Decision making across the business cycle
A CIMA case study

Page 3: Boom

A boom is a sustained period of strong economic growth. During this time confidence in the market is high. This leads to high levels of demand and consumer spending. Businesses increase their output and may be working at full capacity. It is during this phase that existing businesses tend to increase their spending on new capital. Many new firms also start up.

Due to the level of business activity during a boom, employment levels are high. This makes it more difficult for companies to attract and employ staff. They may need to offer higher wages to attract quality workers.

The boom can be an exciting part of the business cycle for organisations. However, high levels of demand, plus the increasingcima-financeexecutive costs faced by firms, can lead to high inflation. Inflation is the name given to the rise in the general level of prices. In addition to this, there is an increased risk of ‘overheating’. This is a situation where businesses are not able to meet the high demand for goods and services. Boom periods therefore need to be as carefully managed as the other stages in the business cycle.

CIMA encourages a balanced approach to managing the business cycle. The focus should be on long-term business growth rather than short-term profits. Management accountants can advise on how to make the most of the investment opportunities afforded by a boom, whilst assessing and managing the associated risks. In a buoyant economy there is less perceived need or incentive to control costs. However, inefficiencies can become problematic.

Management accountants will also have a role to play in ensuring the business remains efficient. For example, by keeping business processes lean, streamlined and continuously improved, costs will be controlled.

Michael Tan is a Supply Chain Operations Director for Agilent Technologies in Malaysia. His business grounding with CIMA has allowed him to focus on achieving greater efficiency in the company. His efforts have reduced lead times by 32% over the last year.

Chartered Institute of Management Accountants | Decision making across the business cycle

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