are able to perform certain functions.
Specifications can be drawn up according to dimensions or physical features, such as
tolerances, workability, uniformity and chemical composition. Materials or products that are
typically described by specifications include raw materials for the manufacturing of
medicine, custom‐made furniture, construction materials,
confectionery, pre‐prepared food and manufacturing equipment.
Question 15

How many of the following are uses of the job description and job specification?
 The entrepreneur uses them to appoint new employees.

 For performance evaluations to determine if outcomes were reached.
 To identify training needs where outcomes are not met.
 To establish salary scales when looking at job content.
1) One
2) Two
3) Three
4) Four

Reasoning: The job description and job specification are important aids for an entrepreneur. They
are not only used for appointing new employees, but also for the following:
• control purposes where work done is measured against standards set
• performance evaluation to determine whether outcomes were reached
• promotions to see when employees are doing more than what is expected
• the identification of training needs where outcomes are not met
• the establishment of salary scales when looking at job content.
Question 16
Which one of the following is NOT a way in which employee training needs can be identified?
1) Management by objectives
2) Questionnaires
3) Workshops
4) Interviews

Reasoning: There are different ways to identify training needs, such as:
• The employee is asked to say whether they feel unqualified to carry out a task
effectively due to a lack of knowledge and/or skills. Although this is nota scientific
method to determine training needs and does not provide for long‐term needs, it is
a practical method which can be used profitably in combination with other
methods.
• Interviews, where the human resource manager conducts interviews with
supervisors, key people and employees in the business to ascertain whether any
training needs exist.
• Using a questionnaire is a scientific method of ascertaining training needs.
Results obtained are usually comprehensive and based on fact.
• The management by objectives technique provides ongoing information
regarding the work and progress of the employee. You should, therefore, be
able to see immediately whether an employee needs training.
Question 17

What is the suggested time period for the retention of permanent registration documents?
1) Five years
2) Ten years
3) Twenty years
4) Indeterminable

Reasoning: The following are normal suggested time periods for the retention of records:
• one year: all correspondence (eg unsuccessful job applications)
• five years: salary adjustment schedules, industrial training records, tax
receipts, guarantee documents
• six years: cancelled cheques, contracts with clients and suppliers
• seven years: all human resource records
• ten years: tax receipts sent in by stockbrokers
• twelve years: share transactions from listed companies
• fifteen years: accounting records and registers
• indeterminable period of time: permanent registration documents,
personnel records of senior members of staff.
Question 18
Which one of the following is an example of an input device?
1) Printer
2) Monitor
3) Mouse
4) Sound card

Reasoning: Input devices are used to capture information and commands. Here we distinguish
between manual input devices and automated input devices.
Manual input devices are keyboards, mice and pointing devices, touch pads, touchscreens
and game controllers.
Question 19
The process of selecting and organising thoughts and feelings into meaningful symbols, is known as
.
1) communication
2) encoding
3) decoding
4) feedback

Refer: Adler, R., & Towne, N. (1978))

Reasoning: Symbols often are words but can be pictures, sounds, or sense information (e.g.,
touch or smell). Only through symbols can the mental images of a sender have
meaning for others. The process of translating images into symbols is called
encoding.
Once a message has been encoded, the next level in the communication process is
to transmit or communicate the message to a receiver. This can be done in many
ways:
during face‐to‐face verbal interaction, over the telephone, through printed materials
(letters, newspapers, etc.), or through visual media (television, photographs).
Verbal, written, and visual media are three examples of possiblecommunication
channels used to transmit messages between senders and receivers. Other
transmission channels include touch, gestures, clothing, and
physical distances between sender and receiver (proxemics).
Question 20
Which step in the public relations process will answer the question of how it should be done and
communicated?
1) Step 1
2) Step 2
3) Step 3
4) Step 4

Reasoning: The four‐step public relations process include the following (Rensburg & Cant 2009: 208):
1. Define the problem or opportunity. This step will require research regarding
opinions, attitudes, behaviour, and so on. This phase answers the question of what
is happening now.
2. Planning and programming. In this phase, key decisions must be made as towhat
should be done, and why.
3. Taking action and communicating. This phase answers the question of howit
should be done and how it must be communicated.
4. Evaluating the campaign. It is important that the effectiveness of the
campaign be evaluated. This answers the question of how well you did.

CASE STUDY: CASE STUDY: PC MANIA
PC Mania is an independently owned enterprise, specialising in the online sales of computers, laptops,
computer hardware, computer software, electronic devices and accessories. PC Mania was established in 2015
by Jack Wilson, who had a passion for computers and worked in the sales industry. He, therefore, decided to
put both his passion and career together towards his dream of owning his own enterprise.
Jack Wilson had good relationships with various distributors in the industry with whom he immediately
established strategic partnerships. These strategic partnerships allowed Jack to purchase computers,
hardware, software and accessories at 35% less than retail prices. All the

purchased products are then sold online at a profit, with final selling prices that are still less than the selling price
of competing retailers.
Due to the online nature of the enterprise, Jack initially did not need an office space and he ran the enterprise
from his home. However, he decided to take out a small business loan, at a variable interest rate, to buy a
laptop and cell phone and to assist with the initial start‐up costs of the enterprise. This loan was repayable
within 24 months.
Customers place orders for products online on PC Mania’s website, and the products are delivered within three
business days with the use of Postnet and DHL couriers. For this reason, Jack keeps inventory levels to a
minimum and no buffer stock is held. This allows him to order new inventory according to customer needs and
inventory is only available for the immediate needs of the enterprise.
Jack, however, soon realised that he needed more help since orders were streaming in and he could not keep up
with the demand on his own. He did some research and decided to advertise two available positions on the local
community forum’s webpage. Jack received several applications andhe interviewed the most suitable
candidates for the positions. He appointed Juliet and Barry to fill the respective positions. Juliet was appointed
as the marketing and purchasing manager and Barry would be responsible for handling all the administration
duties related to PC Mania and assisting with sales and customer relations.
PC Mania competes with several other retailers such as Dionwired, Rectron, Incredible Connection and Matrix
Computers to name a few. Competition is quite high, and as a result, various enterprisesare already leaving the
market. Jack, therefore, needs be on the constant lookout to improve PC Mania’s product and service offering,
to gain a competitive advantage in the market place.
PC Mania experienced a slight decline in sales for the second quarter of 2017. Jack immediately asked Juliet
to do market research in order to determine exactly what the needs of the consumers are, to increase sales.
As part of PC Mania’s attempt to improve the enterprise’s image among the various publics, they have decided
to promote the Beat Plastic Pollution drive. As part of this campaign, all products are sent in biodegradable
boxes, and no plastic is used in the packaging. Together with each delivery, customers receive a notice to
indicate that PC Mania is promoting the Beat Plastic Pollution drive, to minimise single‐use plastic.
Question 1
Jack’s destiny and success is determined by his own actions. This statement refers to an
entrepreneur’s .
1) business skills
2) determination
3) innovative ideas
4) internal locus of control

Reasoning: Entrepreneurs normally have a strong internal locus of control (their destiny and success
are determined by their own actions), self‐confidence, passion,

determination and the management skills to plan and control the entrepreneurial
process.
Question 2
As a self‐employed entrepreneur, Jack had to .
a) learn how to run a one‐person enterprise

b) have technical expertise of the products he intended to sell
c) be able to manage cash flow
d) have knowledge of procurement and taxes
1) a
2) a, b
3) b, c
4) a, b, c, d

Reasoning: As a self‐employed person, the entrepreneur is alone and has to learn how to run a one‐
person business. As well as technical expertise or product knowledge of the business, it
is now also necessary to be able to manage cash flow, accounts,
invoicing, procurement, budgets, bookkeeping and taxes.
Question 3
Retailers, such as Incredible Connection, Dionwired and Rectron, form part of PC Mania’s
environment.
1) micro‐
2) market
3) macro‐
4) mega

Refer: Prescribed Textbook, pg. 9, Figure 1.1

Reasoning:
Question 4
Jack took out a small business loan, at a variable interest rate. A change in the interest rate granted to PC
Mania, is a variable that forms part of the environment, which can be found in the
environment.
1) economic; macro‐
2) political; macro‐
3) economic; market
4) political; market

Reasoning: As above in Question 3
Question 5
By selling the products online, which component of the new economy did Jack address?
1) Globalisation
2) Knowledge management
3) New communication technologies
4) Alliance

Reasoning: Communication technologies are responsible for enormous change in the
business world. For example, consider the effect of the internet on business.

This means that entrepreneurs must think and act differently regarding the
management process if they want to be successful. Technology not only
complicates business, but also creates new opportunities.
Question 6
Juliet would be responsible for doing the planning of PC Mania, which is derived from the
term plans.
1) operational; medium‐
2) operational; long‐
3) functional; long‐
4) functional; medium‐

Refer: Prescribed Textbook, pg. 27, Table 2.1
Reasoning:
Question 7
Due to the decline in sales, Jack aimed to increase sales by 10% in the following month. What type ofobjective is
described in this situation?
1) Personal objective
2) Operational objective
3) Functional objective
4) Strategic objective

Reasoning: Examples of operational objectives are:
• to simplify the work in the administration department
• that the accountant must supply accurate financial information on a
quarterly basis
• a 10% increase in sales compared with the previous month.
Question 8
What problem‐solving technique was applied in PC Mania, when they experienced a slight decline in sales?
1) Brainstorming
2) The Nominal Group Technique
4) Research


Reasoning: Examples of problem‐solving techniques (De Beer & Rossouw 2015: 120–121):
• Fishbone diagrams can be used meaningfully at the beginning of the problem‐
solving process because they are aimed at determining the causes of problems.
This is done by grouping all possible causes in certain categories. The diagram
looks like the bones of a fish, with the problem where the fish’s head would be.
• Brainstorming is a technique used to get input from the members of staff who are
involved in the problem. It takes the form of a group discussion in which staff
members participate to find answers to questions regarding the problem.
• Research is usually undertaken by conducting interviews and using
questionnaires. Problems can be identified by conducting interviews.
• In the Nominal Group Technique (NGT), the staff members involved are a group
in name only. All the members act independently, and it is the ideasof each
individual that are sought and not the ideas of the group as a whole.
• The Delphi Technique is the same as the NGT but does not require staff to be
physically present at a certain place. The aim of this technique is to allow
employees to discover problems and their appropriate solutions
themselves.
Question 9
By compiling a summary of the financial position of PC Mania, Jack can:
a) analyse trends in PC Mania’s financial weakness

b) identify trends in PC Mania’s financial strength
c) measure PC Mania’s performance
d) determine PC Mania’s earnings per share
1) b, c
2) a, b
3) c, d
4) a, b, c, d

Reasoning: By regularly preparing this summary of the statement of the financial position
of what the business owns and owes, the entrepreneur can identify and
analyse trends in the financial strength of the business.
Question 10
Income that arises as a result of the sales of computers and equipment at PC Mania, is known as
.

1) revenue
2) gain
3) cost of sales
4) inflows

Reasoning: Cost of sales = the cost of the goods sold – not the full retail selling price, the
question refers to retail selling price.
Question 11
The small business loan Jack took out to purchase a laptop and cell phone, and for initial start‐upcosts, will
be indicated as a/an in PC Mania’s statement of financial position.
1) asset
2) liability
3) owner’s equity
4) capital expense

Reasoning: Liabilities are funds acquired for a business through loans or the purchase ofproperty or
services by the business on credit.
Question 12
Which of the following are questions Jack should consider, with regard to inventory held at PC Mania,
when doing short‐term financial planning?
a) Is the level of inventory reasonable in relation to sales and the operating characteristics of PC
Mania?
b) Is the amount of money owed to suppliers of stock reasonable in relation to the
purchases?
c) Is any capital invested in dead or slow‐moving stock?
d) How does PC Mania’s inventory position relate to similar‐sized businesses in theindustry?
1) a, c, d
2) b, d
3) a, c
4) a, b, c, d

Reasoning: Inventories (trading stock) often make up 50% or more of a business’s current assets,
and therefore are deserving of close scrutiny. Key questions that must be considered
in this area include: Is the level of inventory reasonable in relation to sales and the
operating characteristics of the business? How rapidly
is inventory turned over in relation to other companies in the same industry?

Is any capital invested in dead or slow‐moving stock? Are sales being lost due
to inadequate inventory levels? If appropriate, what action should be taken to
increase or decrease inventory?
Question 13
What source of capital did Jack make use of to start PC Mania?
1) Internally generated capital

2) Trade creditors and suppliers of inventory
3) Borrowed funds from the bank
4) Disposal of non‐current assets

Reasoning: Jack made a small business loan that is repayable in 24 months.
Question 14
When Jack buys the computers from the distributor and then sells them to the consumers, the
gap between production and consumption is overcome.
1) time
2) space
3) information
4) value

Reasoning: Space gap. Most of the world’s electronic equipment is produced in China and
Japan but the buyers of these items are located all over the world. If these
electronics manufacturers want to sell their products they must offerthem in the
geographical areas where their customers are. Therefore, a geographical space
exists between the place of manufacture and the place
of consumption – or between the manufacturer and consumer!
Question 15
According to the case study, PC Mania mainly operates in the market.
1) reseller
2) consumer
3) industrial
4) international

Reasoning: Reseller markets. These businesses buy goods and services and resell them
at a profit.

Question 16
Based on the information given in the case study, PC Mania is currently in the phase of the
product life cycle.
1) introduction
2) growth
3) maturity
4) decline

Reasoning: In the introduction phase, for instance, high prices can be charged and only a limited
assortment may be offered; in the maturity phase, prices may be reduced due to the
higher level of competition in the market; and in the decline phase, the advertising of the
product may be stopped altogether as it is being phased out of
the market.
Question 17
Jack makes use of Postnet and DHL to deliver the products to his consumers within three business days.
Which element of the marketing mix is described here?
1) Product
2) Price
3) Place
4) Promotion

Reasoning:
Question 18
Which one of the following represents a holistic and integrated approach to quality, and does not exclude any
area of the enterprise?
1) Total quality management

2) Quality chains
3) Quality circles
4) Value chains


Reasoning: Since TQM is a holistic and integrative approach to quality, it does not exclude any
area of the business.
Question 19
Which of the following statements are true, concerning Jack’s innovative behaviour?
a) Jack needs to adopt a ‘fox‐like’ approach.

b) Jack needs to adopt a ‘hedgehog‐like’ approach.
c) Jack must be able to use his intuition to react quickly in a rapidly changing environment.
d) Jack must be able to search for new ideas, and explore more options. Choose
the correct combination:
1) b, c
2) c, d
3) a, c, d
4) b, c, d

Reasoning: Ilbury and Sunter (2001) refer to the fox within us, noting that world‐class companies
tend to be run by ‘foxy’ CEOs. They compare the hedgehog with the fox. Hedgehogs
live in one burrow, in one home and in one manner. Once programmed on an idea,
they cannot shake it off. Foxes believe life is all aboutknowing and experiencing many
things. They forage for new ideas and explore new routes. They also rely on intuition
and imagination. Foxes will react more quickly, and their intuition and readiness helps
them to survive in a rapidly
changing environment. Innovators adopt a ‘fox‐like’ approach.
Question 20
Jack, Juliet and Barry form part of the in the transformation process of PC Mania.
1) inputs
2) outputs
3) transformation system
4) micro‐processes

Reasoning:

Question 21
When Jack receives the computers from the distributor, he needs to check whether they comply with the set
quality standards. To which primary lead‐time element, does this statement refer?
1) Processing time
2) Waiting time
3) Set‐up time
4) Inspection time

Reasoning: The primary lead‐time elements are as follows:
• Queue time: The period during which a job stays in the queue at a work
centre.
• Set‐up time: The time needed to prepare equipment for processing a new job.
• Waiting time: The idle time between the processing of a job and its passageto the
next work centre.
• Inspection time: The time needed to check whether the job complies withquality
standards.
• Transportation time: The time needed to transport the job from one workcentre
to the next.
Question 22
Based on the fact that PC Mania has a low product variety, long product life cycles and the market is quite
predictable, which forecasting mechanism would be best to apply in this situation?
1) Consultative
2) Qualitative
3) Algorithmic
4) Unconventional

Reasoning:

Question 23
According to the case study, PC Mania follows a purchasing function.
1) centralised
2) decentralised
3) combination of centralised and decentralised
4) standardized

In a business with a decentralised purchasing function, each business unit, branch
or plant performs its own purchasing.
Question 24
Which key performance indicator, used to gauge the efficiency of the purchasing activities, will Jack evaluate, if
he looks at the number of orders and requisitions?
1) Cost savings
2) Inventory holding
3) Workload
4) Timeliness

Reasoning: Timeliness: By determining the number of orders indicated as urgent, the number of
interruptions of operations and the number of purchases lost from being out of
stock.
Question 25
One of the products sold at PC Mania, is laptop bags. The bags all need to comply with a specific minimum
acceptable standard, but at the same time, the types, sizes and grades of the bags are limited. This
statement refers to .
1) standardisation
2) specification
3) market grades
4) quality

Reasoning: Standardisation implies that the characteristics of items have to comply with a specific
minimum acceptable standard, but, at the same time, the types, sizes and
grades of an item are limited.
Question 26

According to the case study, how are purchases scheduled in PC Mania?
1) Advanced purchasing
2) Minimum purchasing
3) Scheduled policy purchasing
4) Optimum purchasing

Reasoning: Minimum purchasing entails scheduling purchases so that inventory is available only for
the immediate needs of the business. Inventory is kept to a minimum and no buffer stock
is held. This policy is normally applied when prices of materials arein a downward phase.
With this policy the business runs the risk of running out of
stock.
Question 27
If Jack were to meet with potential suppliers with the objective of reaching a compromise and concluding a
deal, it is known as .
1) a tender
2) an open tender
3) negotiation
4) a transaction

Reasoning: Negotiations entail a personal meeting between the purchaser and the supplier,
with the objective of reaching a compromise and concluding a deal.
Question 28
When Jack decided to appoint Juliet and Barry, he had to find out exactly what type of people he needed for
the specific positions. As part of his requirements, he wanted people that are hardworking and confident, and
have some experience in the online sales industry. Under which of the following will the above mentioned be
described?
1) Job analysis
2) Job description
3) Job specification
4) Job specialization

Reasoning: In order to employ new members of staff, the human resource manager must determine
what type of people, and how many, are needed for the business to expand or continue
productively. Information regarding the vacant positions mustbe obtained. The process of
gathering information is called a job analysis.
This information is then used to compile a job description and job specification.

Firstly, all the information relevant to the position needs to be collected. This can be
done through observation, interviews and questionnaires. Secondly, the information
is divided into a job description and a job specification.
The job description describes the duties, relationships of authority and
responsibilities of the person in a specific job. The job specification contains the
details of the requirements that the person needs to be able to do a specific job.
Question 29
According to the case study, what form of recruitment did Jack use when he appointed Barry andJuliet?

Reasoning: If there are no suitable internal candidates, external sources have to be used. A
combination of sources may also be exploited. Examples of external recruitment
sources and methods are:
• Self‐presentation where job‐seekers present themselves at employment
offices.
• Employment agencies who recruit on behalf of businesses.
Question 30
The process whereby Barry and Juliet acquire knowledge, skills, aptitudes and the information necessary
to achieve the objectives of PC Mania, is known as .
1) development
2) orientation
3) induction
4) training

Reasoning: Training is the systematic process by which the employee acquires knowledge, skills,
aptitudes and information necessary to achieve the objectives of the
business.
Question 31
The creation, maintenance, amendment and administration of rules, control processes, ideologies, interactions
and relationships in the workplace, is known as .
1) labour relations
2) personnel administration

3) a memorandum of recognition
4) human resource management

Reasoning: ‘Labour relations’ is concerned with the creation, maintenance, amendment and
administration of rules, control processes, ideologies, interactions and relationshipsin the
workplace.
Question 32
Jack needs to ensure that accidents in the workplace are prevented, and in order to do so, he needs to
understand the causes of accidents. Psychological distractions are classified as factors that may
cause an accident in PC Mania.
1) work
2) personal
3) internal
4) external

Reasoning: To prevent accidents, you have to know their causes. There are five basic causes, which
are divided into the following two categories:
• Personal factors: Lack of knowledge and/or skills; physical or psychological
distractions; incorrect attitude or motivation.
• Work factors: Unsafe conditions and physical environment; inadequate
working standards.
Question 33
Groups of people, procedures and resources that collect, transform and distribute information in an enterprise, is
known as .
1) transformation systems
2) information systems
3) software packages
4) hardware packages

Reasoning: Information systems comprise groups of people, procedures and resources that
collect, transform and distribute information in a business.
Question 34
The advertisement Jack placed on the local community forum’s webpage, can be classified as in
the information technology transformation process of PC Mania.

1) inputs
2) outputs

Reasoning: Advertising a vacancy is an input, human resource management is the functional
process and the appointment of an employee is the output
Question 35
The orders that are placed online for computers and other equipment, can be classified as in the
information technology transformation process of PC Mania.
1) inputs
2) outputs
Answer: The correct answer is

Reasoning:
Question 36
Jack is responsible for making decisions in PC Mania, whereas Juliet is responsible to formulate
plans and objectives.
1) strategic; operational
2) operational; strategic
3) tactical; strategic
4) strategic; tactical


Reasoning:
Question 37
Jack should be able to anticipate events and be prepared for problems by having specific plans in place to
deal with crises. To which element of the public relations definition, does this statement refer?
1) It is a fostered activity
2) It is a planned activity
3) It is a sustained activity
4) It is a maintained activity

Reasoning: It is planned: most large businesses have specific plans in place should a crisis arise. For
example, Toyota has a plan ready in the event of the discovery of a defect involving the
safety of its cars. Likewise, smaller businesses should have plans in place. For instance, if a
manufacturer of dog food realises that its products have been contaminated, it should
withdraw everything from the market with immediateeffect, and affected clients should be
compensated. Through public relations the public should be made aware that the business
is concerned with the well‐being of
its customers and their pets and is taking all steps to remedy the situation.
Question 38
According to the case study, PC Mania is involved in which one of the following public relations
campaigns?
1) Advocacy campaign
3) Public information campaign
4) Public awareness campaign


Reasoning: The public awareness campaign, which, as the name indicates, aims to create
awareness for something. This might be a specific cause or event that the business
is promoting.
Question 39
The notice about the Beat Plastic Pollution campaign that is included in every delivery, is an example of which
element in the communication process?
1) Communicator
2) Encoding
3) Medium
4) Decoding

Reasoning: The medium is what is used to communicate a message.
Question 40
During which stage of the Beat Plastic Pollution campaign, does PC Mania need to show that it is living up to
its no single‐use plastic promise?
1) Legitimacy stage
4) Distribution stage

Reasoning: Distribution stage. This stage shows the target publics that action will be delivered.
In this stage, the business needs to show that it is living up to its promises.
Exam May‐June 2016

CASE STUDY: POWER EEZE
Load shedding and power cuts have become a daily occurrence in South Africa and people need to plan their
daily routines around Eskom's load shedding schedule. This has a serious effect on the business sector as well ‐
without power, no manufacturing, trading or service delivery can take place. Enterprises are suffering massive
financial losses, and have no other choice but to find alternative power solutions.
After months of consideration, thorough market research and careful planning, Mandla Mmalefu decided to
enter the lucrative market of alternative power solutions. He started his own enterprise offering a small range of
different alternative power solutions at prices affordable to both households and small businesses. His product
range includes small generators that can provide power for an average household's basic needs for at least
four hours, slightly bigger generators for small businesses, solar power banks and various solar‐powered lights,
batteries and charging stations available over the counter. The generators and solar power banks have a life
span of

approximately five years. The solar lights, batteries and charging stations have a life span of
approximately two years.
Mandla decided to register the new enterprise as a sole proprietorship under the name, Power Eeze. It was fairly
easy for him to start this type of enterprise as initial start‐up costs were low, and he found the ideal office and
storage space available to rent for R 15 500 per month. The lease agreement was granted for 12 months, and
renewable each year after that. The office was close to his home, in Johannesburg, and had more than enough
storage space to keep inventory at optimum levels. He had a small truck that he inherited from his grandfather
which would be perfect for deliveries. Mandla had personal savings of R180 000 in his bank account. He used
this money to cover the costs of the first consignment of generators and solar power banks he had to import from
Japan, the solar‐powered lights, batteries and charging stations he purchased from a local manufacturer, office
furniture, computers, stationery and the first month's rent and electricity.
However, he soon realised that his personal savings would not be enough to cover all the costs involved in
running his own enterprise, and applied for an additional loan of R250 000 from the bank.
Mandla decided to include his niece, Naledi, in the new enterprise as she was in dire need of employment.
Naledi would have to handle all the enquiries, general over‐the‐counter sales, administration, placing orders with
the suppliers and import arrangements for Power Eeze. Mandla also appointed a team of three technicians and
one technical supervisor who would be responsible for the delivery, assembly and installation of generators and
power banks. Once inventory arrives at the office, Naledi and the technicians have to unpack the products and
Mandla does the final qualityinspection, checking the orders against the invoices and handling any
discrepancies. Mandla is also responsible for the financial function, overall supervision and management of
Power Eeze.
Power Eeze works on an order basis. Clients need to contact Naledi and indicate what product/s they need, how
many they need and when they need it. Mandla then works out a schedule for the technical team indicating
where they have to be and what they need to install. The technical team is then sent out to the clients to do final
assembly and installation. It takes the technical team one hour to fully assemble and install one generator and
three hours to install the solar power bank. The maximum number of installations the team can handle on one
day is three solar power banks and eight generators. After the installations have been done Mandla personally
checks them to ensure that everything is in working condition and that clients are satisfied with the finished
product.
The need for alternative power will definitely not decline in the near future, as Eskom has indicated that there is
no short‐term solution to the shortage of electricity in South Africa. Eskom is in fact warning all South Africans
of a possible black‐out situation.
However, Mandla is aware of the fact that if Power Eeze wants to survive over the long term, he will need to
extend the target market to other suburbs as well. This means that Mandla will have to launch a marketing
campaign to make potential consumers in neighbouring suburbs aware of Power Eeze's products and services.
Question 1
According to the Small Business Amendment Act of 2003, Power Eeze can be classified as a
enterprise.
1) micro‐

2) very small
3) small
4) medium‐sized

Reasoning:
Question 2
Mandla Mmalefu can be classified as an entrepreneur because he .
a) is responsible for the profit and survival of Power Eeze

b) started his own enterprise called Power Eeze
c) is responsible for the growth of Power Eeze
d) did not need to take any risks
e) is creative and innovative
Choose the correct combination
1) a, b, c
2) a, d, e
3) b, c, e
4) a, b, c, d, e

locus of control, self‐confidence, passion, determination and management skills to plan and
control the entrepreneurial process. Mandla can therefore be classified as an entrepreneur
because he spotted an opportunity in themarket, had the courage to take a risk to start
Power Eeze, had a clear vision of
what he wanted and showed creativity.
Question 3
Power cuts and load shedding are variables which can be found in the environment, which
Power Eeze has control over.
1) market, limited
2) market, no

3) macro, limited
4) macro, no

Reasoning: The macro‐environment. This refers to the external forces that the individual
business has no control over, but which directly or indirectly influence the business, such as
economic, political and technological factors.
Question 4
The supplier that Mandla uses in Japan, to import generators and solar power banks, forms part of the
environment of Power Eeze.
1) micro
2) market
3) macro
4) international

Reasoning: The market environment consists of consumers, their needs, purchasing power, and
behavior, competitors, intermediaries, suppliers, opportunities and threats. As Mandla has a
relationship with this supplier – albeit situated in Japan, he has some form of control over it.
Had this supplier have been listed under the international environment (option4), it would
have formed part of the macro environment, over
which he has no control.
Question 5
Power Eeze's effort to provide the greatest possible need satisfaction with limited factors of production,
is known as .
1) the economic principle

2) need satisfaction
3) an economic motive
4) entrepreneurship

Reasoning: The economic principle are about satisfying unlimited consumer wants with limited
resources.
Question 6
Which one of the following factors of production is represented by the generators, solar power banks, solar
lights, batteries and chargers that Power Eeze sells?
1) Entrepreneurship
2) Capital
3) Natural resources
4) Labour

Question 7
Power Eeze needs to plan their daily routines and activities around ESKOM's load shedding. Short‐term
planning regarding daily tasks, refers to planning on the level of management.
1) strategic
2) tactical
3) operational
4) functional

Refer: Prescribed Textbook, pg.23
Reasoning: Operational level: On this level the entrepreneur is concerned with all the activitiesregarding
the daily tasks of the business. This involves short‐term planning and
implementation of plans and objectives.
Question 8
The way in which Mandla assists staff members to achieve the objectives of Power Eeze, refers to
.
1) delegation
2) co‐ordination
3) discipline
4) leading

Reasoning: Coordination is the process by which the various functions in the business are treated as a
functional unit so that its objectives can successfully be achieved. Among other things, it
includes balancing and distributing tasks so that the best
possible cooperation is attained.
Question 9
Naledi is responsible for duties such as administration, placing orders with the suppliers and the handling of
import arrangements. On this level planning, as management task, is very important.
1) strategic
2) tactical
3) operational
4) organisational

Reasoning: Lower‐level managers (supervisors): Implement operational plans and objectives;
make on‐the‐spot decisions; transact day‐to‐day business operations.

Question 10
Mandla needs to be aware of the key components that are busy reshaping the world of the new economy,
and utilise the knowledge and ideas of his employees. This statement refers to .
1) new communication technologies

2) globalisation
4) alliances across business borders

Reasoning: ‘Knowledge management’ refers to the fact that the entrepreneur must find, unlockand share
the expertise, skills and wisdom of their people, and nurture relations
between them.
Question 11
Which one of the following is NOT an additional management function that has to be executed bythe
management of Power Eeze?
1) Motivation
2) Delegation
3) Decision‐making
4) Organising

Reasoning: The six additional management functions are:
 Co‐ordination
 Decision making
 Communication
 Motivation
 Delegation
 Discipline
Question 12
Official memos and newsletters form part of the communication channel that is followed in Power
Eeze.
1) formal
2) informal
3) global
4) internal

Reasoning: Employee newsletters, or other in‐house publications, are a good example of
internal communications.

Question 13
Additional or short‐term objectives that are set in Power Eeze to render quality services to clients, and achieve
a steady growth in sales volume, can be classified as objectives.
1) main
2) strategic
3) overall
4) secondary

Reasoning: To support the primary objective of profit, therefore, each of the various functions
in the business draws up certain secondary objectives,
Question 14
When Mandla allocates power and responsibility to Naledi, as well as the technicians and the supervisor,
it refers to .
1) authority
2) delegation
3) discipline
4) decision‐making

Reasoning: Delegation is the process whereby tasks are allocated to employees with the
necessary power and responsibility to enable them to do the tasks.
Question 15
The office space that Mandla is renting, is an example of Power Eeze's .
1) current assets

Reasoning: Current liabilities are accounts payable, notes payable to banks, accrued expenses
(wages, salaries), taxes payable, the current portion (due within one year) of long‐
term debt and other obligations owing to creditors due within one year.
Question 16

If Mandla asks Naledi to compile a document each month to show the results of operating during that month,
she would compile a/an .
1) budget
2) statement of financial position (balance sheet)
3) financial analysis
4) statement of comprehensive income (income statement)

Reasoning:
Question 17
Which one of the following calculations will Naledi use to measure the working capital of Power Eeze?
1) Working capital = Total current assets ‐ Total current liabilities

2) Working capital = Current assets ‐ Inventory
3) Working capital = Total assets ‐ Total equity
4) Working capital = Non‐current assets ‐ Non‐current liabilities

Reasoning:
Question 18
Which of the following are tools that Naledi can use for financial planning and forecasting?
a) Break‐even analysis
b) Pricing formulas and policies
c) Pro forma financial statements
d) Ratio analysis Choose
the correct combination
1) a, b, d
2) a, d
3) c
4) a, b, c, d


Reasoning: The following tools can be used as part of the financial planning process:
 Pro forma financial statements
 Ratio analysis
 Break‐even analysis
 Pro forma cash flow statement
 Pricing formulas and policies
Question 19
Mandla is responsible for the financial function and he needs to do long‐term financial planning.What would
the first step be that he needs to do, to develop effective long‐term plans?
1) Set the goals and objectives of Power Eeze

2) Determine his personal objectives and how they affect the willingness and ability of Power Eeze to
pursue its financial goals
3) Study methods of operation, new market opportunities and other factors
4) Develop long‐range plans that will enable him to attain the goals and objectives of Power Eeze

Reasoning: The first step in developing effective long‐term plans are:
Determine your personal objectives and how they affect your willingness and ability
to pursue financial goals for your business.
Question 20
Which of the following might be causes for the additional capital needs of Power Eeze?
a) Seasonal factors
b) An increase in accounts receivable
c) Low retained profits
d) A change in interest rate after a loan is granted
1) a, b, d
2) a, c
3) c, d
4) a, b, c, d

Refer: Prescribed Textbook, pp. 78 ‐ 80
Reasoning: There are many factors that can create a need for additional capital:
 Sales growth that leads in many instances to more investments in stock.
 An increased volume of accounts receivable.
 Entrepreneurs need cash for business growth.
 Efficiency drives.
 Quantity discounts.

 Seasonal factors.
 Changes in interest rates after a loan is granted.
 Local or national economic conditions.
 Low retained profits.
Question 21
If Mandla wants to be competitive in the market, he needs to offer credit to his clients. Which of thefollowing are
the factors that Mandla and Naledi need to consider when evaluating a credit applicant?
a) The applicant's willingness to pay

b) The applicant's credit history
c) The applicant's overdraft balance
d) The potential profitability of the account
1) a, b, c
2) c, d
3) a, b, d
4) a, b, c, d

Reasoning: There are three major factors to consider in evaluating a credit applicant.
 The first is the applicant’s ability to pay, based upon income and other
financial obligations; for example, if the applicant has already taken out other
credits. (note that alternative c applies here)
 The second is willingness to pay, which can be determined from the
applicant’s credit history. (alternatives a and b)
 The third factor is the potential profitability of the account. (alternative d)
Question 22
Mandla and Naledi need to do cash‐flow planning on an on‐going basis. The cash‐flow forecast thatNaledi
needs to compile, runs hand in hand with the .
1) statement of financial position (balance sheet)

2) sales forecast
3) budgeted statement of comprehensive income (budgeted income statement)
4) credit forecast

Reasoning: The cash flow forecast runs hand in hand with the budgeted statement of
comprehensive income.
Question 23

Which one of the following does NOT form part of the market environment of Power Eeze?
1) Consumers
2) Factors of production
3) Suppliers
4) Competitors

Reasoning: Market environment:
• The market, consisting of consumers, their needs, purchasing power, and
behavior.
• Competitors
• Intermediaries
• Suppliers
 Opportunities and threats
Question 24
When conducting a SWOT analysis on Power Eeze, it means that one looks at the strengths,
weaknesses, opportunities and threats of the environment of the enterprise.
1) market
2) macro
3) micro
4) business

Reasoning: As strengths and weaknesses are internal, this could relate to micro‐environment.As
opportunities and threats are external, this could relate to macro‐ and market
environment.
As SWOT includes both, the correct answer could only be 4
Question 25
Which one of the following is NOT a way in which Mandla could do market segmentation?
1) The division of the market according to the strengths, weaknesses, opportunities and threats in the
business environment
2) The demographic division of consumers according to level of education, occupation or income
3) The division of the total market into smaller segments with certain similarities or common
characteristics
4) The geographic division of consumers according to their location, occupation and income

Reasoning: Option 2 refers to demographic segmentation
Option 3 refers to the definition of market segmentation
Option 4 refers to geographic segmentation.

Question 26
It is important to know to whom Mandla is going to sell the generators, solar power banks and other power
equipment. This refers to an investigation to identify Power Eeze's market.
1) product
2) service
3) supplier
4) target

Reasoning: The target market consists of consumers with certain needs for products and
services and who are willing to sacrifice something (money) to satisfy those needs.
Question 27
When Mandla gathers information on a specific market group, so that better marketing decisions can be
made, it refers to .
1) a market survey
2) consumer research
3) market research
4) a supplier analysis

Reasoning: Market research is the action or activity of gathering information about consumers'
needs and preferences.
Question 28
If Mandla has a special offer on the products of Power Eeze, for example "buy one generator and get 10 liter
diesel free", it can be classified as .
1) advertising
2) sales promotions
3) personal sales
4) publicity

Reasoning: Sales Promotion: Special promotions can be held periodically. The shop can
distribute pamphlets every three months, advertise specials on hindquarters or family
packs of meat.
Question 29
Product, price, distribution (place) and marketing communication, are elements of the of Power
Eeze.
1) marketing plan
2) sales analysis

3) distribution channel
4) marketing strategy
Answer: The correct answer is 1/4

Reasoning: There are four variables about which the entrepreneur has to take decisions:
• the product itself;
• the place where it is to be sold (distribution of the product);
• the marketing communication methods to be used to inform the consumer;
• and the price of the product, which should reflect its value to the consumer.
These four variables combine in a market offering, which the consumer may decide to buy
if it satisfies their needs. The four variables are known as the marketing instruments or as
the ‘marketing mix’. This consists of the ‘four Ps’ (product, place, promotion and price).
Decisions regarding the four marketing instruments combine
to form an integrated marketing strategy, or marketing plan.
Question 30
Changes in the marketing environment of Power Eeze, can be identified by implementing the .
1) marketing plan
2) sales analysis
3) distribution channel

Reasoning: The marketing strategy for a specific market offering is directed at a group of consumers in a
specific environment. It is, therefore, evident that if anything should change in the
environment, the market offering and the marketing strategy must be
changed accordingly.
Question 31
Which of the following are the primary functions of operations management in Power Eeze?
a) Demand and capacity planning

c) Streamlining and simplification
d) Process management and maintenance
1) a, b
2) c, d
3) b, c
4) a, b, c, d


Reasoning: Operations management involves the following primary functions:
• product and service design (demands creativity)
• demand and capacity planning
• operations system design (demands creativity)
• production planning and control
• improvement, problem‐solving and maintenance (demand creativity).
Question 32
Which one of the following represents the ideal series of transformational processes, where each step
increases the value of items sold at Power Eeze?
1) Value analysis
2) Value chain
3) Quality chain
4) Quality circle

Reasoning: A value chain is the ideal series of transformational processes whereby each step
increases the value of an item.
Question 33
Mandla needs to utilise the human resource potential and creativity, by investing in human capital. This
statement refers to .
1) process management
2) operations design
3) streamlining,
4) capacity

Reasoning: Capacity involves utilising human resource potential and creativity by investing in
human capital
Question 34
Power Eeze operates in a volatile market in which there is a large variety of products available and clients demand
immediate product delivery. Which operations design is applicable to this situation?
1) Lean supply
2) Agile supply
3) Quantitative supply
4) Algorithmic supply


Reasoning:
Question 35
Mandla and Naledi need to determine the demand for generators and solar power banks with a view to
accommodate future events. Which of the following techniques can they use to determine the demand?
a) Causal methods
b) Time‐series analysis
c) Instrumental analysis
d) Qualitative techniques
1) a, d
2) a, b, d
3) b, c
4) a, b, c, d

Reasoning: Forecasting techniques are divided into three categories:
• Qualitative techniques
• Time‐series analysis
• Causal methods
Question 36
Mandla must exercise control over the financial investment in inventory, to save on interest and costs. Which
of the following are cost factors associated with keeping inventory in Power Eeze?
a) Obsolescence
b) Damages
c) Excessive inventory insurance
d) Interest on capital investment
1) a, b
2) b, d
3) a, c

4) a, b, c, d

Reasoning: Carrying cost
• Direct inventory carrying cost elements: the two direct‐cost components are
capital cost (interest or opportunity cost) and holding cost. Holding costrefers to
the cost involved in renting storage facilities, warehouse equipment, electricity,
insurance, security, handling, bookkeeping, warehousing labour, and damage.
• Indirect inventory carrying cost elements: these are the costs attached to
obsolescence, record‐keeping, physical stocktaking, inventory planning and
control by management. Other hidden cost elements are the cost of production
floor space utilised for work in process, scrap and rework, as
well as the cost involved in handling and containerisation.
Question 37
Power Eeze's willingness to meet the clients' needs when needs are expressed, refers to their .
1) responsiveness
2) competence
3) reliability
4) performance

Reasoning: Pertaining to services:
• Reliability means that one can depend on a service dimension as expected.
• Responsiveness is the willingness of the service provider to meet the
customer’s needs when these needs are expressed.
• Competence refers to the service provider’s possession of skills and
knowledge to perform the service.
Pertaining to goods:
• Performance is the way that a product actually operates. Does it do what it
promises to do?
• Features are the little extras that go with a product and make it unique.
• Reliability refers to the promise that it will perform and keep on performingas
promised over a specific time span (eg the guarantee period).
• Conformance is the meeting of preset standards.
• Durability is the length of the useful life of the product – its lifespan.
• Aesthetics relates to the physical quality of the product, which means it is
pleasant to look at.
• Perceived quality is the indirect evaluation of quality, for example the
reputation of a specific brand.
Question 38
The generators and solar power banks have a life span of approximately five years. This refers to the
of the products sold at Power Eeze.

1) conformance
2) aesthetics
3) durability
4) performance

Reasoning: Durability is the length of the useful life of the product – its lifespan.
Question 39
Mandla is responsible for the purchasing function and if this function does not fulfil its responsibilities, the
other functions cannot operate at optimum levels. This may have a negative influence on the image of Power
Eeze, and it is the function's responsibility to take corrective action.
1) public relations
2) operations management
3) marketing
4) general management

Reasoning: The quality of the purchased materials influences not only the quality of the end product,
but also the customer base, or target market, of manufacturing businesses. In retail
businesses, the quality of purchased products influences theimage of the firm and the kind
of customer who will purchase from them.
It is, therefore, clear that the operations and marketing functions are directly impacted by
the quality of purchased goods. The decisions relating to product/ service quality are,
indeed, made by the operations and marketing staff, who are the ‘users’ of the purchased
material. However, the purchasing function has an important task to do in checking and
querying the specifications and then advising the users of alternative quality materials or
products that might be cheaper, yet still fulfil the function for which they are being bought.
Whilst the public relations function is responsible for creating and maintaining a positive
image, i.e. via social involvement, it is not their responsibility to rectify the mistakes that
other divisions make.
Control is a management task to determine whether the business and the different
functions within it, such as purchasing, have attained their objectives and improved their
performance. Therefore it is a management responsibility.
Note that neither marketing nor operations can take this responsibility either, as
purchasing isn’t their function. They are separate entities that has responsibility for
their own areas of functioning.
Question 40
During which phase of managing the purchasing function, will Mandla determine if purchasing policies,
procedures and practices are up to date, written and effective?

