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The technique of bridges is a study tool which is a step beyond the traditional horizontal analysis. It can be said that the latter is static, as it generates a data (sometimes appears as a percentage) but provides no further information. For its part, the analysis with bridges aims not only to display a value, but also explain it. Hence, precisely its name is a bridge between two data.
This is, therefore, an examination with great potential and that requires knowledge or the investigation of the origin of variations or deviations. Not enough to generate a value, but must give the reason or cause.
Let’s take a simple example. Suppose the budget of the Sales Department of a company for the year X and the actual expenditure for that year.
First, we perform the classic analysis.
The analysis with bridges explains the variations.
As seen in the example, bridges technique gives more information and reconciles data in a simple manner. It pretends to be very visual and schematic, so that we do not need narrative explanations.
The potential of analysis with bridges is high and has the following applications, among others:
– It compares different types of settings: allows you to compare the actual data with a budget for the same period; or the actual data with several consecutive periods; or the difference between various budgets …
– It analyzes one or more data at once: we can focus on the reasons for a single value such as sales, or make it wider and jointly analyze variations on sales, gross margin and profit. This second option is very rich (and appreciated by managers) and provides at a glance the impact of the mix, volume, price, overhead …
– It is applicable to different areas: although its origin is linked to the study of financial indicators can be used to address differences in all kinds of magnitudes: departmental expenses, personnel expenses, number of employees, customer complaints …
It is crucial for any company to decide the commercial risk of selling to an entity. It has to be decided the payment terms and the credit limit and, moreover, if that credit will be ensured somehow. In many cases the Companies decide to hire a credit insurance to prevent from any default risk.
Although in Companies we focus on the profile and performance of the customer itself, Credit Insurance Companies analyze other sides such as country risk. They don’t provide credit limits based only on their opinion on a certain organization’s sales or profit, but also on their opinion on the country in which that business is located. The economic, financial and political data of each country are studied, and they help to decide whether a company deserves a credit (and how much), or not.
As a consequence, the assessment of a profitable Company with encouraging performance can be penalized if that company is located in a country with high political risk. This is what happens with banks, whose rating is determined by the sovereign debt condition.
Taking all this into account, and looking at the attached chart (released by Coface), it surprises that some Asian countries have better rating (less risk) than other European countries (mainly in the South). This shows how important is the stability of the Country’s economy. Not only can the citizens be affected, but also the Companies (problems to open new markets).
My piece of advice is to check the country’s risk besides client’s risk itself. This way it will be possible to manage the risk, or at least have the whole picture of a Company.
Someone may say that a blog that needs to be explained by his owner doesn’t worth reading. And that is true. However the aim of this post is not to defend or to explain the site’s existence, but to give some clues on the reasons why I decided to write it, and which are my targets.
Firstly, I would like to comment that this place is the answer to my passion for Business and everything related to them. And I am not just talking about those subjects studied in Business Schools such as Marketing, Finance, Economy… Of course, those are important but I think that there are many others like People, on which we should focus more than Companies do nowadays. In fact, what companies are is made by their employees and their performance: shouldn’t we invest time and efforts in understanding and improving the Human Resources? My definite answer is yes.
I am also interested in the innovations which come up everyday and that can be applied in business management. Trying to be informed of those novelties forces me to study and learn. One never stops studying, but when it is done with emotion the result can be satisfying.
As I have said, being informed is extremely important today. Therefore, this place intends to be a way for releasing news and analyses. It will represent an incentive for searching and putting forward attracting subjects to comment and discuss.
In the end, this is not going to be a specialized blog (a mistake, maybe :)), but a place open to a large variety of topics related to Companies. On the other hand and thinking globally, it will be bilingual with posts in English and Spanish. This last one is my mother tongue, so it will represent a challenge to write in English. My apologies in advance for the mistakes.
One last thing: I would be more than grateful with other’s participation. Proposals, constructive criticisms, collaborations, comments… from anyone who has something interesting to say are welcome. And I expect them!
Welcome on board!