Chapter 8- Business plans and contingency crisis management Flashcards
Definition of business plan
- A formal written document that explains in detail how a business is going to achieve its objectives
Definition of strategic planning
- It’s the process of identifying the long-term direction of the business in terms of objectives and initiatives to achieve them
Who is strategic panning done by?
- Senior managers
Tactical planning
- Usually undertaken by middle managers
- More centred on ‘day-to-day operations’
- Has a rather more short term focus
Business plans for the start ups
- A proper plan says those running the business know what they are doing
- Without a plan they will fail and also fail to get financial backing
- They will have no idea of what they want to achieve and how they will attempt to do it
- Drawing up a plan will help get funds
Business plan for established companies
- For existing companies, planning does not occur as an isolated activity
- It usually follows a strategic review of the firm
- Strategic review is about improving and sustaining business performance
- It addresses question such as ‘where do we want to go?’ , ‘can we get there?’, ‘how?’
Benefits of strategic review
It enables
- An analysis of the key performance from all of the four functional areas in the firm; underperforming departments and products can be identified
- Analysis of SWOT and PEST
- Identification of good practice in the business e.g. how employees are kept motivated
- Identification of bad practice e.g. budgets being routinely exceed
- A consensus of senior managers of where the business us going and what it has to be done to get there
What is most likely to happen when conducting a strategic review?
- it will lead to an improvement in the long-run profitability of the business
- Stakeholders a re more likely to be satisfied
- Shareholders will have greater dividends
- Employees will have more job security
- Suppliers will be in a more secure position
- Greater community involvement because more funds are available
Why is a plan important for the businesss stakeholders?
- It’s stakeholders will want to see its plan of new start ups and established businesses
- they should be involved in the development of them
- If they are involved then they are more likely to approve of them and not be hostile to them
Employees main objectives
- Job security
- Pay Rises
- Improved conditions of work and service
Employees reason for wanting to view the businesses plan
- are these likely to be forthcoming in the future
- If so to what extent
Suppliers main objectives
- Regular orders
- Preferably of increasing size
- Prompt payment for products
Suppliers reason for wanting to view the businesses plan
- are these more or less likely to occur
- there may be implication for expansion and gaining economies of scale if orders increase
- alternatively if the supplier does not feature in the plan because new ones are being used it will need to seek new customers
Investors main objectives e.g. banks
- interest on any loans (and the capital)
- Repaid on time
Investors reason for wanting to view the businesses plan
- is there an excessive degree of risk in the plan that might worsen cash flow and make this less likely
Shareholders main objectives
- larger dividends
- a rise in the share price (both preferably in as short time period as possible)
Shareholders reason for wanting to view the businessses plan
- will future plans jeopardise this?
- or/and will the plan make it likely that any gains will be long term rather than short term
Customers main objectives
- A ‘fair’ price
- ethical issues with how the product is made/sourced
- a product that can be trusted
- improvement in the product
- good customer service
Customers reason for wanting to view the businesses plan
- will there be any changes to products
- are they being sourced ethically
- is customer service likely to improve
Local community main objectives
- Jobs (preferably full time and permanent)
- business involvement in the community
- supply links to other local firms
- ‘responsible attitude’ to those affected by the business’ activities
Local community reason for wanting to view the businesses plan
- are jobs likely to be created or lost
- will more be ‘put back’ into the community
- will smaller existing firms be adversely affected or will it create more business for them
- will the plans mean more negative externalities such as pollution, noise and congestion
Advantages of a business plan
- Analysis and evaluation of each functional area
- gives the business a sense of direction
- evaluate current strategic and tactical objectives
- senior managers have to face the consstraints
- Gives each department a role to play
- encourages communication
Disadvantages of a business plan
- The opportunity cost of gathering, planning, analysing, and evaluating objectives
- planning is ongoing so is the opportunity cost of it
- not such a problem in large companies but could be in smaller businesses
- plan could be too rigid does not allow for individual creativity
- a plan is useless if not followed
- plans could be leaked to rivals so competitors will gain knowledge that could be used to undermine the business
- too much time spent on planning reduces the initial enthusiasm for moving forward
Definition of opportunity cost
- the cost of the next best alternative foregone.
- the opportunity cost of planning is that the time spent on it could have been spent on some other activity
What should be included in a business plan?
What are we aiming to achieve?
Why?
What will need to be done to achieve this?
By whom?
When?
using what resources?
What must planning involve?
- all the functional areas of the business and obviously the implementation of the plan needs to be carefully co-ordinated
Key issues for consideration in a business plan (accounting and finance)
- cash flow implications for the future (especially if firm is expanding)
- how to raise any additional funds needed or simply to maintain existing levels of funding
- a projection of the costs involved in implementing the plan and the resulting revenue and profit
- the budget to be allocated to each department
Reasons for planning (accounting and finance)
- to ensure and equate cash flow which will avoid the need to borrow money at short notice on unfavourable terms
- to ensure that any funds to be raised are available and are raised in an appropriate way
- to identify and quantify the effects of the events being planned for
- so that those with management responsibility for implementing the plan know what their budget will be meaning they can then prioritise actions
- to try to ensure shareholder objectives in terms of expected returns are met
Key issues for consideration in a business plan (human resource management)
- whether the existing workforce is capable of carrying out the plan
- if any changes to recruitment and training are necessary
- the projected level of labour turnover
- if there is a need for any changes to company policies as a result of changes in the law e.g. maternity
Reasons for planning (Human resource management)
- to ensure employees have the right skills and competencies for what the firm is trying to achieve
- correct planning here can avoid hiring or training employees at the wrong time, either too early to too late
- to identify if there are any relocation or redundancy implications
Key issues for consideration in a business plan (operations management)
- whether the existing capacity of the firm is correct
- if the existing production process can cope with any planned changes
- any changes in technology necessary
- if there are any new stock and quality control issues
Reasons for planning (operation management)
- to consider if there is a huge amount of unused capacity. If so unit fixed costs will be higher than they could be.
