CRICOS Code: 

03595K | RTO Provider ID: 70252

Table of Contents

HOW TO CONDUCT A FEASIBILITY STUDY..................................................................................................3

WHAT IS A FEASIBILITY STUDY AND WHY IS IT SO IMPORTANT FOR A PROJECT?............................................................3

IN REVIEW – HOW TO CONDUCT A FEASIBILITY STUDY................................................................................................3
TRANSCRIPTION.................................................................................................................................................... 4

KEY PERFORMANCE INDICATORS (KPIS)....................................................................................................5

WHAT ARE KEY PERFORMANCE INDICATORS (KPI)...............................................................................................6

KEY PERFORMANCE INDICATORS REFLECT THE ORGANISATIONAL GOALS.........................................................................6
KEY PERFORMANCE INDICATORS MUST BE QUANTIFIABLE........................................................................................... 6
KEY PERFORMANCE INDICATORS MUST BE KEY TO ORGANISATIONAL SUCCESS.................................................................6
GOOD KEY PERFORMANCE INDICATORS VS. BAD........................................................................................................7
WHAT DO I DO WITH KEY PERFORMANCE INDICATORS?.............................................................................................7

WHAT IS A STRETCH TARGET?...................................................................................................................8

WHO SETS THE STRETCH TARGET?.....................................................................................................................8

SETTING STRETCH TARGETS.............................................................................................................................8

HOW TO CALCULATE SERVICE RATE..........................................................................................................9

HOW TO CALCULATE HOURLY RATE..........................................................................................................9

WORK OUT YOUR TOTAL NUMBER OF INCOME PRODUCING HOURS PER YEAR..............................................................9
DETERMINE THE TOTAL OPERATING COSTS OF YOUR BUSINESS...............................................................................10
WORKING OUT YOUR HOURLY RATE.................................................................................................................10

CONTINGENCY PLANNING.......................................................................................................................10

RISK ASSESSMENT.......................................................................................................................................11
IDENTIFY RISKS................................................................................................................................................... 11
PRIORITISING RISKS............................................................................................................................................. 11
CONTINGENCY PLANNING CHALLENGES............................................................................................................11
DEVELOPING THE PLAN.................................................................................................................................11
MAINTAINING THE PLAN...............................................................................................................................12
KEY POINTS...............................................................................................................................................12

HOLDING COSTS......................................................................................................................................13

UNDERSTANDING HOLDING COSTS..................................................................................................................13

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HOLDING COST REDUCTION METHODS.............................................................................................................13
EXAMPLE OF HOLDING COSTS........................................................................................................................13

DEFINE REWORK COST............................................................................................................................14

WHAT IS REWORK?.....................................................................................................................................14
REWORK IN NON-MANUFACTURING AREAS......................................................................................................14
CALCULATE REWORK RATE............................................................................................................................14
REWORK AND SCRAP...................................................................................................................................14
MANAGEMENT OF REWORK..........................................................................................................................14

SUBCONTRACTOR COSTS........................................................................................................................14

SUBCONTRACT............................................................................................................................................15

10 SIMPLE WAYS TO CUT BUSINESS COSTS.............................................................................................15

1. REDUCE SUPPLY EXPENSES.........................................................................................................................15

2. CUT PRODUCTION COSTS...........................................................................................................................15
3. LOWER FINANCIAL EXPENDITURES................................................................................................................16
4. MODERNIZE YOUR MARKETING EFFORTS.......................................................................................................16
5. USE EFFICIENT TIME STRATEGIES..................................................................................................................16
6. HARNESS VIRTUAL TECHNOLOGY.................................................................................................................16
7. NARROW YOUR FOCUS..............................................................................................................................17
8. MAKE THE MOST OF YOUR SPACE................................................................................................................17
9. MAXIMIZE YOUR EMPLOYEES' SKILLS............................................................................................................17
10. FOCUS ON QUALITY................................................................................................................................17

ENDING A BUDGET DEFICIT.....................................................................................................................17

THE BUSINESS CASE TEMPLATE...............................................................................................................18

MANAGING THE BUSINESS CASE.....................................................................................................................24

SUMMARY.................................................................................................................................................24

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How to Conduct a Feasibility Study

What is a feasibility study and why is it so important for a project? 

What the video on what a feasibility study is @ https://www.projectmanager.com/training/how-to-

conduct-a-feasibility-study
In Review – How to Conduct a Feasibility Study
Jennifer began by clarifying what a feasibility study is. She said a feasibility study is simply an assessment of
the practicality of a proposed plan or method. Just as the name implies, you’re asking, “Is this feasible?”
For example, do you have, or can you create the technology to do what you propose? Do you have the
people, tools and the resources necessary? And, will the project get you the ROI you expect?
When should you do a feasibility study? Jennifer suggested that it should be done during that point in the
project life cycle after the business case has been completed.
So, that’s the “what” and the “when” but how about the “why?” Meaning, why do you need a feasibility
study? Well, it determines the factors that will make the business opportunity a success, making it pretty
important.
7 Steps for a Feasibility Study
Jennifer said to follow these steps when conducting a feasibility study:
1. Conduct a preliminary analysis
2. Prepare a projected income statement
3. Conduct a market survey, or perform market research
4. Plan business organization and operations
5. Prepare an opening day balance sheet
6. Review and analyse all data
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7. Make a go/no-go decision
Best Practices for a Feasibility Study
 Use templates/tools/surveys, or any data and technology that gives you leverage
 Involve the appropriate stakeholders to get their feedback
 Use market research to further your data collection
 Do your homework and ask questions to make sure your data is solid
Feasibility Report Template
Finally, Jennifer outlined the nine parts of a feasibility report:
1. Executive summary
2. Description of product/service
3. Technology considerations
4. Product/service marketplace
5. Marketing strategy
6. Organization/staffing
7. Schedule
8. Financial projections
9. Findings and recommendations
That final item is broken down into subsets of technology, marketing, organization and financial findings
and recommendations.
Pro-Tip: When completing a feasibility study, it’s always good to have a contingency plan that you test to
make sure it’s a viable alternative.
Thanks for watching!
Transcription
Today we’re talking about How to Conduct A Feasibility Study, but first of all, I want to start with clarifying
what a feasibility study is.
Basically, it’s an assessment of the practicality of a proposed plan or method. Basically, we’ll want to want
to know, is this feasible? Some of the questions that may generate this, or we can hear people asking are,
“Do we have, or can we create the technology to do this? Do we have the people resource who can
produce this, and will we get our ROI, our Return on Investment?”
So when do we do the feasibility study? So, it’s done during a project lifecycle and it’s done after the
business case because the business case outlines what we’re proposing. Is it a product or service that
we’re proposing?
So why do we do this? The reason we do this is because we need to determine the factors that will make
the business opportunity a success.
Well, let’s talk about a few steps that we do in order to conduct the feasibility study.
Well, first of all, we conduct a preliminary analysis of what all’s involved in the business case and what
we’re analysing and what we’re trying to determine is feasible.
Then we prepare a projected income statement. We need to know what are the income streams, how are
we going to make money on this? Where’s the revenue coming from? We also need to conduct a market
survey.

