When you take out a home loan you are literally buying a dollar for three dollars. By the time you are done paying the mortgage you will have paid the lender three times the money they lent you. This is how most businesses work.
Businesses purchase inputs, transform them into an output that is worth more. Business operations create value through this transformation process.
Lenders find people who need more money than they could possibly come up with themselves by the time they need it. This person is the borrower. They also find people who have more money than need during this same short term window. The lender than connects these two. They act as a broker.
Lending money is easy. Managing the risk of losing money in a way that consistently yields more return than loss is the trick.
Thus the real trick that lenders typically and historically do so well is to find opportunities to loan money to those who will do their best to pay back that money plus interest over a period time. One payment at a time. They do this by finding folks with steady consistent income that have a history of paying their bills and following through with their past financial obligations.
Middle class consumers who are the typical mortgage borrowers are by themselves to risky to be trusted with such a sizable loan over such a long period of time. A lot can happen in thirty years.
The asset being purchased with the loan is what creates the security for the lender and allows the American dream to be more than a dream. The fact that the lender is able to obtain the right to force a sale of the property secured by the mortgage loan is what allows the American dream to become an American reality.
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Showing posts with label operations. Show all posts
Showing posts with label operations. Show all posts
Saturday, January 1, 2011
Monday, December 6, 2010
Basic Types of Business Operations
List of Catagory and Type of Business Operations with Business Examples
Goods Producing
Goods Producing
- Farming
- Mining
- Manufacturing
- Power Generation
Storage and Transportation
Exchange
Renting
Entertainment
Communication
- Warehousing
- Trucking
- Mail service
- Moving
- Taxis
- Buses
- Hotels
- Airlines
Exchange
- Retailing
- Wholesaling
- Banking
Renting
- Leasing
- Library
- Loans
Entertainment
- Films
- Radio and Television
- Concerts
- Recording
Communication
- Newspapers
- Radio and Television
- Newscasts
- Telephone
- Satellites
- Finance Blog
Creating Value through Business Operations
This post discusses creating value through process and operations of businesses.
Operations as a Value-Added Process
Operations start with raw materials and services much like dinner starts with ingredients and the cook's labor. The ingredients and the cook's labor translate to Input(s) in reference to operations.
Operation Inputs
Transformation Process of Business Operations
Just as a cook must "cook or bake the food to "transform the ingredients and effort into whatever is for dinner so to must a business transform inputs into outputs. In the world of business operations and operations management this is known as the transformation process.
Operation Outputs
The goods and services that a company produces are known as the output.
Finance Guy's Final Thoughts
I have a great way to sum up the very nature of business and operations as an added value through process concept.
Here it goes...
"Business is essentially nothing more than buying something for a dollar and figuring out how to sell it for two."
- Finance Guy
Operations as a Value-Added Process
Operations start with raw materials and services much like dinner starts with ingredients and the cook's labor. The ingredients and the cook's labor translate to Input(s) in reference to operations.
Operation Inputs
- Material
- Machines
- Labor
- Management
Transformation Process of Business Operations
Just as a cook must "cook or bake the food to "transform the ingredients and effort into whatever is for dinner so to must a business transform inputs into outputs. In the world of business operations and operations management this is known as the transformation process.
Operation Outputs
The goods and services that a company produces are known as the output.
Finance Guy's Final Thoughts
I have a great way to sum up the very nature of business and operations as an added value through process concept.
Here it goes...
"Business is essentially nothing more than buying something for a dollar and figuring out how to sell it for two."
- Finance Guy
Challenges of Managing Services
Managing a service based business is complicated through a variety operational characteristics. In this post I wanted to discuss why and how managing services is challenging.
Compared to their counter part services are much harder to manage and much harder to keep consistent productivity and quality levels.
Input and Output Variability
Input and output variability is higher and less stable than a typical manufacturer operation.
Loosely Structured Job Duties
Service jobs are often less structured than manufacturing jobs. This is for several reasons. One big one is the sales aspect of service orientated operations. both the typical pay structures as well as the nature of the agents responsibility lend them selves to flexible and agile activity structures.
Customer Relations
Customer contact is higher. Typically services orientated operations have to "court" or service the customer from time to time.
High Employee Turn Around
Services hire many entry-level workers. This is because the employee turnover seems to be much higher then a manufacturing job. Employees burn out and move on. Many new employees just are not cut out for the work. But there is often no clear way to screen applicants so companies need to constantly subsidize the folks leaving with new employees. This is amplified during a growth period for a service orientated firm.
