How to Assess Risks and Fluctuations in Business?
“The frequent changes in demand should be considered while planning the size, nature and place of a firm. ”
The main factor behind any business is the demand and supply factor. This single factor when assessed properly gives you an advantage as you are able to have a better picture of fluctuations in your business. In this way, risks and perils of business can be avoided to a large extent.
The frequent changes in demand should be considered while planning the size, nature and place of a firm. There is always a change in demand. The demand of goods may be influenced by a number of factors.
The fluctuation in demand may be both for a short period and for a long period of time. The concern will have to withstand fluctuating demand. The size of a unit should be such that it should be able to adjust its production according to market requirements.
The change in demand may be permanent, cyclic, seasonal or erratic. The demand of a product may undergo a permanent change. This may happen due to change in fashion, tastes or technology involved in production. The concern will have to shift to some other products in case of such a change that is beyond repair. It involves re-organization of whole system.
Cyclical changes occur due to depression or boom. During depression production is more than demand. A unit will have to be sold at a loss to stay in business. Smaller units are generally not able to face depression for a long time.
Similarly, seasonal changes are due to the change in season and are of a short duration. Some commodities may be in more demand during a particular season and their demand is bound to decline when the season is over. The unit should take up production of a number of goods required during different seasons so that production may be adjusted according to demand.
Sometimes the change in demand is not caused by a specific reason. It may be caused by different factors at different times. The demand for a product may go up because of a shift in population at a particular place. This demand decreases the moment additional people move out of that place.
So we can say that business acumen coupled with common sense is the key to success in any business.
Author - DeeKay
Tags - Finance, Economy
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