Managing Within the Dynamic Business Environment
Legal & Regulatory Economic
1. 2. 3. 4. 5. Business’s profit/risk assumption Stakeholder roles Role of entrepreneurship in wealth creation Elements of business environment Rise of the service sector
Research In Motion
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Objectives of Business
Objectives of Business
A business is any activity that seeks to provide goods and services to others while operating at a profit.
Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses. Since not all businesses make a profit, starting a business can be risky. Chapter 1 Slide 5
Earning a Buck: Risk Reward Trade-Offs
• Starting a business involves risk. • Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. • Different people have different tolerances for risk. • To decide which is the best choice for you, you have to calculate the risks and the potential rewards of each decision. Chapter 1 Slide 6
Matching Risk with Profit
• Profit is revenue minus expenses.
• Revenue is the total amount of money a business takes in during a given period by selling goods and services.
• A loss occurs when a business’s expenses are more than its revenues. • Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Chapter 1 Slide 7
Risk and Rewards
• Rewards and risk are RELATED. The more risks you take, the higher the rewards may be. As a potential business owner, you should do research to find the right balance between risk and profit. • Risk exists in all business. • Risks come about for many reasons. Some are internal and some are external to the business. • Not all risks are bad. • Risks can present opportunities as well as threats to a a business. Chapter 1 Slide 8
Risk and Risk Events
• Risk has two primary components for a given event: • A probability (likelihood) of occurrence of that event • Impact of the event (expected value of the risk event or amount at stake) Risk = f(Probability, Impact)
• In general, as either the probability or impact increases so does the risk. Chapter 1 Slide 9
How Does a Business Deal with Risks?
• Businesses focus in developing and implementing strategies to make: • the negative risks smaller or eliminate them entirely, as well as • finding ways to make positive risks more likely to happen or greater in impact.
Strategies for Negative Business Risks or Threats
• Avoid (Avoidance)
• To avoid a risk means you’ll evade it altogether, eliminate the cause of the risk event, or change some elements of the business to protect the business from the risk event.
• Transfer (Transference, deflection, allocation)
• To transfer the risk means make a third party responsible for the risk.
• Mitigate (Mitigation)
• Reduce the probability that a risk will occur and reduce the impact of the risk to a level where you can accept the risk and its outcomes Chapter 1 Slide 11
Strategies for Positive Business Risks or Opportunities
• This is the strategy of choice when you’ve identified positive risks that you want to make certain will occur in your business.
• The share strategy is similar to transferring because you’ll assign the risk to a third-party who is best able to bring about the opportunity the risk event presents. • Examples include forming a joint venture (JV), Strategic Alliances, etc.
• The enhance strategy closely watches the probability or impact of the risk event to ensure assure that your business realizes the benefits....