A manager needs to monitor: 1. How to assess a company’s vulnerability to a recession, 2. Be able to sketch out a contingency plan to deal with a recession, 3. Be able to build flexibility in a day to day work operation, 4. Have the ability to be able to develop a warning system to be able to identify coming downturns.
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.” |
The best way to describe the vulnerability assessment is that it goes through a set of industry data. There are a few ways to identify the best way to assess a situation when it comes to vulnerability to a recession which is by being able to access government data on your industry, being able to identify big services or products your company provides, and to make sure you examine if there will be an economic peak.
A contingency plan is a smart way to deal with a potential economic downturn. The way this plan works best is by thinking it out ahead of time so that you as a company are able to identify different issues where there might not be as much flexibility. This will give you a better understanding of what moves will be necessary to fix the flexibility.
Businesses will limit decisions as well as the possibility of increasing its flexibility in the future. Every decision that is made has to come with the understanding of where the company move with its flexibility and if it will be a gain or a loss.
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.
Standard that is used by the federal agencies to classify business establishments this is used for collecting, analyzing, and publishing different economic data
This is the cost of producing additional quantites of product
Cost advantage which are collected based on scale of operation
goods in which are used in the production for other goods
value of shares given out by a company
fixed income that represents a loan, this is used by the government to be able to issue debt
this is a form of credit that is issued out for a period of time, this is either repaid in full or in installments
it is like a business loan but the payment schedule is more flexible over time
unsecured promissory note that has a fixed maturity
Describe the characteristics of the following events briefly.
With general motors they had wanted to have more flexibility with-in the rules of labor to be able to boost its productivity over time. This made unions fearful that members of them would potentially lose jobs. The union and company were able to come to an agreement where the company would have to pay full wages and benefits to employees that were not deemed to be of need. Success of this plan would end up be heavily dependent on the future of their sales. General forecast of sales deemed to be optimistic which led the company to lack flexibility and be unable to cut the expenses.
The Electric Utility Industry really just had pushed a little too fast from the jump. Back in the 1980’s and the 1990’s power plants were not a necessity to function a company which ended up leading to a deficit in money in the long run. Being able to cut back on electricity in the short run would definitely be more difficult of a task to do however, in the long run this will help especially with bills and their total usage of appliances with-in the long run.
This situation was a very dramatic situation for future flexibility as well as paying bills. The Penn Central Railroad financially one of the biggest operations in the world for commercial paper. Due to the recession that took place in 1970 there was less of a need for shipments which resulted in a revenue loss for the railroad company, because of this, this lead to the railroad going bankrupt causing them to have to shut down losing the battle against the recession.