4Ms of Production Management

4. Demonstrate understanding of the 4Ms of operations. https://www.scribd.
com/
presentation/322711508/4
The learners… -M-s-OF-PRODUCTION
4.1 Describe the 4Ms (Manpower, Method, Machine, Materials) of operations in
relation to the business opportunity: CS_EP11/12ENTREP-0h-j-12
4 M’s of Production Management
Method=
The Manager will determine the most efficient way for each portion
of the process to be done to eliminate damage to the product and
to eliminate areas where time and manpower are be wasted.
Controlling waste is the key to efficient and profitable production.
4. Demonstrate understanding of the 4Ms of operations. https://www.scribd.com/
Manpower =
When examining the Methods you now have in place, what is the
ideal number of people it will take to perform these methods and
what positions should they be in? How will the personnel be trained
and measured for performance? What is the “cycle time” of each
part of the Method?
3. Machine=
When examining your facilities, vehicles and
tools, do you have everything you need to
ensure the safety of the employees while
maximizing the efficiency and productivity
of the department? Do all employees have
access to the same tools and equipment
if needed? Do the tools enable them to
perform tasks independently? Are they
trained on how to maintain the machinery
and tools?
4. Materials =
Do you have the materials needed to perform all parts of
production and are they conveniently
located to minimize
waste? Example: All material needed to
clean and package are always available
and are placed to minimize effort. Does the
layout of the production department
minimize wasted movement? Example: Does
the part flow go in one direction or does it zig
and zag throughout your facility?
4.1.1 Develop a product description;
7 Simple Steps to Writing Product Descriptions That Sell
CS_EP11/12ENTREP-0h-j-12 https://www.entrepreneur.com/article/230628
How seductive are your product descriptions?

Does your product copy entice readers to click buy or try? Or do
you simply describe your product and tell web visitors what it does?
The secret to writing seriously seductive product descriptions is to
follow a proven process to engage, persuade, and sell.
To get started, you need to know exactly who it is that you want to
buy your product.
1. Define Your Buyer Persona

“Basing your work on buyer personas prevents you from sitting on
your butt in your comfortable office just making stuff up, which is the
cause of most ineffective marketing.” ~ David Meerman Scott
A buyer persona is an imaginary customer. It is the person for whom
you've developed your product and to whom you'd love to sell it (of
course!). He or she represents your target audience, but is much
more real than a vague description of some demographics.
You need to know your buyer persona so well that you know exactly
what makes her laugh, what makes her shake her head in disbelief,
what makes her click buy, and what makes her hesitate to order.
1. Define Your Buyer Persona

To describe your buyer persona, think about what she's reading and
which websites she visits, because that will help you understand the
right tone of voice that will engage her. Consider what keeps her
awake at night, what she dreams of achieving, and how she makes
decisions, because that will enable you to create copy that speaks
to her and taps into her feelings.
Clearly defining your buyer persona will give you the information you
need to transform product-centric descriptions into customer-
centric descriptions. Visualizing your buyer persona will empower
you to make your descriptions more vivid, personal, and persuasive.
2. Create a Comprehensive List of Features and Benefits

Potential clients don't want to know what your product is or does.
They want to know what's in it for them. How does it make their lives
better? Which problems does it take away?
Before you start writing, list all of your features and specs, and then
translate them into benefits. A feature is a fact about your product,
while a benefit is an explanation of what that feature does for your
reader. A benefit can be phrased as a positive (e.g., improves
productivity) or as a problem that's avoided or reduced (e.g.,
decreases stress).
2. Create a Comprehensive List of Features and Benefits

The bullet points below for
Amazon’s Paperwhite, for
instance, mix positive benefits
(read with one hand and
battery lasts weeks) with
problems that are avoided (no
screen glare and read without
eyestrain).
3. Define Your Tone of Voice

Do you want to sound like a boring big corporation? Or do you
want to engage readers with personality and a dash of humor?
Your tone of voice can differentiate you from your competitors; it
gives readers a strong impression of your organization's culture and
personality.
Rather than say you're fun to deal with, let your personality shine
through your content and add a dash of humor. Rather than remark
that your customer service is excellent, let your tone of voice
demonstrate that you're friendly, approachable, and interested in
understanding your client's business.
3. Define Your Tone of Voice