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We need to know, is this a demand? Is there a market for this? Are customers willing to use this product or
use this service?
The fourth one is, plan the business organization and the operations. Like, what is the structure, what kind
of resources do we need? What kind of staffing requirements do we have?
We also want to prepare an opening day balance sheet. What are the…how again, what are the expenses,
what’s the revenue and to ensure that being able to determine if we’re going to make our ROI.
So we want to review and analyse all of the data that we have and with that, we’re going to determine,
we’re going to make a go, no-go decision. Meaning, are we going to do this project or this business
opportunity or not?
Well, here’s some of the best practices to use during your feasibility study.
One is, use templates, tools and surveys that exist today. The great news is, data is becoming more and
more prevalent. There are all kinds of technologies. There are groups that they do nothing but research.
Things that we can leverage today.
We want to involve the appropriate stakeholders to ensure that input is being considered from the
different people involved.
We also want to use again the market research to ensure we’re bringing in good, reliable data.
We also…I mean do your homework, meaning act like is if this is your project, if it’s your money. So do your
homework and do it well and make sure you give credible data.
So ultimately in the end what we’re doing is, we’re producing and we’re providing a feasibility report. So,
in that report, think of this is like a template.
So, what you’re going to do is give it an executive summary of the business opportunity that you’re
evaluating and the description of the product or the service.
You want to look at different technology considerations. Is it technology that you’re going to use? Are you
going to build the technology?
What kind of product and service marketplace and being able again, to identify the specific market you’re
going to be targeting? Also, what is the marketing strategy you’re going to use to target the marketplace?
And also, what’s the organizational structure? What are the staffing requirements? What people do you
need to deliver the product or service and even support it?
So also, we want to know the schedule to be able to have the milestones to ensure that as we’re building
things, that as we’re spending money that we’re beginning to bring in income to pay and knowing when
we’re going to start recuperating some of the funding. Again, which also ties into the financial projections.
Ultimately in this report, you’re going to provide the findings and the recommendations.
Again, we’ll probably talk about technology. Are you going to build it? Are you going to buy it? What’s the
marketing strategies for the specific marketplace organization? You may have some recommendations for
whether you’re going to insource the staff, maybe you are going to outsource some staff and what that
looks like and also financial recommendation.

Key Performance Indicators (KPIs)

Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an Organisation define
and measure progress toward Organisational goals.

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Once an Organisation has analysed its mission, identified all its stakeholders, and defined its goals, it needs
a way to measure progress toward those goals. Key Performance Indicators are those measurements.
What Are Key Performance Indicators (KPI)
Key Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect the critical
success factors of an Organisation. They will differ depending on the Organisation. A business may have as
one of its Key Performance Indicators the percentage of its income that comes from return customers. A
school may focus its Key Performance Indicators on graduation rates of its students. A Customer Service
Department may have as one of its Key Performance Indicators, in line with overall company KPIs,
percentage of customer calls answered in the first minute. A Key Performance Indicator for a social service
Organisation might be number of clients assisted during the year.
Whatever Key Performance Indicators are selected, they must reflect the Organisation's goals, they must
be key to its success, and they must be quantifiable (measurable). Key Performance Indicators usually are
long-term considerations. The definition of what they are and how they are measured do not change often.
The goals for a particular Key Performance Indicator may change as the Organisation's goals change, or as
it gets closer to achieving a goal.
Key Performance Indicators Reflect the Organisational Goals
An Organisation that has as one of its goals "to be the most profitable company in our industry" will have
Key Performance Indicators that measure profit and related fiscal measures. "Pre-tax Profit" and
"Shareholder Equity" will be among them. However, "Percent of Profit Contributed to Community Causes"
probably will not be one of its Key Performance Indicators. On the other hand, a school is not concerned
with making a profit, so its Key Performance Indicators will be different. KPIs like "Graduation Rate" and
"Success In Finding Employment After Graduation", though different, accurately reflect the schools mission
and goals.
Key Performance Indicators Must Be Quantifiable
If a Key Performance Indicator is going to be of any value, there must be a way to accurately define and
measure it. "Generate More Repeat Customers" is useless as a KPI without some way to distinguish
between new and repeat customers. "Be The Most Popular Company" won't work as a KPI because there is
no way to measure the company's popularity or compare it to others.
It is also important to define the Key Performance Indicators and stay with the same definition from year
to year. For a KPI of "Increase Sales", you need to address considerations like whether to measure by units
sold or by dollar value of sales. Will returns be deducted from sales in the month of the sale or the month
of the return? Will sales be recorded for the KPI at list price or at the actual sales price?
You also need to set targets for each Key Performance Indicator. A company goal to be the employer of
choice might include a KPI of "Turnover Rate". After the Key Performance Indicator has been defined as
"the number of voluntary resignations and terminations for performance, divided by the total number of
employees at the beginning of the period" and a way to measure it has been set up by collecting the
information in an HRIS (Human Resources Information System), the target has to be established. "Reduce
turnover by five percent per year" is a clear target that everyone will understand and be able to take
specific action to accomplish.
Key Performance Indicators Must be Key to Organisational Success
Many things are measurable. That does not make them key to the organisation's success. In selecting Key
Performance Indicators, it is critical to limit them to those factors that are essential to the organisation

