ENVIRONMENTAL SCANNING - INTERNAL & EXTERNAL ANALYSIS OF ENVIRONMENT
Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.
Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market tastes and preferences.
While in external analysis, three correlated environment should be studied and analyzed —
- immediate / industry environment
- national environment
- broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an organization.
Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.
BUSINESS PLAN
Definition: A written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement .
A business plan is also a road map that provides directions so a business can plan its future and helps it avoid bumps in the road. The time you spend making your business plan thorough and accurate, and keeping it up-to-date, is an investment that pays big dividends in the long term.
What Is in a Business Plan?
Follow a plan format that ensures you research all the important areas of your business, and if it is being used for lending or investment purposes, that you have provided all the information that lenders need. Your first task is to decide why you are preparing this plan. Answer these questions:
• Why am I preparing this plan?
• Who else will be reading it?
• Why will they be reading it?
• What do they need to know?
The size of the final document will be dependent on the size and complexity of your business and whether you are looking for outside funding. The end result should be professionally presented, with typewritten pages and a table of contents, and securely bound. Include the following sections
1. Executive summary The executive summary should be no longer than two pages. Prepare it after the plan is complete, as it summarizes the whole plan in a nutshell. Make it dynamic and exciting to generate the reader’s interest. Loans officers or investors have read copious plans and tend to skip through them if they get bored.
2. The company Introduce the business in more detail, outlining your type of business, giving its history (if you are purchasing an existing business) or an outline of the new business’s products or services. With an existing business, highlight any recent special achievements. This section should be broken down into the following subsections:
a) General business overview: A description of the business, where it fits into the marketplace, what needs it will fill, and how it will fill those needs. Describe the markets that will use your business and include any business history.
b) Company structure: Outline the corporate structure of the business. Include a list of shareholders or partners and incorporation information.
c) Location: Describe the location, its benefits, amenities, and accessibility to customer traffic. Include freight routes if it’s a manufacturing or wholesale business, traffic statistics if available from your local county, and area demographics and growth rate. Detail parking and zoning information, the cost and terms of the lease, taxes, and utilities. List any foreseeable disadvantages to your location and explain why you chose it. Detail office space, storage, and operational facilities. List any renovations or alterations that need to be completed.
d) Key personnel: Include a brief profile of all key partners or employees, their duties and experience, and include their résumés in the appendix. Highlight their education, expertise, business qualifications, and history, and supply references if available.
e) Goals and objectives: Outline your goals and objectives, both long- and short-term. Many people neglect this area, failing to think past the startup stage. Your goals and objectives should be explained in more detail in other sections of your plan and be considered when preparing financial figures.
f) Strengths and weaknesses: Blow your horn and detail the business’s strengths. Stress where and why you excel in these areas, whether it be great customer service, pricing, or a
strong distribution base. Don’t include marketing strengths and weaknesses—this will be covered in the marketing section. Discuss your weaknesses and how you plan to overcome them.
g) Mission and vision statements: A mission statement describes your company philosophy in a few sentences. A vision statement describes how you see your company in the future. Think carefully about each one. Study other mission statements and design one that is uniquely yours. A mission statement shows your commitment to the business and its customers and gives you a written promise to uphold.
3. Products and services Your business is all about selling services or products, so ensure that what you are offering is marketable and profitable. Use the following headings to detail this information.
a) Product description: Describe your products or services, their benefits, and how they fill a need in the marketplace. Show your advantage over the competition and the volume you can output. Describe your business’s developmental stage. List potential or current contracts. Refer to any letters of intent from prospective clients and include these in the appendix.
b) Cost of sales: The basis of your business is profit margins. Show what products sell for and provide the costs of raw materials, freight, packaging, wages, and so on. Note the expected gross profit margins and whether they will change if you diversify or expand. Clearly explain how the manufacturing or distribution process will operate, remembering that a lender may not be familiar with your type of business.
c) Future projections: If you plan future expansion, research, or development, include this information. List any potential threats or opportunities.
d) Legal concerns: If your business entails legal considerations such as patents, copyrights, trademarks or special licenses, include relevant information
4. Marketing strategies Refer to both market research. As marketing is a key component to the success of your business, prepare this section in depth. Include the following topics.