Your tone of voice shows who you are and how you deal with your
clients.
To define your tone of voice, consider what you are and what
you're not. For instance: We're cheeky and fun, but we never use
bad language. Or: We're business-like, but not boring, and we don't
use gobbledygook phrases such as market-leading and world-class.
If you were going to speak to your buyer persona in real life, which
tone would you strike? That's the voice you want to emulate in your
writing.
4. Create a Scannable Format

Research suggests that people read only 16% of the words on the
average web page.
To entice people to buy your product or trial your app, they
probably need to read your copy. So how do you tempt people to
stop skimming your page and start reading your content?
Let's look at two examples:
The InVision product page uses an easy-to-scan and easy-to read
format. The subheadings have a font size of 30px, while the body
text has a comfortable font size of 20px.
4. Create a Scannable Format

Most subheadings focus on a
benefit (e.g., a real time to-do
list keeps projects moving
forward), while the body text
provides a more detailed
explanation. Pictures and
simple animations almost
make you feel as if you're
using the product, increasing
your desire to try it.
5. Write a First Draft

Once you know who your buyer persona is and have planned your
content, writing a first draft becomes much easier.
Go through your list of features, benefits, and objections, and rank
them in a logical way that your buyer will find easy to follow.
If your list is relatively short, include
the most important benefits first
and the least important last. If your
list is longer, you may want to go
for a topical arrangement. Apple,
for instance, has specific pages
about design features and built-in
apps.
5. Write a First Draft

Make your copy comprehensive and persuasive by mentioning all
of the benefits of your product, and make sure you take away
common objections. If your product is relatively expensive, then you
need to point out how much value buyers get out of it. If buyers are
concerned about how complicated it is to sign up for your app,
then suggest how quickly they can do it.
Turning a drab first draft into passionate copy is like flogging a dead
horse. So write your first draft when you feel positive and
enthusiastic. Write rapidly, and don't worry about spelling and
grammar mistakes (that's what's your editing phase is for).
6. Edit Your Text to Boost Your Persuasiveness

Editing your text doesn't mean you just correct typos and grammar
mistakes.
You edit your copy to make it more readable, engaging, and
persuasive:
 Review your list of features and benefits to ensure you haven't
missed anything.
 Check your engagement level. Is the copy focused on the
reader or your company? Highly engaging copy uses the
word you more often than your brand or product name and the
words I, we, and us.

 Improve readability by replacing difficult words with simple words
and by reducing average sentence length. Don't worry about
starting a sentence with and, because, or but. Even Apple
copywriters start their sentences with conjunctions.
 Replace generic phrases with specific details, because specificity
increases your credibility. Excellent customer service is a generic
phrase that doesn't sound credible. We'll answer your inquiry
within 24 hours is more specific and credible. Include numbers
where possible, because they represent facts and stop
wondering eyes.

Before you move on to your last step, picture yourself talking to your
buyer, and read your copy aloud. Do you stumble over any
sentences? Does your copy engage your buyer? Does it persuade
him to buy?
Polish your copy until you can seduce your buyer to purchase.
7. Optimize Your Copy for Search Engines

