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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Management Part 1 Managing Operations and Information - Effective business: produce high-quality goods/services, good info to base decisions - 4 aspects for firm’s survival: efficient production of goods/services, increasing productivity and quality, managing information systems, principles of accounting Chapter 1 Producing Goods and Services 1. Explain meaning of production and operations. Service operations provide intangible and tangible service products. Tangible products are in goods production. Production associated with manufacturing, operations refers to service and goods production. Operations/production management is systematic direction and control of processes transforming resources into finished services and goods creating value for and providing benefits to customers. Overseeing production, inventory, quality control, operations/production managers ensure that operations processes create value and provide benefits. 2. Explain two classifications of operations processes. Products provide businesses with economic results: profits, wages, goods purchased. Operations process is set of methods and technologies used in production of good/service. 2 types: analytic process breaks down resources into components. Synthetic process combines raw materials to finished product. Services classified according to extent of customer contact. High-contact processes have the customer as part of the system. Low-contact processes do not have customers in contact with provider while service is performed. 3. Identify characteristics distinguishing service operations from goods production and explain differences in service focus. Both use raw materials to turn into finished products but service uses people with needs as raw materials and people with needs met as finished products. Service production has 5 focuses: performance (goods produced, services performed), process and outcome (service include goods and services so have to consider both process and outcome), characteristics (unstorability, customizable, intangible), customer-service link (customer part of process), and quality considerations (quality of work and quality of service different). 4. Describe factors in operations planning. 5 categories: capacity (amount under normal working conditions), location (resources, labour), layout (process, cellular, product), quality (price and performance), methods (reduce wastes and inefficiencies). 5. Explain factors in operations scheduling and describe activities in operations control, including material management and use of operations control tools. Operations scheduling uses master production schedules (showing what and when) using Gantt and PERT charts. Operations control compares results with plans, with follow ups to make sure decisions are implemented. Materials management has 4 areas: transportation, warehousing, inventory control, purchasing. - Service operations: production yielding in intangible services; entertainment, transportation - Goods operations: production yielding in tangible services; newspapers, buses, textbooks - Operation: what you produce, how to produce it, what makes customers want profitably; direction and control of processes that transform resources into finished goods; management of creation of goods/services using factors of production - Business: organized effort to provide things that customers want; ability to provide things that people want; must offer what it claims to offer What Does “Production” Mean Today? - Historically, making of physical goods – now includes services Growth of Global Operations - Production operations more environmentally friendly - New technologies allow machines to run more cleanly, quickly, safely, on global scale instead of continuous mass production o Online manufacturing via intranet and internet Creating Value Through Production - Products provide businesses with economic results (profits, wages, goods from other companies) and non- economic results (new technology, innovations, pollution) - Production replaced by operations b/c associated w/ manufacturing to include services and goods production - Operations (production) management: systematic direction and control of processes transforming resources into finished goods/services - Production managers: ensure that operations create value and provide benefits; bring raw materials, equipment, labour under production plan effectively using available resources in production; schedule and control work to produce amount required; control costs, quality levels, inventory, plant, equipment - What operations managers do: o Make things/make things happen o Demand planning: forecast how much need to make  Ex: coffee shop o Capacity planning: ensure enough space and workers to meet demand  UTSC Tim Horton’s o Location planning: find best location for getting materials, good employees, transport to market; optimize distance to labour, distribution o Layout planning: arrange to smooth flow of materials o Schedule: finish on time and start on time Operations Processes - Operations process: set of methods/technologies used in production of goods/services - Describe goods according to kinds of transformation technology required – whether operations process combines resources or breaks into component parts - Describe services according to extent of customer contact required Goods-Producing Processes - Operations create value o Operations involves taking raw materials/factors of production and adding value/utility - Classified 2 ways: o Type of transformation technology o Analytic or synthetic nature of transformation process - Types of Transformation Technology: transform raw materials into finished goods o Chemical process: raw materials chemically altered; steel, fertilizer, paint o Fabrication process: mechanically alter shape/form or product; woodwork, textile o Assembly process: put together various components; electronics, automotive o Transport process: goods acquire place utility by being moved from one location to another; trucks moving from warehouse to stores o Clerical process: transform information; combining data into productivity report - Analytic Versus Synthetic Processes: resources converted into finished goods o Analytic process: production process breaking resources down o Synthetic process: production process combining resources Service-Producing Processes - Extent of customer contact – can service be provided without customer being part of production system - High-Contact Process: service which cannot be provided w/o customer physically in system; transit system - Low-Contact Process: service which can be provided w/o customer physically in system; auto repair shops Differences Between Services and Manufacturing Operations - Service production input are people choosing among sellers because of unsatisfied needs/possessions needing care or alteration - Service production output are people with needs met/service possessions - Don’t make products but ideas, analyses, information o Doctors, lawyers, professors - Products can be stored, services cannot - Products can be made without customer, services cannot - Products should be the same, services should not Focus on Performance - Goods are produced, services are performed - Link between