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reaching its goals. It is also important to keep the number of Key Performance Indicators small just to keep
everyone's attention focused on achieving the same KPIs.
That is not to say, for instance, that a company will have only three or four total KPIs in total. Rather there
will be three or four Key Performance Indicators for the company and all the units within it will have three,
four, or five KPIs that support the overall company goals and can be "rolled up" into them.
If a company Key Performance Indicator is "Increased Customer Satisfaction", that KPI will be focused
differently in different departments. The Manufacturing Department may have a KPI of "Number of Units
Rejected by Quality Inspection", while the Sales Department has a KPI of "Minutes a Customer Is on Hold
before a Sales Rep Answers". Success by the Sales and Manufacturing Departments in meeting their
respective departmental Key Performance Indicators will help the company meet its overall KPI.
Good Key Performance Indicators vs. Bad
Bad:
 Title of KPI: Increase Sales
 Defined: Change in Sales volume from month to month
 Measured: Total of Sales by Region for all region
 Target: Increase each month
What's missing? Does this measure increase in sales volume by dollars or units? If by dollars, does it
measure list price or sales price? Are returns considered and if so, do they appear as an adjustment to the
KPI for the month of the sale or are they counted in the month the return happens? How do we make sure
each sales office's volume numbers are counted in one region, i.e. that none are skipped, or double
counted? How much, by percentage or dollars or units, do we want to increase sales volumes each month?
(Note: Some of these questions may be answered by standard company procedures.)
Good:
 Title of KPI: Employee Turnover
 Defined: The total of the number of employees who resign for whatever reason, plus the number of
employees terminated for performance reasons, and that total divided by the number of
employees at the beginning of the year. Employees lost due to Reductions in Force (RIF) will not be
included in this calculation.
 Measured: The HRIS contains records of each employee. The separation section lists reason and
date of separation for each employee. Monthly or when requested by the Vice President, the HRIS
group will query the database and provide Department Heads with Turnover Reports. HRIS will post
graphs of each report on the Intranet.
 Target: Reduce Employee Turnover by 5% per year.
What Do I Do with Key Performance Indicators?
Once you have good Key Performance Indicators defined, ones that reflect your organisation's goals, one
that you can measure, what do you do with them? You use Key Performance Indicators as a performance
management tool, but also as a carrot. KPIs give everyone in the organisation a clear picture of what is
important, of what they need to make happen. You use that to manage performance. You make sure that
everything the people in your organisation do is focused on meeting or exceeding those Key Performance
Indicators. You also use the KPIs as a carrot. Post the KPIs everywhere: in the lunchroom, on the walls of
every conference room, on the company intranet, even on the company web site for some of them. Show
what the target for each KPI is and show the progress toward that target for each of them. People will be
motivated to reach those KPI targets.
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What is a stretch target?
First of all, what is actually meant by a stretch target. This can differ depending on where you sit. As the
budget holder of a sales division, this may mean setting sales targets that are higher than what would
normally be expected. For production, this may mean producing more goods for less while marketing may
see this as attracting more enquiries than last year.
Stretch targets are by definition, pushing the boundaries on what can be realistically achieved. And each
has the increased potential to reduce organizational performance – the very opposite of what they were
supposed to do. For example, if the increased production volume is not achieved but sales achieve their
goal, then customers won’t get what they ordered in time.  Similarly, if manufacturing achieve their goal
but marketing falls short, then valuable resources will be tied up in stock. Both scenarios will adversely
impact the company. In the first case it will be their reputation with customers, while the second will
impact working capital. The end result of both will be to decrease profitability.
Who sets the stretch target?
The second reason is that stretch targets, when set in isolation to the manager appointed to deliver them,
will be seen as ‘not my numbers’ and so there is no ownership to deliver them. I’m sure we have all been
victim to a ‘top-down’ target that is divorced from any kind of justification other than someone senior
wanted to ‘push us’ to achieve something greater. Rarely will this type of action be motivating and will
more typically lead the manager to conclude that those above him do not understand the business. This in
itself is an incentive to not achieve the goal.
Setting Stretch Targets
I don’t have a problem with stretch targets, but they need to be set in a reasonable way. Budgeting is not
the time or the place to do it. Instead, the following steps are required:
1. First, you have to know what is ‘reasonable’. In my experience, this is the purpose of forecasting –
to find out what is likely to be achieved if things carry on as they are. It’s important that the figures
are based on reality and so must come from those who are directly responsible for how income is
generated and where resources are spent.
2. Next, you need to look at where the market is going and what the organisation could achieve if it
‘stretched’ itself. This is where stretch targets are set, based on a clear understanding of market
forces.
3. The third step is to look at what needs to change in current business processes to bridge the gap
between the forecast and the target just set. i.e. what processes need to be improved or
discontinued, what new processes need to be introduced, and where would the resources they
would consume come from. The input to these should come from operational staff to help with
ownership of the targets.
4. The fourth step is to assign resources – which for me is the purpose of the budget process. Budgets
are set in two parts – the resources required to support ‘business as usual ‘, and the second is to
assign resources to the change initiatives identified in the last step. For more detail on this see my
previous blog on Continuous Budgeting.
5. Finally, we need to monitor that the change initiatives are being implemented and are on target to
deliver the stretch targets. Of course, some will be working, and others won’t be, so the aim here is
to find out why and if necessary, make changes.
Adopting these steps provides organisations with an environment where improved performance can be
managed in a collaborative way, rather than relying on hope.

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How to Calculate Service Rate
A new business owner may need help establishing hourly or daily service rates. You can calculate the
number of customers needed to reach your desired hourly earnings goal, while factoring your additional
costs of doing business. Based on your hypothetical interest in general automotive technology, you might
open a repair shop that performs oil changes, tune-ups and brake work. You can apply the service rate
calculation to most types of businesses.
Set your hourly rate for service work. Call some of your competitors to determine the average service rates
for companies in your area. Ask your competitors to provide service quotes for various job types. Get
pricing for materials and labour. Review the information obtained during your market research to estimate
your prices for comparable services. For instance, each competitor includes an estimate for parts and
labour, if competitor “A” charges $79 for an automotive brakes, competitor “B” charges $95 for brakes and
competitor “C” charges $89 for brakes, you might fare well charging somewhere in between, such as $90
for parts and labour.
Analyse your potential gross profit for brake jobs. Assume your brake pads cost $20 for each pair. Estimate
one hour as the time required to complete a brake job. Reserve $35 per hour for your projected wages,
plus the $20 cost for materials. Use the $90 gross earnings to withhold parts and labour costs of $55 to
realize a $35 gross profit, before deducting your overhead costs.
Summarise your monthly overhead costs. For example, garage rent may be $1,000, equipment rental $400,
utilities $750, telephone $100 and advertising $500. The monthly overhead in this example totals $2,750.
Divide your overhead cost of $2,750 by your $35 gross profit to calculate the number of billable hours you
will need per month. You would need to perform a minimum of 79 brake jobs per month to meet your
estimated overhead costs.
Identify your projected profit per month. Plan to complete 100 brake jobs per month to realize a net profit
equal to $750 per month. Complete 100 brake jobs to gross $9,000. Subtract your parts ($2,000) labour
($3,500) and overhead ($2,750) from $9,000 to realise a net profit of $750 for the month.
Adjust your service rate upward to increase your profit or lower your service rate to offer more
competitive prices. Check your hourly earnings to determine if your wages need modification in order to
make a profit. Review your planned rate of pay for employees, as you may need to factor items such as
benefits and unemployment compensation.