Service performance can be affected by worker’s personal factors. Because employees must often play a part that requires them to be engaged and also deal with customers that are not happy or high maintenance yet the agent must maintain the image that best represents the company. This can be difficult if the agent is having a period of depression or if they are sick or just having a bad day.
Finance and Profitability Variations
The service industry experiences large fluctuations in demand and profitability which are some times not anticipaited. This makes it hard to deal with complicaited financial decisions.
Compared to their counter part services are much harder to manage and much harder to keep consistent productivity and quality levels.
Input and Output Variability
Input and output variability is higher and less stable than a typical manufacturer operation.
Loosely Structured Job Duties
Service jobs are often less structured than manufacturing jobs. This is for several reasons. One big one is the sales aspect of service orientated operations. both the typical pay structures as well as the nature of the agents responsibility lend them selves to flexible and agile activity structures.
Customer Relations
Customer contact is higher. Typically services orientated operations have to "court" or service the customer from time to time.
High Employee Turn Around
Services hire many entry-level workers. This is because the employee turnover seems to be much higher then a manufacturing job. Employees burn out and move on. Many new employees just are not cut out for the work. But there is often no clear way to screen applicants so companies need to constantly subsidize the folks leaving with new employees. This is amplified during a growth period for a service orientated firm.
Service performance can be affected by worker’s personal factors. Because employees must often play a part that requires them to be engaged and also deal with customers that are not happy or high maintenance yet the agent must maintain the image that best represents the company. This can be difficult if the agent is having a period of depression or if they are sick or just having a bad day.
Finance and Profitability Variations
The service industry experiences large fluctuations in demand and profitability which are some times not anticipaited. This makes it hard to deal with complicaited financial decisions.
Business Operations - Productivity
Business Productivity
This article discusses operations productivity and measuring business productivity.
The founder of Godaddy.com is famous for saying that anything watched and measured tends to go up. Keeping track of company productivity is essential to running a successful business venture.
Productivity
Productivity is a measure of the effective use of resources, usually
expressed as the ratio of output to input.
Productivity measures are useful for tracking an operating unit’s performance over time. Productivity tracking is also used to rate the performance of an entire industry or country.
Process Yield
Process yield is the ratio of output of good product to input. Defective products are not included in the output.
Process yield is also used in service orientated industries. For example the ratio of hotel rooms sold to rooms vacant.
Outsourcing
Higher productivity in another company is a key reason organizations outsource work. Improving productivity may reduce the need for outsourcing.
There are other considerations as well. For example, a company may take a PR hit if they outsource jobs to another country.
Managing the Finance Side
It is very important that a business have an intimate understanding of what they are getting per dollar invested in the company. This is the responsibility of the finance department.
Once a business is able to accurately track what a dollar is worth to them than they are able to easily make common financial decisions involving loans, debt, and proposed investments.
This article discusses operations productivity and measuring business productivity.
The founder of Godaddy.com is famous for saying that anything watched and measured tends to go up. Keeping track of company productivity is essential to running a successful business venture.
Productivity
Productivity is a measure of the effective use of resources, usually
expressed as the ratio of output to input.
Productivity measures are useful for tracking an operating unit’s performance over time. Productivity tracking is also used to rate the performance of an entire industry or country.
Process Yield
Process yield is the ratio of output of good product to input. Defective products are not included in the output.
Process yield is also used in service orientated industries. For example the ratio of hotel rooms sold to rooms vacant.
Outsourcing
Higher productivity in another company is a key reason organizations outsource work. Improving productivity may reduce the need for outsourcing.
There are other considerations as well. For example, a company may take a PR hit if they outsource jobs to another country.
Managing the Finance Side
It is very important that a business have an intimate understanding of what they are getting per dollar invested in the company. This is the responsibility of the finance department.
Once a business is able to accurately track what a dollar is worth to them than they are able to easily make common financial decisions involving loans, debt, and proposed investments.
Competitiveness, Strategy, and Productivity
Organizational Strategy Formulation Explained
Businesses compete using operations and more importantly their operational strategy. This article discusses strategy and operations planning.
Product and Service Design Considerations
Environmental scanning is a task that one must do before they are able to effectively plan operations strategy.
Core Competencies
The special attributes or abilities that give an organization a competitive edge. To be effective, the core competencies and strategies need to be aligned to compliment one another.
Types of Strategy for business Operations
Agile Operations
Agile operations is a strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change.
Involves the blending of several core competencies:
Measuring productivity and operational performance is a must for any successful business.
Businesses compete using operations and more importantly their operational strategy. This article discusses strategy and operations planning.