production and consumption – process and outcome - Intangible, more customizable, less storage - Quality defined and managed differently Focus on Process and Outcome - Manufacturing focus on outcome - Service products are combinations of goods and services o Gas company need to reassure customers reporting gas leaks and repair pipes Focus on Service Characteristics - Service transactions reflect service products characterized by: intangibility, customization, unstorability - Intangibility o Services’ intangible value experienced by customer o Hire attorney for intangible quality of legal expertise - Customization o Designed for individual needs o Physician examining symptoms - Unstorability o If service not used when available, usually wasted o Transportation cannot be produced ahead of time and stored Focus on the Customer-Service Link - Customer as part of operations process because transforming customers/their possessions - Ex: Hair salon o Customer expects convenient times, reasonable prices o Manager adopts hours of operation, available services, appropriate number of employees Focus on Service Quality Considerations - Consumers use diff criteria to judge services and goods - Quality of work and quality of service are not synonymous o Flawless car repair but later pick-up date Operations Planning - Identify needed resources - Operations planning and control: Business plan and forecasts  Long-range operations plan (capacity/location/layout/quality/methods)  Operations schedules (detailed master production schedule)  Operations control (quality control/materials management)  Output to customers – all Information Results (feedback) affect each other - Business plan and forecasts developed by top managers guide operations planning - Business plan outlines goals and objectives – specific goods/services - Forecasts: estimates of future demand for new and existing products o Develop long-range production plans  2-5 year  Specific # of plants/service facilities, amount of labour, equipment, transportation, storage, how resources will be obtained - Elements of operations planning: capacity, location, layout, quality, methods planning Capacity Planning - Capacity: amount of goods that firm can produce under normal conditions - Firm size depends on # of employees and # and size of facilities Capacity Planning for Producing Goods - Ensure manufacturing firm’s capacity slightly exceed normal demand - Too little  turn away customers - Too much  waste money Capacity Planning for Producing Services - Low-contact processes: inventory capacity at average demand o Warehouse stocking - High-contact processes: capacity to meet peak demand o Cash registers Location Planning - Affects production costs and flexibility Location Planning for Producing Goods - Proximity to raw materials and markets, availability of labour, energy and transportation costs, local and provincial regulations and taxes, community living conditions - Industrial parks: created by cities attracting industries o Include necessary zoning, land, shipping facilities, utilities, waste disposal outlets Location Planning for Producing Services - Low-contact services: near resources supplies, labour, customers, or transportation outlets - High-contact services: near customers (part of system) Layout Planning - Select site then plan layout - Machinery, equipment, supplies determine response time and efficiency Layout Planning for Producing Goods - 3 types of spaces o Productive facilities: workstations and equipment transforming raw materials o Non-productive facilities: storage and maintenance o Support facilities: offices, restaurants, parking lots, cafeterias - Alternatives for layout planning: process, cellular, product layouts - Process Layouts: organizing so equipment and people grouped together according to function o Job shops specializing in custom work; woodwork - Cellular Layouts: produce goods when families of products follow similar flow paths o Less set-up time o Material handling and transit time since flow distances are shorter o Lower inventory of goods in progress o Simpler paperwork o Duplication of equipment - Product Layouts: organizing so equipment and people are set up to produce 1 type of good o Fixed sequence of steps o Arranged according to production requirements o Efficient for large volumes quickly o Assembly lines: type of product layout in which partially finished product moves through plant on conveyor belt/other equipment o Automobile, food processing o Efficient: work skill built into equipment, simplified work tasks o Inflexible: heavy investment in specialized equipment hard to rearrange, boredom Layout Planning for Producing Services - Low-contact system: enhance production of service - High-contact systems: meet customer needs and expectations Quality Planning - Firm’s quality goals - System for ensuring that goods are produced to meet firm’s quality standards Methods Planning - Identify every production step and specific methods to perform them - Methods improvement: reduce waste, inefficiency, poor performance by examining procedures on step-by-step basis Methods Improvement in Goods - Process flow chart: detailed description organizing and recording info o Identifies sequence of production activities, movements of materials, work performed at each stage o Analyzed to identify wasteful production, sources of delay, inefficiencies o Implement improvements Methods Improvement Services - Low-contact process: methods improvements to speed services - Service Flow Analysis: analysis showing process flow necessary to provide service to customers; managers determine which processes are necessary - Designing to Control Employee Discretion in Services o Limit range of activities of employees and customers - Design for Customer Contact in Services o High-contact service: procedures showing which workers interact with customers  Exchanging info/money, delivering/receiving materials, physical contact Operations Scheduling - Scheduling: develop timetables to acquire resources needed for production Scheduling Goods Operations - Master production schedule: shows which products will be produced and when, what resources will be used - Location of products, stages of production, start/stop times, scheduled work assignments for employees - Short-term detailed schedules o Incoming customer orders, information about current machine conditions Scheduling Service Operations - Low-contact service: based on desired completion dates or time of order arrivals o Repairs at garage - High-contact service: precise scheduling not possible o Emergency room - Efficiency and costs o Overlapping shift hours (McDonald’s) o 12 hours/7 week for every other week (nurses) Tools for Scheduling - Specialized projects require close coordination and precise timing – specialized tools to facilitate scheduling: Gantt and PERT charts - Gantt Charts: diagramming steps in projects and specifying time required for each - PERT Charts: sequence, time, and critical path for performing steps of project o Program Evaluation and Review Technique Operations Control - Operations control: monitor production performance by comparing results with plans and schedules - Follow-ups: checking to ensure that production decisions are being implemented - Materials management and production process control are met and production goals are