a) Market research: Break this section down into the following subsections:
• An analysis of today’s market and trends
• Past and future industry, global, and consumer trends
• Your target market, its size, and demographics
• Your ideal consumer profile
• Your projected share of the market
• Geographic boundaries and seasonal trends
• Customer service policies
• Strengths and weaknesses
• Market survey results
b) The competition: Both you and the lender must understand the strength of your competitors. Research and address the following topics:
• The current competition, their size, and market share
• Future competition
• The strengths and weaknesses of the competition
• How you can overcome their strengths and capitalize on their weaknesses
• Your strengths and weaknesses (use the SWOT analysis in Chapter 4)
• Your edge over the competition and your cost to stay competitive
c) Marketing and sales strategies: Part of your business plan will be a marketing plan, which details how you will find potential customers. A sound marketing plan includes a mix of methods, including using various media, promotional methods and one-on-one techniques. Address these topics:
• Promotional and media methods you will use
• Special services or policies
• The target market these methods will reach
• The effectiveness of each method
• The frequency of use
• How you will sell your products/service (agents, representatives, staff)
• Incentive or sales bonus schemes
• The reach of your sales force
5. Operational information Plan how you will operate your business, from overhead costs to distribution channels. Include the following information:
a) Overhead costs: Explain your estimated overhead costs and demonstrate a break-even point. If future plans involve expansion, reflect these costs. A detailed explanation of these costs will be included in your projections, so don’t go into great detail here.
b) Suppliers: List your major suppliers, their terms of credit, and their product availability. Note whether you have to sign any personal guarantees to obtain credit from them.
c) Quality control: Describe your policies on quality control, any relevant hazards or environmental risks, and how you propose to overcome these obstacles. Mention any specific safety procedures relevant to your operation.
d) Distribution: Outline how your products will be distributed or delivered and any competitive advantages to your methods.
e) Employees: List the staff positions along with their job descriptions, areas of responsibility, and expected salaries.
f) Assets and equipment: Note any equipment on hand or to be purchased, its value or cost, and its life expectancy.
g) Insurance policies: List the various insurance policies you will take out, including liability, theft and fire, workers’ compensation, and key management and employee insurance.
h) Licenses and permits: List any licenses or permits that your business requires to operate and their cost.
6. Financial information The viability of your new venture will culminate when you prepare projections of income, expenses, and cash flow, and when you review how much money you may require. Even if you are not borrowing money, projections and cash flows facilitate making many future decisions. If you are attempting to borrow money, the financial section should include the following:
a) Projections of income and expenses: Projections are a month-by-month estimation of sales and expenses, including start-up costs, itemized in the month the revenue was earned and the costs were incurred. Prepare the first year in months, and by quarters or annually for the following two to five years. The bottom line reflects profits or losses.
b) Cash flow forecasts: The projections should be accompanied by cash flow forecasts for the corresponding periods. A cash flow forecast differs from projections, as it estimates when revenues will be received and when expenses will be paid, and includes income from loans and other sources. Samples can be found later in this chapter.
c) Financial statements: Banks require a projected balance sheet and, if you are purchasing a business, past financial statements for the last two to four years.
d) Capital expenses: Include a list of capital spending, such as asset purchases or building renovations. When a lender considers a proposal, these values help determine how a loan will be used and secured.
e) Net worth statement: Lenders require personal statements of net worth from owners, partners, or shareholders. Loans are often personally secured, and this statement lists your personal assets, liabilities, and net worth. Net worth statements also indicate the stability of the key management players.
7. Funding requirements This section is devoted to the sum you need to borrow, how you expect to repay it, and over what time period. Your projections and cash flow forecasts should have indicated how much the business needs and can afford to repay. The total monthly loan payment shows on the cash flow forecast and loan interest only on the projections. You should explain how you intend to secure the loan and with what assets. If you are looking for an investment partner, note the share of the company available in return for their investment and what else you intend to offer them.
