Aims

These are the long-term goals that provide direction for setting objectives. They are often expressed in the form of a mission statement. A typical corporate aim might be 'to become Europes number 1 car manufacturer'. From this aim, a company can set a number of objectives and targets, such as to increase the quality of its products, to improve productivity levels, or to increase the effectiveness of its promotional campaigns.

Contingency planning
This means preparing for unwanted and unlikely possibilities. A business may produce a contingency plan in case of: 1. a severe recession 2. an environmental disaster 3. a sudden strike by its workforce Contingency plans enable a business to be in a better position to manage a crisis, rather than to try and simply cope with it when it occurs.

Corporate objectives
These are the goals of the whole company. These should be based upon the companys aims and mission statement. Each department should then set its objectives based on the corporate objectives. Examples of corporate objectives include: 1. to achieve long-term growth. 2. to diversify the range of products and markets. 3. to maximise profits.

Crisis management
This is the response of an organisation to a crisis (e.g. a fire, terrorist activity, natural disaster). Many companies will have some sort of contingency plan to cater for such situations, but it is rare that the actual crisis will go according to plan. It is likely that the person in charge at the time of the crisis will manage the crisis in a very authoritarian fashion, as he needs to make quick and effective decisions without the time for discussion and consultation with others.

Decision tree

This is a diagram that sets out the various possible options available to a business when it makes a decision (such as an investment) plus the probable outcomes that might result from each option. A decision tree also shows the likely probability of each option occuring and it sets out the likely amounts of money that can be expected at the end of each branch. Essentially, a decision tree shows the average amounts of money that are likely to be received if the decision was taken many times.

Mission statement
This outlines the aims of a business in an attempt to provide a sense of direction and shared purpose for the stakeholders of the business. It often states what the business has done, what it would like to do and the strategies that it will use to achieve its overall aims.

Objectives
These are the medium- to long-term goals and targets of a business. Objectives must be achievable and realistic if they are to be of any use to employees, since an unrealistic objective is likely to act as a demotivator to the workforce. Objectives need to be agreed through consultation with employees, rather than simply being set by the managers and Directors. This gives the employees a sense of belonging and responsibility which is likely to lead to higher levels of motivation and job satisfaction.

Stakeholder
This is an individual, or a group of people, with a direct interest (financial or otherwise) in a business. The main stakeholders are employees, shareholders, customers, the government, suppliers, creditors, pressure groups and the local community. Each group of stakeholders is likely to want the business to achieve a different objective or to follow a different course of action. These differing opinions and views often, inevitably, result in conflict between the stakeholder group and the business.

Strategy
This is a medium- to long-term course of action, which will enable the business to achieve its objectives. The strategy would include what needed to be done, the resources required and the likely timescale involved.

SWOT analysis

This is an investigation into the strengths (e.g. high level of market share), weaknesses (e.g. high gearing), opportunities (e.g. new markets to break into), and threats (eg new competitors entering the industry) that a business is faced with at a specific point in time. Strengths and weaknesses are internal factors which the business has direct control over, while opportunities and threats arise from the external environment and are, therefore, more unpredictable and potentially dangerous.

What if...? questions

Before contingency planning can take place, a business must consider many possible threats and crises that it may face, in order to be able to react to them swiftly and efficiently if they do ever occur. These are often computer-simulated and they can predict to a high level of accuracy the likely effects of a crisis on the finances and resources of a business.

External financing
This means obtaining sources of finance from outside the firm. This can be done in one of three ways: debt (such as loans), share capital, or grants from the Government.

External constraint
This is a factor outside the control of the business, which directly affects the business. The main types of external constraint include consumer tastes, competitors' actions, economic circumstances, legal constraints, social attitudes and pressure group activity.

Flotation
This is the term given to the initial launch of a company on to the stock its shares to the general public.

market, by offering

Franchise
This is a business which is based upon the name, products, trademarks, logos, etc. of an existing, successful business. To obtain a franchise involves the payment of an initial fee plus the ongoing payment of a royalty based on sales revenue.

Franchisee

This is a person or company who has bought a franchise (i.e. the rights to use the name, products, trademarks, logos, etc. of another company (the franchisor).

Franchisor
This is the successful business which will sell the rights to its business name, products, etc. to suitable franchisees. This can be a far cheaper and easier way to expand the company than the alternative of opening more branches itself.

Horizontal integration
This occurs where a firm takes over or merges with another firm at the same stage of production (i.e. the two firms were in direct competition with each-other).

Internal constraint
This is a factor that restricts the business from achieving its objectives, but it is withinthe

control of the business. The main internal constraints are finance, marketing, people and
production.

Internal financing
This is the generation of cash from within the company's resources/accounts. This can be obtained from retained profits, working capital and the sale of fixed assets.

Lease
This is a way of securing and using property for a restricted period of time. When the lease runs out, the ownership of the property returns to the freeholder (the owner).

Leasing
This is a method of securing and using fixed assets (other than property) without the need for the initial cash outlays needed to purchase the asset.

Limited liability

This is the idea that the owners of a company (shareholders) are only responsible for the amount of money that they have invested into the company, rather than their personal assets. Thus if a firm becomes insolvent, the maximum that creditors can receive is the shareholders' initial investment. The word 'Ltd' or 'PLC' appear after the company's name to inform creditors that the business has limited liability.

Management buy-in
This occurs when managers from outside a company buy up the shares and take control of the company. This strategy is pursued if the managers believe that they can run the firm more efficiently than the current management.

Management buy-out (MBO)

This occurs when the managers of a business buy out the shareholders, and therefore own and control the business. The management believe that they can improve the profitability and efficiency of the business.

Merger
This is an agreement between the managements and shareholders of two companies to bring both firms together under a common board of directors. It is also referred to as amalgamation or integration.

Multinational
This is a business organisation which has its headquarters in one country, but has manufacturing plants in many other countries.

Ordinary share
These are purchased in order to have part ownership in either a Private Limited Company or in a Public Limited Company (PLC). At the end of each financial year ordinary shareholders receive a dividend per share that they own, but only after debenture holders, preference shareholders, long-term debt holders and the government (through taxes) have been paid. They are, therefore, often said to have the last claim on the profits of the company. Similarly, if the company becomes insolvent and goes into liquidation, ordinary shareholders are the last group of people to receive any return, after all other debts have been paid.

Partnership

This is a business organisation where two or more people trade together under the Partnership Act of 1890. Most partners in a partnership will have unlimited

liability, which means each partner is liable for the debts of the other partners. Common
examples of partnerships include solicitors, doctors, veterinarians and accountants. Forming a partnership allows more capital to be used in the business than is the case with a sole trader, and the pressures and responsibilities involved in running the business are spread over several individuals.