fulfilled in quantity and quality Materials Management - Materials management: planning, organizing, controlling flow of materials from purchase through distribution of finished goods - Standardization: standard and uniform components in production process o Simplifies paperwork, reduces storage requirements, eliminates unnecessary material flows - Four areas - Transportation: means of transporting resources to company and finished goods to buyers - Warehousing: storage of incoming materials for production and finished goods for physical distribution - Inventory control: receiving, storing, handling, counting of raw materials, partly finished goods, finished goods o Ensures enough inventory to meet production schedules - Purchasing: acquisition of all raw materials and services needed to produce products o Responsible for managing large transactions to acquire material resources Purchasing Processes - Purchasing dep’t buys proper materials in required amounts at right time at reasonable prices - Forward buying: routinely buying large quantities of materials for long-term o Quantity discounts - Balance adequate inventory with avoiding excess supplies o Holding costs: costs of keeping extra inventory on hand  Real costs of storage, handling, insurance + opportunity costs: additional earning that company passes up because funds are in inventory - Hand-to-mouth pattern: placing small orders frequently o Requires fast delivery - Lead times: gaps between customer’s order placement and seller’s shipment and delivery reliability - Supplier Selection: finding and determining suppliers to buy from o Multiple relationships are expensive and time-consuming Tools for Operations Process Control - Worker training, just-in-time production systems, material requirements planning, quality control Worker Training - Customer satisfaction linked to employees providing service - Human relations skills Just-in-Time Production Systems - (JIT): inventory control by acquiring materials and putting into production just as they are needed o Continuous flow from arrival to subassembly, final completion, shipment o Reduces # of goods in process and saves money by replacing stop-and-go production with smooth movement, disruptions are visible and resolved - Minimal inventory: last-minute frantic ordering of supplies Chapter 2 Increasing Productivity and Quality 1. Describe connection between productivity and quality. Productivity is measure of economic performance; compares how much is produced with resources used. Quality is product’s fitness for use. Emphasis on one is not enough. 2. Understand the importance of increasing productivity. Competition in world markets. 3. Identify the activities involved in total quality management. Customer focus. 4. Identify two trends in productivity and quality management, including supply chain management. Business process re-engineering (redesigning process to improve) and supply chain management (looking at chain as a whole to improve flow). 5. Explain how a supply chain strategy differs from traditional strategies for coordinating operations among firms. Competitive advantage by working together instead of as individual firms. The Productivity – Quality Connection - Productivity: Measure of efficiency comparing production with resources used to produce it; amount and quality - Quality: Product’s fitness for use; offers what consumers want - Productivity: resources : products, inputs : outputs o Country productive when has plentiful, cheap, high quality factors of production - Business productivity: business measure of outputs (products, services) : inputs (labour, $, materials) o Sell more output with less input - The more time, materials used, the more it costs - Operations managers concerned with the best way to make things - Making things quickly and cheaply - Quality: product’s fitness for use of offering features that consumers want; meeting/surpassing customer expectations o Customer expectations - Benefits of quality: o Fewer costs – no return/repair/less bureaucracy o Additional revenue – customers come back - Importance of quality o Repair, refund, stop buying, tell others - Connection between quality (meet expectations) and productivity (few defects/repairs) - Make what customers want Responding to the Productivity Challenge - Quality is customer-orientated focus o Factors: customers, quality, productivity, profits Measuring Productivity - Labour productivity: labour productivity of a country = gross domestic product/total # of workers o Country’s total annual output of goods/services/resources used - Int’l competition more productive Productivity Among Global Competitors - Difference in productivity: technology, human skills, economic policies, natural resources, traditions - Canada relies too much on natural resources Domestic Productivity - Increase in productivity increases total nation wealth o Benefits works, investors, customers Manufacturing Versus Service Productivity - Manufacturing productivity higher than service productivity - Baumol’s disease: more difficulty to increase productivity in service because focus on hands-on activity irreplaceable by machines  now challenged Industry Productivity - Agriculture, steel  more productive b/c of technology - Concerns labour unions negotiating contracts, investors Company Productivity - High productivity = lower costs o Lower price or higher profits or higher wages o Investors, employee profit-sharing plans, planning Total Quality Management - Productivity no longer solely number of items produced but also quality - Quality Trilogy: quality planning, quality control, quality improvement - Cause-and-effect diagrams investigating and tracking down causes of quality problems - Everyone in the business responsible for ensuring products/services meet customer needs - Cheaper to do it right first time then to repair/replace Managing Quality - Total quality management (TQM) (quality assurance): No defects are tolerable and all employees are responsible for maintaining quality standards; all activities for getting goods/services to marketplace, suppliers, customers, employees o Customer focus Planning for Quality - Goals for quality levels and reliability in beginning before products are designed - Performance quality: overall degree of quality; features of product performance and meeting consumer needs - Quality reliability: consistency of quality from unit to unit of product Organizing for Quality - Producing quality goods/services requires effort from all parts of organization - Specific aspect of total quality management responsibilities assigned to specific departments o Quality-related problems, keep departments informed, monitor quality control activities Lending for Quality -  managers inspire and motivate employees to achieve quality goals - Quality ownership: quality belongs to each employee who creates or destroys it in producing good/service; all must take responsibility for producing quality product Controlling for Quality - Quality standards and measurements to monitor products/services to detect mistakes and make corrections Process Re-engineering - Processes: activities performed regularly in conducting business o Receiving/storing materials, filing orders - Business process re-engineering: redesign business processes to improve performance, quality, productivity - Re-engineering: rethinking and radical redesign of business processes to achieve improvements in performance (cost, quality, service, speed) The Re-Engineering Process 1. Benefits envisioned for customers and company 2. Identify business activity that will be changed 3. Evaluate info and human resources to see if requirements for change can be met 4. Diagnose current process to identify strengths and weaknesses 5. Create new process design 6. Implement new design - Company-wide customer-first philosophy - Improve operations so that goods/services produced at lowest cost at highest value Adding Value Through Supply Chains - Supply chain: flow of info, materials, services starting with raw materials suppliers/design continuing through stages in operations process until product reaches customer; group of companies and stream of activities working together to create product The Supply Chain Strategy - Traditional strategy: companies managed as individual firms rather than f coordinated supply system - Supply chain strategy: members of chain working as coordinated unit gain competitive advantage o Focus on relationship chain rather than next stage Supply Chain Management - Supply chain management (SCM): Looking at chain as whole to improve overall flow through system - Flow of accurate info along chain reduces unwanted inventories, avoid delays, cuts supply times, materials move faster - Faster deliveries, lower costs Re-engineering Supply Chains for Better Results - Supply chain improvement through process improvement and re-engineering o Lowering costs, speeding up service, coordinating flow of info and materials Chapter 3 Managing Information Systems and Communication Technology Be able to: 1. Explain why businesses must manage information and show how computer systems and communication technologies have revolutionized information management. Businesses have a lot of data and must manage it effectively since all activities are linked to it. New technologies have made it easier. 2. Identify and briefly describe three elements of data communication networks – the internet, the World Wide Web, and intranets. 3. Describe five new options for organizational design that have emerged from the rapid growth of information technologies. Leaner organizations, more flexible, greater collaboration, geographic separation, improved management processes. 4. Discuss different information-systems application programs that are available for users at various organizational levels. 5. Identify and briefly describe the main elements of an information system. 6. Briefly describe the content and role of a database and the purpose of data-base software for information systems. Information Management: An Overview - Information managers: responsible for activities needed to generate, analyze, disseminate information that company needs to make good decisions - Information management: internal operation arranging firm’s information resources to support business performance and outcomes Data Versus Information - Data: raw facts and figures - Information: meaningful useful interpretation of data - Data: lack of analysis and context o Ex: got a 70% - Information: data analyzed and put into context o Ex: class average 72% - Knowledge: use information to make decisions through education and experience o Ex: improve study habits Information Systems - Information system (IS): organized method of transforming data into information used for decision making - IS managers must: gather data, convert data to information, control flow of info to people who need it - Informational quality depends on organization’s technological resources and people managing them - Support organization’s managers by providing daily reports, schedules, plans, budgets - Systems allowing managers to record and store data, analyze and use data to obtain information and obtain knowledge - Volume of data assembled, stored, analyzed, shared, used growing - Moore’s Law: number of transistors that can be placed inexpensively on integrated circuit doubles every two years New Business Technologies in the Information Age - Impact of info technology - Leaner organizations o Fewer employees, managers, people get info directly from bottom up and top down - Customers get more info o Price comparison - Facilitates remote working o Flexible locations, schedules, less need for common workplace - Globalization: increased volume and scope of int’l trade o Greater choice, competition, higher standard - Shorter business cycles, skills obsolescence, downsizing, virtual organizations - Virtual organizations o Fewer people o From home o Temporary, flexible, changing personnel The Expanding Scope of Information Systems - Role of IS increased - Crucial for planning, analyze demographics, etc. - Interdependence b/w business strategy and IS Electronic Business and Communications Technologies - Better communication and information systems as organizations expand globally and into ebusiness Electronic Information Technologies - Electronic information technologies (EIT): IS applications based on telecommunications technologies o Enhance performance and productivity of general business activities by: 1. Providing coordination and communication within firm 2. Speeding up transaction with other firms - Fax machines: transmit copy of documents/graphics over telephones lines; speed and low cost - Voice mail: computer-based system for receiving and delivering incoming telephone calls - Electronic mail system: electronic transmission of letters, reports, information between computers - Electronic conferencing: Allows simultaneous communication from different locations via telephone, video, email group software; eliminates travel o Data conferencing: work simultaneous on same document o Videoconferencing: participants to see one another on video screen while teleconferencing - Groupware: system allowing individuals to communicate electronically between desktop PCs - Info from outside company can be linked to its electronic network Data Communication Networks - Data communication networks: global networks permitting users to send electronic messages quickly and economically - Internet, World Wide Web - The Internet: network of networks serving millions of computers, offering info on business, science, gov’t, providing communication flowing among more than 170,000 separate networks around the world o Originally for US military o Quick, cheap o Internet service provider (ISP): commercial firm maintaining permanent connection to internet and sells temporary connection to subscribers - The World Wide Web: system with universally accepted standards for storing, retrieving, formatting, displaying info on internet o Web servers: workstations/large computers customized for managing, maintaining, supporting websites o Browser: software enabling user to access info on web o Directories: features helping people find content they want on web; type key words and directory retrieves list of websites containing words o Search engine: software for searching webpages that does not pre-classify into directory - Intranets: company’s private network accessible only to employees via entry through electronic firewalls o Firewalls: hardware and software security systems ensuring internal computer systems not accessible to outsiders - Extranets: network allowing outsiders limited access