Outline the following:
• When you need the money and how much
• The type of loan you are applying for
• The desired terms of repayment
• A breakdown of how you will use the funds
• Future funding requirements, if any
8. Appendix Include copies of any documents that back up and strengthen the information in your business plan, including:
• Up-to-date financial statements from the business you are purchasing
• Personal statements of net worth
• Letters of reference and letters of intent
• Product pictures or relevant newspaper articles
• Résumés of key employees or partners
• Incorporation or business registration papers
• Cash flow and projection forecasts
• Permits, licenses, trademarks, or patents
• Market surveys
• Equipment and asset appraisals
• Partnership or employee agreements
• Insurance policies and leases
Feasibility
A feasibility report is an investment proposal base on certain information and factual data appraising the project. This type of feasibility study may be required by the financing institutions, project sponsor, project owner.
The feasibility report enables the project holder to know the inputs required and if rightly prepared confirms to the convictions that he is proceeding in the right direction. In other words, a project needs to be fully defined in order to provide terms of reference for the management of the project.
A project can be considered to have been fully established when the following conditions are fulfilled.
· The technical configuration of the project has been fully defined.
· The performance requirement for the various technical system and the key equipment have been specified.
· Cost estimate for the project is frozen.
· Techno-economic viability of the project has been examined, appraised and approved.
· An overall schedule for implementation of the project has been drawn-up.
The feasibility report is prepared during the definition phase of a project. It lies in between project formulation stage and appraisal and sanction stage. It is prepared to present an in-depth techno-commercial analysis carried out on the project idea for consideration of the financial institutions and other authorities empowered to take the investment decision.
Components of Feasibility Study
Project feasibility study comprises of market analysis, technical analysis, financial analysis, and social profitability analysis. The analysis is mainly interested only in the commercial profitability and thus examining only the market, technical and financial aspects of the project. But, generally the gamut of feasibility of a project covers the following areas.
1. Commercial and economic feasibility
2. Technical feasibility
3. Financial feasibility
4. Managerial feasibility
5. Social feasibility or acceptability
Commercial and Economic Feasibility
· The economic feasibility aspect of a project relates to the earning capacity of the project. Earnings of the project depends on the volume of sales. If taken into consideration the following important indicators.
· Present demand of the goods produced through the project. i.e. market facility (or) getting a feel of the market.
· Future demand: a projection may be made about the future demand. The period normally depend upon the scale of investment.
· Determining the extent of supply to meet the expected demand and arriving at the gap.
· Deciding in what way the project under consideration will have a reasonable chance to share the market.
· Anticipated rate of return on investment. If it is positive the project justifies the economic norm in the relationship between cost and demand.
Future demand can be estimated after failing into consideration the potentialities of the export market, the charges in the income and prices, the multiples use of the product, the probable expansion of industries and the growth of new industries. The share of the proposed project in the market could be identified by considering the factors affecting the supply
position such as competitive position of the unit, existing and potential competitors, the extent of capacity utilisation, units costs advantages and disadvantages, structural changes and technological innovations bringing substitute into the market.
The commercial feasibility of a project involves a study of the proposed arrangements for the purchase of raw materials and sale of finished products etc. This study comprises the following two aspects.
· Arriving at the physical requirement of production input such as raw materials, power, labour etc., at various level of output and converting them into cost. In other words, deciding costing pattern.
· Matching costs with revenues with a view to estimating the profitability of the project and the break-even point. The possibility ultimately decides whether the project will be a feasible proposition.
Technical Feasibility
The examination of this aspect requires a thorough assessment of the various requirements of the actual production process and includes a detailed estimate of the goods and services needed for the project. So, the feasibility report should give a description of the project in terms of
technology to be used, requirement of equipment, labour and other inputs. Location of the project should be given special attention in relevance to technical feasibility. Another important feature of technical feasibility relates the types of technology to be adopted for the project. The exercise of technical feasibility is not done in isolation. The scheme has also to be viewed from economic considerations; otherwise, it may not be a practical proportion however sound technically it may be.
The promoters of the project can approach the problem of preparation of technical feasibility studies in the following order:
· Undertaking a preliminary study of technical requirements to have a quick evaluation.
· If preliminary investigation indicate favourable prospects working out further details of the project. The exercise begins with engineering and technical specifications and covers the requirements of the proposed project as to quality, quantity and specification type of components of plant & machinery, accessories, raw materials, labour, fuel, power, water, effluent disposal transportation etc.
