Business decisions include; hiring, buying resale goods and usable materials, paying other overhead, etc.
The discount available on a purchase of a product might require hiring more clerks to handle the product, thus reducing the immediate net profit available. Buying a new computer might bring newer technologies that the current staff does not have, thus requiring the purchase of a training program and perhaps, an extended warranty, again, reducing the immediate net benefits.
These are some of the thousands of decisions that must be made daily for all firms. These and countless other decisions require perspectives, gut instincts and reviews of historical activity which include decisions that generated results that caused profits and, as importantly, other decisions that generated both losses or break-even results.
Inevitably, owners must learn how to recognize superior from weak decisions. If an excessive number of weak decisions are made, it is understood that, they may run into a situation where they won't have time or the resources to make a good decision which will make up for a poor one.
Businesses then, need the ability to insure against risks of making poor decisions compared to those decisions that lead to profits.
While having a business education infers being able to understand both what decisions need to be made, and under what conditions/situations, it is not the only answer.
Copying decisions that have always worked seems like a good way to assure profits. It's logic is excellent; if one always does what previously worked, one should receive the same results [in our definition of success]--more profits.
An outsider to the world of business could logically ask "How can a decision that was good yesterday, not be good today?" It is because business is not a static environment and those day-to -day decisions and actions from yesterday may provide a different result today.
Why is this? Things outside the company's ability to forecast include the customer's actions during different weather occurrences, customer's access to dollars to continue purchasing the same amount of goods and services week after week may be reduced, there may be new competition, there may be decreases in quality and increases in prices of raw materials, the public may perceive a new, negative attitude from sales or other staff, claims of customer injuries, national calamities, war, company employee embezzlement, and more.
As a recent example; Ipods, prior to March 2008, were a hot seller. Then, in early March, some users and distributors mentioned to the press that under some circumstances, Ipods were beginning to smoke or burst into flame.
Merchants need to have as much control as possible over decisions that help him continue to buy.What, then, is a merchant to do with fickle customers? How does a business owner spread the risks of making profitable decisions?
Have a good accountant? Yes.
Have a good business attorney? Yes.
Having good advisors? Again yes.
Is that enough? Some decisions risk the life of the business. After all, the advisors can only advise and are not about to insure the infallibility of their advice.
Also, prices, consumer's desires and other needs change. Good customers die.
Can something be done to reduce the risk to merchants of decisions that consequently are no longer effective? That is what some business people call the holy grail of the business world!
American business has had, for a century, insurance to cover:
Weather inflicted damage, death of partners, car accidents, embezzlement, theft, and city- controlled disruption of business.
Business has never had "industry" insurance against "ineffective" business decisions. At the onset, it seems illogical such a thing could exist.
CEOs and general managers know the categories and frequency of decisions that must be made to "successfully" run a business.
A company can be in any one of three statuses; start-up, expansion and need of repair. Thus, each of these statuses need protecting as well.
It is a fact that hundreds of thousands of new businesses start each year in the US. It is a further fact that fewer than 50% of those will survive their first year, and by the end of five years, fewer than 15% will have survived. These "start-ups" need decision help desperately. Hundreds of billions of dollars, divorces and similar dire consequences occur because of one or both spouses' decisions on their small business become ineffective and there is no insurance to cover their investment in their business.
A good college education from the school of business and a meeting of like minded, educated peers, is the current limit as to what expanding companies have to insure them against ineffective business decisions.
There has not been any other answer, until, perhaps, now.
The TV show "Numbers" uses algorithms to identify patterns in things; such as decisions made, frequency of occurrences, numbers of people involved, and more. Its mathematical formulae are staggering to non-mathematicians. An approach mirroring "numbers" is one new, innovative solution for business decision risk insurance, or BOD-BOPI, Business Operations Decisions, Business Operations Profits Insurance, or perhaps more succinctly named Business Profits Insurance.
What can one measure with BOD-BOPI??
Businesses have histories of:
