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Operational plans can be defined as the detailed plan describing how a team or a department can contribute toward achievement of strategic goals of an organization. These plans help in providing a correct direction to operations of business by identification of potential growth areas and vulnerability assessment. It is very important to decide required objectives and goals before commencing operational plan. The operational plan helps in setting details steps or process to achieve specific goals and in absence of such goals operational plan may not work properly (Brigham & Ehrhardt, 2013). In this project report, we will prepare budgets and financial projections on the basis of operational plans made by the owner of the business organization. We will also list out some of the personnel which we will consult before starting this projection. We will also try to evaluate management requirements in this process.
Before commencing an operational plan we would consult various people in management to evaluate the viability of the plan. In this part of the report, we have discussed some of this personnel.
In given case study proprietor of Ed’s Whitegoods Ltd, Ed has given us some projections in relations to his business operations projection in 2009. Hence first and foremost we should consult the proprietor before commencing budgeting and financial projection process. We will ask Ed about the methods which he has used to decide the mentioned projections. We will see whether all the assumptions such as time value of money, inflation rate, customer preferences etc. have been considered by him or not (Slack et.al, 2010).
In next step, we will consult management of the company to evaluate whether the financials projected by Ed are in line with the current business environment or not. We will ask them if there are any adjustment requirements in these projections. If there are any such requirements then we should ask the proprietor to implement such adjustments.
In this stage, we will consult sales staff of the company regarding whether the projections made by proprietor are practical in the current business environment and whether they will be able to make projected sales (Petty et.al, 2015).
Interaction with customers to determine their behavior regarding our product is one of the most important factors. We can conduct a small research to determine the demand for our product in the current business environment. This can be done by selecting a sample population and asking them about their preferences regarding our product and its preferable price.
The role of management in process of operational planning is very important. Operational planning is a stepwise process which may not be effective if there is an error in any of these stages. In this part of the report, we will discuss some of the important elements in operational planning which should be considered by management of Ed’s Whitegoods Ltd.
The operational plan is one of the various plans which will ultimately lead to the completion of the strategic plan. Hence it is very important that before commencing operational plan, management of the company has a well-structured strategic plan. These strategic plans help in providing direction to operations of management (Hellmann, 2014).
Every organization should select some elements in business which can act as key performance indicators. For Example in given case study, the key performance indicators are cost, sales, and profit. The financial projection and budgeting are done to evaluate these three indicators in the year 2009 on the basis of available information.
Strategic planning may have various goals and objective as it is decided for the long term. But while preparing an operational plan, management should select a particular goal which would lead to achieving the objective of the operational plan. In given case of Ed Whitegoods Ltd, the short-term goal should be to assess proper assumptions on which projection would be based upon.
Another important aspect of effective operational planning would be to implement effective channels of communication in origination. This will help in timely completion of the operational plan. Each and every member of the operational planning team should participate in the process and give their inputs in the process (Hellmann, 2014).
2008 (9 Months)
2008 (12 Months)
In given problem, actual sales are given from January to September i.e. 9 months. Hence we have calculated projected figures for 12 months by the method of proportion. Also, the projections in the year 2009 are based on immediately preceding business year i.e. 2008.
Sales in 2009 are expected to be affected by two conditions-
Hence total sales will decrease by 15%
Projected sales= 1440000 – (1440000*15%) = $ 1224000
(Noroozi & Wikner, 2017)
In 2009 purchase cost is expected by increase by 5% hence new purchase cost is-
6360000 + (6360000*5%) = $667800
To reduce expenses, Ed has removed part-time employees having a salary of $47000 per annum.
Other expense in 2009= 504000- 47000= $457000
Profit = Total sales- Total purchase cost – Total expenses (DRURY, 2013).
= 1224000- 667800- 457000
= $ 99200
We can say that fiscal year 2009 will not be financially viable for Ed Whitegoods Limited. It is expected that customer will lose confidence in our product and material cost will increase in 2009. This will have a negative impact on sales with a decrease by 15% as compared to 2008. Steps should be taken by management and proprietor of the company to gain the confidence of customers like improving marketing strategy and providing better quality products. Total profit in 2009 is expected to decrease by 66.93% as compared to 2008. More actions such as removal of idle staff should be taken to reduce indirect expenses.
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
DRURY, C. M. (2013). Management and cost accounting. Springer.
Hellmann, T. (2014). Financial Projections. University of Oxford.
Noroozi, S., & Wikner, J. (2017). Sales and operations planning in the process industry: A literature review. International Journal of Production Economics, 188, 139-155.
Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.
Slack, N., Chambers, S., & Johnston, R. (2010). Operations management. Pearson education.
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