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THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX

These dimensions are explained below:

Internal Strategic Position

External Strategic Position Financial Strength (FS) Environmental Stability (ES) Risk involved in businessImpact of technology Price elasticity of demand Debt to equity ratio
Working capital condition
Leverage
Political situation Liquidity Demand variability Ease of exit from market Price range of competing products Cash flow statement Rate of inflation Return on investment Competitive pressure Competitive Advantage (CA) Industry Strength (IS) Access to the market
Market share
Demand and supply factors Resource utilization Growth potential Quality of product and services Profit potential Product life cycle Financial stability Customer loyalty Technological know-how Capacity, location and layout Productivity, capacity utilization Technological know-how Capital intensity Backward and forward integration Ease of entry into market

After the selection of variables the rating is assigned to each. After the addition of these variables taking the average. For example financial strength is explain below

Read more: MGT603 - Strategic Management - Lecture Handout 26

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Related Content: MGT604 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Management of Financial Institutions

Role of Insurance Companies

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

Principles of insurance

Commercially insurable risks typically share seven common characteristics.

1. A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
2. Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
3. Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.



Read more: MGT604 - Management of Financial Institutions - Lecture Handout 35