Operations Management

Operations management is a multi-disciplinary field that focuses on managing all aspects of an organization's operations. "The typical organization consists of the integration of many different functions, " wrote Howard J.

Opportunity Cost

Simply stated, an opportunity cost is the cost of a missed opportunity. Applied to a business decision, opportunity cost might refer to the profit a company could have earned from its capital, equipment, and real estate if these assets had been used in a different way.

Optimal Firm Size

Optimal firm size refers to the speed and extent of growth that is ideal for a specific small business. Optimal firm size is dependent on a variety of internal and external factors.

Oral Communication

Oral communication describes any type of inter-action that makes use of spoken words, and it is a vital, integral part of the modern business world. "The ability to communicate effectively through speaking as well as in writing is highly valued, and demanded, in business, " Herta A.

Organization Chart

Organizational charts are detailed representations of organization structures and hierarchies. They are typically used to provide both employees and individuals outside the organization with a "snapshot" picture of it's reporting relationships, divisions of work, and levels of management.

Organization Theory

An organization, by its most basic definition, is an assembly of people working together to achieve common objectives through a division of labor. An organization provides a means of using individual strengths within a group to achieve more than can be accomplished by the aggregate efforts of group members working individually.

Organizational Behavior

Organizational behavior is an academic discipline concerned with describing, understanding, predicting, and controlling human behavior in an organizational environment. Organizational behavior has evolved from early classical management theories into a complex school of thought—and it continues to change in response to the dynamic environment and proliferating corporate cultures in which today's businesses operate.

Organizational Development

Organizational development (OD) is an application of behavioral science to organizational change. It encompasses a wide array of theories, processes, and activities, all of which are oriented toward the goal of improving individual organizations.

Organizational Growth

Growth is something for which most companies, large or small, strive. Small firms want to get big, big firms want to get bigger.

Organizational Life Cycle

The organizational life cycle (OLC) is a model which proposes that over the course of time, business firms move through a fairly predictable sequence of developmental stages. This model, which has been a subject of considerable study over the years, is linked to the study of organizational growth and development.

Organizational Structure

An organizational structure is the pattern or arrangement of jobs and groups of jobs within an organization. This pattern pertains to both reporting and operational relationships, provided they have some degree of permanence.

Original Equipment Manufacturer (OEM)

An original equipment manufacturer (OEM) is a company that produces products or major components of products that are sold to customers as new. Some companies and consumers, when choosing replacement parts for their products or equipment, prefer to purchase parts that were made by the same manufacturer that produced the original equipment.


Outsourcing occurs when a company purchases products or services from an outside supplier, rather than performing the same work within its own facilities, in order to cut costs. The decision to outsource is a major strategic one for most companies, since it involves weighing the potential cost savings against the consequences of a loss in control over the product or service.

Overhead Expense

Overhead expenses are those production and nonproduction costs not readily traceable to specific jobs or processes. Overhead expenses encompass three general areas: indirect materials, indirect labor, and all other miscellaneous production expenses, such as taxes, insurance, depreciation, supplies, utilities, and repairs.


Overtime is work done by hourly employees beyond the regular work hours per week. Any work over forty hours per week for an hourly worker is considered overtime.


Packaging refers to the container or wrapper that holds a product or group of products. Most commercial packaging serves two basic functions: protecting the product from damage during shipping, and promoting the product to the ultimate consumer.


In the words of the Uniform Partnership Act, a partnership is "an association of two or more persons to carry on as Co-owners of a business for profit." The essential characteristics of this business form, then, are the collaboration of two or more owners, the conduct of business for profit (a nonprofit cannot be designated as a partnership), and the sharing of profits, losses, and assets by the joint owners. A partnership is not a corporate or separate entity; rather it is viewed as an extension of its owners for legal and tax purposes, although a partnership may own property as a legal entity.

Partnership Agreement

Partnership agreements are written documents that explicitly detail the relationship between the business partners, as well as their individual obligations and contributions to the partnership. Since partnership agreements should cover all possible business situations that could arise during the life of the partnership, the documents are often complex, and legal counsel in drafting and reviewing the finished contract is generally recommended.

Part-Time Business

Thousands of American entrepreneurs supplement their income by starting and maintaining part-time small businesses. The circumstances and goals of these business owners run the gamut, but many are operated out of the home and are utilized to supplement income derived from other sources (a full-time job, retirement benefits, etc.).

Part-Time Employees

Part-time employees are those who—whether by personal choice or due to employment conditions beyond their control—work fewer hours than the regular, full-time staff of a business over the course of a year. Many small business owners rely on a blend of full- and part-time employees to attend to basic operational needs, although some industries rely more heavily on one type or another.

Patent and Trademark Office (PTO)

The Patent and Trademark Office (PTO) is responsible for administering all laws relating to trademarks and patents in the United States. It has thus been an important agency for several generations of entrepreneurs and small business owners, as well as for larger corporations and universities.

