Business segment

Business segment
See also

Business segment is a recognizable component of an enterprise that is involved in the provision of a single product or service or a group of related products or services and that is subject to risks and returns different from other business segments. The business segment should not enclose products and services that are significantly different in terms of risk and returns. Products or services that are similar in many respects but differ in several relevant factors should not be included in the same segment[1]. According to Bhattacharyya A.K. factors that should be considered in determining products or services are related include[2]:

  1. "The nature of the products or services"
  2. "The nature of the production processes"
  3. "The type or class of customers for the products or services"
  4. "The methods used to distribute the products or provide the services"
  5. "If applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities"

Business segment rules

This form of segmentation is considered important for users. The business segment serving the purposes of the standard is a part of business that can easily be identified as a separate one. Provides a single product or service or group of related products or services. If we want the business segment to be reported separately, it must have a significant size. This is because it must account for at least 10% of the company's revenues or operating results or total revenues[3].

Business segment in Environmental Resources Management

The primary role of business segments is to take risks. This is only a normal part of doing business, despite the fact that environmental resources management information is integrated into decision-making processes. Business segments also ensure many of the qualitative risk assessment participants[4]. According to Segal S. business segments plays an important role in ERM, for example[5]:

  • Risk identification - Qualitative risk assessment (takes place in this area in which business segments provide a survey to participants).
  • Risk quantification - Business segment forecasts provide support in calculating the base value of the company and support the financial forecasts of strategic plans.
  • Risk decision - Management of business segment risk exposure within risk limits (this includes the extent to which risk limits are set by the business segment).

References

Footnotes

  1. Bhattacharyya A.K. (2012), p.590
  2. Bhattacharyya A.K. (2012), p.590
  3. McLaney E. (2008), p.172,174
  4. Segal S. (2011), p.313
  5. Segal S. (2011), p.313,314

Author: Aleksandra Majcher