CGMA key terms

The sum of a project's expected future cash flows discounted to today's value using a chosen discount rate, minus the initial investment. A positive NPV suggests the project should add value.

The discount rate at which a project's net present value equals zero. It shows the annual percentage return a project is expected to earn, compared with a required hurdle rate.

The average cost a company pays for its debt and equity capital, weighted by their proportions in the capital structure. It is often used as the discount rate for investment appraisal.

Sales revenue minus variable costs. It shows how much each unit or product line contributes towards covering fixed costs and then generating profit.

The level of sales, in units or revenue, at which total revenue equals total costs and profit is zero. It marks the threshold before a product or business starts earning money.

Comparing planned or standard figures with actual results, then explaining the differences. Managers use it to spot overspending, inefficiency or unexpected changes and to take corrective action.

A performance measure calculated as profit divided by the capital invested, usually expressed as a percentage. It helps compare the returns generated by different projects or business units.

A projection of expected cash receipts and payments over a future period. It helps managers anticipate shortages or surpluses and plan borrowing or investment accordingly.

The time needed for cumulative cash inflows from a project to equal the initial cash outlay. Shorter payback periods are generally preferred because capital is recovered sooner.

Testing how an outcome changes when one input assumption is varied, such as sales volume or cost. It highlights which assumptions most affect a decision and where risk is concentrated.

A costing method that assigns overhead costs to products or services based on the activities they consume, rather than on broad volume measures. It gives more accurate cost information where products differ in complexity.

An approach that seeks to eliminate waste, such as excess inventory, waiting time and defects, while delivering value to customers. It emphasizes continuous improvement and efficient use of resources.

An inventory approach where materials and components arrive only as they are needed in production. It reduces holding costs and waste but requires reliable suppliers and predictable processes.

The stage in a process with the lowest capacity, which limits the overall output of the whole operation. Managers focus improvement efforts there because gains elsewhere may not raise total throughput.

A management approach in which all employees continuously improve quality and customer satisfaction. It relies on measurement, teamwork and prevention of defects rather than inspection at the end.

Setting predetermined costs for materials, labour and overhead, then comparing them with actual costs. Differences, called variances, are investigated to control costs and improve efficiency.

Coordinating the flow of materials, information and money from suppliers through production to final customers. The aim is to balance cost, speed and reliability across the whole chain.

The percentage of an operation's potential output that is actually being used. Low utilization suggests idle resources, while consistently high utilization can strain equipment and staff.

A formula that calculates the order size minimizing total inventory costs, balancing ordering costs against holding costs. It assumes steady demand and predictable lead times.

A structured review of an organization's internal strengths and weaknesses alongside external opportunities and threats. It is used to inform strategic choices and identify areas needing action.

A framework assessing industry attractiveness through five pressures: rivalry among existing firms, threat of new entrants, threat of substitutes, and bargaining power of buyers and suppliers.

The set of primary and support activities through which an organization creates and delivers value to customers. Analyzing it helps identify where cost advantage or differentiation can be built.

A distinctive capability that is difficult for competitors to copy and central to delivering customer value across several products or markets. It is a source of sustainable competitive advantage.

A performance framework that tracks financial results alongside customer, internal process and learning perspectives. It links day-to-day measures to the organization's strategy and long-term goals.

An attribute or capability that allows an organization to outperform rivals, typically through lower costs or superior differentiation. It must be valuable, rare and hard to imitate to last.

A scan of the political, economic, social, technological, environmental and legal factors that shape an organization's external environment. It supports planning for opportunities and risks beyond the industry.

A grid describing four growth options, namely market penetration, market development, product development and diversification, based on whether products and markets are existing or new. It highlights increasing levels of risk.

A short declaration of an organization's purpose, what it does and for whom. It guides decision-making and communicates identity to employees, customers and other stakeholders.

A quantified plan for a future period covering expected income, expenditure and resource use. It provides a benchmark for control and a basis for coordinating activities across the organization.

A unit or manager held accountable for specific activities and results, such as costs, revenue or investment. Clear assignment of responsibility supports performance measurement and control.

The price charged when one part of an organization supplies goods or services to another part. It affects divisional profit measures and must be set carefully to avoid distorted incentives.

A measurable value that shows how effectively an organization is achieving a critical objective. Good KPIs are specific, relevant and regularly monitored to guide management action.

The number of subordinates who report directly to one manager. A wide span means less supervision per person, while a narrow span creates taller hierarchies and closer oversight.

Assigning authority and responsibility for a task to a subordinate while retaining accountability for the outcome. It frees managers for higher-level work and develops staff capability.

Preparing alternative actions to be taken if an expected event does not occur or an unexpected disruption happens. It reduces the impact of uncertainty on operations and finances.

The systems, principles and processes by which an organization is directed and controlled, including board oversight, accountability and transparency to shareholders and other stakeholders.

A budgeting method where every cost must be justified from a zero base each period, rather than rolling forward last year's figures. It challenges existing spending but is time-consuming.

A formal review of an employee's work against agreed objectives and behavioral standards. It typically informs feedback, development plans and decisions about pay or promotion.