1) Organising the purchasing function

2) Controlling the purchasing function
3) Designing the purchasing function
4) Planning the purchasing function

Reasoning: Control is a management task to determine whether the business and the different functions
within it, such as purchasing, have attained their objectives and improved
their performance.
Question 41
At Power Eeze, purchasing activities are executed in logical steps, forming a cycle also known as the
'purchasing procedure'. Steps two to four involve the following:
 Select suppliers
 Determine the prices
 Place the order
What will the next logical step be?
1) Receive the goods

2) Handle any errors
3) Expedite and follow up
4) Pay the suppliers

Reasoning:
Question 42
Power Eeze's purchasing budget starts with information regarding the sales forecast, received from the
function.

1) marketing
2) operations management
3) financial
4) information management

Reasoning: The sales forecast will depend on variables in the marketing (i.e. planned promotions that
can affect demand), operational (i.e. opening a new outlet) as well as financial functions
(i.e. financial constraints). Therefore, as information management is responsible for the
orderly collection, processing, retrieval,
distribution and storage of information in a business, the correct answer is 4
Question 43
The guidelines according to which the suppliers of Power Eeze are identified and selected, areincluded in
the purchasing .
1) objectives
2) procedures
3) budget
4) policy

Reasoning: Purchasing activities are executed in logical steps, forming a cycle also known
as the ‘elements of the purchasing processes’ or ‘purchasing procedure’.
Question 44
The first step that Power Eeze has to follow when they select their suppliers, would be to .
1) set the criteria for evaluating suppliers

2) evaluate and select the suppliers
3) monitor suppliers
4) compile a list of potential suppliers

Reasoning: The selection process starts with the compilation of a list of suppliers that may be able to
satisfy the need.
Question 45
Which of the following are external factors that could influence the timing of purchases at Power Eeze?
a) Government regulations
b) Marketing strategies
c) Market conditions
d) Availability of funds

e) Reliability of suppliers
1) b, c
2) b, d, e
3) a, c, e
4) a, b, c, d, e

Reasoning: External factors that influence the time of purchase are market conditions
(availability, recessions, booms), government regulations and seasons.
Alternatives b and d are internal factors.
Question 46
To determine the optimum stock levels of Power Eeze, Mandla had to weigh up the costs of
stock against the costs of stock.
1) ordering, insufficient
2) ordering, keeping
3) keeping, insufficient
4) keeping, obsolete

Reasoning: As a certain quantity of items is purchased, holding and ordering costs increase and
decrease in opposite directions to each other.
Question 47
Naledi would have to handle all the enquiries, general over the counter sales, administration, placing orders with
the suppliers and the import arrangements for Power Eeze. This information will be included in the job .
1) specification
2) analysis
3) description
4) specialization

Reasoning: The job description describes the duties, relationships of authority and
responsibilities of the person in a specific job.
The job specification contains the details of the requirements that the person needs
to be able to do a specific job.
Question 48

If Mandla decided to appoint another technician and advertise the available position, which of the following
information should he include in the advertisement?
a) Job title
b) Fringe benefits
c) Working hours
d) Application procedures
e) Brief description of the business
1) a, b, d, e
2) b, c
3) a, d, e
4) a, b, c, d, e

Reasoning: To advertise a position you need to compile an advertisement. The followinginformation
should be included:
• job title
• salary
• important features of the work
• requirements of the successful candidate
• fringe benefits
• application procedures
• the person in charge of the applications
• a brief description of the business.
Question 49
Which one of the following is NOT another external recruitment method that Mandla could use to find possible
candidates for the technician position?
1) Training institutions
3) Employment agencies

• Training Institutions
• Self‐presentations
• Employment agencies
• Professional institutions
Question 50

Once Mandla receives enough applications, he needs to select possible candidates for the technician position.
During which step of the selection process will he give the applicants a technical test to determine if they know
how to install generators and solar power banks?
1) Step 2
2) Step 3
3) Step 4
4) Step 5

Reasoning: Step 3: Selection tests
Question 51
Once the new technician has been appointed, he needs to be introduced to Power Eeze, its
procedures, environment, work situation, colleagues and supervisors. This is known as .
1) training
2) orientation
3) development
4) introduction

Reasoning: The orientation (also known as incorporation or induction) of newcomers is the process
whereby new employees are firstly introduced to the business, its procedures, environment
and work situation, and, secondly, to their coworkers,
subordinates and superiors.
Question 52
If Mandla decides to give his employees a transport allowance, in addition to their normal salaries, it will be
classified as remuneration.
1) primary
2) secondary
3) direct
4) indirect

Reasoning: Examples of indirect remuneration, or fringe benefits are:
• Pension
• Insurance
• Housing
• Travel allowance (Transport)
• Leave
• Profit sharing
Question 53

It is essential that the working conditions at Power Eeze be safe and pleasant. Which of the following are ways
that Mandla can help ensure that employees at Power Eeze remain safe, healthy and productive?
a) Providing sufficient leave and acceptable working hours

b) First‐aid provision in case of an accident
c) Limiting noise and noise intensity
d) Providing sufficient lighting that eliminates reflection Choose
1) a, b
2) c, d
3) a, b, d
4) a, b, c, d

Reasoning: There are various ways in which one can help ensure that employees remain
healthy and productive, for example:
• a clean workplace, recreation room and cloakroom
• sufficient leave, acceptable working hours and little or no overexertion
• first‐aid provision in case of an accident or illness
• a suitable and pleasant workplace
• ergonomically designed office equipment, especially the desk and chair
• sufficient lighting that eliminates reflection and, where possible, uses
natural daylight regulated by means of blinds
• limiting noise – and noise intensity – by isolating machines and pipes,
making use of carpeted and cork floors and/or acoustic tiles
• temperature regulation by air conditioning, especially where large
fluctuations occur, as excessive heat results in discomfort and fatigue.
Question 54
Which one of the following Acts applies to all the employees in Power Eeze, and regulates employee leave,
working hours, employment contracts and employee records?
1) Employment Equity Act

2) Labour Relations Act
3) Basic Conditions of Employment Act
4) Skills Development Act

Reasoning: Basic Conditions of Employment: This applies to all employers and workers, and regulates
employment conditions, such as leave, working hours (ordinary, Sundaysand public
holidays), employment contracts, employee records, deductions,
payslips, overtime and termination.

Question 55
Accurate information is a very important aspect in Power Eeze, especially when making decisions regarding
suppliers, stock needed, stock levels and delivery dates. This information will be required by the function.
1) operations
2) financial
3) purchasing
4) marketing

Reasoning: Suppliers, stock needed, stock levels and delivery dates are all variables inside the
purchasing function.
Question 56
Which one of the following statements is NOT true?
1) Knowledge is a cognitive event

2) Knowledge is related to context
3) Knowledge is an intangible asset
4) Knowledge is unconditional

Reasoning: Knowledge is conditional: knowing when to apply a procedure is just as important
as knowing the procedure (conditional)
Question 57
One of the most important reasons why Mandla must do financial recordkeeping of all the
transactions in Power Eeze, is that .
1) the Receiver of Revenue obliges them to keep financial records

2) it is evidence for the auditors that the accounting entries are correct
3) it helps them to plan the purchases of all the raw materials and stock
4) the finance department must do it as part of their duties and activities

Reasoning: The entrepreneur must have usable information in order to make good decisions. No
business can be managed without timely, relevant and accurate information. It is also
impossible to manage and make decisions if only data – and not information
– is available.
Question 58
One of the most important stages of processing information in Power Eeze, is the collection of data. Which of the
following aspects must be considered during this stage?
a) The staff collecting the data

b) The format in which data is collected

c) The methods used to collect data
d) The activities on which data is collected
e) The date and time data is collected
1) a, b, c, d
2) b, c, d, e
3) a, b, c, d, e
4) b, c, d

Reasoning: When collecting data, there are three aspects to consider:
• Activities for which data must be collected: The entrepreneur must decidefor
which activities it is necessary to collect data. These may include recording sales
transactions, payments made and products produced.
• The format in which to collect data can be recorded in a systematic way on
predesigned forms. Normally, a data collection form would include the following:
o name and number of the form
o purpose of the form
o the details that are needed and the order in which the data must be
captured
o quality and colours used for the form
o ample writing space.
• Methods of collecting data: Data can be collected manually (by hand) or
electronically (by computer or machine). For example, if you keep a record on
predesigned cards of all the products sold, then the method of collectingdata is
manual. If the cash register is linked to a computer, it will automatically record the
quantity of products sold. This method is
electronic.
Question 59
Which one of the following information systems would be best to use in Power Eeze, if Mandla wants a
system that primarily serves the functions of planning, organising, leading and control at management level?

4) Transaction processing system

Reasoning: The Management information system (MIS) primarily serves the functions of
planning, organising, leading and control at the management level.
Question 60

The difference between data and information is that information .
1) refers to facts in an unprocessed format

2) contains figures and also transactions recorded
3) cannot be used in decision‐making
4) is processed data that can be used in decision‐making

Reasoning: • Data relates to facts in an unprocessed form. It cannot be used in the decision‐
making process in that form; for example, this could be a pile of invoices of all
sales for the year, or a list of employees’ salaries.
• Information refers to data that has been processed so as to be usable in a
specific situation, for example the invoices could be arranged in chronological
order, or a comparison made between the number of products sold in the last
month with the figures for the same month the
previous year.
Question 61
There are three important elements in the processing of information at Power Eeze, namely .
1) inputs, collecting and distribution

2) collecting, processing and discarding
3) inputs, processing and outputs
4) processing, inputs and distribution

Reasoning: A system consists of various components that work together to achieve a common
goal by accepting inputs, processing them and producing outputs in an organised
manner.
Question 62
The system which is responsible for creating and maintaining systematic procedures and control of all records
in Power Eeze, is known as the system.
1) internet
2) record‐keeping
3) mechanical
4) records management

Refer:
Reasoning:
Question 63

Which one of the following is NOT a factor that affects the relationship between Mandla, Power Eeze, and
the people who have an interest in Power Eeze?
1) The way in which Power Eeze employs and remunerates the employees
2) The replacement and conservation of Power Eeze's resources
3) The quality and prices of Power Eeze's competitor's goods and services
4) The attitude of Power Eeze towards the utilisation of resources

Reasoning: Public relations involves the relationship between the entrepreneur, the business and those
people who have an interest in the business. This relationship is affectedby a number of
factors. These factors include the following:
• the way in which the business employs and remunerates its staff
• the attitude of the business towards the utilisation of resources
• the replacement and conservation of resources
• the quality and prices of the business’s goods or services.
Option 3 refers to a competitor’s goods and services.
Question 64
It is Mandla's responsibility to set the public relations objectives of Power Eeze. Therefore, he must ensure that
these objectives are .
a) flexible
b) realistic
c) measurable
d) sustainable
1) a, b
2) a, c, d
3) b, c, d
4) a, b, c, d

Reasoning: There are many more objectives that can be set for public relations, and it is the task of
the entrepreneur to ensure that these objectives are realistic, measurable
and sustainable.
Question 65
Mandla is dependent on the bank to finance a facet of Power Eeze. As part of the public relationsfunction,
Mandla needs to keep good relations with the bank by .
a) discussing problems with the bank, like a drop in Power Eeze's turnover
b) keeping the bank up to date with the financial position of Power Eeze
c) informing the bank of any new developments in the strategies followed at Power Eeze
d) keeping the bank up to date with any negative cash‐flow issues within Power Eeze

1) a, b, d
2) a, c
3) b, c, d
4) a, b, c, d

Reasoning: This may entail keeping the parties up to date on the financial position of the business, the
strategy that is being followed and any new developments. In difficult times, such as during a
recession, it means discussing problems such as a drop in turnover or negative cash flow, in
order to keep investors and financial institutions
up to date on the situation in the business.
Question 66
If Mandla wants to educate the market on the importance of saving electricity, which type of public relations
campaign would he use?

3) Information awareness campaign
4) Public behaviour campaign

Reasoning: The public education campaign, which educates the market about something, for
example road safety or saving electricity.
Question 67
During which phase of the public relations process will Mandla ask "what is happening now"?
1) Defining the problem or opportunity

3) Taking action and communicating

Reasoning: Define the problem or opportunity. This step will require research regarding opinions,
attitudes, behaviour, and so on. This phase answers the question of what
is happening now.
Question 68
Which one of the following is NOT a function of public relations within Power Eeze?
1) Promoting goodwill
2) Directly promoting Power Eeze's products and services

3) Releasing information to the public

4) Selling Power Eeze's products and services

Reasoning: Public relations:
• Promotes goodwill
• Release information to the public
• Creates or reinforces an image
• Directly promotes a product or service
• Counteracts negative publicity
• Handles internal communications
• Promotes and plan events
Question 69
The public relations process consists of four steps. Which one of the following is the correct order of steps that
Mandla needs to follow during this process?
1) Define the problem or opportunity, gather information, planning and programming, takingaction and
communicating
2) Planning and programming, gather information, evaluate alternatives, taking action and
communicating
3) Define the problem or opportunity, planning and programming, taking action and
communicating, and evaluate the campaign
4) Identify the problem, gather information, taking action, and evaluate the process

Reasoning: These steps include the following (Rensburg & Cant 2009: 208):
1. Define the problem or opportunity.
2. Planning and programming.
3. Taking action and communicating.
4. Evaluating the campaign.
Question 70
The way in which the employees treat the customers of Power Eeze will affect the attitude of the public towards
the enterprise. To which factor of forming public opinion does the abovementioned statement refer?
1) The type of relationship that exists between employees

2) The previous experience of customers
3) The external interest groups
4) The reception and atmosphere in Power Eeze


Reasoning:
The most important advertisement for a business is when consumers share their
good experiences with one another: this is called ‘word of mouth’. If consumers are
satisfied with the service or product offered and therefore have a good opinion of
the business, they will tell other people. However, people tend to talk more about
negative experiences than about positive ones, so the opinion of others can also be
very damaging. Every time a customer has contact with the business, they have the
chance to form an opinion – this is called the ‘moment of truth’. It is possible that
just one slip‐up will undo all that has been built up over time.

CASE STUDY: CHAT AWAY
Phillip Carlson, a marketing consultant from Johannesburg, and Thomas Harding, a mobile application
developer from Pretoria, decided that they wanted to start their own enterprise.
From their backgrounds, they understood the importance of the use of cellphones and, more specifically, the
use of instant messaging services as a preferred mode of communication. It was for this reason that they
decided to develop a new mobile application service called ChatAway.
To determine the needs of the market, Phillip and Thomas decided to conduct a market survey. They gathered
information on teens and university students to ensure that better marketing decisions were made. Although the
survey identified various other instant messaging services, Phillip and Thomas strongly believed that they could
offer a better service. ChatAway was successfully launched in 2008 as a free instant messaging service.
ChatAway's services included free instant messaging, mobile voice clips, video clip sharing, interactive media
sharing, entertainment, chat rooms and online games. ChatAway offered a free instant messaging service, but
charged extra for chat rooms, entertainment and online gaming.
Phillip and Thomas decided to register ChatAway as a partnership as they would have joint control and authority
over the enterprise, but each partner would be able to adjust the control and authority aspect in their partnership
agreement. The initial startup costs for the enterprise were verylow. Thomas already had the software package
available to build the new application and Phillip had the office space to do so. For start‐up financing; Phillip and
Thomas used their own money which they had saved up for when an opportunity like this came their way.
As part of their marketing efforts, ChatAway pays for advertisements in the vicinity of local high schools and
universities. They often advertise on local university radio stations and various other marketing campaigns.
Although the initial launch appealed mainly to the youth, ChatAway aimed to target all age groups.

Phillip and Thomas soon realised that the main challenge of a service like this was to measure and closely
monitor customer satisfaction and improve their current services to keep up with the pace of their target markets.
Competitors were on the increase and the demand and awareness of instant messaging services were also on
the increase. They came to the conclusion that offering value to their customers was the only way to succeed in
the new world of mobile application services. It was for this reason that Phillip and Thomas had to move to a
bigger office space and appoint more people to assist with the dally tasks within ChatAway. Phillip and Thomas
took out a loan from the bank for R200 000, payable within 5 years, to assist with this needed transition. Phillip
had experience with finances and purchasing and he continued to be responsible for these functions within
ChatAway. They appointed two technicians, a marketing specialist, a customer service consultant and a media
liaison specialist. They also appointed a software developer on an ad hoc contract basis.
Thabile, Phillip's previous work colleague, was also permanently appointed to assist with general
administration duties. Thomas and Phillip strongly believe that a strong leader should be able to judge and
sum up circumstances quickly and adapt his leadership style accordingly. As a result, the degree of direct
supervision of the employees has been gradually decreased over the years.
Today ChatAway is considered as one of the top five instant messaging services, and the demand and
awareness are still on the rise. ChatAway has been successful in this industry for many years now and is
constantly on the lookout to provide their clients with the best service offering.
Question 1
Phillip and Thomas decided to start their own enterprise and can therefore be regarded as
1) small business managers

2) business managers
3) entrepreneurs
4) managers

locus of control, self‐confidence, passion, determination
and management skills to plan and control the entrepreneurial process.
Question 2
According to the National Small Business Amendment Act 26 of 2003, ChatAway can be classified as a
enterprise as the enterprise employs full‐time employees.
1) small, eight
2) very small, eight
3) small, nine
4) very small, nine


Reasoning:
Note that the software developer is on an ad‐hoc basis and not full time employed,
therefore option 4 is incorrect.
Question 3
The continued success of ChatAway is determined by .
a) Phillip's ability to lead ChatAway through the different stages of its development
b) the establishment phase of ChatAway
c) the ability of Phillip and Thomas to manage ChatAway
d) employee inputs during the decision‐making process
1) a, c
2) a, b, d
3) b, d
4) a, b, c, d

Reasoning: The continued success of an entrepreneurial business is determined by the ability of
the entrepreneur to manage and lead the business through different stages of its
development.
Question 4
The mission and objectives of ChatAway fall under control of management and can be identified in the
environment of ChatAway.
1) direct, micro
2) direct, macro
3) limited, micro
4) indirect, market


Reasoning:
Question 5
Which one of the following environments has the potential to influence, to a large degree, how ChatAway is
managed through the behaviour of consumers, suppliers and intermediaries?
1) Micro‐environment
2) Macro‐environment
3) Market environment
4) Mega environment

Reasoning: The market environment has the potential to influence, to a large degree, how a business is
managed. This influence is exerted through the behaviour of consumers, suppliers and
intermediaries, who are all sources of opportunities and threats to
the business.
Question 6
A change in the value of the Rand can be classified as a/an variable which can be found in the
macro environment of ChatAway.
1) accounting
2) economic
3) financial
4) capital

Reasoning: Interest rates, inflation, value of the rand (aspects of monetary policy) and fiscal policy
changes should be noted by entrepreneurs and taken into account in planning. South Africa
has an open economy, which makes it sensitive to changes in
international economies.
Question 7

Phillip and Thomas should be aware of the components that reshape the world of the new economy. He should
therefore utilise the intellects, skills and ideas of all the employees at ChatAway. This statement refers to .
1) globalisation
4) alliances across business borders

between them.
Question 8
The way in which Phillip and Thomas assist Thabile and other employees in achieving the objectivesof
ChatAway, refers to .
1) motivation
2) co‐ordination
3) control
4) leading

Reasoning: Leading: This involves the effective supervision and motivation of employees.
Question 9
Phillip will be responsible for setting the plans and objectives of ChatAway
1) tactical
2) strategic
3) functional
4) operational

Reasoning: The final authority and responsibility for carrying out management duties will be taken on a
strategic level. The functions of this level are unstructured and unpredictable. At this level
routine tasks constitute a very small part of management. On this level the entrepreneur
must always devote time and attention to strategic planning, that is, to the systematic
setting, structuring and/oradaptation of the organisation’s objectives. Long‐term objectives
are particularly
important here.
Question 10
At the tactical level of ChatAway, Phillip and Thomas will be

a) responsible for implementing policies and strategies

b) responsible for allocating resources
c) concerned with medium‐ to short‐term planning
d) concerned with organising, leading and controlling functional departments Choose
1) a, b
2) c, d
3) a, c, d
4) a, b, c, d

Reasoning: On the tactical level, the entrepreneur is primarily responsible for implementing thepolicy,
plans and strategies and for the allocation of resources. Medium‐term or functional planning
takes place on this level and this involves all the functional
strategies and plans made in the various departments of the business.
Question 11
Which one of the following criteria could Phillip give Thabile to assist her with her time management skills?
1) If a task is important but not so urgent, it needs to be done immediately

2) If a task is not important and not urgent, plan to do the task at a later stage
3) If a task is both important and urgent, it can wait for a while
4) If a task is not important but urgent, it needs to be done immediately, even if it takes long.

Reasoning: The following criteria can be used:
• If a task is both important and urgent, it needs to be done immediately.
• If a task is important but not so urgent, it can wait for a while.
• If a task is not important but urgent, do it, but do not spend a lot of timedoing
the task.
• If a task is not important and not urgent, plan to do the task at a later stage.
Question 12
The control process in ChatAway is executed in four logical steps. During which step will Phillip and Thomas
evaluate and compare actual performance against set standards?
1) Step 1
2) Step 2
3) Step 3
4) Step 4

Reasoning: The control process can be divided into four steps, namely:

1. determining and communicating standards and methods against which

performance is measured
2. measuring the actual performance
3. evaluating and comparing actual performance against set standards
4. taking corrective action if necessary.
Question 13
Which one of the following leadership competencies do Phillip and Thomas portray in the case study?
1) Management of self
2) Management of trust
3) Management of attention
4) Management of meaning

Reasoning: The fourth competency is management of self. This means knowing your own strengths
and weaknesses. Management of self is vital; without it, leaders can do more harm than
good.
Leaders know themselves; they know their strengths and cultivate them. Leadership should
be both dynamic and flexible. As an entrepreneur, you need to assess the abilities and
experience of your workers regularly to decide which leadership style to adopt. If you adopt
a suitable style, not only will your employees be more motivated, but they will also become
more ‘mature’.
As they become more mature, the degree of direct supervision needed will decrease.
Leadership is therefore seen as a function of the situation. In other words, in most cases
the situation determines the leadership style that a manager should adopt. The leader
must therefore be able to sum up a situation quickly and
apply a suitable style.
Question 14
As the owner and co‐founder of ChatAway, Phillip is in the position to identify problems, find alternative
solutions, evaluate the solutions and then choose the best solution which must then be implemented. To which
additional management function does this statement refer?
1) Control
2) Organising
3) Co‐ordination
4) Decision‐making

Reasoning: Decision making is the process of identifying problems, finding alternative solutions,
evaluating these solutions and then choosing the best one. The solution must then
be implemented.

Question 15
Which one of the following is NOT a liability of ChatAway?
1) Notes receivable from employees

2) The water and electricity account
3) Salaries and wages payable
4) Taxes payable

Reasoning: • Current liabilities are accounts payable, notes payable to banks, accrued
expenses (wages, salaries), taxes payable, the current portion (due withinone
year) of long‐term debt and other obligations owing to creditors due within one
year.
• Non‐current (long‐term) liabilities are amounts owed by the company overlong
periods of time. Examples include mortgages, intermediate and long‐ term bank
loans, equipment loans and any other obligation for money due
to a creditor with a maturity longer than one year.
Question 16
Which one of the following is NOT a purpose of preparing financial statements at ChatAway?
1) Financial statements record the performance of ChatAway

2) It allows Phillip and Thomas to diagnose the strengths and weaknesses of ChatAway
3) Financial statements assist in calculating the profitable selling price of ChatAway's service
4) It provides Phillip and Thomas with a written summary of all the financial activities of ChatAway
Question 17
The level of operations at which ChatAway neither makes a profit, nor sustains a loss is known as the
point.
1) liquidity
2) break‐even
3) solvency
4) equity

Reasoning: ‘Break‐even’ means a level of operations at which a business neither makes a profit
nor sustains a loss.
Question 18
Which of the following statements regarding owner's equity are true?
a) Owner's equity is also referred to as 'net worth'

b) Owner's equity is represented by the difference between the total assets and total liabilities of
the enterprise
c) The two main items that make up the owner's equity are profit/loss and capital
d) Owner's equity is the investment made by the owners of the enterprise in the form ofcapital
1) a, c
2) c, d
3) a, b, d
4) a, b, c, d

Reasoning: Owners’ equity represents the investment that owners of small businesses have made in
the company in the form of capital. On the statement of financial position, it is represented
by the difference between the total assets of the business and its total liabilities. Owners’
equity is sometimes referred to as ‘net worth’. There are
two main items that make up the owner’s equity, namely profit/loss and capital.
Question 19
Which one of the following formulas Will Phillip and Thomas use to calculate the working capital of ChatAway?
1) Working capital = Total current assets + Total current liabilities

2) Working capital = Total current assets ‐ Total current liabilities
3) Working capital = Total current assets / Total current liabilities
4) Working capital = Total current liabilities / Total current assets

Reasoning:
Question 20
To measure ChatAway's current ratio, one must divide the current assets by the
1) current inventory
2) working capital
4) gross profit

Reasoning:

Question 21
There are many factors that can create a need for additional capital in ChatAway. Which one of the following is
NOT a factor that will be applicable for an enterprise such as ChatAway?
1) Efficiency drives
2) Local or national economic conditions
3) Seasonal factors
4) Phillip and Thomas needing cash for business growth

Reasoning: Some businesses are seasonal in nature. For example, ice cream sales are much higher in
the summer months than in winter. However, the change in season will
not affect the demand for ChatAway’s product.
Question 22
Phillip and Thomas must understand that various sources of capital are available for their enterprise to be
successful. The main, and also the most critical, source of capital is

2) disposal of non‐current assets
3) trade creditors or suppliers of Inventory
4) borrowed funds from banks and other lenders

Reasoning: Internally generated capital is the most critical source of capital. It is the main
source of capital, as it arises from the operations of the business.
Question 23
When Phillip and Thomas conducted a survey to gather information on teens and university students, to ensure
that better marketing decisions can be made at ChatAway, they were involved in market
1) communication
2) segmentation
3) research
4) analysis

Refer: Study Guide, pg. 45
Reasoning: Market segmentation is the division of the total market into smaller segments with
certain similarities or common characteristics. However, Phillip and Thomas has

already segmented teens and university students, and therefore did market
research.
Question 24
Other applications such as WhatsApp and Snapchat, can be classified as in ChatAway's SWOT
analysis.
1) strengths
2) weaknesses
3) opportunities
4) threats

Reasoning: A threat is an external (not a part of ChatAway) factor, that can have a negative
impact.
Question 25
Thomas's experience in the mobile industry and the development of mobile applications, can be classified as
a/an in ChatAway's SWOT analysis.
1) strength
2) weakness
3) opportunity
4) threat

Reasoning: A strength is internal (part of ChatAway), and can have a positive influence.
Question 26
Which one of the following bases for market segmentation would Phillip and Thomas use if they want to use
information such as the users' education, average age and gender?
1) Psychographic segmentation
2) Demographic segmentation
3) Behaviouristic segmentation
4) Geographic segmentation

Reasoning: Demographic segmentation means dividing the market according to criteria such as
age, gender, religion, race, income and family lifestyle.
Question 27
ChatAway pays for advertisements in the vicinity of local high schools and universities. This form of marketing
communication forms part of ChatAway's marketing
1) strategy

2) analysis
3) process
4) plan

Reasoning: Promotion is one of the 4 P’s, (product, price, place and promotion), that makes up
the marketing mix, or marketing strategy.
Question 28
The marketing plan of ChatAway must be done according to certain steps. The first step that Phillip and
Thomas would have to do would be to compile a/an
2) executive summary
3) market analysis
4) action plan

Reasoning: Steps in a marketing plan
1) Executive summary
2) Market analysis
3) Market segmentation and target market selection (including SWOT analysis)
4) Marketing mix
5) Promotional mix
6) Marketing results and support documents
7) Implementation
Question 29
Which of the following are important aspects that Phillip and Thomas need to consider when compiling
the action plan for ChatAway's marketing plan?
a) The people responsible for carrying out each step

b) How the success of each step will be measured
c) Expected completion dates of each step
d) The steps to be followed
1) a, c
2) c, d
3) a, b, d
4) a, b, c, d

Reasoning: The action plan shows the following:
• the steps to be followed
• the person(s) responsible for carrying out each of the steps

• the expected completion date of each step, showing the expected duration
of each step
 how the success of the steps will be measured.
Question 30
According to the case study, ChatAway is currently in the phase of the product life cycle.
1) introduction
2) growth
3) maturity
4) decline

Reasoning: “Today ChatAway is considered as one of the top five instant messaging services, and the
demand and awareness are still on the rise. ChatAway has been successfulin this
industry for many years now and is constantly on the lookout to provide their clients with the
best service offering.”
All products and services have a life cycle that moves through four stages: introduction,
where the product/service is new, with few, if any, competitors; growth, where the
demand for the product, awareness in the market and profitincrease; maturity, where
there are many competitors, some of whom leave themarket; and, finally, the decline
phase, where the need for the product wanes
fast and profits are greatly reduced.
Question 31
Which of the following operations management activities at ChatAway demand creativity?
a) Production planning and control

c) Improvement, problem‐solving and maintenance
d) Demand and capacity planning
e) Operations system design
1) a, d
2) a, b, d
3) b, c, e
4) a, b, c, d, e


Question 32
One of the servers of ChatAway has broken, and a new server had to be installed for the ChatAway application
to work again. The time needed for Thomas to check whether the new server complied with the quality
standards of ChatAway, is known as time.
1) waiting
2) inspection
3) transportation
4) processing

Reasoning: The primary lead‐time elements are as follows:
• Queue time: The period during which a job stays in the queue at a work
centre.
• Set‐up time: The time needed to prepare equipment for processing a new job.
• Waiting time: The idle time between the processing of a job and its passageto the
next work centre.
• Inspection time: The time needed to check whether the job complies withquality
standards.
• Transportation time: The time needed to transport the job from one workcentre
to the next.
Question 33
Which one of the following represents the correct formula used to calculate productivity at ChatAway?
1) Input expenses/ Output income

2) Output income/Input expenses
3) Output expenses/Input income
4) Input income/ Output expenses

Reasoning:
Question 34
Fixed capacity planning is the first long‐term question facing the operations management function in ChatAway.
Which one of the following is NOT an element of fixed capacity planning?

1) Occupational safety
2) Identifying a suitable location
3) Determining the size of the productive unit
4) Determining the price of the productive unit

Reasoning: The elements of fixed‐capacity planning are:
• occupational safety
• identifying a suitable location
• determining the size of the productive unit
• the layout of the productive unit
• the choice and design of, and specifications for, machinery and equipment.
Question 35
The costs attached to obsolescence, record‐keeping, physical stocktaking, and inventory planning at ChatAway,
can be classified as costs.
1) direct inventory carrying

2) direct inventory ordering
3) indirect inventory ordering
4) indirect inventory carrying

Reasoning: Indirect inventory carrying cost elements: these are the costs attached to obsolescence,
record‐keeping, physical stocktaking, inventory planning and control by management.
Other hidden cost elements are the cost of production floor space utilised for work in
process, scrap and rework, as well as the cost involved in
handling and containerisation.
Question 36
The technique used to determine the volume at which total revenues are equal to total cost in ChatAway,
is known as the
1) break‐even analysis
2) lot‐for‐lot approach
3) material requirements analysis
4) economic ordering quantity calculation

Reasoning: The break‐even analysis is a technique for determining the volume at which total
revenues are equal to total cost.
Question 37

ChatAway constantly strives to be the best in the market and is willing to meet the consumers' needs when
their needs are expressed. To which quality dimension of service does this statement refer?
1) Responsiveness
2) Competence
3) Performance
4) Reliability

Reasoning: Responsiveness is the willingness of the service provider to meet the customer’s
needs when these needs are expressed.
Question 38
Which of the following are consequences of defective machinery and equipment in ChatAway?
c) Decreased production costs
d) Reduced production capacity
e) Lower quality products and services
1) a, b, c
2) a, b, d, e
3) b, c, d, e
4) a, e, d, e

• Reduced production capacity. Machinery and equipment failures mean that no
production can take place, and this leads to a reduction in capacity.
• Increased production costs. Failures in machinery and equipment result in ahigher
hourly cost. Machine operators are idle while the machinery and equipment are
being repaired; moreover, the salaries and wages of the maintenance teams, as
well as the cost of replacing the broken components, have to be discounted.
Sometimes, backup machinery must be hired or purchased, which also means
extra cost.
Question 39
Phillip and Thomas have to formulate ChatAway's purchasing objectives, purchasing policy and purchasing
procedures. During which phase of purchasing management do they need to do this?

1) Planning
2) Leading
3) Organising
4) Control

Reasoning: Purchasing is a service function in a business and should therefore support theoverall
business planning. The setting of purchasing objectives (as part of the
planning task) should help realise business objectives.
Question 40
According to the case study, ChatAway follows a purchasing function, since is responsible
for the purchasing function.
1) centralised, Phillip
2) decentralised, Phillip
3) centralised, each business unit
4) decentralised, each business unit

Question 41
Which one of the following is an internal factor that could influence the timing of purchases at ChatAway?
1) Lead time
3) Availability of funds
4) Government regulations

Reasoning: Options 2 and 4 are external factors.
Internally, the availability of funds, marketing and operations plans and strategies
determine when products can be purchased.
Question 42
Which one of the following best represents the Just‐In‐time principle?
1) Attaining the purchasing objectives of the right quality

2) Attaining the purchasing objectives at the right time
3) Attaining the purchasing objectives of the right quantity and quality
4) Attaining the purchasing objectives of the right quantity and quality, and at the right time


Reasoning: If the purchasing function succeeds in attaining the purchasing objectives of the ‘right
quantity, quality and time’ a business will receive the required amount of material when it is
needed for manufacturing or for the customers of a shop. This is
known as the ‘just‐in‐time’ principle.
Question 43
How could Phillip and Thomas measure the efficiency of ChatAway's purchasing activities, in terms of their
relationship performance with their suppliers?
a) By means of a supplier survey

b) By monitoring the diligent execution of requests
c) By determining the number of rejected orders
d) By means of scrutiny
1) b, c, d
2) a, d
3) a, b
4) a, b, c, d

Reasoning: Relationship performance with suppliers: By means of a supplier survey or scrutiny
of supplier turnover.
Question 44
When selecting ChatAway's suppliers, Phillip and Thomas had to compile a list of possible suppliers, and then
reduce it to a shortlist. Which one of the following is NOT a factor they had to take into account when
shortlisting the possible suppliers?
1) Technical capability
2) Progressiveness
3) Financial capability

Reasoning: The list is then reduced to a shortlist, after taking into account factors such as location,
progressiveness, general reputation and financial and technical capability.
Question 45
As a preventative measure, Phillip and Thomas decided to take out insurance against fire and theft.This is an
example of costs.
1) long‐term capital

2) short‐term capital

Reasoning: Direct inventory carrying cost elements: the two direct‐cost components are capitalcost
(interest or opportunity cost) and holding cost. Holding cost refers to the cost involved in
renting storage facilities, warehouse equipment, electricity, insurance,
security, handling, bookkeeping, warehousing labour, and damage.
Question 46
The process of making materials, methods, practices and techniques uniform, is known as
1) quality
2) specification
3) standardisation

Reasoning: Standardisation is a further aid when describing quality. It is the process of making
materials, methods, practices and techniques uniform.
Question 47
Phillip and Thomas appointed Thabile to assist with general administration duties such as answering the phone,
organising meetings and travel arrangements. These duties, authorities and responsibilities need to be included
in her job
1) specification
2) description
3) analysis
4) survey

Reasoning: • The job description describes the duties, relationships of authority and
• The job specification contains the details of the requirements that the
person needs to be able to do a specific job.
Question 48
The experience, skills and qualifications Thabile needs for the job will be included in the job
1) specification
2) description

3) analysis
4) survey

Reasoning: • The job description describes the duties, relationships of authority and
• The job specification contains the details of the requirements that the
person needs to be able to do a specific job.
Question 49
During which step of the selection process would Thomas and Phillip have made the final choice to select
Thabile for the Job?
1) Step 5
2) Step 6
3) Step 7
4) Step 8

Reasoning: Step 7: Final choice
Question 50
Once Thabile was appointed she had to be introduced to ChatAway, the procedures, the environment and her
colleagues. What did Thomas and Phillip have to do before Thabile arrived at ChatAway?
a) Congratulate Thabile on her appointment

b) Introduce Thabile to the activities of the section
c) Inform other employees of Thabile and her duties
d) Identify Thabile's possible shortcomings and training needs
1) a, c
2) b, d
3) a, e, d
4) a, b, c, d

Reasoning: Before new employees arrive at the business
Congratulate the appointees. Send formal letters of welcome and information brochures
about the business to the successful candidates. Information such as working hours, dress
code, schools and estate agents in the area and the general policy of the business is
usually appreciated. Ensure that their office or workspace is in order and that the necessary
furniture, equipment and stationery are in place before they arrive. Inform the other
employees about the newcomers and explain
what they will be doing.