How to Calculate Hourly Rate

Are you finding it hard to work out how much you should be charging for your services?
One of the most common questions we’re asked by new business owners is how much should they be
charging per hour for their services.
There are a number of factors to consider when setting an hourly rate. Here are our top tips if you are
running a service-based business.
Work out your total number of income producing hours per year
Determining your total number of working/income generating hours per year is an important first step.
Don’t forget to include time off you’ll need for:
 annual leave (taking regular breaks is important for your physical and mental wellbeing)
 public holidays (if applicable)
 personal leave (e.g. for illness or carers obligations)

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 professional development/upskilling
 business administration (such as installing equipment or invoicing)
 non-billable meetings with potential new clients or to network.
Example: If you plan to take four weeks of annual leave, two weeks of public holidays, two weeks of
personal leave and four weeks for upskilling, business administration and non-billable meetings, this would
leave you with 40 working weeks to generate income. If you were to work 40 hours in those 40 weeks, that
would give you a maximum of 1,600 income producing hours per year. It’s also important to factor in that
it may be unlikely you will be unable to bill all your available hours to clients. As a starting point, we
suggest working on a rate of 65 per cent (the billing conversion rate). In this example that would give you
1,040 hours per year.
Determine the total operating costs of your business
Do you know how much it actually costs to run your business each year? Estimating your overheads
includes expenses such as:
 leasing a business premises (if applicable)
 any licences, permits or business insurances you need to start your business, operate equipment
etc. consider which are ‘one-offs’ and which are required on an on-going basis
 fees for banking, telephone and internet services
 fees for services such as accounting or legal advice.
Working out your hourly rate
Now that you know the total number of income generating hours you will be available to work and the cost
of operating your business, you can work out how much to charge per hour. To do this, you’ll need to
factor in:
 how much profit/income you hope to make
 any capital investments in the business to pay back
 costs of goods or materials
 any industry specific rates of pay or competitor pricing that you’re aware of and need to factor into
your own rate.
Example: If your desired personal income is $83,500, your business has $30,000 in overheads/costs, and
you are looking to make $16,500 in profit you will need to generate $130,000 in revenue. With this total
figure the following calculation can help you work out your hourly rate.
Desired profit amount + desired salary + operating costs / number of income producing hours = your
hourly rate.
For example: Desired profit of $16,500 + desired personal salary of $83,500 + operating costs of
$30,000/1040 income generating hours = $125 per hour.

Contingency Planning
Fires, floods, tornadoes – these are the things we often connect with contingency planning. But what if
your entire sales force gets sick with food poisoning at your annual sales conference? Or, your payroll clerk
simply calls in sick on payroll day? These things can all cause confusion and disorder if you haven't
prepared for them properly. Contingency planning is a key part of this preparation.
As you see, contingency planning is not just about major disasters. On a smaller scale, it's about preparing
for events such as the loss of data, people, customers, and suppliers, and other disruptive unknowns.

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That's why it's important to make contingency planning a normal part of your everyday business
operations.
Risk Assessment
The need for contingency planning emerges from a thorough analysis of the risks that your organisation
faces. It's also useful in thinking about new and ongoing projects: what happens when 'Plan A' doesn't go
as expected? Sometimes Plan A simply means 'business as usual.' Other times, with more sophisticated risk
management plans, Plan A is your first response to deal with an identified risk – and when Plan A doesn't
work, you use your contingency plan.
Use these principles in your risk assessment process:
Address all business-critical operations – No matter where your contingency planning starts, a good plan
identifies critical business functions, and it outlines a way to minimize losses.
Identify risks
The first part of an effective risk analysis is to identify the various risks that your business may face. What
has the potential to significantly disrupt or harm your project or business operations? The end result of a
risk analysis is usually a huge list of potential threats. If you try to produce a contingency plan for each, you
may be overwhelmed. This is why you must prioritize.
Prioritising risks
One of the greatest challenges of contingency planning is making sure you don't plan too much. You need a
careful balance between over preparation for something that may never happen, and adequate
preparation so that you can respond quickly and effectively to a crisis situation when necessary.
Risk Impact/Probability Charts help you find this balance. With these, you analyse the impact of each risk,
and you assign a likelihood of it occurring. Then it's easier to determine which risks require the expense
and effort of risk mitigation. Business processes that are essential to long-term survival – like maintaining
cash flow, staff support, and market share – are typically at the top of the list.
Note that contingency planning isn't the only action that emerges as a result of risk analysis – you can
manage risk by using existing assets more effectively or by investing in new resources or services that help
you manage it (such as insurance). Also, if a risk is particularly unlikely to materialize, you may decide to do
nothing about it, and manage around it if the situation arises.
Contingency Planning Challenges
You should be aware of a few common obstacles as you begin your contingency planning process:
 People are often poorly motivated to develop a strong ‘Plan B’ because they have too much of an
emotional investment in the ‘Plan A’ they want to deliver. Stress that Plan B should be properly
thought-through.
 There’s usually a low probability of a crisis occurring, so people often don’t feel a sense of urgency
to create a contingency plan, meaning that it gets stuck at the bottom of their To Do Lists.
Unfortunately, this may mean that contingency planning ends up as a task that never gets done.
 Organisational politics can interfere with prioritizing risk, because many people may want to be
seen as an essential part of recovery efforts. If you include all key business managers in the risk
assessment and prioritization process, this may help you reach agreement.
Developing the Plan
Remember these guidelines when it's time to prepare your contingency plan:

