Break Even Analysis

                                                                                                

If you can accurately forecast your
costs and sales, conducting a break even analysis is a matter of simple math. A company has broken even when its total sales or revenues equal its total
expenses. At the break even point, no profit has been made, nor have any losses
been incurred. This calculation is critical for any business owner, because the break even point is the lower limit of profit when determining margins.

Defining Costs: - There are several types of costs to
consider when conducting a break even analysis, so here’s a refresher on the
most relevant.

·        
Fixed
costs: These are costs
that are the same regardless of how many items you sell. All start-up costs,
such as rent, insurance and computers, are considered fixed costs since you
have to make these outlays before you sell your first item.

·        
Variable
costs: These are
recurring costs that you absorb with each unit you sell. For example, if you
were operating a greeting card store where you had to buy greeting cards from a
stationary company for $1 each, then that dollar represents a variable cost. As
your business and sales grow, you can begin appropriating labor and other items
as variable costs if it makes sense for your industry.

Setting a Price: - This is critical to your break even analysis; you
can’t calculate likely revenues if you don’t know what the unit price will be.
Unit price refers to the amount you plan to charge customers to buy a single
unit of your product.

Psychology
of Pricing: Pricing can involve a complicated decision-making process on
the part of the consumer, and there is plenty of research on the marketing and
psychology of how consumers perceive price. Take the time to review articles on
pricing strategy and the psychology of pricing before choosing how to price
your product or service.

Pricing Methods:
There are several different schools of thought on how to treat price when
conducting a break even analysis. It is a mix of quantitative and qualitative
factors. If you’ve created a brand new, unique product, you should be able to
charge a premium price, but if you’re entering a competitive industry, you’ll
have to keep the price in line with the going rate or perhaps even offer a
discount to get customers to switch to your company.

One common strategy is "cost-based
pricing", which calls for figuring out how much it will cost to
produce one unit of an item and setting the price to that amount plus a
predetermined profit margin. This approach is frowned upon since it allows
competitors who can make the product for less than you to easily undercut you
on price. Another method, referred to by David G. Bakken of Harris Interactive
as "price-based costing" encourages business owners to
"start with the price that consumers are willing to pay (when they have
competitive alternatives) and whittle down costs to meet that price." That
way if you encounter new competition, you can lower your price and still turn a
profit. This presentation from Harris
Interactive offers a further explanation of these methods, and About.com offers
an overview of common pricing methods.

The formula: To conduct breakeven analysis, take
your fixed costs, divided by your price, minus your variable costs. As an
equation, this is defined as:

Breakeven Point = Fixed Costs / (Unit
Selling Price - Variable Costs)

This calculation
will let you know how many units of a product you’ll need to sell to break
even. Once you’ve reached that point, you’ve recovered all costs associated
with producing your product (both variable and fixed). Above the break even
point, every additional unit sold increases profit by the amount of the unit
contribution margin, which is defined as the amount each unit contributes to
covering fixed costs and increasing profits. As an equation, this is defined
as:

Unit Contribution Margin = Sales Price -
Variable Costs

Recording this information in a
spreadsheet will allow you to easily make adjustments as costs change over
time, as well as play with different price options and easily calculate the
resulting break even point. You could use a program such as Excel’s Goal Seek,
if you wanted to give yourself a goal of a certain profit, say $1 million, and
then work backwards to see how many units you would need to sell to hit that
number.

Limitations:
- It is important to understand what the results of your break even analysis are
telling you. If, for example, the calculation reports that you would break even
when you sold your 500th unit, decide whether this seems feasible. If you don’t
think you can sell 500 units within a reasonable period of time (dictated by
your financial situation, patience and personal expectations), then this may
not be the right business for you to go into. If you think 500 units is
possible but would take a while, try lowering your price and calculating and
analyzing the new break even point. 

