A manager needs to monitor:
Managing through the Business Cycle
| Steps | Description |
|---|---|
| Assess vulnerability to the recession | “How vulnerable is our company to recession or a slowdown in sales?” Assess the vulnerability in terms of magnitude and timing of slowdowns in sales using national data on the company’s industry. |
| Sketch out a contingency plan for dealing with a recession | It’s an one or two page plan, which can lead a manager to build flexibility into the business. |
| Build flexibility to cut expenses | A company needs the flexibility to cut costs in difficult times. A manager can build flexibility in the business by considering the following areas.
|
| Develop an early warning system. | In 1940, the Battle of Britain began as 2,400 Luftwaffe aircraft attacked England. The Royal Air Force had only 900 planes., yet they successfully defended their country from the Germans. They key to their success, was radar. The early warning system is “radar for business.” |
-it’s a systematic review of security weaknesses in an information system. It evaluates if the system is susceptible to any known vulnerabilities, assigns severity levels to those vulnerabilities, and recommends remediation or mitigation, if and whenever needed.
- plan designed to take a possible future event or circumstance into account.
-In order to build flexibility into your business, you must first learn to trust your employees. If you want to provide flexible work hours or let them work from home, do you trust the fact that the work will get done on time? To build trust, get to know your employees on a personal level.
A company that learns in its contingency planning that it has limited options for cutting expenses may spend a year adding flexibility wherever it can.
Explan each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
-NAICS uses a hierarchical structure. You can find a company’s or industry’s NAICS code by going to the Census Bureau’s North American Industry Classification System page. NAICS codes are used for many purposes, but one of the most important is that the Small Business Administration uses them to set size standards for particular businesses to be considered “small” in order to qualify for various small business-related programs.
-Marginal cost is the added cost to produce an additional good. For example, say that to make 100 car tires, it costs $100. To make one more tire would cost $80. This is then the marginal cost: how much it costs to create one additional unit of a good or service. The costs of production determine the marginal cost.
-Economies of scale are the advantages that can sometimes occur as a result of increasing the size of a business. For example, a business might enjoy an economy of scale concerning its bulk purchasing. By buying a large number of products at once, it could negotiate a lower price per unit than its competitors
-Capital goods are the assets used by businesses in the course of producing their products and services, and can include buildings, machinery, tools and equipment. Capital resources is a higher-level concept, defined slightly differently by different scholars
-Equity represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off. We can also think of equity as a degree of residual ownership in a firm or asset after subtracting all debts associated with that asset.
-Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year.
-it is a sum of money that one or more individuals or companies borrow from banks or other financial institutions so as to financially manage planned or unplanned events. In doing so, the borrower incurs a debt, which he has to pay back with interest and within a given period of time.
-A line of credit is a flexible loan from a financial institution that consists of a defined amount of money that you can access as needed and repay either immediately or over time. Interest is charged on a line of credit as soon as money is borrowed.
-Commercial paper is short-term, unsecured debt issued by institutions who want to raise capital needed for a short amount of time. It’s an alternative to having to go through the effort and cost involved in getting a business loan.
Describe the characteristics of the following events briefly.
The author uses this as an anecdotal example to explain the danger of inflexible labor contract. Elaborate.
-The idea was that the excess labor would be temporary, until sales rebounded sufficiently that GM would need all of its workers, even at a higher level of productivity. However, this program depended critically on a forecast of future sales, which includes both a forecast of the market and a forecast of GM market share. When the forecasts proved to be overly optimistic, the company lacked the flexibility to cut expenses.
The author uses this as an anecdotal example to advocate for smaller modular investment in stages. Elaborate.
-The electric utility industry was regularly whipsawed by unexpected declines in demand growth in the 1980s and 1990s. The industry’s problems were twofold. It was hard in the short run for people, but got easier in the long run. Sales weakened due to the fact that the world was increasing electrical use. The second part of the utilities’ problem was their preference for large billion-dollar power plants.
The author uses this as an anecdotal example to advocate for borrowing with staggering maturities. Elaborate.
-Back in 1970, the Penn Central was financing a large portion of its operations with commercial paper. The recession of 1970 lowered freight traffic and thus Penn Central’s revenue and internal cash flow as well. Their creditors were worried for themselves, and refused to roll over $82 million. The railroad went bankrupt.