When you write for your buyer persona and use the phrases he uses,
you're automatically optimizing your product descriptions for search
engines, because these are the phrases he searches for on Google.
Optimize your product images by using your key phrase in the file
name, image description, and alt tag.
Thinking too much about search engines kills your seductive powers
because no one enjoys reading content that's sagging under
keyword sludge.
Always write for your reader first, and optimize for search engines
later.
4.1.2 Create a prototype of the product; https://www.entrepreneur.com/article/80678
Creating a Product Prototype CS_EP11/12ENTREP-0h-j-12
One of the essential early steps in the inventing process is creating a
prototype--which, simply defined, is a three-dimensional version of
your vision. Creating a prototype can also be one of the most fun
and rewarding steps you'll take. That's because developing a
prototype gives you the opportunity to really tap into your creativity,
using those skills that inspired your invention idea in the first place.
And whether you're making your prototype at home or hiring the
services of an engineer, seamstress or machinist, it's truly exciting to
see your idea transformed into something tangible and real.
So what exactly should a prototype look like? First, it depends on
your idea. Second, it depends on your budget and your goals. If
possible, it's great to start with a handmade prototype, no matter
how rudimentary. For example, I've seen prototypes made from the
simplest of household items: socks, diaper tabs, household glue,
empty milk containers--you name it. If it works for your initial
demonstration purposes, it's as good as the most expensive
materials.
ADVANTAGES OF PROTOTYPES
1. It enables you to test and refine the functionality of your design.
Sure, your idea works perfectly in theory. It's not until you start
physically creating it that you'll encounter flaws in your thinking.
That's why another great reason to develop a prototype is to test
the functionality of your idea. You'll never know the design issues
and challenges until you begin actually taking your idea from
theory to reality.
2. It makes it possible to test the performance of various materials.
For example, your heart may be set on using metal--until you test
it and realize that, say, plastic performs better at a lower cost for
your particular application. The prototype stage will help you
determine the best materials.
3. It'll help you describe your product more effectively with your
team, including your attorney, packaging or marketing expert,
engineers and potential business partners.
4. It will encourage others to take you more seriously.
When you arrive with a prototype in hand to meet any
professional--from your own attorney to a potential licensing
company--you separate yourself from the dozens of others who've
approached them with only vague ideas in mind. Instead, you'll
be viewed as a professional with a purpose, as opposed to just an
inventor with a potentially good idea.
Making a prototype by hand is a great way to start bringing your
product to life. Remember, there are no rules! Give yourself
permission to experiment. Look around the house and select
materials that you can use to test to see if your idea works.
Developing Your Prototype
So now that you know that creating a prototype is a vital step in
your invention process, how exactly do you move forward and
actually do it? This stage in the inventing process is possibly the
period of greatest learning. This is where your words and thoughts
change from "Can I?" to "How will I?"
4.1.3 Test the product prototype;
Test Your Prototypes: How to Gather Feedback and Maximize Learning CS_EP11/12ENTREP-0h-j-12
Once you’ve built your prototypes based on the ideas you and your
team generated, it’s time to gather feedback from the people on
whom you are testing these. Optimizing how you gather feedback —
and, therefore, learn from your prototypes and users — is essential to
help you save time and resources in the Prototype and test stages of
the Design Thinking process – and in any other human-centered design
process. Being quick and efficient allows you to move rapidly from
creating a prototype, to putting it out to test it, to gathering feedback,
and finally to creating a new and improved iteration of your ideas. To
maximize learning from your tests, we will share six best practice tips on
how to gather feedback, as well as three methods on how you can
organize your feedback.
https://www.interaction-design.org/literature/article/test-your-prototypes-how-to-gather-feedback-and-
maximise-learning
Six Best Practice Tips for Gathering Feedback on Your Prototypes
Gathering feedback is a crucial element in the Design Thinking
process – and in all other human-centered design processes. In
order to maximize the benefits of gathering feedback, however, you
need to be purposeful about it. Here are some pointers to take note
of when thinking about gathering feedback from your users.
maximise-learning
1. Ways to Solicit Feedback
How you solicit feedback from your users (or team-mates, if you are
doing preliminary testing with your prototypes within your team)
depends largely on what type of prototype you have built. For
instance, if your prototype were a role-playing session, the
experience of acting out the roles would be a valuable source of
observations and feedback in itself. On the other hand, paper
interfaces and physical models might require additional interviews
with users to get them to talk about their thinking process while using
the prototype.
maximise-learning
Nevertheless, there are some general rules of thumb you can rely on
in order to solicit better feedback. First, you can consider testing
out several versions of your prototype on users to gather feedback.
This helps to solicit critical feedback — because people tend to hold
back on overtly criticizing prototypes. When you present your users
with alternatives, you allow them to compare the various prototypes
and tell you what they liked and disliked about each version, and so
you will get feedback that is more honest.
maximise-learning
You can also consider using the “I Like, I Wish, What If” method to
solicit honest feedback in testing sessions. This method provides
scaffolding for your users to voice their opinions in a critical but
positive manner. We will cover more on this method, and provide a
downloadable template for it, further down..
maximise-learning
2. Test Your Prototypes on the Right People
Whom you test your prototypes on will affect the usefulness and
relevance of their feedback. If you are in the early stages of your
design project and just want some simple and rough feedback,
testing prototypes on your team-mates would be good enough.
Towards the end of your project, when the prototypes get more
detailed and closer to a final product, however, you might want to
consider testing on a wider range of users so as to get the most
relevant and helpful feedback.
maximise-learning
maximise-learning
Consider testing your prototypes on extreme users, on top of regular
users. In order to find extreme users, you will first need to define a
dimension that is relevant to your prototype. If you are working on
an idea related to a supermarket, for example, your extreme users
could be people who shop at supermarkets every day, and — at
the other end of the scale — people who never shop at
supermarkets. Testing your prototypes on extreme users will often
help you uncover some problems and relevant issues that affect
regular users, because the extreme users tend to be more vocal
about their love (or dislike) of doing things related to your prototype.
maximise-learning
If your product or service is cross-regional or international, you
should also test your prototypes across regions and countries.
Differences in cultures and customs might affect how people living
in different areas use your prototype.