Preference share
This is a share paying a fixed dividend, which is considerably less risky than an ordinary share. If the company becomes insolvent and goes into liquidation, then preference shareholders would be repaid in full before ordinary shareholders. This is also true of dividends, which are paid to preference shareholders before ordinary shareholders receive theirs. Preference shares therefore carry less risk than ordinary shares, but they also carry no voting rights or rights to a share of the companys profitability.

Primary sector
This is that part of the economy consisting of agriculture, fishing and the extractive industries such as oil exploration and mining.

Private limited company

This is a small to medium-sized business that is usually run by a small number of people (shareholders) and in many cases it is a family run business. The shareholders can determine their own objectives without the emphasis on short-term profits, that are so common among public limited companies.

Private sector
This is that part of the economy which is owned

and controlled by private

individuals and shareholders and is, therefore, out of the governments direct control. The
remainder of the economy is called the public sector.

Public corporation
This is another name for a nationalised industry that is an enterprise owned by the government / state, which offers a product or service for sale.

Public sector
This is that part of the economy which is directly owned and / or controlled by the government / state. The public sector includes public corporations (nationalised industries), public services (such as the National Health Service) and local services (such as swimming pools, street cleaning, libraries, etc.).

Public limited company (PLC)

This is a company with limited liability that has over 50,000 of share capital and a very large number of shareholders. PLCs are the only type of company allowed to be quoted on the Stock

Exchange. These companies have to disclose their annual accounts, are open to take-over
bids.

Prospectus
This is a document which companies have to produce when they go public (ie when they wish to float on the Stock Exchange). It gives details about the company's activities and anticipated future profits. It has to conform to the Companies Act 1985 and be handed to the Registrar of Companies.

Sale and leaseback

This is a contract to raise cash by selling the freehold to a piece of property and then buying it back on a long-term lease. This ensures that the firm can stay in its premises and therefore can carry on trading as if nothing has happened. The money released through this process enables the firm to improve its liquidity position, although its owns less fixed assets than before.

Secondary sector.
This is that part of the economy involved in the making and manufacturing of goods. Over the past twenty years, the UK has seen a large decline in the number of people employed in the secondary sector of the economy, due to firstly a fall in demand for the output and secondly due to the replacement of workers by machines (mechanisation).

Sole trader
This is an individual who owns and controls his / her own business. Common examples of sole traders include corner shops, newsagents and market traders. They have

unlimited liability for their debts and often have little available finance for expansion. They often employ waged workers, yet keep all the profit (after tax) for themselves.

Stock Exchange
This is a market for securities (the collective name for stocks and shares). The London Stock Exchange is one of the biggest in the world after Tokyo and New York. Its main functions are to enable firms or governments to raise capital and to provide a market in second-hand shares and government stocks.

Take-over
This involves purchasing over 50 per cent of the share capital of a company and then being able to exert full control over it. This process is also known as acquisition or integration.

Take-over bid
This is an attempt by a company to buy a controlling interest (i.e. over 50% of the ordinary shares) in another company. This is done by offering the target firm's shareholders a significantly higher price for their shares than the prevailing market price.

Tertiary sector
This is that part of the economy concerned with providing goods and services to customers. It is the largest sector in terms of employment in the UK, accounting for over twothirds of the workforce.

Unlimited liability
This refers to the fact that the owners of certain business organisations (sole

traders and

partnerships) are not limited to the extent of their debts. They will have to sell off their own
assets and use their own personal wealth, if necessary, to meet the debts of their business. If the business debts are greater than their own personal wealth, then the business may be forced into bankruptcy.

Vertical integration
This occurs when two firms join together (through a merger or a take-over) that operate in the same industry, but at different stages in the production chain. Backward verticalintegration

means buying out a supplier (e.g. a car manufacturer buying a components supplier). Forward

vertical integration means buying out a customer (e.g. the car manufacturer buying up a chain
of car showrooms).

Asset-led marketing
This bases the marketing strategy of a business on its existing strengths, rather than on what the customer wants (e.g. Nestle developing a mousse-style dessert, based on its successful Smarties brand).

Base year
This refers to index number data, and it relates to the year that is chosen for comparison with other years (it has an index number of 100).

Confidence level.
This is a measurement of the degree of certainty to be attached to a conclusion which is drawn from a sample finding. The most common type is a 95% confidence level (i.e. the sample findings will be correct for 19 times out of every 20 attempts).

Correlation.
This measures the relationship that exists between two or more variables. A positive (or direct) correlation is said to exist where one variable increases along with the other, and vice versa (e.g. as disposable income per head rises, then so too does expenditure on food products). A negative (or indirect) correlation is said to exist where one variable declines as the other rises, and vice versa (e.g. as the price of new cars falls, demand for new cars will tend to rise).

Extension strategy
This is an attempt by a business to lengthen the product life-cycle for a particular brand. It is likely to be used at either the maturity or early decline stages of the life-cycle. Types of extension strategy include: - redesigning the product - adding an extra feature - changing the price - changing the packaging and advertising

Extrapolation
This means calculating and analysing recent trends, and assuming that these trends will continue into the future. They can then be used to predict, to a reasonable level of accuracy, how a particular variable (such as sales) will change in the future.

Index number
This is a statistical measure which is designed to make changes in a set of data (such as sales figures) easier to manage and interpret. It involves giving one item of data a value of 100 (the base period), and adjusting the other items of data in proportion to it.

Innovation
This means the commercial exploitation of an invention (i.e. altering an invention, so that it appeals to consumers and meets their needs).

Market orientation
This is a strategy that involves researching consumers needs, and then developing new products and processes based around these needs. The main alternative is production orientation, where the business develops products based on its production capability and ignores consumers needs.

Market penetration
This is a pricing strategy for a new product. The product is launched onto the market at a low price in order to build up a strong customer following. This low price aims to steal market share from existing competitors and it deters new competitors from entering the industry.

Market research
This is the process of gathering data on the habits, lifestyle and attitudes of actual and potential customers, with a view to developing products to meet their needs.

Market segmentation
This involves breaking the market down using various criteria, in order to identify distinct groups of customers. The main ways in which a market can be segmented are :

- Demographically (such as occupation or age) - Psychographically (by peoples attitudes and tastes) - Geographically (by region)

Market share
This measures the percentage of all the sales within a particular market that are held by one product or by one company.

Market size
This is the total sales of all the businesses in a particular industry.

Marketing mix
This is often known as The 4 Ps (product, price, promotion and place) and it is the term given to the main variables with which a firm carries out its marketing strategy and meets customers needs.

