A manager needs to develop an early warning system that includes: 1. Macroeconomic warning signals 2.End-user information 3.Customer sales forecast 4.Critical costs
Managing through the Business Cycle
| Steps | Description |
|---|---|
| macroeconomic warning signals | The early warning system should include indicators for the overall economy and the relevant industry. |
| end-user information | For example, a bottle manufacturer should watch sales of beer and soft drinks. A fabric manufacturer should watch apparel sales. |
| consumer sales forecast | A company should also monitor its own clients. A manager should break out sales reports by product groups, regions, and customers to trace major surprises in sales. |
| critical cost | The companies that need pay the closest attention to costs are usually manufacturers, utilities, and contractors with with significant exposure to one or two raw materials with typically volatile prices. |
This stage of the early warning system focuses on the overall economy and the sector that ones company considers most important. This picks up what is considered a broad-based slowdown to overall economic activity. Indicators that businesses can select to monitor can be as basic as a manager focusing on the news. There needs to be a consistent eye on this topic, so many companies just hire professional economists to do the job. This is extremely valuable for companies who are affected by an economic slowdown to the point where it can be as bad as a recession. Sensitivity is something that varies for firms, and focusing on macroeconomic warnings can help prepare for a difficult road. A consensus forecast is considered the best method in looking towards the future. In the end, news keeps one educated on facts but doesn’t give an overall consensus on the economy so knowing one’s companies forecast is all the more valuable.
The end user is important to understand because it may not actually be a companies customer. This is the individual that makes use of a particular product or good/service. Understanding that watching the end user of your product know matter how removed from ones company can give you better understanding on important data. Companies must also understand the buying and purchasing abilities of their end users
Having a system in place to report to management both current sales and expectation for future sales is important. Sales forecasts must be developed with consultation from customers for the current ongoing sales. The current sales reports should include a drill-down of major surprises meaning a more in-depth look at the data focused upon. Gathering this data on a routine basis can best prepare a company when a procedure is routine rather than a last minute panic which can derail sales completely. These reports can help layout any major surprises to the companies sales.
Costs should be placed in the early warning system if your company’s expenses are dominated by a singular or few major source items that are a subject to extreme price swings.
Accepting that things in the business world don’t always go as expected is a good lesson to learn right off the bat. Successful managers are open to evidence of changing conditions. Analyzing the evidence is the next step to developing a monthly review to build familiarity with the data. The more time spent analyzing the data, the easier it becomes to separate the the signal from the noise. Many businesses are saved by careful attention to eary signs of economic downturn. ## Economic terms
Explain 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.
Seasonal Adjustments are what one would consider expected changes that happen throughout a year for a business and the economy based upon the seasons. This includes calendar or commercial seasons such as Christmas or Halloween. These can provide a clearer view to nonseasonal trends across the economy that might be overshadowed by seasonal changes such as Holidays. Adjusting with the knowledge of predicted major spikes in sales the likes of Christmas, Fourth of July, and Black Friday bring allow managers, economists, and consumers to understand base trends during specific time periods affected by seasonal differences.
Describe the characteristics of the following events briefly.