Question 51
If Thomas and Phillip decide to pay Thabile an extra allowance for her cell phone, it would form part of her
remuneration.
1) direct
2) indirect
3) primary
4) secondary

Reasoning: Indirect remuneration (or fringe benefits) are not necessarily given to all
employees.
Question 52
Which one of the following forms serves as a summary of ChatAway's employee's income and deductions
for the past financial year?
1) IRT14
2) IRT 20
3) IRP 5
4) IRP 6

Reasoning: An IRP5 form is a summary of the employee’s income and deductions for the past
tax year.
Question 53
When Phillip decided to include an independent contractor to assist with the software development of ChatAway
on an ad hoc basis, he had to .
a) come to an agreement with the contractor about the job

b) come to an agreement about the amount to be paid for the job
c) draw up a contract
d) sign the contract together with the contractor and two witnesses Choose
1) a, b, C
2) b, c, d
3) a, c, d
4) a, b, c, d


Reasoning: Human resources must come to an agreement with the contractor about the job tobe
done and the amount to be paid for the job. Then a contract is drawn up; both
parties must accept the contract and sign it together with two witnesses.
Question 54
Which one of the following CANNOT be considered a personal factor that may cause accidents within
ChatAway?
1) Lack of knowledge
2) Inadequate working standards
3) Physical and psychological distractions
4) Lack of skills

Reasoning: To prevent accidents, you have to know their causes. There are five basic causes, which
are divided into the following two categories:
• Personal factors: Lack of knowledge and/or skills; physical or psychological
distractions; incorrect attitude or motivation.
• Work factors: Unsafe conditions and physical environment; inadequate
working standards.
Question 55
The difference between data and information is that information
1) cannot be used in decision‐making

2) refers to facts in an unprocessed format
3) contains figures and also transactions recorded
4) is processed data that can be used in decision‐making

Reasoning: • Data relates to facts in an unprocessed form. It cannot be used in the decision‐
making process in that form; for example, this could be a pile of invoices of all
sales for the year, or a list of employees’ salaries.
• Information refers to data that has been processed so as to be usable in a
specific situation, for example the invoices could be arranged in chronological
order, or a comparison made between the number of products sold in the last
month with the figures for the same month the
previous year.
Question 56
One of the most important stages of processing information in ChatAway is the collection of data. Which of the
following aspects must be considered during this stage?
a) The staff collecting data

b) The format in which data is collected

c) The methods used to collect data
d) The activities for which data is collected
e) The date and time data is collected
1) b, c, d
2) a, e, e
3) b, d, e
4) a, b, c, d, e

• Activities for which data must be collected: The entrepreneur must decidefor
which activities it is necessary to collect data. These may include recording
sales transactions, payments made and products produced.
• The format in which to collect data can be recorded in a systematic way on
predesigned forms.
• Methods of collecting data
Question 57
External information about existing and potential suppliers, acquisition costs and availability of other similar
products, will form part of the information that is needed by the function.
1) operations
2) financial
3) purchasing
4) marketing

Reasoning:

Question 58
The electronic transmission of Signals for communications, that enable/s an enterprise to conduct processes
through effective computer networks, is known as
1) telecommunications
2) wireless transmission
3) networks
4) software

Reasoning: Telecommunications refers to the electronic transmission of signals for communications. This
enables businesses to conduct their processes and tasks
through effective computer networks.
Question 59
Phillip and Thomas must be aware that the normal suggested time period for the retention of records
such as salary adjustment schedules and industrial training records is years.
1) five
2) six
3) ten
4) twelve

Reasoning:
Question 60
There are three important elements in the processing of information, namely .
1) inputs, collecting and distribution

2) collecting, processing and discarding
3) inputs, processing and outputs
4) processing, inputs and distribution


Reasoning:
Question 61
Knowledge that refers to processes and procedures in an enterprise, for example, records of meetings between
sales representatives and key customers or management reporting procedures, is known as knowledge.
1) exclusive
2) tactical
3) tacit
4) explicit

Reasoning: Explicit knowledge refers to processes and procedures. Explicit knowledge can be readily
detailed in procedural manuals and databases, for example records of meetings between
sales representatives and key customers, procedures for dealing
with customer service queries and management reporting processes.
Question 62
If Phillip asks Thabile to find specific purchasing records that were kept in the filing cabinet, it refers to the of
information.
1) distribution
2) collection
3) retrieval
4) storage

Reasoning: The information management function is responsible for the orderly collection,
processing, retrieval, distribution and storage of information in a business.
Question 63

The public relations function of ChatAway aims to create a good image for the enterprise among all its interest
groups. Which one of the following is NOT a benefit of a favourable image of ChatAway?
1) It would determine if new staff would like to join ChatAway

2) ChatAway has an established and growing clientele
3) Financial donations are made to community projects in the area
4) The media will give ChatAway the benefit of doubt during crisis times

Reasoning: A favourable image will determine whether:
• new staff would like to join the business
• the business has an established and growing clientele
• the media will give the business the benefit of the doubt in times of crisis.
Question 64
Which of the following are means that Thabile can use to improve her communication within ChatAway?
a) Have good telephone manners to ensure positive reactions

b) Treat everyone equally
c) Be helpful and friendly
d) Practice good voice techniques to convey a positive image of ChatAway
e) Ensure that all written communication with clients is clear and correct Choose
1) a, c, d
2) b, d
3) a, b, e
4) a, b, c, d, e

Reasoning:

Question 65
Which one of the following best represents the way ChatAway could have performed their social
responsibility towards their employees?
1) Including them in decision‐making

2) Having them participate in charity events
3) Participating in the upliftment of the community
4) Giving financial donations to community projects

Reasoning: It is also important that the employer allows employees to participate in decision‐making
processes, provides training, allows them to acquire skills and motivates
them.
Question 66
The public relations process in ChatAway should adhere to certain steps in a definite sequence. Which one
of the following is the correct sequence?
1) Defining the problem or opportunity, planning and programming, taking action and
communicating, evaluating the campaign
2) Identifying the problem, gathering information, taking action, evaluating the process
3) Planning and programming, gathering information, evaluating alternatives, taking action and
communicating
4) Defining the problem or opportunity, gathering information, planning and programming, taking action
and communicating

Reasoning: These steps include the following:
1) Define the problem or opportunity. This step will require research regarding
opinions, attitudes, behaviour, and so on. This phase answers the question of what
is happening now.
2) Planning and programming. In this phase, key decisions must be made as towhat
3) Taking action and communicating. This phase answers the question of howit
should be done and how it must be communicated.
4) Evaluating the campaign. It is important that the effectiveness of the
campaign be evaluated. This answers the question of how well you did.
Question 67
What type of public relations campaign would Phillip use if he only wanted to create awareness of an event
ChatAway is promoting?
1) Informative reinforcing campaign




Reasoning: The public awareness campaign aims to create awareness for something. This might
be a specific cause or event that the business is promoting.
Question 68
The bank from which Thomas and Phillip took out a loan, forms part of ChatAway's publics
1) internal
2) external
3) primary
4) secondary

Reasoning: Refer to section 9.4.2 in the prescribed textbook
Question 69
During which stage of the public relations campaign would ChatAway need to show that the enterprise
is living up to its promises and actions are delivered?
3) Distribution stage
4) Legitimacy stage

Reasoning: Distribution stage. This stage shows the target publics that action will be delivered.
In this stage, the business needs to show that it is living up to its promises.
Question 70
Which of the following would be benefits for ChatAway through promoting and planning events?
a) ChatAway would achieve press coverage

b) People would acquire a sense of identification after attending an event
c) Employee productivity would be increased
d) Employee retention would be decreased
1) a, b
2) a, b, c
3) c, d
4) a, b, c, d


Reasoning: Promoting events can be as simple as issuing a press release describing the event and
giving the time and date. Achieving press coverage is one obvious benefit for an event.
Another subtler benefit involves the sense of identification people acquire
after attending an event.
Exam October‐November 2017

CASE STUDY: STREAMYOU
In 2012, the online TV show and movie streaming industry in South Africa, was nonexistent compared to the 30%
of Americans streaming shows and movies online. Media lovers were forced torely on what could be found on
YouTube or illegally download shows or movies from international sites. Being tired of watching repeats on local
channels, and needing to download movies illegally, Brady Gallager realised that there was a gap in the South
African market. Being a movie lover and travel enthusiast, who has experienced various paid for international
streaming sites, Brady decided to explore the online streaming market.
As this type of service was fairly new to the South African market, Brady decided to test the feasibility and
interest for paid online streaming, with a few local media lovers. More than 80% of the people who were involved
in the pilot run, indicated that they would continue paying for this service on a monthly basis. As a result, Brady
decided to start his own enterprise called StreamYou. Due to the nature of the service, Brady initially did not
need office space. He therefore cleared up his spare bedroom to be used as an office for the time being. Brady
also had to ensure that he obtained the correct license from the Broadcasting Committee, to ensure that all
services offered are legal.
StreamYou would operate on a monthly subscription basis. Consumers register on the site to indicate that they
would like to subscribe to StreamYou's service. Consumers are then directed to a link to provide their credit card
details in order to pay a monthly subscription fee. One of the biggest challenges for Brady, was to persuade
people to pay for this service, even with the high cost of data and sometimes spotty internet connectivity in South
Africa.
StrearnYou operates in a highly volatile market, where the variety of shows offered are quite high, and
consumers are able to stream the shows immediately. As a result, Brady realised that he did nothave enough
manpower to satisfy the high demand. He decided to include his friend Timothy, who has experience in setting
up and managing a new enterprise specifically in the online service industry, in StreamYou. Timothy's
employment immediately lifted the burden of the increasing demand. Brady also decided to divide the
responsibilities between the two of them, to ensure that the objectives of the enterprise are met.
Another major challenge StreamYou was facing, was to ensure that the enterprise satisfies the customers'
wants and needs, while simultaneously meeting the objectives of StreamYou. When facing difficult problems
like these, the ideas of both Brady and Timothy are individually sought, rather than the ideas of the two of
them as a whole, and they both act independently, in order to come up with the best possible solution.
Both Brady and Timothy view teamwork as the cornerstone of success. As the competitors of StreamYou, such as
Netflix and Showmax, are on the increase, Brady and Thomas ultimately strive to

deliver a good service to their customers and stay up to date with the latest trends in the market. As a result,
StreamYou has been the leader in the online streaming industry for two years running.
Question 1
How does Brady's role as entrepreneur differ from the role of a small business manager?
a) Brady manages change by introducing the new service of StreamYou into the market
b) Brady only manages StreamYou to ensure that the goals and objectives of the enterprise are met
c) Brady has a strong external locus of control
d) Brady had the vision and courage to take risks to start StreamYou
1) a, b
2) a, d
3) b, c, d
4) a, b, c, d

Reasoning: Brady has an internal locus of control, therefore alternative c is incorrect,eliminating
options 3 and 4.
Alternative d speaks about entrepreneurship, and is therefore correct. This leaves only
option 2 to be correct.
Question 2
Netflix and Showmax are considered as of StreamYou, which form part of StreamYou's
environment.
1) competitors, market
2) competitors, macro‐
3) suppliers, market
4) suppliers; macro‐

Reasoning: Competitors are part of the market‐environment.
Question 3
Which one of the following statements about public enterprises is NOT CORRECT?
1) Public enterprises are funded by government

2) Public enterprises are created to make a profit
3) Public enterprises are funded by local authorities
4) Public enterprises are responsible for providing the basic requirements for the efficient functioning
of the economy.


Reasoning: Public enterprises are funded and managed by government, provincial administrations
or local authorities, and they are not created to make a profit. Theyare responsible for
providing the basic requirements for the efficient functioning of
the economy and meeting the needs of society.
Question 4
When Brady decided how to divide the work and tasks to be completed between him and Timothy, he was
involved in the of management.
1) planning
2) leading
3) organising
4) control

Reasoning: Organising means the coordination of activities and the allocation of work to certain
people so that the objectives of the business can be achieved.
Question 5
How many of the following statements, of the environment in which StreamYou operates, are true?
 Management at StreamYou has limited control over the macroenvironment

 The establishment, growth and continued existence of StreamYou are indirectly influenced by the
business environment.
 Variables in the business environment are interdependent.
 Management at StreamYou has direct control over the microenvironment
1) One
2) Two
3) Three
4) Four

Refer: Prescribed Textbook, pg. 104, 10
Reasoning: The macro‐environment refers to the external forces that the individual business has no
control over, but which directly or indirectly influence the business, such as economic,
political and technological factors. Therefore the first statement is incorrect.
The second statement is correct, as this relates to interdependence betweenbusiness and
society, that influences one another.
The three environments (micro‐, macro‐, and market‐) are interdependent. Therefore the
third statement is correct.
The third statement is correct as this is the only environment that management has
control over.
Question 6

As StreamYou grows, Brady's ad hoc management style needs to change. He should adopt a more
formalised approach to ensure proper planning, organising, leading and control. Brady, as an entrepreneur, is
therefore motivated by .
1) policies
2) systems
3) delegation
4) opportunities

Reasoning: As the business grows, an ad hoc management style needs a more formalizedapproach to
ensure proper planning, leadership, organisation and control.
This is where the challenge lies: entrepreneurs are motivated by freedom, opportunities,
profit and risk, because they are made that way. On the other hand,
managers are motivated by policies, resources, delegation, systems and security.
Question 7
Which one of the following represents the starting point of the management process in Stream You?
1) Organising
2) Leading
3) Control
4) Planning

Reasoning: Planning is the starting point of the management process.
Question 8
Brady should be aware of the components that reshape the world of the new economy. It is imperative
that he finds, unlocks and shares his employees' skills and wisdom to promote the relations between
people. This statement refers to the component of the new economy.
1) alliance
2) globalisation

between them.
Question 9

Every separate management function in StreamYou has a specific role. Which one of the following statements
is NOT true?
1) The activities of the public relations function include market research, market segmentation, deciding on
the target market, deciding on the marketing strategy and compiling a marketing plan for StreamYou.
2) The general management function is responsible for all the activities that are performed in StreamYou
to enable StreamYou to attain its goals
3) The purchasing function is responsible for the determination of purchasing needs and finding
suitable suppliers for StreamYou
4) The operations function is concerned with the transformation of inputs into outputs, by using the
factors of production to render StreamYou's service.

Reasoning: Public relations management is the management function that evaluates public
attitudes, promotes the policies and procedures of a business to the public, and plans
and executes programmes of action to earn public acceptance and
understanding.
Question 10
At the tactical level of management at StreamYou, Brady .
1) is concerned with organising, leading and controlling human and other resources in a specific
section of the enterprise
2) studies the effect of the environment on StrearnYou's business operations
3) is concerned with all the daily activities of StreamYou
4) focuses on the implementation of the long‐term plans and objectives of StreamYou

Reasoning: On the tactical level, the entrepreneur is primarily responsible for implementing the policy,
plans and strategies and for the allocation of resources. Medium‐term or functional planning
takes place on this level (therefore option 4 is incorrect) and this involves all the functional
strategies and plans made in the various departmentsof the business. If funds allow, the
entrepreneur will appoint financial, operations, marketing, procurement or information
managers to operate on this level. On the tactical level, the entrepreneur and the
management team of the business are concerned with medium‐ to short‐term planning, and
with organising, leading and controlling human and other resources within a certain section
of the business.
Option 2 refers to the strategic level.
Option 4 refers to the strategic level.
Option 3 refers to the operational level.
Question 11
The process of transferring StreamYou's service to their customers, in order to satisfy their needs, and the
activities of making the transfer possible, is known as .
1) distribution

2) marketing
3) procurement
4) transformation

Reasoning: Marketing is the process of transferring goods and service to customers in order to
satisfy their needs, as well as the activities that make the transfer possible.
Question 12
"StreamYou ultimately strives to deliver a good service to their customers." This is an

example of StreamYou's objectives.
1) functional
2) operational
3) strategic
4) tactical

Reasoning: Examples of strategic objectives are:
• delivering a good service to customers
• establishing and consolidating a positive image of the business
• a steady growth in sales volume
 achieving an asset growth of 10% per year.
Another clue is the word “ultimately”, meaning “in the long run” – which refers to
the strategic level.
Question 13
According to the case study, which one of the following problem‐solving techniques is used in
StreamYou?
1) Research
2) Brainstorming

Reasoning: “When facing difficult problems…, the ideas of both Brady and Timothy are individually
sought, rather than the ideas of the two of them as a whole, and they both act
independently, in order to come up with the best possible solution.”
In the Nominal Group Technique (NGT), the staff members involved are a group in name
only. All the members act independently, and it is the ideas of each individual
that are sought and not the ideas of the group as a whole.
Question 14

Self‐management will allow Brady to fully develop without blaming the situation for misfortune or
mistakes. Which one of the following is NOT a competency of self‐management?
1) Personal drive
2) Ethical conduct and integrity
3) Cultural sensitivity
4) Balanced work and private life

Reasoning: Self‐management competency includes:
• integrity and ethical conduct
• personal drive
• balanced work and private life
• self‐awareness and development.
Question 15
If Brady would like to gain a better understanding of the assets and liabilities of StreamYou at a certain
point in time or on a specific date, he needs to consult the statement of .
1) comprehensive income
2) financial ratios
3) financial position
4) current assets

Reasoning: The statement of financial position lists in detail the tangible and intangible items that the
business owns (known as its ‘assets’) and what money the business owes,either to its
creditors (‘liabilities’) or to its owners (‘shareholders’ equity’ or ‘net worth’ of the business).
Option 1 does not refer to liabilities and is therefore incorrect.
Financial ratios (option 2) include ratios such as “Turnover rate of stock” and “debt ratio”,
etc. which does not include both assets and liabilities, and can therefore be
eliminated as a possible answer.
Question 16
The licence that Brady obtained from the Broadcasting Committee can be described as a/an of
StreamYou.
1) other asset
2) current asset
3) non‐current asset
4) current liability

Reasoning: Other assets include intangible assets, such as patents, royalty arrangements,

copyrights, licences and notes receivable from managers and employees.
Question 17
Which of the following statements, about StreamYou's statement of comprehensive income, are correct?
a) It shows the sales and expenses of StreamYou over a specific period

b) It follows GAAP and contains specific revenue and expense categories
c) StreamYou needs to prepare this statement at regular intervals
d) StreamYou's statement will contain the same categories and items as that of another enterprise
1) a, d
2) b, d
3) a, b, c
4) a, b, c, d

Reasoning: The statement of comprehensive income shows a company’s sales and expenses over
a specific period. Therefore alternative a is correct, eliminating option 2.
It also follows GAAP and contains specific revenue and expense categories,
regardless of the nature of the business. Therefore alternative b is correct,
eliminating option 1.
It is prepared at regular intervals (usually on a monthly, quarterly, half‐yearly or annual basis)
to show the results of operation during a specific accounting period. Therefore alternative c is
correct.
It must be noted that the statement of comprehensive income will differ from business to
business. Manufacturing, mining and service companies will have different items on their
statement of comprehensive income. Therefore alternative
d is incorrect, eliminating option 4.
Question 18
Which one of the following ratios will assist Brady in answering the following question?
If all sales revenues should disappear, could Stream You meet its current obligations with the readily available
quick funds on hand?
1) Current ratio
2) Gross profit margin ratio
3) Net profit margin ratio
4) Acid test ratio

Reasoning: The quick ratio is a much more exacting measure than the current ratio. By
excluding inventories, it concentrates on the real liquid assets, with value
that is fairly certain. It helps answer the question: ‘If all sales revenues should

disappear, could my business meet its current obligations with the readily
convertible “quick” funds on hand?’
The quick ratio is sometimes called the ‘acid test’ ratio.
An acid test of 1:1 is considered satisfactory, unless the majority of your ‘quick
assets’ are in accounts receivable and the pattern of accounts receivable collection
lags behind the schedule for paying current liabilities.
Question 19
The guidelines according to which Brady has to conduct the financial activities of StreamYou can be found in
the .
1) financing strategy
2) financial policy
3) work policy
4) budget plan

Reasoning: Planning is governed by policy, defined as a set of guidelines for execution and control, as
based on the strategy. This determines the prescribed, accepted actions within the
particular function in order to achieve continuity, consistency and
integration.
Question 20
Which one of the following tools CANNOT be used by Brady as part of the financial planning process in
StreamYou?
1) Pro forma cash flow statement

2) Ratio analysis
4) Statement of financial income

Reasoning: The following tools can be used as part of the financial planning process:
• Pro forma financial statements
• Ratio analysis
• Break‐even analysis
• Pro forma cash flow statement
• Pricing formulas and policies
Question 21
If Brady cannot meet his monthly obligations, such as the payment of salaries, rent and interest, StreamYou
has problems.
1) solvency
2) profitability
3) liquidity

4) rentability

Refer: https://www.wallstreetmojo.com/liquidity‐vs‐solvency/
Reasoning: • Liquidity can be defined as a firm’s ability to meet the current liabilities of the
current assets it has. Liquidity is a short‐term concept and also one of the most
important ones because without liquidity the firm won’t be able to pay off its
immediate liabilities. We use ratios like the current ratio, quick ratio, and cash ratio
to determine the liquidity of the company.
• Solvency, on the other hand, can be defined as the ability of the company to run
its operations in the long run. That means solvency is a long‐term
concept.
Question 22
The main, most critical source of capital that can be identified in StreamYou is known as .

2) trade or suppliers' credit
3) Income from the disposal of non‐current assets
4) borrowed funds from banks

Reasoning: Internally generated capital is the most critical source of capital. It is the main
source of capital, as it arises from the operations of the business.
Question 23
StreamYou can be classified as a ‐oriented enterprise
1) sales
2) marketing
3) production
4) manufacturing

Reasoning: Note that options 3 and 4 are the same. (Incorrect)
Question 24
Once consumers indicate that they would like to subscribe to Stream You, they have to provide theircredit card
details in order to pay a monthly subscription fee. Once payment has been received for the subscription, the
gap between production and consumption has been overcome.
1) time
2) space
3) ownership
4) information


Reasoning: Time gap refers to the gap between the time of production and the time of
consumption.
Question 25
The high cost of data in South Africa and consumers' limited access to the internet, can be seen as
in StreamYou's SWOT analysis.
1) strengths
2) weaknesses
3) opportunities
4) threats

Reasoning: Threats and opportunities are external factors, which StreamYou has no controlover.
Threats have a possible negative impact, while opportunities have a possible
positive impact.
Question 26
The high cost of data in South Africa is a variable that forms part of StreamYou's environment
1) micro‐
2) market
3) macro‐
4) mega‐

Reasoning: The macro‐environment refers to the external forces that the individual business
has no control over, but which directly or indirectly influence the business.
Question 27
Brady should draw up a marketing plan to .
1) get a better understanding of the position, consumers and competitors of StreamYou

2) be able to identify the future needs of StreamYou's consumers
3) be able to group StreamYou's customers together where the wants and needs of the group are similar
4) determine how StreamYou can communicate, deliver and exchange its services

Reasoning: By drawing up a marketing plan, the entrepreneur will:
• be able to identify changes in the environment and determine ways of
reacting to them

• have a better understanding of the position of their business in the market

as regards consumers and competitors
• have a better idea of their objective and how to achieve it. In other words,
they will use their plan as a type of guide or road map to reach their goal
• establish how to obtain resources for their intended plan
• keep staff informed about what is expected of them.
Question 28
StreamYou's ultimate goal is to create a loyal customer base. How many of the following are true for creating
loyal customers at StreamYou?
• Loyal customers will assist in overcoming the value gap of Stream You
• Loyal customers will generate repeat sales at StreamYou
• Loyal customers will form the lifeline of StreamYou
• Loyal customers serve as marketers for StreamYou
1) One
2) Two
3) Three
4) Four

Reasoning: Loyal customers can form the lifeline of any business, as they generate repeat sales
and serve as marketers for the business.
Question 29
When Brady decided to test the feasibility and interest for paid online streaming, he was doing market
.
1) research
2) analysis
3) segmentation
4) communication

Reasoning: Market research refers to the action or activity of gathering information aboutconsumers'
needs and preferences.
Market analysis (which includes market research), includes items such as market research
results, as well as market demand/attractiveness analysis. Therefore – thisrelates to the
feasibility – not merely the action of gathering information.
Question 30
Brady realised that he had never compiled a mission statement for StreamYou and asked Timothy for
assistance. Timothy suggested that a mission statement should be able to answer .
a) who the suppliers of StreamYou are

b) what StreamYou's customers regard as value for money

c) where StreamYou's suppliers are located

d) how StreamYou's customers pay for their subscription
1) a, c
2) b, d
3) a, b, d
4) a, b, c, d

Reasoning: Questions that need to be answered when formulating the mission are as follows:
• Who is the customer?
• What does the customer buy?
• Where is the customer located?
• How does the customer buy?
• How can the customer be reached?
• What does the customer regard as value for money?
Question 31
What is the essence of the transformation process in StreamYou?
1) To optimise resources in order to add value and eliminate waste

2) To develop new materials and knowledge to be applied economically
3) To improve and maintain service developments
4) To create cost‐effective, innovative service offerings

Reasoning: The essence of any transformation process (be it micro‐, macro‐ or any manufacturing
system) is to add value and eliminate waste. This brings us to thefamiliar concepts of
productivity, effectiveness and efficiency. All OM concepts
relate to optimising resources, which implies value.
Question 32
The TV shows and movies that consumers watch online are considered as in StreamYou's
transformation process.
1) inputs
2) transformation processes
3) outputs
4) operational processes

Reasoning: Refer to Table 5.2 in the prescribed textbook.

Question 33
According to the case study, StreamYou follows a/an supply operation.
1) lean
2) agile
3) algorithmic
4) volatile

Reasoning:
Question 34
Timothy's knowledge, experience and skills within the online service industry, refers to the
quality dimension pertaining to services.
1) competence
2) conformance
3) reliability
4) responsiveness

Reasoning: Competence refers to the service provider’s possession of skills and knowledge to
perform the service.
Question 35
Which one of the following options best describes capacity at StreamYou?
1) Breaking barriers and building relationships with the suppliers of StreamYou

2) Aiming for the streamlining and simplicity of products and services offered by StreamYou
3) Organising resources into multiple chains of customers, focused on specific services at
StreamYou
4) Maintaining and improving the current human capital at StreamYou before considering new resources


Reasoning: Capacity entails maintaining and improving present equipment and human capital
before considering new resources and automating incrementally when process
variability cannot be reduced by other means.
Question 36
Which one of the following statements regarding innovation is NOT correct?
1) Innovation is regarded as the DNA of the modem firm.

2) Innovation always implies creativity and change, but must be purposeful and systematic
3) Innovation is a linear process and those who follow one track are likely to be successful
4) Innovation is the planned action of bringing about new ideas, processes, products and services

Reasoning: Entrepreneurs are innovative, and innovation management is about value‐capturingand
value‐creation. It is challenging because innovation is not simple or inevitable. Innovation is
not a linear process and those who follow one track are unlikely to be successful.
Innovation is a complex mystery that is difficult to define. Innovation is aprocess and the
result of a successful invention. Innovation is the planned action of bringing about new
ideas, processes, products and services. Innovation is associatedwith terms such as re‐
creation, adaptation, imitation and invention. Innovation can be regarded as the DNA of the
modern firm because the notion is to innovate
or stagnate. Innovation always implies creativity and change, but innovation
must be purposeful and systematic.
Question 37
Which of the following are the primary functions of operations management in StreamYou?
a) Demand and capacity planning

b) Streamlining and simplification
c) Process management and maintenance
d) Product and service design
1) a, b
2) a, d
3) b, c
4) a, b, c, d


Question 38
Capacity control in StreamYou refers to the .
1) loading of resources and keeping work centres busy, but not overloaded
2) anticipation of aggregate demand in broad terms
3) cutting flow time, distance and inventory along the chains of customers
4) planning for adjustable resources over the medium term

Reasoning: Capacity control refers to the loading of resources and keeping work centres busy,
but not overloaded.
Question 39
During which phase of purchasing management do Brady and Thomas have to formulate
StreamYou's purchasing objectives, policy and procedures?
1) Planning
2) Leading
3) Organising
4) Control

Question 40
The first step that StreamYou has to follow when selecting suppliers, would be to .
1) monitor suppliers
2) set the criteria to evaluate suppliers
3) compile a list of potential suppliers
4) evaluate and select suppliers

Reasoning: The selection process starts with the compilation of a list of suppliers that may be
able to satisfy the need.
Question 41
As a preventative measure, Brady and Timothy decided to take out insurance against fire and theft. This is an
example of costs.
1) long‐term insurance

2) short‐term insurance

Question 42
Brady and Timothy must decide to centralise or decentralise StreamYou's purchasing activities, especially
if they want to expand the enterprise. This decision forms part of the element ofpurchasing management.
1) planning
2) organising
3) leading
4) administrative

Reasoning: The organisation of a business consists of allocating responsibility and structuring activities.
In larger businesses, with various branches or plants, the decision must bemade as to where
and by whom the purchasing function is performed.
This is the crux of the ‘centralised/decentralised’ issue that has been challenging large
businesses, organisations, business consultants and academics worldwide
for many decades.
Question 43
The 'just‐in‐time' principle entails .
1) succeeding in attaining the purchasing objectives of the right quantity, quality and time, therefore
receiving material when it is needed
2) contributing to the successful marketing of the enterprise's products
3) determining the acceptability of the quality of materials, products and services
4) expediting the delivery of materials, products and services

Reasoning: If the purchasing function succeeds in attaining the purchasing objectives of the ‘right
quantity, quality and time’ a business will receive the required amount of material when it is
needed for manufacturing or for the customers of a shop. This is
known as the ‘just‐in‐time’ principle.
Question 44

When comparing the performance of the purchasing function in StreamYou with other enterprises, it is known as
.
1) efficient purchasing
2) benchmarking
3) an aberration
4) purchasing planning

Reasoning: The comparison of performance is called ‘benchmarking’.
Question 45
In StreamYou, the totality of features and characteristics of the services that bear the ability to satisfy the
stated or implied needs of customers, is known as .
1) value
2) quality
3) standards
4) specifications

Reasoning: Quality is the totality of features and characteristics of a product that bears the
ability to satisfy stated or implied needs.
Question 46
In StreamYou Brady follows the most common internal policy when purchasing materials. This policy is ideal, as
the materials purchased are standard. Which policy does Brady apply?
1) Advanced purchasing
2) Minimum purchasing
3) Scheduling purchases according to needs
4) Scheduling purchases according to consumer demand

Reasoning: The most common policy is scheduling purchases according to needs.
Question 47
Brady decided to appoint his friend Timothy as an extra help in StreamYou. The job will help
Timothy to know what his job title and duties are.
1) analysis
2) description
3) specification

4) appraisal

The job specification contains the details of the requirements that the person needsto be able
to do a specific job.
Question 48
The activities that are earned out to search for and invite potential and suitable people to apply for available
positions In StrearnYou, is known as .
1) induction
2) provision
3) selection
4) recruitment

Reasoning: Recruitment consists of those activities and efforts on behalf of the business to seek and find
suitable potential employees and to persuade them to apply for the
available positions in the business.
Question 49
If Bryan wants to change Timothy's working habits and his level of performance to make him more effective in
his current position, it means Timothy will have to undergo .
1) training
2) orientation
3) development
4) induction

Reasoning: The aim of training is to influence and change employees’ working habits and levelsof
performance in such a way that they will become more productive. Training is,
therefore, directed at tasks which are in line with the objectives of the business.
Question 50
At the end of each financial year Brady and Timothy have to complete an form which serves as a
summary of their income and deductions for the past year.
1) IRP 3A
2) ITR 12T
3) IRP 5
4) IRP 3


Reasoning: An IRP5 form is a summary of the employee’s income and deductions for the past
tax year.
Question 51
Which of the following methods can be used to identify Timothy's training needs?
a) Conducting an interview with Timothy to ascertain whether training needs exist.

b) Establishing the training objectives of StreamYou
c) Implementing the management by objectives technique.
d) Asking Timothy if he feels unqualified to carry out his tasks effectivelyChoose
1) a, c, d
2) b, c
3) a, b, d
4) a, b, c, d

Reasoning: There are different ways to identify training needs, such as:
• The employee is asked to say whether they feel unqualified to carry outa task
effectively due to a lack of knowledge and/or skills.
• Interviews, where the human resource manager conducts interviews with
supervisors, key people and employees in the business to ascertainwhether
any training needs exist.
• Using a questionnaire is a scientific method of ascertaining training
needs.
• The management by objectives technique provides ongoing information
regarding the work and progress of the employee.
Question 52
Timothy had to complete forms such as unemployment insurance, tax and medical aid (if applicable) during the
step of his appointment at StreamYou.
1) selection
2) final interview
3) employment
4) placement

Reasoning: Employment involves not only the process whereby the new employee reports to the
workplace, but also the accompanying administrative tasks that have to be performed. The
human resource manager ensures that the necessary forms, such asunemployment
insurance, tax and medical aid (where applicable), are completed,
and that any other outstanding information is obtained from the employee.

Question 53
If Brady decides to include Timothy in StreamYou's profit sharing, this will be regarded as
remuneration.
1) indirect
2) direct
3) primary
4) secondary

Reasoning: Kinds of indirect remuneration, or fringe benefits:
• Pension
• Insurance
• Housing
• Transport
• Leave
• Profit sharing
Question 54
The creation, maintenance, amendment and administration of rules, processes, ideologies,

interactions and relationships within the workplace, is known as .
1) public relations
2) labour relations
3) personnel administration
4) government regulations

Reasoning: ‘Labour relations’ is concerned with the creation, maintenance, amendment and
administration of rules, control processes, ideologies, interactions and relationships
in the workplace.
Question 55
The activity of gathering and capturing raw data at StreamYou, is known as .
1) inputs
2) processing
3) outputs
4) transformation

Reasoning: Input is the activity of gathering and capturing raw data.

Question 56
Brady relies on direct information to determine any changes in consumer trends and patterns, the impact of new
technologies and changes in population. This information will enable him to make
decisions at StreamYou.
1) tactical
2) operational
3) functional
4) strategic

Reasoning: top management relies on direct information to look at changing consumer patterns, the
trends of income and expenditure involved in product lines and the impact of new
technology, population and other special trends. This information enables top management
to make strategic decisions, including counteracting any
activity from competitors that could affect the business negatively.
Question 57
When Brady develops the information management strategy for StreamYou, which of the following are true?
a) Brady should consider the internal information needs of StreamYou

b) Brady should consider the external information needs of Stream You
c) Only information needs at the strategic level of StreamYou must be analysed
d) Brady should incorporate the relevant information in the decision‐making process ofStreamYou
1) c, d
2) b, c
3) a, b, d
4) a, b, c, d

Reasoning: When developing an information management strategy within a business, it is useful to
consider information needs from all levels, that is, internally as well as externally.
(alternatives a and b are correct) All these information needs must be analysed and the
relevant information incorporated in the decision‐making process.
(alternative d is correct)
Question 58
A collection of related data files, that hold data in a structured format, is known as a/an .
1) information management system

2) software application
3) database
4) network

Reasoning: The basis of data management is the database, a collection of related data files that
hold data in a structured format.
Question 59
Which one of the following options best describes the use of the intranet at StreamYou, for the purpose of
effective communication?
1) Facilitates internal communication within StreamYou as an enterprise

2) Assists with business‐to‐business communication on a selective basis
3) Facilitates external communication between StreamYou and is consumers and suppliers
4) Assists with the improvement of turnaround times with StreamYou's suppliers.

Reasoning: Intranets are used to facilitate communication within a business and to manage many
internal business processes. Intranets give businesses the capacity to providejust‐in‐time
information to any part of the business. In addition, intranets act as a resource to
employees, who can download the documents and forms used in the business, check the
schedules for projects, read updated information about the
business and find links to useful websites.
Question 60
When Brady and Timothy collect data, there are certain aspects they need to consider. Which of the following are
the aspects they need to consider?
a) The format in which the data should be collected

b) The people responsible for collecting the data
c) The methods of collecting data
d) The activities for which data must be collected
1) b, c
2) a, c, d
3) a, b, d
4) a, b, c, d

• Activities for which data must be collected.
• The format in which to collect data
• Methods of collecting data

Question 61
Brady would like to implement an information system that focusses on coordinating the processes surrounding
StreamYou's interactions with its customers, sales, marketing and services, to optimise revenue. Which
information system should Brady implement?

2) Supply chain management system
4) Transaction processing system

Reasoning: Customer relationship management (CRM) systems focus on coordinating the processes
surrounding the business’s interactions with its customers in sales, marketing and service to
optimise revenue, customer satisfaction and customer
retention.
Question 62
Which one of the following is NOT an important dimension of knowledge?
1) Knowledge is situational
2) Knowledge is an organisational asset
3) Knowledge has different forms
4) Knowledge can be measured

Reasoning: See Table 8.4 in the Prescribed Textbook
Question 63
Which one of the following is NOT a task of the public relations function of StreamYou?
1) Counteracting negative publicity

2) Creating or reinforcing an image
3) Advertising the enterprise
4) Promoting and planning events

Reasoning: The public relations functions are:
• Promoting goodwill
• Releasing information to the public
• Creating or reinforcing an image option 2
• Directly promoting a product or service
• Counteracting negative publicity option 1
• Handling internal communications
• Promoting and planning events option 4

Question 64
To promote the prosperity of StreamYou and to establish goodwill amongst the members of the public, can
be classified as objectives of the public relations function.
1) strategic
2) long‐term
3) primary
4) secondary

Reasoning: The secondary objectives of public relations are as follows:
• to enhance and contribute to the prosperity of the business
• to establish and expand on the goodwill among the publics that are
relevant to the business.
Question 65
If clients are satisfied with the services that StreamYou offer, they will tell other people about it. This statement
refers to as one of the factors that form public opinion.
1) reception and atmosphere

2) previous experience
3) advertisements
4) after‐sales service

Reasoning: Previous experience of specific transactions with the business: The most important
advertisement for a business is when consumers share their good experiences with one
another: this is called ‘word of mouth’. If consumers are satisfied with the service or product
offered and therefore have a good opinion of the business, they
will tell other people.
Question 66
Which step in the public relations process will answer the question of what should be done, and why?
1) Define the problem or opportunity


Reasoning: Planning and programming: In this phase, key decisions must be made s to what

Question 67
The way in which Brady and Timothy treat the consumers at StreamYou will affect the attitude of thepublic
towards the enterprise. To which factor of forming public opinion does the abovementioned statement refer?
1) The type of relationship that exists between employees

2) External interest groups
3) Previous experience of customers
4) The reception and atmosphere in the enterprise

Reasoning: Reception area and atmosphere in the business:
Although most businesses have a reception area, clients or customers are also received
in other offices and in entertainment areas. All employees have contact to a greater or
lesser extent with visitors and must, therefore, be informed about
the way in which they should receive them. The right behaviour is very important: it affects
the attitude of the public towards the business.
Question 68
Brady and Timothy approached the local primary school's soccer team and offered to sponsor their jerseys for
the duration of the soccer tournament. This would imply that the soccer team would be playing their matches
wearing a kit that displays the emblem of StreamYou. By doing this, StreamYou is acting upon its social
responsibility towards .
1) its employees
2) the community
3) public relations
4) the environment
Question 69
StreamYou's consumers, suppliers and financial institutions form part of the public with which
good public relations must be maintained.
1) external
2) internal
3) primary
4) secondary

Reasoning: The employees are usually regarded as the internal publics and the external publicsare
groups, such as customers, financial institutions, unions and media.

CASE STUDY: ADVENTURE CYCLES
Alex Johnson is a cycling and extreme sports enthusiast from Johannesburg. Feeling trapped in his nine‐to‐five
desk job, Alex knew that he could not continue doing this for the rest of his life, and needed a change. He always
had a good eye for an opportunity in the market, and endeavoured to make a success of every opportunity that
came his way. Alex and his friend Graham always talked about opening up a bicycle shop, but the idea was
never realized. It was only until Alex felt trapped in his job, that this idea became more lucrative. Alex and
Graham put all of their expertise and ideas together in order to start this new enterprise. After careful planning,
months of saving, and Alex and Graham leaving their jobs, they finally managed to open their own bicycle shop,
and registered the enterprise as a partnership under the name Adventure Cycles.
In order to finance the new enterprise, Adventure Cycles applied for a business loan from the bank for R200 000,
payable within five years. The bank did, however, require some form of security on the money lent to Adventure
Cycles. Alex and Graham also both invested R50 000 of their own personal savings, in order to get the enterprise
going.
Situated in the heart of Randburg, Adventure Cycles specializes in the selling of mountain bikes, bicycle parts
and bicycle repair services. To differentiate themselves from their competitors, looking for a different approach to
ensure growth of the enterprise and save customer costs, Alex and Graham also opened Adventure Cycles
online, where they sell bicycles and bicycle parts online. By doing so they spotted an opportunity to cut out the
traditional route to reach the target market.
Alex and Graham firmly believed that, by also selling bicycles and parts online, they could bring products to the
marketplace at a fraction of the price. To do so, however, they had to overcome the natural human inclination to
want to physically touch and appraise any potential purchase.
During the first few weeks of operation, Adventure Cycles experienced various problems. In order to solve these
problems, Alex and Graham had to first determine the root of the problems. They then approached these
problems by grouping all the possible causes into certain categories, which then pointed out the root of their
problems. This technique proved to be successful, as they immediately solved complex problems without too
much of a disruption. The two also strongly believe that teamwork is of the highest importance in order to reach
their goals and objectives.
Alex and Graham ultimately strived to satisfy their consumers' wants and needs, while
simultaneously meeting the business objectives of the enterprise.
Although Alex and Graham have the knowledge and expertise to repair and service bicycles, they did not have
the necessary tools or time to customise painting on bicycles. This is a specialised skill, and only a few people
require these customized bicycles. As a result, Alex and Graham decided that this specific function will be done
by George, who does not work for Adventure Cycles, but does customised painting as a hobby. George will get
paid for the work done, and Adventure Cycles will only take a small percentage of the profit. The handcrafted
bicycles sold at Adventure Cycles are all imported from a supplier in Italy, and sold at a premium price as these
bicycles cannot be bought anywhere else in South Africa.
Adventure Cycles decided to divide the total market into smaller segments and to target specifically middle‐class
customers between the ages of 20 and 35, who are mountain bicycle enthusiasts and follow an active lifestyle.
Adventure Cycles operates in a fairly competitive market, and it is for this

reason that Alex and Graham had to constantly think of ways to attract new customers, and retain existing
customers.
Due to the retail nature of the enterprise, Alex and Graham had to appoint more people in order to successfully
run Adventure Cycles, and satisfy the demand. They decided to appoint a sales consultant, who will specialise
in the sales of mountain bicycles. They also decided to appoint a cashier who will be responsible for receiving
payments and answering the phone. For the sales consultant position, Graham decided to advertise the
position on the local community forum's Facebook page, using the following advert:
SALES CONSULTANT NEEDED AT ADVENTURE

CYCLES
Role and To sell and market premium mountain bicycles to new and existing clients
purpose
Responsibiliti Providing service to clients and brokers in time with the Group's standard of
esand work
service
outputs
Providing quotes, advice and relevant terms to clients ∙ Developing new business
opportunities and growing relationships to ensure new business and
revenue
Executing professional presentations

Maintaining the necessary administration standards, monitoring and following
up on new and renewed business
Establishing and maintaining a good working relationship and integrity
Assisting with marketing strategy and implementation
Competenci Client orientated
esrequired
Planning and organising skills
Team player
Communication skills
Experience Previous sales experience
& Basic understanding of mountain bicycles
Qualificatio
ns Numeracy skills
Alex, however, recommended that they appoint his sister‐in‐law, Catharine, as the cashier. Dineo, a sales
consultant with experience in the mountain bicycle industry, immediately applied for the sales consultant position
on Facebook. Graham organised an interview with Dineo, and they immediately decided to appoint Dineo.
As part of Adventure Cycle's public relations function, Alex and Graham decided to launch a public relations
campaign. This campaign involves continuously informing customers about the importance of water and nature
conservation, and ways to reduce your carbon footprint.
Adventure Cycles has now been in operation for six years, and Alex and Graham are excited to see what the
future holds for this enterprise
1 Which of the following are reasons why Alex can be regarded as an entrepreneur?
a) Alex was willing to take a risk to start Adventure Cycles

b) Alex is only responsible for managing Adventure Cycles on a day‐to‐day basis
c) Alex manages change by introducing the online shop for selling bicycles and parts

d) Alex had the self‐confidence and passion to start Adventure Cycles

1) a, b, c
2) a, c, d
3) b, d
4) a, b, c, d

Reasoning: The entrepreneur’s role, however, differs from that of the small business manager in that
the entrepreneur manages change by, for example, introducing a new product, buying a
new business, deciding which risks to take, introducing new management systems and
moving into new markets.
Question 2
Due to the fact that bicycles are seen as luxury, nice to have items, Alex and Graham need to take into
consideration elements such as consumer behavior and purchasing power. These elements can be found in the
environment of Adventure Cycles.
1) micro‐
2) macro‐
3) market
4) mega

Reasoning: The following are elements of the market environment:
• Consumer behaviour
• Needs
• Purchasing power
• Suppliers
• Intermediaries
• Competitors
Question 3
The supplier that Alex and Graham use to import the handcrafted bicycles from Italy, forms part of Adventure
Cycles' environment.
1) micro‐
2) macro‐
3) market
4) mega

Reasoning: The following are elements of the market environment:
• Consumer behaviour

• Needs
• Purchasing power
• Suppliers
• Intermediaries
• Competitors
Question 4
Alex and Graham have full control over the environment.
1) micro‐
2) macro‐
3) market
4) mega

Reasoning: The internal, or micro‐environment, consists of the aspects that business
entrepreneurs and managers are able to control directly.
Question 5
As a self‐employed entrepreneur, Alex has to secure contracts through and on an ongoing

basis, as without this, the failure of Adventure Cycles could become a reality.
1) planning; communication
2) planning, control
3) marketing, accountability
4) marketing, networking

Reasoning: The self‐employed have to secure contracts through marketing and networking on an
ongoing basis, because without this work there will be no income and failure will
be a reality.
Question 6
Which of the following characteristics, of the environment in which Adventure Cycles operates, aretrue?
a) Management at Adventure Cycles has limited control over the macro‐environment

b) Variables within the business environment of Adventure Cycles are interdependent
c) Management at Adventure Cycles has direct control over the micro‐environment
d) The establishment, growth and continued existence of Adventure Cycles are indirectly influenced
by the business environment
1) a, d
2) b, c

3) a, c, d
4) a, b, c, d

Reasoning: The internal, or micro‐environment, consists of the aspects that business
entrepreneurs and managers are able to control directly. Alternative c The
three environments are interdependent. Alternative b
A change in the macro‐environment may have a direct or indirect influence on themicro‐
environment. Alternative d – (directly or indirectly)
Little to no control over the macro‐environment. Alternative a
Chapter 2: General management
Question 7
When Alex and Graham decided to differentiate themselves from their competitors, and opened Adventure
Cycles online, which component of the new economy did they address?
1) Globalisation
2) Alliances
3) Knowledge management
4) New communication technologies

Reasoning: Communication technologies are responsible for enormous change in the business world.
For example, consider the effect of the internet on business. This means that entrepreneurs
must think and act differently regarding the management process if they want to be
successful. Technology not only complicates business, but also
creates new opportunities.
Question 8
The customised painting of bicycles done by George, is an example of at Adventure Cycles.
1) outsourcing
2) delegating
3) controlling
4) planning