Marketing model
This is a framework for making marketing decisions in a scientific manner. It is derived from F W Taylor's method of decision-making. The model has five stages. Stage 1 - Set the marketing objective Stage 2 - Gather the data that will be needed to help make the decision Stage 3 - Form hypotheses Stage 4 - Test the hypotheses Stage 5 - Control and review the whole process

Marketing plan
This outlines the marketing objectives normally developed in three stages :

and strategy of a business. The plan is

- carrying out a marketing audit - setting clear objectives for the next year - developing a strategy for achieving the objectives

Marketing strategy

This is a medium- to long-term plan for meeting marketing objectives. A marketing strategy is implemented through the marketing mix (product, price, promotion and place).

Moving average
This is a method of identifying the trend that exists within a series of data. It calculates an average figure for every few items of data - therefore eliminating any fluctuations which may exist, in order to show the underlying trend.

Niche marketing
This is a business strategy that involves identifying consumers needs and providing products to meet these needs in small, lucrative market segments. It is the opposite strategy to mass marketing.

Primary data
This is first-hand

information that is specifically related to a firm's needs.

Primary research
This involves gathering first-hand data that is specifically concerned with a firm's products, customers or markets. It is gathered through questionnaires, observation or experimentation (e.g. test markets).

Product life cycle

This theory states that all products follow a number of stages during their commercialisation (introduction, growth, maturity, saturation and decline). Each product will pass through these stages at different speeds.

Product portfolio
This refers to the range of products produced by a business. This portfolio should range over a variety of markets and a variety of stages in the product life cycle. One way of analysing the product portfolio of a business is through the Boston Matrix.

Qualitative research

This is detailed research into the motivations behind consumers attitudes and behaviour. It is carried out through interviews and discussion groups.

Quantitative research
This means carrying out research into consumers buying habits, trying to investigate such issues as a product's consumer profile, likely levels of sale at different price levels, and predicted sales of new products.

Quota sample
This involves segmenting the population and interviewing a given number of people in each segment, according to their demographic characteristics

Random sample
This involves giving every person in the population an equal chance of being interviewed to find out their tastes, shopping habits, etc.

Retail prices index (RPI)

This shows changes in the price of the average person's shopping basket. The RPI is the main measurement of inflation in the UK and is calculated through a weighted average of each month's price changes.

Sample
This is a group of people who are chosen to take part in a market research campaign. Their views and opinions are assumed to be representative of the population as a whole.

Secondary data
This is market research information which is collected from second-hand sources (e.g. reference books, company reports, or government statistics).

Stratified sample
This is a method of sampling that interviews people from a specific subgroup of the population, rather than from the population as a whole. This method of sampling would be chosen buy a

business if the buyers of its products fell into a certain age-group or geographic area, rather than being spread across the whole population.

Test market
This is the launch of a new product within a small geographic area (rather than nationally), in order to measure its potential sales and profitability. This reduces the risk and the costs associated with a national failure.

Value added
This is the difference between the cost of the raw materials / inputs and the price that customers are prepared to pay for the final product (i.e. value added = selling price bought-in goods and services).

Advertising
This is a method of promotion that a business has to pay for. It is carried out through a variety of mediums, such as television, newspapers, magazines, cinema or radio. Advertising is either informative (making the market aware of the product / service) or persuasive (trying to entice customers to buy the product / service).

Advertising elasticity
This measures the effect on the demand for a product, following a change in advertising expenditure. It is calculated by the formula :

If a large fall in advertising expenditure lead to just a small fall in quantity demanded, then the product would be advertising inelastic.

Advertising Standards Authority (ASA)

This is an organisation which monitors advertisements in print (i.e. magazines, newspapers, posters) in the UK and ensures that they are fair, true, decent and legal.

Advertising strategy

This is the way that the business attempts to achieve its advertising objectives. The advertising strategy will usually state the necessary finance that must be available and the relevant media to be used.

Branding
This means creating a name those of competitors.

and identity for a product which differentiates it from

Brand leader
This is the product (brand) which has the largest market share in a particular industry. It is often in the Maturity stage of the product lifecycle and due to its brand loyalty, it can have a high retail price.

Brand loyalty
This is where customers are happy with their purchase of a particular product, and will return to purchase it again in the future.

Consumer durables
These are products which are purchased by households, and are likely to last for a considerable period of time (e.g. televisions, cars, ovens, video-recorders, etc).

Contribution per unit

This is selling price minus variable costs per unit. The remaining money contributes towards covering fixed costs.

Cost-plus pricing
This means arriving at the selling price for a product by adding a profit mark-up to the total costs per unit.

Direct mail
This refers to promotional material that is sent directly to certain homes and addresses, which are selected from a list of known customers (e.g. Britannia Music Club).

Direct marketing
This refers to promotional activities that involve the business making direct contact with potential customers (e.g. direct mail and door-to-door selling).

Distribution
This refers to the process of getting the products from the factory to the customers.

Distribution channels
These are the stages involved in getting the product from the factory to the customers (e.g. wholesalers and retail outlets).

Income elasticity
This measures the effect on the demand for a product, following a change in the income of customers. It is calculated by the formula :

If a large fall in income leads to a small fall in quantity demanded, then the product would be income inelastic.

Loss leader
This term refers to a product which has its retail price set at a level which is less than its costs of production. This strategy is often used by multi-product businesses, which hope that customers will buy their loss leader product, as well as a range of their other products which carry a significant profit margin.

Marketing
The business function which involves getting the right product to the right place, at the right price, using appropriate methods of promotion, and doing it profitably. It is often pre-empted by carrying out extensive market research, in order to discover the customers needs and wants.

Marketing mix

This term refers to the four main marketing strategies through which a business will attempt to achieve its marketing objectives. These are often known as the 4 Ps (product, price, promotion and place).

Market penetration
This is a pricing strategy for a new product, designed to undercut existing competitors and discourage potential new rivals from entering the market. The piece of the product is set at a low level in order to build up a large market share and a high degree of brand loyalty.

Packaging
This refers to the colour, shape and presentation of the product and its protective

wrappings. This is an important element in the promotional mix that a business chooses,
because packaging can create a Unique Selling Point (U.S.P) for a product.

Predatory pricing
This is a pricing strategy which involves a business setting a price for a product at such a low level that their competitors are either forced to leave the market or, more seriously, are forced out of business.

Price discrimination
This is a pricing strategy which involves a business charging different

prices to different

people for the same product or service. This strategy aims to maximise the sales revenue of the
business, by charging a higher price to those groups of customers who have a low elasticity of demand, and charging a lower price to those groups who have a high elasticity of demand. For example, the train companies charge a high price early in the morning to commuters, and a lower price several hours later for other members of the public, for the same distance and journey from London to Birmingham.

Price elastic
This refers to a situation where a given percentage change in the price of a product results in a larger percentage change in the level of demand for it (e.g. luxury products such as cars, holidays, dishwashers, etc). These products are considered to be price sensitive, since even a small rise in price can result in a large fall in demand.