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 Your main goal is to maintain business operations – Look closely at what you need to do to deliver a
minimum level of service and functionality.
 Define time periods – What must be done during the first hour of the plan being implemented? The
first day? The first week? If you break down the plan, you're less likely to leave out important
details.
 Identify the trigger – What specifically will cause you to implement the contingency plan? Decide
which actions you'll take, and when. Determine who is in charge at each stage and what type of
reporting process they must follow.
 Keep the plan simple – You don't know who will read and implement the plan when it's needed, so
use clear and plain language.
 Consider related resource restrictions – Will your organisation be able to function the same way if
you have to implement Plan B, or will Plan B necessarily reduce capabilities?
 Identify everyone's needs – Have people throughout the company identify what they must have, at
a minimum, to continue operations.
 Define 'success' – What will you need to do to return to 'business as usual'?
 Include contingency plans in standard operating procedures – Make sure you provide initial training
on the plan and keep everyone up to date on changes.
 Manage your risks – Look for opportunities to reduce risk, wherever possible. This may help you
reduce, or even eliminate, the need for full contingency plans in certain areas.
 Identify operational inefficiencies – Provide a standard to document your planning process and find
opportunities for performance improvement.
Maintaining the Plan
After you prepare the contingency plan, you need to do several things to keep it practical and relevant -
don't just create a document and file it away. As your business changes, you'll need to review and update
these plans accordingly.
Here are some key steps in the contingency plan maintenance process:
 Communicate the plan to everyone in the organisation.
 Inform people of their roles and responsibilities related to the plan.
 Provide necessary training for people to fulfil these roles and responsibilities.
 Conduct disaster drills where practical.
 Assess the results of training and drills and make any necessary changes.
 Review the plan on a regular basis, especially if there are relevant technological, operational, and
personnel changes.
 Distribute revised plans throughout the company, and make sure the old plan is discarded.
 Audit the plan periodically:
 Reassess the risks to the business.
 Analyse efforts to control risk by comparing actual performance to the performance level described
in the contingency plan.
 Recommend and make changes, if necessary.
Key Points
Contingency planning is ignored in many companies. Day-to-day operations are demanding, and the
probability of a significant business disruption is small, so it's hard to make time to prepare a good plan.
However, if you're proactive in the short term, you'll help ensure a quicker and more effective recovery

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from an operational setback in the long term, and you may save your organisation from failure in the event
that risks materialize.
A contingency planning process also helps you gain significant insight into the risks your organisation faces.
This enables you to develop an effective planning strategy that will immediately add value to the business.
Contingency planning requires an investment of time and resources, but if you fail to do it – or if you do it
poorly – the costs could be significant if a disaster happens

Holding Costs
Holding costs are those associated with storing inventory that remains unsold. These costs are one
component of total inventory costs, along with ordering and shortage costs. A firm’s holding costs include
the price of goods damaged or spoiled, as well as that of storage space, labour, and insurance.
Understanding Holding Costs 
Minimizing inventory costs is an important supply-chain management strategy. Inventory is
an asset account that requires a large amount of cash outlay, and decisions about inventory spending can
reduce the amount of cash available for other purposes. For example, increasing the inventory balance by
$10,000 means that less cash is available to operate the business each month. This situation is considered
an opportunity cost.
Holding Cost Reduction Methods 
One way to ensure a company has sufficient cash to run its operations is to sell inventory and collect
payments quickly. The sooner cash is collected from customers, and the less total cash the firm must come
up with to continue operations. Businesses measure the frequency of cash collections using the inventory
turnover ratio, which is calculated as the cost of goods sold (COGS) divided by average inventory.
For example, a company that has $1 million in cost of goods sold and an inventory balance of $200,000 has
a turnover ratio of 5. The goal is to increase sales and reduce the required amount of inventory so that the
turnover ratio increases.
Another important strategy to minimize holding costs and other inventory spending is to calculate a
reorder point, or the level of inventory that alerts the company to order more inventory from a supplier.
An accurate reorder point allows the firm to fill customer orders without overspending on storing
inventory. Companies that use a recorder point avoid shortage costs, which is the risk of losing a customer
order due to low inventory levels.
The reorder point considers how long it takes to receive an order from a supplier, as well as the weekly or
monthly level of product sales. A reorder point also helps the business compute the economic order
quantity (EOQ), or the ideal amount of inventory that should be ordered from a supplier. 
Example of Holding Costs 
Assume that ABC Manufacturing produces furniture that is stored in a warehouse and then shipped to
retailers. ABC must either lease or purchase warehouse space and pay for utilities, insurance, and security
for the location. The company must also pay staff to move inventory into the warehouse and then load the
sold merchandise onto trucks for shipping. The firm incurs some risk that the furniture may be damaged as
it is moved into and out of the warehouse.

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Define Rework Cost
Rework cost is the money needed to repair or adjust a defective item, so it meets its specifications. In any
business, it’s a serious problem because it reduces profits. The idea of rework cost applies not only to
defects that come up in manufacturing but also in construction and software development.
What Is Rework?
In a fairy-tale factory, all the component parts are perfect, and work is done to plan using machinery that
never breaks down. In the real world, errors creep in at the component level through problems with
production machines or mistakes in assembly.
If testing reveals problems with an item, it goes to a rework stage where defects get fixed. Rework requires
labour, equipment and materials, all of which cost money. Management tools such as rework cost
accounting help you track rework expenses, so they don’t get out of hand.
Rework in Non-Manufacturing Areas
Rework issues also impact software development and construction. For example, software projects are
notorious for scope creep. As the clients discover that more features are possible, they ask for them,
leading to endless revisions. The rework costs money. When the developer sends the bill, there can be
fireworks.
With building construction, previously unknown issues can surface when work gets underway. There may
be problems with materials, errors in design or misunderstandings between the contractor and client. As
with manufacturing, solving these takes labour and materials.
Calculate Rework Rate
The cost of factory rework is the sum of the labour and materials costs. There are also costs such as the
maintenance of rework equipment and floor space dedicated to rework. It can help to express rework as a
percentage relative to sales, which you get by dividing rework cost by sales.
For example, a monthly rework cost of $1,200 divided by monthly sales of $84,000 gives a 1.4% rework
rate. If the percentage decreases over time, you know your quality control plan is working, but keep in
mind that if you never achieve zero, you’re in a very big club.
Rework and Scrap
In manufacturing, "scrap" is a term closely related to rework. It can refer to either unused material left
over from production or it can mean unusable material spoiled during manufacturing. It might be recycled
but typically not reworked. Spoiled material is counted as an expense since it’s not helping your bottom
line.
Management of Rework
Even with diligent preparation, it is hard to avoid rework entirely. Although rework cost is itself a problem,
it is the result of other problems such as gaps in training, incomplete specifications or equipment in poor
condition. By carefully managing the various steps of your production process, you can maintain good
product quality and hold rework costs to a minimum.

