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.” |
A vulnerability assessment is a deep dive into a company’s information systems. The assessment evalulates a company’s vulnerability to recession and other economic events.
The contingency plan is a plan made years and years in advance of a recession or other economic event. This plan is carefully concocted through simulations and data to best prepare a company to survive and thrive throughout a recession.
Flexibility is extremely important as you don’t want to only take one track minded deals with vendors. If your business has a plethora of different ways to do business you can bend and flex your way through recession.
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 is a statistical agency that provides financial classification through data for North American businesses.
The cost of producing an additional good as it relates to total production.
Economies of scale are cost advantages that are seen in efficient production
Goods a company uses to output other goods. Capital goods are not sold to customers.
Equity is capital-debts and it is used as a fair way to determine how much money shareholders own
Bonds are a different form of loans in which a company or government pays back the issuer at a later date. These are beneficial for groups looking for different ways to raise capital
An amount of money loaned to a company through a bank. These loans are paid back over a time determined by the loaner.
A loan from a bank where money is borrowed in flexible increments over time
An unsecured paper in which a company takes a smaller loan out for a short period of time
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.
An auto industry company relied too heavily on projections and decided to still pay their extra workers full pay and benefits with the idea that they would be needed soon for more auto production. When they realized they did not need such and excess of workers this company did not have enough flexibility to make the neccessary moves.
The author uses this as an anecdotal example to advocate for smaller modular investment in stages. Elaborate.
Companies would build these huge energy factories on the assumption that they would be a necessity, but once people started using products and making other lifestyle choices to cut back on their electrical use, these companies were left with a major excess of equipment. They learned it was much more cost efficient to stop building massive energy plants as these plants were increasingly grandiose and expendable.
The author uses this as an anecdotal example to advocate for borrowing with staggering maturities. Elaborate.
The Penn station financed a large part of its business with commercial paper which led to tension when the economy took a decline. Their commercial papers were simply not secure enough and were seen as too risky. This led to Penn Station going bankrupt when the loaners refused to roll over tens of millions of dollars.