maximise-learning
Towards the final stages of your project, you should also get
feedback on your prototypes from stakeholders other than your
users. Internal stakeholders in your company, manufacturers,
retailers and distributors will each have their own criteria for building,
making or shipping a product or service, and can have an impact
on the success of your idea. Gathering feedback from these
stakeholders will thus prevent your team from receiving a nasty
shock when you realize that you won’t be able to implement the
product or service you have been developing as feasibly as you
had believed.
maximise-learning
3. Ask the Right Questions
Each prototype that you test should have a few core questions you
want answered. Before you test your prototypes and gather
feedback, you should therefore be sure about what exactly you are
testing for. For instance, if you have built your prototype to gather
feedback about the usability of your product, then you should gear
your testing session towards teasing out how usable the prototype is
to the user. Subsequently, in a post-testing interview session with your
user, you should then focus on finding out the positive and negative
feedback relating to usability.
maximise-learning
3. Ask the Right Questions
Remember to keep an open mind when testing your prototypes,
even though you have a few core questions you want to focus on.
Many times, testing sessions can reveal key points on issues that your
team did not even know to focus on. After testing, you should
evaluate the feedback and decide if there are new questions that
you should ask during future testing sessions.
maximise-learning
4. Be Neutral When Presenting Your Ideas
When you present your prototypes to your users, try to be
as objective as you can. Highlight both the positive and negative
aspects of your solution, and refrain from trying to sell your idea.
Remember that prototyping and testing is about finding ways to
improve your idea, and overly selling your idea can be detrimental
to that goal.
maximise-learning
4. Be Neutral When Presenting Your Ideas
When your users voice negative feedback about your
prototype, refrain from trying to defend it. Instead, probe them
further to find out what exactly is wrong with your proposed solution,
so you can go back and improve your ideas. Avoid becoming too
attached to your idea, and always be ready to dismantle, change,
or even abandon it when the need arises. Remember, this stage is
like a rehearsal, not the real “show”; you’re not being cut to pieces
in the marketplace — in fact, any careful corrections you can make
that stem from negative feedback will greatly help your chances of
success later on.
maximise-learning
5. Adapt While Testing
When you conduct tests on your prototypes, try to adopt a flexible
mindset. For instance, when you realize that certain components of
your prototype are drawing attention away from the core functions
of the prototype, you can remove these or change them in order to
bring the focus back to the key elements of your idea. In addition, if
you think that your planned script for the testing session does not
work well, feel free to deviate from it and improvise during the
testing session in order to get the best feedback from your users.
maximise-learning
6. Let the User Contribute Ideas
During your testing session, you should allow your users to contribute
ideas that build on your prototypes. You can ask your users how the
product or service could be improved for them, for instance. Doing so
would encourage users to provide useful critiques as well as help improve
your solution.
You can also turn some questions that your users ask during the tests
around, and ask the users what they think. For example, if your user asks
you how to charge an electronic product, you can turn it around and ask
them what would be the best charging method for the product. Even if
you do not adopt their ideas, their feedback would likely give you insights
about the key areas of concern that your users have while using your
product or service.
maximise-learning
4.1.4 Validate the service description of the product with potential customers to
determine its market acceptability; CS_EP11/12ENTREP-0h-j-12
Validate the Service Description of the Product
You have to validate the service description of the product with
potential customers to determine its market acceptability. You will
never know how well your product will do until you actually try to sell
it. By validating your product idea before proceeding, you can
lessen risk and build confidence in your idea before investing too
much time and money.
4.1.4 Validate the service description of the product with potential customers to
determine its market acceptability; CS_EP11/12ENTREP-0h-j-12
Validate the Service Description of the Product
STRATEGIES IN VALIDATING THE PRODUCT
1. Analyze your Competition – Look at your competition to better
understand demand and potential product appeal.
2. Understand the Market – Look closely at the market and direct interest
from consumers.
3. Survey Your Target Market – You can gather a secondary research,
but it is also important to gather your own survey, based on your exact
product and target demographic. The quickest and cheapest way is
to do it yourself using a simple survey form and sent it out to friends
and family in your target market.
4. Open a Test Store – Set up a test store to assess the demand for your
idea. The method involves setting up a store with your product and
driving traffic to it to test consumer interest.
4.1.5 Select/pinpoint potential suppliers of raw materials and other inputs
necessary for the production of the product or service; CS_EP11/12ENTREP-0h-j-12
Select Potential Suppliers
Selecting potential suppliers of raw materials and other inputs necessary
for the production of the product or service will depend on a wide range
of factors such as value for money, quality, reliability and service. In order
to get the right supplier for your business, you have to know your needs,
spend time on research, ask around, credit check potential suppliers,
agree on service levels before you start. Don’t buy from too many
suppliers, but don’t have just a single supplier.
Create a team to set the supplier selection criteria. The members should
include personnel with technical/applications knowledge of the product
or service to be purchased, as well as members of the department that
uses the purchased item, like purchasing, quality control, engineering
and production.
Supplier Selection Strategies and Criteria:
1. Identifying potential suppliers – ask for recommendations, look at
directories, trade associations, business advisors, exhibitions,
magazines.
2. The supplier should have quality, value for money, strong service
and clear communication, financial security, strong relationship.
3. Previous experience and past performance with the
product/service to be purchased.
4. Relative level of sophistication of the quality system, including
meeting regulatory requirements or mandated quality system
registration.
5. Ability to meet current and potential capacity requirements on
desired delivery schedule.
Supplier Selection Strategies and Criteria:
6. Financial stability, length they have been established.
7. Technical support availability and willingness to participate as a
partner in developing and optimizing design and a long-term
relationship.
8. Choosing a supplier – approach the potential supplier and ask for a
written quotation, compare potential suppliers, negotiate terms and
conditions like price, delivery, terms, quality of goods and services.
9. Total cost assessment. Requesting a formal quote, which includes
specifications and other requirements.
10. Visits to the supplier by management or the selection team.
4.1.6 Discuss the value/supply chain in relation to the business enterprise;
CS_EP11/12ENTREP-0h-j-12
Value/Supply Chain in Relation to the Business Enterprise