Subcontractor Costs 
All workshops will need to make use of subcontractors for specialised work.
Examples would be:
 Having a cylinder head re-machined
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 Having brake drums or brake discs machined
As a trade buyer, you will be given some discount to entice you to send the work to the specialist and to
dissuade you from doing the work yourself. You may consider that the discount is sufficient to offset your
costs in dealing with the subcontractor.
This may not be the case and you should carefully check how much time is involved in:
 Instructing the subcontractor in what needs to be done
 Phone calls to arrange for the work to be done and to check on progress
 Time taken to deliver the work and pick it up when finished
It may therefore be necessary to charge your customer for the time involved in dealing with the
subcontractors.
You need to include this time in the estimated repair time. Do not show it as extras, because it will be
difficult to convince your customer that the profit on the sublet transaction is not sufficient to cover the
actual workshop cost.
Many valuable hours are lost by workshops in dealing with subcontractors.
Subcontract
Agreement, purchase order, or any such legal instrument issued under a prime contract (by the prime
contractor to a third party the subcontractor), calling for the performance of a defined piece of work or
production and/or delivery of specified goods or services. Subcontracts contain special terms and
conditions that are unique to the prime contract, and flow-down provisions that proceed from it.

10 Simple Ways to Cut Business Costs

In an uncertain economy when every penny count, even the smallest increase in revenue or reduction in
expenses can have an impact on company profitability. The good news is a large-scale company overhaul
isn't necessary. It's often simple, common sense steps that improve the bottom line, especially for a small
business.
Mid-year is a good time to step back and look carefully at our business practices. What are we doing well?
And what can we improve?
1. Reduce supply expenses.
Save money on office supplies by contacting vendors to let them know your price shopping. Look outside
your pool of traditional vendors. Large discount suppliers like Officeworks can often beat traditional office
supply vendor prices.
2. Cut production costs.
As a business owner, you're always looking for ways to cut material costs, and optimize your resources.
Here are a few suggestions:
Try selling leftover cardboard, paper and metal instead of sending it to the recycling centre. Also, consider
ways to use your waste to create another product.
Make sure you're getting the most out of your production real estate. Centralise or consolidate the space
necessary for production. Lease unused space to another business or individual – it can be as small as an
office or as big as a warehouse space.

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Track and measure the operational efficiency of your business, in order to adjust and optimize the use of
available resources. Set performance parameters that reflect your efficiency goals and offer incentives
when those goals are met.
3. Lower financial expenditures.
Look at your insurance policies and financial accounts for places to save money.
Save money on insurance by comparing providers for the most competitive rate; then ask your current
lender or insurance provider to match that rate.
Consolidate insurance policies or bank accounts if possible.
Evaluate insurance policies to make sure you're not over-insured or duplicating coverage.
Don’t take on unnecessary debt. Do a thorough cost-benefit analysis and future forecasting when
considering business expansion. Consider the opportunity costs and the effect of debt payments on cash
flow. Excess debt affects company rating, interest rates and the ability to borrow in the future.
4. Modernize your marketing efforts.
Of course, you don't want to eliminate paid advertising that is working; however, it can be worthwhile to
take a look at some cheaper alternatives. 
Build your customer e-mail list and implement a referral program. A recommendation from a current
customer is far more likely to result in a sale than traditional marketing.
Network more, advertise less. Clients are more likely to hire a business with a face they recognize.
Cut marketing costs by doing more in-house.
Increase social media use and reduce traditional marketing.
5. Use efficient time strategies.
Optimizing productivity effectively lowers your cost of doing business. Remember, wasted time equals
wasted dollars.
Minimize distractions and limit access to time wasters. Use apps like Focus Booster or Rescue Time to help
employees focus and concentrate to stay on task.
Utilize software such as Paymo and Toggl to track employee time usage, time spent on different types of
work activities or projects and billable hours.
Set expectations for a reasonable amount of time to complete certain types of activities or tasks. Offer
incentives for meeting or exceeding those expectations.
Schedule business activities and encourage employees to adhere to the daily or weekly schedule.
Schedule a predetermined block of time for meetings. Make it clear that you expect participants to be on
time, to stick closely to the agenda and to wrap up at the appointed time.
6. Harness virtual technology.
Reduce business costs by operating in a virtual manner whenever possible.
Virtual meetings help minimize travel expenses and virtual offices can eliminate the need for physical
space. While we certainly don't want to eliminate personal contact altogether, save it for the instances
when it's most beneficial.

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Technologies such as Google docs (soon to be Google Drive) or Basecamp centralize company documents
and product collaboration as an alternative to paper documents and meetings.
7. Narrow your focus.
As a small business owner, I find narrowing my business focus to be one of the most effective strategies to
improving my bottom line. By limiting the types of services, I offer and projects I accept, I am more
productive and produce higher-quality work.
Another way to narrow your business focus is to subcontract. Rather than turn away business, maximize
your capacity by subcontracting pieces whenever possible. More projects equal more revenue, while
subcontracting equals lower expenses. The result is a better bottom line.
8. Make the most of your space.
Analyze your current use of physical space. Overflowing storage, too many supplies, piles of paper files and
inefficient placement of furniture and equipment are common space wasters.
Consolidate or centralize the different functions or departments of your business. Use space for dual
purposes. A meeting room that doubles as a break room or a storage room that holds copy and fax
machines for example. The opportunities will vary depending upon the nature of your business.
9. Maximize your employees' skills.
Assess the current usage of employee experience and skills. Give responsibilities to the employees with the
most skill and efficiency in those areas. Don’t use expert salespeople for word processing or “numbers”
people for design functions. It's often necessary for one person to be responsible for a variety of tasks but
consider exchanging some of those tasks with another individual who shows greater efficiency.
10. Focus on quality.
Quality sells whether in the form of products or services. Satisfied customers increase sales through
referrals and repeat purchases. Higher quality and a solid reputation allow you to charge higher prices,
which equals higher revenue and a healthier bottom line.
What have you done well so far this year? What are you planning to improve?

