the measurement of performance using budgets

Cambridge IGCSE/A‑Level Business (9609) – Complete Syllabus Notes

---

1 Business & Its Environment

1.1 Enterprise

• Nature of activity: Combining resources (land, labour, capital, entrepreneurship) to produce goods or services for profit or a social purpose.
• Factors of production:

  Factor	Example
  Land	Factory site, raw materials
  Labour	Employees, managers
  Capital	Machinery, computers, finance
  Entrepreneurship	Risk‑taking founder, innovation

• Opportunity cost: The benefit foregone by choosing one alternative over another.

  Example: A retailer uses a shop front to sell clothing (£30,000 profit per year) instead of renting it to a café (£35,000 profit). The opportunity cost of the clothing business is £5,000.

• Dynamic environment: Markets, technology, legislation and consumer preferences constantly change, creating both opportunities and threats.

1.2 Business Structures & Economic Sectors

• Legal structures (see 1.5 for details).
• Economic sectors:

  Sector	Typical Activity	Example
  Primary	Agriculture, mining, fishing	UK wheat farms
  Secondary	Manufacturing, construction	Car assembly plant
  Tertiary	Services – retail, finance, health	Supermarket chain
  Quaternary	Knowledge‑based services – R&D, IT	Software development firm

• Public vs private sector: Public – owned by government, funded by taxes (e.g., NHS). Private – owned by individuals or shareholders, funded by sales and capital markets.
• Sector‑shift: Movement of resources from primary/secondary to tertiary/quaternary as economies develop (e.g., UK’s shift from manufacturing to services since the 1970s).

1.3 Business Objectives

Typical Objective	Primary Focus	Possible Conflict
Profit maximisation	Financial return to owners	May clash with social responsibility
Growth	Increase market share, sales, assets	Can reduce profitability in short‑term
Survival	Stay in business long‑term	May require cost‑cutting that harms quality
Social responsibility	Ethical, environmental, community goals	Often raises costs, reducing profit

1.4 Stakeholders

• Owners / shareholders – return on investment
• Managers – achievement of targets, career progression
• Employees – job security, wages, working conditions
• Customers – quality, price, service
• Suppliers – reliable orders, timely payment
• Creditors (banks, investors) – repayment of loans, interest
• Government & regulators – tax compliance, legal standards
• Local community & NGOs – environmental impact, employment

1.5 External Environment – PESTLE

Factor	Key Considerations
Political	Tax policy, trade restrictions, stability, government subsidies
Economic	Inflation, interest rates, exchange rates, consumer confidence, unemployment
Social	Demographics, lifestyle trends, education, health consciousness
Technological	Automation, R&D, e‑commerce, digital disruption
Legal	Health & safety, employment law, consumer protection, data protection
Environmental	Sustainability, carbon taxes, waste disposal, climate change legislation

1.6 Entrepreneurship & Intrapreneurship

• Entrepreneur: Starts a new business, assumes risk, seeks profit and innovation. Typical qualities – vision, resilience, willingness to take calculated risk.
• Intrapreneur: Acts like an entrepreneur within an existing organisation, developing new products or processes. Example: Google’s “20 % time” policy.
• Barriers to entrepreneurship: Lack of finance, market knowledge, skills, fear of failure, regulatory constraints.

1.7 Business Plans

A written document that outlines the purpose, strategy and financial forecasts of a new or existing business.

Element	Purpose
Executive summary	Brief overview to attract readers/investors
Business description	Nature of activity, mission, objectives
Market analysis	Target market, competition, PESTLE insights
Organisation & management	Structure, key personnel, ownership
Product/service offering	Features, benefits, life‑cycle stage
Marketing & sales strategy	4 Ps, pricing, promotion, distribution
Operations plan	Location, technology, production process
Financial projections	Sales forecast, cash‑flow, break‑even, budgets
Risk analysis	Potential problems & mitigation measures

Benefits: Provides a roadmap, aids financing, clarifies objectives.
Limitations: Time‑consuming, may become outdated, relies on assumptions.

Key Exam Points – Business & Environment

• Define a business and list the four factors of production.
• Explain opportunity cost with a numerical example.
• State at least three common objectives, discuss how they can conflict.
• Identify the main stakeholder groups and give one interest for each.
• Apply PESTLE to a brief case (e.g., a fast‑food chain entering a new country).
• Compare local, national, international and multinational enterprises.
• Outline the qualities of an entrepreneur and the barriers they may face.
• List the six elements of a business plan and discuss one advantage and one disadvantage of using a business plan.

---

2 Human Resource Management (HRM)

2.1 HR Planning & Recruitment

1. Analyse current workforce (skills, numbers, demographics).
2. Forecast future requirements based on growth, new products, technology, and retirement.
3. Identify gaps → develop a recruitment plan.