Payroll Taxes

Payroll taxes include a number of different taxes that must be withheld from wages by all businesses that have employees. Small businesses that employ persons other than the owner or partners are required to withhold payroll taxes from the wages paid to employees, remit these taxes to the Internal Revenue Service (IRS), and make regularly scheduled reports to the IRS about the amount of payroll taxes owed and paid.

Penetration Pricing

Penetration pricing is a strategy employed by businesses introducing new goods or services into the marketplace. With this policy, the initial price of the good or service is set relatively low in hopes of "penetrating" into the marketplace quickly and securing significant market share.

Pension Plans

The term "pension plan" is now used to describe a variety of retirement programs that companies establish as a benefit for their employees—including 401(k) plans, profit-sharing plans, simplified employee pension (SEP) plans, and Keogh plans. In the past, however, pension plans were differentiated from other types of retirement plans in that employers were committed to providing a certain monetary level of benefits to employees upon retirement.

Per Diem Allowances

The term "per diem" means "daily." In a business setting, the term has come to mean the daily rates employees use for expenses incurred while traveling on business-related activities. These rates are likely to differ based on whether the employee travels in their home area, away from home, or internationally.

Personal Selling

Personal selling is the process of communicating with a potential buyer (or buyers) face-to-face with the purpose of selling a product or service. The main thing that sets personal selling apart from other methods of selling is that the salesperson conducts business with the customer in person.

Physical Distribution

Physical distribution is the set of activities concerned with efficient movement of finished goods from the end of the production operation to the consumer. Physical distribution takes place within numerous wholesaling and retailing distribution channels, and includes such important decision areas as customer service, inventory control, materials handling, protective packaging, order procession, transportation, warehouse site selection, and warehousing.

Point of Sale Systems

Point of sale (POS) systems are electronic systems that provide businesses with the capability to retain and analyze a wide variety of inventory and transaction data on a continuous basis. POS systems have been touted as valuable tools for a wide variety of business purposes, including refining target marketing strategies; tracking supplier purchases; determining customer purchasing patterns; analyzing sales (on a daily, monthly, or annual basis) of each inventory item, department, or supplier; and creating reports for use in making purchases, reorders, etc.

Portability of Benefits

The portability of benefits is a concept that is rapidly gathering support in the U.S. workforce.

Postal Costs

No business owner will escape postal costs entirely, no matter how small or technologically savvy his or her company is. From the occasional letter or invoice to large regular shipments, businesses continue to rely on some level of paper interaction to operate despite the ever-growing presence of e-mail and other high-tech modes of communication.

Pregnancy in the Workplace

Most small business owners that maintain a paid staff will, at one time or another, have a pregnant employee in the workplace. In fact, Bureau of Labor Statistics figures indicate that fully 80 percent of all working women will become pregnant at some point in their working lives.

Present Value

Present value (PV) is an accounting term that measures how money money needs to be invested today in over to finance future business initiatives, projects, and obligations. In order to determine the present value of future costs, accountants use formulas based on the time value of money.

Press Kits

Press kits are packets of background information that are provided to members of the media at special events (conventions, press conferences, trade shows, etc.) or in conjunction with new product or service announcements. Businesses commonly utilize press kits as part of its overall public relations effort to disseminate new information about its products, services, operations, or other activities to the public.

Press Releases

Press releases—also known as news releases—are brief, printed statements that outline the major facts of a news story in journalistic style. As part of its overall public relations effort, a small business may need to prepare press releases in order to disseminate new information about its products, services, operations, or other activities.

Price/Earnings (P/E) Ratio

The price/earnings ratio (P/E ratio) provides a comparison of the current market price of a share of stock and that stock's earnings per share, or EPS (which is figured by dividing a company's net income by its number of shares of common stock outstanding). For example, if a company's stock sold for $30 per share and it posted earnings per share of $1.50, that company would have a P/E ratio of 15.


Intelligent pricing is one of the most important elements of any successful business venture. Yet many entrepreneurs fail to educate themselves adequately about various pricing components and strategies before launching a new business.

Private Labeling

Private labeling is when a retailer purchases products from various manufacturers and then markets those products under its own brand. Private label goods are often referred to as "store brands," as opposed to the "name brands" that are sold under the brand name of the manufacturer.

Private Placement of Securities

Private placement occurs when a company makes an offering of securities not to the public, but directly to an individual or a small group of investors. Such offerings do not need to be registered with the Securities and Exchange Commission (SEC) and are exempt from the usual reporting requirements.


Defined in the strictest of terms, privatization means the sale of public utilities to private concerns. But as Public Works magazine noted, "in the broader sense of the term …and the definition that applies to most contemporary discussions, privatization is the contract operation of a public utility or service by a private entity.

