The vulnerability assessment

Analyze the data for your client company’s industry and answer the following questions.

  1. How much have sales in the industry declined in the recession? What’s the worst that has happened in the past?

From the 2nd quarter of 2018 to the 2nd quarter of 2019, the growth rate was down 4%, which is the largest decrease in the last 20 years.

  1. Does the industry go into recession before, at the same time, or after the national economy goes into recession? If earlier or later, how many months of difference is there?

In 2008, the economy went into a recession before the industry did. The industry was two quarters behind the overall economy.

  1. Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months?

The industry took just about the same amount of time to recover as the economy after the recession. Although the industry saw the recession after the economy, it still took the same amount of time to bounce back.

  1. How long does the industry typically take to recover from a recession?

It typically takes about a year from the absolute bottom of the recession, to where the growth rate reaches 0.

Grappone

Bank of New Hampshire

Comptus

Building flexibility into the business

Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary.

Graponne

Question Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company’s growth prospects for several years.

How does your company plan for a downturn?

 Our liquidity is a major focus when we are preparing for a downturn as well as our inventory levels.  Cash is king in terms of getting through a downturn. You also need great relationships with your lenders – you hope they will stick with you when times get tough. 

Bank of New Hampshire

Question Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company’s growth prospects for several years.

How does your company plan for a downturn?

 The bank builds up loss reserves, conducts expense reviews, tries to maximize yield on assets, looks to sell less profitable assets, e.g. low yielding loans. The bank also conducts various annual stress tests and scenario analyses to identify potential problems that could arise during an adverse economic event. Corrective action is taken to mitigate these risks if the exposure is outside of acceptable ranges.

Bank of New Hampshire could run risk assessments to cut out the possibility of having potential problems if a recession occurs. This would help keep the exposure of risks inside their acceptable ranges.

Comptus

Question Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company’s growth prospects for several years.

How does your company plan for a downturn?

 Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production.