Supply chain is the process of all parties involved in fulfilling a customer
request. Value chain is a set of interrelated activities a company uses to
create a competitive advantage.
The major difference between a supply
chain and a value chain is within a supply
Supplier chain, there is no value added. In a supply
Customer Value Company chain, all that is being done is storage and
Chain transportation from supplier to customer. In
Distribution value chains, as much as there is
transportation and some storage involved,
the main purpose of a value chain is to add
value to the product so as to make it
presentable to the customer like packaging.
Value/Supply Chain in Relation to the Business Enterprise

A supply chain is as important to the business world as a value chain.
Supply chains are the one thing that connects the world. A product
produced or manufactured on a country is essential for daily
consumption of another country. The reason you always find this product
on the shelves at your store or supermarket is because supply chains
never rest, so that the product you need is always available. The two are
difficult to separate in that most of their functions overlap. Both supply
and value chains needs transportation and storage. The major difference
is that with a supply chain, there is no need for some functions like
packaging or marketing the product.
SUPPLY CHAIN
Supplier Manufacturer Distributor Retailer Shoppers
GROUP ACTIVITY
1. Group the class into four.

2. Within 5 minutes, the group shall create a company wherein
learners shall exemplify supply and value chain.
3. Present their output using the following criteria:
a. Originality 5
b. Collaboration 5
c. Content 5
TOTAL POINTS 15
4.1.7 Recruit qualified people for one’s business enterprise;
Recruit Qualified People for the Business Enterprise

You can find the right people for the job by a well-structured recruiting
and selection program. The key to successfully develop such a program is
to follow a proven recruiting process for the position you need to fill.
In recruiting qualified people, do the following:
1. Develop accurate job descriptions. Ensure you have an effective job
description for each position in your company. The job descriptions
should reflect the roles the individual will fill, the skill sets they need, the
personality attributes they have that are important to completing their
tasks.
2. Draft the employment advertisement describing the position and the
key qualifications required. Describing the qualifications required will
help you limit the number of unqualified applicants.
3. Post the employment ad in the media most likely to reach your potential
candidates. You can post job openings on the internet or newspaper.