Reasoning: Outsourcing is ‘the process of transferring responsibilities for a specific businessfunction from
an employee group to a non‐employee group’.
Question 9
Which of the following are true, for the task of strategic planning at Adventure Cycles?
a) It involves the development of the broad, long‐term strategy of Adventure Cycles

b) It is aimed specifically at the business activities of Adventure Cycles

c) The time frame for strategic plans is three to ten years

d) It involves giving instructions to the team at Adventure Cycles on a daily basis Choose
1) a, c
2) b, c
3) a, d
4) a, b, c, d

Reasoning: On this level the entrepreneur must always devote time and attention to strategicplanning,
that is, to the systematic setting, structuring and/or adaptation of the organisation’s
objectives. Long‐term objectives are particularly important here.
Alternative a is correct, eliminating option 2.
Alternative d refers to operational planning, eliminating options 3 and 4.
Question 10
It is imperative that Alex and Graham manage their time and prioritise activities and tasks. Which one of the
following is NOT a criterion that they should use when managing their time?
1) If a task is not important and not urgent, they should plan to do the task at a later stage
2) If a task is both important and urgent, they need to do it immediately
3) If a task is important but not so urgent, they should do the task immediately
4) If a task is not important but urgent, they should do it immediately, but should not spend a lot of time
on it

Reasoning: The following criteria can be used:
• If a task is both important and urgent, it needs to be done immediately.
• If a task is important but not so urgent, it can wait for a while.
• If a task is not important but urgent, do it, but do not spend a lot oftime
doing the task.
• If a task is not important and not urgent, plan to do the task at a laterstage.
Question 11
Alex and Graham are in the position to identify problems, find alternative solutions, evaluate the solutions
and then choose the best one to be implemented. This statement refers to as an
additional management function.
1) co‐ordination
2) decision‐making
3) control
4) organizing


Reasoning: Decision making is the process of identifying problems, finding alternative solutions,
evaluating these solutions and then choosing the best one.
Question 12
Which one of the following problem‐solving techniques does Alex and Graham apply in Adventure Cycles?
1) Brainstorming

Reasoning: “In order to solve these problems, Alex and Graham had to first determine the root of the
problems. They then approached these problems by grouping all the possible causes into
certain categories, which then pointed out the root of their problems.” Fishbone diagrams
can be used meaningfully at the beginning of the problem‐ solving process because they
are aimed at determining the causes of problems. Thisis done by grouping all possible
causes in certain categories. The diagram looks like
the bones of a fish, with the problem where the fish’s head would be.
Question 13
Alex and Graham strongly believe that teamwork is of the highest importance, in order to reach Adventure Cycles'
goals and objectives. Which of the following is NOT a competency of teamwork?
1) Team design
2) Managing team dynamics
3) Team building
4) Creating a supportive environment

Reasoning: Teamwork competency includes:
• team design
• creating a supportive environment
• managing team dynamics.
Question 14
If Alex and Graham were to set an objective to achieve a 10% increase in sales for July, compared to previous
months, this is an example of a/an objective.
1) strategic
2) operational
3) individual
4) functional


Reasoning: A business usually aims to achieve the following types of objectives:
• long‐term (or strategic) objectives
• medium‐term (or functional) objectives
• short‐term (or operational) objectives
• the personal (or individual) objectives of the employees.
Question 15
In order to finance the new enterprise, Adventure Cycles applied for a business loan from the bank for R200
000, payable within five years. The bank, however, required some form of security on the money lent to
Adventure Cycles. Which one of the following could be considered a form of securityfor the bank loan?
1) Graham's investment portfolio

2) Alex's paid off vehicle
3) Alex's and Graham's personal savings
4) Graham's house, which is still under mortgage

Reasoning: This security can be in the form of any business asset or asset owned by the owner
that the bank considers to be of value.
Question 16
Which one of the following is true for the statement of financial position of Adventure Cycles?
1) The non‐current assets are recorded in the statement of financial position at their net cost less
accumulated depreciation
2) Intangible assets such as patents and licences will be included under the current assets in the
statement of financial position
3) Non‐current liabilities are listed as the expenses accrued by Adventure Cycles that are dueover
longer periods of time
4) Current liabilities include intermediate bank loans and equipment loans

Reasoning: Other assets include intangible assets, such as patents, royalty arrangements, copyrights,
licences and notes receivable from managers and employees. Therefore option 2 is
incorrect.
Non‐current assets are typically not for resale and are recorded in the statement of
financial position at their net cost less accumulated depreciation.
Question 17
Equipment, furniture, fixtures, and any other items with an expected useful business life, measuredin years, can
be classified as in the statement of financial position of Adventure Cycles

1) current assets
3) other assets
4) owner's equity

Reasoning: Non‐current assets are assets acquired for long‐term use in a business, such as land,
building, plant, equipment, machinery, leasehold improvements, furniture, fixtures and any
other items with an expected useful business life measured in years (as opposed to items
that will wear out, or be used up in less than one year and which
are usually recorded as expenses when they are purchased).
Question 18
The bank loan of R200 000 will form part of the in the statement of financial position of
Adventure Cycles
1) current assets

Reasoning: Non‐current (long‐term) liabilities are amounts owed by the company over long periods of
time. Examples include mortgages, intermediate and long‐term bank loans, equipment
loans and any other obligation for money due to a creditor with a
maturity longer than one year.
Question 19
The categories and format of the statement of financial position are controlled and regulated by the
.
a) International Financial Reporting Standards (IFRS)

b) South African Institute of Chartered Accountants (SAICA)
c) South African Institute of Professional Accountant (SAIPA)
d) South African Generally Accepted Accounting Principles (GAAP)
1) a, b, c
2) b, c
3) a, d
4) a, b, c, d

Reasoning: The categories and format of the statement of financial position are established and
regulated by systems such as International Financial Reporting Standards (IFRS) and

South African Generally Accepted Accounting Principles (SA GAAP) depending on

the size and nature of the business.
Question 20
Working capital in Adventure Cycles refers to the .
1) strategic financial plan to control the future of Adventure Cycles

2) most persuasive management tool needed when applying for a loan
3) investment that Alex and Graham have made in Adventure Cycles
4) short‐term resources that are needed to manage Adventure Cycles on a daily basis

Refer: Prescribed Textbook, pg. 59, 68, 72
Reasoning: Working Capital = Total Current Assets – Total Current Liabilities
Forecasts, or pro forma statements of comprehensive income and cash flow statements
as they are usually called, also provide the most persuasive management tools when
applying for loans or trying to attract investor money.Therefore option 2 is incorrect.
In most cases, the words ‘short‐term financial planning’ and ‘working capital management’
are used interchangeably. This is very useful if we can understand what is meant by working
capital. This refers to the short‐term resources that
we need to manage the business on a daily basis.
Question 21
During which step of long‐term financial planning will Alex and Graham study methods of operation, the product
mix and new market opportunities?
1) Step 2
2) Step 3
3) Step 4
4) Step 5

Reasoning: Step 5: Study methods of operation, product mix, new market opportunities and other
such factors. This will help you to identify ways to improve your
business’s productivity and profitability.
Question 22
Which of the following items will be included under the expenses section of Adventure Cycles' pro forma
statement of comprehensive income?
a) Repairs and maintenance

b) Outside services
c) Payroll expenses
d) Depreciation Choose

1) c
2) b, c
3) a, d
4) a, b, c, d

Reasoning: Include the following items to calculate total expenses in the pro forma statement of
comprehensive income:
• Salary expenses: basic pay plus overtime.
• Payroll expenses: include paid vacations, sick leave, health insurance,
unemployment insurance, social security taxes.
• Outside services: include costs of subcontractors, overflow work
contracted out, special or one‐off services.
• Supplies: services and items purchased for use in the business, not for
resale.
• Repairs and maintenance: regular maintenance and repair, including
periodic large expenditures, such as painting or decorating.
• Advertising: include desired sales volume, classified directory listing
expense, etc.
• Car, delivery and travel: include charges if a personal car is used in the
business. Include parking, tolls, mileage on buying trips, repairs, etc.
• Accounting and legal: outside professional services.
• Rent: list only real estate used in the business.
• Telephone.
• Utilities: water, heat, light, etc.
• Insurance: fire or liability on property or products, workers’
compensation.
• Taxes: inventory, sales, excise, real estate, others.
• Interest paid.
• Depreciation: amortisation of capital assets.
• Other expenses (specify each): tools, leased equipment, etc.
• Miscellaneous (unspecified): small expenditures without separate
accounts.
According to the case study, Adventure Cycles follows a ‐oriented approach to marketing
1) production
2) sales
3) marketing
4) operations

Question 24
When Alex and Graham import the handcrafted bicycles from Italy, they help to bridge the gap
between production and consumption.

1) space
2) time
3) information
4) value

Reasoning: Space gap. Most of the world’s electronic equipment is produced in China and Japan but
the buyers of these items are located all over the world. If these electronics
manufacturers want to sell their products they must offer them in the geographical areas
where their customers are. Therefore, a geographical space exists between the place of
manufacture and the place of consumption – or
between the manufacturer and consumer!
Question 25
Due to the high monetary value of the bicycles sold at Adventure Cycles, Alex and Graham run the danger of
loss or damage of the goods. It is for this reason that they decided to take out insurance against arson and
theft. This is an example of a/an marketing activity, which is known as .
1) auxiliary, prevention
2) auxiliary, risk‐taking
3) primary, risk‐taking
4) primary, prevention

Refer: Prescribed Textbook, pp.100‐101
Reasoning: The auxiliary marketing activities include the following (amongst others):
• Risk‐taking. The owner of the product is exposed to the risk of loss or
damage. The risk is carried by both seller (before exchange) and buyer(after
exchange). The owner can take out insurance as a form of
protection against risks, such as arson or theft.
Question 26
The integrated marketing strategy of Adventure Cycles is formed by a combination of marketing decisions,
which include .
a) Product
b) Place
c) Production
d) Promotion
e) Price
1) a, b, d, e
2) a, c, e
3) c, d
4) a, b, c, d, e


Reasoning: There are four variables about which the entrepreneur has to take decisions: the product
itself; the place where it is to be sold (distribution of the product); the marketing
communication methods to be used to inform the consumer; and the price of the
product, which should reflect its value to the consumer.
These four variables combine in a market offering, which the consumer may decide to buy
if it satisfies their needs. The four variables are known as the marketing instruments or as
the ‘marketing mix’. This consists of the ‘four Ps’ (product, place, promotion and price).
Decisions regarding the four marketing instruments combine
to form an integrated marketing strategy, or marketing plan.
Question 27
Adventure Cycles primarily operates in the market
1) industrial
2) reseller
3) government
4) consumer

Reasoning: Reseller markets. These businesses buy goods and services and resell them at a
profit.
Question 28
Which one of the following is NOT an advantage of having competitors for Adventure Cycles?
1) Competitors will help to keep the excessive profits of Adventure Cycles in check
2) Competitors will determine the prices for the bicycles sold at Adventure Cycles
3) Competitors could stimulate higher profitability for Adventure Cycles
4) Competitors encourage technological innovation in Adventure Cycles

Reasoning: Competition has its positive aspects. It can help to keep excessive profits in check; it
stimulates higher profitability; and it leads to better service and encouragestechnological
innovation.
Question 29
According to the case study, Alex and Graham segmented the consumer market of Adventure Cycles according
to .
a) Geographic variables
b) Demographic variables
c) Behavioural variables
d) Psychographic variables

1) a, b
2) c, d
3) b, d
4) b, c, d

Reasoning: “Adventure Cycles decided to divide the total market into smaller segments and to target
specifically middle‐class customers between the ages of 20 and 35, who are mountain
bicycle enthusiasts and follow an active lifestyle.”
• Geographic segmentation: the market is divided into geographic
regions, such as provinces, towns, cities and suburbs.
• Demographic segmentation, which means dividing the market according
to criteria such as age, gender, religion, race, income and family lifestyle.
• Psychographic segmentation. This examines how a person thinks, feels and
behaves, and uses personality, lifestyle and values as segmenting variables.
• Behavioural segmentation, which is based on a number of behavioural
measures, such as benefits sought, purchase occasions, user status,
usage rate and loyalty status.
Question 30
Which one of the following parts of the marketing plan of Adventure Cycles will help Alex and Graham
determine whether customers want bicycles, whether they will buy it and whether there is a need for it?
1) Market research
2) Business analysis
3) Product analysis
4) Market attractiveness

Reasoning: Market attractiveness: This part of the plan describes how attractive the market for your
product or service is. Do customers want the product? Will they buy it? Do
they see a need for it?
Question 31
Alex and Graham's knowledge and expertise with regard to repairing and servicing bicycles, form part of the
in the transformation process of Adventure Cycles.
1) service means
2) outputs
3) inputs

4) production means
Question 32
Once George is done with the customised painting of the bicycles, Alex needs to check if the paint job compiles
with the quality standards set by Adventure Cycles. This is an example of which one of the following primary
lead‐time elements?
1) Transportation time
2) Inspection time
3) Queue time
4) Processing time

Reasoning: Inspection time: The time needed to check whether the job complies with quality
standards.
Question 33
Alex and Graham can repair and service a maximum number of four bicycles per day. This statement refers to
the of Adventure Cycles.

Reasoning: Aggregate planning refers to the anticipation of aggregate demand in broad terms and
encompasses capacity planning.
Question 34
The monthly costs of Adventure Cycles such as electricity, insurance and security, can be classified as
costs, which are components of inventory carrying costs
1) holding, direct
2) holding, indirect
3) capital, direct
4) capital, indirect


Question 35
Which one of the following CANNOT be considered an objective of inventory management at Adventure
Cycles?
1) Inventory control must serve as a source of information for management decisions

2) Excessive variety of inventory should be maintained at all times
3) A scientific, factual method should be created to simplify purchases
4) Losses should be prevented by controlling all incoming inventory with regards to quality and quantity

Reasoning: The objectives of inventory management are as follows:
• A scientific, factual method to simplify purchases (by using
mathematical models) needs to be created.
• There should be a reduction in possible losses as a result of
obsolescence and incorrect or excessive purchases. Good inventory
control turnover rates are necessary.
• Dead or slow‐moving stock should be identified.
• Inventory control must serve as a source of information for
management decisions.
• Losses should be prevented by controlling all incoming inventory as regards
quality, quantity and the requirements as determined in the purchase order.
This is important since it impacts directly on the qualityof the finished product.
• Excessive variety should be avoided. The advantages of standardizationand
simplification must be considered.
• Production should never be delayed because of a shortage of a certain
inventory item. Such delays make an extremely bad impression on the
customer.
• Ordering the most economical quantities through an effective control system
is essential.
• All internal customers (the next process) and external customers should
be given good service.
Question 36
The customised painting of bicycles that is done by George, refers to which one of the following quality
dimensions pertaining to goods?
1) Performance
2) Conformance
3) Durability
4) Aesthetics

Reasoning: Aesthetics relates to the physical quality of the product, which means it is pleasant
to look at.

Question 37
Adventure Cycles must, at all times, try to minimise maintenance costs. Alex and Graham can onlyachieve
this by creating a proper balance between maintenance and maintenance.
1) centralised, decentralised
2) corrective, preventative
3) sub‐contracted, corrective
4) preventative, centralized

Reasoning: The business must, at all times, try to minimise the maintenance cost. This can onlybe done
by creating a proper balance between corrective maintenance and
preventive maintenance.
Question 38
The machinery, tools and equipment, that Alex and Graham use to render the repairing services in Adventure
Cycles, are subject to a substantial degree of wear, due to constant use. Which of the following are
consequences Alex and Graham could face if their machinery, tools and equipment are defective?
c) Increased production costs
d) Increased production capacity
e) Lower‐quality products and services
1) a, b, d
2) c, d
3) a, b, c, e
4) a, b, c, d, e

• Reduced production capacity. Machinery and equipment failures mean that
no production can take place, and this leads to a reduction in capacity.
• Increased production costs. Failures in machinery and equipment result in a
higher hourly cost. Machine operators are idle while the machinery and
equipment are being repaired; moreover, the salaries and wages ofthe
maintenance teams, as well as the cost of replacing the broken components,
have to be discounted. Sometimes, backup machinery must be hired or
purchased, which also means extra cost.

Question 39
During the planning phase of the purchasing function, Alex and Graham need to .
1) formulate the purchasing objectives

2) allocate responsibilities and structure the purchasing activities
3) evaluate the performance of the purchasing management function
4) determine who has adequate knowledge and skills to lead the purchasing function

Question 40
If the purchasing activities of Adventure Cycles are well organised and mainly handled by Alex, it refers to
the method of in the purchasing function of Adventure Cycles.
1) centralisation
2) decentralisation
3) departmentalisation
4) organization

Reasoning: In a business with a centralised purchasing function, purchasing is done at one place
by the purchasing manager and the personnel responsible for purchasing.
Question 41
Alex and Graham need to determine the future availability of the bicycles they import from the supplier in
Italy. Which of the following is necessary for them to do, to determine the future availability?
a) A study of the managerial ability of the supplier

b) A study of the operational ability of the supplier
c) A study of the supplier's past performance
d) A study of the supplier's progressiveness
e) A study of the financial ability of the supplier
1) a, b
2) b, d
3) a, c, d, e

4) a, b, c, d, e

Reasoning: Determining the future availability of materials is complicated. A study of the technical,
managerial and financial abilities of suppliers, their progressiveness and
past performance (if used in the past), is necessary.
Question 42
If Alex and Graham receive defective bicycles from the supplier, they should communicate with the supplier in a
way that ensures both the prevention of future consignments, and the preservation of good supplier relations.
During which step of the purchasing cycle do they need to do this?
1) Step 6
2) Step 7
3) Step 8
4) Step 9

Reasoning: Step 7: Handling errors and discrepancies:
If defective materials are received, the purchasing function should communicate with the
suppliers in a way that ensures both the prevention of future defective
consignments and the preservation of good supplier relations.
Question 43
Owing to the retail nature of Adventure Cycles, the quality of the purchased bicycles directly influences
the of Adventure Cycles.
1) image
2) profitability
3) suppliers
4) employees

Reasoning: In retail businesses, the quality of purchased products influences the image of the
firm and the kind of customer who will purchase from them.
Question 44
The totality of the features and characteristics of the bicycles that bear the ability to satisfy the stated
needs of consumers, is known as .
1) the need‐satisfying cycle

2) specification
3) quality
4) specialization


Reasoning: Quality is the totality of features and characteristics of a product that bears the
ability to satisfy stated or implied needs.
Question 45
Alex and Graham realised that the timing of purchases are influenced by several internal and external factors.
Which one of the following is NOT an internal factor that Alex and Graham should consider?
1) Marketing and operations plans

2) Physical facilities
3) Availability of funds
4) Reliability of suppliers

Reasoning: Internally, the availability of funds, marketing and operations plans and strategies determine
when products can be purchased. Physical facility, such as storage space,is also a factor
that influences the timing of purchases. Internal policies also
determine the scheduling of purchases.
Question 46
A personal meeting between Alex and the bicycle supplier, with the objective of reaching a
compromise and concluding a deal, is known as .
1) direct marketing
2) negotiation
3) personal selling
4) cooperation

Reasoning: Negotiations entail a personal meeting between the purchaser and the supplier,
with the objective of reaching a compromise and concluding a deal.
Chapter 7: The human resource function
Question 47
Owing to the small size of Adventure Cycles, Alex and Graham had to decide how the human resource
function would be managed, since they did not have a separate human resource division. Which of the
following are options they could have chosen from?
a) Alex and Graham could appoint one person to handle all the human resource tasks
b) Alex and Graham could choose to handle the function themselves
c) Alex and Graham could appoint a temporary employee to handle the function
d) Alex and Graham could outsource the human resource function to an external business

1) a, b
2) c, d
3) a, b, c
4) a, b, c, d

Reasoning: A small business (one with fewer than 50 employees) is unlikely to have a separatehuman
resource division. In such a case, the entrepreneur will normally decide how the human
resource function will be managed. There are many different options such as:
• one person may be appointed to handle all the human resource tasks
• one person may be appointed to handle all the human resource tasks in
conjunction with another function, such as the financial function
• entrepreneurs could handle it themselves
• the entrepreneur could make use of temporary employees to handle the function
• the entrepreneur could outsource the human resource function (i.e. making use of an
external business to manage it).
Question 48
According to the case study, what type of recruitment did Graham use when he appointed Dineo?
3) Self‐selection

• Self‐presentation where job‐seekers present themselves at
employment offices.
• Employment agencies who recruit on behalf of businesses.
• Professional institutions include specialised employment agencies,
Question 49
According to the case study, what type of recruitment did Alex use when he appointed Catharine?
3) Self‐selection

Refer: Prescribed Textbook, pg. 188‐189

Reasoning: Internal recruitment methods include job posting, self‐selection, proficiency surveys
and references.
• Job posting is one of the most popular methods of filling positions in a
business. It includes: traditional noticeboards, email‐based systems
andrecruitment systems. The positions are ‘advertised’ internally
through any of these methods.
• Self‐selection involves advertising the position within the business.
Anyemployee who meets the requirements may apply.
• Proficiency surveys are done on employees within the business.
Theirtraining, experience and qualifications are updated and kept on
file; when a post falls vacant, the job specification is compared with
the surveys to identify a suitable candidate.
• References are used for recruiting both internally and externally.
Current employees recommend their family and friends (often not
allowed) for vacant positions.
Question 50
With regards to the advertisement placed on Facebook, the experience and qualifications required, form part of
the job .
1) analysis
2) description
3) specification
4) specialization

The job specification contains the details of the requirements that the person needs
to be able to do a specific job.
Question 51
With regards to the advertisement placed on Facebook, the competencies required, form part of the job .
1) analysis
2) description
3) specification
4) specialisation


Question 52
With regards to the advertisement placed on Facebook, the responsibilities and work outputs, form part of the
job .
1) analysis
2) description
3) specification
4) specialization

Question 53
Once Dineo was appointed he had to be introduced to Adventure Cycles, the procedures, the environment
and his colleagues. What did Alex and Graham have to do before Dineo arrived atAdventure Cycles?
a) Inform other employees of Dineo and his duties

b) Introduce Dineo to the activities of his section
c) Congratulate Dineo on his appointment
d) Identify Dineo's possible shortcomings and training needs
1) a, c
2) b, d
3) a, c, d
4) a, b, c, d

Reasoning: Before new employees arrive at the business:
Congratulate the appointees. Send formal letters of welcome and information
brochures about the business to the successful candidates. Information such as
working hours, dress code, schools and estate agents in the area and the general
policy of the business is usually appreciated. Ensure that their office or workspace is
in order and that the necessary furniture, equipment and stationery are in place
before they arrive. Inform the other employees about
the newcomers and explain what they will be doing.
Question 54
If Graham decides to give Dineo a cell phone allowance, in addition to his normal salary, it will beclassified
as remuneration.
1) primary

2) secondary
3) direct
4) indirect

Reasoning: Every business has its own particular kinds of indirect remuneration, or fringe
benefits. These include allowances.
Question 55
The orders that are placed for new bicycles and bicycle parts, can be classified as in the
information technology transformation process of Adventure Cycles.
1) inputs
2) outputs
3) purchasing activities

Reasoning: See Table 8.1 in the prescribed textbook.
Question 56
Which one of the following CANNOT be considered an activity for which data must be collected atAdventure
Cycles?
1) Recording bicycle sales transactions

2) Payments made by Adventure Cycles
3) Receiving delivery notes
4) Servicing bicycles
Question 57
Which of the following is/are method/s that Alex and Graham can use to process data at Adventure Cycles?
a) Making calculations
b) Making summaries
c) Making evaluations
d) Drawing comparisons
1) a
2) b, d
3) a, c, d

4) a, b, c, d

Reasoning: • Calculations
• Comparisons
• Evaluations
• Summaries
• Graphics
Question 58
Which one of the following can be considered as a strategic decision that should be taken in Adventure
Cycles?
1) Developing policies to manage individual departments in Adventure Cycles effectively

2) Counteracting activities from competitors that could affect Adventure Cycles negatively
3) Developing predetermined schedules for the daily operations at Adventure Cycles
4) Monitoring budgets of Adventure Cycles

Reasoning: Top management: Formulate strategy, policies, long‐term plans and objectives.Make
strategic decisions.
Question 59
Information that is gathered from the external environment of Adventure Cycles, is known as information,
whereas information distributed to the external environment of Adventure Cycles, is known as information.
1) public, intelligence
2) intelligence, public
3) primary, secondary
4) secondary, primary

Reasoning: Intelligence information is gathered from the external environment.
Public information is distributed to the external environment
Question 60
Which one of the following communication methods will be most suitable for Alex and Graham if they would
like to have a meeting with the supplier in Italy, to view the product range he has in stock?
1) Instant messaging
2) Teleconference
3) Video conference
4) E‐mail


Reasoning: Video conferencing takes place over telecommunications links and includes televised
pictures of the participants, either as still shots or in full action, like
regular television.
Question 61
If another bicycle shop were to enter the market with the same product/service offering as Adventure
Cycles, Alex and Graham would require knowledge to know how to react in the
particular situation.
1) situational
2) organisational
3) tacit
4) explicit

Reasoning: Tacit knowledge is experience on how to react to a situation when many different variables
are involved. It is more difficult to encapsulate this knowledge, which often resides in the
heads of employees. Techniques for sharing this knowledge include learning stories and
histories. Examples include knowing how to react when changes occur in the marketplace,
such as a competitor launching a new product or
losing a major customer to the opposition.
Question 62
Alex and Graham soon realised that they needed to implement some form of an information system in order to
run Adventure Cycles smoothly. For this to be effective, they need an information system that can help them
make decisions that are unique, rapidly changing and cannot easily be specified in advance. What type of
information system is best suited for Adventure Cycles in this instance?


Reasoning: A decision support system (DSS) is designed for the management level of the
business. A DSS helps entrepreneurs make decisions that are unique, rapidly
changing and not easily specified in advance.
Chapter 9: Public relations
Question 63
The primary objective of the public relations function within Adventure Cycles is to .
1) establish goodwill among the various publics

2) enhance and contribute to the prosperity of Adventure Cycles

3) promote and improve the image of Adventure Cycles among the various publics
4) make a good profit and increase the sales

Reasoning: The main objective or aim of public relations is to enhance and improve the image of the
business among the various publics and to establish a healthy relationship
between the business and the public.
Question 64
The bank from which Adventure Cycles took out a business loan, forms part of the enterprise's
public.
1) internal
2) external
3) primary
4) secondary

Reasoning: Financial Institutions form part of an enterprise’s external public.
Question 65
Alex and Graham believe that satisfied clients will tell other people about the service they received. This
statement refers to as one of the factors that form public opinion.
1) after‐sales service
2) previous experience
3) advertisements
4) reception and atmosphere

Reasoning: The most important advertisement for a business is when consumers share their good
experiences with one another: this is called ‘word of mouth’. If consumers are satisfied with
the service or product offered and therefore have a good opinion of
the business, they will tell other people.
Question 66
During which stage of the public relations campaign must Adventure Cycles show that it is activelyinvolved in
charity events?
1) Identification stage
4) Legitimacy stage


Reasoning: Participation stage. The business in this stage attempts to involve those who were
previously not involved.
Question 67
During which stage of the public relations process do Alex and Graham need to research opinions, attitudes
and behaviours?
1) Defining the problem or opportunity


Reasoning: Define the problem or opportunity. This step will require research regarding opinions,
attitudes, behaviour, and so on. This phase answers the question of what
is happening now.
Question 68
How should Alex and Graham counteract negative publicity at Adventure Cycles?
1) Cover up what ever happened at Adventure Cycles

2) Practice damage control by inviting a third party to try and salvage any image related issues at
Adventure Cycles
3) Present the truth of the situation in the best possible light
4) Reinforce a particular trait of Adventure Cycles they want the public to be aware of

Reasoning: When the worst happens, the public relations person, or the entrepreneur, will be in
charge of damage control. The function of public relations in this case will be to
present the story in the best possible light.
Question 69
According to the case study, what public relations campaign does Adventure Cycles follow?

4) Reinforcing attitudes campaign

Reasoning: “As part of Adventure Cycle's public relations function, Alex and Graham decided to
launch a public relations campaign. This campaign involves continuously informing

customers about the importance of water and nature conservation, and ways toreduce
your carbon footprint.”
The public education campaign, which educates the market about something, for
example road safety or saving electricity.
Question 70
Which one of the following represents the most basic method of promotion for Adventure Cycles?
1) Communication
2) Motivation
3) Advertising
4) Publicity

Reasoning: Communication remains the most basic method of promotion for a business. Communication
allows a business to identify, contact and persuade customers to
buy a product or service.

Business Management Complete Chapters Study Notes
CHAPTER 1 – INTRODUCTION TO BUSINESS MANAGEMENT FOR ENTREPRENEUR
Introduction
o Creation of enterprise consists of three stages:
(a) Idea Stage:

Entrepreneur identifies need for product/service in market.
(b) Planning Stage:

Entrepreneur conducts viability study – in-depth investigation of market and profit potential
of idea.
(c) Implementation Stage:

Entrepreneur starts enterprise by using four factors of production (entrepreneurship,
capital, labour and natural resources) to provide products/services to satisfy consumers'
needs.
o When entrepreneur starts business – usually small.
o Starting, managing and growing business – opportunity to create something new and develop it so
that it remains entrepreneurial business.
o Entrepreneurship creates new challenges – taking risks and responsibility for business, employees
and other stakeholders.
o Many risks and uncertainties but also opportunities, job satisfaction, financial rewards and sense
of achievement and recognition.
o Successful entrepreneurs – start business in field where they have interest, knowledge or
experience.
o Direct link between success of business and passion and expertise of entrepreneur in that type of
business.
o Knowledge about right product(s) or service(s) when establishing business is essential.
o Business management skill are equally as important.
Entrepreneurship and Business
o In context of South African economy – production factor of entrepreneurship is pivotal for

development and growth of economic systems.
o Importance of entrepreneurship has been widely recognised in South African, with government
authorities making enormous efforts to identify entrepreneurs, provide them with capital,
stimulate businesses, assist development and make it easier for them to enter business.
Entrepreneur vs Manager
o Entrepreneur:

 Spots opportunities and organise resources to create new business.

 Have vision, business skills and courage to take risks and possess necessary leadership
qualities to overcome problems.
 Normally have strong internal locus of control, self-confidence, passion, determination and
management skills to plan and control entrepreneurial process.
 Manages change by introducing new product, buying new business, deciding what risks to
take, introducing new management systems and moving into new markets.
o Small business tend to swing in and out of periods of entrepreneurial change over time –
consolidation may take place.
o What is a small business?
 According to National Small Business Amendment Act 26 of 2003 – separate and distinct
business entity, including cooperative enterprises and non-governmental organisations,
managed by one owner or more which, within its branches or subsidiaries, if any, is
predominantly carried on in any sector or sub-sector of economy.
Small businesses can be classified as follows:

Class Full-time employees Annual turnover Total gross asset value
(property excluded)
Micro-enterprise <5 <R150 000 R100 000
Very small *6 – 20 *R0.4m – R4m *R200 000 – R1.5m
Small *21 – 50 *R5m – R25m *R1m – 4.5m
Medium *51 – 200 *R4m – R50m *R2m – R1m
*Minimum and maximum figures depends on economic sector in which business operates.
o Small business managers:
 Have to manage.
 Management – process of ensuring that business achieves its goals and objectives.
 Management of small business on day-to-day basis.
 Includes tasks in all functional areas – marketing, purchasing, operations, finance, humans
resources, administration and public relations.
 Also business management function – involves coordination of all business functions.
 Fundamental tasks include:
" Planning – needed in long, medium and short term.
" Organising – taking decisions on how to divide up work that is to be completed.
" Leading – effective supervision and motivation of employees.
" Controlling – monitoring performance, comparing what should have been done with
what was actually done. Correct action should be considered if gap found to exist.

 Effective management – getting things done through other people and not doing everything
yourself, and ensuring that tasks are accomplished and customers and employees are
satisfied.
 If small business is successful, entrepreneurship and good small business management go

hand in hand – two cannot be separated from each other.
Entrepreneur Business Manager

Starts own enterprise Manages enterprise
Takes risks Does not have to take risks
Creative and innovative Creativity and innovation not required
Responsible for growth Responsible for profit and survival
Small Business Management
o Competencies are essential to ensure success of small business, especially financial success.
o Success of any business – depends on individuals involved in organisation.
o In South Africa – small business fails due to lack of capital and insufficient management,
marketing, technical and negotiation skills.
o Vast majority of business initiated by entrepreneurs originate as micro or small business.
o Usually started and entrepreneurially managed by one person.
o Can grow and become larger small business or medium or large businesses – provided that
entrepreneur does not become primarily managerially oriented but remains entrepreneurially
oriented.
o As business grows, entrepreneur appoints more people.
o Entrepreneur cannot be everything in business and needs to employ people to assist in making
business successful.
o Business can grow further by increasing production or introducing new investments through
mergers and acquisitions.
o Entrepreneurial businesses usually started and managed by entrepreneurs who strive to grow
business to become medium-sized or large businesses.
o Entrepreneur different from manager and is usually person with good ideas.
o Not all entrepreneurs know how to manage business and frequently fail at later stage due to
inability to adapt to changing need of business.
o Need for more managerial style becomes important when business has grown and no longer
micro- or very small business.
o Continued success of entrepreneurial business – determined by ability of entrepreneur to manage

and lead business through different stages of development.
o True entrepreneurs – has intention to grow business and ability to manage it.

o Many entrepreneurs learn to manage business effectively through participating in growth stages.
o Successful entrepreneur – able to transform themselves into successful managers.
o First phase – entrepreneur establishes business which is relatively informal.
o As business grows and matures it becomes more formalised and business management skill
become requirement.
o Entrepreneurial leadership model – characteristics of business in establishment phase are

spontaneity and free-spiritedness, with informal communication and centralised decision making.
o Next phase – efficient operation of tasks, formal communication during scheduled meetings and
policies and procedures become necessary.
o Business Management Tasks for Self-Employed Entrepreneur:
 Self-employment usually begins when entrepreneur decides to leave full-time employment

for unknown, insecure and unpredictable world of one-person business.
 Testifies to entrepreneur's personality: have self-confidence and passion to take on

challenges and risks and improve own circumstances.
 Self-employed person – entrepreneur alone and has to learn how to run one-person
business.
 Technical expertise or product knowledge of business – to be able to manage cash flow,

accounts, invoicing, procurement, budgets, bookkeeping and taxes.
 Most cases, there will be no one to delegate to and all functions will have to be finalised on
time by individual.
 As business grows, more people could be employed.
 Final accountability for standard of work and financial success rests with entrepreneur.
 Have to secure contracts through marketing and networking on ongoing basis – without
this work there will be no income and failure will be reality.
 Most time will be spent on finding work, completing it, compiling accounts and ensuring
payment are made.
 When entrepreneur able to generate more work than they can cope with, opportunity will
arise for business to expand and employ more people.
o Business Management Tasks for Entrepreneur as Employer:
 As business grows – entrepreneur may employ more people and earn more income
because percentage of employee's labour rate is earned by employer.
 Once employed more people, entrepreneur has option of dividing certain work activities.

 General management tasks of planning, organising, leading and controlling remain primary
task of entrepreneur but each person who is appointed also fulfils some tasks required to
help business work effectively.
 Manager/supervisor – may be appointed to oversee day-to-day functions in business.
 Other important functional areas of business that require attention are:

" Financial function – must manage cash flow, accounts, budgets and bookkeeping.
" Marketing function – must find markets for products and sell products.
" Operations function – needs technical expertise/product knowledge.
" Purchasing function – must find suppliers of raw material/stock.
" Human resources – must recruit, employ and manage employees.
" Information function – must collect information and do record-keeping.
" Public relations function – must do own networking/marketing of enterprise.
 Does not mean that person has to be appoint for each area.
 Entrepreneur will remain responsible for some of key areas – formulating vision, mission
and key objectives of business and managing financial and marketing activities.
 Other functional areas might be taken care of by other personnel.
 As business grows, different specialists need to be appointed to manage increasing

complexity.
 All functional areas become more important as business grows.
 Employer – entrepreneur will still attend closely to operational matters but as business
grows, more delegation will be required.
 People will have to work independently so entrepreneur can free up time to attend to
overall performance of business.
 Important area entrepreneur should attend to when business grows is increasing size of
work force – entrepreneur has to know about human resource management (recruitment,
training, motivation, team building and communication).
 Personnel requirements of business will have to be correctly balanced in order to achieve

objectives.
 Leadership skills – need to be honed to solve problems, make decisions and give business
direction.
 Other important functions include development of effective marketing and sales team,
business structures, financial skills and improving technical skills.
 Supply chain management – important and must receive attention from entrepreneur.
 All business find themselves caught in supply chain quandary between clients and
suppliers.

 Aspects to be considered:
" Trade-off between just-in-time (JIT)
" Supply of stock and risk of production downtime
" Trade-off between long production runs to reduce unit cost and
" Risk of increased warehousing
" Inventory costs
 As business grows – ad hoc management style needs more formalised approach to ensure
proper planning, leadership, organisation and control.
 Entrepreneurs motivated by freedom, opportunities, profit and risk.
 Managers motivated by policies, resources, delegations, systems and security.
 Entrepreneur needs to appoint team of expertise of others to remedy any shortcomings

that they themselves may have overlooked.
Environment in which Businesses Operate
o Enterprise – independent institution established by entrepreneur to make profit by producing

goods or providing service that satisfy needs on consumers.
o Motive for entrepreneur's action is to make profit.
o Both entrepreneur and consumer benefit from establishment of enterprise because consumers
able to satisfy needs while entrepreneur makes profit.
o Every enterprise functions in business environment in which various events and variables
influence activities of enterprise.
o Events may pose opportunities or threats.
o Technological development – offers opportunities because new products and services are created
while it can constitute threat because it may result in enterprise's products or services becoming
obsolete.
o Essential for enterprise to be aware of variable and events – can have fundamental effect on daily
functioning of enterprise and can make demands on management of enterprise.
o Action plans – management should be able to utilise influence of these events and changes to be
benefit of enterprise.
o If not possible to use influence of variables in positive way, management should try to neutralise
negative effects.
o Entrepreneur should be familiar with business environment and its opportunities and threats –
primary importance for growth and continued existence of enterprise.
o Impact of enterprise plays significant role in success and failure of enterprise.

BUSINESSES' MICRO-ENVIRONMENT
 Vision, mission and objectives.

o Entrepreneur should study  business environment
Management systemsthoroughly
and areas: – without knowledge, impossible for
management of enterprise toCompetitors,
achieve predetermined objectives.
marketing, finances,
o Environment in which publicproduction.
and private enterprises operate to satisfy human needs is influenced
by broader social, political, economic
 Resources: and technological
people, financialenvironments.
resources
o Public enterprises – funded and managed by government, provincial administrations or local

authorities and not created to make profit.
o Responsible for providing basic requirements for efficient functioning of economy and meeting
needs of society.
o In market-driven economy (like South Africa) business has to pay for all factors of production
(natural resources, labour, capital, etc) to be able to make profits.
o Entrepreneur who sets up business has to make important decisions on combining factors of
production and has to take into account environments that have impact on business.
MACRO-ENVIRONMENT
 Political issues
 Broad economic issues
 Social issues
Direct MARKET ENVIRONMENT Direct

Indirect
INFLUENCE OF STRATEGY ON MARKET Influence
Direct
 Consumer behaviour
 Needs Indirect
 Purchasing power
Indirect
Influence
Direct Indirect
Influence
 Suppliers
 Intermediaries
 Competitors
 Technological environment
 Physical environment

 International environment
CHAPTER 2 – GENERAL MANAGEMENT
The New Economy
o Business world of entrepreneurs has changed completely from way in which it was once viewed.
o Today's entrepreneurs manage in economy of ideas – known as new economy.
o New economic world has compacted, landscape has become increasingly complex and
entrepreneurs faced with continuous new information to evaluate and re-evaluate information.
o South African entrepreneurs – entering future characterised by fundamental changes involving

cost, efficiency, technology, globalisation, knowledge, innovation, quality and decision making.
o To manage effectively, entrepreneurs cannot make use solely of Industrial Age model or new
internet module.
o Entrepreneur must recognise new opportunities and threats and resolve them by applying
principles of management.
o Success of business depends on way entrepreneur incorporates changes to economy.
o Learning and knowledge are important and entrepreneurs should encourage employees to share
information and knowledge.
o New millennium endorses more demanding customers, greater competitive awareness and
intensity and increased complexity in production technology and coordination.
o Entrepreneur needs take have attitude of taking calculating risks.
o Key to survival in new economy is leadership.
o Leaders – people who do right thing.
o Entrepreneurs must generate new ideas and demonstrate leadership.
o As entrepreneur, who establishes, grows and manages business must recognise and acknowledge
following key components that reshape world of new economy:
 Rise of new communication technologies
 Globalisation
 Importance of knowledge and ideas
 Alliance across business's boundaries

Key Concepts of New Economy
 Involves transformation to electronic economy – move from

New communication technologies
equipment to information.
 Entrepreneurs should be able to manage their business in

worldwide market.
Globalisation
 Multinational businesses have offices and facilities across
world – without reference to national borders.
 Knowledge management can be defined as process of

discovering and harnessing intellectual resources of business.
 Entrepreneur should use knowledge and ideas of people who

Knowledge management work for business.
 Entrepreneur should find, unlock and share his/her co-

workers' skills, wisdom and relationships between these
people.
 People in different departments of business should work

together effectively.
Alliance
 All activities of business should be aligned with one another –
communication between different people in business,
departments, divisions and subunits should be of high
standard.
Business Functions: A Perspective
o Every business deals with eight business functions.
o In big business, functional manager will manage department.
o Functional management lies at level of middle management.
o Functional manager – responsible for certain department function, for e.g. marketing, purchasing
or production.
o In small business, entrepreneur will group some of activities together and manage them
collectively.
o Entrepreneur will appoint person or persons to help manage other activities.
o Entrepreneur can also outsource some of functions to business or person.
o Outsourcing – process of transferring responsibilities for specific business function from an

employee group to non-employee group.

o Effective functional management requires that objectives of each functional department should
be achieved and that policy should be executed effectively.
o Differences between functions must be identified, corrected and aligned with each other.
o Departments / functions of business must be coordinated in such way that they all move in same
direction and support one another so that overall objective can be achieved.
o Generally entrepreneur's, or in big business, top management's responsibility to ensure

cooperation, alignment and unity between various functions – every functional manager should
also try to achieve this.
o Planning, for instance, cannot be done separately by various functions.
o E.g. it is detrimental if financial department wishes to expand, but human resources function is
not aware of this. There will be no one to recruit and employ necessary staff.
o Matter will be facilitated only if management process is approached as team effort.
o Functional departments of business can be represented diagrammatically:
1 = Marketing; 2 = Procurement; 3 = Operations; 4 = Finance; 5 = Human Resources; 6 = Public Relations; 7 = Other Departments
o Strategic Level

 Final authority and responsibility for carrying out management duties will be taken out on
strategic level.
 Functions are unstructured and unpredictable.
 Routine tasks constitute small part of management.
 Entrepreneur must always devote time and attention to strategic planning; to systematic
settings, structuring and/or adaption of organisation's objectives.
 Long-term objectives are important in strategic level.
 Entrepreneurs will set long-term objective such as profit growth of 7% over next three
years and expansion of market share by 8% over next five years.
 Focus is on strategic management through formulation and implementation of strategies

and objectives.
 Entrepreneur must be familiar with external environment in which business operates.
 Organisational environment plays important role when strategy to be followed in business

is determined.
 Entrepreneur must study effects of environment carefully and take these into account
before formulating a strategy.
o Tactical Level
 Entrepreneur focuses on tactical activities to ensure that strategic plans can be

implemented.
 Entrepreneur responsible for implementing policy, plans and strategies and for allocation
of resources.
 Medium-term or functional planning takes place and involves all functional strategies and
plans made in various departments of business.
 If funds allow, entrepreneur will appoint financial, operations, marketing, procurement or

information managers to operate on this level.
 Entrepreneur and management team of business are concerned with medium- to short-
term planning and with organising, leading and controlling human and other resources
within certain section of business.
 At tactical level:
" Work is more routing
" Greater degree of technical knowledge is required
" More direct involvement in human and other resources.
o Operational Level

 Entrepreneur concerned with all activities regarding daily tasks of business.
 Involves short-term planning and implementation of plans and objectives.
 Short-term, routine and operational planning is done.

