Business 0450 — specification explorer

1. Business activity

• 1.1.1

  1.1.1 The purpose and nature of business activity:

  • Concepts of needs, wants, scarcity and opportunity cost
  • Importance of specialisation
  • Purpose of business activity
  • The concept of adding value and how added value can be increased

2. Classification of businesses

• 1.2.1

  1.2.1 Economic sectors in terms of primary, secondary and tertiary sectors:

  • Basis of business classification, using examples to illustrate the classification
  • Reasons for the changing importance of business classification, e.g. in developed and developing economies
• 1.2.2Classify business enterprises between private

3. Enterprise, business growth and size

• 1.3.1

  1.3.1 Enterprise and entrepreneurship:

  • Characteristics of successful entrepreneurs
  • Contents of a business plan and how business plans assist entrepreneurs
  • Why and how governments support business start-ups, e.g. grants, training schemes
• 1.3.2

  1.3.2 The methods and problems of measuring business size:

  • Methods of measuring business size, e.g. number of people employed, value of output, capital employed (profit is not a method of measuring business size)
  • Limitations of methods of measuring business size
• 1.3.3

  1.3.3 Why some businesses grow and others remain small:

  • Why the owners of a business may want to expand the business
  • Different ways in which businesses can grow, e.g. internal/external
  • Problems linked to business growth and how these might be overcome
  • Why some businesses remain small
• 1.3.4

  1.3.4 Why some (new or established) businesses fail:

  • Causes of business failure, e.g. lack of management skills, changes in the business environment, liquidity problems
  • Why new businesses are at a greater risk of failing

4. Types of business organisation

• 1.4.1

  1.4.1 The main features of different forms of business organisation:

  • Sole traders, partnerships, private and public limited companies, franchises and joint ventures
  • Differences between unincorporated businesses and limited companies
  • Concepts of risk, ownership and limited liability
  • Recommend and justify a suitable form of business organisation to owners/management in a given situation
  • Business organisations in the public sector, e.g. public corporations

5. Business objectives and stakeholder objectives

• 1.5.1

  1.5.1 Businesses can have several objectives and the importance of them can change:

  • Need for business objectives and the importance of them
  • Different business objectives, e.g. survival, growth, profit and market share
  • Objectives of social enterprises
• 1.5.2

  1.5.2 The role of stakeholder groups involved in business activity:

  • Main internal and external stakeholder groups
  • Objectives of different stakeholder groups
  • How these objectives might conflict with each other, use examples
• 1.5.3Differences in the objectives of private sector

1. Motivating employees

• 2.1.1

  2.1.1 The importance of a well-motivated workforce:

  • Why people work and what motivation means
  • The benefits of a well-motivated workforce: labour productivity, reduced absenteeism and labour turnover
  • The concept of human needs, e.g. Maslow’s hierarchy
  • Key motivational theories: Taylor and Herzberg
• 2.1.2

  2.1.2 Methods of motivation:

  • Financial rewards, e.g. wage, salary, bonus, commission and profit sharing
  • Non-financial methods, e.g. job enrichment, job rotation, teamworking, training, opportunities for promotion
  • Recommend and justify appropriate method(s) of motivation in given circumstances

2. Organisation and management

• 2.2.1

  2.2.1 Draw, interpret and understand simple organisational charts:

  • Simple hierarchical structures: levels of hierarchy, span of control, chain of command e.g. tall/short
  • Roles and responsibilities of directors, managers, supervisors, other employees in an organisation and inter-relationships between them
• 2.2.2

  2.2.2 The role of management:

  • Functions of management, e.g. planning, organising, coordinating, commanding and controlling
  • Importance of delegation; trust versus control
• 2.2.3

  2.2.3 Leadership styles:

  • Features of the main leadership styles, e.g. autocratic, democratic and laissez-faire
  • Recommend and justify an appropriate leadership style in given circumstances
• 2.2.4

