Essay Sample on Risks and Decision Making

The decision-maker has revealed various problems in the attempt to make the most effective course for her business. Among the difficulties is uncertainty. Karen was not sure about the outcome of the alternative for profitability she has to choose (Shafer et al., 2005). She was not sure of how the customers would behave if she changed the prices of bread and if they would find alternative commodities rather than her produce. Besides, she is unsure of how the price would impact the business in the future. Much as she wanted to realize a profit in the industry, she was concerned about maintaining her current customers and did not intend the decision she would make to impact them negatively. Besides, she could not accurately make a rational decision. Karen did not know all the possible alternatives for her current problem despite the knowledge she had in business. Although she had much information about the bakery over the years, she was unable to foresee the choices she made since, in the past ten years, no price change had occurred. With her individual biases, Karen could not make a decision based on anything unfamiliar to her as she had experienced in other businesses. Therefore, the choice she would make is based on her current convictions. Thus she only had one solution to the lack of profits to price her commodities highly. She could not change her mind about another alternative other than changing the pricing for profit realization in the bakery.

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As a result of her current thinking, the business would face various risks. Strategic risks, which would be a consequence of shifts in demand by the customers, would occur. As the price increases, many customers would opt for the product substitute, which would lead to less demand for the commodity (Shafer et al., 2005). With the prices being high, competitors may also start producing the same merchandise at a relatively lower price or lowering costs for the bread substitutes that would affect the existing business plan hence the laid out strategies. The bakery could also suffer financial risks selling the bread to cover the cost incurred in the production process. Therefore, when there are fewer sales, as a result of less purchasing power by the buyers, less revenue is generated hence fewer finances that would compensate production costs; consequently, the bakery suffers a financial loss. Operational risks resulting from failures in the daily processes occur. Interruptions in the business operations, resulting from the decision to be made, could lead to problems in the bakery operations.

Different business models would be suitable for profits in the bakery. However, various risks are often associated with any of the business models adopted. Among the risks is a negative response from consumers. As business models aim to maximize profits, the consumers may not welcome changes in any of its operations. The answer would lower the customers' expectations, which may not generate enough revenue, leading to a profit. Despite the quality produce, customers may often be put off by the changes, which would result in the inability to retain the targeted buyers. Another risk is improper product marketing. As consumers often know different commodities serving the same purpose, marketing may become a challenge, especially in moving with current trends and user preferences and tastes (Gollier, 2018). Poor marketing following the adoption of a different model may result in losses. Therefore, even with the approval of new market strategies, the bakery cannot sell its products as it had earlier outlined. Yet currently, the bakery has no competitors within its location; changes may stimulate a negative response from the market. New bakeries may be set up in addition to more production of bread substitutes to meet the unique user needs. Also, in coming up with a new business model, various assumptions may be made concerning expenses incurred. A major problem is cost underestimation, which means the sales will not be enough to return the expenditures in the production process. Besides, the sudden change in the business environment would also negatively impact the business leading to lower sales by the company as the change also affects the labor process.

References

Gollier, C. (2018). The economics of risk and uncertainty. Edward Elgar Publishing Limited.

Shafer, S. M., Smith, H. J., & Linder, J. C. (2005). The power of business models. Business horizons, 48(3), 199-207. http://www.businessmodels.eu/images/banners/Articles/Shafer.pdf