Ending a Budget Deficit

Whether you have a planned budget deficit to finance a retooling or business acquisition or are
experiencing one because of low sales or high costs, many of the steps will be the same. Eliminating a
budget deficit isn’t as easy as simply cutting costs, which could cause long-term damage to your business.
Using a thoughtful analysis, you can determine what is causing your deficit and how to eliminate it without
hurting your company.
Step 1
Conduct a budget variance analysis, which shows where your income and expenses differ from your annual
projections. Determine if you are spending more than you predicted, if your revenues are lower than
estimated or if both are occurring. Calculate the exact totals to determine the amount of money you will
need to cut from your spending or amount of revenue you will need to add to close the gap.
Step 2
Determine where your excess spending is occurring, if that’s the problem. Review your overhead,
production and labour costs to see if you can narrow down the problem. Examine ways to reduce your
costs in these areas in ways that do the least damage to your business. For example, cutting marketing
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spending can lead to lower sales, further exacerbating your problem. Temporarily using more free social
media than paid magazine advertising might offer a solution.
Step 3
Determine where your sales are lagging if they are not meeting your budgeted projections. Talk to your
sales reps to find out why they think this is occurring and what responses you can take. Calculate the profit
impact of lowering your prices to raise sales. Study the potential benefits of opening new distribution
channels, such as using a wholesaler or distributor or selling online.
Step 4
Examine actions that will temporary reduce your expenses or raise your income if you feel your budget
deficit is temporary and doesn’t need a long-term solution. Hold a sale or sell old inventory in bulk at a
discount if you feel your deficit is temporary and a quick cash infusion will end it. Talk to your tax attorney
to discuss ways to reduce your income and payroll tax burdens. Consider reducing your operating hours or
furloughing workers until you have made up your deficit. Accelerate the collection of your receivables with
early-pay discounts and try to negotiate stretching payments to vendors if your deficit is causing a cash
flow problem.
Step 5
Talk with your employees about the situation to prevent rumours that could lead to gossip, morale
problems and potential defections. Ask if they would be willing to accept a temporary pay cut or loss of
benefits if the situation is dire and they must choose between cuts and the loss of their jobs. Defer taking
your salary or bonus if you can manage without it.

The Business Case Template

What follows are the four steps to preparing a perfect business case template for your project.
It includes the following four sections:
 Executive Summary
 Finance
 Project Definition
 Project Organisation

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Section Section Heading Question Answered

  EXECUTIVE SUMMARY  
1 FINANCE  
1.1 Financial Appraisal How much?
1.2 Sensitivity Analysis How much?
2 PROJECT DEFINITION  
2.1 Background Information Why?
2.2 Business Objective Why?
2.3 Benefits and Limitations Why?
2.4 Option Identification and Selection What?
2.5 Scope, Impact, and Interdependencies What?
2.6 Outline Plan What? When? Who?
2.7 Market Assessment Context?
2.8 Risk Assessment Context?
2.9 Project Approach How?
2.10 Purchasing Strategy How?
3 PROJECT ORGANISATION  
3.1 Project Governance How? Who?
3.2 Progress Reporting How?
1. The Executive Summary
Depending on the length of the business case you may want to include a high-level summary of the
project.
The executive summary is the first section of the business case and the last written.
It is a short summary of the entire business case. It succinctly conveys vital information about the project
and communicates the entire story to the reader.
First impressions are important. Get this right!
2. The Finance Section
"Make no mistake, my friend, it takes more than money to make men rich." – A. P. Gouthey
The finance section of an effective business case is primarily for those who approve funding. The finance
function will be interested in this plus the first half of the project definition.
Financial Appraisal
When you prepare the financial appraisal seek advice on content and presentation from the finance
function. In the case of capital developments, consult subject matter experts.
The purpose of a financial appraisal is to:
 identify the financial implications for the project,
 allow comparison of project costs against the forecast benefits,
 ensure the project is affordable; ensure every cost associated with the project is considered,
 assess value for money, and
 predict cash flow.

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Sensitivity Analysis
Sensitivity analysis concerns project risk and looks at alternative futures by measuring the impact on
project outcomes or assumptions of changing values in which there is uncertainty.
In effect, sensitivity analysis lets the project accountant experiment with possible scenarios.
Financial Analysis
What Is Financial Analysis? 
Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related
transactions to determine their performance and suitability. Typically, financial analysis is used to analyse
whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment.
Key Takeaways 
 If conducted internally, financial analysis can help managers make future business decisions or
review historical trends for past successes.
 If conducted externally, financial analysis can help investors choose the best possible investment
opportunities.
 There are two main types of financial analysis: fundamental analysis and technical analysis.
 Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a
security.
 Technical analysis assumes a security's value is already determined by its price, and it focuses
instead on trends in value overtime
Understanding Financial Analysis 
Financial analysis is used to evaluate economic trends, set financial policy, build long-term plans for
business activity, and identify projects or companies for investment. This is done through the synthesis of
financial numbers and data. A financial analyst will thoroughly examine a company's financial statements –
the income statement, balance sheet, and cash flow statement. Financial analysis can be conducted in both
corporate finance and investment finance settings.
One of the most common ways to analyse financial data is to calculate ratios from the data in the financial
statements to compare against those of other companies or against the company's own historical
performance.
For example, return on assets (ROA) is a common ratio used to determine how efficient a company is at
using its assets and as a measure of profitability. This ratio could be calculated for several companies in the
same industry and compared to one another as part of a larger analysis.
How Financial Analysis is Used 
Corporate Financial Analysis
In corporate finance, the analysis is conducted internally by the accounting department and shared with
management in order to improve business decision making. This type of internal analysis may include
ratios such as net present value (NPV) and internal rate of return (IRR) to find projects worth executing.
Many companies extend credit to their customers. As a result, the cash receipt from sales may be delayed
for a period of time. For companies with large receivable balances, it is useful to track days sales
outstanding (DSO), which helps the company identify the length of time it takes to turn a credit sale into
cash. The average collection period is an important aspect in a company's overall cash conversion cycle.