  2.2.4 Trade unions:

  • What a trade union is and the effects of employees being union members

3. Recruitment, selection and training of employees

• 2.3.1

  2.3.1 Recruitment and selecting employees:

  • Recruitment and selection methods
  • Difference between internal recruitment and external recruitment
  • Main stages in recruitment and selection of employees
  • Recommend and justify who to employ in given circumstances
  • Benefits and limitations of part-time employees and full-time employees
• 2.3.2

  2.3.2 The importance of training and the methods of training:

  • Importance of training to a business and to employees
  • Benefits and limitations of induction training, on-the-job training and off-the-job training
• 2.3.3

  2.3.3 Why reducing the size of the workforce might be necessary:

  • Difference between dismissal and redundancy with examples
  • Understand situations in which downsizing the workforce might be necessary, e.g. automation or reduced demand for products
  • Recommend and justify which employees to make redundant in given circumstances
• 2.3.4

  2.3.4 Legal controls over employment issues and their impact on employers and employees:

  • Legal controls over employment contracts, unfair dismissal, discrimination, health and safety, legal minimum wage

4. Internal and external communication

• 2.4.1

  2.4.1 Why effective communication is important and the methods used to achieve it:

  • Effective communication and its importance to business
  • Benefits and limitations of different communication methods including those based on information technology (IT)
  • Recommend and justify which communication method to use in given circumstances
• 2.4.2

  2.4.2 Demonstrate an awareness of communication barriers:

  • How communication barriers arise and problems of ineffective communication; how communication barriers can be reduced or removed

1. Marketing, competition and the customer

• 3.1.1

  3.1.1 The role of marketing:

  • Identifying customer needs
  • Satisfying customer needs
  • Maintaining customer loyalty
  • Building customer relationships
• 3.1.2

  3.1.2 Market changes:

  • Why customer/consumer spending patterns may change
  • The importance of changing customer needs
  • Why some markets have become more competitive
  • How businesses can respond to changing spending patterns and increased competition
• 3.1.3

  3.1.3 Concepts of niche marketing and mass marketing:

  • Benefits and limitations of both approaches to marketing
• 3.1.4

  3.1.4 How and why market segmentation is undertaken:

  • How markets can be segmented, e.g. according to age, socio-economic grouping, location, gender
  • Potential benefits of segmentation to business
  • Recommend and justify an appropriate method of segmentation in given circumstances

2. Market research

• 3.2.1

  3.2.1 The role of market research and methods used:

  • Market-orientated businesses (uses of market research information to a business)
  • Primary research and secondary research (benefits and limitations of each)
  • Methods of primary research, e.g. postal questionnaire, online survey, interviews, focus groups
  • The need for sampling
  • Methods of secondary research, e.g. online, accessing government sources, paying for commercial market research reports
  • Factors influencing the accuracy of market research data
• 3.2.2

  3.2.2 Presentation and use of market research results:

  • Analyse market research data shown in the form of graphs, charts and diagrams; draw simple conclusions from such data

3. Marketing mix

• 3.3.1

  3.3.1 Product:

  • The limitations and benefits of developing new products
  • Brand image; impact on sales and customer loyalty
  • The role of packaging
  • The product life cycle: main stages and extension strategies; draw and interpret a product life cycle diagram
  • How stages of the product life cycle can influence marketing decisions, e.g. promotion and pricing decisions
• 3.3.2

  3.3.2 Price:

  • Pricing methods (benefits and limitations of different methods), e.g. cost plus, competitive, penetration, skimming, and promotional
  • Recommend and justify an appropriate pricing method in given circumstances
  • Understand the significance of price elasticity: difference between price elastic demand and price inelastic demand; importance of the concept in pricing decisions (knowledge of the formula and calculations of PED will not be assessed)
• 3.3.3

  3.3.3 Place – distribution channels:

  • Advantages and disadvantages of different channels, e.g. use of wholesalers, retailers or direct to consumers
  • Recommend and justify an appropriate distribution channel in given circumstances
• 3.3.4

