The effect of rising gas prices on your compan - Essay Example

Imagine that you are a manager at a delivery service and you are creating a report to project the effects on your company of rising gas prices in thenext ten years. Using the preceding statistical analysis as your basis and outside scholarly resources to support your claims, write a 3 to 5 page paper interpreting the results from this perspective. Introduction: The rise in price of gas and other fuels has a direct impact over the costs and inflation in general. This company is a delivery service and as we consume gas as fuel, the difference in cost of gas will have ample impact over our business. The following discussion will provide a detailed insight towards this issue. As a manager at this delivery service, it is my responsibility to provide the management with future projections about gas prices and to forecast and project gas prices in another 10 years. These steps are of utmost importance. The basic idea behind this discussion is to help the senior management plan everything on long term basis. No company today can survive without extensive consumption of fuel (Magnuson, 2008). This is especially true for the delivery service industry. The competitive edge lies precisely in the fact that the company must deliver all the good on time, every time. Thus it is of utmost importance to the company to be sure about their future gas fuel requirement and the costs associated with it. Gas prices over the last 20 years: The data used for this research is in fact Consumer Price Index - Average Price Data. The prices of Gasoline, unleaded regular, per gallon/3.785 liters from the year 1982 to 2011 have been studied. Data is for average U.S. cities and the details come from a government resource website. (Source: http://data.bls.gov/cgi-bin/surveymost?ap) While studying this data, a lot of statistical techniques and tools have been applied on this set of data. First of all, the data is available in monthly figures. Though monthly figures give us a clear picture of how the prices vary over time, the projections cannot be created without calculating the annual data. The annual mean or average price has been calculated by adding all the monthly figures for any year and divide the sum by 12 to get the average annual figure. Once the annual figures are there, the scatter diagram and the regression lines can be drawn. This is what the excel file shows in detail. Looking at the annual average prices of gas over the period of these 20 years, it can be very easily noticed that the prices are on a rise. Also, the price rise is very steep in the recent years. In 1982 the gas prices were 1.2955 per gallon. The prices were fairly stable in the first ten years. Looking at the figures in 1992 and 1993, the average price of gas per gallon in those years is even less than the price in the base year, 1982. A steep rise can be observed in prices from the year 1995. By 2005, the prices of gas are more than double than that of 1995. Since 2005, there has been a huge jump in gas prices every year. In 2010, the average price of gas is more than 300% times that of the price in 1982. The equation of this data set is -127.64+0.06X. The slope (b) remains 0.06 and Y intercept remains -127.64. Most of the dots in the scatter diagram are on the regression line or very close to it. The residual value is thus not very important. The upward trend in prices is very prominent and looking at the regression line, by extrapolation, the estimated prices of gas in 2020 will be way above 3.6 per gallon, and this is an optimistic approach. As noticed in the trend in the data, the first ten years were smooth with very little rise in price (Gelmen and Hill, 2006). The actual price hike has been experienced in the last 7-8 years. If the same trend continues and we have every reason to believe that it will for some time, the prices will be much higher than what the regression line shows. Conclusions drawn from this data set study: This is very obvious that the prices of gas are on a hike. It looks like the data has come from a reliable source. It might have some small percentage of error which can be ignored. Overall, it is authentic as it comes from a government resource. The first conclusion thus remains that the data is authentic, and the prices will rise in future too. The second conclusion that could be drawn from this study is that, as we are a delivery service business, the impact of increase in prices of gas will be felt more by us as compared to the companies who are not in such a business. As our major profit comes from the delivery services, we will either need to increase prices and that might cut into our customer base, or, we will not be able to gain as much profit from our business as we would like to (Murphy, 2010). The world at present is facing a huge economic recession. The change in gas prices as predicted by the regression line might not be what we will experience in the future. There can be two chances in this case. Either, the economic recession will become grave and as a result inflation will be out of control, and thus the prices might rise above the level of our expectations. On the other hand, it is also possible that the economic recession will end and we will experience a boom in industries. In that case, the gas prices will come under control once again. The current scenario that I have mentioned and projected is considering the fact that current situations will prevail for next ten years. As a conclusion, it is important to mention that the chances of gas price hike are very high. As this business is directly related to the fuel and gas prices, it is important that some alternate course of action is prepared before the prices get to the level where theventure does not remain profitable. References: Gelmen, A. and Hill, J. (2006) Data Analysis using regression and multilevel/ hierarchical models. Cambridge University Press, London. Magnuson, J. (2008) Mindful Economics: How the U.S. economy works, why it matters and how it could be different. Seven Stories Press, New York. Murphy, M. (2010) Survive the Great Inflation. Next Paradigm Press, New York. Read More