Recruitment methods

Method	Internal / External	Typical Use
Promotion / transfer	Internal	Reward high performers
Advertising (newspaper, online)	External	Reach a wide pool
Recruitment agencies	External	Specialist or senior roles
University placement schemes	External	Graduate recruitment

2.2 Training & Development

• Induction – introduction to policies, culture, health & safety.
• On‑the‑job training – coaching, job rotation, apprenticeship.
• Off‑the‑job training – seminars, e‑learning, conferences.
• Continuous professional development (CPD) – maintaining skills, especially in regulated professions.

2.3 Motivation Theories

Theory	Key Idea	Implication for Managers
Maslow’s Hierarchy of Needs	Physiological → Safety → Social → Esteem → Self‑actualisation	Ensure lower‑level needs are satisfied before expecting higher‑level performance.
Herzberg’s Two‑Factor	Hygiene factors (salary, conditions) prevent dissatisfaction; motivators (recognition, achievement) create satisfaction.	Provide good working conditions and design jobs that are intrinsically rewarding.
McGregor’s Theory X & Y	X – people dislike work; Y – people seek responsibility.	Adopt Theory Y practices (delegation, empowerment) to increase motivation.
Vroom’s Expectancy Theory	Performance = Expectancy × Instrumentality × Valence	Link clear performance standards with attractive rewards.

2.4 Performance Management & Reward

• Set SMART objectives (Specific, Measurable, Achievable, Relevant, Time‑bound).
• Conduct regular appraisals – can be 360°, self‑assessment, or manager‑led.
• Reward mix:

  Type	Examples
  Financial	Salary, commission, profit‑share, bonuses
  Non‑financial	Recognition awards, career development, flexible working

• Link rewards to performance through pay‑for‑performance schemes or gain‑sharing arrangements.

Key Exam Points – HRM

• Explain the steps in the recruitment process and evaluate two recruitment methods.
• Compare two motivation theories and recommend which is most appropriate for a start‑up.
• Discuss the advantages of a mixed (financial + non‑financial) reward system.
• Outline how performance appraisal can be used to improve productivity and give an example of a SMART objective.

---

3 Marketing

3.1 The Marketing Mix – 4 Ps

Product	Price	Place	Promotion
Features, quality, branding, packaging Product life‑cycle (PLC) considerations Brand extensions, warranties	Pricing strategies – skimming, penetration, psychological, cost‑plus Discounts, credit terms, price elasticity	Distribution channels – direct, indirect, dual distribution Logistics, inventory, e‑commerce platforms	Advertising, sales‑promotion, public relations, personal selling, digital marketing Integrated marketing communications (IMC)

3.2 Market Research & Segmentation

1. Define the research problem and objectives.
2. Choose primary (surveys, interviews, focus groups) or secondary sources (industry reports, statistics).
3. Collect data → analyse (qualitative & quantitative).
4. Identify market segments using:
   • Demographic – age, gender, income
   • Geographic – region, climate
   • Psychographic – lifestyle, values
   • Behavioural – usage rate, loyalty, benefits sought
5. Target the most attractive segment(s) and position the product.

3.3 Product Life‑Cycle (PLC)

• Introduction – high costs, low sales, need for awareness.
• Growth – rapid sales increase, economies of scale, possible price reductions.
• Maturity – sales peak, intense competition, product differentiation becomes key.
• Decline – sales fall, market saturation, consider product deletion or rejuvenation.

Strategic options at each stage (e.g., price skimming in introduction, market segmentation in maturity, product modification in decline).

Key Exam Points – Marketing

• Define each of the 4 Ps and give a real‑world example.
• Explain how a company moves from the introduction to the growth stage of the PLC.
• Analyse a short market‑research scenario and suggest an appropriate segmentation basis.
• Discuss the impact of digital technology on the promotion mix (social media, influencer marketing, SEO).

---

4 Operations Management

4.1 Operations Objectives

• Quality – meeting specifications, reducing defects (e.g., ISO 9001).
• Speed – lead‑time reduction, fast order fulfilment.
• Flexibility – ability to change product mix or volume quickly.
• Cost – minimising waste, achieving economies of scale.

