IOM

AMEN

RISK AND FORECAST

ANTICIPATING RISK 

These risks arise generally from uncertainties in nature, in the economic system, and in human nature.

Product is King:

The trap of a company’s success is the product itself. Everything else management, resources and the workers exist to build products and services.

Product Failure = Business Failure:

Multiple business verticals fail due to product deficiency issues such as design, marketing, and product/market misalignment

a market study is utilized in two stages:

1. Preliminary survey 

2. Intensive market study

PRELIMINARY SURVEY

- is to determine potential demand. This survey shows the probable nature, extent, depth of the market. 

INTENSIVE MARKET STUDY

 is used for the basis for production plans and sales campaigns. It begins where the preliminary survey leaves off and it enlarges the range and coverage.

FORECASTING

refers to the practice of predicting what will happen in the future by taking into consideration events in the past and present.

RISK

- is the exposure a company or organization has to factors that may lower its profits or cause it to fail.

FORECASTING RISK

• involves predicting the potential uncertainties and variations that can affect future outcomes, often by using statistical models and past data analysis. 

• It helps businesses and individuals to make informed decisions by anticipating potential risks and minimizing their negative impact.

RELATIONSHIP OF THE ENTERPRISE TO GENERAL ECONOMIC CONDITION

• Economic forecasting studies each of these 3 sets of influence, seeks to discover the way they work and how to interpret them in terms of future probability. 

• All are at work affecting economic change.

THREE SETS OF FORCES OR INFLUENCES

1. SEASONAL INFLUENCE

2. LONG-TERM TRENDS

3. BUSINESS CYCLES

SEASONAL INFLUENCE

- are regular changes in a system that occur within a year. They can be caused by a number of factors, including climate, holidays, and seasonal cycles. 

LONG-TERM TRENDS

- Indicate structural changes in the economy occurring in a slow, cumulative way. They come through changes in productive ability, social intuition and individual habits 

 BUSINESS CYCLES

• A pattern which a business experience an upswing and downswing

• Two extreme phases are prosperity and depression.

BUSINESS BAROMETERS

• is a technique used to predict future events or trends by analyzing historical data and patterns, often employing statistical models to generate predictions about what might happen in the future, allowing businesses to make informed decisions based on these insights.

SUBJECTIVE METHODS

relies heavily on personal opinions, intuition, and expert judgment. Essentially, subjective methods are based on "what people think" while objective methods are based on "what the data shows.

Delphi Method

- is a forecasting technique that uses a series of questionnaires to gather opinions from a group of experts.

OBJECTIVE METHODS

- forecasting technique depends simply on historical data and mathematical computations and doesn’t rely on subjective assessments and opinions.

five OBJECTIVE METHODS

1. TIME SERIES ANALYSIS

2.  MOVING AVERAGE METHOD

3. EXPONENTIAL MOVING AVERAGE METHOD

4. CORRELATION ANALYSIS

5.  FORECASTING CHARTS

TIME SERIES ANALYSIS

• A statistical method for examining time-ordered data to identify underlying trends, forecast future events, and model behavior.

• Analyzation of patterns and trends to relate in future occurrences.

MOVING AVERAGE METHOD

Technique used in time series analysis where it forecasts future values by averaging a given number of prior data points.

EXPONENTIAL MOVING AVERAGE METHOD

uses a weighted average of past data points to predict future values.

CORRELATION ANALYSIS

Statistical method that identifies relationship between variables. 

 FORECASTING CHARTS

are often used for interpretive purposes and for control. 

3 STAGE OF PRODUCT DEVELOPMENT

• Development and Introduction 

• Rapid Growth 

• Mature State

SPECIFIC RISK IN INDUSTRIAL OPERATION

refer to the hazards particular to some sectors, activities, or workplace.

Risk Survey

the process of identifying, assessing and responding to potential risk.

RISKS CENTERING AROUND THE PHYSICAL PROPERTY

Refer to risks or danger that have an immediate impact on a facility and machinery or physical assets of a business.

RISKS CENTERING AROUND ADMINISTRATION

Refers to potential issues or risks that arise from the management, coordination, and organization of internal processes, rules, and procedures within a business.

RISKS IN CONNECTION WITH THE LABOR FORCE

Issues about management, treatment, and utilization of employees in the workplace.