  3.3.4 Promotion:

  • The aims of promotion
  • Different forms of promotion and how they influence sales, e.g. advertising, sales promotion
  • The need for cost-effectiveness in spending the marketing budget on promotion
• 3.3.5

  3.3.5 Technology and the marketing mix:

  • Define and explain the concept of e-commerce
  • The opportunities and threats of e-commerce to business and consumers
  • Use of the internet and social media networks for promotion

4. Marketing strategy

• 3.4.1

  3.4.1 Justify marketing strategies appropriate to a given situation:

  • Importance of different elements of the marketing mix in influencing consumer decisions in given circumstances
  • Recommend and justify an appropriate marketing strategy in given circumstances
• 3.4.2

  3.4.2 The nature and impact of legal controls related to marketing:

  • Impact of legal controls on marketing strategy, e.g. misleading promotion, faulty and dangerous goods
• 3.4.3

  3.4.3 The opportunities and problems of entering new foreign markets:

  • Growth potential of new markets in other countries
  • Problems of entering foreign markets, e.g. cultural differences and lack of knowledge
  • Benefits and limitations of methods to overcome such problems, e.g. joint ventures, licensing

1. Production of goods and services

• 4.1.1

  4.1.1 The meaning of production:

  • Managing resources effectively to produce goods and services
  • Difference between production and productivity
  • Benefits of increasing efficiency and how to increase it, e.g. increasing productivity by automation and technology, improved labour skills
  • Why businesses hold inventories
  • The concept of lean production: how to achieve it, e.g. just-in-time inventory control and Kaizen; benefits of lean production
• 4.1.2

  4.1.2 The main methods of production:

  • Features, benefits and limitations of job, batch and flow production
  • Recommend and justify an appropriate production method for a given situation
• 4.1.3How technology has changed and is changing

2. Costs, scale of production and break-even analysis

• 4.2.1

  4.2.1 Identify and classify costs:

  • Classifying costs using examples, e.g. fixed, variable, average, total
  • Use cost data to help make simple cost-based decisions, e.g. to stop production or continue
• 4.2.2

  4.2.2 Economies and diseconomies of scale:

  • The concept of economies of scale with examples, e.g. purchasing, marketing, financial, managerial, technical
  • The concept of diseconomies of scale with examples, e.g. poor communication, lack of commitment from employees, weak coordination
• 4.2.3

  4.2.3 Break-even analysis:

  • The concept of break-even
  • Construct, complete or amend a simple break-even chart
  • Interpret a given chart and use it to analyse a situation
  • Calculate break-even output from given data
  • Define, calculate and interpret the margin of safety
  • Use break-even analysis to help make simple decisions, e.g. impact of higher price
  • Understand the limitations of break-even analysis

3. Achieving quality production

• 4.3.1

  4.3.1 Why quality is important and how quality production might be achieved:

  • What quality means and why it is important for all businesses
  • The concept of quality control and how businesses implement quality control
  • The concept of quality assurance and how this can be implemented

4. Location decisions

• 4.4.1

  4.4.1 The main factors influencing the location and relocation decisions of a business:

  • Factors relevant to the location decision of manufacturing businesses and service businesses
  • Factors that a business could consider when deciding which country to locate operations in
  • The role of legal controls on location decisions
  • Recommend and justify an appropriate location for a business in given circumstances

1. Business finance: needs and sources

• 5.1.1

  5.1.1 The need for business finance:

  • The main reasons why businesses need finance, e.g. start-up capital, capital for expansion and additional working capital
  • Understand the difference between short-term and long-term finance needs
• 5.1.2

  5.1.2 The main sources of finance:

  • Internal sources and external sources with examples
  • Short-term and long-term sources with examples, e.g. overdraft for short-term finance and debt or equity for long-term finance
  • Importance of alternative sources of capital, e.g. micro-finance, crowd-funding
  • The main factors considered in making the financial choice, e.g. size and legal form of business, amount required, length of time, existing loans
  • Recommend and justify appropriate source(s) of finance in given circumstances