General Management and Other Functional Management Areas
 Function differs from other functions – it cannot be

placed in own department.
 Responsible for management activities (planning,

General Management organising, leading and control) on all levels in all
departments of business.
 Responsible for all activities performed in enterprise

to enable enterprise to attain its goals.
 Responsible for efficient planning, organising and

control of all financial activities.
Financial Management
 Financial activities include obtaining capital and
effective use of capital.
 Responsible for transfer of products from

manufacturer to consumer and activities that make
transfer possible.
Marketing Management
 Activities include market research, market
segmentation, deciding on target market, deciding on
marketing strategy and compiling marketing plan.
 Concerned with transformation of inputs into outputs

Operations Management by using four factors of production to manufacture
product or render service.
 Ensures production means of right quality are

supplied to enterprise in right quantities, at right
time, to right place, from right supplier, at right price.
Purchasing Management
 Includes determination of purchasing needs and
finding suitable supplier.
 Responsible for procurement, development,

Human Resources Management compensation, integration, maintenance and
effective use of competent, motivated labour force.
 Responsible for collection, processing, analysis and

distribution of information.
Information Management
 Communicate information to management to enable
them to make informed decisions.
Public Relations Management
 Responsible for promotion of image of enterprise
among all interest groups of business.
 Evaluate public attitudes, and plan and execute plan

of action to earn public acceptance and
understanding in order to ensure positive support

from all relevant interest groups.
General Management
o Different users:
 Yourself:
" Can use general management principles in daily life outside of business to help
manage personal life better.
 Entrepreneur and management:

" Use general management so they can be more effective in work place
" Refers to process that will help them to get things done and to achieve business
goals through efforts of other people.
o Definition: process of utilising an organisation's resources to achieve specific objectives through

tasks of planning, organising, leading and controlling.
o Following aspects of definition are important:
 Resources
" Refer to human, financial, physical and information resources.
" Are limited and business must use them wisely so that it achieves greatest possible
measures of prosperity.
 Achieving Objectives
" Refers to clear goals that business must achieve in order to continue to exist.
 Planning
" Management process through which vision, mission and objectives of organisation
are defined and through which comprehensive hierarchical plan to integrate and
coordinate activities is devised.
 Organising
" Management task concerned with arranging activities and resources of enterprise
through allocation of duties, responsibilities and authority to persons and divisions,
and determination of relationships between them, in order to promote cooperation,
systematic performance of work and achievement of objectives in most efficient
way possible.
 Leading
" Refers to way in which person in leadership role relates to other members of
team/group.

" Nature of relationship should be such that members of team will cooperate
voluntarily to achieve objectives that leader has set for themselves as well as for
team/group.
 Control
" Continuous process through which managers oversee employees' progress in
reaching specific objectives.
" Managers do this by measuring actual performance against set standards and by
making corrections if any deviations occur.
o Definition of management can be illustrated diagrammatically:
Role and Tasks of Management
o Role of entrepreneur – utilise scarce resources available to achieve objectives of business through
planning, controlling, organising and leading to satisfy needs of consumers.
o Objectives can be achieved only if entrepreneur is able to make decisions.
o Decision making – process of identifying problems, finding alternative solutions, evaluating

solutions and choosing best one.
o Solution must be implemented.

o Planning
 Definition – drawing up objectives for enterprise and working out systematic plan for
achieving objectives.
 Meaning – management should determine in advance what business wants to achieve and
how these objectives can be attained.
(a) Types of Planning:
Level of Management Type of Planning Description
 Development of broad general guidelines.

Top management Strategic planning: long-term
 Reflects mission of enterprise.
(entrepreneur) objectives.
 Time frame: 3 to 10 years
 Plans drawn up for every

function/department in enterprise.
Functional or tactical panning:
Middle management  Focuses specifically on enterprise's
medium-term objectives
activities.
 Time frame: 1 to 3 years.
 Involves daily giving of instructions and

Operation planning: short-term carrying out of instructions.
First-level management
objectives
 Time frame: not more than 1 year.
 Aspect of management in which is determined in advance in what you want to achieve

with business and how you want to achieve it.
 When planning, draw objectives for business and work out systematic plan for achieving
objectives.
 Close connecting between planning and achieving objectives which are formulated at
various levels in business.
 Planning is then done to achieve these objectives, despite possible problems.
 During planning, will decide on primary objective and secondary objective of business
and what resources will be used.
 Primary objective – overall objective which determines direction of business in long

term.
 Main objective of small business – to make profit.

 Secondary objective – additional objectives that are set to achieve primary objective.
 Include natural resources such as land and buildings and other resources such as
personnel and capital.
 Objectives – goals that business aims to achieve.
(b) Type of objectives:
" Long-term (strategic) objectives
" Medium-term (functional) objectives
" Short-term (operational) objectives
" Personal (individual) objectives of employees which form part of other types of
objectives.
 Various objectives in business and levels at which they occur can be illustrated below:
Strategic
Objectives
Functional Objectives
Operational Objectives

Type of Objective Description Examples
 Delivering good service to

customers.
 Establishing and
 Determine and help formulate consolidating positive image
mission. of business.
Strategic Objectives
 Long-term objectives.  Steady growth in sales
volume.
 Achieving asset growth of
10% per year.
 For production department –

20% increase in productivity
 Set for each function of enterprise. over next four years.
 Derived from long-term objective.  For marketing department –
Functional / Tactical Objectives 5% expansion in its market
 Medium to short-term objectives.
share over next three years.
 For finance department – to
limit business's loans to 50%
of asset value.
 To simplify work in
administration department.
 Accountant must supply
accurate financial
Operational Objectives  Short-term objectives. information on quarterly
basis.
 To achieve 10% increase in
sales compared to previous
month.
 Production worker must

maintain scheduled rate of
production.
 Personal objectives of each  Sales staff must determine
Individual Objectives employee and activities they carry exactly what clients' needs
out. are.
 Accounting clerk must
complete work quickly and
accurately.
(c) Setting objectives:
" Should list specific thinks that business must strive to achieve.

" Period should be specified within which it must be achieved.
" Department or people responsible for achieving it must be clearly identified.
" Must be measurable.
" Objectives must be drawn up in order of priority.

" Must be consistent with other objectives of business.
" Must be reasonable so that it will be acceptable to staff.
" Must be flexible and adaptable to changing circumstances.
 Planning must be realistic and flexible.
 To ensure plan is realistic, you need information – obtained largely from past experience.
 Such information is important because it gives perspective on present to allow for realistic
planning for future.
(d) Planning takes place in distinct steps:


(e) Time management:
" Entrepreneur has to prioritise what has to be done now and what can wait for a
while.
" Importance and urgency of task is determined by goals and objectives of

entrepreneur's business.
" If task is both important and urgent – to be done immediately.
" If task is important but not so urgent – can wait for a while.
" If task is not important but urgent – do it but do not spend a lot of time doing it.
" If task is not important and not urgent – plan to do task at later stage.
o Control
 Definition: determining realistic standards against which employees' actual performance

can be measured, so that deviations can be identified and corrective steps can be taking.
 Meaning: manager ensures that employees carry out instructions according to plan.
 Controlling process:

o Organising
 Definition: grouping and coordination of activities, creation of posts and allocation of

duties, authority and responsibility.
 Meaning: entails provision of resources – labour, capital and raw materials and division
and distribution of tasks. Must determine in advance how, where, by whom, when and
with what resources jobs must be carried out.
 Organising process:

o Leading
 Definition: way in which manager helps subordinates so that they will work together
voluntarily to achieve objectives of business.
 Meaning: relationships between leader and members of working group should be such
that members of group will work together willingly to achieve objectives of group.
Leadership Competencies
 Good leaders should have ability to draw people to them.
Management of Attention  Should have ability to motivate people (through discussion) and to
achieve vision of business through active contribution.
 Leader should communicate and align objectives to make vision of

Management of Meaning
business clear to others.
 Reliability, honesty, integrity and mutual trust should be combined

Management of Trust with teamwork , recognition of performance, participation and
empowerment.
 Leaders should know their strengths and weaknesses.

 Various leadership styles should exist.
Management of Self  No leadership style will be perfect in all situation.
 Good leader should have ability and good judgement to sum up
circumstances and adapt to their style accordingly.
Additional Management Functions
Additional Function Definition

Process in which functions of enterprise are treated as functional unit so that objectives of
Coordination
enterprise can be achieved.
Various possible solutions are considered and best solution is chosen.

Examples of problem-solving techniques:
 Fishbone diagrams:
" Can be used meaningfully at beginning of problem-solving process – aimed at
determining causes of problems.
" Done by grouping all possible causes in certain categories.
" Diagram looks like bones of fish with problem where fishes head would be:
Decision-making
 Brainstorming:
" Technique used to get input from staff members who are involved in problem.
" Takes form of group discussion in which staff participate to find answers to
questions regarding problem.

 Research:
" Undertaken by conducting interviews and using questionnaires.
" Problems can be identified by conducting interviews.
 Nominal Group Technique (NGT):

" Staff members involved are group in name only.
" All members act independently and it's the ideas of each individual that are
sought and not ideas of group as whole.
 Delphi Technique:
" Same as NGT but does not require staff to be physically present at certain place.
" Aim is to allow employees to identify problems and come up with appropriate
solutions themselves.
Involves transfer of messages (information) between enterprise and its external environment
Communication
and within enterprise itself.
Entrepreneur motivates employees by persuading them that they should voluntarily do work
Motivation
as well as possible (they must be willing to do work).
Allocation of power (authority) and responsibility to subordinate employees to enable them

Delegation
to do their work.
Shapes behaviour of employees so that their conduct will help to ensure successful operation
Discipline
of enterprise.
Managerial Competencies
o Communication
 Refers to person's competency to exchange or transfer information that leads effectively to

understanding between two or more people.
 Informal communication – refers to personal relationships that people build up in

workplace.
 Formal communication – done through official channels created by entrepreneur.
o Planning and Administration
 Involve deciding what tasks need to be done, determining how they can be done,
allocating resources to enable them to be done and monitoring progress to ensure that
they are done.
 Competencies include:
" Information gathering, analysis and problem-solving.
" Planning and organising projects.
" Time management.
" Budgeting and financial management.

o Teamwork
 Most important in integrated approach to modern business structures.
 Refer to networking, subcontracting, joint ventures, franchising and globalisation.
 Competencies include:
" Team design.
" Creating supportive environment.
" Managing team dynamics.
o Strategic Action
 Understanding overall mission and values of business.
 Ensuring that your actions and those of people you manage are aligned with them.
 Competency includes:
" Understanding industry.
" Understanding business.
" Taking strategic action.
" Visionary leadership.
o Global Awareness
 Carrying out business's managerial work by drawing on human, financial, information and
material resources from several countries and serving markets that span several cultures.
" Cultural knowledge and understanding.
" Cultural sensitivity.
o Self-Management
 Allows individuals to develop fully without blaming situation for their misfortune or
mistakes.
" Integrity and ethical conduct.
" Personal drive.
" Balanced work and private life.
" Self-awareness and development.

CHAPTER 3 – FINANCIAL MANAGEMENT FUNCTION
What is Financial Management?
o Includes all activities in business that are involved in obtaining capital in efficient use of capital.
o Activities cannot be carried out effectively without necessary management and are linked to
management activities.
o Financial manager – responsible for effective planning, organisation, coordination, delegation and
control of all financial activities in business in order to achieve primary objective of business.
o Involves planning and budgeting of short and long-term funds for current and future needs.
o Tracking of past financial transactions, controlling current revenues and expenses and planning for
future financial needs of business are foundation of financial management.
o Financial manager uses financial statements that reflect financial position of business with main
objective of identifying its strengths and weaknesses.
o Process allows user of statements to plan and forecast future financial performance for capital
needs, produce statement of financial position (non-current and current assets) and plan for good
return on what business owner has invested.
o Most small businesses do not have opportunity to sell shares to public or issue bonds in order to
raise capital.
o Financing opportunities are more limited for small business.
o Share of stock – certificate that acts as evidence of ownership in business.
o Stocks of many business are traded on organised security exchanges.
o Bonds – debt instruments sold by company to investors
o Big companies able to raise capital quickly when intending to expand their operations by issuing
shares or bonds to potential investors.
o Small business owners must rely on personal trade credit – form of finance for business whereby
suppliers provide credit for purchase of goods which could be payable in 30, 60 or 90 days.
o Some instance – bank provides financial support in form of bank loans or overdrafts to owner.
o Bank will usually ask owner of business to provide form of security or surety on money being lent.
o Security or surety could be in form of any business or other asset owned by owner that bank
considers to be of value equivalent to borrowed money – done to ensure that if business
collapses, banks will be able to sell assets of business owner in order to recover money.

o Other forms of financing available to small businesses – lease financing, hire purchase
agreements, instalment sales agreements, personal equity and personal loans from owner, friends
or relative.
Reviewing and Understanding Financial Statements
o Financial statements
 Records of financial performance of business and allow owner to diagnose it's strengths
and weaknesses.
 Structured presentation of financial performance and position of business.
 Records provide written summary of all financial activities during specific period – financial
period.
o Financial period of businesses covers anything from one to twelve months.
o Useful to wide range of stakeholders of business when making financial decisions.
Statement of Financial Position
o Indication of financial position (assets, liabilities and equity) of enterprise at certain point in
time/on specific date.
 Assets:
" Resource controlled by business as result of past events and from which future
economic benefits are expected to flow to business.
" Future economic benefit – potential to contribute, directly or indirectly, to flow of

cash and cash equivalents to business.
" Cash flows may come from using asset or from disposing of it.
" Many assets (property, plant, equipment) has physical form.
" Some assets are intangible.
" Property held on lease is asset if business controls benefits that are expected to flow
from property.
 Liabilities:
" Present obligation of business arising from past events, settlement of which is
expected to result in outflow from business resources' representing economic
benefits.

" Essential characteristic – entity had present obligation to act or perform in particular
way.
" Obligation may be either legal obligation or constructive obligation.
" Legal obligation – enforceable as consequence of binding contract or statutory

requirement.
" Constructive obligation – derives from business' actions when:
 By established pattern of past practice, published policies or sufficiently

specific current statement, business has indicated to other parties that it will
accept certain responsibilities.
 As result, business has created valid expectation on part of those other parties
that it will discharge those responsibilities.
" Settlement of present obligation usually involves payment of cash, transfer of other
assets, provision of services and replacement of that obligation with another
obligation or conversion of obligation to equity.
" Obligation may also be extinguished by other means, such as creditor waiving or
forfeiting their rights.
 Equity:
" Residual interest in assets of entity after deducting all of its liabilities.
" May be subclassified in statement of financial position.
" E.g. in corporate entity – subclassifications may include funds contributed by

shareholders, retains earnings and items of other comprehensive income recognised
as separate component of equity.
" Standard does not prescribe how, when or if amounts can be transferred between
components of equity.
" At any given time, business's assets equal to total contributions by creditors and
owners, as illustrated by following formula for statement of financial position:
 Assets = Owner's Equity + Liabilities
" Formula known as accounting equation and it’s the basic premise of accounting.
" If business owes more money to creditors than it possess in value of assets owned,
net worth or owner's equity of business will be negative figure.
" Example of statement of financial position – refer to page 54 and 55 of text book.
" Financial position of business changes on daily basis; hence statements are always
'as of particular date'.

" Statement usually prepared on regular intervals (e.g. at each month end) but
especially at end of financial (accounting) year.
" Allows entrepreneur to take corrective measures, such as gradually decreasing

amount of money business owes to creditors, or increasing amount of money
business owes its owners.
" All statements contain same categories of assets, liabilities and net worth (owner's
equity).
" Assets arranged in decreasing order of how quickly they can be turned into cash
(liquidity).
" Liabilities listed in order of how soon they can be repaid, followed by retained
earnings (net worth or owner's equity).
" Category and format of statement are established and regulated by systems [such as
International Financial Reporting Standards (IFRS) and South African Generally
Accepted Accounting Principles (SA GAAP)] depending on site and nature of
business.
" Systems applied to all companies.
Statement of Comprehensive Income
o Summary of income and expenditure (profit or loss) of enterprise over specific period of time, for
example a financial year.
o Frequently used as measure of performance or as basis for other measures such as return on
investment or earnings per share.
o Performance – relationship of income and expenses of business during reporting period.
o Standard permits business to present performance in single financial statement or in two financial
statements.
o Income:
 Increases in economic benefits during reporting period in form of inflows or enhancements

of assets or decreases of liabilities that result in increases in equity, other than those
relating to contributions from owners.
 Definition of income includes both revenue and gains:
" Revenue:
 Income that arises in course of ordinary activities of business and is referred
to by variety of names including sales, fees, interest, dividends, royalties and
rent.

" Gains:
 Other items that meet definition of income but are not revenue.
 When gains are recognised in statement of comprehensive income, they are
usually displayed separately because knowledge of them is useful for making
economic decision.
o Expenses:
 Decreases in economic benefits during reporting period in form of outflows or depletions of

assets or incurrences of liabilities that result in decreases in equity, other than those
relating to distributions to owners.
 Definition of expenses encompasses losses as well as those expenses that arise in court of
ordinary activities of business:
" Cost of sales, wages and depreciation.
" Usually take form of outflow or depletion of assets such as cash and cash
equivalents, inventory or property, plants and equipment.
" When losses are recognised in statement they usually represented separately
because knowledge of them is useful for making economic decisions.
o Recognition of income and expenses results directly from recognition and measurement of assets
and liabilities.
o For examples, refer to page 57 and 58.
Financial Statement Definition Main Entries
 Current assets – cash, stock, debtors

 Non-current assets – buildings,
machinery, equipment, vehicles.
 Other assets – copyright, licenses,
notes receivable.
 Current liabilities – accounts
Statement of Financial Position Indication of financial position (assets payable, notes payable, taxes
and liabilities) of enterprise at certain payable within one year.
(Balance Sheet) point in time/on specific date.
 Non-current liabilities (long-term
liabilities) – mortgages, long-term
bank loans over period longer than
one year.
 Owner's equity – investment
owners have in enterprise in form of
capital.
Statement of Comprehensive Income Summary of income and expenditure Sales

(Income Statement) (profit or loss) of enterprise over specific
– Cost of sales
period of time, for example a financial
year. = Gross profit
– Expenses

= Net profit
Calculating Cost of Sales
Retailing/Wholesaling Enterprise Manufacturing Enterprise
Opening stock (at beginning of period) Finished products (difference between opening
and closing balance)
+ Purchases (during period)
+ Work in progress – half-finished products
−¿ Closing stock (at end of period)
(difference between opening and closing balance)
= Cost of sales + Raw materials (difference between opening
(example refer to page 59) and closing balance plus purchases during period)
+ Direct labour
+ Direct factory overheads
= Cost of sales
(example refer to page 60)
Financial Ratio Analysis
o Statement of financial position and statement of comprehensive income are essential for financial
ratio analysis – they are starting point for successful financial management.
o Applying ratio analysis to financial statements enables you to analyse success or failure and
progress of business.
o Enable entrepreneur to spot trends in business and to compare its performance and condition
with average performance of similar businesses in same industry.
o Can compare own ratios for several successive years, watching for any unfavourable trends that
may be developing and then compare ratios with averages of businesses similar to yours.
o May provide all-important, early-warning indications that allow to solve business's problems
before it is destroyed by them.
o Important statement of financial position ratios measure liquidity and solvency (business's ability
to pay its bills as they become due) and leverage (extent to which business is dependent on
creditors' funding).

Liquidity Ratios
o Definition – ability of enterprise to make necessary payments regularly and on time.
o Examples – payments of monthly accounts such as rent, salaries, interest, suppliers, water and
electricity.
Ratio Equation Description
 Liquidity and efficiency ratio that measures business's ability to

pay off its short-term liabilities with its current assets.
 Measures business's financial strength.
 Ratio of 2:1 – business must have current assets that can pay
twice of its current liabilities.
 Satisfactory ratio depends on nature of business and
characteristics of its current assets and liabilities.
Current Assets
Current Ratio  If business's current ratio is too low, can raise it by:
Current Liabilities
" Settling some debts.
" Increasing current assets from loans or other borrowings
with maturity of more than one year.
" Converting non-current assets into current assets.
" Increasing current assets from new equity contributions.
" Putting profits back into business.
 Sometime called 'acid test' ratio.

 Measures ability of company to pay its current liabilities when
they come due with only quick assets.
Quick assets – current assets that can converted to cash within 90
Current Assets −Inventory

days or in short-term.
Quick Ratio Current Liabilities
 By excluding inventories, it concentrates on real liquid assets,
with value that is fairly certain.
 Ratio of 1:1 is satisfactory, unless majority of quick assets are in
accounts receivable and pattern of accounts receivable collection
lags behind schedule for paying current liabilities.
 Measures cash flow.

 Results of calculation must be positive number.
Working Capital Total Current Assets−Total Current Liabilities
 Bankers look at net working capital over time to determine a
company's ability to weather financial crises.
 Loan often tied to minimum working capital requirements.

Profitability Ratios
o Shows relationships between net income earned over certain period and capital used/invested to
generate income.
 Measures percentage of sales in rand left after subtracting cost goods sold (cost of
sales) from net sales.
 Measures percentage of sales in rand remaining (after obtaining or manufacturing
goods sold) or available to pay all overhead expenses of company.
Gross Profit
Gross Profit Margin Ratio × 100  Comparison of your business ratios to previous performance or to ratios of similar
Sales businesses will reveal relative strengths and weaknesses in business.
 Relationship between gross profit and net sales – as measured by gross profit
margin – one of most important measures used by managers, investors and
creditors to assess performance of company.
 Important use of statement of comprehensive income is to evaluate profitability of

business.
 Ratio measures percentage of net income to sales or revenues.
Net Profit/Net Income Provides good opportunity to compare your company's 'return on sales' with its
× 100
Net Profit Margin Ratio Sales own previous performance or with performance of similar companies.
 If profit margin is high – generally means that company is generating revenues and
is also controlling its costs.
 Decrease in profit margin – may indicate company is having trouble in controlling
certain costs.
 Measure of business's success in earning return for all providers of capital

(investors).
Measures how efficiently profits are being generated from assets employed in

business when comparing business with own previous performance or with similar
Net Profit + (Net Interest Expense)
Return on Assets Ratio × 100
companies.
Total Assets  Low ratio in comparison with industry averages indicates inefficient use of business
assets.
 Broadest rate of return ratio because it considers investments made by all providers
of capital, from short-term creditors to bondholders to stockholders.
 Sometimes referred to as ROI (return on investment) – most important ratio.

 Percentage of return on funds invested in business by entrepreneur.
Net Profit  Tells the entrepreneur whether or not all money and effort put into business has
Return on Equity (ROE) Ratio × 100 been worthwhile.
Owners Equity
 If ROE is less than rate of return on alternative, risk-free investment, such as bank
savings account, entrepreneur may be wiser to see company, put money into such
savings instruments and avoid daily struggles of managing business.

Activity or Turnover Ratios
Inventory Turnover Ratio  Reveals how well inventory is being management.

Cost of Sales
 Important because more times inventory can be turned in given operating
Average Inventory cycle, greater profit.
 Indicates how well accounts receivable are being collected.

 If receivables are not being collected reasonably in accordance with their
terms, management should rethink collection policy.
 If receivables are excessively slow in being converted to cash, liquidity
could be severely impaired.
Credit Sales
Accounts Receivable Turnover Ratio  Will be able to calculate accounts receivable if you know provision for
Accounts Receivablecredit sales.
 Liquidity, leverage, profitability and management ratios allow entrepreneur
to identify trends in business and compare its progress with performance
of others through data published by various sources.
 Owner may determine business's relative strengths and weaknesses.
 When accounts receivable turnover is very slow, it takes long time before
Accounts Receivablebusiness is able to convert credit sale into cash.
Average Collection Period Ratio
Daily Credit Sales
 Increases number of days outstanding, or average collection period.
Leverage or Debt (Solvency) Ratios
o Shows level of use of borrowed funds by business.
o Solvency – ability of enterprise to pay its debts, even if enterprise ceases to exist.
o Total assets must exceed total liabilities (loans).
 Indicates extend to which business is reliant on debt financing (creditors money

Total Assets −Total Equity versus owner's equity).
Debt Ratio × 100
Total Assets  Higher this ratio, more risky a creditor will perceive their exposures in your
business, making it correspondingly harder to obtain credit.
Long-Term Debt  ×
Gearing Ratio 100 information regarding extent to which company has used long-term debt
Provides
Long-Term Debt + Total Equity in its capital structure.
 Looks at all different types of long-term debts (mortgages, bonds, loans).
 Total long-term debt is then compared with total of long-term debt and equity.
 Owners of business have taken a lot of risks in business and long-term debt

holders have also assumed a lot of risk in long-term survival of business.
 Looks at small business's ability to service interest payments on borrowed funds.

Earnings Before Interest and Tax
Time Interest Earned Ratio  × 100 profits generated before interest and taxes are paid, to interest
Compares
Interest Expense incurred.
 Provides information similar gearing ratio.

Total Assets −Total Equity
Debt to Equity Ratio ×100Compares risk assumed by shareholders or members of small business with risk
Total Equity assumed by all creditors.
Break-Even Analysis
o Level of operations at which business neither makes profit nor sustains loss.
o Revenue is just enough to cover expenses.
o Relationship of volume, costs and revenue.
o Requires entrepreneur to define sales level, either in terms of revenue in rand to be earned or in
units to be sold within given accounting period, at which point business would earn before-tax net
profit of zero.
o Volume and cost estimates assume following conditions:
 Change in sales volume will not affect selling price per unit.
 Fixed expenses (rent, salaries, administrative and office expenses, interest and
depreciation) will remain same at all volume levels.
 Variable expenses (cost of goods sold, variable labour costs, including overtime wages and
sales commission) will increase or decrease in direct proportion to any increase or decrease
in sales volume.
o Unit contribution margin – difference between product's unit selling price and unit variable cost.
o Calculating break-even point using contribution margin:
 Obtain list of expenses incurred by company during its past fiscal year.
 Separate expenses listed into either variable or fixed expense classification.
 Express variable expenses as percentage of sales.
Ratio Equation
Break-Even Point in Units Fixed Cost

Price Per Unit −Variable Cost Per Unit
Fixed Costs
Break-Even Point in Rand Value
Gross Profit Margin %

o Refer to page 68 and 69 for examples.
Financial Planning
o Success may be ensured only by focusing on all factors affecting a business's performance.
o Focusing on planning is essential for survival.
o Involves determining capital needs of business, making decisions on how these needs will be
financed, and making decisions on how capital of business can be employed to achieve main
objective of wealth maximisation.
o Begins with forecasting future capital needs of business in short, medium and long term.
o To understand forecasts, it is required to have an understanding of components of capital needed

for business.
o Determines raw materials that you can afford to buy, products that you will be able to produce
and whether or not you will be able to market them efficiently.
o It affects human and physical resources that you will be able to acquire to operate your business.
Tools of Financing
o Pro Forma Financial Statements
 Represent forecast of statement of financial position and comprehensive statement of

income.
 In preparation, entrepreneur might want to make few assumptions about growth forecast
for business, return on their investment (profit for year) and relationship between various
components of each financial statement.
o Ratio Analysis
 Means by which individual business's current performance is compared to previous

performance or similar businesses in same category.
 By calculating financial ratios – business can use industry or historical figures as benchmark
or standard.
o Break-Even Analysis
 Method allowing small business owner to calculate sales level at which business recovers all
its costs or expenses.

o Pro Forma Cash Flow Statement
 Identifies different sources and uses of cash for particular financial year.
 Cash from operating services:

"From planning perspective – entrepreneur can plan in advance what portion of cash
needed will be sources from operating activities like sales of goods.
"Can also plan expenditure pattern in advance for salaries, cost of sales, etc.
 Cash generated from investing activities:

"Entrepreneur can plan for purchases of non-current assets and disposal of some of
these during financial year.
"Figures will also form part of capital expenditure budget (CAPEX budget).
 Cash generated from financing activities:

"Different sources of capital, which include, but not limited to, bank loans and capital
injection by shareholders.
"By planning, entrepreneur can forecast borrowing needs in advance.
"Can help reduce expenses – interest charged by banks usually high when loan is made in
emergency, rather than by prior arrangement.
o Pricing Formulas and Policies
 Used to calculate profitable selling prices for products and services.
o By applying these concepts, one is practising sound financial management = greater chance of
success.
o Short term planning – concerned with profit planning or budgeting.
o Long term planning – strategic, setting goals for sales growth and profitability over minimum of
three to five years.
Short-Term Financial Planning
o Involves planning application of working capital – short-term resources used to manage enterprise
on daily basis.

o Business's short-term plan should be prepared on monthly basis for year into future, employing
pro forma income statement and cash flow budget.
o Working capital – includes cash, debtors, creditors and management of stock.
o Entrepreneur should have good understanding of difference between current assets and current
liabilities.
o Lack of control of crucial measure is primary cause of business failure in large and small firms.
o Cash and Cash Equivalents:
 Most liquid form of current assets, cash and cash equivalents (usually marketable securities
or short-term certificates of deposit) require constant supervision.
 Well-planned and maintained cash budgeting system is essential to answer key questions
such as:
"Is cash level adequate to meet current expenses as they come due?
"What are timing relationships between cash inflows and outflows?
"When will peak cash needs occur?
"What will be magnitude of bank borrowing required to meet any cash shortfalls?
"When will this borrowing be necessary and when may repayment be expected?
o Accounts Receivable:
 Almost all business expected to extend credit to their customers.
 Key issues in this area include?
"Is amount of accounts receivable (debtors) reasonable in relation to sales?

"On average, how rapidly are accounts receivable being collected?
"Which customers are 'slow payers'?
"What action should be taken to speed up collections where needed?
o Inventories:
 Trading stock often make up 50% or more of business's current assets and are deserving of
close scrutiny.
 Key questions that must be considered:
"Is level of inventory reasonable in relation to sales and operating characteristics of

business?
"How rapidly is inventory turned over in relation other companies in same industry?
"Is any capital invested in dead or slow-moving stock?

"Are sales being lost due to inadequate inventory levels?

"If appropriate, what action should be taken to increase or decrease inventory?
o Short-Term Loans and Overdrafts:
 Owed to banks or other lenders are second major source of financing for business.
 Important question include:
"What is amount of bank borrowing employed?

"Is this debt amount reasonable in relation to equity financing of business?
"When will principal and interest payments fall due?
"Will funds be available to meet these payments on time?
o Accrued Expenses and Taxes Payable:
 Represent obligations of business as at date of preparation of statement of financial

position.
 Accrued expenses – represent such items as salaries payable, interest payable on bank
loans and insurance premiums payable.
 Of primary concern, particularly regarding taxes payable – magnitude, timing and

availability of funds for payment.
 Careful planning is required to ensure that these obligations are met on time.
o Working capital accounts must be viewed in totality and from point of view of their relationship
to one another:
 What is overall trend in net working capital?

 Is this a healthy trend?
 Which individual accounts are responsible for trend?
 How does business's working capital position relate to similar-sized businesses in industry?
 What can be done to correct trend, if necessary?
Long-Term Financial Planning
o As part of preparation of strategic plan – need to forecast future statement of financial position or
statement of comprehensive income.
o Usually prepared over annual periods of three to five years into future.
o Only strategic look into future and may be inaccurate.

o Reason for preparing statements – need to control future of business by planning its course of
expansion through use of financial tools.
o When preparing pro formas – must determine rate of growth of business that is desirable and
reasonably attainable.
o Growth rate will be applied in determining capital requirements to finance stock, plant,
equipment and personnel that will be necessary to attain that growth in sales volume.
o Entrepreneur must anticipate capital needs early to make satisfactory arrangement for outside
funds if generated funds from retained earnings are insufficient.
o Small business growth can be funded from retained profits or by borrowing.
o Usually, businesses that grow faster than available capital base run into problems with cash flow,
which fails to support higher levels of accounts receivable, inventory, fixed assets and operating
expenses.
o Such businesses usually end up being liquidated, resulting in business's assets being sold off to
meet demands of creditors.
o Only way to avoid this is by planning ahead and controlling rate of growth.
o To develop effective long-term plans, following steps should be taken:
1. Determine personal objectives and how they affect your willingness and ability to pursue
financial goals for your business?
"Will help you determine whether or not business goals fit personal plan.
"Long-range planning enables you to be realistic about future of personal and business
expectations.
2. Set goals and objectives for business – growth rates, return on investment and direction –
as business expands and matures.
"Express goals in specific numbers.

"Use long-rand plans to develop forecasts of sales and profitability and compare actual
results from operations to these forecasts.
3. Develop long-range plans that enable you to attain your goals and objectives.
"Focus on strengths and weaknesses of business and on internal and external factors that
will affect accomplishment of your goals.
"Develop strategies based upon careful analysis of all relevant factors (pricing strategies,
market potential, competition, cost of borrowed and equity capital, as compared to
using only profits for expansion) to provide direction for future of business.

4. Focus on financial, human and physical requirements.
"Necessary to fulfil plan by developing forecasts of sales, expenses and retained earnings
over next three to five years.
"Will lead business to growth and add more shareholder value.
5. Study methods of operation, product mix, new market opportunities and other such
factors.
"Help identify ways to improve business's productivity and profitability.
Forecasting
o Small business have to do forecasts, particularly on short-term basis.
o Process, estimating future business performance based on actual results from prior periods,
enables entrepreneur to modify operation of business on timely basis.
o Allows business to avoid losses or major financial problems should certain future results from
operations not conform to reasonable expectations.
o Forecasts or pro forma statements of comprehensive income and cash-flow statements – provide
most persuasive management tools when applying for loans or trying to attract investor money.
o As business expands, there will inevitably be need for more money than can be generated
internally from profits.
Preparation of Pro Forma Statements
o Will require assembling of data from prior financial statements with include:
 Previous sales levels

 Past gross percentages
 Average past general, administrative and selling expenses necessary to generate general
sales volume.
 Trends in business's need to borrow.
o Business information needed for forecasts:
 Plant capacity
 Competition
 Financial constraints
 Personnel availability
 Industry-wide factors including:

"Overall state of economy

"Economic status of industry within economy
"Population growth
"Elasticity of demand for product information or service that business provides
 Demand is said to be 'elastic' if it decreases as prices increase, demonstration
that consumers can do without, or with less of, goods or services.
 If demand for something is relatively steady as prices increases – said to be
'inelastic'.
"Availability of raw minerals.
o Once factor identified – may be used in pro forma statements which estimate level of sales,
expenses and profitability that seem possible in future period of operations.
Pro Forma Statement of Comprehensive Income
o Estimate of total sales during selected period is most critical 'guestimate'.
o Must employ business experience from past financial statements and/or get help from
management and salespeople in developing all-important number.
o Example:
 15% increase in sales volume is realistic and attainable goal.

 Multiply last year's net sales by 1.15 to get this year's estimate of total net sales.
 Next, break down this total, month by month, by looking at historical monthly sales volume.
 From this, can determine what percentage of total annual sales took place on average in
each of those months over minimum of past three years.
 Next, estimate cost of goods sold by analysing operating data to determine on monthly
basis what percentage of sales has gone into cost of goods sold in past.
 Percentage can be adjusted for expected variations in costs, price trends and efficiency of
operations.
 Operating expenses (sales, general and administrative expenses, depreciation and interest),
other expenses, other income and taxes can then be estimated through detailed analysis
and adjusted of what they were in past and what you expect them to be in future.
o Revenue (Sales):
 List departments within business.
 In 'estimate' columns, enter reasonable projection of monthly sales for each department
of business.
 Include cash and on-accounts sales.
 In 'actual' columns, enter actual sales for month as they become available.

 Exclude from revenue section any revenue not strictly related to business.
o Cost of Sales:
 Give costs by department of business.
 In 'estimate' column – enter costs of sales estimated for each month for each department.
 For product inventory – calculate cost of goods sold for each department (beginning with
inventory plus purchases and transportation costs during month, minus inventory).
 Enter 'actual' costs each month as they accrue.
o Gross Profit:
 Subtract total cost of sales from total revenue.
o Expenses:
 Include following items to calculate total expenses:
"Salary expenses: Basic pay plus overtime.

"Payroll expenses: Include paid vacations, sick leave, health insurance, health insurance,
unemployment insurance, social security taxes.
"Outside services: Include costs of subcontracts, overflow work contracted out, special or
one-off services.
"Supplies: Services and items purchases for use in business, not for resale.
"Repairs and Maintenance: Regular maintenance and repair, including periodic large
expenditures (painting or decorating).
"Advertising: Include desired sales volume, classified directory listing expenses.
"Car, Delivery and Travel: Include charges if personal car is used in business, parking tolls,
mileage on buying trips, repairs.
"Accounting and Legal: Outside professional services.
"Rent: List only real estate used in business.
"Telephone.
"Utilities: Water, heat, light.
"Insurance: Fire or liability on property of products, workers' compensation.
"Taxes: Inventory, sales, excise, real estate, others.
"Interest Paid.
"Depreciation: Amortisation ( spreading payments over multiple period) of capital assets.
"Other Expenses (specify each): Tools, leased equipment.
"Miscellaneous (Unspecified): Small expenditures without separate accounts.

o Net Profit:
 Subtract total expenses from gross profit.
o Find example on page 78 – 81.

Raising Capital
o Definition: money available to enterprise for purchasing of goods and services, with view to
generating income for enterprise.
o Number of ways of raising capital available to medium and large corporations.
o Access to these sources is fraught with technical restriction, from requests for security of collateral
to capping on minimum loan amount, which can make funding too expensive for small business
owner.
o Capital is needed to support selling process, in terms of buying inventory or marketing products or
services, for paying salaries and wages, for purchasing different types of assets and for paying
business taxes.
o As long as business is in operation, it will constantly need financial in short, medium and long
term.
o Capital needed – refer to need for money to obtain goods and services with which enterprise can
generate an income.
Causes of Additional Capital Needs
o Sales growth that leads in many instances to more investments in stock:
 No point in carrying out huge marketing drive without acquiring more stock.
 Cost of stock run-out can be quite high, not only from lost sales but also from lost customer
trust.
o Increased volume of accounts receivable:
 Increasing turnover, especially where sales are on credit basis, puts lot of pressure on
business's cash flow.
 When customers buy goods on credit, small business 'finances' them and business's cash is
tied up in such transactions.
 Puts lot of pressure on business owner to put debt collection systems in place, otherwise
bad debts will increase, leading to further cash-flow problems.
o Entrepreneurs need cash for business growth:
 Growth of business has to be managed vert closely.

 Most small business consultants advise entrepreneurs to reduce high-growth businesses.

 High growth – leads to increased need to carry larger cash balances in order to meet
business's recurring monthly (sometimes weekly) obligations to employees, trade creditors
and other.
o Efficiency drives:
 By utilising new technologies – SMEs can reduce their cost of providing goods and services
– they can be more efficient.
 Comes at very high cost.
 New technologies – expensive and if new equipment does not deliver desires results, can
exacerbate problem.
o Quantity discounts:
 Entrepreneurs can be tempted to take advantage of cheaper product cost when buying in
bulk and they buy large, unplanned quantities of inventory.
 Can assist entrepreneur in realising larger profit margin through discount received, but
invariably leads to increased need for capital as more capital is frozen in inventories.
 Should business fail to sell huge quantities of stock, expected returns will be lost.
o Seasonal factors:
 Some businesses are seasonal in nature.

 Businesses tend to build high stock levels in preparation for high or peak season.
 Leads to much higher need for capital than normal.
 When sales are done on credit, it might take another 30 to 60 days to collect from debtors.
o Changes in interest rates after loan is granted:
 SMEs usually at disadvantage when it comes to negotiating interest charges.

 Increase in interest rates hits SMEs more severely due to higher loan repayment rates.
o Local or national economic conditions:
 Economic downturns can cause sales and profits to decline temporarily – might lead to
cash-flow or capital deficiency.
 Business might be forced to cut down on staff or other essential support services in bid to
reduce overheads.
 Such economic conditions can make it difficult for customers to settle bills in normal
manner, which might lead to increase in bad debts or to slow collection of receivables.
 Increase in petrol price can also affect customers' disposable income and their ability to
meet all financial obligations.
o Low retained profits:

 Business growth requires investment in capital – can be done via new capital injection by
entrepreneur or by retaining profits from previous years instead of always paying them out
as dividend to owner or owners.
 Could be compromising position – shareholders always want to receive dividends on shares
they own in business.
 Not retaining profits – puts pressure on business when capital is needed for expansion or
investment.
Sources of Capital Description
 Most critical and main source of capital.

