BUSINESS ENTERPRISE SIMULATION MODULE I

III. MANAGEMENT IN BUSINESS

• Management in business and organization is the function that coordinates the

efforts of people to accomplish goals and objectives using available resources
efficiently.
• Management includes planning, organizing, staffing, leading or directing and
controlling an organization to accomplish goal or target.
• Management is also an academic discipline, a social science whose objective is
to study social organization.

Management Functions

Planning Function – controls all the planning that allows the organization to
run smoothly. Planning involves defining a goal and determining the most
effective course of action needed to reach that goal.
Organizing Function – involves designating tasks and responsibilities to
employees with the specific skills set needed to complete the tasks. Organizing
also involves developing the organizational structure and chain of command
within the company.
Staffing Function – the main purpose of staffing is to hire the right people for
the right jobs to achieve the objectives of the organization. Staffing involves
more than just recruitment; it also encompasses training and development,
performance appraisal, promotions and transfers.
Coordinating Function – coordinating function of leadership controls all the
organizing, planning and staffing activities of the company and ensures all
activities function together for the good of the organization. It involves
communication, supervision, and direction by the management.
Controlling Function – involves establishing performance standards and
monitoring the output of employee; that each employee performance meets
those standards. The controlling process often leads to the identification of
situations and problems that need to be addressed by creating new
performance standards.

Levels of Management

Top Management – normally consists of relatively small group of executives

who control the organization and who takes ultimate responsibility for
executing strategy. Top management normally focuses on long-term planning
 and they manage the strategic planning process. Top managers develop the
goals, policies and strategies for the organization.
Middle Management – they are responsible for carrying out top management’s
directives by delegating authority and responsibility. Middle management are
responsible for medium long-term planning and organizing, translating the
general strategies from top management into specific goals and plans for first
line managers. It is also concerned with managing group performance and
allocating resources.
First-line Management – (lower management) first-line managers are
responsible for the production of goods and services. They are technical
experts who are able to teach and supervise employees in their day-to-day
task. They are also responsible for smaller segments of the organization.

Management Skills

Conceptual Skills – the ability to visualize the organization as a whole. It

includes analytical, creative, and initiative skills. It helps managers to identify
the causes of the problem and not just the symptoms.
Human Relations Skills (Interpersonal Skills) – an ability to work with people.
It helps the managers to understand, communicate, and work with others. It
also helps the managers to lead, motivate, and develop team spirit.
Technical Skills – the ability to perform the given job.
Communication Skills – a manager must be able to communicate the plans and
policies to the workers and on the other hand must listen and solve the
problems of the workers
Administrative Skills – required at the top-level management. The top-level
managers should know how to make plans and policies. They should also know
how to get the work done. They should be able to coordinate different activities
of the organization.
Leadership Skills – the ability to influence human behavior.
Problem Solving Skills (Design Skills) – a manager should know how to identify
a problem and a best solution for solving any specific problem.
Decision Making Skills – a manager must be able to take quick and correct
decisions and implement it wisely. The success and failure of a manager
depends upon the correctness of his decision.
BUSINESS ENTERPRISE SIMULATION MODULE I

The Organizational Environment

- The organizational environment consists of the environment external to the

organization well as the internal functioning of the organization.

a. The Micro-Environment
• The micro-environment includes the business functions and the
management tasks of planning, organizing, leading, and control.
Operations are responsible for producing the product where the
logistics focus on obtaining the products to be used in the
manufacturing of the product to be sold. Also included under logistics
is the responsibility to ensure the right quality, quantity, price and
distributing the product. The Financial Function ensures that there
is sufficient capital available in the short and long term. This includes
debt collection and paying creditors. The Human Resource
Management Function must ensure that the right people are
employed to perform the tasks. The Marketing Function makes
potential customers aware of the product and aims to persuade them
to purchase it. Public Relations ensure that the organization
maintains a positive image amongst its customers and society at
large.

b. The Market Environment

• This environment is better described as the environment in which the
organization conduct its business. In this environment, inputs are
obtained from suppliers (who sell raw materials or goods) and their
intermediaries (they act as “middlemen” between the
manufacturer and the consumer), goods and services are sold to
customers (the patrons who buy goods or services), and the
organization competes for market share with other organizations
selling similar products or services. It has much to do with
competition, opportunities and threats.
 c. The Macro-Environment
• This environment includes all factors on the national and
international level which can impact on the organization.
Organizations have little or no control over this environment and
must aim to “predict” what will happen in this environment and deal
with the consequence thereof. The sub-environments include the
natural, technological, social, political, economic, and international
environments.
- The natural environment has to do with the availability of the
natural resources required as well as factors like climate,
natural disasters, etc.
- Within the technological environment, invention and
innovation is pivotal. Any organization that does not keep up
with technological developments will not remain competitive.
- The social environment refers to the characteristics of the
society in which the organization operates; the society’s
demographics (age, education, religion, culture, language,
etc.)
- The political environment is the place where the competition
takes place as organizations view for power within a society.
This environment is influenced by legislation.
- The international environment consists of the events that
occur around the world in other countries that affect the
organization. Factors in the international environment that can
influence an organization are, for instance, policy changes in
other countries, wars and territory attacks.
- “Economics is the science dedicated to the description and
analysis of the production, distribution and consumption of
goods and services and the role played by the availability of
money or lack thereof.”