Resource Management - Basics

A resource is a source or supply from which
benefit is produced. Typically resources are materials, energy, services,
staff, knowledge, or other assets that are transformed to produce benefit and
in the process may be consumed or made unavailable. Benefits of resource
utilization may include increased wealth, meeting needs or wants, proper
functioning of a system, or enhanced well being. From a human perspective a natural resource is anything obtained from the environment to satisfy human needs and wants.

Definition
of Economic Resources

Economic
resources are the factors used in
producing goods or providing services. In other words, they are the inputs that
are used to create things or help you provide services. Economic resources can
be divided into human resources, such as labor and management, and nonhuman
resources, such as land, capital goods, financial resources, and technology.

Importance
of Economic Resources

An economy is
a system of institutions and organizations that either help facilitate or are
directly involved in the production and distribution of goods and services.
Economic resources are the inputs we use to produce and distribute goods and
services. The precise proportion of each factor of production will vary from
product to product and from service to service, and the goal is to make the
most effective use of the resources that maximizes output at the least possible
cost. Misapplication or improper use of resources may cause businesses, and even
entire economies, to fail.

Resource Management

Definition : The process of using a company's resources in the most efficient way possible.
These resources can include tangible resources such as goods and equipment, financial resources,
and labor resources such as employees.

Resource management is the efficient and
effective deployment and allocation of an organization’s resources when and
where they are needed. Such resources may include financial resources,
inventory, human skills, production resources, or information technology.
Resource management includes planning, allocating and scheduling of resources
to tasks, which typically include manpower, machines, money and materials.
Resource management has an impact on schedules and budgets as well as resource
leveling and smoothing.

In order to effectively manage resources,
organizations must have data on resource demands forecasted by time period into
the future, the resource configurations that will be required to meet those
demands and the supply of resources, again forecasted into the future.
Forecasts should be as far out as is reasonable. Resource leveling, as it
relates to inventory, is a resource management technique aimed at keeping the
stock of resources on hand level, reducing both excess inventories and
shortages. In project management, resource leveling is scheduling decisions,
which are driven by resource management concerns, such as limited resource
availability. As opposed to leveling, resource smoothing may not delay the
project completion date, only particular activities within their float.

Many organizations use professional services
automation software tools to make resource management tasks more efficient and
effective. The automated tools may include time-sheet software and employee time
tracking software, which calculate skill sets, experience and workload in
selecting the most skilled employee in an organization to handle any specific
project. This enables the organization to forecast future staffing requirements
prior to project implementation.

Tourism Marketing

Marketing Concept Marketing is a human activity directed at satisfying needs and wants through exchange process. According to the British Institute of Management “Marketing is the management function which organizes and directs all those business activities involve in assessing and converting customers purchasing power into effective demand for a specific product or service and in moving the product or service to the final customer or user so as to achieve the profit target or other objectives set by the company.” Marketing are based on two principles: 1} fulfilling the community’s needs for goods and services, determining the consumer’s needs and meeting them. 2} the company must make a reasonable profit while satisfying the needs of the customer. There are three important aspects of marketing concept. 1) Customer Orientation: - this concept indicates mainly to more customers’ participation and profit making. 2) Dual-core Marketing: - this concept indicates that the first job of marketing is to identify the need of the buyer and then increase those wants through different type of promotion. 3) Integrated Marketing: - not only consumer orientation in enough but the company need to develop their infrastructure to provide best of the services. Facilities of marketing concepts:- It can give a proper view of the market. Then it will be easier to divide the market in different segments which will allow setting best promotional activity. It can help to identify the potential buyer. It can show the way to more profit through customer orientation. It also helps to identify the way to develop the quality of products or services. Marketing Process Market analysis Market research Market segmentation Product formulation Pricing Place of distribution Promotional activity the 5th ‘P’ – People, Process and Physical Factors

Product Life Cycle

Product Life Cycle (PLC) The idea of the Product Life Cycle was first developed in 1965 by Theodore Levitt in an article entitled “Exploit the Product Life Cycle” published in the Harvard Business Review on 1 November 1965. For a business, having a growing and sustainable revenue stream from product sales is important for the stability and success of its operations. The Product Life Cycle model can be used by consultants and managers to analyse the maturity stage of products and industries. Understanding which stage a product is in provides information about expected future sales growth, and the kinds of strategies that should be implemented.