to firm’s internal info system New Options for Organizational Design: The Networked Enterprise Leaner Organizations - Fewer employees because simpler organizational structures o Information linkages among employees and customers - Direct communication between managers and workers o Reduction in middle-management positions and shrinkage of layers in organizational structure - Electronic information networks replacing operating managers More Flexible Operations - Electronic networks offer greater variety and faster delivery cycles - Mass customization: producing large volumes of products/services but giving customers choice of features/options wanted - Organize and store Increased Collaboration - Networked system easier and cheaper to contact everyone - Decisions shared, department interdependence - Networking and the Virtual Company o Virtual company improve collaboration between organization using networked system o Contribution of different skills and resources Greater Independence of Company and Workplace - Geographic separation of workplace from company possible because of networked organization Improved Management Process - Instantaneous information accessible in convenient and usable format - Used by upper managers o Coordinate performance, identify departments working un/well - Enterprise Resource Planning (ERP): large information system for integrating all activities of company’s business units o One large database where everyone shares same info when transaction occurs Types of Information Systems - Information system is complex of several information systems sharing information while serving different levels of organization, departments, operations User Groups and System Requirements - Knowledge workers: employees using information and knowledge as raw materials of their work o Information technology to design new products/new business processes Managers at Different Levels - First-line/operational managers: information to oversee daily details of departments/projects - Knowledge workers: special info for conducting technical projects - Middle managers: summaries and analyses setting intermediate/long-range goals for departments/projects - Top managers: analyze broader trends in economy, business environment, overall company performance for long-range plan planning for entire organization - Sales/first-level managers: supervise salespeople, assign territories to sales force, handles customer service and delivery problems o Information on sales and delivery of products - Regional/middle managers: set sales quotas for each sales manager, prepares budget, plans staffing needs for upcoming year o Information on monthly sales by product and region - Top managers need external and internal information o Internal: sales data summarized by product, customer type, geographic region, comparisons to previous years o External: consumer behaviour patterns, competition’s performance, economic forecasts Functional Areas and Business Processes - Business function: marketing, human resources, accounting, production, finance - Has own information needs - Organized according to business processes need special information Major Systems by Level Transaction Processing Systems - Transaction processing systems (TPS): applications of info processing for basic day-to-day business transactions o Airline reservations, insurance claims - Well-defined for first-level/operational activities o Predetermined data requirements, same steps Systems for Knowledge Workers and Office Applications - IS Knowledge Workers o System analysts and designers  Deal with computer system  Represent IS group working with users to learn users’ requirements and design systems to meet them  Decide on types and size of computers, how to set up links to form network - Application/System Programmers o Write software instructions o Assure system can handle requests made by application programs - Operations Personnel (Data Workers) o System operations personnel: people running company’s computer equipment o Ensure right programs are in right sequence, monitor equipment Knowledge-Level and Office Systems - Support systems (word processing, desktop publishing) increased productivity of office and knowledge workers - Computer-aided design (CAD): computer analysis and graphic programs used to generate new products o Simulates product by displaying 3D graphic, transfers instructions to machine building prototype o Older method rapid prototyping: handcrafted prototypes - Computer-aided manufacturing (CAM): computer system designing and controlling equipment and tools producing goods o Computer operations control – any system managing everyday production activities Management Information Systems - Management information systems (MIS): system supporting organization’s managers with daily reports, schedules, plans, budgets Decision Support Systems (DDS) - Decision support system (DDS): interactive system locating and presenting info needed to support decision- making process for middle/top managers; help consider alternatives Executive Support Systems (ESS) - Executive Support System (ESS): quick-reference easy-access application of information systems specially designed for upper-level managers - Uses internal and external information Artificial Intelligence and Expert Systems - Artificial intelligence (AI): construction/programming of computers to imitate human thought processes - Robotics: use of computer-controlled machines performing production tasks - Expert Systems o Expert systems: AI where program draws on rules expert in field has laid out to arrive at solution for problem; imitate thought process of human experts in particular field Elements of the Information System - Information system: group of interconnected devices at different locations exchanging info - Networking: connecting devices; allows decentralization - Computer network: all computers and information technology working together driving flow of digital info through system; can function independently but also interconnected - Computer made up of 6 components 1. Hardware 2. Software 3. Control 4. Database 5. People 6. Telecommunications Hardware - Hardware: physical components of computer system - Input device: hardware getting data into computer in a way that computer understands; inputs o Scanners, mouse, keyboard - Central processing unit: hardware where actual transforming of data into info takes place; contains primary storage unit, control unit, arithmetic logic unit; gets processed - Main memory: part of CPU storing programs needed to operate; - Programs: sequence of instructions; calculates and compares directed by program; what to do with info - Output device: hardware presenting results to users o Monitor, speakers, printer Software - Software: programs instructing computer what to do and how to do it - System programs: tells computer what resources to use and how - Application programs: processes data according to user’s specific needs Graphical User Interface - Graphical user interface (GUI): user-friendly display for users to select computer applications - Icons: small images on screen representing applications Control - Ensures that system is operating according to specific procedures and within guidelines - Guidelines for operating system, responsibilities of personnel, plans for system failure Databases and Application