The Economic Environment

• A healthy economy is one in which organizations are opening with an

accompanying growth in job creation that will lead to more spending, a
bigger demand, an increase in job creation to keep up with the demand,
and so on. The average income of an individual determines the spending
power of an organization’s potential customers: thus, the higher their
income, the more a person will be able to spend.
• Interest Rates affect an organization because they affect how much
money that organization can borrow. Productivity is the ratio between
hours worked and the number of products produced. Labor costs and
low productivity influence an organizations capability to compete
nationally and internationally. Inflation is also a factor that managers
must take into consideration. Inflation is basically the decrease in the
value of money in relation to the goods it can buy over time. When a
business is operating in the international environment, exchange rates
will have an influence over it. An exchange rate is the principle rate at
which two currencies can be traded. Most of the international trade
takes place in US (dollars).
BUSINESS ENTERPRISE SIMULATION MODULE I

II. BUSINESS

• An organization or economic system where goods and services are exchanged

for one another or for money. Can be privately-owned, non-for-profit or state-
owned.
• Business can refer to a particular organization to an entire market sector, e.g
“the music business”.
• Business Administration – the process of managing a business or non-profit
organization so that it remains stable and continue to grow.

Main Areas of Business Administration

- Operations
- Logistics
- Marketing
- Economics
- Human Resource
- Management

Characteristics of Business

Economic Activity – business is an economic activity of production and

distribution of goods and services. It provides employment opportunities in
different sectors. It provides a source of income to the society. It brings
industrial and economic development of the country.
Buying and Selling – the basic activity of any business is trading. The business
involves buying of raw materials, plants and machinery, stationary, property
etc. On the other hand, it sells the finished products to the consumers,
wholesalers, retailers etc.
Continuous Process – business is not a single time activity. It is a continuous
process of production and distribution of goods and services, research and
development, etc.
Profit Motive – profit is an indicator of success and failure of business. It is the
difference between income and expenses of the business. The primary goal of
a business is usually to obtain the highest possible level of profit through the
production and sale of goods and services. It is a return of investment. Profit
acts as a driving force behind all business activities.
Risk and Uncertainties – risk is defined as the effect of uncertainty arising in
the objective of the business. Risk is associated with every business. Business
is exposed to two types of risk, Insurable and Non-insurable. Insurable risk is
predictable.
o Predictable factors such as:
▪ Taxes
▪ Change in the volume of expected sales
▪ Cost of supplies and equipment
▪ Overhead costs
▪ Salaries
▪ Cost of goods and services offered
o Unpredictable Factors
▪ Changes in trends and tastes of customers
▪ Impact of the local economy on customer base
▪ Any unexpected action taken by your competitors

Creative and Dynamic – modern business and creative and dynamic in nature.
It means to bring things in fresh, new and inventive way.
Customer Satisfaction – the phase of business has changed from traditional
concept to modern concept. Nowadays, business adopts a consumer-oriented
approach. Customer satisfaction is the ultimate aim of all economic activities.
Social Activity – business is a socio-economic activity. Both business and
society are interdependent. Business has some responsibility towards the
society and in turn, it needs the support of various social groups like investors,
employees, customers, creditors etc. by making goods available to various
sections of the society, business performs an important social function and
meets social needs.
Government Control – business organizations are subject to government
control because they have to follow certain rules and regulations enacted by
the government.
Optimum Utilization of Resources – business facilities optimum utilization of
countries material and non-material resources and achieves economic
progress.
Functional Areas of Business

Management – involves planning for, organizing, staffing, directing, and

controlling a company’s resources to that it can achieve its goals.
Operations – all companies must convert resources (labor, material, money,
information…) into goods and services.
Marketing – consist of everything that a company does to identify customers’
needs and design products to meet those needs.
Accounting – managers need accurate, relevant, timely financial information
and accountants provide it.
Finance- involves planning for, obtaining and managing a company’s funds.
BUSINESS ENTERPRISE SIMULATION MODULE I

Introduction to Accounting, Business and Management

• Accounting – is a system meant for measuring business activities, process of

information into reports and making findings available to decision makers.
• Financial Statements – the document, which communicate these findings
about the performance of an organization in monetary terms.
• Business – is an entity involved in the provision of goods and services to
consumers.
o Businesses are prevalent in capitalist economies, where most of
them are privately owned and provide goods and services to
customers in exchange for other goods, services, or money.
o Businesses may also be social not-for-profit enterprises or state-
owned public enterprises targeted for specific social and economic
objectives.
o A business owned by multiple individuals may be formed as an
incorporated company or jointly organized as a partnership.
o Countries have different laws that may ascribe different rights to
the various business entities.

