Management Glossary

  Terms beginning with p
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pro forma
Literally, pro forma is Latin for "as a matter of form". The term has at least a couple of business applications:
  1. A pro forma document is one that is produced in advanced of the actual business document. For example, a price quote that is created in a format identical to the format of the invoice that will be generated should the sale be completed is referred to as a "pro forma" invoice.
  2. Pro forma financial statements are those created excluding extraordinary items that will likely not be repeated every year (such as profit from the sale of a subsidiary, receipt or payment of funds as a result of a settlement of a large lawsuit, etc.) Pro forma statements have to be produced in addition to rather than instead of the filed statements because the pro forma statements do not follow generally accepted accounting principles.
Contributed by: Managerwise Staff
See: generally accepted accounting principles

problem children

In a business context, problem children are products that have low market share in markets that are large and growing. Thus with problem children, the problem is with the product, its pricing and/or its market, rather than problems in the market as a whole.

"Problem children" is one of four categories in the "Boston Matrix", a two by two matrix relating market share and market growth. The Boston Matrix was developed by Boston Consulting Group. The other three categories in the matrix are stars, dogs and cash cows.

Contributed by: Managerwise Staff
See: Boston Matrix, stars, dogs, cash cows

procedural rationality

The philosophy that, rather than trying to make optimal decisions, managers should attempt to design procedures that are most likely to generate the best possible decision within the limits of human abilities and financial realities. The reasoning behind the procedural rationality management philosophy is that, due to the infinite number of possible options, it is impossible to be certain of what is the optimal course of action, let alone follow it, therefore instituting rational procedures that will be likely to produce decisions that will lead to the best possible outcomes under real-world conditions and constraints is, in fact, the optimal way to make decisions and solve problems.

Contributed by: Managerwise Staff
See: satisficing, bounded rationality

A measure of output produced per unit of input. The most common productivity measure is labor productivity, which measures the number of units produced, or more commonly the value of units produced, per hour (or possibly dollar of salary/wages) of labor. However, that is not the only possible productivity measure. For example, the productivity of capital investments -- how much output is produced per dollar invested in plant and equipment -- is also an important factor in business decisions.
Contributed by: Managerwise Staff

professional employer organization

Abbreviated as PEO, a professional employer organization hires a company's employees or, more likely, just one group of a company's employees such as its information technology staff or the staff of an administrative department. The PEO then immediately contracts back the services of these employees to their former employer. This serves to outsource to the PEO all of the human resources administrative functions for those contracted employees. The original employer still retains the services of its former employees, but, in addition to eliminating human resources administration costs, it gains more flexibility to increase and decrease staff levels without incurring employment termination costs.

Contributed by: Managerwise Staff

In general, revenues minus costs. However, in accounting terms, profit is not equivalent to cash flow. The difference is a result of accounting's attempt to match costs to the period in which a benefit is derived (for example, the value of buildings and equipment are "depreciated" over their expected useful lifetime rather than including the entire cost at the time it is purchased. Likewise, revenue is accounted for when it is earned rather than when the cash is actually received.)
Contributed by: ManagerWise Staff
See: cash flow, revenue, depreciation

profit margin
Selling price minus the variable costs of producing and selling an item or service. Also called contribution margin. Note that profit margin does not take into consideration fixed costs. Rather, the profit margin earned on a sale is what is used to pay fixed costs.
Contributed by: ManagerWise Staff

program evaluation review technique
A technique used in the management of projects, it is used to optimize the scheduling of time and resources when undertaking a complex project. Abbreviated as PERT.
Contributed by: ManagerWise Staff


A quickly produced sample of a potential product, system or component that is built before the product, system or component goes into regular production. Prototypes are built for engineering or market testing or for general internal evaluation.

Contributed by: Managerwise Staff


personal services corporation

Contributed by:
See: personal service corporation



Contributed by: Managerwise Staff

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