A business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors. [EITF 98-3]. The elements necessary to conduct normal operations will vary by industry and by the operating strategies of the unit. In general, a business consists of inputs, processes and outputs:
Inputs | · Long-lived assets, including intangible assets, or rights to the use of long-lived assets. · Intellectual property. · The ability to obtain access to necessary materials or rights. · Employees. |
Processes
| Process is defined as the existence of systems, standards, protocols, conventions, and rules that act to define the processes necessary for normal, self-sustaining operations, such as: · strategic management processes, · operational processes, and · resource management processes. |
Outputs | The ability to obtain access to the customers that purchase the outputs of the component unit. |
Decision-making in business (Bowett, R. (n.d.)
Good decision-making is a crucial part of business. a good decision will be made through the availability of good information; an experience in interpreting information; consultation; and having reliable aids to decision-making.
Good decision-making comes from:
- Training of managers in decision-making skills.
- Good information in the first place.
- Management skills in analysing information and handling its shortcomings.
- Experience and natural ability in decision-making.
- Risk and attitudes to risk.
- Human factors. People are people. Emotional responses come before rational responses, and it is very difficult to get people to make rational decisions about things they feel very strongly about. Rivalries and vested interests also come into it. People simply take different views on the same facts, and people also simply make mistakes. Business Thinkers -John Pierpoint Morgan & Good Management Self-Assessment.
Figure: The Decision-Making Process Source: Bowett, R. (n.d.)
Types of business decisions
- Programmed DecisionsThese are standard decisions which always follow the same routine. As such, they can be written down into a series of fixed steps which anyone can follow. They could even be written as computer program
- Non-Programmed Decisions. These are non-standard and non-routine. Each decision is not quite the same as any previous decision.
- Strategic Decisions. These affect the long-term direction of the business eg whether to take over Company A or Company B
- Tactical Decisions. These are medium-term decisions about how to implement strategy eg what kind of marketing to have, or how many extra staff to recruit
- Operational Decisions. These are short-term decisions (also called administrative decisions) about how to implement the tactics eg which firm to use to make deliveries.
Constraints on Decision-Making
- Internal Constraints: These are constraints that come from within the business itself. These include:
- Availability of finance. Certain decisions will be rejected because they cost too much
- Existing Business Policy. It is not always practical to re-write business policy to accommodate one decision
- People’s abilities and feelings. A decision cannot be taken if it assumes higher skills than employees actually have, or if the decision is so unpopular no-one will work properly on it.
- External Constraints: These come from the business environment outside the business.
- Legislations
- Competitors’ behaviour, and their likely response to decisions your business makes
- Lack of technology
- Economic climate
References
Gordon, T. (2005). Accounting for Goodwill and Other Intangibles (FASB 141, 142). Lecture Notes for Acct 592
Bowett, R. (n.d.).Organisation – decision-making in business. http://tutor2u.net/business/ organisation/decisionmaking.htm