• Management – in businesses and organizations is the function that

coordinates the efforts of people to accomplish goals and objectives by using
available resources efficiently and effectively.

I. ACCOUNTING
- Often called as the language of business because the purpose of
accounting is to communicate or report the results of the business
organizations and its various aspects to various users of accounting
information.
- The main purpose of accounting is to ascertain the profit or loss
incurred during a specified period, generally one year, to show the
financial condition of the business on a particular date and to have
control over the property of enterprise.
- American Accounting Association has defined accounting as “the
process of identifying, measuring and communicating economic
 information to permit informed judgements and decisions by users
of information
- Accounting can, therefore, be defined as the process of identifying,
measuring, recording, and communicating the required information
relating to the economic events of an organization to the interested
users of the information.

Attributes of Accounting

• It is the art of recording and classifying business transactions and events.

• The transactions or events of a business must be recorded in monetary terms.
• It is the art of making summaries, analysis and interpretation of the business
financial transactions.
• The result of such analysis must be communicated to the persons who are to
make decisions or form judgements.

Types of Accounting

1. Financial Accounting – deals with the preparation of financial statements for

basic purpose of providing information to various interested groups like
creditors, banks, shareholders, financial institutions, government, consumers,
etc.
- Charged with the primary responsibility of external reporting

o Financial statements i.e the income statement and the balance sheet indicate
the way in which activities if business have been conducted during a period of
time.
- Its significance lies in the fact that it aids the management in
directing and controlling the activities of the firm and to frame
relevant managerial policies related to areas like production, sales
financing etc.

2. Management Accounting – is the “tailor-made” accounting. It facilitates the

management by providing accounting information in such a way so that it is
conductive for policy making and running day to day operations of the
business.
- Its basic purpose is to communicate the facts according to the
specific needs of decision-makers by presenting information in a
systematic and meaningful manner.
 3. Cost Accounting – makes elaborate cost records regarding various products,
operations and functions.
- It is the process of determining and accumulating the cost of a
particular product or activity.
- Cost centers – any product, function, job or process for which costs
are determined and accumulated.
- The basic purpose is to provide a detailed break-up of cost of
different departments, processes, jobs, products, sales, territories,
etc., so that effective cost control can be exercised.

Objectives of Cost Accounting

a. Determine Cost
b. Facilitate planning and control of business activities
c. Supply information for short-term and long-term decision.

Distinction between Financial and Management Accounting

Basis of Distinction Financial Accounting Management Accounting

Primary User Outside parties and Business managers
managers of business
Decision Criterion Accounts are based on Comparison of costs and
generally accepted benefits of proposed
accounting principles actions
Behavioral Implications Concern about adequacy if Concern about how report
disclosure. Behavioral will affect employee
implications are
secondary behavior.
Time Focus Past Orientation Future Orientation
Reports Summary reports Detailed reports on the
regarding the whole entity part of entity

Basic Terms in Accounting

• Financial Transaction – it is an event which involved the exchange of transfers

of some value between two or more entities. (ex. Purchase of goods, sale of
goods, amount lent to another firm, payment of expenses etc.)
• Capital – refers to the amount invested by the owner(S) in the enterprise. It
may be brought in cash or in the form of asset.
• Assets – these are economic resources of an enterprise that can be usefully
expressed in monetary terms. Assets can be tangible like cash, bank, balance,
inventories, machinery, furniture, and building.
Intangible like good will, patents, copyrights, trademarks.
- Fixed Assets – are held for long use in business itself for the purpose
of providing goods, or services and are not held for re-sale purpose
(land, building, machinery, etc.)
- Current Asset – held on short time basis (1 accounting year) (ex.
Cash, bank balance, debtors, receivables, investments)
• Liabilities – these are the obligations or debts that the enterprise must pay in
money or service at some time in the future. Long-term liabilities are those
that are payable after a period of one year (long-term loans, debentures).
Short-term liabilities are obligations of the enterprise that are payable within
a year (accounts payable, notes payable, cash credits, overdraft, short-term
loans)
• Revenue - (income) these are amounts that the business earns by selling its
products or providing service to customers.
• Debtors – the are persons or entities to whom goods have been sold or services
provided in credit and who thus owe certain amount to enterprise.
• Creditors – these are persons or entities who have to be paid by an enterprise
an amount for providing goods and services on credit.
• Goods – articles or items purchased for sales purpose at profit or processing
by the business or for use in the manufacturing process as raw materials.
• Expenses – these are the costs incurred by a business in the process of earning
revenues.
• Purchases – these are the total amount of goods procured by the business on
credit or cash for use of resale.
• Sales – total revenues from goods sold and /or services rendered to the
customers.
• Depreciation – it is the measure of wearing out, consumption or other loss of
value if a fixed asset arising from use, afflux or time or obsolescence through
technology and market changes.