Price elasticity
This measures the effect on the demand for a product, following a change in its price. It is calculated by the formula :

If a large fall in the price of the product leads to a small fall in quantity demanded, then the product would be price inelastic. An answer of more than one indicates that the demand for the product is price elastic. An answer of between zero and one indicates that the demand for the product is price elastic.

Price inelastic
This refers to a situation where a given percentage change in the price of a product results in a smaller percentage change in the level of demand for it (e.g. necessity and habit-forming products, such as milk, newspapers, alcohol and tobacco).

Price leader
This is the term used to describe a product or brand which is a dominant force in the marketplace and it can set its price at any level it chooses. The price that is set by competitors will therefore be dictated by the price leader.

Price taker
This is the opposite to a price leader. It refers to the products of a business which are not marketleaders, and therefore they have to set their price based upon the level set by the dominant product in the market place.

Price war
This refers to a situation where two or more businesses lower their prices in an attempt to win sales and market share from each-other. Price wars are most likely to start in very competitive markets, where the growth potential is very high and consumer sales are very lucrative (e.g. the supermarket industry Tesco and Asda). Consumers are the only group who really benefit from a price war in the short-term, since they pay lower prices. However, if the price war results in one or more of the competitors becoming unprofitable and being put out of business, then the consumer may be faced with less choice and higher prices than before the price war started.

Pricing methods
This refers to the different ways that a business can decide on the price(s) to charge for its product(s). The main pricing methods are :

- Mark-up pricing (adding a fixed percentage of profit to the direct production costs or
total variable costs).

- Cost-plus pricing (adding a percentage of profit to the full cost per unit). - Competitive pricing (setting prices based upon the existing businesses in the
marketplace).

- Skimming (setting the price at a high level, to reflect the innovative nature of the product or
to cover the high costs of production).

- Penetration (setting a low price level, to undercut the existing competitors and build up a large market share). - Psychological pricing (this means setting the price for a product at a level based on the
expectations of the consumer. For example, 9.99 instead of the 10 threshold, or 99 instead of the 100 threshold).

Product development
This is a strategy of bringing new products to the marketplace. It can either involve making slight improvements to existing products, or by developing and launching totally new products. The objectives of product development include to increase sales revenue, to increase market share, or to defend a brand leader by making it even better than the competitors products.

Product differentiation
This is the perceived difference(s) that consumers believe exist between one product and its competitors. A product with a high degree of differentiation can be sold at a high price, therefore yielding a high profit-margin.

Sales promotion
This is a promotional strategy designed to boost the sales of a product in the short-term (using such tactics as a price discount, free products, competitions, discount coupons, etc).

Skimming
This is a pricing strategy for a new product, designed to create an up-market, expensive image by setting the price at a very high level. It is a strategy often used for new, innovative or high-tech. products, or those which have high production costs which need recouping quickly.

Average rate of return (ARR)

This is an investment appraisal technique which calculates the average annual profit of an investment project, expressed as a percentage of the sum of money invested.

Break-even chart
This is a graph showing the total revenue and the total costs of a business at various levels of output. It is a form of Management Accounting and it enables a manager to see the expected profit or loss that a product will face at different levels of output.

Break-even point
This refers to the point on a break-even chart where the total revenue (T.R) of a business (or product) is equal to its total costs (T.C). It can also be calculated mathematically by using the following formula :

Budget
This is a financial plan for the forthcoming year, that is drawn up to help a business achieve its objectives. It covers aspects such as sales, production expenses, etc.

Budgetary control
This refers to the system of regular comparison of budgeted figures (for revenue and expenses) with the actual outcomes. Any differences between the budgeted figures and the actual outcomes are known as variances these need to be investigated and the reasons for their existence must be established.

Contribution
This is total revenue minus total variable costs. The remaining figure is called contribution because it contributes towards covering fixed costs and, once these are covered, it contributes towards profit.

Contribution per unit

This is the amount of money that each unit that is sold contributes towards covering the fixed costs of the business. Once the fixed costs are covered, all extra contribution is profit.

Cost centre
This is a department or a division of a business to which certain costs can be allocated (e.g. wages and salaries, telephone bills, etc).

Direct cost
This is a cost which can be attributed to the production of a product, and it will vary in direct proportion to output (e.g. raw materials and wages of production workers).

Discounted cash flow (DCF)

This is an investment appraisal technique which discounts the monies that the business will receive in future years from a certain investment project, in order to give a present-day value for each years return.

Fixed costs
These are costs which do not vary with output, and would be incurred even when output was zero (e.g. rent, loan repayments, salaries).

Fixed costs per unit

These are total fixed costs divided by the number of units produced. They are often referred to as average fixed costs.

Indirect cost
This is a cost which is not directly attributable to production (e.g. managers salaries, mortgage payments, or rent). These costs are often referred to as overheads.

Indirect labour
These are those employees such as office and cleaning staff who are not involved directly in the process of production or customer service.

Net present value (NPV)

This is an investment appraisal technique which calculates the total of all the years discounted cash flows, minus the initial cost of the investment project. If the resulting figure (the NPV) is positive, then the project is viable and should be undertaken.

Payback period
This is an investment appraisal technique which estimates the length of time that it will take to recoup the initial cash outflow of an investment project.

Profit
This is the amount of revenue that remains for a business or a product, after all costs have been deducted (i.e. profit = total revenue total costs).

Profit centre
This is a department or a division within a business which operates produces its own annual profit and loss account.

independently and

Safety margin
This is the number of units of output that the business produces above business would make a loss. It is calculated by the formula :

its break-even

point. It represents the number of units that the production level could decrease by, before the

Margin of safety = Current output level Break-even output level.

Variable cost
This is a cost which varies directly with the number of units that the business produces (e.g. raw materials, wages of production workers, and electricity bills). In other words, as the level of output increases, then so too will the variable costs that the business has to pay.

Variable cost per unit

These are the total variable costs divided by the number of units produced. They are often referred to as average variable costs.

Variance
This is the difference between the actual

results of the business and the figures that the

business budgeted for the year (e.g. sales, wages, advertising costs, etc). Positive (i.e. favourable) variances occur where the actual amount of money flowing into the business is more than the budgeted figure, or where the actual amount of money flowing out of the business is less than the budgeted figure. Negative (i.e. unfavourable) variances occur where the actual amount of money flowing into the business is less than the budgeted figure, or where the actual amount of money flowing out of the business is more than the budgeted figure.

Zero budgeting
This is where a budget is set to zero for a given time-period, and the manager of the particular division or department then has to justify any expenditure which he wishes to make. It is often used in an economic recession or a downturn in the industry, when money is not as readily available.