Product Life Cycle model: The “Product Life Cycle” is the name given to the stages through which a product passes over time. The classic Product Life Cycle has four stages:
1} Market introduction stage. 2} Growth stage. 3} Mature stage. 4} Saturation and decline stage

1 Market introduction stage
At the market introduction stage the size of the market, sales volumes and sales growth are small. A product will also normally be subject to little or no competition. The primary goal in the introduction stage is to establish a market and build consumer demand for the product. There may be substantial research and development costs incurred in getting a product to the market introduction stage, for example, thinking of the product idea, developing the technology, determining the product features and quality level, establishing sufficient manufacturing capacity, preparing the product branding, ensuring trade mark protection, etc. Marketing costs may be high in order to test the market, launch and promote the product, develop a market for the product, and set up distribution channels. The market introduction stage is likely to be a period of low or negative profits. As such, it is important that products are carefully monitored to ensure that sales volumes start to grow. If a product fails to become profitable it may need to be abandoned.

Some of the considerations in the introduction stage include:

Product development: research and development of the basic technology and product concept, determining the product features and quality level.

Pricing: should penetration pricing or a skimming price strategy be used? A skimming price strategy might be appropriate where there are very few competitors.

Distribution: distribution might be quite selective until consumer acceptance of the product can be achieved.

Promotion: marketing efforts are aimed at early adopters, and seek to build product awareness and to educate potential consumers about the product.

Features: -
1. Costs are high 2. Slow sales volumes to start 3. Little or no competition - competitive manufacturers watch for acceptance/segment growth losses 4. Demand has to be created 5. Customers have to be prompted to try the product 6. Makes no money at this stage

2 Growth Stage
If the public gains awareness of a product and consumers come to understand the benefits of the product and accept it then a company can expect a period of rapid sales growth, enter the “Growth Stage”. In the Growth Stage, a company will try to build brand loyalty and increase market share. Profits are driven by increased sales volume (due to growth in market share as well as an increase in the size of the overall market). Profits might also be driven by cost reductions gained from economies of scale, and perhaps more favourable market prices. Competition in the Growth Stage remains low, although new competitors are expected to enter the market. When competitors enter the market a company might be subject to price competition and increase its marketing expenditure.

Some of the considerations in the Growth Stage include:

Product improvement: product quality might be improved, additional features and support services added, and packaging updated.

Pricing: if consumer demand is high the price might be maintained at a high level.

Distribution: distribution channels might be added as consumer demand increases.

Promotion: promotion is aimed at a broader audience. A company might spend a lot of resources on promotion during the Growth Stage to build brand loyalty.

Features: -
1. Costs reduced due to economies of scale 2. Sales volume increases significantly 3. Profitability begins to rise 4. Public awareness increases 5. Competition begins to increase with a few new players in establishing market 6. Increased competition leads to price decreases

3 Maturity Stage
When a product reaches maturity, sales growth slows and sales volume eventually peaks and stabilises. This is the stage during which the market as a whole makes the most profit. A company’s primary objective at this point is to defend market share while maximising profit. In this stage, prices tend to drop due to increased competition. A company’s fixed costs are low because it is has well established production and distribution. Since brand awareness is strong, marketing expenditure might be reduced, although increased marketing expenditure might be needed to retain market share and fight increasing competition. Expenditure on research and development is likely to be restricted to product modification and improvement, and perhaps research into improved production efficiency and product quality.

Some considerations for the mature product market include:

Product differentiation: increased competition in the mature product market means that a company must find ways to differentiate its product from that of competitors. Strong branding is one way to do this.

Pricing: prices may be reduced because of increased competition. Firms in the market should be careful not to start a price war.

Distribution: distribution intensifies and incentives may be offered to encourage preference to be given over competing products.

Promotion: promotion will focus on emphasising product differences and creating/maintaining a strong brand.