Thus, the technical feasibility analysis is an attempt to study the project basically from a technician’s angle. The main aspects to be considered under this study are: technology of the project, size of the plant, location of the project, pollution caused by the project production capacity of the project, strength of the project. Emergency or stand-by facilities required by the project sophistication such as automation, mechanical handling etc. required collaboration agreements, production inputs and implementation of the project.
Financial Feasibility
The main objective of this feasibility study is to assess the financial viability of the project. Here, the main emphasis is in the preparation of financial statement, so that the project can be evaluated in terms of various measures of commercial profitability and the magnitude of financing required can be determined. The decision about the financial feasibility of a project should be arrived at based on the following consideration:
· For existing companies, audited financial statements such as balance sheets, income statements and cash flow statements.
· For projects that involve new companies, statements of total project cost, initial capital requirements, and cash flow relative to the projective time table.
· Financial projections for future time periods, including income statements, cash flows and balance sheets.
· Supporting schedules for financial projections stating assumptions used as to collection period of sales, inventory levels, payment period of purchases and expenses and elements of production cost, selling administrative and financial expenses.
· Financial analysis showing return on investment return on equity, break-even volume and price analysis.
· If necessary sensibility analysis to identify items that have a large impact on profitability or possibly a risk analysis.
Managerial Feasibility
The success or failure of a project largely depends upon the ability of the project holder to manage the project. Project is a bundle of activities and each activity has its own role. For the success of a project, a project holder has to co-ordinate all the activities in such a way that the additive impact of different inputs can produce the desired result.
The ability to manage and organise all such inter related activities come within the concept of management. If the person incharge of the project has the ability, has the ability to manage all such activities, the desired result can be anticipated.
There are three ways to measure the managerial efficiency.
a. Heredity skill
b. Skill acquired through training.
c. Skill acquired in course of work.
Social Feasibility
A project may cross all the above barriers mentioned above and found very suitable but it will lose its entire creditability, if it has no social acceptance. Though the social customs, conventions such as caste community, regional influence etc. are creating hindrance for development of a project should avoid all such social conflicts which will stand on the successful implementation of the project.
(e.g) Considering the interests of the general public; projects which offer large employment potential, which channelise the income from less developed areas will stimulate small industries.
In a nut shell, the feasibility report should highlight on these five testing stones before it can be declared as complete and only after judging through these indicators a project can be declared as viable and can be submitted for finance or any other assistance from any institutions.
Format of Feasibility Report
The sketch of feasibility report of project is given below:
1. Introduction
2. Summary and Recommendations
3. Product- Capacity, Chemistry of the product, specifications, properties, application and uses.
4. Market potential
5. Process and know-how
6. Plant and machinery
7. Location of the unit
8. Plot plan and building
9. Raw materials availability
10. Utilities, requirements
11. Effluents treatment
12. Personnel requirement
13. Capital cost
14. Working capital
15. Mode of finance
16. Manufacturing cost
17. Financial analysis
18. Implementation schedule
Check List for Feasibility Report
The following key elements must be presented in the feasibility report.
1. Examination of public policy with respect to the industry project
2. Broad specification of outputs and alternative techniques of production.
3. Listing and description of alternative locations
4. Preliminary estimates of sales revenue, capital costs and operating costs of different alternatives.
5. Preliminary analysis of profitability for different alternatives.
6. Marketing analysis
7. Specification of product pattern and product price
8. Raw material investigation and specification of sources of raw material supply.
9. Estimation of material energy, flow balance and input prices.
10. Listing of major equipment by type, size and cost.
11. Listing of auxiliary equipment by type, size and cost.
12. Specification of sources of supply for equipment and process know-how.
13. Specification of site and completion of necessary investigation.
14. Listing of buildings, structures and yard facilities by type size and cost.
15. Specification of supply sources connection costs and other costs for transportation services, water supply and power
16. Preparation of layout.
17. Specification of skill-wise labour requirements and labour costs.
18. Estimation of working capital requirements
19. Phasing of activities, and expenditure during construction
20. Analysis of profitability
21. Determination of measures of combating environmental problems
No comments:
Post a Comment