 Raised from operations in business.
 Once profits have been generated – entrepreneur should
endeavour to retain some of profits in business rather than paying
Internally Generated Capital it out in form of dividends.
 For small business – retained income belongs to owners.
 For big business – can declare certain percentage of retained
income as dividends which are distributed according to number of
shares owned by shareholders.
 Business uses reputation with suppliers to gain access to bulk

stock (30-days interest-free).
 Shows profitable management of capital.
Trade Creditors or Suppliers of Inventory  Can demonstrate that opportunity cost of not taking advantage –
can lead to slow growth in business.
 Business uses reputation with suppliers to gain access to bulk
stock.
 Decision is based on affordability – implies business's ability to

repay both interest and capital portions of loan.
 Repayments made from profits generated by business.
 Small business may not meet criteria set by formal financial
institutions.
Borrowed Funds from Banks and Other Lender
 Lending criteria – include collateral requirements, legal title,
records and forms, other lender requirements that potential
borrowers might not be able to provide.
 Where business makes operating loss – business unable to meet
financial obligations to repay interest.
 Shared ownership arises from selling interest in business.

 Business must be formally registered as limited liability company –
Sales of Ownership Interest in Business to Other Equity Investors legal structures can be put in place to protect investment made by
any parties investing in business.
 Buying shares is common way of investing.
Disposal of Non-Current Assets  Non-productive assets can be liquidated to provide capital for
short-term needs.
 Vigorous campaign of collecting outstanding debts can often
produce significant amounts of capital.

 Liquidation – can occur through sales to customers or through

sales to wholesale outlets.
 On long-term basis – business can minimise external capital needs
by establishing policies and procedures that will reduce possibility
of cash shortage caused by ineffective asset management.
 Policies could include establishment of more rigorous credit
standards, systematic review of outstanding receivables, periodic
analysis of slow-moving inventories and establishment of
profitability criteria so that fixed asset investments are more
closely controlled.
Credit and Collection Methods
o Become way of life.
o Integral part of economy in which business operate.
o Purpose – to satisfy needs by offering goods and services that will not be paid immediately.
o Credit stimulates economy and helps it grow.
o Medium of exchange that makes it possible to obtain goods, services or money in present on basis
of promise to pay for these in future.
o Managing Receivables:
 Credit must be extended to customer on competitive terms, so that sales will not be lost.
 Long overdue accounts should be avoided.
 Credit extensions will be advantageous to marketing.
 Potential problems can be eliminated through investigation and sound judgement when
granting customers credit.
o Credit Applications:
 Factors to consider when evaluating credit applicant:
"Applicant's ability to pay, based on income and other financial obligations.

"Applicant's willingness to pay, determined from applicant's credit history.
"Potential profitability of account.
Cash-Flow Planning
o Lack of planning for this variable asset has driven countless small businesses into bankruptcy.
o Can spell difference between success and failure for business.

o For entrepreneurs to manage and plan cash flow effectively – important to look beyond bottom
line of their financial statements and focus on what it takes to keep business going.


CHAPTER 4: MARKETING FUNCTION
Introduction
o Deals with transfer of products/services to consumer as well as activities that make transfer
possible.
o Marketing generates income for business in order for it to meet its obligation and to provide funds
for growth and expansion.
o For business to be successful, it is essential that there is an understanding of what marketing it

and how it can be applied to influence customers' decisions.
o In order for entrepreneur to have better focus on their customers, identify their needs and wants
and establish best ways of communication, there needs to be an understanding of what marketing
is.
o Goal is to facilitate mutually satisfying exchanges between parties.
o Activities include: conception, pricing, promotion and distribution of ideas, products and services.
o Role of marketing and character of marketing activities within business are strongly influenced by
philosophy and orientation.
o Business must focus on satisfying consumers' needs and everyone in business must work together
to achieve this.
o For business to follow marketing-orientated approach – must adhere to marketing concept,

philosophy according to which marketing task in business is performed.
o Essence of marketing concept lies in four principles:
1. Consumer orientation.
2. Long-term maximisation of profit.
3. Integrated approach from everyone in business to satisfy customer needs.
4. Social responsibility.
Nature of Marketing
o Definition – marketing is activity, set of institutions, and processes for creating, communicating,
delivering and exchanging offerings that have value for customers, clients, partners and society at
large.
o Meaning – marketing is process of planning and executing conception, pricing, distribution and
marketing communication of ideas, products and services to create exchanges that satisfy
individual and business goals.

Three Types of Businesses
Type of Business Description
Production-Oriented Focuses on internal capabilities of enterprise instead of on need of consumers.
Sales-Oriented Focuses on high sales figures and aggressive sales techniques.
Market-Oriented Focuses on satisfying consumers' needs while meeting objectives of enterprise.
Marketing Concept
Concept Description
Consumer Orientation Enterprise has to concentrate on needs and wants of consumer
Primary objective of enterprise should be realised over long term, yet not become such an obsession
Profitability
that it endangers short term survival of business.
Co-operation between functions of enterprise is necessary to enable enterprise to function as whole

Integration
in order to market products/services successfully.
Social Responsibility Enterprise must comply with legislation and realise its responsibility towards community.
Exchange and Marketing
o Entrepreneur who starts business offering service or product has to engage in some form of
exchange between business and customer – between buyer and seller.
o Essential for business to survive over long-term.
o Customer must be prepared to pay certain amount for product before they can own it.
o Five conditions for exchange:
1. At least two parties must be involved.

2. Each party must have something that other party values.
3. Each party must be able to communicate with other party and deliver goods or services
sought by other trading party.
4. Each party must be free to accept or reject other's offer.
5. Each party must want to deal with other party.

Gaps Between Production and Consumption
o Successful marketing of suitable market offering is possible only if all gaps in process have been
effectively bridged.
Type of Gap Description
Space Gap Geographical space exists between manufacturer and consumer
Time Gap Between time of production and time of consumption.
Information Gap Clients should be informed about products (marketing communication).
Ownership Gap Product only becomes property of consumer once consumer has paid for it.
Seller and buyer should agree on acceptable exchange rate.

Value Gap
If buyer does not feel that price is acceptable, they do not attach same value to product as seller does.
Marketing Activities
Primary Activity Description
 Needed to deliver product to consumer in quickest and safest way.

Transport
 Bridges space gap.
Auxiliary Activities Description
 Seller needs information on who and where buyers are.

Sourcing and Supplying Information  Seller supplies information to buyer through marketing communication.
 Bridges information gap.
 Products should conform to specific norms or standards.

Standardisation and Grading
 Bridge value gap.
 Warehouses used for storage – e.g. seasonal production.

Storage
 Bridges time gap.
 Costs incurred in transfer of products from sellers to buyers.

Finance
 Bridges ownership gap.
 Owner of products exposed to possible loss or damage.

 Risk carried by both buyer and seller.
Risk-Taking
 Ownership transferred from one person to another.
 Bridges ownership gap.

Relationship Marketing
o For any business to survive over long term – relationships with number of stakeholders are
needed.
o Relationships need to be cultivated and nurtured over time to ensure survival of business.
o Sum of marketing efforts by manufacturer, producer or supplier aimed at establishment,

development or maintenance of successful exchanges with customer overtime.
o Aim is to build relationships with customers and generate loyalty from them.
o Loyal customers can form lifeline of any business – generate repeat sales and serve as marketers
for business.
o Everyone employed at business in all sections must cooperate to ensure the fullest possible
consumer satisfaction with product quality and service excellence.
o Market offering must be expanded in order to differentiate it successfully from that of competitors
and to ensure greater degree of consumer satisfaction through long-term, sustainable and
mutually beneficial relationships.
o Represents broader view of market and marketing task.
Marketing Process
o Complex process which is normally carried out by marketing department in larger companies.
o Department needs to stay up to date with internal and external trends and influences in order to
adapt to market offering in order to meet changing needs and preferences of different target
markets.
o Four variables (known as marketing mix) about which entrepreneur has to take decisions:
1. Product.
2. Place where it is to be sold (distribution of product).
3. Marketing communication methods used to inform consumer.
4. Price of product – should reflect value to consumer.
o Variables combine in market offering – consumer may decide to buy if it satisfied their needs.
o Marketing mix forms marketing plan.
o Marketing strategy for specific market offering – directed at group of consumers in specific
environment.
o Larger business's target market – more advantageous it is for manufacturer and intermediaries.
o Many different group in consumer market – known as market segments.

o After careful consideration – entrepreneur will select specific target market/s from many different
market segments.
o Market offering often change to meet preferences of different target markets.
o Usually several competitors marketing similar products and competing for patronage (support) of
same target markets.
o Consumers select brand names that afford them greatest need satisfaction in terms of sacrifice
they must make.
o Sacrifices not only in monetary terms – sometimes consumers are willing to purchase brand-name
products at their own inconvenience.
o Marketing process:
Marketing Environment
o All businesses operate in an environment that consists of number of variables.
o Environment constantly changing – business must adapt in order to survive.
o Definition:
 Variables or factors that impact directly or indirectly on marketing activities of business.
 Variables or factors may be either controllable or not controllable.
o Businesses operate in dynamic environment – monitor variables to determine impact on business,

customers and competitors.
o Society depends on business to satisfy its wants and needs.
o Businesses depend on environment to supply them with resources.

o Businesses and society influence each other through exchange and depend on each other for their
existence.
o Outside environment is complex and businesses have little to no control over most variables
within it.
o Marketing environment consists of three components:
 Micro-Environment:
" Can be defined as all those internal variables that can be controlled by management,
such as staff to be appointed, funds to be used, mission and marketing objectives of
business.
 Market-Environment:
" Can be influenced or partially controlled by management and refers to those forces
outside business, such as consumers, competitors and suppliers.
 Macro-Environment:
" Refers to external forces that individual business has no control over, but which
directly or indirectly influence business, such as economic, political and technological
factors.

(a) Compile SWOT Analysis:
o For entrepreneur to be successful – must be aware of influences that variables in

environment have on enterprise.
o Entrepreneur should conduct SWOT analysis to determine various internal strengths and
weaknesses and external opportunities and threats so factors can be taken into account in
decision-making process.
(b) Mission:
o Definition – declaration of enterprise's reason for existence.
o Meaning – mission statement defines purpose of enterprise and identifies enterprises'

products, services and customers.
o Provides concise explanation of business's product market position, including products

offered and markets served.
o Gives guidelines on where resources of business should be applied to achieve mission.
o Questions that need to be answered when formulating mission are:
 Who is the customer?

 What does the customer buy?
 Where is the customer located?
 How does the customer buy?

 How can the customer be reached?

 What does the customer regard as value for money?
(c) Marketing Objectives:
o Setting marketing objectives is essential is business wishes to meet its ultimate goal of
profit maximisation.
o Need to be clearly linked to mission of enterprise and must meet following requirements:
1. Should relate to single, specific topic and should not be vague.

2. Should relate to result, rather than activity to be performed.
3. Should be specific and measurable – must be stated in specific terms.
4. Should be challenging, yet achievable.
5. Should be set within time frame (usually one financial year).
(d) Variables in Market Environment:
o Semi-controllable market which consists of suppliers, consumers and

intermediaries/competitors.
o Suppliers:
 Important link in business's customer value delivery system.

 Suppliers provide business with goods and services that are transformed by business
into value-added products for customers.
o Customers:
 Focal point of business and business should focus on its attention on meeting needs
and wants of customer if it wishes to stay in business.
 Understanding customer required in-depth analysis of needs, spending power and
behaviour patterns.
 Many entrepreneurs establish their business on identified needs or gaps in
satisfaction level of customers.
 Business can operative in five types of customer markets:
1. Consumer markets – these are individuals and households who buy goods
and services for personal consumption.
2. Industrial markets or business-to-business markets – made up of businesses
that buy goods and services for further processing or for use in their own
manufacturing process.
3. Reseller markets – businesses that buy goods and services and resell them at
profit.

4. Government markets – made up of government agencies that buy goods and

services in order to produce public services or transfer goods and services to
others who need them.
5. International markets – foreign buyers, including consumers, producers,
resellers and governments.
o Competitors:
 Can be defined as situation in market environment in which several businesses offer similar
kinds of products or services and compete for business patronage of same customer.
 Competition includes all actual and potential rival offerings and substitutes that a buyer
might consider.
 Business must not define market too narrowly – limits target market.
 Has positive aspects – helps keep excessive profits in check; stimulates higher profitability;
leads to better service and encourages technological innovation.
 Example:
" Customer has R300 in their pocket and you sell T-shirts, your competitors are not
limited to other T-shirt sellers.
" Consumer has different needs: R300 can be used to buy takeaways, airtime, a T-shirt
or go to movie.
" The fact that customer has different needs means you are competing against all of
these suppliers for R300 in the consumer's pocket – need competition.
" Once consumer decides to buy T-shirt, then all suppliers of T-shirts become
competitors – product competition.
" Customer can then decide on specific brand like Adidas and then suppliers of Adidas
T-shirts become competitors – brand competition.
" Customer may decide there are a number of stores that sell these T-shirts, and these
specific stores become competitors – store competition.
 Competition determines price for which a product can be sold.
Market Segmentation
o Definition – division of total market into smaller segments with certain similarities and common
characteristics.
o Meaning – total consumer market, which consists of consumers who are all different
(heterogeneous), is divided into groups of people who are all similar (homogeneous).
o Can also be defined as identification of subsets of buyers within market who share similar needs
and who have similar buying processes.
o Important for entrepreneur to be aware of various ways in which consumer markets can be
segmented.
Segment Description
Geographic Market divided into geographic regions such as provinces, towns, cities and suburbs.

Demographic Market divided according to age, gender, religion, race, income and family lifestyle.
Psychographic (Lifestyle) Examines how person things, feels and behaves, uses personality, lifestyle and values.
Based on behavioural measures such as benefits sough, purchase occasions, user

Behavioural (Buying Patterns)
status, usage rate and loyalty status.
Marketing Strategy / Mix
o Definition – combination of product, price, distribution and marketing communication in most

suitable manner to ensure sale of product or service of enterprise.
o Meaning – marketer must decide on products that will be offered, price at which products will be
sold to consumers, distribution channel that will be used to transfer products to consumer and
marketing communication methods that will be used to make consumer aware of products.
o Marketing strategies consist of four elements (Four P's):
Element Description
 Offering made to market based on identified need or
opportunity.
Product
 Includes physical item, colour, size, packaging, quality,
guarantees, after-sales service, installation and quality.
 Value attached to item by entrepreneur / selling price of

product or service that is being offered.
Price
 It should be profitable (at least cover costs) but also affordable
and competitive and in line with quality and image of product.
 Have to ask if the product will reach market.

 Transfer of product from manufacturer to consumer.
 Direct distribution occurs when product sold directly to
consumer.
Distribution (Place)
 Indirect distribution takes place when product is sold to
wholesalers, retailers or agents.
 Entrepreneur may decide on single or multiple locations.
 Bridges gap between manufacturing and consumption.
Marketing Communication (Promotion)
 Have to ask how consumers will be made aware of product.
 Four elements of marketing communication are:

" Advertising (radio, TV, newspapers, billboards,

pamphlets).
" Sales promotions (special offers, discounts, gifts, trade-
ins).
" Publicity (sponsorships, donations, articles in
magazines).
Marketing Plan
o Detailed strategy on how product or service will be marketed and time-related details for carrying
out plan.
o By drawing up marketing plan, entrepreneur will:
 Be able to identify changes in environment and determine way of reacting to them.

 Have better understanding of position of business in market as far as consumers and
competitors are concerned.
 Have better idea of objective and how to achieve it (use plan as type of guide or road map
to reach goal).
 Establish how to obtain resources for intended plan.
 Keep staff informed about what is expected of them.
o Developing marketing plan entails number of steps.
o Plan should be very specific.
o Steps in marketing plan:
1. Execute summary
2. Market analysis
3. Market segmentation and target market selection (including SWOT analysis)
4. Marketing mix
5. Promotional mix
6. Marketing results and support documents
7. Implementation
Execute Summary of Marketing Plan:
o Briefly describes marketing plan; product or service being offered, target markets, level of sales
and profit margins hoping to achieve, and who competitors are.
o Marketing and promotional mixes also need to be described as well as strategies and tactics.
o Summary must be brief, concise, to the point and easy to read.
o It includes 'who', 'what', 'when', 'where', 'how' and 'why'.
o Summary must include:

 Description and rationale for plan.

 Background to product or service.
 Anticipated market, sales and profits.
 Competitive position, market niche and market share.
Market Analysis / Situation
o Items need to be covered in this section include:
 Market research results

 Market demand/attractiveness analysis
 Product life-cycle stage
 Business analysis
 Competitor analysis
 Customer analysis
 Co-operator analysis
 Product analysis
 Target market selection criteria
 Customer characteristic
o Market Research:
 Information can be obtained through existing sources or by means of primary research.
 Surveys conducted on limit scale to gather primary information.
 Important to research demand or need for what is trying to be sold or offered to market –
should be summary of findings.
o Market Attractiveness:
 Describes how attractive market for product or service is.
 Typical questions that need to be answered:
" Do customers want product?

" Will they buy it?
" Do they see a need for it?
 Market can be evaluated on following criteria:

" Size of market

" Growth potential of market
" How easy is it to reach customers
" Whether customers can afford product
" How easy it is to enter market
" Level of competition
o Product Life Cycle:
 All products and services have life cycle that moves through four stages:
1. Introduction – product is still new with few or no competitors.

2. Growth – demand for product, awareness in market, and profit increases.
3. Maturity – will be many competitors where some leave market.
4. Decline – need for product will wanes fast and profits will reduce greatly.
 Each phase requires different strategies and tactics.
o Business Analysis:
 SWOT analysis – based on assumption that effective strategy maximises strengths and
opportunities of business and minimises its weaknesses and threats.
 Strengths should be matched to opportunities.
 Threats should be seen as challenges.
 All factors in SWOT analysis are not of equal value.
 Aim is to identify critical factors that can have major effect on business.
 Business should build on vital strengths, correct obvious weaknesses, exploit significant
opportunities and avoid potentially disastrous threats.
o Competitor Analysis:
 Begins with SWOT analysis of top three competitors.
 Characteristics of each needs to be compared to those of one's own business.
 Important that geographical location, target markets, marketing strategies, marketing mix,
products on offer and market share are all evaluated.
 Information is available from advertising agencies, news media and internet.

o Customer Analysis:
 Crucial part of marketing plan.
 Need to know who your customers are, where they come from, what and how they buy,
when they buy, what is needed to maintain their loyalty to you.
 If entrepreneurs don’t know their clients' needs and preferences, they won't be able to
satisfy them.
o Co-Operator Analysis:
 Co-operators include suppliers, outside salespeople, volunteers or anyone who cooperates

in making business successful.
o Product Analysis:
 Focuses on what is being sold to customers.
 For each product, a mini-marketing plan is needed – where target market, costs, service
levels, distribution channels and customers are addressed.
o Target Market Selection Criteria:
 If you are aware of market that has not been met, you may decide to go after gap that
exists.
 Have to make sure that it has potential for you and that it will be financially viable.
o Customer Characteristics:
 Criteria used to determine if business is viable may include geographic, demographic,

psychographic and behavioural criteria.
 Others may include rand volume or size of market and buying influences.
Setting Objectives and Developing Marketing Mix
o Need to set goals and strategies.
o Should be able to form clear picture of what you want to achieve in marketing of product or
service.
o Picture should be clearly set out in objectives.
o Following requirements of objectives:
 Must be realistic, practical and achievable.

 Must be quantifiable – must be able to reproduce an objective in figures (percentage).

 Must be linked to certain period.
Action Plan
o Map of what you want to achieve and how you plan to go about it.
o Action plan shows following:
 Steps to be followed.
 Person(s) responsible for carrying out each of steps.
 Expected completion date of each step, showing expected duration of each step.
 How success of steps will be measured.
o Entrepreneur must make specific people responsible for carrying out certain actions.
o Date must be attached to each of actions – person responsible knows by when action must be
completed.
Budget
o Devices used in marketing plan should be in clear line with what has been allocated to in budget.
o An amount is indicated as subtotal under 'marketing and strategy'.
o Will show how amount will be spend on marketing activities over certain period.
Control
o Must be exercised to ensure that set objectives are achieved.
o Must take place regularly – plans do not make provision for unforeseen circumstances and
adjustments that must be made
o Can determine whether plan of action is successful or not.
o Need to study sales figures to determine whether set objectives have been achieved.



CHAPTER 5: OPERATIONS MANAGEMENT
Introduction
o Concerns making products and services – covers both manufacturing and service delivery
businesses.
o POM – production and operations management.
Dynamics of Operations Management
o Concerned with:
 Creating products and services which people depend on.

 Change, creativity, productivity and adding value.
o Primary functions:
 Product and service design (demands creativity).
 Demand and capacity planning.
 Operations system design (demands creativity).
 Production planning and control.
 Improvement, problem-solving and maintenance (demands creativity).
o Managers deal with technological and environmental challenges, pressures to be socially

responsible, increasing globalisation of markets and knowledge management.
o Brainstorming – produces good ideas but seldom realised in practice due to lack of technical and
operations skills.
o Creative ideas can have large impact on:

 Processes (optimising, simplification and streamlining)
 Product packages
 Systems
 Technology
 Infrastructure
 Layout
 Resources
o All operations have certain creative process technologies – assists transformation process and
makes production easier.
o Important factors:
 Creative designs – must be cost-effective.
 Technology:
" Preceded by innovation.
" Associated with new gadgets, devices, machines and processes.

" Involves all applicable operations, materials and knowledge in order to satisfy need,
with view to improving people's private or work environment.
" Includes discoveries and inventions – must be applied economically.
 Innovation management:
" About value-capturing and value-creation.
" Not linear process.
" Innovation – planned action of bring about new ideas, processes, products and
services.
" Associated with recreation, adaption, imitation and invention.
" Always implies creativity and change.
" Must be purposeful and systematic.
 Innovation behaviour:
" Each individual entrepreneur in their field.
" Raw ability that requires space, nurturing and discipline.
" Operates on quantum level which is at powerful end of intellectual spectrum.
" Innovators adopt 'fox-like' approach.
" Hedgehog compared with fox.
" Hedgehog:
 Lives in one burrow, in one home and in one manner.
 Once programmed to an idea, they cannot shake it off.
" Fox:
 Believe life is about knowing and experiencing many things.
 Forage for new ideas and explore new routes.
 Will react more quickly, and their intuition and readiness help them survive in
rapidly changing environment.
 Value and time:
" Essence of transformation process is to add value and eliminate waste.
o JIT also referred to as 'lean production' – to use less of everything and focus on adding value.
o JIT and total quality management (TQM) – seen as part of same movement to deliver what
internal and external customer want.
o Total Quality Management – holistic and integrative approach to quality – focuses on all resources,
processes, products and functions and with several objectives.
o Quality 'chains' and 'quality' circles – concepts that relate to value.
o Value chain – ideal series of transformational processes whereby each step increases value of
item.
o OM promotes systematic approach (e.g. value analysis) to reduce cost of product without
impairing quality, value or function.

o Following OM principles promote value and time:
1. Know and team up with next and final customer:

 Implies breaking barriers and building relationships.
 Refers to customers as next process.
2. Entire business must become dedicated to continual and rapid improvement in quality,
cost, response time, flexibility, variability and service.
3. Entire business must have unified purpose via shared information and team involvement in
planning and implementation of change.
4. Reduce number of product or service components of operations (processes) and number of

suppliers to a few good ones.
5. Operations design entails organising resources into multiple chains of customers, each
focused on product or service (customer family), creating workflow teams, cells and 'plants
in plant'.
6. Capacity involves utilising human resource potential and creatively by investing in human
capital (internal customer); 'quality of work-life' (QWL) – investing in cross-training for
mastery of multiple skills.
7. Capacity entails maintaining and improving present equipment and human capital before
considering new resources and automating incrementally when process variability cannot
be reduced by other means.
8. Process management entails aiming for streamlining and simplicity by making it easy to
provide goods or services without error or any process variation.
9. Cutting flow time (lead time, waiting time), distance and inventory (sub-assemblies and idle
work in process) along the chains of customers.
10. Cutting set-up, changeover, get-ready and start-up lead times.
11. JIT production, or at customer's rate of use; decreasing cycling intervals and lot size.
12. Recording and processing one's own data at workplace and ensuring that front-line
improvement teams have first chance at problem-solving before experts brought in.
13. Cutting administration and reporting; controlling causes, not symptoms.
o Entrepreneurial University of Future:

 Most universities promote academic engagement with industry for various reasons (e.g. to
generate third stream of income).
 Many universities choose to (or not to be) entrepreneurial.
 Most universities teach entrepreneurship – best teacher is entrepreneur in practice.
 Some universities assist students to obtain practical experience as part of study
programme.
 Also can be helped with start-up and funding of new business.

 University-industry innovation networks (UIINs) – compromise entrepreneurial universities,

industry and government.
 Organise themselves as co-productive institutions by means of technology transfer offices
(TTOs), innovation centres and variety of offices for knowledge transfer and university-
business cooperation (UBC).
 Network referred to as 'triple helix approach' of cooperation between universities and
other stakeholders.
 Aim is to build enterprising state where partners co-innovate in order to solve global
economic challenges.
 Effective management of triple helix model takes university-business cooperation to next
level in terms of universities as successful entrepreneurs.
o Entrepreneurs of Fourth Industrial Revolution (FIR):

 Introduces concepts related to new industrial revolution that announced itself in terms of
'big data' where cyber meets physical world.
 Organisations will operate differently because digital solutions will continue to transform
way businesses operate.
 Will be significant change in production world in terms of data, where modern information
and communication technologies are merging with operations processes.
 Cyber-physical systems – drive by internet where real and virtual worlds are drawing closer
together.
 Implications of FIR are immense.
 Smart factories will allow individual customer requirements to be met within short lead
time.
 Last-minute changes to production will allow operations to respond lightly to disruptions.
 Entrepreneurs usually well prepared and informed of new developments, innovative
processes and product designs.
 Upcoming exponential organisations will need enhanced smart factories providing multiple
opportunities for entrepreneurs and operations managers.
 Insight-driven business – associated with new systems of intelligence and hyper-
connectivity.
 Internet of Things (IoT) – remain central to more technological developments.
 Positive disruptions will continue and fresh technologies will bring new possibilities – things
will be done faster and cost-effectively.
 Business world where physical objects are integrated with information network and where
objects become active participants in business processes.
 Internet of Things – combination of automatic identification technologies such as radio
frequency identification (RFID), chips, sensors and internet protocols that allow information
on locations and state of physical objects.
 Network will link data from products, processes and equipment that will produce enhanced
information and sophisticated analysis.
 Smart factories – represents ultimate production when networking of resources of
company via machine-to-machine (M2M) communication establishes unique cyber-physical
systems in which production organises itself.

 OM of future will enhance organic organisations with cohesion and integration.

 Growing importance of integration of business functions and supply networks will be
needed to be competitive.
 Will demand operations to be central to entire organisation and supply chains.
 Enterprise resources planning (EPT) and lean synchronisation – becoming important for
operations management.
 Lean synchronisation:
" Important to eliminate wastage on holistic level basis related to JIT concept.
" Refers to more holistic understanding of importance of synchronisation of flow of all
types of items.
" System always delivers exactly what customers need, in exact quantities, exactly
when needed and exactly where required.
" Do everything at lowest possible cost, resulting in smooth value-adding flow system
of processes, operations and supply networks.
 Modern industry – need multiple new systems such as ERP software for entire task of
planning, controlling and coordinating all resources in company by mapping all business
processes in company to avoid creation of silos.
 ERP:
" Taking material requirements planning (MRP) to next level as complete enterprise-
wide solution.
" Attempts to integrate all departments and functions across company into single
software system than can serve all departmental needs.
" Allows decisions from all parts of organisation to be integrated so that consequences
and outcomes of decisions in one function are reflected in planning and control
systems of rest of organisation.
" Consists of software support modules such as marketing, product design,
production, inventory, procurement, human resources.
 Integration between modules is stressed without duplication of activities or information.
Operations Management Defined
o Definition – management of systems or processes that offer products or services.
o Meaning – function responsible for physical manufacturing of products or physical rendering of

services.
o Concerned with conversion or transformation processes of raw materials or semi-processed

products into end products.
o Processes are technologically diverse, embracing both manufacturing (conversion of inputs into
goods) and provision of services.
o Purpose – to make sure goods and services are available to sell to consumers.

o Planning and control of three areas of transformation process:
OM PLANNING AND CONTROL OF OM PLANNING AND CONTROL OF OM PLANNING AND CONTROL OF

(1) INPUTS: (2) TRANSFORMATION SYSTEMS: (3) OUTPUTS:
Transforming resources:  Macro-processes  Value
 Micro-processes  Goods and services
(people, creativity, capital, R&D,
 Operations systems  Improvements
technology, learning, market
(e.g. service shops, work  New designs
information and feedback).
centres, assembly lines, job  Technology
Transformed resources: shops and process  Delighted markets
technologies).  Competitive advantages
(energy, materials and clients).  Sustainability
(a) Transformation process for manufacturing of products:
(b) Transformation process for rendering of services:
o Process Management is Inherent in Operations Management:

 Processes cut across departmental boundaries.
 Nested-process concept – reinforces need to understand connectivity of all processes and
operations in business.
 People in any operation – catalyst that makes whole operation come alive.
 OM attempts to reduce or eliminate lead-time elements in process.
 Primary lead-time elements:
" Queue time – period during which job stays in queue at work centre.
" Processing time – actual time needed to process job.
" Set-up time – time needed to prepare equipment for processing new job.

" Waiting time – idle time between processing of job and its passage to next work
centre.
" Inspection time – time needed to check whether job complies with quality standard.
" Transportation time – time needed to transport job from one work centre to next.
o Performance Objectives of Operations Management:

 Large companies – known for service delivery or other features such as quality, speed or
cost-effectiveness – referred to as performance objectives.
 Many dimensions of quality (reliability, consistency, low variability and responsiveness).
 JIT associated with advantages – low lead times and inventory reductions.
 Separate performance objective – integrated with dependability.
 Speediness, flexibility, ability to be agile, to change and to adapt, low cost and affordability,
productivity and efficiency.
 Operations managers must consider trading off one aspect of performance against another.
 Quality-versus-cost trade-off – been overcome by many operations, in agile supply market.
 Main job – to change part of operations causing one performance objective to deteriorate
as another improves – trade-off is foundation of continuous improvement.
o Operations are Central to Productivity:

 Measures of productivity required – operations manager's biggest challenge= increasing
value of output relative to cost of input.
 More output with same amount of input increases productivity, but same level of output
using less input also increases productivity.
 Sustainable profitability is impossible with productivity – output value (usable outputs),
after being exposed to uniquely designed transformation process, must be higher than
value of separate pieces of available inputs (resources).
o Maco-Productivity:
 Refers to context of nation's entire production.
 The Gross Domestic Product (GDP) per capita is measure of value of total output of country
divided by total population (seen as inputs to produce outputs).
 National economy – made up of individual businesses, and productivity of country is sum of
productivity of all its individual operations.
 Macro-perspective on productivity management – refers to country/economy as whole and
governance of productivity growth.
 Productivity South Africa – offers many suggestions in this regard: infrastructural
programmes and investments, well-functioning legal and accounting framework, creating
market-friendly environment, research and technology support, promotion of small and
medium enterprises, export trade stimulation, education and training policies, and healthy
labour market.
o Micro-Productivity:
 Refers to individual business's operations.
 Focuses on how well operations perform in terms of value, effectiveness, efficiency,
utilisation, impact and quality.

 First measure is ability to achieve production.

 Secondly, productivity is measured by means of following quotient: 'output divided by
input'.
o Productivity Measurement Defined:

 Productivity – not only efficiency but also quality of inputs, resource utilisation and
effectiveness.
 Terms associated with quality management = vital for productivity.
 Qualitative improvements in inputs are significant = create sustainability, durability and
stability, and cause output to increase without any additional capital or human resource
inputs.
 Accurate quotient for productivity:
output income (usable quantity)

=(P) produc tivity
input expenses (available input quantity)
 Productive system must have ability to be effective and efficient.

 Output must be effective and efficient.
 Danger is to focus only on one (effective) at cost of the other (efficiency).
Operations Strategy and Operations Design
o Strategy refers to actions or decisions that commit business to moving in certain direction or
adopting position in market.
o Carefully made decisions that help business to achieve its goals and those that have high impact
and particular significance can be regarded as strategies.
o Business's overall strategy determines its operations strategy.
o Can be defined as top-down reflection of what business wants to do.
o Involves translating marketing requirements into operations decision and exploiting capabilities of
operations resources in chosen markets.
o Total pattern of decisions and actions formulates roles, objectives and activities of each of
operation so that they contribute and support business's strategy.
o Operations Design:
 Operations strategy implies operations system.
 Entrepreneurs need to take note that idea, product and/or service range will demand
specific operations design.
 Product should fit operations design (specific market need will determine appropriate
operations design, e.g. lean or agile supply).
 Basic differences between a lean and agile operation:
Distinguishing attributes Lean supply Agile supply

Product variety and life cycle Low variety and long life cycles High variety and short life cycle
Forecasting mechanism Algorithmic Consultative; qualitative
Profit margin Low High
Market Predictable Volatile
Stock demand Stable long-term Immediate availability and volatile
 Agile supply operation – market-sensitive and can respond quickly to demand.

 Needs unconventional mechanisms to hear daily voice of market and have direct access to
customer requirements data to create virtual supply chain that is information-based rather
than inventory-based.
 Electronic data interchange – enables partners in supply chain to react to same data (real
demand), rather than to distorted picture when orders are transmitted from one partner to
another in chain.
 Route to sustainable advantage lies in being able to leverage respective strengths of
network partners to achieve greater market responsiveness.
 Very high volume and very low variety – continuous mode of operation – layout with suit
highly mechanised plant.
 Unique functional need, low-volume (one item) with high flexibility – suit project mode of
operation – layout temporary, with no clear flow lines and because product position is
fixed, layout referred to as fixed-position layout
 Variety, volume and product scope – used to come up with job mode of operation design –
batch-operation design or repetitive operation design.
 Product design – determine process type (intermittent or continuous), as well as layout and
flow of work.
 Entire network of micro and macro-processes will consist of basic flow (and layout type),
technologies used (process technologies, equipment and machines) and job design.
 Process design not merely assembly line – may also include network decisions pertaining
suppliers if business is backwardly integrated into supply chain and decisions relating to
capacity level of each operation in supply network.
 Each operation in network will select process type based on variety-volume characteristics.
 Small variety and large quantities = dictate specific process type.
 Process type = dictate layout type.
 Layout type and process type not always deterministic.
o Types of Productive Systems and their Characteristics:

 Definition – method of manufacturing – how products are going to be manufactured.
 All transformation systems convert inputs into outputs.
 All operations share same operations management model, principles and performance
objectives.
 Systems also referred to as transforming resources that convert combination of inputs –
transformed resources.

 Designed for particular demand that will determine system's dimensions, nature, scope and
scale.
 Leads to different system designs.
 Comparison of characteristics of three main categories of operations systems.
Continuous / Repetitive Job / Batch Operations Project Operations System

Operations System System
Product Type Standardised Diversified Unique
Product Flow Standardised According to requirements Virtually none

of particular product
Materials Handling Materials flow Handling depends on Special equipment often

determinable, systemised product – highly variable necessary, high cost
and often automated and expensive
Raw Materials Inventory High turnover Low turnover Variable because of

production time
Work-in-process Small quantities Large quantities Single product
Production Cost Relatively high fixed cost; Relatively low fixed cost; Relatively high fixed cost;
Components low variable cost per unit high variable cost per unit high variable cost
Labour Requirements Highly specialised routine Highly skilled artisans High degree of adaptability
tasks at specific rate working without to various tasks
supervision and with commissioned
moderate adaptability
o Relationship Between Operation System Type and Layout Type:

 Decisions concerning layout type – understanding advantages and disadvantages of
different types and combinations of layouts.
 Flow of transformed resources will be determined by both feasibility and importance of
degree of regular flow.
 Opposite would be high variety (regular flow difficult) and low volume (regular flow not
feasible).
 Relationship between basic processes and basic layout types are:
" Projects and large jobs = fixed-position layout.
" Jobs and batch processes = process layout (layout according to similar processes).
" Large batches and small continuous processes = cell layout.
" Mass processes or pure continuous repetitive processes = product layout (layout
according to product).
 Mode shifting possible after re-engineering – mode of operations system design may
change from job to project or form batch to continuous (from custom to commodity).
 Purpose of effective layout = streamline workflow by minimising handling distance and
increasing facility utilisation.
Operations Planning and Control

o Operations planning – governed by OM policy, defined as set of guidelines for execution and
control, as based on operations strategy.
o Determines prescribed, accepted actions within operations function in order to achieve continuity,
consistency and integration.
o Planning – concerned with setting objectives and with devising necessary schemes to achieve
objectives.
(a) Long-term planning:

" Tasks of entrepreneur are non-recurrent.
" Long periods one decision and another.
" Decision relate to fixed-capacity planning and product planning.
(b) Medium-term planning:

" Tasks of entrepreneur consist of planning manufacturing quantities and organising
resources needed.
" Aggregate planning – operations manager determines total number of all products
that will be manufactured for whole year.
" Master scheduling – done in order to determine how much of specific product must
be completed, within specific period of time.
" Operations scheduling – refers to route product takes and sequence of events as it
moves through factory.
" Capacity planning – entails determining size of enterprise, equipment needs, labour
needs and stock planning.
(c) Short-term planning

" Tasks of entrepreneur deal with distribution of work and control.
" During execution of tasks – important that consistent control should be exercised.
" Exercising control – ensures people carry out instructions according to plan.
" If instructions not carried out, entrepreneur exercises control by making necessary
corrections or adjustments during process.
" Production control method works differently for different businesses.
" Factors in which could affect production control method are size of business, degree
of detail required, nature of production process, type of products and nature of
market.
o Components of Operations Planning:

(a) Aggregate Planning:
" Definition: Involves determining demand for product group (range of products) during
specific period of time (e.g. one year).
" Meaning: Planned production for all products that enterprise manufactures or sell
over whole year.
(b) Master Scheduling:

" Definition: Indicates planned production per time interval (e.g. per month/week)
" Meaning: Planned production of each individual product in range of products, how
many of each must be manufactured per week or per month.
(c) Operations Scheduling:

" Definition: Involves determining sequence in which jobs and activities are to be
completed in manufacturing plant.
o Specific Objectives of Demand Management and Demand Management Activities

 Long-term objectives – related to fixed-capacity planning.
 Medium-term objectives – relates to aggregate demand.
Long-term planning  Fixed-capacity planning – layout of factory.

 Product planning – product development and aggregate
forecasting.
Medium to short-term planning  Variable capacity planning.

 Item forecasting.
 Master scheduling.
 Operations scheduling.
 Inventory management.
o Forecasting:
 Determining demand for product produced by business, but with view to accommodating
future event.
 Recording orders – important component of demand management.
 Delivery promise can only be made once order has been positioned in master schedule –
dependent on availability of finished product, assemblies and components.
o Categories of Forecasting:
Forecasting Category Explanation
Qualitative techniques Based on judgement rather than actual calculations
Time series analysis/quantitative Done with aid of calculations
Casual methods To determine cause-and-effect relationship
o Multi-period pattern projections:

 Time-series technique – produces forecasts for more than one future period.
o Single period patternless projections:

 Makes use of historical data but is for next single period only.
 Historical data – usually reflects most recent demand quantities.

 Capacity – limited means of productive unit to manufacture certain quantity of products

within particular fixed period.
 May refer capacity planning as planning for adjustable (variable) resources such as labour
and aggregative inventory, over medium term.
 Also refer to fixed resources.
 Capacity control – loading of resources and keeping work centres busy but not overloaded.
 Planning for future production capacity occurs in following three stages:
1. Demand forecasting.
2. Attuning capacity of various machines/resources/facilities.
3. Determining strategies for full utilisation of capacity.
o M's of Capacity:
 Used to describe limits of any operation and consist of following methods:
" Methods
" Machines
" Manpower
" Money
" Material
 Capacity made up of combinations of Ms.
 Optimisation of capacity – important to maximise production ability.
 Factors such as learning curve have impact on capacity.
 Trained and experienced manpower affects rest of capacity configuration – determines how
other Ms are utilised.
o Fixed-Capacity Planning:
 Must be done thoroughly in order to place productive unit on firm footing from start.
 Productive unit – factory, office, bank, shop where goods and/or services are manufactured
or provided.
 Elements for planning are:
" Occupational safety.
" Identifying suitable location.
" Determining size of productive unit.
" Layout of productive unit.
" Choice and design of, specifications for, machinery and equipment.
o Adapting Capacity to Change in Demand:

 If capacity is smaller than demand, operations unit can consider following strategies:
" Differentiation of product.
" Acquiring additional fixed assets.
" Introducing overtime.

" Introducing additional shifts.

" Temporary means of production – additional staff for certain period.
" Transfer of capacity from other divisions.
" Specialisation of products.
" Acquiring additional machines.
 If capacity is greater than demand, operations unit can consider following strategies:
" Scaling down workers corps.
" Working fewer shifts.
" Integration of products.
" Closing section of factory.
" Phasing out any temporary means of production.
" Moving surplus capacity.
o Activities of Operations Scheduling:

 Schedules – statements of volume and timing in different types of operations.
 Operations scheduling – determination of quantity of jobs and sequence in which jobs and
activities are to be completed in manufacturing plant.
 Most complex functions because of following variables:
" Schedulers must deal with different types of capacity/resources simultaneously.
" Machines and staff will have different capabilities.
" Number of possible schedules increases as number of activities and processes
increases.
 Very important skill.
 Changes frequently and need to match demand and capacity on continuous basis.
 Compromises four activities:
Timing and routing  Timing – when specific activity will take place
 Routing – where or on which machinery operation will be performed.
Dispatching  Issuing shop order so that operation can take place.
Control  Establishing status of shop order.
Expediting Effective scheduling entails:

 Allowing realistic schedule and allowing for any essential changes and
emergencies.
 Allowing enough time for all activities.
 Allowing enough time before and after each activity, and between activity.
 Not scheduling all available capacity of plant.

