Intra Group Reinsurance
In the previous articles, we have already studied about the concept of reinsurance. However, the reinsurance we have studied is a contract between two independent parties. This means that a ceding insurance company often transfers the risk to an external third-party reinsurance service provider. The risk actually moves out of the balance sheet of the […]
How to Spot Signs of Sexual Harassment and Act on Them
Ever since the allegations against the famous (now infamous) Hollywood celebrity, Harvey Weinstein, about sexual harassment broke out, there has been a flurry of women across the political, economic, social, and entertainment world who have come forward detailing their own experiences with sexual harassment. Also, with noted Silicon Valley firms being accused of covering up […]
Types of Exposures to Determine Credit Limit
The credit limits concept forms the root of the credit risk management practice at most organizations around the world. Financial, as well as non-financial organizations, use this practice since it has been recommended by the Bank of International Settlements in its Basel Accord. In reality, a lot of time, money, and resources are spent in […]
Strategies to avoid Conflicts at the Workplace
It is rightly said that organizations are individual’s first home as one spends the maximum time here. Employees must treat their fellow workers as a part of one big family and must work together to achieve the goals of the organization. Conflicts must be avoided at the workplace to ensure that the employees give their […]
Impact of Using Poor Quality Data and Metrics to Measure Data Quality
In the previous article, we have understood why data quality is important in the field of risk management. We also had a closer look at the various characteristics which constitute data quality as well as the processes that need to be put in place in order to manage data quality. In this article, we will […]
In the previous articles, we discussed how decision making in these times is fraught with risk, uncertainty, and ambiguity. In this article, we examine a key dilemma facing managers in these times when economic conditions are gloomy.
For starters, managers face the unenviable task of returning high profits in a time of inflationary pressures. This means that your company has to grow more than the prevailing rate of inflation if real returns have to be made.
For instance, if the inflation rate is 10%, then the company’s growth rate must be more than that and more importantly, the percentage increase in net profits must also be more than that if the real return on the capital has to be positive. This is the reason why some stocks perform well when compared to the others, as their real rates of return are more than the inflationary rate.
Next, managers also face the dilemma of rising costs of inputs, increased taxation, and competition from around the world.
The point here is that since governments around the world are raising the taxes as a way to increase the revenues, which means that all the input costs go up leading to a cascading effect on the bottom lines of the companies.
Further, with competition from lower wage and lower cost centres becoming more intense, managers in many multinationals and homegrown companies are faced with a situation where they have to not only grow more than the others, but also cut costs in the process.
The point here is that companies can either increase bottom line numbers by increasing revenues and making more profits or cut costs to increase the profitability of their companies. The ideal scenario is where they can increase the profits and decrease costs at the same time, which would lead to Nirvana for the managers.
Finally, in recessionary times, companies have to do with consumers who spend less and demand more. This means that they have to contend with decreasing sales and increased discounts that have to be passed on to the consumers.
Hence, the double whammy of decreased profits and decreased profitability means that managers have a tough task on their hands. Moreover, with less consumer purchases, deflation sets in where the prices are low but consumers do not have the money to spend. Hence, in any case, economic crises extract a heavy toll on companies and hence managers face a headache when confronted with decision-making choices.
Of course, the gloomy scenarios outlined here need not be the end of the world situations and there are ways and means to beat the gloom and ride the recession. Innovation is one aspect that companies can adopt to adapt to the tough market environment.
Apart from that, companies can also optimize their current processes and reengineer their workflows so that efficiencies and synergies result which create new value for them.
They can also rationalize their cost structures so that unnecessary and redundant expenses are eliminated. Finally, they can also focus on making their supply chains that much more effective and efficient.
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