- to examine the implications in terms of the need for new capital equipment.
- to identify what will happen to costs as a result of the plan
- to avoid an ‘out of stock’ situation where customers are unsatisfied
- to consider whether the products can actually be made to the desired standard
Key issues for consideration in a business plan (marketing)
- are there any changes to the product or service as a result of change sin demographics or income levels?
- advertising and promotional plan
- pricing strategies for different products
-any changes to where the product is sold - likely sales and revenue levels
Reasons for planning (Marketing)
- to see if the new markets or market segments have emerged that can be exploited
- to avoid any mistakes from previous promotions and/or pricing strategies that have failed
- there is always a need to identify new threats and opportunities
- to ensure that sales levels are carefully coordinated with the amount being produced to avoid unsatisfied customers or a build-up excess of stock
What should a business plan include
- Company name, address, other contact details
- Non-disclosure statement
- Table of contents
- Executive summary (to include:)
- summary of business
- objectives of business plan
- personnel involved in the business
- market the business is aimed at and how much the market is worth
- any development plans
- financial summary
- funding - Business description (to include:)
- business idea
- brief history of the business
- current position - Management and personnel
- brief description of yourself
- reporting structures
- advisers to the business - Products and services
- description
- products/services development strategy - Market
- market sector positioning ‘
- target customers
- market research - Sales and marketing
- marketing strategy
- sales methods - Operations
- premises
- production facilities
- suppliers
- distribution
- equipment
- business systems ‘
- training g requirements - Finance
- financial analysis
- explanation of assumptions used to produce P&L account - Risk analysis
- explanation of what could go wrong - Cash flow and profit and loss forecasts
- detailed forecasts for 12 months
- summarised forecasts for years 2 and 3 - Appendices
What is the plan-do-review process?
- its a method used to achieve key departmental tasks which should mean that the business reaches its strategic objectives
Plan
- set objectives and course of action and resources needed to achieve them
Do
- implement the plan ensuring all areas of the business understand their part in terms of responsibilities and deadlines
Review
- need for formal ongoing evaluation of progress towards objectives and a final review at the end of the process
Advantages if plan-do-review process
- approach is methodical
- if everyone knows that they have to do, then they are more focused
- a final review allows check of appropriateness of the objectives
Disadvantages of plan-do review process
- lengthy process (opportunity cost)
- process can be inflexible
-if employees not involved then less committed - employees not like the ongoing review process of their work
Definition of contingency planning?
Planning for ‘what will happen if things go wrong?’ This means that an agreed course of action is in place and is ready to be used if necessary
Contingency planning
- not all plans work out, what if something goes wrong?
- therefore planning for things to go wrong is also important
- so, if things go wrong a contingency plan is in place
- a disadvantage is opportunity cost of time involved
- everyone has to be honest of their assessment of success
- worse case scenarios must be used in the plan
- must look at main areas of the business
Contingency planning examples
- accounting and finance: sales being far too low, what do we do?
- Human Resources: key employees leave the business , sick or absent ‘
- operations: suppliers to delver on time, wrong spec produced
- marketing: economic shocks, new competitors emerging
Other issues to consider:
- natural disasters
- business is sued by competitor/ employee
- IT failure
- pressure groups raise negative PR
Impact on stakeholders without a contingency plan
- employees- may have no livelihood
Suppliers- receive fewer orders, drop in revenue
Customers- will be let down
Local community- fall in income, jobs
Government- lose tax revenue
What does the existence of a contingency plan reassure?
- stakeholders that managers are aware of the main risks faced by the business and that they are ready to deal with a problem if it actually occurs
Definition of firefighting
- where a manager spend time (and other resources) trying to fix unforeseen problems and ‘emergencies’.
With appropriate contingency planning this sort of situation can be avoided
Crisis management
- if the plan does not work then it is not always a crisis
- some deviation from the plan is expected
- if a contingency plan is drawn up then the crisis should be manageable
- a crisis for one business may not be one for another
What is crisis management
The process by which an organisation deals with an event at threatens to harm the business and its stakeholders
Solutions to the possibility of a crisis
- ensuring that insurance polices are up to date and there is adequate fire cover
- keeping a ‘cushion’ of cash
- private health care for key employees
- establishing data monitoring systems to try and stop crises coming
- having trial runs
What should be done in a crisis?
- an effective response has 3 elements
1. Operational response
2. Management response
3. Communications response
Effective coordination of the 3 is very important
Management responses
- assessing the crisis severity
- contact the most senior executives
- overseeing the implementation of the plan
Operational response
- implementing the contingency plan
- minimising the impact on staekholders
Communication response
- contacting key stakeholders
- media briefing