 Process operations also depends on number of other factors:

" Avoiding quality problems where possible and assuring reliability of suppliers.
" Monitoring process and product design.
" Rigorous preventive maintenance.
" Optimal mixes and rapid changeover.
" Regular schedules and linear output.
o Forward and Backward Scheduling:

 Forward scheduling – involves beginning in present and adding times of all necessary
activities.
 Backward scheduling – involves beginning at ending time and subtracting times of all
activities to arrive at starting point.
o Gantt Charts and Other Techniques:

 Gantt charts:
" Give visual impression of progress made on project or subproject.
" Work packages of job/project, with its work descriptors (tasks or activities), are shown
on left-hand side and work duration at bottom.
 Johnson's algorithm:
" Can be used to schedule number of jobs on two or three machines.
" Ensures that optimal sequence is found to minimise total processing time.
" Fixed sequence according to which job moves through work centres of machines.
" Widely used in small job shops where volume is low and variety is high.
" Determining optimal processing sequence as opposed to scheduling work randomly
can save operations manager a lot of time and resources.
o Inventory Management:
 Function of planning and controlling all types of inventory.
 Crucial – capital should be tied up in other investments and not in idle stock.
 Has several interfaces with purchasing warehousing, marketing and OM.
 To have just enough inventory at any given time.
 Implies two major dimensions – timing and quantity determination.
 Mode of operation – determines type of timing and quantity planning and control.
 Resource-to-order (project operations) – keeps no inventory.
 Make-to-order (job shops) – holds minimum inventory and will obtain inventory according
to custom order by client.
 Make-to-stock (batch and repetitive operations) – does planning and control based on
forecasting, safety stock levels and economic order quantities.
 Control must be exercised over financial investment in inventory – saving on interest and
cost.

 Keeping inventory goes hand in hand with certain cost factors such as obsolescence,
interest on capital investment, physical wear and tear, damages, transportation and
insurance.

 Objectives:
" Scientific, factual method to simplify purchases (by using mathematical models) need
to be created.
" Should be reduction in possible losses as result of obsolescence and incorrect or
excessive purchases – good inventory control turnover rates are necessary.
" Dead or slow-moving stock should be identified.
" Inventory control must serve as source of information for management decisions.
" Losses should be prevented by controlling all incoming inventory as regards quality,
quantity and requirements as determined in purchase order – impacts directly on
quality of finished product.
" Excessive variety should be avoided – advantages of standardisation and simplification
must be considered.
" Production should never be delayed because of shortage of certain inventory items –
makes bad impression on customer.
" Ordering most economical quantities through effective control system is essential.
" Internal and external customers should be given good service.
o Carrying Cost:
 Refers to inventory that ties up capital.
 Direct inventory carrying cost elements:
" Two direct-cost components are capital cost (interest or opportunity cost) and holding
cost
" Holding cost – cost involved in renting storage facilities warehouse equipment,
electricity, insurance, security, handling, bookkeeping, warehousing, labour and
damage.
 Indirect inventory carrying cost elements:
" Costs attached to obsolescence, record keeping, physical stocktaking, inventory
planning and control by management.
" Other hidden cost elements – cost of production floor space utilised for work in
process, scrap and rework as well as cost involved in handling and containerisation.
o Cost of Insufficient Stock:

 Refers to cost of running out of stock.
 Operations function will come to standstill if there is no stock available, which implies
standstill in production and loss in sales.
o Ordering Cost:
 Cost which must be incurred to place an order.
 Item may be ordered twice, three time or more per year – or even daily in JIT systems.
 Orders placed twice year – make up 50% of annual demands.
 If orders are to be manufactured internally, cost will consist mainly of machinery set-ups.

o Inventory Timing by Means of Reorder Point (ROP):

 Refers to certain level of stock at which stock must be replenished.
 Safety stock – stock that must be kept to provide for unforeseen circumstances.
 Periodic inventory system – used by restaurant, service stations and other retailers, where
inventory ordered daily or weekly.
 Two-bin system – continuous inventory system often used in small warehouses – as soon as
one bin is empty, an order is placed.
 Calculated according to experience of consumer patterns, rule-of-thumb judgement or by
applying formula.
 Formula also depends on degree of judgement since it incorporates safety stock and
demand patterns.
ROP = D(LT) + SS
ROP = reorder point
D = average demand per time period
LT = average lead time
D(LT) = average demanding during lead time
SS = safety stock
o Material Requirements Planning:

 Plans for various periods in future.
 Also referred to push system.
 Computer-based system that determines when orders should be issued and what planned
orders will be.
o Determining Inventory Quantities:
Lot-for-lot approach Orders must be placed frequently, which results in high ordering costs.
Economic ordering quantity As soon as stock reaches certain level, a fixed order is placed.
Break-even analysis Determines volume at which total revenue is equal to total costs.
Break-even point in units Formula:

fixed costs
units =
price per unit - variable cost per unit
Operations Improvement and Total Quality Management
o Leadership and quality have direct influence on success of business.
o Type of leadership that is applied largely determines whether business will succeed or not.

o True entrepreneurs have innate passion for quality and lead by own example and influential
power.
o They do not need to take cognisance for few import issues:
 Effective and constant communication.

 Creating right attitude and motivation for employees to serve customers to best of their
ability.
 Identifying and developing abilities of employees so that they can contribute to areas in
which they are operationally active.
 Helping employees to understand basic sound of management.
o Good leader – ability to see big picture, to strengthen vision and then inspire employees to strive
for realisation.
o Leaders have big impact on culture of business.
o Leadership hinges on vision, strategy and people empowerment.
o Leadership determines components of quality culture – following are intangible components:

 Behaviour
 Norms
 Dominant values
 Rules of game for getting on
 Climate
o Never-ending Improvement through Total Quality Management:

 Total or holistic approach to quality – refers to quality at source in terms of all resources.
 Three main reasons why it is so popular:
1. Buy-in by employees because it is intuitively attractive to overcome imperfection.
2. Principles make sense unconventionally.
3. Approach to management can dramatically increase operational effectiveness.
 Primarily internally focused for operational excellence – concerned with improvement of all
aspects of operations performance.
 Approach for improving smartness, competitiveness, flexibility and effectiveness of entire
business.
 Removes burden of wasted effort from people's lives by bringing everyone into processes of
improvement so that results are achieved in less time.
o Total Quality Management – Holistic Approach to Quality:

 Quality – needed of both internal customer (business and operation) and external
customer.
 Matters to external customers because they want:
" To be respected and do not want any hassles.
" Product/service that offers value for money.

" Product/service that is reliable and meets all their requirements.

" Product/service that is available on time.
" Product/service that improve their quality of life.
 Main reason and justification for quality – often absent in people's lives and measures are
seeked to restore it.
 One way of obtaining quality = closing quality gaps and applying TQM.
 Quality management is seen in following seven areas:
1. Quality of product.
2. Quality of service.
3. Quality of organisation.
4. Quality of processes.
5. Quality of work-life.
6. Quality of life.
7. Quality of being.
 Quality of product can be defined as:

" Conformance to purchase order.
" Fitness for intended function.
" Degree to which client or customer is satisfied.
" Total composite of product and service dimensions that meets customer's
expectations.
 Holistic quality – product or service condition with multiple quality characteristics – also
managed, obtained or realised in holistic way.
 Holistic quality:
" Not only beautiful product.
" Does not only happen on production floor.
" Not merely inspection.
" Not about improvement techniques.
" Does not only prevent injuries/errors.
 Total = quality's roots and its end.

 Following examples of definitions of TQM:
" Compromises actions needed to obtain world-class quality.
" Business-wide prevention of wastages, defects and injuries and its continuous
improvement of quality.
" Comprehensive, uninterrupted programme to ensure quality throughout business by
placing responsibility for it at source.
 Examples of quality dimensions pertaining to services are as follows:

" Reliability – one can depend on service dimension as expected.

" Responsiveness – willingness of service provider to meet customer's needs when
these needs are expressed.
" Competence – service provider's possession of skills and knowledge to perform
service.
 Following attributes relate specifically to goods:

" Performance – way that product actually operates.
" Features – little extras that go with product and make it unique.
" Reliability – promise that it will perform and keep on performing as promised over
specific time span.
" Conformance – meeting pre-set standards.
" Durability – length of useful life of product (lifespan).
" Aesthetics – physical quality of product.
" Perceived quality – indirect evaluation of quality.
o Maintenance and Replacement:

 Machinery and equipment – subject to degree of war as their moving parts are in constant
use.
 Consequences of defective machinery and equipment are:
" Reduced production capacity.
" Increased production costs.
" Lower-quality products and services.
" Threats to safety.
" Customer dissatisfaction.
 Mixed maintenance strategies are adopted according to circumstances.

 Usually combination of breakdown, condition-based and preventative maintenance.
 Types may also be categorised as follows:
" Corrective maintenance.
" Preventative maintenance.
" Centralised maintenance.
" Decentralised maintenance.
" Sub-contracted maintenance.
o Preventive Maintenance:
 Training of maintenance teams – members of teams must be properly trained so that any
possible failure can be dealt with effectively.
 Determining/predicting possible time of failure – proper records must be kept of intervals
between failures of relevant components so their average lifespan can be calculated.
 Implementing Japanese principle – based on principle that workers accept responsibility
for preventing possible failures.

 Business must try to minimise maintenance cost.

 Can be done by creating proper balance between corrective maintenance and preventative
maintenance.
 Preventative maintenance becomes more expensive than corrective maintenance – amount
of maintenance increases.
 Preventative maintenance can be justified if either of two following conditions occurs:
1. Possible machine failure can be predicted with fair measure of accuracy, so that
machine can be repaired before it fails.
2. Time spent on preventative measure is less than it would take to repair machine
which has already failed.
o Total Productive Maintenance and Improvement:

 Maintenance – part of continuous improvement programme – leads to improvements.
 Maintenance strategy seen part of TQM and total productive maintenance as well as
mechanism to identify improvement opportunities.
 Objective – to maximise plant and equipment effectiveness, to create sense of ownership
for operators and to promote continuous improvement through small-group activities
involving production, engineering and maintenance personnel.
o Safety, Health and Environment Management:

 Increase in production should not be only concern – operations function should also
consider well-being of employees.
o Process Technology Improves Health and Safety:

 Used in production process that can assist adding value to product.
o Good Housekeeping
 Principles:
" Wipe up accidental spills without delay.
" Stack materials neatly.
" Keep cabinet doors and drawers closed.
" Return equipment and tools to their proper place after use.
" Dispose of waste regularly.

CHAPTER 6: PURCHASING FUNCTION
Introduction
o Definition – must ensure that production means of right quality are supplied in right quantities, at
right time, to right place, from right suppliers at right price.
o Meaning – responsible for supplying raw materials or stock that enterprise needs to manufacture
products or to render services.
o Main activities are to:

 Choose suppliers from whom goods or services will be bought.
 Arrange and purchase transportation services for incoming goods.
 Decide on acceptability of purchasing prices and negotiate them.
 Determine quantity of all goods or services to be purchased.
 Determine acceptability of quality of goods or services.
 Expedite delivery of goods or services that were ordered.
 Control inventory of goods.
Importance of Purchasing Function
o Plays important role in helping businesses to achieve main objectives.
o Must effectively manage business's purchases to ensure that there is always enough stock to carry
out activities.
o Responsible for buying all means of production – raw materials, stock, parts, equipment and
machinery.
o Owner should take responsibility doe purchasing or closely control this function.
o Impact of function differs for each business.
o To work out profit: Income – Expenses = Profit.
o Purchasing objectives of right quantity, quality and time ensures that business will receive
required amount of materials and goods when needed for manufacturing or for customers of a
shop (known as JIT Principle).
o In turn, business does not have to carry large inventories.
o Purchasing too much goods = too much money being tied in inventory which results in cash-flow
problems.

o Costs involved in keeping inventories – insurance, risks (obsolescence and theft), warehousing
costs and interest on loans.
o Efficient purchasing can improve business's financial position regarding inventory holding.
o Contributes to successful marketing of business's products.
o Purchasing materials of right quality and price at right time = manufacturer can make final
products available in right quantities, at competitive price, at right time to its clients or market.
o Retail buyer – greater and more direct influence on marketing of goods (merchandise) as
availability of right goods (type, quality, style and brand), at right time and in right quantities are
important considerations in successful marketing.
o Efficient purchasing – facilitate marketing of business's goods and contribute indirectly to profits
through marketing function.
Management of Purchasing Function
o Role of general management – utilise available resources.
o Planning, organising, leading and control = creates prosperity by means of different business
functions.
o Needs of consumers can be satisfied and objectives of business = achieved.
o Managing entails following:
o Planning:
 Purchasing – service function in business and should support overall business planning.
 Setting of purchasing objectives should help realise business objectives.
Business Objectives Purchasing Objectives
To keep current clients. To continue seeking new items that will satisfy
changing fashions and market preferences of
customers.
To move from speciality market to general market. To see new suppliers for new merchandise.
To develop more efficient systems to handle the
greater variety of items, while keeping total
inventory volumes as low as possible.

To develop specific new products. To seek suppliers who will be willing to supply
quality private brand merchandise at lower prices.
To initiate cost-reduction plans. To standardise merchandising lines to more popular,

or profitable, ones and to reduce number of
suppliers.
 Should be conducted in consultation in other functional areas because plans of marketing,

operations and financial functions affect planning of purchasing function.
 Marketing function – plans according to seasons and customer demands.
 Purchasing function – plans accordingly to ensure that materials or products are available
when marketing function stimulates customer demand through marketing efforts, such as
advertising.
 Uses purchasing budget as planning tool.
 Purchasing budget should be synchronised with marketing, financial and operations budget.
o Organisation:
 Small and medium business – purchasing of important items performed by entrepreneur
and less important items would be purchased by clerk.
 Medium to large business with various branches – decision made as to where and by whom
purchasing function is performed.
Description Advantages Disadvantages
 One purchasing function for

whole enterprise.
 Done at one place by
purchasing staff and  Buy in bulk – quantity
manager at head office and discounts.
then delivered to branches.  Extensive process – buy all
 Good relations with
Centralisation  Preferable if materials or requirements for all different
suppliers.
products are of strategic branches.
important of business's  Delivery schedules for
activities. volume orders
 Majority of purchases of
business – made from single
supplier or few suppliers.
 When required raw

materials differ between
branches, it is easier for each
 Each branch has its own branch to buy for its own
purchasing function. needs.
 Every branch has its own
Decentralisation
 Suitable for businesses that  Purchasers have closer policy and procedures.
are geographically dispersed. contact with customers and
with local suppliers.
 Reaction time to customer's
demands is quick.

 Combination of Centralised and Decentralised Purchasing:

" Some materials, products and services are bought on centralised basis and others on
decentralised basis.
" Useful middle source.
" Centralised purchasing function:
 Purchases collective requirements.
 Enters into long-term contracts on behalf of whole business.
 Purchases capital equipment.
 Formulates purchasing and supply policy and strategies.
 Trains purchasers and evaluates their performance of decentralised
purchasing.
" Decentralised purchasing function:
 Provides special needs and small purchases of regional plant or branch.
 Purchasers report directly to plant/branch manager, but operate within
parameters of policy laid down by centralised purchasing authority.
o Control:
 Necessary to determine whether activities are being performed effectively.
 Small business – control performed by owner or manager.
 Following are examples of control points, also known as 'key performance indicators (KPIs)'
– used to assess efficiency of purchasing activities:
" Price performance: By comparing actual prices of goods or services with market
prices; and number of value of discounts negotiated for certain period.
" Supplier performance: By determining number of rejected orders; orders received
late; and number of times it was necessary to expedite orders.
" Timeliness performance: By determining number of orders indicated as urgent;
number of interruptions of operations; and number of purchases lost from being out
of stock.
" Cost savings performance: By comparing costs with those of previous periods; and
expressing administrative purchasing costs as percentage of monetary value of
purchases.
" Inventory holding performance: By calculating inventory turnover; inventory losses
and obsolescence of stock.
" Relationship performance with suppliers: By means of supplier survey; or scrutiny
of supplier turnover.
" Relationship with other functions in business: By monitoring diligent execution of
requests to purchasing function.
" Workload: By looking at number of orders and requisitions.
 Outcome of evaluation can be compared with past performance of business, to other

business units or to other businesses.
 Benchmarking – comparison of performance.

(a) Questions that will be included in evaluation of purchasing management:

 Are the purchasing policies, procedures and practices in order?
 Does the purchasing manager have adequate knowledge and skills to lead the purchasing
function?
 Are training and development plans, procedures and programmes available?
 What are the relationships and cooperation between the purchasing function, suppliers and
the other function of the enterprise like?
 How do suppliers feel about the purchasing function?
(b) Criteria for measuring performance:

 Price
 Supplier performance
 Timeliness
 Cost savings
 Inventory holding
 Relationship with suppliers
 Relationship with other functions
 Workload
Purchasing Activities
o Executed in logical steps, forming cycle – elements of purchasing process or purchasing procedure.
o Some activities are interdependent and executed simultaneously.
o Cycle is dissection of purchasing transaction to show what it consists of, who is involved and
required documentation.
o Both manual and computerised purchasing systems have basic elements.
o Illustration of steps in purchasing cycle:

o Step 1: Development and Description of Need

 Needs for products and services in retail business develops in marketing section –
responsible for sales in stores.
 Manufacturing business and service businesses – need for materials and services develop
mainly in operations function.
 Requisition form – clearly specifies what materials, products or services are required, of
what quality, in what amounts and time by which they are needed.
 Purchasing function – assists other functions draw up clear specifications.
o Step 2: Choice of Suppliers

 Complexity of decision will depend on various factors:
" Whether a contract needs to be entered into.
" Whether a contract already exists.
" Whether it is a new purchase or repurchase.
" Whether standard or special products or materials are required.
 Depending on situation, purchaser will use documents such as:
" Supplier register
" Order forms
" Contracts
" Price lists
" Quotations
" Tenders
 Existing contract and repurchasing situation – purchaser can easily and quickly place order
to meet demands of operations or marketing function.
 New contract and new purchasing situation – determination of present and future
availability of materials is vital consideration in choice of suppliers.
 Supplier must be viable business that will be able to provide needed product, materials or
services at same quality level for duration of contract.
 Determining future availability of products – study of technical, managerial and financial
abilities of suppliers, their progressiveness and past performance is necessary.
 Marketing and operations function – make recommendations about particular supplier, but
final choice rests with purchasing and supply function.
 Final decision based on fair and objective analysis of competing suppliers.
o Step 3: Determining Prices

 Selection of particular supplier for order or contract will only be made if acceptable price is
offered by supplier.

o Step 4: Placing Order or Concluding Contract

 Order and contract – important documents as they clearly spell out to supplier the needs of
business and conditions of purchasing transaction.
 Both parties constitute legally valid contract where which both parties are bound by law.
 Should contain specific conditions for transaction in respect of:
" Quantities
" Quality
" Prices
" Discounts
" Delivery dates
" Customs clearance
Apply only to imported goods
" Exchange rate issues
o Step 5: Expediting and Follow-up

 Administrative task – to determine whether materials are received on time.
 If not – supplier should be reminded by telephone, fax or email that they have not adhered
to terms of contract and that they should make effort to rectify situation urgently.
 If supplier late with deliveries – disrupts operational process in manufacturing business or
leave retailer with empty shelves.
 Can have serious implications for supplier relations and continued or future use of specific
supplier.
 Supplier will make out invoice to purchasing business containing information about goods
that have been ordered and money owed to them upon delivery of goods.
 Invoice will be used as source document for payment of supplier.
o Step 6: Receipt, Inspection and Distribution

 Store (warehouse) reception is purchasing function's responsibility.
 Responsibility includes:
" Checking quantities and condition of materials received from suppliers.
" Signing of delivery notes.
" Compiling inspection reports.
 Materials taken up into inventory in warehouses or distribution to where they are needed
in operations process, on shop floor or display shelves.
o Step 7: Handling Errors and Discrepancies

 Defective materials – communication between purchasing function and suppliers is
required to ensure both prevention of future defective consignments and protection of
good supplier relations.
o Step 8: Paying for Order

 Task involves checking delivery note, inspection report, invoice and order, to confirm that
quantities, quality, price, discounts and calculations are correct.

 To also arrange authorization of payment to suppliers.
o Step 9: Closing Order

 Once supplier has been paid, purchasing function must file all documents pertaining to
particular transaction or incorporate them into system for future reference.
 Important part of evaluation of supplier's performance and constitutes assessment of
purchasing function's performance.
 Most important activities and decisions that form part of any purchasing transaction and
purchasing cycle = finding right supplier, to supply right materials of right quality, right
quantity and at right time.
Quality of Purchased Goods
o Quality – represents features and characteristics of product that has ability to satisfy stated or
implied needs.
o Main decisions in each purchasing transactions are made taking quality, quantity, delivery and
price at which supplier offers its products or services to purchaser/buyer into consideration
(sometimes called value package).
o Materials or products should not be bought if quality is not up to standard.
o Higher the quality, the higher the price.
o Determines number of suppliers – higher required quality, fewer suppliers will there be.
o Influences number if items purchased.
o If higher quality goods are purchased, smaller quantities need to be kept in stock – fewer incoming
goods will be rejected during inspection.
o Incoming goods rejected by inspection may cause out-of-stock situation, with interruption in
production process or empty shop shelves.
(a) What is the right quality?

 Definition:
" Right quality is minimum acceptable quality with which production means must
comply to ensure that final product is acceptable to consumers.
 Meaning:
" Best quality must be supplied at price client is prepared to pay.
" Right quality not necessarily best quality, but quality that fulfils specifications of
operations function
(b) Influence of quality

 Quality of purchased materials have direct influence on quality of final products.
 Quality of final products influences consumers and image of enterprise.
 Will influence sales and ultimately profit of enterprise.
 Users – operations staff of purchased materials.

 Sellers – marketing staff of purchased goods.

 Purchasing function – to check and query specifications and advise users and sellers of
alternative quality materials or products that might be cheaper.
(c) Methods to Describe Quality:

 Specifications
" General method.
" Description of non-standard materials that are able to perform certain functions.
" Can be drawn up according to dimensions or physical features – tolerances,
workability, uniformity and chemical composition.
" Materials or products – typically described by specifications include:
 Raw materials for manufacturing medicine.
 Custom-made furniture.
 Construction materials.
 Confectionery.
 Pre-prepared food.
 Manufacturing equipment.
 Standardisation
" Further aid.
" Process of making materials, methods, practices and techniques uniform.
" Implies that characteristics of items have to comply with specific minimum
acceptable standard.
" Types, sizes and grades of item are limited.
" Can be set by business, particular industry, nationally and internationally.
" Advantages:
 Total inventory can be reduced – fewer kinds and qualities are kept.
 Improves collaboration and communication between internal user and
supplier.
 Industrial and international – allow for mass production of materials which
leads to cost and price reductions.
 Products and materials can be purchased everywhere – increased
competition in market, hence price of product drops.
 Other forms of quality definition:

" Market grades – fruits and vegetable.
" Brands – All Gold, Nike, Koo and Levi's.
" South African Bureau of Standards (SABS) mark – domestic equipment, school
shoes and uniforms.
" Engineering drawings – plans drawn up for construction of factory or bridge.

" Samples – used for toiletries such as perfumes, deodorants, body lotion and
cleaning products.
Purchasing Quantities and Inventory Costs
o Purchasing done in accordance with marketing and operations budget.
o Budgets are based on sales (demand) estimates – not based on real sales figures.
(a) Importance of having stock available:

 Production cannot continue without stock.
 Needs of clients cannot be satisfied.
 Costly to keep stock.
(b) Inventory costs
 Includes administrative costs incurred in ordering, receiving and

inspecting stock.
Inventory Ordering Costs
 Larger purchasing activities – results in fewer order being placed and
decline in ordering costs.
 Storage costs include costs of renting warehouses to keep stock.

 Electricity of warehouses.
 Salaries of warehouse staff.
 Insurance against fire and theft.
 Property tax
Inventory Carrying Costs  Interest on capital.
 Opportunity costs – money could have been invested elsewhere to earn
more income, or storage could have been utilised better, for example to
expand factory or shop.
 Cost of obsolete stock – ageing of stock which cannot be used anymore.
 Larger order quantities cause larger inventory levels and increased
carrying costs.
 Production is lower or stops when enterprise runs out stock.

Cost of Insufficient Stock  Leads to financial loss and buying emergency stock at higher prices is
costly.
(c) Inventory Control

 Inventories should be controlled and kept at level that will ensure lowest total cost to
business with most reliable service to internal users and external customers.
 Quantity of products or materials ordered from suppliers – ensure inventories are kept
at optimum level where total inventory cost is at lowest and possibility of out-of-stock
situation is small.

 Determine optimum stock levels:

" Weigh up costs of keeping stock versus costs of running out of stock.
" Determine from this how much "safety stock" must be kept to provide for
unforeseen circumstances.
(d) Ordering Systems
 Fixed-Order-Quantity System:
" Optimum level for each item in inventory is determined.
" Fixed-order-point and fixed quantity – to be ordered are determined for each
item according to formula known as economic ordering quantity (EOQ).
" Business uses or sells inventory items and inventory levels drop.
" When certain level is reached, fixed quantity of items (EOQ) is purchased.
" After order has been made, business keeps on using or selling units of specific
item and inventory level drops further.
" If EOQ calculated correctly, ordered material will reach business before or when
minimum inventory level is reached.
" Stocks will be replenished to more of less maximum inventory level.
" Advantage – focuses on specific item only when inventory level reaches ordering
point, and same quantity is ordered every time.
" System unsuitable for items whose consumption or lead times are unreliable.

 Cyclical Ordering System:

" Each item of inventory is checked at fixed intervals.
" Order is placed to replenish inventory level to its maximum level.
" Order times = fixed.
" Order quantities = varies.
" Suitable for seasonal materials used on irregular basis but where purchasing of
materials can be planned in advance on basis of forecast.
 Computer-assisted inventory control systems in use – many of them based on above

principles.
 Main aim – to minimise inventory holding.
 Systems include:
" MRP – materials requirements planning in manufacturing firms.
" JIT – just in time.
" QR – quick response.
" AR – automatic replenishment.
" ECR – efficient consumer response in retail firms.
 Involve integrated computer systems and close cooperation of suppliers.

Selection of Suppliers
o Aim of selecting right supplier – establish long-term relationship to ensure efficient flow of correct
materials, products or services to business.
o Existing suppliers with good performance record should receive preference when new contract
has to be concluded.
o New suppliers need to be evaluated to find out whether existing supplier is still competitive when
contract for products or materials need to be renewed.
o Amount of care taken in selection process will be determined by:

 Scope of transaction.
 Availability of materials in supply market.
 Strategic value of materials or services.
 Whether they are standardised or custom-made.
o Latter – refers to items that are made for specific purpose and are not freely available on market
and choice of supplier is extremely important.
o Standardised items are freely available on market.
o Consists of number of steps:

Step 1: Compile list of potential suppliers

Get names of various suppliers from sources such as Yellow Pages, trade magazine, Chamber of
Commerce, etc.
Step 2: Set criteria for evaluating suppliers

List is reduced to short list after, after taking into accounts factors such as location, progressiveness,
general reputation and financial and technical capabilities.
Done by analysing financial statements of supplier, making personal visits and conducting interviews
with staff and management, talking to other clients of supplier and obtaining credit bureau reports.
Suppliers on short list are then requested to give quote, and/or negotiations are conducted with them,
to obtain best value in respect of price, quality, service and delivery.
Step 3: Evaluate and select suppliers

Choose suitable suppliers.
Process of appointing new supplier will be started or one of competitors in previous selection
process may be contacted.
Records must be kept of everytime materials or products are received after due date, whether low
quality or defective items are received and need to be sent back, and how long supplier takes to
respond to orders or request.
Performance records of suppliers will be taken into account when new contract needs to be
negotiated.
Step 4: Monitor suppliers

Follow up - did they keep to terms of agreement?

Purchasing Prices
o Lowest price is not right price.
o Price is intertwined with quality and quantity.
o Total or final cost – decisive factor in awarding orders.
o Value package = price + quality + delivery + cost of use.
o Purchaser should strive to obtain highest value for business.
o Standard products price and supplier's ability to deliver – most important factors for order or
contract with specific supplier.
o Standard products – low value and can be determined through published price lists, catalogues,
brochures and advertisements in trade journals.
o Non-standard products – high value or large quantities and suppliers can be contacted and asked
to give quotation.
o Quotation – quick and can be made by telephone, fax or electronically.
o Open tenders – best method to determine price of contract where products are of high value,
with many possible suppliers involved, long time span and include complicated calculations.
o Purchaser will put advertisement in newspapers and ask suppliers to tender.
o Negotiations:
 Used to determine prices.
 Quotations and tenders also usually follow by negotiations to determine final price.
 Entail personal meeting between purchaser and supplier, with objective of reaching
compromise and concluding deal.
 Purchaser needs to prepare carefully and be knowledgeable about processes involves,
materials required, availability and costs.
 Only justifiable in following cases:
" Transactions in high monetary value.
" Where contract conditions are complex.
" When execution of contract extends over long period.
" Where there is monopolistic situation in supply market.
 When negotiating with more than one supplier, care needs to be taken not to divulge any
information about other competitors.
 Has potential for unethical conduct if care is not exercised.
Timing of Purchases
o Determines price paid for materials.
o Quantity to be purchased is influenced by timing and price.

o Aim – to ensure that business is supplied on ongoing basis with materials, products and services
required for it to operate without interruptions and to keep inventory holding at optimum level.
o Internal policies:
 Availability of funds, marketing and operations plans and strategies determine when
products can be purchased.
 Physical facility such as storage space – influences timing of purchases.
 Determine scheduling of purchases.
 Three policies that principally affect timing of purchases:
1. Scheduling purchases according to needs:
" Entails purchasing materials when business needs them, regardless of price and
market conditions.
" Ideal for purchasing standard materials.
" Sometimes adopted by businesses that purchase in unstable markets.
2. Purchasing in advanced:
" Involves purchase of more materials than required.
" Aim – to ensure future availability.
" Disadvantage – excessively high inventory levels lead to high inventory costs.
3. Minimum purchasing:
" Entails scheduling purchases so that inventory is available only for immediate
needs of business.
" Inventory kept to minimum and no buffer stock is held.
" Normally applied when prices of materials are in downward phase.
" Business runs risk of running out of stock.
o External policies:
 Market conditions – availability, recessions, booms.
 Government regulations.
 Seasons.
 Reliability of suppliers.

CHAPTER 7: HUMAN RESOURCE FUNCTION
Introduction
o Definition: Responsible for procurement, development, compensation, integration, maintenance

and effective use of competent, motivated labour force.
o Meaning: Must ensure that enterprise employs right number and type of employees on
continuous basis, by performing activities such as:
 Planning the need for personnel – process of ensuring that business has right skills at right
time.
 Recruitment – to seek and find potential employees.
 Selection – to choose most suitable person for specific post.
 Employment.
 Orientation – new employees introduced to business, its procedures, work environment
and other employees.
 Maintenance of effective labour force.
o Described as all those activities in business that relate to provision, development and
maintenance of competent and motivated workforce.
o Consists of three primary tasks:

 Provision of personnel – human resource provision.
 Training and development of personnel – human resource development.
 Maintenance of personnel – human resource maintenance.
o All businesses must always have human resource activities which will need to be carried out and
managed.
o Different options for carrying out human resource function in smaller businesses:
 One person may be appointed to handle all human resource tasks.
 One person may be appointed to handle all human resource tasks in conjunction with
another function, such as financial function.
 Entrepreneur could handle it themselves.
 Entrepreneur could make use of temporary employees to handle function.
 Entrepreneur could outsource function.
o Larger businesses – not possible for entrepreneur and line managers to handle all staff matters
effectively themselves and will need expertise and assistance.
o Head of function has various designations:

 Personnel director.
 Personnel manager.
 Manpower manager.
 Human resource manager.

Provisions of Human Resources
o Involve providing right people for positions that need to be filled in order for business to
accomplish objectives.
o Various aspects include:
o Planning:
 Various reasons for employing people – replacing people who resign, business may be
expanding and people needed to handle new technologies that are being introduced.
 When business expands or changes – new position is created, a job analysis of new position
must be done first.
 Human resources manager with relevant people associated with section and position –
determine following details of position:
" Duties
" Responsibilities
" Knowledge
" Skills
" Aptitudes and attitudes
" Outcomes
" Working environment
 Can be done through observation, interviews and questionnaires.
 Based on information in job analysis, job description and job specification are compiled.
 Job description – written document that describes:
" Title
" Purpose
" Duties
" Working conditions

" Relationships of authorities

" Responsibilities relating to specific job.
 Job specification – contains requirements needed by person who will be doing job which
includes:
" Employee characteristics
" Employee qualifications
 Job analysis – process to collect important data about job.
Job Description Job Specification
About job itself and includes following: About qualifications required by person who will
be doing job which include following:
Job status: permanent Qualification: BCom with Accounting and

Financial Management III.
Job title: accounting clerk
Experience: two years in similar position.
Location: administration section
Training: stock control.
Job summary/outcome: manage and attend to all
administrative and financial matters. Physical exertion: count stock on high shelves
(use ladder).
Duties: keep record of accounts, keep books up to
date and calculate ordering and stock quantities. Responsibility: all administrative and financial
matters.
Equipment: computer
Personality: friendly, confident, honest and hard-
Supervisor: UR Boss (entrepreneur)
working.
Job environment: private office with air
conditioner.
Dangers: none
 Job specification used when advertising position – adapts to specific needs.

 Job specification and job description also used for:
" Control purposes where work done is measured against standards set.
" Performance evaluation to determine whether outcomes were reached.
" Promotions to see when employees are doing more than expected.
" Identification of training needs where outcomes are not met.
" Establishment of salary scales when looking at job content.

o Recruitment:
 Entails activities carried out in searching for and inviting potential employees and suitable
people to apply for posts available in enterprise.
 Temporary shortage of staff could be overcome by:
" Having existing employees work overtime.
" Training existing employees.
" Subcontracting and outsourcing certain tasks.
 Decisions and actions should fall within framework of recruitment policy.
Recruitment Type Description
Internal Recruitment  Can only be used if employees with suitable potential are available in enterprise.

 Advertised internally among current personnel.

 Proficiency surveys can be done – training, experience and qualifications of employees are recorded and updated
on file.
 When post becomes available, job specification is compared with surveys to identify suitable candidates.
 Methods include:
 Job posting:
- Includes traditional noticeboards, email-based systems and recruitment systems.
- Positions are advertised internally.
 Self-selection:
- Involves advertising position within business.
- Any employee who meets requirements may apply.
 Proficiency surveys:
- Done on employees within business.
- Their training, experience and qualifications are updated and kept on file; when post falls vacant, job
specification is compared with surveys to identify suitable candidate.
 References:
- Used for internal and external recruitment.
- Current employees recommend their family and friends (often not allowed) for vacant positions.
External Recruitment  Job description will determine job specification of particular post.
 Will determine source.
 Combination of sources may be used.
 Examples of methods and sources:
 Training institution – schools, colleges, and universities.
 Self-presentation – jobseekers present themselves at employment offices.
 Employment agencies – recruit on behalf of businesses, examples are "Careers24", "Jobcrawler.co.za" and
"Affirmative Portfolios" and "EmploySA".
 Professional institutions – include specialised employment agencies such as South African Institute of Chartered
Accountants and "Executive of the web".
 Cost involved in making use of employment agencies and professional institutions.

 Worthwhile to take into account internal costs, time and possible problems incurred by
doing recruitment and selection on own.
 Lower level posts, such as officials, artisans and junior sales staff, could be advertised:
" In local newspaper and on social media such as LinkedIn, Facebook, Twitter and
Google+.
" Advertising on social media – free and can post targeted advertisement on specific
network, engage passive candidates and build brand.
" Specialised periodicals – used to advertise if looking for particular type of employee.
 When middle and higher-level positions are vacant – advertise more widely such as in
weekend newspapers or national periodicals.
 To compile advertisement, following should be included:
" Job title

" Important features of work

" Requirements for successful candidate
" Salary/wage and fringe benefits
" Location
" Application procedure
" Person to whom applications should be addressed
" Brief background and description of business.
o Selection:
 Process in which most suitable person for vacant post is chosen from applicants for post.
 Various methods may be used, each having their own advantages and disadvantages.
 Cost-efficiency should be taken into account.
 Following tools are available:
 Application forms
" Consist of list of general questions aimed at collecting applicants' biographical data
and specific questions regarding requirements of vacant post.
" Enables you to obtain general impression of how suitable applicant is.
" Can determine whether they meet requirements for post.
" Should familiarise yourself with latest legislation regarding issues such as faith, age
and gender.
 Selection interviews
" Discussion between applicant and employer – aimed at obtaining further
information regarding applicant.
" Employer may ask other managers and/or specialists to sit on interview panel to
assist with process.
" Gives applicant opportunity to obtain more information regarding business and job
in question.
 Psychometric tests
" Used to obtain information regarding personality of applicant or to make sure that
information obtained during interview is correct.
" Tests must by law be performed by professionals in field and include personality and
aptitude tests.
 Physical tests and exams
" Done to determine whether candidate meets physical requirements of job.
" Tests also identify possible hidden ailments.
 Background investigations
" Done to check previous employment, credit records and criminal records.
" Extent will be determined by type of job applied for.

" Prospective employees who will be working with money will be checked more
thoroughly.
 Assessment centres
" Job content is investigated and aptitudes and behaviour required of incumbent are
identified.
" Exercises are designed for applicant to do.
" Behaviour of applicant is observed and recorded by trained assessor.
" Gives applicant opportunity to show their specific skills, characteristics and
behaviours.
 Medical examinations
" Now prohibited, unless:
 Legislation permits or requires testing.
 Justifiable in light of medical facts, employment conditions, social policy, fair
distribution of employee benefits or inherent requirements of job.
 References
" Provide information about applicant's job history and are supplied by previous
employers/managers/supervisors.
" Done with applicant's permission.
" Applicant would normally provide references.
 Not same for all businesses and differs according to needs and preferences.
 Most purposes, following steps can be followed:
1. Preliminary Selection Interview
" Determine whether qualification and interests of applicant are suitable for
requirements of position.
" To get overall impression of candidates.
" To provide them with general information about businesses.
2. Application Form
" Designed around specific needs of business.
" Personal information is evaluated and compared with job specifications.
3. Selection Tests
" Type of work determines tests that need to be done.
" Designed to obtain additional information such as:
 Intelligence
 Computer skills
 Personality traits
" Various tests exist for clerical aptitude, vision, interest and intellectual ability.
" Tests done by specialists.
4. References

" Any information that is not yet known can be obtained from previous employers or
referees.
" Referee – person whose name applicant provides and from whom you can obtain
more information on applicant.
" Information can be obtained by phone, email or personal visit.
5. Final Interview
" All information is integrated.
" Aim to clarify uncertainties.
" Candidate given opportunity to ask questions and clarify any uncertainties.
" To determine whether candidate is suitable for vacant position and whether they
would be able to get along with manager and other employees in section.
" To look at applicant and get an overall opinion.
" Past performance – good indication of what to expect in future.
" Prepare following questions:
 Why are you applying for the post?
 How do you view your role in the business?
 How do you see yourself contributing towards making the business more
productive?
6. Medical Examination
" Candidate must be physically suitable for job to be done.
" If problem exists, should be identified in good time.
" High medical claims and absentee figures will thereby be avoided.
7. Final Choice
" Selected candidate – usually one whose qualifications, experience and personality
most likely to match job specifications.
" Be objective and choose someone who can do job.
8. Final Offer
" Make offer in writing.
" In letter include:
 Congratulations
 Starting date
 Salary scale
 Other benefits attached to job
" Applicant must decide within stated time frame whether or not to accept offer.
" Changes are negotiable.
" Conclude contract with prospective employee/candidate.
" Contract contains basic policy and conditions of service of business; working hours,
leave and overtime.
9. Appointment

" When candidate accepts offer – management authorises appointment.

" Human resource section finalises all administrative matters.
Employment and Placement
o Employment:
 Involves not only process whereby new employees report to workplace but also
accompanying administrative tasks that have to be performed.
 Human resource manager – ensure that necessary forms, such as unemployment
insurance, tax and medical aid (where applicable), are completed and that other
outstanding information is obtained from employee.
o Placement:
 Process where new employee is placed in position applied for.
 Occurs when employee is promoted, transferred or demoted.
 Good recruitment and selection process should automatically lead to effective placement.
Orientation
o Process where new employees are introduced to business, its procedures, environment and work
situation as well as co-workers, subordinates and superiors.
o Opportunity to motivate new employees and put them at ease.
o Many benefits for business in long term if new employee understands from beginning of how
business works and how to communicate effectively with their colleagues.
o Needs orientation programme.
o Teaches employee what to do where training teaches employee how to do it.
o Stages of Orientation:
Before new employees arrive  Send general information regarding working hours and dress code.
 Get their office or workspace in order.
 Inform other employees about newcomers.
On first day  Introduce them to co-workers.

 Show them their offices and environment of enterprise.
During first two weeks Introduce employee to:

 Activities of department and how it supports business as a whole.
 Their duties and responsibilities.
 How, where and when employees are paid.

 Working hours, tea-times.

 Leave procedures, dress code, recreation facilities.
During first six months  Monitor new employees.

 Identify training needs.
Human Resource Provision and Law
o Employees in human resource function should be aware of contents of:

 Labour Relations Act
 Basic Conditions of Employment Act
 Employment Equity Act
o Policies and procedures should be adjusted and applied fairly and consistently to all employees.
Human Resource Training and Development
o Training:
 Method whereby employees' working habits and levels of job performance are changed to
make them more effective in their current post.
 Focuses on technical skills that employee needs to be able to perform tasks.
 Aim – to empower person to perform more effectively and as productively as possible.
o Aim of Training:
 To orientate new employees with regard to new tasks.
 To maintain satisfactory performance level in spite of changes in work or technology.
 To improve performance and increase productivity.
o Development:
 Preparation of employees with potential for certain management posts.
 Focuses on experience and skills that entrepreneurs and managers need to perform their
tasks.
 During process – managers or potential managers are groomed to carry out management
task effectively.
o Aim of Development:
 To equip employees with managerial skills so that they can function successfully as
managers.
 To prepare employees for further career development.
 To prepare employees for promotion.
Drawing Up Training Programme
o Determine Training Needs:

 Before training can begin, needs assessment should be done.