Product and Service Design Considerations
- Cost
- Location
- Quality
- Quick response
- Flexibility
- Inventory management
- Supply chain management
- Service
- Managers and workers
Environmental scanning is a task that one must do before they are able to effectively plan operations strategy.
Order Winners & Qualifiers
Order Qualifiers
Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase
Order Winners
Characteristics of an organization’s goods or services that cause it to be perceived as better.
Distinctive Core cCompetencies
Core Competencies
The special attributes or abilities that give an organization a competitive edge. To be effective, the core competencies and strategies need to be aligned to compliment one another.
Types of Strategy for business Operations
Agile Operations
Agile operations is a strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change.
Involves the blending of several core competencies:
- Cost
- Quality
- Reliability
- Flexibility
Measuring productivity and operational performance is a must for any successful business.
Operations Management
Core Fundamentals of Operations Management
This article will discuss the basics of operations management as it pertains to business.
What is operations?
The part of a business organization that is responsible for producing goods or services. Operations, in a sense, is business.
How can we define operations management?
The management of systems or processes, including financial matters, that create goods and/or provide services.
At the core of operations management is the supply chain.
Supply Chain
The supply chain is a sequence of activities and organizations involved in producing and delivering a good or service.
For a better idea of how a supply chain works take a look at the list of typical supply chain components or parties below.
Supply Chain Hierarchy
The management of the supply chain may be the most important aspect of operations management.
The other function of operations management that rivals supply chain management in importance is the overall planning and purpose of the company.
This must be planned and constantly reviewed and revised as needed.
Hierarchical Planning Process
I have posted an article worth reading if you are interested in learning more about operations planning for organizational strategy
This article will discuss the basics of operations management as it pertains to business.
What is operations?
The part of a business organization that is responsible for producing goods or services. Operations, in a sense, is business.
How can we define operations management?
The management of systems or processes, including financial matters, that create goods and/or provide services.
At the core of operations management is the supply chain.
Supply Chain
The supply chain is a sequence of activities and organizations involved in producing and delivering a good or service.
For a better idea of how a supply chain works take a look at the list of typical supply chain components or parties below.
Supply Chain Hierarchy
- Supplier for suppliers
- Direct suppliers
- Producer
- Distributor
- Final customers
The management of the supply chain may be the most important aspect of operations management.
The other function of operations management that rivals supply chain management in importance is the overall planning and purpose of the company.
This must be planned and constantly reviewed and revised as needed.
Hierarchical Planning Process
- Mission
- Goals
- Organizational Strategies
- Tactics
- Functional Strategies
I have posted an article worth reading if you are interested in learning more about operations planning for organizational strategy
Wednesday, November 10, 2010
Business Basics - The 3 Fundamental Functions of Every Business Explained
No matter what type of business, or organization for that matter, you can rest assured that there are three fundamental functions that run that business and dictate how that business behaves.
This post explains the 3 basic functions of every business. These functions are Finance, Marketing, and Operations.
The 3 Basic Business Functions
Finance
The finance function of a business is responsible for securing and distributing funds for operations.
This function also is typically in charge of purchasing goods, supplies, and services that are necessary to carry out marketing and operational activities.
Budgeting and forecasting expenses, revenue, profits, costs, losses and debt are crucial tasks that the finance function of any business must be able to perform successfully.
Managing cash flow and the financial assets of a company is no easy task. To stay competitive a business must be able to manage their money effectively. This could mean developing investment strategies that produce a significant short term yield with out taking on excess risk.
Some businesses owe their success in large part to their finance department. For instance Amazon.com originally made their money not by selling books but by simply investing sales revenues for the short term between the time of purchase and the time of payment to the seller. During that period which was a time frame of 30 - 60 days for any given transaction Amazon.com invested the money for the short term and "made their living" off the investments resulting return or yield.
Most people don't know that.
Marketing
The marketing function of a business is ultimately responsible for ensuring the business has customers. The marketing activities and efforts of a company must focus on ensuring that the products and or services of the business are able to meet the needs and wants of the customer. Perhaps just as important, the marketing department must ensure that the target market is aware that the companies goods and services, and further, are aware that the products are able to meet their needs and wants. This "awareness" must be strong enough to convince an acceptable portion of the target market to purchase the goods or services as a means to meet their needs and wants.
The marketing side of a business must focus on developing strategies and plans that effectively create this awareness. For instance how a company advertises their products and services is developed and executed by the marketing department. Much of the customer experience is a focus of marketing. Whether it be designing a strategy to cross sell candy and other tasty treats to customers at a video rental store such as Block Buster or creating an overwhelmingly positive emotional experience for those touring a time share resort the marketing function of a business attempts to create a consumer experience that is optimized for selling the products and services of a business.