Programs - Computer processing is processing of data - Done by programs – instructions telling system to perform functions Data and Databases - Computer converts data to info through organization - Database: centralized, organized collection of related data Application Programs - 4 most common: word processing, spreadsheets, database management, graphics - Word Processing o Word-processing programs: application programs allowing computer to store, edit, display, print documents o Electronic spreadsheets: application program allowing user to enter categories of data and determine effect of change in one category; spread data across and down pages in rows and columns - Database Management o Database management program: application program keeping track of and manipulating relevant data of business - Graphics o Computer graphics program: application program converting numerical and character data into pictorial form o Allows managers to detect problem, opportunities, relationships easier with graphs and charts o Clearer and more persuasive presentation o Presentation graphics software: application program offering choices for assembling graphics for visual displays, slides, videos, sound splices for presentations o Desktop publishing: combines word processing and graphics capability in producing typeset-quality text o Software piracy: unauthorized use of software Telecommunication and Networks - Network: way of organizing telecommunication components - Section: multimedia communication technologies, devices in today’s systems, ways of organizing information resources into effective systems Multimedia Communication Systems Multimedia communication systems: connected networks of communication appliances Communication Devices - Allows business to be conducted across large distances - GPA, PDA, cellphones Communication Channels - Media making transmission possible - Wired/less transmission - Broadband Channels o Replace traditional transmission lines o Carry multiple signals simultaneously = faster download and internet access System Architecture - Organizing components in computer and communications networks: o Geographic scope o Pattern of connections Local and Wide Area Networks - According to geographic scope - Wide area network (WAN): system linking computers across country through phone wires/satellites - Local area network (LAN): system linking computers in small geographical area by cabling/wireless - Wireless Networks o Airborne electronic signals - Client-Server Systems o Client-server network: composed of clients and servers allowing clients to access various services without costly and unnecessary duplication o Clients: point of entry in ^ o Server: provides services shared by network users o Act as: file server (storing programs and data), print server (controls printer), fax server (controls fax) Chapter 4 Understanding Accounting Issues Be able to: 1. Explain role of accountants and distinguish between kinds of work done by public and private accountants. Accounting a system to collect, analyze, and communicate financial information. Uses bookkeeping (to record transactions) and accounting information system (to use financial info in statements and reports). Financial accounting system deals with external information users, preparing financial reports. Managerial accounting services deals with internal users and prepares forecasts and budgets. 2. Explain how accounting equation and double-entry accounting are used in record keeping. The accounting equation is Assets = Liabilities + Owners’ equity. The double-entry accounting system records the transactions as it affects assets and affects liabilities and owners’ equity. This keeps the accounting equation in balance. 3. Describe the three basic financial statements and show how they reflect activity and financial condition of business. Balance sheet (deals with factors of accounting equation), income statement (shows firm profit or loss), and statements of cash flows (receipts and payments). 4. Show how computing key financial ratios can help in analyzing financial strengths of business. Solvency ratios estimate risk. Short-term solvency ratios measure liquidity: current ratio and working capital. Long-term solvency ratios – debt-to-owners’ equity ratio (high can be good for leverage). Profitability ratio measure potential earnings: return on equity (income for each dollar) and earnings per share (size of dividend). What Is Accounting And Who Uses It? - Accounting: information system for collecting, analyzing, communicating financial info - Bookkeeping: recording of accounting transactions; phase of accounting - Performance reports - Records of transactions, taxes, income, expenses  analyze effects on transactions on business determine how well business is managed and financial strength - Accounting information system (AIS): organized procedure for identifying, measuring, recording, retaining financial info for accounting statements and management reports - Users: o Business managers – set goals, develop plans, evaluate prospects o Employees and unions – plan payment, benefits, insurance, vacation, retirement o Investors and creditors – estimate returns to stockholders, determine growth prospects, decide credit risk o Taxing authorities – plan tax inflows, determine tax liabilities o Government regulatory agencies – fulfill duties Who Are Accountants And What Do They Do? - Controller: manages all accounting activities of firm; chief accounting officer o Ensures that accounting system provides reports and statements for planning, controlling, decision- making activities - Section: fields of accounting (financial and managerial), functions and activities of 3 professional accounting groups - Accountants count - Accounting purpose: measure business performance and translate into info to make decisions with Financial and Managerial Accounting - Differentiated by users Financial Accounting - Financial accounting system: process where interested groups are kept informed about financial condition of firm - Concerned with external users - Prepares and publishes income statements and balance sheets regularly - Focus on activities of company as a whole - Conform to standard formats – clearly compare info - Information historical – summarizes financial transactions - Tells external users about financial condition of firm; looks at business as a whole - Collected on annual basis – fiscal year Managerial Accounting - Managerial/management accounting: internal procedures alerting managers to problems and aiding planning and decision-making - Serves internal users, company’s individual units - Internal reports in any form - Projections and forecasts of financial data and business activities – look forward rather than historical - Tells internal users about performance and problems for planning, decision making, control purposes – looks at individual products, plants, division Professional Accountants Chartered Accountants - Chartered accountants (CA): outside accountant for other firms with certain experience and education requirements and licensing examination - University degree, educational program, national exam - Half offer accounting services to public, half work in government/industry - Provide audit, tax, management services - External financial reporting Certified General Accountants - Certified general