Features: -
1. Costs are lowered as a result of production volumes increasing and experience curve effects 2. Sales volume peaks and market saturation is reached 3. Increase in competitors entering the market 4. Prices tend to drop due to the proliferation of competing products 5. Brand differentiation and feature diversification is emphasized to maintain or increase market share 6. Industrial profits go down

4 Saturation and decline stage
A product enters into decline when sales and profits start to fall. The market for that product shrinks which reduces the amount of profit available to the firms in the industry. A decline might occur because the market has become saturated, the product has become obsolete, or customer tastes have changed. A company might try to stimulate growth by changing their pricing strategy, but ultimately the product will have to be re-designed, or replaced. High-cost and low market share firms will be forced to exit the industry.

As sales decline, a company has three strategy options:
· Hold: maintain production and add new features and find new uses for the product. Reduce the cost of manufacturing (e.g. move manufacturing to a low cost jurisdiction). Consider whether there are new markets in which the product might be sold.
· Harvest: continue to offer the product, reduce marketing expenditure, and sell possibly to a loyal niche segment of the market.
· Divest: Discontinue production, and liquidate the remaining inventory or sell the product to another firm.

Some considerations for a declining market include:

Product consolidation: the number of products may be reduced, and surviving products rejuvenated.

Price: prices may be lowered to liquidate inventory, or maintained for continued products.

Distribution: distribution becomes more selective. Channels that are no longer profitable are asked out.

Promotion: Expenditure on promotion is reduced for products subject to the Harvest and Divest strategies.

Features: -
1. Costs become counter-optimal 2. Sales volume decline or stabilize 3. Prices, profitability diminish 4. Profit becomes more a challenge of production/distribution efficiency than increased sales.

It is claimed that every product has a life cycle. It is launched; it grows, and at some point, may die. A fair comment is that - at least in the short term - not all products or services die. Jeans may die, but clothes probably will not. Legal services or medical services may die, but depending on the social and political climate, probably will not. Even though its validity is questionable, it can offer a useful 'model' for managers to keep at the back of their mind. Indeed, if their products are in the introductory or growth phases, or in that of decline, it perhaps should be at the front of their mind; for the predominant features of these phases may be those revolving around such life and death. Between these two extremes, it is salutary for them to have that vision of mortality in front of them. However, the most important aspect of product life-cycles is that, even under normal conditions, to all practical intents and purposes they often do not exist (hence, there needs to be more emphasis on model/reality mappings). In most markets the majority of the major brands have held their position for at least two decades. The dominant product life-cycle, that of the brand leaders which almost monopolize many markets, is therefore one of continuity. In the criticism of the product life cycle, Dhalla & Yuspeh state: ...clearly, the PLC is a dependent variable which is determined by market actions; it is not an independent variable to which companies should adapt their marketing programs. Marketing management itself can alter the shape and duration of a brand's life cycle. Thus, the life cycle may be useful as a description, but not as a predictor; and usually should be firmly under the control of the marketer. The important point is that in many markets the product or brand life cycle is significantly longer than the planning cycle of the organisations involved. Thus, it offers little practical value for most marketers.

Cash Flow and Fund Flow

Cash flow simply means a factual presentation of cash inflows and outflows. This will give a clear picture of cash and cash equivalents movement during a period of time. Cash flow statement shows the actual cash flow of a company. This summaries the data of cash or cash related activities only. On the other side fund flow is broader term which never confine to cash movements only but this will show the sources & application of funds and its movements over a period of time. The major key aspect of fund flow is its working capital presentation. Business operations can easily be analysed through pointing out the movements of working capital. The key decisions of management which affect capital structure can be planned by utilising data presented in fund flow statement through making a comparison of working and fixed capital which will enable progressive growth in prospective environment. Funds flow statements shows that where the funds have been generated & where they have been utilised. Thus a fund means current assets & currents liabilities of company. If current assets are more that current liabilities that working capital of a company will be increased & if current liabilities are more that current Assets it will be decrease. Thus fund flow shows the reason of change in working capital. This is a statement of sources & uses of application of funds. The sources are funds from operation, sale of fixed assets, issue of share capital & debenture, on operating receipts.