Asset
This is an item that a business owns it can either be a fixed asset (owned for more than 12 months) or a current asset (owned for less than 12 months).

Assets employed
This is the present value of all the assets

of the business minus current liabilities.

Balance sheet
This is a snapshot at a given point in time, showing the assets, liabilities and capital of a business. It essentially shows the net worth of a business

Capital employed
This is the total of all the long-term finance of the business. Essentially it shows where the business raised its money from (loans, share capital and reserves). Capital employed equals assets employed.

Capital expenditure
This is expenditure on items buildings, vehicles, machinery).

of capital and new fixed assets (e.g. land and

Cash flow forecast

This is a Management Accounting document which outlines the forecasted future cash inflows (from sales) and the outflows (raw materials, wages, etc) per month for a business.

Cash flow statement

This is a Financial statement which shows the cash inflows and the cash outflows for a business over the past 12 months.

Cost of sales
This is often referred to as Cost of goods sold. It represents the direct

costs of

manufacturing a given level of output.

Creditors
These are any monies which the business owes to its suppliers, which will be settled within the next 12 months (e.g. payment for raw materials purchased on credit).

Current asset
This is an item that a business owns for

less than 12 months (e.g. cash, debtors, stock).

Current liability
This is an item that a business owes to an external body, which will be settled within

12

months (e.g. creditors, overdraft, corporation tax to the Inland Revenue).

Debtors
These are the people who owe goods on credit).

the business money (e.g. customers who have purchased

Depreciation
This is the fall in the value of fixed assets, either due to their use, due to time, or due to obsolescence. Essentially, depreciation divides up the historic cost of a fixed asset over the number of expected years that it will be used by the business.

Dividends
This is the total amount of profit after tax that the business will issue to shareholders at the end of the financial year. The remainder of the profit after tax will be retained in the business for re-investment.

Fixed assets
Items of a monetary value which have a long-term function and can be used repeatedly. These determine the scale of the firm's operations. Examples are land, buildings, equipment and machinery. Fixed assets are not only useful in the running of the firm, but can also provide collateral for securing additional loan capital.

Gearing

This measures the proportion of capital employed that is funded by long-term liabilities (e.g. loans, mortgages, etc). It is calculated by dividing long-term liabilities by capital employed and multiplying by 100.

Gross profit
This is the sales revenue of a business minus the cost of sales (i.e. minus the direct costs incurred in manufacturing the products which have been sold).

Gross profit margin

This is the gross profit figure expressed as a percentage of the sales revenue figure. It shows the proportion of sales revenue that remains after all direct costs have been accounted for.

Historic cost
This is the original

price which was paid for an asset.

Intangible assets
These are fixed assets which are not physical (e.g. brand names, goodwill, patents). They are of long-term value to the business and will exist for more than 12 months.

Liquidity
This is the ability of a business the acid-test ratio can measure this.

to meet its short-term debts. The current ratio and

Liquidity crisis
This refers to a situation where a business does not have enough liquid resources (i.e. cash) to meet its current liabilities and short-term debts.

Net assets
This is fixed assets + current assets current liabilities. It is often used instead of the term assets employed.

Net current assets

This is also referred to as working capital and it is calculated by deducting current liabilities from current assets. It represents the finance that is available for the day-to-day running of the business.

Net profit margin

This is the net profit figure expressed as a percentage of the sales revenue figure. It shows the proportion of sales revenue that remains after all expenses have been accounted for.

Profit and loss account

This is a financial statement listing all the revenues and expenses of a business over a period of time (normally 12 months).

Reserves
These consist of retained profit from previous trading periods and any increase in the value of fixed assets such as land and buildings, which form part of the long-term capital of the business.

Revenue expenditure
This refers to any expenditure on all items other than fixed assets (e.g. raw materials, wages, utility bills, etc). These are usually day-to-day expenditure that the business incurs when it tries to create sales revenue.

Shareholders' funds
This is the capital invested by the shareholders plus the reserves which have been accumulated over the years. It represents the total capital which the shareholders have a claim on within the business.

Straight-line depreciation

This method of depreciating a fixed asset charges an equal expected useful life.

amount to each year of its

Window-dressing
This is a form of creative accounting and it involves presenting the accounts of a business in such a way as to flatter its financial position.

Working capital
This is the day-to-day

finance that is needed for running a business. It is also referred to as

net current assets and it is calculated by deducting current liabilities from current assets. Working capital is used to pay for expenses such as wages, raw materials and utility bills.

Acid test ratio

This measures the ability of a business to meet its short-term debts. It is calculated by dividing current assets minus stock by current liabilities.

Asset turnover
This measures the ability of a business to generate sales revenue from its assets. It is calculated by dividing sales revenue by net assets.

Current ratio
This measures the ability of a business to meet its current debts. It is calculated by dividing current assets by current liabilities.

Dividends
This is the total amount of profit after tax that the business will issue to shareholders at the end of the financial year. The remainder of the profit after tax will be retained in the business for re-investment.

Dividend cover

This is the number of times that the dividend that has actually been paid to shareholders could have been paid out of the profit after tax.

Dividend per share

This is the amount of profit after tax that each shareholder will receive per share that they hold at the end of the financial year.

Dividend yield
This is the dividend per share expressed as a percentage of the current market price of the share. It provides a figure which can be compared with other forms of investment, to see if the yield from the shares is worth the risk of investing the money.

Earnings per share (EPS)

This is the amount of money per share that each shareholder could receive, if the business decided to give all the profit after tax to the shareholders. It is calculated by dividing the profit after tax by the number of ordinary shares.

Gearing
This percentage measures the proportion of capital employed that is funded by long-term liabilities (e.g. loans, mortgages, etc). It is calculated by dividing long-term liabilities by capital employed and multiplying by 100.

Gross profit
This is the sales revenue of a business minus the cost of sales (i.e. minus the direct costs incurred in manufacturing the products which have been sold).

Gross profit margin

This is the gross profit figure expressed as a percentage of the sales revenue figure. It shows the proportion of sales revenue that remains after all direct costs have been accounted for.

Net profit margin

This is the net profit figure expressed as a percentage of the sales revenue figure. It shows the proportion of sales revenue that remains after all expenses have been accounted for.

Price: earnings ratio (PE ratio)

This is a measure of the confidence that the City has for the shares of a particular company. It is calculated by dividing the current market price of the share by the earnings per share figure.

Return on capital employed (ROCE)

This is the profit of the business expressed as a percentage of the capital employed figure. It is often referred to as the primary efficiency ratio, and it basically relates the profit to the size of the business.