 Needs – related to technical, administrative, management or other skills which employees

may require in order to perform duties productively.
 Direct supervisor's responsibility to identify needs.
 Different way to identify training needs:
" Employee is asked:
 To say whether they feel unqualified to carry out task effectively due to lack of
knowledge and/or skills.
 Not scientific method and does not provide long-term needs.
 Practical method – can be used profitably in combination with other methods.
" Interviews:
 Human resource manager conducts interviews with supervisors, key people
and employees in business to ascertain whether any training needs exist.
" Questionnaire:
 Scientific method of ascertaining training needs.
 Results obtained usually comprehensive and based on fact.
" Management by objectives:
 Technique which provides ongoing information regarding work and progress
of employee.
 Should be able to see immediately whether employee needs training or not.
 Specific problem areas that could point to training needs that should be investigated
include:
" Low productivity
" High costs
" Poor quality
" High wastage
" Grievances
" High staff turnover
" Poor discipline
" Rule-breaking
" High absenteeism rate
" Standards that are not being achieved.
o Establish Objectives and Content of Training Programme:

 Write down what you wish to achieve with training.
 Be specific and use standards so that objectives are measurable.
 Difference between what worker is supposed to do and what they can actually do – basis
for training programme.
 Determine whether employees need basic training such as:
" Use of telephone
" To enable them to use new computer programme.

o Determine Suitable Training Methods:

 Decide whether you will make use of lectures, in-service training, videos, case studies or
other methods.
 Decide whether you will instruct, facilitate or do both.
 Can do training internally or make use of external training specialists.
o Present Training or Send Employees for Training:

 Decide whether it is best to carry out training on site or send employees to another venue.
o Evaluate Training Once Employees are Back at Work:

 Determine whether set objectives have been achieved.
 If not, will have to reassess trainer, method, objectives and/or standards.
 Human resource management is not only getting people to work for business and training
them to do well but also keeping them motivated and working productively on continuous
basis.
Human Resource Maintenance
o Activities of business which contribute to making work situation beneficial for employees to
prevent resignation.
o Remuneration:
 What employees receive in exchange for input offered to business.
 Should correspond for same type of in similar businesses and business sectors.
 Necessary adjustments should be made from time to time to keep pace with rising cost of
living and inflation.
 If requirements not met – results in high staff turnover, employees will lack motivation,
unions will be involved in constant wage negotiations and productivity will decline.
 Direct remuneration:
" Salary or wages employee receives.
" Salaries – paid monthly.
" Wages – paid weekly or daily.

" Piece-wage system – employee paid sum of money as soon as specific task or piece
of work is completed.
 Indirect remuneration:
" Pension – some employers contribute to employee's pension.
" Insurance – certain types (e.g. workmen's compensation and disability insurance)
are sometimes supported by business.
" Housing – subsidy, low interest rates or even free housing can be given.
" Transport – various forms of allowances may be given.
" Leave – although Basic Conditions of Employment Act compels employers to allow
employees to take leave, may also be regarded as fringe benefit.
" Profit-sharing – if profit for period is higher than predetermined amount,
management could decide to pay employees certain percentage of profit.
" Not given to all employees – depends on level of post.
 Employee's package = combination of direct and indirect remuneration.
 Value of post must be compared with value of other posts in same business.
 Systems may be determined in various ways but usually done by human resource specialist.
 Remuneration policy is determined and salary scale is assigned to every post in business.
 Examples of salary scales for small business:
Post level Job title Salary scale (per annum)
1 Cleaner/messenger R42 000 – R60 000
2 Salesperson/administrative official R50 000 – R140 000
3 Senior clerk R50 000 – R300 000
4 Supervisor R100 000 – R400 000
5 Co-director R170 000 – R525 000
(a) Guidelines to determining salary:

" Look at salaries of similar posts in other enterprises.
" Do job appraisal – compare value of posts in other enterprises with value of posts in
your enterprise.
" Arrange posts in sequence from lowest to highest level.
" Draw up remuneration policy and attached salary scale to every level.
 Other factors that determine how much employees are paid:
" Supply and demand of labour.
" Business's ability to pay.
" Prevailing minimum wage.
(b) Aspects to consider:

Tax Payslips
 Employees should be registered with SARS. Payslip must contain following information:
 Each employee should have tax number.  Employee's name and address.
 Employer must deduct tax from salaries and  Employee's name and occupation.
pay this to SARS monthly.
 Period for which payment is made.
 At end of financial year (28 Feb) each
 Total salary or wage.
employee should receive IRP5 form.
 Actual amount paid.
 IRP5 form – serves as summary of employee's
income and deductions over past year.  Overtime, if applicable.
(c) Contract workers:

" Characteristics:
 Workers do not work for salary – they are contracted to do certain job.
 Get paid for what they have done – similar to piece-wage system.
 Remuneration is directly related to amount of work done.
" Contract should include:
 Details of service (description of job) or product to be provided.
 Who will provide resources – machines, materials, stock and maintenance.
 Fee structure – how payment will be determined.
 Commencement and completion dates.
 Breakdowns and other hold-ups.
 Indemnity, guarantees, liability and insurance.
" Disadvantages:
 Workers do not have same rights and advantages as employees.
 They do not have paid leave, medical aid, pension and insurance.

o Labour Relations
 Concerned with creation, maintenance, amendment and administration of rules, control
processes, ideologies, interactions and relationships in workplace.
 Involved in regulating and maintaining relationships between employee, employer and
state.
 Important that necessary rules, systems and procedures should be in place to control
multifaceted relationship.
 Three-fold relationship between labour, management and government:
" Labour – human effort which is offered with aim of acquiring income.
" Management:
1. Aims to run business profitably so that it can continue to exist and grow.
2. To utilise available production factors optimally:
* Special attention should be given to labour.
* Ability to control and utilise resource will determine success of
business.
" Government:
 Role differs in every country depending on prevailing socio-economic and
political dispensation.
 Includes providing legislative framework for labour relations.
 Employees are members of union:
" Permanent representation of employees in industry, business or profession.
" Established to regulate matters of economic interest by way of negotiations with
management.
" To improve working conditions and general living standards.

 Employers conclude memorandum of recognition with unions.

 Memorandum includes provisions relating to:
" Grievance procedures
" Mediation
" Safety measures
" Use of noticeboards
" Administration of agreement.
 To make agreement binding – must comply with common law requirements of valid
contract.
 Agreement invalid if provisions clash with labour relations.
 Recognition of union implies agreement, relationship and process.
o Personnel Administration:
 Involves keeping records of personal information and service record of every employee.
 Quality of decisions taken by management with regard to employees depends on
availability and accuracy of information.
 Employees should be familiar with policy of business.
 Policy contained in personnel manual or online on website of business.
 Policy document includes:
" Conditions of service
" Leave codes
" Rights and privileges
" Grievance procedure
" Disciplinary procedure
 Communication with employees is important – advantageous for entrepreneur to discuss or
negotiate any policy or other changes to manual with employees before implementing
them.
o Working Conditions:
 Have substantial impact on employees motivation, morale, attitude and productivity.
(a) Important of good working conditions:

" Pleasant and safe working conditions increase motivation and productivity.
" Unsafe, unhygienic and unpleasant conditions can cause accidents and diseases.
" Bad working conditions can cause increase in absenteeism, decrease in productivity
and lower profits.

(b) Unsafe conditions and unsafe practices:
Examples
Unsafe Conditions  Unsafe constructions

Refers to accidents caused by technical failures.  Sharp or slippery surfaces
 Too many people in work areas
 Lack of protective clothing
 Inadequate ventilation, poor lighting and too
much noise.
Unsafe Practices  Working too fast

Refers to accidents caused by human error.  Working without authorisation
 Working on moving equipment
 Moving in unsafe places
 Refusal to wear protective clothing
(c) Causes of accidents:
Personal Factors Work Factors
 Lack of knowledge or skills  Unsafe conditions

 Physical or psychological distractions  Inadequate working standards
 Incorrect attitude or motivation
(d) Ensuring employees remain healthy and productive:

" Clean workplace, recreation room and cloakroom.
" Sufficient leave, acceptable working hours and little or no overexertion.
" First-aid provision in case of accident or illness.
" Suitable and pleasant workplace.
" Ergonomically designed office equipment, especially desks and chairs.
" Sufficient lighting that eliminates reflection and, where possible, uses natural daylight regulated by
means of blinds.
" Limiting noise – and noise intensity – by isolating machines, pipes, making use of carpeted and
cork floors and/or acoustic tiles.
" Temperature regulation by air conditioning, especially where large fluctuations occur, as excessive
heat results in discomfort and fatigue.

(e) Legislation – general issues:

" Governed by following legislation:
Act: Description
Basic Conditions of Employment  Applies to all employers and working.

 Regulates employment conditions such as:
" Leave
" Working hours
" Employment contracts
" Employment records
" Deductions
" Payslips
" Overtime
" Termination
Compensation for Occupational Injuries and Diseases  Provides for and deals with:
" Injuries
" Disablement
" Disease
" Death caused by work-related activities.
Employment Equity  Aims to promote and achieve equality in workplace by encouraging

equal opportunity for all workers
Labour Market Research and Statistics  Identified need to develop ability to collect, process, analyse and publish
labour-market information and statistics in manner that will report on
how effectively Department is delivering its services.
Occupational Health and Safety  Provides measures to ensure health and safety of all workers in
workplace.
Skills Development  Aims to promote development skills in South African workforce.
Unemployment Insurance Fund (UIF)  Provides funds for workers who may become unemployed.
(f) Subjects covered by legislation:
Subject Description
Maternity Benefit  Basic guide to maternity issues such as maternity benefits, leave and
application procedures.
Registration  Gives guidance on how to register for Skills Department Levy, as trade union
and for UIF.
 Forms for registrations found on website.
Payslips  Explains everything you need to know about payslips.
Annual leave  All information that needs to be known about annual leave for different sectors
in economy.
Accidents  All accident issues, such as compensation for injuries and diseases, as well as
guide to claiming for injuries.

CHAPTER 8: INFORMATION MANAGEMENT
Introduction
o Responsible for collection, processing, analysing, storage and distribution of information.
o Providing information to all internal and external decision makers.
o Deals with establishment of systems, procedures and techniques to collect, classify and process
information and to make it available in usable form such as in report to people who require
information for decision-making and planning.
o Concerned with provision of usable information to all users of information – decision makers.
o Provides service to all other functions of enterprise by supplying information where informed
decisions can be made.
o Entails administrative tasks such as:

 Handling of mail
 Filing
 Telecommunication services
 Printing and copying
 Certain aspects of bookkeeping
 Costing
 Managing budget systems
 Keeping business statistics.
o Size and type of business will determine extend of administrative tasks.
Nature of Information
o Incomplete or insufficient information – leads to wrong decisions, loss of money, time and labour
or failure of enterprise.
o Provision of right information at right time and in right form – essential for survival of enterprise.
o Data – facts in unprocessed form which cannot be used in decision-making.
o Information – data that have been processed, so that it can be used in specific situation (in
decision-making).
o Knowledge – refers to skills, experience and expertise combined with information and intelligence,
that compromises person's intellectual resources.
o System consists of various components that work together to achieve common goal by accepting
inputs, processing them and producing outputs in organised manner.
o Input:

 All relevant data must be collected.

 Raw materials for process that will produce particular output.
 Activity of gathering and capturing raw data.
 Examples include:
" Data
" Knowledge
" Raw materials
" Machinery
" Premises
o Processing:
 Converting or transforming data into useful outputs.
 Making calculations, comparing data and taking alternative actions as well as storing of
data for future use forms part of processing.
o Output:
 Finished product or service created by system.
 Results of processing.
 Can take many forms such as:
" Information
" Products
" Services
o Feedback:
 Refers to information from system that is used to make changes to input or processing
activities.

o Examples of inputs processed into outputs:
Inputs Functional Process Outputs
Bill of materials Inbound logistics Delivery notes

Supplier information Invoices
Quotes Inventory lists
Orders Warehousing schedules
Market research Marketing and sales Marketing strategies

Forecasts Sales plans
Competitive intelligence Promotional plans
Budgets Public relations events
Advertising of vacancies Human resource management Letters of appointment

Shortlisted candidates Job descriptions
Interview findings Salary slips
Personal information Medical aid benefits
Hardware specifications Information technology Asset management

Software installation Depreciation
User manuals End-user trainer
Stages of Processing
o Collection of data:
 Data can be collected inside (internal data) and outside (external data) of business.
 Business has no control over format and type of data available from outside business.
 Data inside business can be collected in specific forms – have control of process inside
business.
 Three aspects to consider:
 Activities for which data must be collected:
" Entrepreneur must decide which activities it is necessary to collect data.
" May include recording sales transactions, payments made and products produced.
 Format:
" Data can be collected in systematic way on predesigned forms.
" Normally, data collected form would include following:
 Name and number of form
 Purpose of form

 Details needed and order in which data must be captured

 Quality and colours used for form
 Ample writing or typing space.
o Processing of data:
 Data must be usable.
 Need to classify, group and sort data.
 Classification – consists of arranging data according to specified characteristic in order to
place it in meaningful groups.
 Can be process mechanically or processed by hand.
 Calculations made by using mathematical principles.
o Storing and retrieving data:

 Information can be stored for long or short periods of time, manually or electronically.

 Manually stored information – held in files specially designed to store hard copies of
documents and are stored in cabinets or on shelves.
 Electronically stored information – usually held in computer system.
 Filing system necessary to be able to locate information when needed.
 Fixed rules should be developed to guide naming and filing of documents.
 Record that has been efficiently created and stored is of little value unless it can be
retrieved when needed.
 Retrieving data – process of locating stored information.
o Distributing information:
 Can be distributed in many ways:
" Telephone
" Talking face-to-face with person
" Letter
" Report
" Electronically
 Information of products include budget and financial statements.
o Discarding information:
 Deliberate destruction of documents or files that no longer have value to user.
 Before destroying information – must determine what retention obligations are.
 Following are normal suggested time periods for retention of records:
" One year – all correspondence (e.g. unsuccessful job applications).
" Five years – salary adjustment schedules, industrial training records, tax receipts,
guarantee documents.
" Six years – cancelled cheques, contracts with clients and suppliers.
" Seven years – all human resource records.
" Ten years – tax receipts sent in by stockbrokers.
" Twelve years – share transactions from listed companies.
" Fifteen years – accounting records and registers.
" Indeterminable period of time – permanent registration documents, personnel
records or senior members of staff.
Information Needs of Business
o When developing strategy – consider information needs from all levels, internally and externally.
o Information needs to be analysed and relevant information incorporated in decision-making

process.
o Information flows vertically and horizontally within business to facilitate decision-making.

o Responsibility of administrative manager to ensure information required by various functions in

business reaches them at right time.
o Information Needs of Top Management:

 Decisions affect entire business – has long-term impact.
 Decisions may include:
" Merging with or acquiring other businesses.
" Opening branches overseas.
" Developing completely new product or service.
" Moving operations to internet.
" Recommending major restructuring of business.
 Relies on direct information:
" To look at changing consumer patterns.
" Trends of income and expenditure involved in product lines
" Impact of new technology, population and other social trends.
 Information enables to make strategic decisions, including counteracting any activity from
competitors that could affect business negatively.
 External information allows entrepreneur to look internally and decide whether business is
properly aligned to face future.
o Information Needs of Middle Managers:

 Receive general directions and goals made by top management.
 Information needed to enable them to assist top management in planning, development
and implementation of policies and to manage individual departments effectively.

 Examples of information needed by functional managers:
Function External Information Internal Information
Marketing  Clients and potential clients:  Strategies of top management

" Numbers  Products/services and their characteristics
" Tastes
 Budgeted and actual sales quantities
" Preferences
" Opinions  Marketing costs.
" Expenditure ability
" Geographical situation
" Markets
" Market segments and needs
 Competitors:
" Their products
" Prices
" Marketing communication
Purchasing  Everything about existing and potential suppliers  Stock levels

 Quality and prices of raw materials and  Rate of consumption
equipment
 Production quantities
 Acquisition costs
 Machine utilisation
 Quality of and availability of other similar
products
Operations  Suppliers and protentional suppliers  Budgeted and actual production quantities
 Different materials and products available for  Production costs
production, and their prices.
 Application of equipment and staff
 Stock quantities required and stock quantities
available
Human Resources  Alternative sources of HR requirements  Staff requirements

 Relevant labour regulations and Acts  Leave
 Trends regarding all facets of labour force  Salary scales
 Salaries paid in businesses in same industry  Conditions of employment
 Training statistics
 HR needs in other functions
 Merit assessment results
 Training needs
Finance  Capital resources and interest rates  Stock levels

 Capital movement  Turnover
 Investment opportunities  Information to calculate financial ratios to ensure
sound financial management
 Creditors and debtors
Public Relations  Interest groups  Products and strategies of business to enable

them to project correct image
 Image of business

o Information Needs of Lower-level Managers/Supervisors:

 Need information to enable them to function on day-to-day basis in order to control daily
operations.
 Useful sources of information which will allow decisions to be made:
" Gantt charts
" Predetermined schedules
" Feedback from supervisors
" Budgets
 Relevant information also given to senior/middle management on weekly or monthly basis
as feedback regarding production, work processes and productivity.
Information Systems
o Timely, relevant and accurate information – important tool for enhancing business's competitive
position in marketplace and to manage all business's resources.
o Support businesses on three levels:

 Formulation and achievement of strategic objectives
 Management of needs
 General business operations.
o Information management systems – relieves management of time-consuming administrative tasks

and allows them time to concentrate on managing business.
o Defined – integrated person/machine unit with set of interrelated components working together
to collect, process, store, retrieve and disseminate information.
o Aim – to support management in achieving objectives.
o Cannot be isolated or separated from human factor or business environment.
o Rest on three pillars:

 Management principles
 Business environment
 Managerial application of technology
Components of Information Systems
o Hardware:
 Refers to physical components of computer used to perform input, processing, storage and
output activities.
 Must handle four functions:
(1) Accept data
(2) Store data and instructions
(3) Process data

(4) Output data and/or information

 Central Processing Unit (CPU):
" Interprets and executes various program instructions.
" Coordinates all other hardware devices.
 Storage Devices:
" Information can be stored on computer's main memory:
 Random access memory (RAM)
 Cache memory
 Read-only memory (ROM)
" Information can be stored on external equipment:
 CD
 DVD
 External hard drives
 Memory sticks
" Cloud – application, services and data storage on internet.
 Input Devices:
" Used to capture information and commands.
" Manual input devices:
 Keyboard
 Mouse and pointing devices
 Touchpad
 Touchscreen
 Game controllers
" Automated input devices:
 Image
 Barcode and biometric scanners
 Optical mark and optical character readers
 Digital still and digital video cameras
 Webcams
 Microphones
 Point-of-sale terminals.
 Output Devices:
" Used to see, hear or accept results of information processing requests such as:
 Monitors
 Printers
 Speakers
 Sound cards
 Communication Devices:
" Used to send information and retrieve it from one location to another – modem or
wireless card.
 Smartphone – has keypad and other features that run programs, music, photos and emails.
 Personal Digital Assistant (PDA) – simple tasks such as note-taking, scheduling
appointments, maintaining address book and calendar – small handheld computer.

 Handheld – portable computer that has own power source or battery.

 Laptop – portable computer that has own power source or battery and are equipped with
all technology that desktop computer has.
 Tablet – computer with flat screen that uses mouse or fingertip for input instead of
keyboard, uses writing pen or stylus to write notes on screen and touch to perform
functions.
 Personal computer (microcomputer) – operated by single user who can customise
functions.
 Desktop – computer that is too large to be carried around and sits on user's desk.
 Workstation:
" Similar to desktop but has more powerful mathematical and graphics processing
capabilities and can perform more complicated tasks in less time.
" Typically used by software and web developers, or people who use engineering and
ebusiness tools.
 Minicomputer (server):
" Designed to meet computing needs of several people simultaneously in small to
medium-sized business environment.
" Used for managing internal business applications, networks and websites.
 Mainframe – designed to meet computing needs of hundreds of people in large business
environment.
 Supercomputers:
" Fastest, most powerful and most expensive type of computer.
" Organisations that are heavily involved with research will use this (e.g. NASA).
" Used by big organisations to handle customer information and transaction
processing.
o Software:
 Refers to sets of instructions that direct hardware to perform particular tasks.
 Generic concept includes:
" Programs – direct and control computer hardware
" Procedures – sets of information processing instructions
 Examples of software that runs on computers, enabling worker to produce more products
and services in certain period of time include:
" Word processors
" Electronic spreadsheet
" Web browsers
" Project management tools
" Collaborative work programs.
 Application Software:

" Set of programs that enable users to perform specific information-processing

activities.
" General-purpose applications – programs that are developed to address specific
needs.
" Example – Microsoft Office Application – enables users to complete particular
application or task such as:
 Word processing
 Investment analysis
 Data manipulation
 Work scheduling
 Project management
 Desktop publishing
 Email
 Groupware
 Spreadsheets
" Application-specific software – consists of programs intended to serve specific
purpose or carry out clearly defined information processing task.
" Example – software designed to carry out payroll processing and managing accounts.
 System Software:
" Enables application software to run on computer and manages interaction between
central processing unit, memory, storage, input/output devices and other
components (such as Microsoft Windows).
" Purpose – to manage computer resources and perform routine tasks that are not
specific to any application, such as:
 Interface between user and computer
 Loading file
 Copying or deleting file
 Managing memory resources
 Operating peripheral equipment – monitors and printers.
" Operating system:
 Interacts with hardware of computer – monitors and sends instructions to
manage and direct computer resources.
 Three basic function – to allocate and manage resources, to schedule use of
resources and to monitor activities of computer system.
 Examples are Linux, MAC OS X, MS DOS and UNIX.
" Software development:
 Allows users to develop own software in order to carry out processing tasks
using programming languages.
" Utility programs:
 Provide range of tools that support operation and management of computer
system.
 Examples: programs that monitor system performance or provide security
controls.
" Developed to work in partnerships with as many applications as possible.
" Applications can work with if they are developed to be compatible with software.

" Important to consider software before hardware.
o Database:
 Collection of related data files that hold data in structured formal.
 Contains facts and information on customers, inventory, employees, sales.
 Data organised to appear to be in one location so that it can be access and used in various
different applications.
 Data can be stored in large data centres, within computers of all sizes, on internet and in
smartphones and small computing devices.
 Concern – how to keep database secure and safe from outside individuals and groups.
o Telecommunication and Networks:

 Telecommunication:
" Refers to electronic transmission of signals for communications.
" Enables businesses to conduct their processes and tasks through effective computer
networks.
" Possible for employees, customers and suppliers to communication whenever
necessary to accomplish their work.
" Can take place through wired, wireless and satellite transmissions.
" Entrepreneurs have to make decisions as to which technologies and services will
enhance performance of business and how best to incorporate them into
information system.
" Can transmit text, graphic images, voice and video information.
 Networks:
" Connect computers and equipment in building around country or world to enable
electronic communications.
" Helps business to connect with customers, suppliers and collaborators.
" Entrepreneur can order raw materials from supplier and keep in touch with customer
needs.
" Disadvantage – installation cost and security and reliability of network service.
" Internet – network of networks that uses universal standards to connect millions of
different networks around world.
 Telephone:
" Used to make cold calls, sell products, provide customer service and negotiate
contracts.
" Number of calls – determines kind and size of system needed.
 Smartphones:
" Combines functionality of mobile phone, camera, web browser, email, MP3 player.
 Faxes:
" Fax machine – scans and digitises words and images on page and transmits them in
analogue for over phone line to another fax machine, which then produces copy – or
facsimile – of image.

" Desktop fax unit – links into phone and allows user to feed hard copies of documents
through machine for transmission to another fax machine.
" Computer fax modems – sends electronic version of document to another computer
or stand-alone fax machine.
" Offer immediate transmission, allowing business to respond quickly to requests,
send orders to suppliers.
 Voicemail:
" Do not receive immediate response.
" Deposited in 'mailboxes'.
" Can be broadcasted to numerous mailboxes simultaneously.
" Replaces short, routine letters such as requests, replies to requests, notices or
announcements.
" Provides information to enquiries for those who do not use computers.
 Conferencing:
" Teleconferencing – electronic communication between two or more people in
separate locations.
" Data conferencing – users at distant locations are able to edit and modify data which
can be text such as word processing documents or numeric data such as
spreadsheets and graphic files.
" Video conferencing – includes televised pictures of participants and can be one-way
or two-way.
 Internet:
" Intranets:
 Used to facilitate communication within business and to manage many
internal processes.
 Gives businesses capacity to provide JIT information to any part of business.
 Acts as resource to employees – can download documents and forms used in
business, check schedules for projects, read updated information about
business and find links to useful websites.
" Extranet:
 Sets up communication channels between business and customers and
suppliers, usually on more 'selective' basis.
 Used for business-to-business communications and transactions such as
sharing product and inventory information.
 Electronic mail (email):
" Significantly reduces telephone bills, cost of postage and secretarial costs.
" Become preferred method of communication.
 Wireless transmission:
" Sends signals through air or space without being tied to physical line.
" Antenna attached to device enables it to send and receive signals.

" Paging system – beeps when user receives message; used to transmit short
alphanumeric messages.
" Cellular phones:
 Uses radio waves to communicate with radio antennae place in adjacent
geographical areas called cells.
 Telephone message transmitted to local cell by cellular telephone and then
passed from antenna to antenna until it reaches destination.
 As cellular signal travels from one cell to another – computer monitoring
signal from cells switches conversation to radio channel assigned to next cell.
 Cellular phone evolved into smartphone resulting in desire for internet access
on devices which includes mobile data networks – 4G and 3G.
" Personal communication services:
 Wireless cellular technology that uses low power, higher frequency waves –
can be used with smaller telephones.
 New models – voicemail, email, faces, save addresses, access private
corporate network, internet access and provides wireless voice transmission.
 Known as smartphones – equipped with web browser software that lets
digital cellular phones or other wireless devices access web pages formatted
to send text or other information suitable for small screens.
" Voice-over-Internet Protocol (VoIP):
 Enables sounds to be converted to digital format for transmission over
internet and then recreated at other end.
 Available over internet to anyone with browser – Skype or Google Hangouts.
" Skype:
 Provides instant messaging services – users transmit both text and video
messages and can exchange digital documents, such as images, text and
videos.
 Makes provision for video conference calls.
" Personal digital assistants – can send and receive email messages and provide access
to internet.
" Bluetooth – wireless networking standard that is useful for creating small personal
area networks linking up to eight devices within 10 square metre area using lower-
power, radio-based communication.
" Instant messaging – allows two or more people to communicate online in real time
using internet and allows them to buddy lists or contact lists which shows contacts
that are logged on internet and available to chat – most popular is Skype.
" Blogging:
 Allows individuals to write commentaries or opinions on any interesting topic
on website so others can read it.
 Updated regularly and allows others to leave comments.
 Microblogging – web application that allows members to report on what they
are doing throughout day.
 Users can send short text updates from phone or web account to followers.

 Can share location and activities.

 Twitter, example of microblogging – source of consumer sentiment that can be
tapped into to improve marketing, customer relations and product
development.
" Cloud computing:
 Offers new ways to store, access, process and analyse information and
connect people and resources from any location where internet connection is
available.
 Users connect to cloud from personal computers or portable devices using
client (web browser).
 Benefits for small and medium sized businesses – no hard drive, software or
processing power is needed.
 Biggest advantage – whenever machine crashes, information hosted in cloud
is safe and always available.
o People:
 Users (end users or clients) – people who use information, e.g. accountants, salespeople,
engineers and managers.
 Information system professionals – people who develop, operate and maintain information
systems, e.g. system analysts, programmers, computer operators and diverse managerial,
technical and clerical information systems staff.
o Procedures:
 Computer-based information systems need strategies, policies, methods and rules to assist
with operation, maintenance and security.
 Would stipulate who has access to information system and when each program should be
run.
Types of Information System
o Transaction Processing Systems (TPSs):

 Basic business systems – serve operational level of business.
 Records daily transactions necessary to conduct business – sales order entry, quality
control, accounts payable/receivable and employee records.
 Examples: payroll, order processing, reservation, stock control and fund transfer payment
systems.
o Decision Support System (DSS):

 Designed for management level of business.
 Used to analyse existing structured information and to allow managers to protect potential
effects of their decisions into future.
 Helps entrepreneurs make decisions that are unique, rapidly changing and not easily
specific in advance.
 Helps find best course of action and answers 'what if?' questions.

 Programmed to process raw data, make comparisons and generate information to help
entrepreneurs glean best when faced with need to make decisions.
 Examples: computer-supported cooperative work, logistic systems and financial planning
systems.
o Management Information Systems (MISs):

 Serves management level – provides entrepreneur with reports and online access to
business's current performance and historical records.
 Serves functions on planning, organising, leading and control at management level.
 Depends on underlying transaction processing systems for data.
 Examples: inventory control, budgeting, management reporting and human resource
systems.
o Executive Support Systems (ESSs):

 Helps senior managers with their decisions.
 They address non-routine decisions requiring judgement, evaluation and insight and where
there are no agreed procedures for arriving at solution.
 Designed to incorporate data about external events such as new tax laws or competitors.
 Also draw on summarised information from internal MIS and DSS.
 Not designed primarily to solve specific problems – designed to provide general computing
and communications capacity than can be applied to range of ever-changing problems.
o Supply Chain Management (SCM):

 Outward facing, focusing on helping business manage relationship with suppliers to
optimise planning, sourcing, manufacturing and delivery of products and services.
 Provide information to help suppliers, purchasing organisations, distributors and logistics
companies coordinate, schedule and control business processes for procurement,
production, inventory management and delivery of products.
o Customer Relationship Management (CRM):

 Focus on coordinating processes surrounding business's interactions with customers in
sales, marketing and service to optimise revenue, customer satisfaction and customer
retention.
Knowledge Management
o Definition – process of identifying, collecting, storing and transforming data and information into
intellectual asset that is available to all staff members.
o Meaning – attempt of enterprise to put procedures and technologies in place to transfer individual
knowledge into databases.
o Type of knowledge within business:
Explicit Knowledge  Processes and procedures.

 Readily detailed in manuals and databases.

 Records of meetings between sales representatives and key customers.

 Procedures for dealing with customer service queries.
 Management reporting processes.
Tacit Knowledge  Includes experience on how to react to situation where many different variables are involved.
 Techniques for sharing knowledge are learning stories and histories.
 Knowing how to react when changes occur in marketplace, such as competitor launching new product
or losing major customer to opposition.
 Knowing how to analyse and respond to information in management reports depends.
 Rely on sharing knowledge with partners outside business or others in different sectors.
o Important dimensions of knowledge:
Knowledge is organisational asset  Intangible asset.

 Transformation of data into useful information and knowledge requires organisational
resources.
 Experiences network effects as its value increases as more people share it.
Knowledge has different forms  Can be tacit or explicit.

 Involves know-how, craft and skill.
 Involves knowing how to follow procedures.
 Involves knowing why, not simply when, things happen.
Knowledge has location  Cognitive event involving mental models and maps of individuals.
 Both social and individual basis.
 Hard to move, situated and contextual.
Knowledge is situational  Conditional: knowing when to apply procedure is just as important as knowing procedure.
 Related to context: must know how to use certain tool and under what circumstances.
o Advantages:
 Fosters innovation by encouraging free flow of ideas.
 Improves customer service by streamlining response time.
 Boosts revenues by getting products and services to market faster.
 Enhances employee retention rates by recognising value of employees' knowledge and
rewarding them for it.
 Streamlines operations and reduces costs by eliminating redundant or unnecessary
processes.
 Preserves organisational memory by capturing and storing lessons learnt and best practices
of key employees.
CHAPTER 9: PUBLIC RELATIONS
Introduction:

o Support of public cannot be bought – must be earned and maintained
o Success and survival of business depend on goodwill of public.
o All businesses have public relations function.
Defining Public Relations
o Definition – aims at creating good image of enterprise among all interest groups.
o Meaning – establishes and maintains good relationship with all people and businesses that have
interest in enterprise.
o Deliberate activity – conscious and purposeful activity of business management, designed to

reach objectives of business.
o Measured – efforts to communicate specific information to public are measured and clearly
defined.
o Planned activity:
 Business should anticipate events and be prepared for problems by having specific plans in
place to deal with crises.
 Refers to public relations being proactive as opposed to being reactive.
o Sustained activity – not one-off event, it is continuous process.
o Fostered activity – focus is to foster climate of understanding between business and its public.
o Maintained activity – business must listen to feedback it gets from its publics.
o Mutual understanding – can be no relationship if different parties do not understand each other.
o Communication process – process of transmitting information from sender to receiver.
o Internet and external – management and employees are regarded as internal publics; external
publics are groups such as customers, financial institutions, unions and media.
o Involves relationship between entrepreneur, business and those people who have interest in
business.
o Relationship is affected by number of factors which includes:

 Way in which business employs and remunerates its staff.
 Attitude of business towards utilisation of resources.
 Replacement and conservation of resources.
 Quality and prices of business's goods or services.

Objectives of Public Relations
o Main objective – to enhance and improve image of business among various publics and to
establish healthy relationship between business and public.
o Goal – to create and maintain mutual knowledge and understanding in business and among
public.
o Primary objective – to promote and improve image of enterprise among public in order to
establish and maintain healthy relationship between enterprise and public.
o Secondary objectives:
 To enhance and contribute to prosperity of business.
 To establish and expand on goodwill among publics that are relevant to business.
 To release information in times of crisis.
 Counteracting negative publicity by practising damage control.
 Handing internal communication.
 Promoting and planning events.
Setting Up Proper Public Relations Objectives:
o Must be realistic, measurable and sustainable – important for objectives to matter and to be
within reach.
o When setting objectives, following results need to be taken into consideration:

 Outputs – refers to results, usually in form of media coverage, press release and special
events.
 Outcomes – achieved as result of outputs and are known as awareness, understanding,
attitudes and behaviour.
 Business results – effects that make direct contribution towards business's goals and
objectives such as increased sales and profit, relate to what happens as result of outputs
and outcomes.
Different Publics
o Definition – people with which business must communicate for it to be successful.

o Meaning – all people that have direct influence on business, such as consumers, community,
employees, media and suppliers.
o Internal publics:
 Found inside business and includes:
" Supervisors
" Staff
" Managers
" Clerks
" Board of directors
" Shareholders
 Most important public – comprised of individuals who determine if business meets its
objectives or not.
 If staff are happy and their morale is high – projects positive image outside of business.
 Communication with employees is important.
 PR based on regular communication with both internal and external publics.
 Employees must know where business is going, what its objectives are, assist with some of
decisions that are made and strive for customer satisfaction.
o External Publics:
 Consumers and customers:
" Businesses must be sensitive to issues of importance to customers.
" Includes religion, gender and cultural matters.
" Important that business understand what customers want – new and old – think
about business, products, atmosphere in store or premises and its staff.
" Business communicates with customers via products, services and advertising and
therefore, that customer does not have opportunity to form negative opinion.
" Bad experience – damage reputation of business and can easily end up on internet.
 Financial institutions:
" Entrepreneur must keep good relationships with inventors in business or with bank
that has financed it.
" May entail keeping parties up to date on financial position of business, strategy that
is being followed and any new developments.
" During recession – discuss problems such as drop in turnover or negative cash flow in
order to keep investors and financial institutions up to date on situation of business.
 Suppliers:
" Important to any business – source of quality products and useful industry
information.
" Both parties must strive for mutually beneficial long-term relationship.
 Media:
" Sometimes referred to as forming part of broader community.

" Relationship is vital.

" Successfully managing relationship with media – assist in positively reporting on
business through radio, TV and press reports.
o Government and local communities – important to business and should be cultivated by

entrepreneur.
o Entrepreneurs have duty to keep their interest groups or potential customers informed so that
they understand intentions of business.
o Entrepreneur must treat these groups fairly and try build up good relationship with them.
o Uniformed public can react negatively to actions taken by companies.
o Potentially explosive situations can be anticipated and defused by supplying public with
information beforehand as to why certain things are done.
o By providing more information on positive factors, public's attitude can be changed.
o Benefits of effective relationships with publics:

 Getting to know customers better – enables business to understand who customers are and
what their needs are.
 Creating value – value created for both parties which ensures mutually beneficial
relationship.
 Customer retention – costly for business to attract new customers than to retain its current
customers.
 Improving loyalty – customer loyalty, employee loyalty and investor loyalty can be achieved
by investing in relationships.
Marketing and Public Relations
Public Relations Marketing
Purpose To promote and improve image of To increase sales in order to generate

business. revenue.
Target Audience Attempts to reach board public and all Primarily targets consumers and
stakeholders in business. potential customers.
Communication Approach Two-way communication approach, One-way communication approach,

building bridges of communication delivering information to consumer.
between business and all stakeholders.
Scope Tactic used to attract consumers to get Mix of activities used to generate
to point of wanting to take action. awareness, trail and purchase of
products/services among target
audience.

Shaping Public Opinion
o Public opinion – collective opinions held by publics about business.
o People view business in various ways.
o Everyone has their own opinion and is not always easy to convince people.
o Many perceptions of business, which differ from person to person and institution to institution.
o Perceptions influence by what others say, or by what they read and hear in media.
o Many negative perceptions come about as result of actions of one or two individuals or because of
particular incident.
o Poor impression that people have of business is result of one or two isolated incidents.
o If ignored, possible for worse scenario to develop.
o Entrepreneur should constantly think about image that business conveys to public.
o Smaller business – entrepreneur has advantage of direct contact with interest groups.
o Client's opinion – determined through promotions and experience but is formed in other ways.
o Favourable image will determine whether:

 New staff would like to join business.
 Business has established and growing clientele.
 Media will give business benefit of doubt in times of crisis.
How Public Opinion is Formed
o Type of relationship:
 Type of relationship that interests groups have with business will determine whether public
opinion is favourable or not.
 If something goes wrong with products, enterprise can warn consumers and withdraw
product and compensate consumers – minimising damage to their image.
o Previous experience:
 Consumers share their experiences with one another.
 Positive experiences will be good advertisements.
 Negative experiences will be bad publicity.
 Negative publicity lasts longer than positive publicity.
o Reception and atmosphere:

 Reception areas (areas in business where customers are received) and behaviour of
employees can create good or bad impression of business.
 Employees must be informed about way in which they should receive and treat clients.

 Visitor to business will form immediate impression of business just by looking at reception.
 If reception us neat, clean and friendly, visitor will have positive view of business.
 Receptionists should be friendly and helpful.
o Communication:
 In form of telephone, calls, emails or personal contact.
 Means of communication that need to be managed by business are:
" Person answering phone usually first point of contact with business and can project
positive or negative image.
" Good telephone manners need to be applied consistently to ensure positive
reactions from both caller and receiver.
" All written communication must be clear and correct in order to convey positive
image.
" Personal contact is extremely important in determining whether business is
successful or not.
" Some pointers may include:
 Know public
 Give customers attention
 Treat everyone equally
 Be helpful and friendly
 Acknowledge mistakes made by business
 Apologise for mistakes and correct errors.
Methods of Communication
o Two-way communication process, consisting of both sending and receiving messages.
o Business communicates with public to introduce new service or product, and receives feedback
from public in form of suggestions, complaints and opinions.
o Communication process involves following eight components:

 Communicator/sender:
" Source of message and person/s responsible for transmitting message.
" Effective communicator must be able to successfully analyse audience to understand
needs and create message that will appeal to them.
 Encoding:
" Process of selecting and organising thoughts and feelings into meaningful systems to
ensure that audience understands what communicator wants to convey.
" Symbols can be verbal or non-verbal.
 Message:
" Contains symbols representing information that communicator wants to convey.
" Three objectives of message are to inform, remind and persuade.

 Media/channel:
" Means by which message is delivered to receiver, which can be either in form of oral
or written communication.
 Decoding:
" Involves translating message from symbols into meaning by receiver.
" Communicating has taken place once receiver has some degree of understanding.
 Receiver/audience:
" Recipient to whom message is directed and who notices and attaches some meaning
to message.
" Communicator must fully understand needs and decoding ability of receiver in order
for message to be conveyed clearly.
 Feedback:
" Verbal and non-verbal response or reaction of receiver.
" Feedback may be positive in form of compliments or negative in form of complaints.
 Noise/barriers:
" Any interferences that may prohibit communication taking place successfully.
o Communication – remains most basic method of promotion for business.
o Allows business to inform, remind and persuade customers to buy product or service.
o Smaller business cannot afford media advertising and uses methods of promotions, examples are:
 Using informal networking mechanisms, where friends and acquaintances tell each other
and other people about business.
 Involving local media to visit business is something newsworthy happens, such as new
process or inviting journalists from local newspaper to grand opening of business.
 Writing and submitting press release or photographs to media for considerations for
publication.
 Key is that piece submitted must be relevant and newsworthy and not just an attempt to
get cheap publicity.
 Using social media as platform to communicate with stakeholders.
o Important to join organisations and associations such as Chamber of Commerce, where

networking can take place with people who have interest in business.
o Can build valuable contacts.

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Chapter 1: Introduction to business management for the entrepreneur

Effective supervision and motivation of employees within an enterprise, refers to as a

Answer: The correct answer is 2

Which one of the following statements is NOT correct?

1) Public enterprises are created to make a profit.

Answer: The correct answer is 1

Chapter 2: The general management function

Answer: The correct answer is 3

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Reasoning: Outsourcing is the process of transferring responsibilities for a specific business

1) The Delphi technique

Answer: The correct answer is 2

Chapter 3: The financial function

Answer: The correct answer is 1

Answer: The correct answer is 4

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Chapter 4: The marketing function

Which one of the following statements is correct?

1) A mission statement is an enterprise’s declaration of its reason for being.

Answer: The correct answer is 1

1) Size of the market

Answer: The correct answer is 4

Chapter 5: Operations management

The primary functions of operations management are:

a) Production planning and control

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b) Product and service design

Answer: The correct answer is 4

Match the term in Column A with the correct description on Column B:

Choose the correct combination:

1) a (ii), b (i), c d (v)

Answer: The correct answer is 3

Chapter 6: The purchasing function

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1) the purchasing manager

Answer: The correct answer is 2

“Monitor diligent execution of requests to the purchasing function.”

Answer: The correct answer is 3

Chapter 7: The human resources function

How can a temporary shortage of staff in an enterprise be overcome?

a) Have existing employees work overtime.

Answer: The correct answer is 2

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Answer: The correct answer is 1

Proficiency surveys form part of the component of human resource provision.

Answer: The correct answer is 2

Chapter 8: Information management

Interview findings can be classified as a/an in the human resource management

Answer: The correct answer is 1

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Answer: The correct answer is 4

1) Customer relationship management system

Answer: The correct answer is 3

Chapter 9: The public relations function