Cambridge IAL Business key terms

The value of the next best alternative given up when a choice is made. For a business, it is the benefit forgone by using scarce resources such as finance or land in one way rather than another.

The condition in which resources such as labour, capital and raw materials are limited while wants are unlimited. It forces businesses and consumers to choose between competing uses of those resources.

The inputs used to create goods and services: land, labour, capital and enterprise. The quantity, quality and cost of these inputs shape what a business can produce and how efficiently it can do so.

Breaking a production process into separate tasks, each performed by a different worker or team. It raises output per worker through repetition and specialisation but can cause boredom and reduced flexibility.

When an individual, firm or country concentrates on producing a narrow range of goods or services in which it is relatively efficient, then trades for the rest. It increases output but raises dependence on others.

A target that guides what a firm tries to achieve, such as profit maximisation, growth, survival or market share. Objectives direct decisions and provide a benchmark for judging performance.

Any individual or group affected by, or with an interest in, a business's activities, including owners, employees, customers, suppliers, lenders and the local community. Different stakeholders often want conflicting outcomes.

A business's voluntary commitment to act in ways that consider social, ethical and environmental effects beyond legal minimum requirements. It can improve reputation but adds cost and may be seen as image-building.

A goal framed to be Specific, Measurable, Achievable, Relevant and Time-bound. This format makes targets easier to communicate, monitor and evaluate than vague aims such as 'do better'.

Operating so that resources are used no faster than they can be replaced and environmental damage is minimised, allowing future generations to meet their needs. It affects sourcing, production and investment decisions.

The number of subordinates for whom a manager is directly responsible. A wide span means fewer management layers and more delegation; a narrow span allows closer supervision but a taller hierarchy.

An organisational design with several layers of management and a clear chain of command from senior to junior staff. It offers clear authority and promotion paths but can slow communication and raise costs.

Removing one or more levels of management from an organisation's hierarchy to cut costs and shorten communication channels. It widens spans of control and may reduce promotion opportunities, affecting morale.

Passing authority to a subordinate to carry out a task while the manager keeps overall accountability. It develops staff and frees managers' time but risks poor decisions if training and control are inadequate.

The process of identifying a vacancy and attracting suitable applicants, through internal promotion or external methods such as advertising and agencies. The chosen method affects cost, speed and the quality of candidates.

A document stating the duties, responsibilities and reporting relationships of a post. It is used to advertise a vacancy and to set expectations, and it supports later appraisal and training decisions.

A profile of the qualifications, skills, experience and personal qualities required for a job. It helps shortlist applicants objectively and reduces bias, though poorly written criteria can exclude suitable candidates.

Choosing the best applicant for a vacancy using tools such as interviews, tests, references and assessment centres. Reliable selection reduces costly staff turnover but methods vary in validity and expense.

Introductory training given to new employees covering the organisation, its rules, health and safety and their role. It helps newcomers settle quickly and reduces early resignation, but takes time away from work.

Teaching skills while the employee performs real tasks at the workplace, often under supervision. It is relatively cheap and job-relevant but can pass on poor habits and disrupt normal output.

A formal review of an employee's performance against agreed targets, usually held periodically with their manager. It identifies training needs and supports pay and promotion decisions, but can feel judgemental if poorly handled.

A system in which managers and subordinates jointly set measurable targets and later review progress against them. It links individual effort to business aims but can encourage short-termism or narrow focus.

The internal and external forces that make an employee willing to work hard towards organisational goals. It is influenced by pay, job design, recognition and relationships, and affects productivity and retention.

Payment used to attract and motivate staff, including salary, hourly wages, commission, piece rates, bonuses and profit sharing. Its motivational effect depends on whether workers see the reward as fair and achievable.

Dismissal of employees because their jobs are no longer needed, for example after automation or falling demand. It is not a judgement on individual performance but still damages morale and costs severance payments.

Dividing a market into groups of buyers with similar characteristics or needs, such as by age, income, location or lifestyle. It lets a firm target its marketing mix more precisely and avoid wasted spending.

The specific group of customers a business aims its product and marketing effort at. A clearly defined target market guides pricing, promotion and distribution choices, but the wrong choice can limit sales.