Stock turnover
This is a measure of the time that a business takes to sell its stock. A supermarket will have a high stock turnover ratio, since it sells many goods on a day-to-day basis. Whereas a retailer such as Dixons will have a much lower stock turnover, since it does not sell its stock as quickly. It is calculated by dividing the cost of sales by the stock figure.

Automation
This is the replacement of workers with machinery. Machines have several advantages over workers, such as zero rates of absenteeism and sickness, and a constant productivity rate which can be used for 24 hours a day.

Benchmarking
This refers to a business finding the best methods and processes that are used by other businesses, and then trying to emulate these in order to become more efficient in its operations.

British Standard 5750 (ISO 9000)

BS 5750 was the most common quality certification in the UK it is now known as ISO 9000, which is an international standard which tells customers that a business has reached a required level of quality in its products and processes.

British Standards Institution (BSI)

This is the body that is responsible for setting quality and performance standards in industry. The BSI kitemark on a product implies to customers that it has been manufactured and produced to a high level of quality.

Buffer stock
This is the minimum stock level which will be held by a business to meet any unexpected occurrences (e.g. a sudden large order from a customer or, deliveries of raw materials not arriving on time)..

Cell production
This method of manufacturing an item organises workers into cells within the factory, with each cell comprising several workers who each possess different skills. Each cell is independent of the other cells and will usually produce a complete item.

Computer aided design (CAD)

This is the use of sophisticated computer software to design 3-dimensional images of products quickly and relatively cheaply.

Computer aided manufacture (CAM)

This is the use of computers for a wide variety of production tasks, including automated production lines and stock control systems.

Just-in-time (JIT)
This is a method of manufacturing products which aims to minimise the production time, the production costs and the amount of stock held in the factory. Raw materials and supplies arrive at the factory as they are required, and consequently there is very little stock sitting idle at any one time. Each stage of the production process finishes just before the next stage is due to commence and therefore the lead-time is significantly reduced.

Kaizen

This is a Japanese word which means continuous improvement. It is widely held that any aspect of the business can be improved not just the production processes.

Lead-time
This is the amount of time between a business receiving an order from a customer and the delivery of the finished product to the customer.

Lean production
This term refers to a range of cost, time and waste-saving measures used by Japanese manufacturing firms. These include just in time, shorter lead-times, Kaizen, benchmarking and cell production

Quality assurance
This term refers to the attempt to achieve customer satisfaction, by ensuring that the business sets certain quality standards and publicises the fact that these standards are met throughout the business.

Quality circle
This is a group of workers that meets at regular intervals in order to identify any problems with quality within production, consider alternative solutions to these problems, and then recommend to management the solution that they believe will be the most successful.

Quality control
This is the process of checking the quality and the accuracy of raw materials and the finished products. This is usually carried out either by quality inspectors or by the employees themselves.

Reorder level
This is the minimum amount of stock that a business will hold before it re-orders some from its suppliers.

Stock control

This is the system used to ensure that the business always has sufficient stock available to meet customer requirements it focuses on four key variables : re-order levels, re-order quantities, buffer stocks and lead times.

Stock rotation
This is the process of ensuring that the older batches of stock are used first.

Total Quality Management (TQM)

This is the attempt by a business to stop errors occurring at all levels within the organisation, and to try to encourage all employees to make quality paramount within their daily activities (whether in production, marketing, personnel, etc).

Zero defects
This is the ultimate objective for a business producing every product with no defects, therefore eliminating waste and the time taken to correct mistakes. Zero defects can lead to an improved reputation and increasing levels of both sales and profitability.

Batch production
This method of production involves the manufacture of an item being divided into a number of small tasks. A collection (or batch) of items each have one of these tasks completed, and then the batch moves onto the next manufacturing task.

Capital intensive
This means that the manufacture of an item relies heavily on machinery (e.g. computer-operated robotic systems) rather than on labour. Industries which are capital-intensive include car manufacturing and oil extraction.

Cell production
This method of manufacturing an item organises workers into cells within the factory, with each cell comprising several workers who each possess different skills. Each cell is independent of the other cells and will usually produce a complete item.

Critical activity

This is an activity which is on the critical path. If this activity is delayed, then the project will not be able to be completed on time.

Critical path
These are the activities that must be completed in as little time as possible, in order that the duration of the project can be minimised. The critical path can be found by identifying the activities that have no float time. These activities must be closely supervised, since any delay will delay the completion of the project.

Critical path analysis

This is a way of showing how a lengthy and complex project (e.g. a building project) can be completed in the shortest possible time. The project is broken down into a number of separate activities, and each activity is then placed in the correct sequence, so to minimise the duration of the project.

Diseconomies of scale
This refers to a situation where a business becomes inefficient in its production methods and the long-run average cost (i.e. the cost per unit) starts to rise.

Division of labour
This means breaking down the production of an item into many small, repetitive tasks, with each task then being completed quickly by a single worker (or by a small group of workers). As each worker is specialising in just one small task, then he/she should become very efficient and his/her productivity level should rise.

Economies of scale
This refers to a situation where a business becomes more efficient in its production methods and the long-run average cost (i.e. the cost of making each unit) starts to fall.

Float time
This refers to the amount of spare time that is available to complete an activity in a project which is using critical path analysis.

Flow production
This method of production involves the tasks which were identified in batch production becoming continuous for each unit, often with the use of a moving conveyor belt (e.g. a car assembly line). Each unit is produced individually, instead of being produced in batches. This type of production is usually undertaken by large businesses.

Industrial inertia
This term is used to describe the situation when a business or an industry decides to remain in its original location and is very reluctant to relocate, even after the reasons for it locating there in the first place are exhausted.

Industrial location
This is the decision that a business or an industry makes concerning its geographical placing in a country. There are many factors which affect the decision of where to locate in a country, including the proximity to the market, the proximity to suppliers, the cost of land and the availability and cost of labour.

International competitiveness
This term refers to the ability of a business to compete effectively with foreign competitors in a particular industry, based on factors such as price, quality, and lead times.

Job production
This method of production involves an item being manufactured entirely by one worker or by a group of workers. The items are often made to customer requirements, rather than being mass produced. This type of production is usually undertaken by small businesses.

Productivity
This is a measurement of the level of efficiency of a business. It measures the relationship between the level of inputs and the output of a business. The most common measure is labour productivity (output per worker).

Research and development (R and D)

This means carrying out extensive research about how a product can be designed, manufactured, packaged, etc, and then developing a prototype of the product which can then be test-marketed. If the test-market is successful, then the product is likely to be launched nationally.

Specialisation
This refers to the division of a large project into a number of small tasks, enabling individual workers to develop particular skills (specialise) in one or two of these tasks. Both Frederick Taylor and Henry Ford were advocates of the division of labour, enabling the mass production of items at a low average cost.