RISKS IN CONNECTION WITH MATERIALS

Issues arise from materials used in an organization. Like quality, availability, sourcing, and pricing of the materials.

RISKS OF TECHNOLOGICAL ADVANCEMENT

Such risk will need to be studied to gain the benefit of it. Changes in machinery, equipment and materials.

TECHNOLOGICAL ASSESSMENT

- Relatively new field of study in which the intent is to examine the consequences of introducing new technology.

INSURANCE

• A financial arrangement that offers financial protection from losses or specific risk. 

• It can help reduce financial impact from unexpected events.

9 TYPES OF INSURANCE

• Personal Liability Insurance

• Professional Liability Insurance

• Data Breach Insurance

• Surety Insurance

• Fidelity Insurance

• Workers’ Compensation Insurance

• Commercial property insurance

• Business Income Insurance

• Commercial Auto Insurance

CAPITAL

 - refers to resources like land, buildings, machinery, tools, and materials used in production.

KINDS OF CAPITAL

FIXED CAPITAL

WORKING CAPITAL

PAIN-IN CAPITAL

EQUITY CAPITAL

FIXED CAPITAL

Assets used repeatedly in production over a long time 

(e.g., land, buildings, machinery, tools, and equipment) .

two fixed capital

NATURAL CAPITAL

ARTIFICIAL CAPITAL

NATURAL CAPITAL

• - Land and natural resources. 

ARTIFICIAL CAPITAL

• - Produced assets like buildings, machinery, tools, and materials.

WORKING CAPITAL

 Funds required for daily operations.

 PAIN-IN CAPITAL

 - refers to the money paid for the stock sold.

 EQUITY CAPITAL

- total assets of an enterprise minus debts.

3 SOURCES OF SAVINGS

INDIVIDUAL SAVINGS

BUSINESS SAVINGS

GOVERNMENT SAVINGS

INDIVIDUAL SAVINGS

Money saved by people, either directly (in banks) or indirectly (through insurance or investments), from their income.

BUSINESS SAVINGS

 - Profits of businesses reinvested in equipment, machinery, and other assets for production.

GOVERNMENT SAVINGS

- Surplus from collected taxes used for public projects like roads and schools.

CAPITAL POOL

 it fuels the economy

MONEY MARKET

- refers to a financial market segment where short-term borrowing, lending, buying, and selling of financial instruments occur. 

SHORT TERM LOANS

• Typically range from 30 days to 2 years. 

• It is usually used to cover temporary needs of a business-like purchasing materials or supplies, paying for operational expenses like salaries.

INTERMEDIATE TERM LOANS

• Extend up 2 to 5 years. 

• Usually used for projects that take longer to generate returns like upgrading equipment or expanding business facilities.

LONG-TERM LOANS

• It usually lasts for more than 5 years. 

• Used for large projects or investments that require significant capital.

COMMERCIAL BANKS

 - Served the current credit needs of business enterprises.

TRADE CREDITS

• mainstay of intermediate and short-term financing, particularly for the small enterprise. 

• It covers not only commodities and supplies, but also machinery, fixtures, equipment, and other items of longer-term financing.

CREDIT INSTRUMENTS

These are the legal forms through which loans are made.

PROMISSORY NOTES

 A written promise by the borrower to pay a specific amount of money at a designated time. 

BILLS OF EXCHANGE

- A written order directing a party to pay a specific amount to another party at a future date.

CREDIT CARDS

- A revolving credit instrument allowing the holder to borrow money up to a certain limit, to be paid back over time.

COMMERCIAL PAPERS

 - It is a short-term, unsecured debt instrument issued by large corporations or financial institutions to raise funds for immediate financial needs, such as payroll, inventory, or short-term liabilities.

VENTURE CAPITAL

- It is money invested in businesses in exchange for ownership (equity).

FINANCING THE NON CORPORATE ENTERPRISE

• In this case it shows how single proprietorships and partnerships are typically financed. Initially, the capital comes from the owners themselves and potentially from loans or investments made by their friends. 

• This method—funding a business through personal and property contributions by those directly involved—has been one of the oldest forms of business promotion, and it continues to be an important method of financing even today.