4.2 Production Processes

Process Type	Typical Output	Key Advantage	Key Disadvantage
Job production	One‑off custom items	High flexibility	High unit cost
Batch production	Limited runs of similar items	Balanced cost & flexibility	Set‑up time between batches
Mass (flow) production	Large volumes of identical goods	Low unit cost	Low flexibility
Continuous production	Non‑stop output (e.g., electricity, chemicals)	Very low per‑unit cost	Very high capital investment

4.3 Inventory Management

Economic Order Quantity (EOQ):

\[ \text{EOQ} = \sqrt{\frac{2DS}{H}} \]

• D = annual demand (units)
• S = ordering cost per order (£)
• H = holding cost per unit per year (£)

Worked example – D = 12 000 units, S = £50, H = £2:

\[ \text{EOQ} = \sqrt{\frac{2\times12\,000\times50}{2}} = \sqrt{600\,000}=775\text{ units (rounded)} \]

Result: ordering 775 units each time minimises total inventory cost (ordering + holding).

4.4 Quality & Lean Production

• Quality circles – employee groups that identify and solve quality problems.
• Total Quality Management (TQM) – organisation‑wide focus on continuous improvement.
• Just‑In‑Time (JIT) – receive materials only when needed, reducing stock levels.
• Lean production – eliminate waste (Muda) – over‑production, waiting, transport, excess inventory, motion, defects, over‑processing.

Key Exam Points – Operations

• Identify the four main operations objectives and give a business example for each.
• Compare job, batch, mass and continuous production in terms of cost, flexibility and quality control.
• Calculate EOQ for a given data set (provide a short worked example).
• Explain how JIT can improve cash flow but also increase risk (e.g., supplier disruption).

---

5 Finance & Accounting (AS Level)

5.1 Sources of Finance

Source	Type	Typical Use	Key Advantage	Key Disadvantage
Retained earnings	Internal – Equity	Re‑investment, expansion	No interest, no dilution	Limited by profit levels
Bank loan	External – Debt	Capital equipment, premises	Fixed repayment schedule	Interest cost, collateral required
Share issue	External – Equity	Large‑scale expansion, acquisitions	No mandatory repayments	Shareholder dilution, dividend expectations
Trade credit	External – Short‑term	Inventory purchase	Improves cash flow	May affect supplier relationships
Venture capital	External – Equity	High‑growth start‑ups	Expertise & networks	Loss of control, high return expectations

5.2 Cash‑Flow Forecasting

Purpose: predict periods of surplus or deficit, plan financing and avoid liquidity problems.

Month	Cash Inflows (£)	Cash Outflows (£)	Net Cash Flow (£)
Jan	45,000	38,000	+7,000
Feb	48,000	42,000	+6,000
Mar	52,000	55,000	‑3,000

Interpretation: A cash deficit in March indicates the need for short‑term financing (e.g., overdraft).

5.3 Costing Methods

• Absorption costing – all production costs (fixed + variable) allocated to units; required for external reporting.
• Marginal (variable) costing – only variable costs allocated; fixed costs treated as period expenses; useful for short‑term decision‑making.
• Activity‑Based Costing (ABC) – overhead allocated on the basis of cost drivers (e.g., machine hours, number of setups) for more accurate product costing.

5.4 Break‑Even Analysis

Key formulas:

\[ \text{Contribution per unit}= \text{Selling price} - \text{Variable cost per unit} \] \[ \text{Break‑Even (units)} = \frac{\text{Fixed Costs}}{\text{Contribution per unit}} \]

Example

Item	£
Selling price per unit	50
Variable cost per unit	30
Fixed costs	120,000

Contribution = 20 £; Break‑Even = 120,000 ÷ 20 = 6,000 units.

5.5 Budgets – Meaning, Purpose & Performance Measurement

What is a Budget?

A budget is a detailed, written financial plan covering a specific period (usually one year). It sets out expected income, expenditure and profit, and provides targets against which actual performance can be measured.

Types of Budgets

Budget	Key Features	Typical Use
Static (or Fixed) Budget	Based on a single level of activity; figures do not change.	Control for a stable environment.
Flexible Budget	Prepared for a range of activity levels; adjusts variable costs proportionally.	Performance comparison when actual activity differs from forecast.
Zero‑Based Budget	Every expense must be justified from “zero” each period.	Cost‑control in organisations seeking efficiency.
Rolling (Continuous) Budget	Continuously updated (e.g., monthly) to always cover the next 12 months.	Dynamic environments, rapid market change.

Key Purposes of Budgets

• Planning – allocate resources to achieve strategic objectives.
• Coordination – ensure different departments work towards common targets.
• Motivation – set clear, achievable performance standards.
• Control – compare actual results with budgeted figures; identify variances.
• Communication – convey expectations throughout the organisation.

Performance Measurement Using Budgets

1. Set budgeted targets for revenue, costs, profit, and key ratios (e.g., gross profit margin).
2. Record actual results for the same period.
3. Calculate variances:
   • Favourable variance – actual result better than budget (e.g., higher sales, lower costs).
   • Unfavourable variance – actual result worse than budget.
4. Analyse causes – investigate why variances occurred (market conditions, efficiency, price changes).
5. Take corrective action – adjust operations, renegotiate supplier contracts, revise pricing, or amend future budgets.