Pro Forma Statements

Pro forma, a Latin term meaning "as a matter of form," is applied to the process of presenting financial projections for a specific time period in a standardized format. Businesses use pro forma statements for decision-making in planning and control, and for external reporting to owners, investors, and creditors.

Probationary Employment Periods

When hiring new employees, many employers use probationary employment periods to ascertain whether the new workers will be able to handle the duties and challenges associated with their new job. "The essential purpose of a probationary period, " wrote William E.

Product Costing

Product costing is the process of tracking and studying all the various expenses that are accrued in the production and sale of a product, from raw materials purchases to expenses associated with transporting the final product to retail establishments. It is widely regarded as an extremely important component in evaluating and planning overall business strategies.

Product Development

Product development is the process by which a company does one of two things: 1) creates an entirely new product that either adds to an existing product line or occupies an entirely new niche; 2) modifies or updates an existing product. Successful product development is essential for any business if it hopes to exist for any length of time.

Product Liability

Product liability comprises a number of laws and court rulings that apply to any business that makes or sells a product. Businesses that make or sell products are responsible for ensuring that those products are safe and do not pose a hazard to the public.

Product Life Cycle

The theory of a product life cycle was first introduced in the 1950s to explain the expected life cycle of a typical product from design to obsolescence. Writing in Marketing Tools, Carole Hedden observed that the cycle is represented by a curve that can be divided into four distinct phases: introduction, growth, maturity, and decline.

Product Positioning

Product positioning involves tailoring an entire marketing program—including product attributes, image, and price, as well as packaging, distribution, and service—to best meet the needs of consumers within a particular market segment. In this way, product positioning is part of the overall process of market segmentation, but involves a narrowing of focus.


In the simplest terms, productivity is the ratio between the quantity of goods and services produced and the quantity of resources used to produce them. Economists have come up with a number of intricate ways to measure productivity, but any business owner knows that if he or she is producing more of a product with the same number of resources, productivity has gone up.

Professional Corporations

A professional corporation is a variation of the corporate form of business organization that is available to entrepreneurs who provide professional services—such as doctors, lawyers, accountants, consultants, and architects. "Professionals," Frederick W.

Profit Center

A profit center is a unit of a company that generates revenue in excess of its expenses. It is expected that, through the sale of goods or services, the unit will turn a profit.

Profit Impact of Market Strategies (PIMS)

The Profit Impact of Market Strategies (PIMS) is a comprehensive, long-term study of the performance of strategic business units (SBUs) in thousands of companies in all major industries. The PIMS project began at General Electric in the mid-1960s.

Profit Margin

The profit margin is an accounting measure designed to gauge the financial health of a business firm or industry. In general, it is defined as the ratio of profit earned to total sales receipts (or costs) over some defined period.

Profit Sharing

Profit sharing refers to the process whereby companies distribute a portion of their profits to their employees. Profit-sharing plans are well established in American business.

Program Evaluation and Review Technique (PERT)

The Program Evaluation and Review Technique (PERT) is a widely used method for planning and coordinating large-scale projects. As William J.

Promissory Notes

Quite simply, a promissory note is a promise to pay or an IOU. It is a formal commitment (also known as a loan agreement or contract) between two parties that is usually necessary when money is borrowed and lent between them.

Proprietary Information

Proprietary information, also known as a trade secret, is information that a company wishes to keep confidential or protect from those outside the company. The Uniform Trade Secrets Act (UTSA) defines trade secrets as "information that derives independent economic value from not being generally known, and that is kept secret through reasonable actions." Proprietary information can include secret formulas, processes, and methods used in production.


Prototypes are working models of entrepreneurial ideas for new products. "A prototype is defined as an original model on which something is patterned," wrote Richard C.

Proxy Statements

A proxy statement is, according to the Securities and Exchange Commission (SEC), "a document which is intended to provide security holders with the information necessary to enable them to vote in an informed manner on matters intended to be acted upon at security holders' meetings." Publicly-traded companies are required to send proxy statements to all shareholders, each of whom has a vote in the operation of the business, in advance of annual and special meetings. It includes information pertaining to issues that require a shareholder vote as well as a ballot for voting.

Public Relations

Public relations describes the various methods a company uses to disseminate messages about its products, services, or overall image to its customers, employees, stockholders, suppliers, or other interested members of the community. The point of public relations is to make the public think favorably about the company and its offerings.


Purchasing is the act of buying the goods and services that a company needs to operate and/or manufacture products. Given that the purchasing department of an average company spends an estimated 50 to 70 percent of every revenue dollar on items ranging from raw materials to services, there has been greater focus on purchasing in recent years as firms look at ways to lower their operating costs.

Quality Circles

A quality circle is a participatory management technique that enlists the help of employees in solving problems related to their own jobs. In their volume Japanese Quality Circles and Productivity, Joel E.