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Critical Issues in Business Management - Assignment

   

Added on  2020-01-21

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1CRITICAL ISSUES IN BUSINESS MANAGEMENT Critical Issues in Business Management NameCourseCollegeDate

CRITICAL ISSUES IN BUSINESS MANAGEMENT 2Introduction The global financial crisis of 2008-2009 started in July 2007. It started due to the diminishedconfidence of investors in the value of securitized mortgages in the US. This lead to the liquiditycrisis, and it resulted to the injection of capital into the financial markets by the Federal Reserve,the Bank of England and the European Central Bank. The crisis stiffened in September 2008 dueto the crashing of the stock markets globally. This resulted in a period of excessive volatility, andit leads to the failures of some banks, mortgage lenders, and insurance firms.Cause of the Financial CrisisThere are various causation factors as proposed by the experts led to the crisis. The mostproximate cause was the change in the housing cycle in the US and the increased delinquencieson the sub-prime mortgages. This led to the great imposed in the financial institutions and thereduced investor confidence in the credit markets. This factor only triggered the crisis but thereother issues leading to the crisis. Other aspects included increased reduction in the underwritingstandards, disruption of the lending oversight by investors and increased reliance on complex andopaque credit instruments (Borio 2008:54). The credits instruments used at the time becomefragile after being subjected to stress. The end of credit boom had seen great financial andeconomic effects. The financial institutions saw depletion of their capital resources and write-downs. They also saw their balance sheets complicated by intensive credit products and otheruncertain value worth of illiquid assets. Increasing credit risks and great risk aversion resulted incredit levels never witnessed. Markets for the securitized assets closed down apart from thosewith the government guarantees. There was negative impacts on businesses and consumerconfidence caused by increased systematic risks, reduced value of risks and tightened credit. The

CRITICAL ISSUES IN BUSINESS MANAGEMENT 3United States and Europe were hit by the credit crisis and a reduction the economic activity andthis crisis quickly developed into global economic shock leading to failure of some Europeanbanks, reduced stock indexes and high minimization of the market values of equities andcommodities (Bank of England 2008: 45). Another cause is that organizations failed to adopt andenterprise risk management culture. They also failed to embrace and demonstrate necessaryenterprise risk management behaviors. Evaluation of the effectiveness of tools used in forecasting events and predicting crises inthe environment. Introduction The business environment of most of organizations has become more uncertain due to theincreased number of crisis that these firms face in their operations. Business crisis leads todisruption of economies, for example, the global financial crisis that occurred in 2007 – 2008resulted in liquidity crisis which caused the stock market to become very volatile. Therefore, byforecasting and predicting crisis and events, organizations can prepare and reduce theirvulnerability to this crisis. Thus, the process of forecasting assists the management in decisionmaking and planning process. The forecasting tools used for predicting business disasters areclassified into two broad categories i.e. qualitative and quantitative techniques (Demyanyk &Hasan 2010, 320). Some of the forecasting methods are evaluated below, and also theireffectiveness examined.Qualitative Methods These are the methods that are used to inform and support decisions. Unlike quantitativeforecasting tool, numbers are not essential on the qualitative prediction which mostly focuses on

CRITICAL ISSUES IN BUSINESS MANAGEMENT 4judgment, opinions, and experiences. These techniques are subjective when compared to thequantitative method. This approach in the business environment is used in earlier stages ofproduct life cycle since there is less historical data available for quantitative methods. In thebusiness environment, managers use this approach to inform and support the decision-makingprocess. Some of the qualitative methods include 1. Consensus methods which are techniquesthat involve seeking expert opinions. This method is not useful since the outcome is controlledby the individuals with high persuasion skills. The Delphi technique is a much more effectivemethod since the generated opinions are anonymous, and it avoids face to face conversation.Also, the Delphi method involves narrowing of the ideas such that the best views are selected(Demyanyk & Hasan 2010, 320). 2. Decision trees are graphical tools used to show the relationship of the choices which can beused to predict future crises. These techniques are useful, and software are used to carry out theprocess (Demyanyk & Hasan 2010, 320). ProsPredictive AbilityThe major advantage is its ability to predict changes in events and crisis in the businessenvironment. Such events might be sales patterns and customer behavior. Management can alsouse qualitative inputs together with quantitative forecast tool and available economic data in theforecast of future trends (Bam 1992, 35). Quantitative predictions are applied in futureforecasting trends using past results. The qualitative forecast can be used in making decisionsusing one's experience. Flexibility

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