Common Variance Analyses

Variance	Formula	Interpretation
Sales volume variance	(Actual units – Budgeted units) × Budgeted contribution per unit	Shows impact of selling more or fewer units.
Sales price variance	(Actual price – Budgeted price) × Actual units sold	Reflects price changes or discounting.
Variable cost variance	(Actual variable cost – Budgeted variable cost) × Actual units	Indicates efficiency in production.
Fixed cost variance	Actual fixed costs – Budgeted fixed costs	Highlights overspend on overheads.

Key Performance Indicators (KPIs) Linked to Budgets

• Gross profit margin = (Gross profit ÷ Sales) × 100 %
• Operating profit margin = (Operating profit ÷ Sales) × 100 %
• Return on capital employed (ROCE) = (Operating profit ÷ Capital employed) × 100 %
• Current ratio = Current assets ÷ Current liabilities (used in cash‑flow budgeting).

Example – Variance Analysis

Budget for Q1:

Item	Budget (£)	Actual (£)
Sales (units)	10,000	9,200
Selling price per unit	50	48
Variable cost per unit	30	32
Fixed costs	120,000	130,000

Calculations:

• Budgeted contribution = (50 – 30) × 10,000 = £200,000
• Actual contribution = (48 – 32) × 9,200 = £147,200
• Contribution variance = £147,200 – £200,000 = ‑£52,800 (unfavourable)
• Fixed cost variance = £130,000 – £120,000 = +£10,000 (unfavourable)

Interpretation: Lower sales volume, reduced price and higher variable cost all contributed to a large unfavourable contribution variance; fixed‑cost overspend further worsened profitability. Management might review pricing strategy, negotiate lower material costs, and tighten overheads.

Key Exam Points – Budgets & Performance Measurement

• Define a budget and explain its five main purposes.
• Distinguish between static, flexible, zero‑based and rolling budgets, giving an example of when each would be appropriate.
• Explain how a variance is calculated and why it is useful for performance control.
• Analyse a short set of budgeted vs. actual figures, calculate at least two variances and suggest possible corrective actions.
• Discuss the advantages and limitations of using budgets as a motivational tool.

---

6 A‑Level Extensions (Optional Topics)

6.1 Strategic Planning & Competitive Advantage

• Porter’s Five Forces – assess industry attractiveness.
• SWOT analysis – internal strengths/weaknesses vs external opportunities/threats.
• Generic strategies – cost leadership, differentiation, focus.

6.2 Advanced Financial Ratios

Ratio	Formula	Interpretation
Gross profit margin	(Sales – COGS) ÷ Sales × 100 %	Efficiency of production & pricing.
Net profit margin	Net profit ÷ Sales × 100 %	Overall profitability after all costs.
Current ratio	Current assets ÷ Current liabilities	Short‑term liquidity.
Debt‑to‑equity ratio	Total debt ÷ Shareholders’ equity	Financial leverage and risk.
Return on assets (ROA)	Net profit ÷ Total assets × 100 %	How efficiently assets generate profit.

6.3 International Business

• Modes of entry – export, licensing, joint venture, wholly‑owned subsidiary.
• Multinational enterprises (MNEs) – advantages (economies of scale, market power) and disadvantages (cultural risk, political risk).
• Exchange rate impacts on pricing and profitability.

Key Exam Points – A‑Level Extensions

• Apply Porter’s Five Forces to a specific industry and suggest a suitable generic strategy.
• Calculate and interpret at least three advanced financial ratios from a given set of accounts.
• Discuss the risks and benefits of a joint‑venture entry into an emerging market.

---

7 Quick Revision Checklist

• Enterprise – factors of production, opportunity cost, types of firms.
• Objectives – profit, growth, survival, social responsibility and conflicts.
• Stakeholders – interests and influence.
• PESTLE – analyse a case study.
• Entrepreneurship – qualities, barriers, intrapreneurship.
• Business plan – six core elements, pros & cons.
• HRM – recruitment methods, motivation theories, performance appraisal.
• Marketing – 4 Ps, market research, PLC stages.
• Operations – objectives, production processes, EOQ, JIT/lean.
• Finance – sources of finance, cash‑flow forecast, costing methods, break‑even.
• Budgets – types, purposes, variance analysis, KPI links.
• A‑Level extensions – Porter’s Five Forces, advanced ratios, international entry modes.

---

These notes are designed to cover the full Cambridge IGCSE/A‑Level Business (9609) syllabus, providing clear definitions, key formulas, tables for quick reference, and exam‑focused bullet points. Use the “Key Exam Points” sections to guide revision and practice answering past‑paper style questions.