Balance of payments.
This is a record of a countrys financial transactions with the rest of the world over a given period of time (normally 12 months). It records the flows of imported and exported goods and services, as well as any flows of capital into and out of the country.

Deregulation.
This is the removal of any government rules and regulations from the operation of an industry, often allowing new competitors to enter the industry.

Devaluation.
This is the decision by the government of a country to reduce the value of its currency in relation to foreign currencies. This boosts the international competitiveness of the country's exports, by making them cheaper for other countries to purchase.

Direct taxation.
This is tax that is paid directly from the income, wealth or profit of an individual or a business (e.g. income tax, corporation tax).

Economic growth.
This term refers to a growth in the income per capita (or income per head) of the population over a given period of time. It is normally measured by reference to G.D.P. and G.N.P.

Environmental audit.
This is an independent and critical review and appraisal of the business in aspects such as its levels of pollution, waste and recycling. An environmental audit is often carried out as part of a social audit.

Ethics.
These are moral principles and judgements that many people believe should be considered when a business makes any decision.

European Union (E.U).

This was formed in 1993, following the Maastricht Treaty, replacing the European Community (E.C). It consists of the following 15 member countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the UK. The Treaty of Rome (1957) established the E.E.C, and the main objective was to remove all the trade barriers (financial, physical and technical) between the member states.

Exchange rate.
This is the external price of a country's currency, expressed in terms of another currency.

External costs.
These are the detrimental consequences of the activities of a business that are paid for by society as a whole (e.g. pollution, congestion).

Fiscal policy.
This is a government policy which deals with raising finance (through taxation) and then spending this finance on public services such as education, health, transport).

Gross Domestic Product (G.D.P).

This is the total value of a country's output over a period of time (usually 12 months). It is used to indicate changes in economic growth and the standard of living in a country.

Gross National Product (G.N.P).

This is calculated by adding G.D.P. to the net income from abroad (i.e. the income earned on overseas investments by UK citizens and businesses, minus the income earned by foreigners investing in the UK). Again, G.N.P. is a main indicator of changes in economic growth and the standard of living in a country.

Indirect Taxation.
This is tax that is paid on goods and services, (e.g. VAT and excise duty).

Inflation.
This is a general and sustained rise in the average prices of goods and services within an economy over a period of time. It is calculated by reference to the Retail Price Index (R.P.I).

Monetary policy.
This is a government policy which is designed to control the amount of spending in an economy, by altering the money supply, interest rates, exchange rates and the amount of credit available to customers.

Monopolies and Mergers Commission (M.M.C).

This is an organisation that was established by the government in 1948, designed to investigate and monitor proposed mergers and takeovers of large businesses and to ensure that any businesses with monopoly power do not act against the public interest. In general, any business with a market share of 25% or more is likely to be investigated.

Nationalisation.
This occurs when businesses and industries are transferred from the private sector to the public sector.

Office of Fair Trading (O.F.T).

This is a government body, which was established to ensure that businesses were meeting the requirements of the Fair Trading Act 1973. It has the power to recommend any business to the M.M.C. for further investigation, if it feels that they are acting against the public interest.

Pressure group.
This is an organisation that develops in order to tackle a matter of vital interest to the members of the group, such as campaigning against businesses which cause pollution, or test their products on animals, or cause environmental damage. Pressure groups aim to raise as much publicity and awareness of their cause as possible, in the hope that this will stop the businesses from continuing their actions.

Privatisation.
This generally refers to the transfer of large businesses from the public sector to the private sector (i.e. from a nationalised industry to a P.L.C).

Protectionism.

This refers to a governments policies of protecting its domestic businesses from more competitive foreign imported goods, by using barriers such as quotas and tariffs.

Quotas.
These are a method that a government can use to protect its economy from a large influx of more competitive foreign imports. A quota places a physical restriction on the number of units of a product that are allowed to enter the country.

Recession.
This refers to a situation where the G.D.P. of an economy has fallen for two successive quarters. It is characterised by falling customer demand, low investment, and rising unemployment.

Regional Policy.
This is a government policy which attempts to reduce regional inequalities of employment, income and wealth, by investing money in, and enticing businesses to move to, the less affluent areas of the country.

Social Audit.
This is an independent and critical review and appraisal of the business in aspects such as its level of pollution, its use of recycled materials, and the health and safety of the workforce.

Social Cost.
This measures the total cost to society of the activities of a business. Social costs are equal to the internal costs of the business plus the external costs faced by society.

Social Responsibilities.
These are the duties that a business has towards the people who are affected by its activities (e.g. customers, employees, suppliers, the local community).

Tariff.
This is another method that a government can use to protect its domestic businesses from a large influx of more competitive foreign imports. A tariff is a tax placed on an imported good.

Trade Cycle.
This refers to the fluctuation of employment, income and wealth in a country over time. Terms such as recession, slump, recovery, and boom are associated with the trade cycle.

Unemployment.
This refers to the number of people in the workforce in a country who are looking for a job, but cannot find one.

Absenteeism.
This measures the proportion of the workforce who are absent from in a given period of time. Ideally, the business would wish the figure to be as low as possible, since a high figure could indicate low levels of morale, job satisfaction and motivation.

Accountability.
This measures the extent to which an employee is held responsible for the successful completion of a task or a piece of work.

Autocratic leadership style.

This is often referred to as an authoritarian leadership style, and it basically means that the people at the top of an organisation make all the decisions and delegate very little responsibility down to their subordinates.

Chain of command.
This is the direct relationship between a superior and the people working beneath him.

Communication channels.
These are the routes within a business through which communication happens.

Culture.
This term refers to the shared values, beliefs and norms which exist amongst the workforce in a business.

Decentralisation.
This means passing responsibility and authority away from the headquarters of the business to regional offices and departments.

Delayering.
This process involves one or more layers of management in the organisational hierarchy being removed, in order to cut costs and improve communication flows.

Delegation.
This occurs when managers pass a degree of authority down the hierarchy to their subordinates.

Democratic leadership.
This involves managers and leaders taking into account the views of the workforce before implementing any new system.

Empowerment.
This involves a manager giving his subordinates a degree of power over their work (i.e. it enables the subordinates to be fairly autonomous and to decide for themselves the best way to approach a problem).

Hawthorne effect.
This resulted from Elton Mayos studies of employee behaviour between 1927 and 1932. It states that employees are more likely to be motivated and more productive if they have a degree of social interaction with their peers and also with management.

Human Relations School.

This term refers to managers who follow Elton Mayo's views on the importance of social interaction at work.

Job enlargement.
This involves increasing the number of tasks which are involved in performing a particular job, in order to motivate and multi-skill the employees.

Job enrichment.

This is a method of motivating employees by giving them more responsibilities and the opportunity to use their initiative.

