They are used to support qualitative data to establish the investment required

They are used to support qualitative data to

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questions of how much, how many etc. They are used to support qualitative data to establish the investment required and the worthiness of the opportunity. Methods include: User audits to establish how much they buy size of market Distributor audits to determine frequency of buying and general movement of the product Manufacturer output records etc Risk Analysis Risks and uncertainties are common in business decisions. Risks are events for which probabilities of occurrence are determinable (can be estimated)
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65 Types of risks Background risks ever-present possibility of collapse of business Business risk includes production and market risks in business Risk attitudes Risk seeking pursuit of opportunities that maximize expected value of investment Risk averse prefers a lower return to a variable one with higher expected value Strategies for Minimizing Risks 1. Risk spreading Diversification Flexibility Sharing loss through insurance 2. Risk avoidance Process of reducing frequency of losses and controlling magnitude of those that do occur Chooses predictable activities over speculative ones Adopting operations that allow minimizing losses Safe products Compensation If cannot be shared or avoided, then it should be compensatable by higher expected returns
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66 Growth through combining with others An entrepreneur can enhance growth by combining his/ her entity with others. This can take the form of alliances, mergers and acquisitions. Alliances A strategic alliance is a co-operative arrangement between two or more firms for mutual benefits; strategic alliances have gained importance in the recent past. In most alliances each party provides a portion of the equity or the equivalent in physical plant, raw materials cash or other percentage of ownership in the venture. It is adopted by two or more organizations. Merger involves total packing of resources by two or more organizations. This means that the two organizations combine to form one large organization. For example, Stanbic bank merger with CFC bank to form Stanbic CFC bank Acquisition this involves one organization selling of a controlling interest to another company. The dominant company (buying company that is taking over the other) retains the name and ownership while the company taken over ceases to exist. For example, the American Bank was acquired by the Commercial Bank of Africa Review questions a) Define the term opportunity? b) Outline the various patterns in which opportunities take shape? c) Identify the feasibility dimensions of an opportunity? d) Using relevant examples, differentiate between strategic alliance, acquisition and merger?
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