Reducing Budget Risk by Using Probabilities

This paper emphasises the importance of budgeting for a family run firm. It concentrates on the inadequacy of the typical budget forecast that is shown to firm owners and lenders. This original budget is changed to a useful indicator of the firm's future by incorporating risk, using probabilities and a decision tree. Without this incorporation the firm can misallocate its anticipated net income between family salary, firm re-investment and debt reduction. The final budget, adjusted to the individual firm's risk calculations, produces a weighted net income. This number is a more realistic one for allocating salary, investment and principal.


Issue Date:
2003
Publication Type:
Conference Paper/ Presentation
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/24352
PURL Identifier:
http://purl.umn.edu/24352
Total Pages:
6
Series Statement:
Conference Paper




 Record created 2017-04-01, last modified 2020-10-28

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