Job rotation.
This involves the employees performing a number of different tasks in turn, in order to increase the variety of their job and, therefore, lead to higher levels of motivation.

Kaizen.
This is a Japanese word which means continuous improvement. It is widely held that any aspect of the business can be improved not just the production processes.

Layers of hierarchy.
This term refers to the number of levels within the structure of the business, from senior management at the top to shop-floor employees at the bottom.

Management.
This is the process of achieving the objectives of the business by using its available resources effectively.

Management by objectives.
This involves each manager setting objectives for himself, based on the overall objectives of the business. It was first developed by Peter Drucker.

Matrix management.
This is the term given to describe the situation where a number of employees from different departments within the business are asked to temporarily work together to achieve, say, the successful launch of a new product. Each person in the team will then be accountable to their departmental manager as well as the team manager.

Paternalistic leadership style

. This is fairly autocratic in its approach to dealing with employees, although their social and welfare needs are taken into account when a decision is made that will affect them.

Performance-related pay (PRP).

This is a method of giving pay rises on an individual basis, related to the employee achieving a number of targets over the past year.

Piece-rate.
This payment method involves the employee receiving an amount of money per unit (or per piece) that he produces. Therefore his pay is directly linked to his productivity level.

Organisational chart.
This is a diagram which shows the different departments within the business, the chain of command, the span of control of each manager, and the channels of communication.

Span of control.
This refers to the number of subordinates who are accountable to a specific manager. The span of control is described as wide if there are many subordinates reporting directly to a manager.

Teamworking.
This is the opposite production technique to an assembly-line which uses an extreme division of labour. Teamworking involves a number of employees combining to produce a product, with each employee specialising in a few tasks. Cell production is an example of teamworking.

Theory X
Theory X is a very authoritarian management style, which assumes that employees need constant supervision, they will avoid performing their jobs if they can, they do not seek responsibility, they prefer to be told what to do, and they are really only interested in job security.

Theory Y.
Theory Y, on the other hand, is a management style which assumes that employees wish to be given praise and recognition for their achievements, they like to be given responsibility at work, and they wish to use their imagination, creativity and initiative.

Theory Z.
This refers to the Japanese style of management (which is similar to McGregors Theory Y) and it focuses on a job for life, a strong corporate culture, extensive training for all employees, and the involvement of employees in the decision-making process.

Worker participation.
This refers to the participation of workers in the decision-making process, asking them for their ideas and suggestions.

Works council.
This is a type of worker participation and it consists of regular discussions between managers and representatives of the workforce over such issues as how the business can improve its processes and procedures.

Arbitration.
This is the process of resolving an industrial dispute by using an independent person to decide the appropriate outcome. The arbitrator will look at the arguments put forward by both parties, and then he will arrive at a decision. The decision can be legally binding on both parties if this was agreed prior to the arbitrators decision.

Advisory Conciliation and Arbitration Service (ACAS).

This was set up by the government in 1975 as an independent body that helps to settle industrial disputes and claims of unfair dismissal by employees. As the name suggests, there are three main services that are offered by ACAS advice, conciliation and arbitration.

Collective bargaining.
This is when a trade union negotiates with the management of a business on behalf of a large number of employees. The negotiations cover aspects of employment such as pay, working conditions and working practices.

Conciliation.
This is one of the services offered by ACAS in an attempt to get the two sides in an industrial dispute to resolve their differences. A conciliator listens to the arguments of both sides, and then tries to encourage the trade union and the employer to negotiate and compromise so that they can reach a solution that is acceptable to both parties.

Consultation.
This involves the management of a business asking for the views of the employees who will be affected by a decision.

Human Resource Management (HRM).

This is the management and welfare of the personnel of the business. It includes the recruitment process, training and development of employees, and termination of employment.

Individual bargaining.
This is the opposite to collective bargaining. It involves a business negotiating with each individual employee over their pay and conditions of employment, rather than negotiating with the workforce as a whole.

Induction.
This is the training that an employee receives when he joins a business. It is designed to familiarise him with his new job and with the procedures and systems of the business (e.g. health and safety, and organisational structure), as well as make him aware of the products and services that are provided by the business.

Industrial action.
This refers to the actions that can be taken by a unionised workforce during an industrial dispute, in an attempt to reduce or cease the output of the business. The most common examples of industrial action include strikes, work-to-rule policies, and overtime bans.

Industrial dispute.

This is a disagreement that arises between the management of a business and the trade union that represents the employees, over such issues as pay rises, working conditions, and new working practices.

Industrial relations.
This refers to the level of co-operation which exists between the management of a business and the trade union which represents its workforce.

Industrial tribunal.
This is a small court which deals with claims of unfair dismissal and discrimination from employees against their (former) employers.

Labour flexibility.
This refers to the ability of a business to vary the jobs and the tasks which are carried out by their employees, using such strategies as job rotation and multi-skilling.

Labour turnover.
This measures the number of employees who leave a business per year, expressed as a percentage of the total number of people employed

Pendulum arbitration.
This is a type of arbitration in which the arbitrator will decide completely in favour of one party or the other, with no compromise or negotiation being allowed. It is likely, therefore, that both parties (the employers and the trade union representatives) will make their demands more conservative and realistic than if the arbitrator was allowed to choose an outcome which was somewhere between the two.

Performance appraisal.
This is the process of measuring the effectiveness of an employee, often using it as the basis for a promotion or a pay rise. The appraisal is usually carried out by the immediate superior on a oneto-one basis, although other appraisal techniques are very common (including self-appraisal, peer appraisal or appraisal by ones subordinates). The whole process should highlight the employees strengths and weaknesses, and also indicate those areas which the employee needs to concentrate on in order to improve his performance.

Performance-related pay (PRP).

This is a method of giving pay rises on an individual basis, related to the employee achieving a number of targets over the past year.

Productivity.
This is the relationship between the inputs that a business uses (e.g. raw materials, labour) in order to produce its output (e.g. products). The most common measure is labour productivity, which is calculated as output per worker.

Trade union.
This is an organisation consisting of a large number of workers who combine together to protect their interests in the workplace. The workers each pay an annual membership fee to join the trade union, and in return the union will negotiate on their behalf on such issues as pay, working conditions and new working practices.

Unfair dismissal.
This occurs where an employer terminates the contract of employment of an employee for a reason that is against the law (e.g. pregnancy, ethnic background, or gender). If an employee believes that he has been unfairly dismissed, then he can take his employer to an industrial tribunal, which will rule on whether the dismissal was unfair or not.

Worker participation
This refers to the participation of workers in the decision-making process, asking them for their ideas and suggestions.

Works council.
This is a type of worker participation and it consists of regular discussions between managers and representatives of the workforce over such issues as how the business can improve its processes and procedures.