Topic 8

What is Topic 8 mainly about?

Business planning and the balanced scorecard.

What is a business plan?

A plan that outlines the goals, operations, resources, risks and financial expectations of a business.

Why is a business plan useful?

It helps guide decisions, reduce risk, organise resources and assess whether goals are realistic.

Who might use a business plan?

Owners, managers, employees, lenders, investors, government agencies and business advisers.

Why might lenders want to see a business plan?

To assess how much finance is needed and whether the business can repay the debt.

Is a business plan still useful if finance is not needed?

Yes, because it helps with planning, control, coordination and reducing business risk.

What is performance measurement?

Assessing whether a business has achieved its goals.

How are planning and performance measurement linked?

A plan sets goals, and performance measurement checks whether those goals were achieved.

What is the balanced scorecard?

A performance measurement framework that considers both financial and non-financial measures.

What are the four balanced scorecard perspectives?

Financial, customer, internal operations, and innovation/improvement.

What does the financial perspective focus on?

Profit, sales, costs, cash flow and return to owners.

What does the customer perspective focus on?

Customer satisfaction, loyalty, complaints, service quality and customer retention.

What does the internal operations perspective focus on?

How efficiently and effectively internal processes are performed.

What does the innovation and improvement perspective focus on?

Learning, growth, training, new products, technology and future improvement.

Why is the balanced scorecard useful?

It gives a broader view of performance instead of only focusing on profit.

Why is focusing only on profit risky?

It may harm customer satisfaction, staff training, quality or long-term growth.

Why is focusing only on customer satisfaction risky?

The business may overspend or reduce prices too much, damaging profitability.

Why is focusing only on internal processes risky?

The business may become efficient but ignore customers, innovation or profitability.

Why is focusing only on innovation risky?

The business may spend too much on change and lose focus on current operations.

Give an example of a financial performance measure.

Profit, sales growth, cost reduction or return on investment.

Give an example of a customer performance measure.

Customer satisfaction ratings, customer complaints or repeat purchases.

Give an example of an internal operations measure.

Production time, delivery speed, error rates or waste reduction.

Give an example of an innovation/improvement measure.

Staff training hours, new products developed or technology improvements.

What business planning choices may relate to pricing and marketing?

Cost-based pricing, market-based pricing, advertising and loyalty programs.

What business planning choices may relate to finance?

How much money is needed, whether to borrow, and whether cash flow can support repayments.

What is the main exam tip for Topic 8?

Explain why businesses need both financial and non-financial measures to judge performance properly.