accountant (CGA): works in private industry or CGA firm, with education program and national exam - Accounting job with company to be eligible - Formerly not allowed to audit financial statements of public companies - External financial reporting, emphasize use of computer Certified Management Accountants - Certified management accountant (CMA): works in industry and focuses on internal management accounting, with university degree, national examinational, strategic leadership program - Focus on applying best management practices in all business operations - Market-focus to strategic management and resource deployment, synthesizing and analyzing non/financial info to help organizations maintain competitive advantage - Emphasize role of accountants in planning and overall strategy Accounting Services - Most common: auditing, tax services, management services Auditing - Audit: accountant examination of financial record to determine if proper procedures were used for financial reports - Examine AIS, receipts, cancelled cheques, payroll records, may physically check inventory - Determines if firm has control to prevent errors/fraud from going undetected - Forensic accountant: tracks down hidden funds in business firms, usually part of criminal investigation - Generally accepted accounting principles (GAAP): standard rules and methods used by accountants in preparing financial reports - GAAP: all businesses must use similar rules and methods; common set of rules and methods; set by Canadian Institute of Chartered Accountants Tax Services - Help clients preparing tax returns and tax planning Management Consulting Services - Management consulting services: specialized accounting services helping managers resolve variety of problems in finance, production scheduling, etc. Private Accountants - CA and CGA must be independent of firms they audit - Private accountants: accountant hired as salaried employee to deal with company’s accounting needs - Depends on nature of job and business Tools of the Accounting Trade - Rely on record keeping - Concepts underlying records: accounting equation and double-entry bookkeeping The Accounting Equation - Assets = Liabilities + Owner’s equity - Balance data pertaining to financial transactions Assets and Liabilities - Asset: anything of economic value owned by firm/individual o Land, buildings, equipment, inventory, payments due - Liability: debt owed by firm/individual Owners’ Equity - Owners’ equity: positive difference between firm’s assets and liabilities; what would remain if company were liquidated, all assets sold, all debt paid - Owners’ equity = Assets-Liabilities - Positive if assets exceed liabilities and vice versa - 2 sources of capital: 1. Amount owners originally invested 2. Profits earned by and reinvested in company Double-Entry Accounting - Double-entry accounting system: bookkeeping system requiring every transaction to be entered 2 way: how it affects assets and how it affects liabilities and owners’ equity so that accounting equation is always in balance Financial Statements - Accounting summarizes results of firm transactions and issues reports to managers to make decisions - Financial statements: types of broad report regarding company’s financial status; balance sheets ,income statements, statements of cash flows - Reports prepared by all companies Balance Sheets - Balance sheets: financial statement summarizing firm’s financial position on particular date in terms of assets, liabilities, owners’ equity; detailed info about accounting equation factors - Aka statements of financial position - Balance sheet: shows resources owned and available to business; quantity/value of material possessions; determines wealth/financial standing - Shows assets, value - Money from earnings or savings , money put in by asset’s owners - Assets must be paid for by liabilities (money borrowed) or equity (savings) - Assets = Liabilities + Equity - Business equity from o Share capital – shareholders invest into business o Earnings – business makes profit, buys more assets - Shows whether business is big or small, growing or shrinking - Shows when assets likely to become cash, when liabilities must be paid - Lot of liabilities risky but potentially rewarding - Lots of equity safe but limiting - Liquidity o Working capital: Current Assets – Current Liabilities  Difference between cash inflows and cash outflows to pay debts o Current ratio: Current Assets / Current Liabilities  Ratio of cash inflows to cash needed to pay debts - Leverage: ability to borrow $ to buy things o Borrowing allows to buy useful and productive assets o Costs of interest and risk o Debt: money that business borrows/owes o Equity: money supplied by owners of business and money business earned o Debt to Owners’ Equity Ratio: Total Liabilities / Total Equity  Limits on how much should be borrowed by lenders  More borrowing, more interest Assets - Possessions owned by a business - Can be sold/given away - Store of value, potential source of cash - Ex: cash, accounts receivable, raw materials, inventory, real estate, machinery & equipment - Economic resources that can derive future benefit - 3 types: current, fixed intangible - Current Assets o Cash (perfectly liquid), accounts receivable, inventory, raw materials o Current assets: cash and other assets convertible into cash within a year o Liquidity: ease and speed which assets can be converted to cash; cash is perfectly liquid o Marketable securities – short term investment quickly sold slightly less liquid o Accounts receivable: amounts due to firm from customers who have purchased on credit; form of current asset o Merchandise inventory: cost of merchandise acquired for sale but still on hand o Prepaid expenses: supplies on hand and rent paid for period to come - Fixed Assets o Fixed assets: long-term use/value to firm o Land, buildings, machinery o Depreciation: reflects decreasing value of asset; distributing cost of asset over years which it produces revenues; calculated by dividing number of years in productive life - Intangible Assets o Intangible assets: non-physical assets that have economic value but precise value hard to calculate o Patents, trademarks, copyrights o Goodwill: amount paid for existing business beyond value of other assets Liabilities - Money borrowed or earned - One of two ways of acquiring assets - Ex: loans, trade credit, unpaid bills, term loans, mortgages - Current liabilities: debts owed by firm that must be paid within a year o Bank line of credit, trade credit, accounts payable - Accounts payable: amount due from firm to suppliers purchased on credit; form of current liability - Long-term liabilities: debts owed by firm not due for at least a year Owners’ Equity - Equity: money given or earned - Broken into: stated capital, paid-in capital, retained earnings - Paid-in capital: additional money invested in firm by owners - Retained earnings: net profits less dividend payments to shareholders Income Statements - Income statement/profit-and-loss statement: financial statement showing firm’s revenue and expenses and indicating whether earned profit or suffered loss during time period - Profit/Loss = Revenues-Expenses - Profit/Loss aka bottom line, most important figure in business - Divided in 3 categories: revenues, costs of goods sold, operating expenses - Income statement: shows sales, expenses, profits made using resources - Shows $ from sales, cost of making product, cost of running business - If $ in - $ out = profit - Fiscal year Revenues - Revenues: funds flowing into business from sale of goods/services or other sources (interest, rent, licensing fees) - Sales – value of products/services sold - Purpose of business is to sell to customers Cost of Goods Sold - Cost of goods sold: expenses directly involved in producing/selling good/service during time period - Cost of obtaining materials to make products - Goods available for sale = merchandise inventory + merchandise purchases during year Cost of goods sold = goods available for sale-less: merchandise inventory - Cost of making product - Cost of material and labour directly going into making product Gross Profit/Gross Margin - Gross profit/gross margin: revenues/gross sales less cost of goods sold - Percentage of sale – gross profit divided by revenues/gross sales - Profit from making & selling product Operating Expenses - Operating expenses: costs incurred by firm other than those included in cost of goods sold - Selling expenses from activities related to selling firm’s goods/services o Sales force salaries, delivery costs, advertising - General management of company costs o Management salaries, insurance, maintenance - Operating Income and Net Income o Operating income: compares gross profit from business operations against operating expenses  Profits from operating business o Cost of goods-total operating expenses o Net income/net profit/net earnings: gross profit less operating expenses and income taxes - Cost of running business (vs. cost of making product) - Does not vary with sales - Interest expense: cost of borrowed $ - Interest of doing business - Interest paid on loan o Ex: 500,000 @ 8% = 40,000 - Income tax - Canadian businesses income taxes = 40% - Net Income/net profit/net earnings: result after all expenses deducted - Net income = Revenues – All expenses - Benefit of owning business - Return on equity: return to owners for their equity to business - Return on equity = Net Income / Equity - Investors buy shares to increase wealth - Earnings per share = Net income / Total # of shares Statement of Cash Flows - Statement of cash flows: financial statement describing firm’s generation and use of cash during time period - Describe cash receipts and cash payments - Shows effects on cash of 3 business activities: o Cash flows from operations  Concerned with main operating activities – cash transactions  Shows how much of profit results from main line of business rather than secondary activities o Cash flows from investing  Net cash used in or provided by investing  Includes cash receipts, payments from buying and selling stocks, bonds, property, equipment, productive assets o Cash flows from financing  Net cash from financial activities  Includes cash inflows from borrowing/issuing stock, outflows for payment of dividends and repayment of borrowed money o ^provides info to investors The Budget: An Internal Financial Statement - Budget: detailed financial plan for estimated receipts and expenditures for time period in future, usually 1 year - Most important internal financial statement for planning, controlling, decision-making - Useful to keep track of weekly/monthly performance - Compare actual financial results with budgeted amount - Must obtain sales of projections of units to be sold and expected expenses for each quarter Analyzing Financial Statements - Statements provide data, which can be applied to ratios which can be used to analyze financial health - Check firm’s progress by comparing current and past statements - Ratios are grouped in 2 classifications: o Solvency ratios: estimate short/long-term financial risk evident in company o Profitability ratios: measure potential earnings; firm’s overall financial performance in terms of likely profits; used by investors to assess profitable returns Short-Term Solvency Ratios - Company’s survival depends on ability to pay immediate debts in short run - Short-term solvency ratios measure company’s relative liquidity and thus ability to pay - Liquidity ratio: measure of firm’s ability to meet immediate debts; analyze risk of investing in firm Current Ratio - Aka banker’s ratio - Focus on creditworthiness - Current ratio: form of liquidity ratio calculated as current assets divided by current liabilities; measures company’s ability to meet current obligations out of current assets - Reflects ability to generate cash to meet obligations through process of selling inventories and collecting accounts receivable - Satisfactory if 2:1 or higher – current assets more than double current liabilities o Small ratio may indicate difficulty paying bills o Large ratio may indicate unproductive assets - Working Capital o Working capital: difference between firm’s current assets and current liabilities o Indicate ability to pay liabilities (short-term debts) Long-Term Solvency Ratios - Involve interest payment - If cannot meet, danger of collapse/takeover Debt-to-Owners’ Equity Ratio - Debt ratios:measure of firm’s ability to meet long-term debts; analyze risks of investing in firm - Debt-to-owners’-equity ratio: form of debt ratio calculated as total liabilities divided by owners’ equity o Describe amount firm is financed through borrowed money - Debt: total liabilities - Ratios above 1.0 relying too much on debt - Leverage o Leverage: using borrowed funds to make purchase, thus increasing user’s purchasing power, potential rate of return, risk of loss; ability to make otherwise unaffordable purchases o High debt-to-equity ratio sometimes desirable o Leverage buyouts (LBOs) - firms willingly take huge debts to buy out other companies Profitability Ratios - In addition to safety and risk, investors also want to know measure of returns - 2 profitability ratios: return on equity and earnings per share Returns on Equity - Return on equity: form of profitability ratio calculated as net income divided by total owners’ equity o Net income earned for each dollar invested - Good if higher than previous year Earnings per Share - Earnings per share: form of profitability ratio calculated as net income divided by number of common shares outstanding - Determine size of dividend company can pay to shareholders - Used by investors to decide whether to invest in company or not - Higher ratio, higher stock value  investors know firm can afford dividends Part 2 Managing Marketing - Overview of elements of marketing, including developing, pricing, promoting, distributing types of goods/services - Chapter 5 Managing Marketing: examines ways companies distinguish products, determine customer needs, address consumer buying preferences - Chapter 6 The 4 Ps – Products: development of products, effect of brand names and packaging, promotion strategies helping firm meet objectives, dis/advantages of promotional tools - Chapter 7 The 4 Ps – Price: strategies firm use to price products, outlet business firms use to distribute products, problems of storing goods and transporting to distributors - Chapter 8 The 4 Ps – Promotion - Chapter 9 The 4 Ps – Place Chapter 5 Understanding Marketing: Markets Segmentation and Market Research Be able to: 1. Explain concept of marketing and describe five force
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