A small, specialised segment with particular needs that mass-market firms often ignore. It can offer high margins and customer loyalty, but sales volumes are limited and the niche may attract new competitors.

The combination of product, price, place and promotion (the 4Ps) used to position an offer in its target market. The elements must be consistent with each other and with the chosen positioning.

The stages a product passes through: development, introduction, growth, maturity and decline. Sales and profit patterns differ at each stage, so pricing, promotion and product decisions should change accordingly.

An attempt to lengthen a product's maturity stage and delay decline, for example through redesign, new markets or new promotional appeals. It can extend sales but may not succeed if demand is fundamentally falling.

The responsiveness of quantity demanded to a change in price, calculated as percentage change in quantity divided by percentage change in price. Elastic demand means revenue falls when price rises; inelastic demand means revenue rises.

The approach used to set prices, such as cost-plus, penetration, skimming, competitive or loss-leader pricing. The choice affects sales volume, profit margin and the perceived image of the product.

A firm's sales expressed as a percentage of total sales in its market. Rising share can indicate competitive strength, though it may be bought through low prices that reduce profit.

Falls in average cost per unit as output increases, arising from bulk buying, specialisation, spreading fixed costs and financial advantages. They can create a cost advantage but may be lost if output falls.

Rises in average cost per unit as output grows beyond an optimal level, caused by communication problems, poor coordination and lower staff motivation. They limit the benefits of very large-scale operations.

Actual output expressed as a percentage of maximum possible output. High utilisation spreads fixed costs but leaves little slack for unexpected orders; low utilisation wastes resources.

Controlling the amount of raw materials, work in progress and finished goods held. Too much stock ties up cash and risks obsolescence; too little risks stockouts and lost sales.

A stock system in which materials arrive shortly before they are needed and finished goods are made to order, minimising stock held. It cuts storage costs but leaves little protection against supply disruption.

The output level at which total revenue equals total cost, so neither profit nor loss is made. It is found by dividing fixed costs by contribution per unit and helps assess risk and required sales volume.

Selling price per unit minus variable cost per unit. It shows how much each sale adds towards covering fixed costs and then generating profit, and is used in break-even and decision calculations.

The difference between current or planned output and the break-even quantity. It measures how far sales can fall before a loss is made, so a larger margin indicates lower risk.

A projection of cash inflows and outflows over a period, showing the expected closing cash balance each month. It highlights likely shortfalls so finance can be arranged in advance, but depends on estimate accuracy.

The money available for day-to-day operations, calculated as current assets minus current liabilities. Adequate working capital lets a firm pay wages and suppliers on time; a shortage can cause insolvency.

The ability of a business to meet short-term debts as they fall due, often measured by the current ratio and acid-test ratio. It concerns cash timing rather than profitability.

Gross profit divided by revenue, expressed as a percentage. It shows how much of each sales pound remains after cost of sales and reflects pricing and direct cost control.

Net profit after all expenses divided by revenue, expressed as a percentage. It shows the overall profitability of sales and is affected by overheads and interest as well as direct costs.

The proportion of a firm's capital employed financed by long-term debt, often expressed as a percentage. High gearing raises interest commitments and financial risk but can increase returns to shareholders.

A tool that classifies growth options by whether products and markets are existing or new: market penetration, product development, market development and diversification. Diversification carries the highest risk.

The long-term plan of action a firm adopts to achieve its objectives and gain advantage over rivals, given its resources and environment. It involves choices about markets, products and methods of competing.

A review of a firm's internal strengths and weaknesses and external opportunities and threats. It informs strategy by matching capabilities to the environment, though it can become a static list if not updated.

An examination of political, economic, social and technological influences on a business. It helps anticipate external change and shape strategy, but it is descriptive and does not by itself prescribe action.

Acquiring control of another business by buying enough of its shares, often as a faster route to growth than internal expansion. It brings immediate capacity but risks overpaying and clashing cultures.

The joining of two businesses into a single organisation, usually presented as a partnership of equals. It can create synergies and market power, but integration problems often erode the expected benefits.