A manager needs to monitor: A manager needs to know how to plan for downturn and recession.
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.
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| 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.” |
How vulnerable is our company to a recession or a slow-down in sales, this is a very important question for business managers face because of the ris of closing or filing for bankruptcy. Every part of the business is apart of looking at recession, because every piece is affected. Businesses need to look at the recent trends and oast trends of not only their business, but the global market as a whole to make an educated guess in order to track how to spend for the business. Industry data is the best way to look at these. ## The contingency plan Businesses need to forecast for the worst before it happens and create a plan incase the market falls and is in risk of closing down companies. Managers need to make informed decisions, and perform what is best for a company before, because of how much the market can affect a business and their spending options and cost options. ## Building flexibility into the business Managers need to be flexible considering a plan for recession, where lay-offs could occur or spending will be cut to lower costs, they need to be able to make adjustments considering what is actually happening within the timeframe they are expecting. Vendors and customers create contracts in order to protect themselves and to ensure both sides still receive benefits from a deal. Once recession occurs, managers have less options, and aren’t as flexible because of the damage done within the global market already. ## Summing Up
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.
Business clarification system run between the USA, Canada and Mexico, facilites all statistics in the agreement made by the North American countries. ### Marginal Cost Cost added by the production of one additional unit of a product or service. ### Economies of Scale A proportionate saving in costs gained by an increased level or production. ### Capital Goods Goods that are used in the production of other goods, rather than being bought by consumers. ### Equity The value of shares issued by a company, The ownership of assets that have debt or liability attached, Assets-Liabilities. ### Bond Type of security under which the issuer owes the holder a debt, this has to be returned with interest to the principal, at the date agreed upon. ### Bank Loans A form of credit payed to somebody which has to be payed back, usually a fixed amount with interest added on, mostly for an extended period of time. Repaid in installments that occur in periods, like months or quarterly. ### Line of Credit The amount of credit extended to a borrower, somebody taking the loan. ### Commercial Paper Short term unsecured promissory notes issued by companies.
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 danger of this program was knowing if the market would be positive after a decline, the automobile industry would pay people to be employees but weren’t at work still, because they expected high productivity after a long break. The risk is paying all these people to be prepared, when the market may not come back up for an extended period of time, which means that the business could lose immense amounts of money paying people not to work.
The author uses this as an anecdotal example to advocate for smaller modular investment in stages. Elaborate. People have a hard time cutting down on electricity in the short-term, but invest in energy saving appliances in order to save money. After people decide not to pay outrageously high prices instead they invest in the appliances which are a large purchase at first, but end up saving the consumer money. This means that energy plants want to be bigger and able to get more electricity out to the people so they can make money, but the companies, ### The Penn Central Railroad in 1970
The author uses this as an anecdotal example to advocate for borrowing with staggering maturities. Elaborate. The railroad company took out commercial paper so they could run the freight across the country, in the 70’s there was a recession and the company started to slow down with travel, creditors couldn’t pay back the debt, and went bankrupt, if they were able to pay back the debt, the railroad company would be still alive once the economy rose again in 1971.