2. Cash-flow forecasting and working capital

• 5.2.1

  5.2.1 The importance of cash and of cash-flow forecasting:

  • Why cash is important to a business
  • What a cash-flow forecast is, how a simple one is constructed and the importance of it
  • Amend or complete a simple cash-flow forecast
  • How to interpret a simple cash-flow forecast
  • How a short-term cash-flow problem might be overcome, e.g. overdraft, delaying supplier payments, asking debtors to pay more quickly
• 5.2.2

  5.2.2 Working capital:

  • The concept and importance of working capital

3. Income statements

• 5.3.1

  5.3.1 What profit is and why it is important:

  • How a profit is made
  • Importance of profit to private sector businesses, e.g. reward for risk-taking/enterprise, source of finance
  • Difference between profit and cash
• 5.3.2

  5.3.2 Income statements:

  • Main features of an income statement, e.g. revenue, cost of sales, gross profit, profit and retained profit
  • Use simple income statements in decision- making based on profit calculations (constructing income statements will not be assessed)

4. Statement of financial position

• 5.4.1

  5.4.1 The main elements of a statement of financial position:

  • The main classifications of assets and liabilities, using examples
• 5.4.2Interpret a simple statement of financial

5. Analysis of accounts

• 5.5.1

  5.5.1 Profitability:

  • The concept and importance of profitability
• 5.5.2

  5.5.2 Liquidity:

  • The concept and importance of liquidity
• 5.5.3

  5.5.3 How to interpret the financial performance of a business by calculating and analysing profitability ratios and liquidity ratios:

  • Gross profit margin
  • Profit margin
  • Return on Capital Employed
  • Current ratio
  • Acid test ratio
• 5.5.4

  5.5.4 Why and how accounts are used:

  • Needs of different users of accounts and ratio analysis
  • How users of accounts and ratio results might use information to help make decisions, e.g. whether to lend to or invest in the business

1. Economic issues

• 6.1.1

  6.1.1 Business cycle:

  • Main stages of the business cycle, e.g. growth, boom, recession, slump
  • Impact on businesses of changes in employment levels, inflation and Gross Domestic Product (GDP)
• 6.1.2

  6.1.2 How government control over the economy affects business activity and how businesses may respond:

  • Identify government economic objectives, e.g. increasing Gross Domestic Product (GDP)
  • Impact of changes in taxes and government spending
  • Impact of changes in interest rates
  • How businesses might respond to these changes

2. Environmental and ethical issues

• 6.2.1

  6.2.1 Environmental concerns and ethical issues as both opportunities and constraints for businesses:

  • How business activity can impact on the environment, e.g. global warming
  • The concept of externalities: possible external costs and external benefits of business decisions
  • Sustainable development; how business activity can contribute to this
  • How and why business might respond to environmental pressures and opportunities, e.g. pressure groups
  • The role of legal controls over business activity affecting the environment, e.g. pollution controls
  • Ethical issues a business might face: conflicts between profits and ethics
  • How business might react and respond to ethical issues, e.g. child labour, paying fair prices to suppliers

3. Business and the international economy

• 6.3.1

  6.3.1 The importance of globalisation:

  • The concept of globalisation and the reasons for it
  • Opportunities and threats of globalisation for businesses
  • Why governments might introduce import tariffs and import quotas
• 6.3.2

  6.3.2 Reasons for the importance and growth of multinational companies (MNCs):

  • Benefits to a business of becoming a multinational and the impact on its stakeholders
  • Potential benefits to a country and/or economy where a MNC is located, e.g. jobs, exports, increased choice, investment
  • Potential drawbacks to a country and/or economy where a MNC is located, e.g. reduced sales of local businesses, repatriation of profits
• 6.3.3

  6.3.3 The impact of exchange rate changes:

  • Depreciation and appreciation of an exchange rate
  • How exchange rate changes can affect businesses as importers and exporters of products, e.g. prices, competitiveness, profitability (exchange rate calculations will not be assessed)