Just as the finance department will create forecasts and budgets a marketing department will prepare a marketing plan which forecasts sales and more importantly acts as the blue print of how a company will entice customers to purchase a firms products and services.
Operations
Operations is the function of a business that is responsible for cresting the goods and services of a business. Operations is responsible for producing what the company sells with in the boundaries of the budgets and forecasts supplied by the finance department as well as the supply and demand forecasts of determined by the marketing department. Operations must produce products and services in line with what the marketing department has dictated is necessary to meet the needs and wants of the consumer.
Operations is also the biggest player in running and managing the supply chain. Supply chain management is a crucial aspect of any business and the proper operations management approach can make or break a business. For instance despite Block Buster having multiple times the amounts of revenue as Red Box, Red Box stock is selling for extremely high multiples of their earnings per share while Block Buster is in bankruptcy trying to restructure their debt. This is because Red Box has a lean and mean well managed supply chain and Block Buster is still working on optimizing a clunky retail cross selling approach.
Just as a side note Red Box is owned and managed by the same folks who manage coin star.
So there you have it folks the three basic functions of any business explained. If you like reading about this kind of stuff I have decided to do another post directly relating to this topic. As a way to better explain and see the concepts at work I am going to post how each of these fundamental business operations relate to this very finance blog. This should give folks a practical application of the fundamentals at work by using Young Finance Guy as an example.
This post explains the 3 basic functions of every business. These functions are Finance, Marketing, and Operations.
The 3 Basic Business Functions
Finance
The finance function of a business is responsible for securing and distributing funds for operations.
This function also is typically in charge of purchasing goods, supplies, and services that are necessary to carry out marketing and operational activities.
Budgeting and forecasting expenses, revenue, profits, costs, losses and debt are crucial tasks that the finance function of any business must be able to perform successfully.
Managing cash flow and the financial assets of a company is no easy task. To stay competitive a business must be able to manage their money effectively. This could mean developing investment strategies that produce a significant short term yield with out taking on excess risk.
Some businesses owe their success in large part to their finance department. For instance Amazon.com originally made their money not by selling books but by simply investing sales revenues for the short term between the time of purchase and the time of payment to the seller. During that period which was a time frame of 30 - 60 days for any given transaction Amazon.com invested the money for the short term and "made their living" off the investments resulting return or yield.
Most people don't know that.
Marketing
The marketing function of a business is ultimately responsible for ensuring the business has customers. The marketing activities and efforts of a company must focus on ensuring that the products and or services of the business are able to meet the needs and wants of the customer. Perhaps just as important, the marketing department must ensure that the target market is aware that the companies goods and services, and further, are aware that the products are able to meet their needs and wants. This "awareness" must be strong enough to convince an acceptable portion of the target market to purchase the goods or services as a means to meet their needs and wants.
The marketing side of a business must focus on developing strategies and plans that effectively create this awareness. For instance how a company advertises their products and services is developed and executed by the marketing department. Much of the customer experience is a focus of marketing. Whether it be designing a strategy to cross sell candy and other tasty treats to customers at a video rental store such as Block Buster or creating an overwhelmingly positive emotional experience for those touring a time share resort the marketing function of a business attempts to create a consumer experience that is optimized for selling the products and services of a business.
Just as the finance department will create forecasts and budgets a marketing department will prepare a marketing plan which forecasts sales and more importantly acts as the blue print of how a company will entice customers to purchase a firms products and services.
Operations
Operations is the function of a business that is responsible for cresting the goods and services of a business. Operations is responsible for producing what the company sells with in the boundaries of the budgets and forecasts supplied by the finance department as well as the supply and demand forecasts of determined by the marketing department. Operations must produce products and services in line with what the marketing department has dictated is necessary to meet the needs and wants of the consumer.
Operations is also the biggest player in running and managing the supply chain. Supply chain management is a crucial aspect of any business and the proper operations management approach can make or break a business. For instance despite Block Buster having multiple times the amounts of revenue as Red Box, Red Box stock is selling for extremely high multiples of their earnings per share while Block Buster is in bankruptcy trying to restructure their debt. This is because Red Box has a lean and mean well managed supply chain and Block Buster is still working on optimizing a clunky retail cross selling approach.
Just as a side note Red Box is owned and managed by the same folks who manage coin star.
So there you have it folks the three basic functions of any business explained. If you like reading about this kind of stuff I have decided to do another post directly relating to this topic. As a way to better explain and see the concepts at work I am going to post how each of these fundamental business operations relate to this very finance blog. This should give folks a practical application of the fundamentals at work by using Young Finance Guy as an example.
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