Management information system

Definition:

{1} “An 'MIS' is a planned system of the collecting, processing, storing and disseminating data in the form of information needed to carry out the functions of management. In a way it is a documented report of the activities those were planned and executed.”

{2} “ It is a computer system designed to help managers plan and direct business and organizational operations.

{3} “ MIS refers broadly to a computer-based system that provides managers with the tools for organizing, evaluating and efficiently running their departments.

When information systems are designed to provide information needed for effective decision making by managers, they are called management information systems. MIS is a formal system for providing management with accurate and timely information necessary for decision making. The system provides information on the past, present and project future and on relevant events inside and outside the organization. It may be defined as a planned and integrated system for gathering relevant data, converting it in to right information and supplying the same to the concerned executives. The main purpose of MIS is to provide the right information to the right people at the right time. The Concept of management information systems originated in the 1960s and become the byword of almost all attempts to relate computer technology and systems to data processing in business. During the early 1960s, it became evident that the computer was being applied to the solution of business problem in a piecemeal fashion, focusing almost entirely on the computerization of clerical and record – keeping tasks. The concepts of management information system were developed to counteract such in efficient development and in effective use of the computer.

The MIS concept is vital to efficient and effective computer use in business of two major reasons:

[1] It serves as a systems framework for organizing business computer applications. Business applications of computers should be viewed as interrelated and integrated computer – based information systems and not as independent data processing job.

[2] In emphasizes the management orientation of electronics information processing in business. The primary goal of computer based information systems should be the processing of data generated by business operations.

An MIS provides the following advantages.

1. It Facilitates planning: MIS improves the quality of plants by providing relevant information for sound decision – making. Due to increase in the size and complexity of organizations, managers have lost personal contact with the scene of operations.

2. In Minimizes information overload: MIS change the larger amount of data in to summarized form and there by avoids the confusion which may arise when managers are flooded with detailed facts.

3. MIS Encourages Decentralization: Decentralization of authority is possibly when there is a system for monitoring operations at lower levels. MIS is successfully used for measuring performance and making necessary change in the organizational plans and procedures.

4. It brings Co ordination: MIS facilities integration of specialized activities by keeping each department aware of the problem and requirements of other departments. It connects all decision centers in the organisation.

5. It makes control easier: MIS serves as a link between managerial planning and control. It improves the ability of management to evaluate and improve performance. The used computers has increased the data processing and storage capabilities and reduced the cost.

6. MIS assembles, process, stores, Retrieves, evaluates and disseminates the information.

Types of Information Management Systems

Document management system (DMS)
The DMS is focused primarily on the storage and retrieval of self-contained electronic data resources in the document form. Generally, The DMS is designed to help the organizations to manage the creation and flow of documents through the provision of a centralized repository. The workflow of the DMS encapsulates business rules and metadata.

Content management system (CMS)
The CMS assist in the creation, distribution, publishing, and management of the enterprise information. These systems are generally applicable on the online content which is dynamically managed as a website on the internet or intranet. The CMS system can also be called as ‘web content management’ (WCM).

Library management system (LMS)
Library management systems facilitate the library technical functions and services that include tracking of the library assets, managing CDs and books inventory and lending, supporting the daily administrative activities of the library and the record keeping.

Records management system (RMS)
The RMS are the recordkeeping systems which capture, maintain and provide access to the records including paper as well as electronic documents, efficiently and timely.

Digital imaging system (DIS)
The DIS assists in automation of the creation of electronic versions of the paper documents such as PDFs or Tiffs. So created Electronic documents are used as an input to the records management systems.

Learning management system (LMS)
Learning management systems are generally used to automate the e-learning process which includes the administrative process like registering students, managing training resources, creating courseware, recording results etc.

Geographic information system (GIS)
The GIS are special purpose, computer-based systems that facilitate the capture, storage, retrieval, display and analysis of the spatial data.