CORPORATE CAPITALIZATION

• carries no special rights or privileges.

• bear the full risk of the business, and are the legal owners, entitled to the net assets. 

• They typically control the business through the voting power of their stock.

PREFERRED STOCK

• a type of capital stock designed to attract investors by offering specific benefits, such as priority in receiving dividends and assets, convertibility to common stock, or investment security through a sinking fund. 

• However, it may have limited or no voting power, as its privileges reduce the risks common shareholders face.

BONDS

- are promises to repay loans.

WORKING CAPITAL

 -   Funds required for daily operations.

RESERVES

- Setting aside Money to keep a business stable.

EXPANSION

- business actively Growing.

LEVERAGE

 the use of borrowed funds

LEVERAGE FACTOR

- Debt over total assets. 

RR

 Rate of Return

ROI

 Return on Investment

RISK

-  Chance of losing money or not getting the expected returns

CASH FLOW PATTERNS

-  How money moves in and out overtime

TIME VALUE OF MONEY(TVM)

-  Money today is worth more than the same amount in the future.

INVESTMENT

- is a long-term responsibility of management to yield a large amount of profit or return.

BUDGETING

- is a function to plan that profit or return picture.

CONTROL THROUGH THE BUDGET

• Budget is a means toward an end and is not an end within itself. It establishes a goal.

• Recording of actual results against estimates of the budget.

COORDINATION THROUGH THE BUDGET

• Budgets should be constructive aids to all departments, within an organization in achieving their common goals.

TYPES OF BUDGET

VARIABLE BUDGET

STATIC BUDGET (FIXED BUDGET)

VARIABLE BUDGET

- Constructed in anticipation of variations in sales. It provides in advance for orderly change in the volume of production and in expenditures.

STATIC BUDGET (FIXED BUDGET)

This depends on ability to predict income, sales, or shipments with at least a reasonable degree of accuracy.

ZERO-BASE BUDGETING

• Requires each budget unit to make a fresh start every year. From zero outlay level to how much will be needed next year to conduct operations.

• Its prominence is elevated when President Carter prescribes it for the Federal budget.

BUDGET DIRECTOR

• Often the controller or assistant controller.

BUDGET COMMITTEE

• Usually, the heads of divisions together with the staff representatives.

Role: Receiving and approving forecasts, departmental or division budgets, periodic reports, and request special studies of deviation from the budget and consider revision of budget to meet changed business conditions.

BUDGET OFFICER

• Role: Ensures that the department estimates are provided with supporting data for effective consideration of the committee, responsible for the presentation of the budgets.

DEPARTMENTAL BUDGET PREPARATION

• This adheres to the principle of participation as means towards cooperation.

• Head of the department may act as a chairman of the department committee but, in a large department, he/she should assign detailed gathering of budget information to different teams. 

• An organization within the department will lead to better budget preparation and will prove especially useful in budget control.

ADEQUATE COST INFORMATION

• essential for budgeting and constitute the foundation for the conversion of forecast and business policy into production.

SIX BASIC BUDGETS NEEDED:

PRODUCTION BUDGET

MATERIALS BUDGET

PLANT AND EQUIPMENT BUDGET

MAINTENANCE BUDGET

 MANUFACTURING EXPENSE BUDGET

LABOR BUDGET

PRODUCTION BUDGET

- Outlines the schedule of product units to be manufactured.

MATERIALS BUDGET

- Specifies the direct material needed to produce the number of units scheduled.

PLANT AND EQUIPMENT BUDGET

 - Sets forth the requirements of space and machinery.

MAINTENANCE BUDGET

- Covers maintenance of facilities and equipment.

MANUFACTURING EXPENSE BUDGET

- Includes the overhead or burden charges for the period.

LABOR BUDGET

- Specifying the productive personnel needed to meet the production schedule.

FINANCIAL BUDGET

- Presents a summary of anticipated receipts and disbursements for the budget period.

Expenditure may be planned in consideration of two primary factors:

ABSOLUTE NECESSITIES

LIMITATION OF AVAILABLE CASH

ABSOLUTE NECESSITIES

- Essential expenses like monthly requirements of materials for production, payroll, etc.

LIMITATION OF AVAILABLE CASH

Ensuring that expenses do not exceed available cash.