RISK MANAGEMENT CONTINUED

For the Supplier of a product and/or a service in the Free Business Enterprise System, decisions concerting supply are based on the unknown (risk) which is the demand. To be successful Supply should approximate Demand. The Supplier not only has to consider the demand of their market population, but because of the competitive aspect of the Free Business Enterprise System, consideration of the market demand that the competition would satisfy is also required. Excessive supply would cause a loss of the cost of supply unconsumed. Insufficient supply would result in less gain than the Supplier would have made if demand had been completely satisfied. The process of determining the supply to be produced to meet the unknown demand is known as risk management.

The Business persons (suppliers) have developed a number of ways to manage risk. Some restaurants, for example, require reservations to more accurately determine the risk (demand). While this reduces the risk of "over supply." it looses the possible gain of the demand without reservations.

Advertisements, sales, and various kinds of gimmicks can be used to gain a bigger share of the demand and they add to the risk factor that has to be considered.

This practice of basing supply on predetermined demand can be, and is, used in nearly all businesses. It is considered a conservative approach and not compatible with the American Dream of maximum profit. Most businessmen use risk management in conducting their individual businesses, some taking greater risks than others.

The development of the Corporation has completely changed the strategy of risk management. The limited liability of the owners of the Corporation and the prospect of great gain without personal liability influenced unrestricted risk taking by corporate management and encouraged investors to
accept risk as a part of the system.

With unrestricted risk management of supply, failure to respond to the Recession phase of the Business Cycle often resulted in failure. Because of the size of the Corporation and its lack of personal identity, failure caused loss to a large number of people which is referred to as a Depression. Investors lost money and people lost jobs. (The governments, local, regional and national. lost tax income as well)

The normal business cycle starts with Progress (Demand exceeding supply), then Recession (Supply starting to exceed supply) Depression (failure of a significant number of business enterprises) and Recovery (Demand increasing with depletion of excessive supply, inventory) The prudent private business owner, using risk management. reduces supply in a recession and averts failure (depression) while the risky corporation management and less prudent private business owners, in search of greater personal gain, gamble and often fail, bringing on a Depression.

The government has tried a number of plans to avoid a depression which includes subsidies, regulation, intervention and stimulus.