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A key area of corporate financial analysis involves extrapolating a company's past performance, such as
net earnings or profit margin, into an estimate of the company's future performance. This type of historical
trend analysis is beneficial to identify seasonal trends.
For example, retailers may see a drastic upswing in sales in the few months leading up to Christmas. This
allows the business to forecast budgets and make decisions, such as necessary minimum inventory levels,
based on past trends.
Types of Financial Analysis 
There are two types of financial analysis: fundamental analysis and technical analysis.
Fundamental Analysis
Fundamental analysis uses ratios gathered from data within the financial statements, such as a
company's earnings per share (EPS), in order to determine the business's value. Using ratio analysis in
addition to a thorough review of economic and financial situations surrounding the company, the analyst is
able to arrive at an intrinsic value for the security. The end goal is to arrive at a number that an investor
can compare with a security's current price in order to see whether the security is undervalued or
overvalued.
Technical Analysis
Technical analysis uses statistical trends gathered from trading activity, such as moving averages (MA).
Essentially, technical analysis assumes that a security’s price already reflects all publicly-available
information and instead focuses on the statistical analysis of price movements. Technical analysis attempts
to understand the market sentiment behind price trends by looking for patterns and trends rather than
analysing a security’s fundamental attributes.
3. The Project Definition
This is the largest part of the business case and is for the project sponsor, stakeholders, and project team.
It answers most of the why, what, and how questions about your project.
Background Information
The purpose of this section is to give a clear introduction to the business case and project. It should contain
a brief overview of the reasons why the project or business change has come about: the problem,
opportunity, or change of circumstances.
If necessary, refer to related programmes, projects, studies, or business plans.
Business Objective
This part describes why are you doing the project. The business objective answers the following questions:
 What is your goal?
 What is needed to overcome the problem?
 How will the project support the business strategy?

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Benefits and Limitations
The benefits and limitations section describes the financial and non-financial benefits in turn. The purpose
is to explain why you need a project.
For instance, to:
 improve quality,
 save costs through efficiencies,
 reduce working capital ― the difference between current assets and current liabilities,
 generate revenue,
 remain competitive,
 improve customer service, or
 to align to corporate strategy.
The business case should also include any limitations since these present potential risk to the project.
Option Identification and Selection
Identify the potential solutions to the problem and describe them in enough detail for the reader to
understand.
For instance, if the business case and proposed solution makes use of technology, make sure to explain
how the technology is used and define the terms used in a glossary.
Since most problems have multiple solutions an option appraisal is often needed. This will explore the
potential solutions and recommend the best option.
When writing an initial business case the option appraisal is likely to contain a long list of options and will
cover many possibilities. As the project continues a number of options will be rejected.
The final business case may contain three to five options ― the short list ― that includes a do nothing or
benchmark option.
Scope, Impact, and Interdependencies
This section of the business case describes the work needed to deliver the business objective and identifies
those business functions affected by the project.
Moreover, the scope, impact, and interdependencies section should state the project’s scope and
boundaries. It describes what is included and what is excluded plus the key interdependencies with other
projects.
It is important for the business case to consider the failure of other interrelated projects and show how
such dependencies make impact benefits.
Outline Plan
The outline plan provides a summary of the main activities and overall timescale ― project schedule ― for
the project.
Ideally, the project should be divided into stages with key decisions preceding each stage. Use this section
to answer the following questions:
 What is required?
 How is it done?
 Who does what?
 When will things happen?
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This outline plan lists the major deliverables and includes a brief project description plus accountabilities
for each activity.

Market Assessment
It is important that the business case provides its readers with a thorough assessment of the business
context ― the market assessment.
In other words, make the underlying business interests explicit.
Therefore, the market assessment should show a complete understanding of the marketplace in which
your business operates.
A good starting point is the inclusions of a PESTLE ― political, economical, sociological, technological,
legal, and environmental ― analysis.
Risk Assessment
The risk assessment summarises the significant risks and opportunities and how they are managed. The
risks included should cover those that could arise from you project or the organisation’s ability to deliver
change.
This section answers the following questions:
 What risks are involved?
 What are the consequences of a risk happening?
 What opportunities may emerge?
 What plans are in place to deal with the risks?
Every project should include a risk log.
When writing a business case make sure this is included as it explains how risk and opportunity are
managed.
Project Approach
The project approach describes how the project is tackled. That is, the way in which work is done to deliver
the project.
For instance, a project with much of the work contracted out is likely to take a different approach to a
project that develops an in-house solution.
Purchasing Strategy
This section describes how a project is to be financed and whether a decision to buy, lease, or outsource
should be taken by the organisation before purchasing.
Moreover, the purchasing strategy should describe the purchasing process used. A formal procurement
process may save time and money and reduce project risk.
4. The Project Organisation
The last section of the business case template is of most interest to the project manager, project team, and
managers responsible for delivering work to the project.
This project organisation section describes how the project is set up.

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Project Governance
This section of the business case shows the reader how the project is structured and the different levels
of decision-making.
Usually a business will already have implemented a project governance framework that will support the
project through each stage.
If your organisation does not use a structured project management process frameworkuse this section to
include:
 roles and responsibilities in the project (the project team and stakeholders),
 the project tolerances,
 any standards that the project should take into account,
 review points, and
 how decisions are made.
Progress Reporting
Finally, the business case should define how project progress is recorded and the project board updated
on project performance.
Usually the project manager does this by preparing a concise progress report or highlight report at regular
intervals.
Managing the Business Case
The completed business case provides structure for the project and project organisation throughout
the project lifecycle. Therefore, it should be used routinely for reference and not consigned to the shelf.
Accordingly, the project sponsor and project board should review and update the business case at key
stages to check that the project remains viable and the reasons for doing it are still valid.
Ideally, the review should take place before starting a new stage to avoid unnecessary investment in time
and money.
Summary
In this article we showed you how to write a business case. We covered a lot of ground and may give the
impression that the resulting business case is a large and unwieldy document.
This is not the case.
A business case should be concise and to the point.
For small projects it may run to a few pages. For larger projects and complex business change
endeavours the document will be large.
Therefore, be sure to keep the intended audience in mind when preparing each section and include
supporting information in an appendix.
For instance, the option appraisal section may summarise each option with the details contained
elsewhere for reference.
To conclude, the purpose of a business case is to outline the business rationale for undertaking a project
and to provide a means to continually assess and evaluate project progress.

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