Week 14: Best Practices 11

Write one key takeaway per chapter. Write at least 100 words for each chapter summary.

Ch1 It’s Not Just about Forecasting

When deposit growth slows that means you are losing the market share. If your company is growing and your price is in line with competitors that means the sales of your product are not growing. Decisions should always be made about the future. the variety of products consumers want will be unpredictable and large. At some point volume always comes back up and that’s why you should wait to lay off staff. Providing forecasts of the economy will help business more than if it were in a numerical report.

The future interest rates play a key role in the financial stratagy of your companies business. Not all declines in GDP indicate a recession but recession are always characterized by a drop in GDP. The defining factors are breadth and width in production. How long does it last for and how severe will it be? The average length of a recession is 6-16 months. Business cycles do not have regular periods and often fluctuate. Profits are one way to think about how to slow down a recession in your company. Sometimes there are fixed costs like administrative staff, rent, and depreciation. The most stable category of consumer spending is services.

There is about a six month lag time between monetary policy and it effects on the economy. Monetary policy is also the most common cause of a recession. It will also be affected by fiscal policy and other various economic shocks. You must first watch the fed funds which is the interest rates on overnight bank loans. You also must look at the money supply and how much there is currently in circulation. A good manager needs to know where their company falls on the supply chain. When in recovery many times companies will cut back on spending and purchases as well as company wide expansions. Non-durable goods and services tend to also be ore stable.

Good prices are more volatile than consumer prices. Consumer prices are more stable than producer prices. Raw materials have more volatile pricing than finished goods with intermediate goods processing has occurred but is more needed in the middle. labor costs are responsible for a higher trend growth in the CPI. If you want low inflation you have to tolerate high unemployment. When producers are doing everything to sell their products, customers who object the prices will go without the product. Companies that are vulnerable to price changes on raw materials should put price indicators on their early warning system.

The best gauge of a companies vulnerability is to gauge the national data on that industry. Companies that tend to have the sharpest downturns also have the highest upturns in an economic cycle. Flexible labor contracts and contracts in general should allow companies to change profits over time without drawing p brand new contracts. Making sure the relationships between banks and consumers is managed properly especiall y in a upturn so your company is ready for when the recession hits.

Ch6 The Early Warning System: Radar for Business
Companies close to the end user/consumer must watch influences on consumer spending. The goal is to watch the end use n matter how far your compnay is from them. Trade associates often provide stats on activities within the industry. Narrowing down the source of sales growth helps managers determine whether the trend has stayed the same or changed over time. Companies should include both sales forecasts and sales data. Some business are seasonal and will see growth at different periods in the year. Manufacturers often times have to pay the closest attention to costs like wholesale prices and utilites.

Capital spending plans should be monitored or stopped when a recession occurs. Hireing should also be stopped and staffing levels should be watched closely. Companies inventories and stock should also be monitored. Gainging further financial flexibility during this time will be essential to your companies survival. In the end if your company is going under it may be necessary to sell what’s left of it. Look for opportunists where th company could earn a little extra cash in case of a recession. The time to enhance employee attitudes is when there’s other places for them to work. You want to give your employees the best experience at your company not your competitors.

In many countries the monetary policy is determined by treasury officials. Most political officials are only concerned about the short-term and not the long-term runs of the economy. When doing business in a forging country determine how connected it is to the central bank. Domestic supplies don;t usually cover a countries supply needs which is what we call a supply shock. You must watch the value of the American Dollar to other currencies as well. In the U.S you may be making a profit but it may be different in Europe. Watching war and times of crisis is important doing business with countries in war is not always the best for profits.

Similarity rates help state officials and consumers know how tied their state economy is the national economic cycle. NH has a 77% similarity meaning that 77% of the time the national economy goes into recession NH will also. States differ dependence on their economic contributions. NH has a large tourism/outdoor recreation industry which is in no way connected to the national economy. The largest driver of state cycles is the population growth or decline. When there are new people moving into an area states will assume the housing and employment will reflect similarly.

In a company you need to monitor both the variable costs like labor and energy and fixed costs like production and the cost to produce one product. The market price needs to exceed both the fixed and variable costs in order to continue making a profit for the company. As prices rise and fall competitors will announce new expansion plans, this is exactly the time to stop adding new capacity. When consumers change their habits it can help indicate whether they are buying more or less of the product.