Safety coefficient (business administration)
In business is safety coefficient , a measure of risk in the framework of the breakeven analysis for uncertainty is used. The safety factor expresses how much the normal utilization , or capacity utilization , must fall before the break-even point is reached.
- SK = 1 - (X B / X)
in which:
- X B - amount of breakeven
- X - amount at normal utilization
example
- X B = 500 pieces
- X = 1500 pieces
- SK = 1 - (X B / X) = 1 - (500/1500) = 2/3 ≈ 0.67
Conclusion: The production volume may decrease by 67% before the breakeven point is reached.
The operating leverage is the reciprocal of the safety coefficient.