4. Develop a series of phone-screening questions. Compile a list of
suitable questions you can ask over the phone to help you quickly
identify qualified candidate and eliminate unqualified applicants.
5. Review the resumes you receive and identify your best candidates.
When you start receiving resumes, you have to know what you are
looking for in terms of experience, education, and skills.
6. Screen candidates by phone. Once you have narrowed your pile of
resumes to a minimal number of potential applicants, call the candidates
and use your phone screening questions to narrow the list.
7. Select candidates for assessment. Based on the responses to your phone
interviews, select the candidates you feel are best qualified for the next
step in the process.

8. Assess the potential candidate for their skills and attributes using an
assessment tool to help you analyze the core behavioral traits and
cognitive reasoning of the applicants.
9. Schedule and conduct candidate interviews. Once you have
selected candidates, schedule and conduct the interviews. Use a
consistent set of 10 or 12 questions to maintain a structured interview
to have a sound basis for comparing applicants.
10. Select the candidate. Make your selection by matching the best
applicants to the profiled job description.
11. Run a background check on the individual to uncover any potential
problems not revealed by previous testing and interviews.
12. Make your offer to the candidate. The information you collected during
the interview process will provide you with important discernments as to
starting compensation levels and training requirements.
GROUP ACTIVITY
1. Group the class into four.

2. In a any desired position, the group shall create a series of
questions they shall ask for their prospective employees within 15
minutes. Discuss your motives for each questions.
3. Using a whole sheet pad paper to list down your questions,
present your output guided by the following criteria:
a. Originality 5
b. Collaboration 5
c. Content 5
d. Presentation 5
TOTAL POINTS 20
4.2 Develop the business model; CS_EP11/12ENTREP-0h-j-13
Developing the Business Model
A business model describes the value an organization offers its
customers and illustrate the capabilities and resources required
to create, market, and deliver this value and to generate
profitable, sustainable revenue streams.
A business plan is a more detailed version of your business
model. A business plan has been traditionally understood as a
physical document. Business model may take the form of a one
page visual representations which can either be produced
before a business plan or as part of the same planning process.
Sample Business Model: Native Bag
Key Key Activities Value Customer Relationships Customer
Partners Proposition Segments
List of List of key activities List of value Describe how you plan to establish and Describe target
partners proposition manage the relationship between the customer
customer and your brand:
Design Conception Trendy bag
Email Online
Promotion Selling made in
Outlets respect to Channels Eco friendly
Key Resources
Fair Trade nature people
List Key resources available Describe how you plan to acquire Trendy
customer, how you plan to deliver your people
Designers value proposition to them, how you plan
to communicate with them.
Raw materials
Manufacturers Dept. stores
Sales Manager Outlets
Cost Structure Revenue Streams
Describe your cost structure: Describe your revenue streams
Raw materials Transport Revenue from the sale of bags
Wages Commission Tools
4.3 Forecast the revenues of the business; CS_EP11/12ENTREP-0h-j-14
Forecast the Revenues of the Business
Proper financial forecasts will help you develop operational and
staffing plans that will help make your business a success.
Product sold P 1,000.00
Services rendered 500.00
Total Sales P 1, 500.00
Forecast revenues using both a conservative case and an
aggressive case. By building two sets of revenue projection,
you’ll force yourself to make conservative assumptions and then
relax some of these assumptions for your aggressive case.
For example, your conservative revenue projection might have
the following assumptions:
• Low price point
• Two marketing channels
• No sales staff
• One new product or service introduce each year for the first
three years.
Your aggressive case might have the following assumptions:
• Low price point for base product, higher price for premium
product.
• Three to four marketing channels managed by you and a
marketing manager.
• Two salespeople paid on commission.
• One new product or service introduced in the first year, five
more products or services introduced for each segment of
the market in years two or three.
4.4 Forecast the Cost and Expenses to be Incurred CS_EP11/12ENTREP-0h-j-15
A business’ expenses can vary depending on the type of
operations the business is engaged in.
A budget identifies the planned expenditure for a project or
program. It is used as a baseline against which the actual
expenditure and predicted eventual cost of the work can be
reported.
Direct cost P xxx.xx Fixed expenses P xxx.xx
Indirect cost xxx.xx Variable expenses xxx.xx
Total cost P xxx.xx Total operating expenses P xxx.xx
Direct Cost are costs directly tied to a product or service that
a company produces. Direct costs can be easily traced to their
cost objects. Cost objects can include goods, services,
departments, or projects.
Direct costs include:

• Direct labor
• Direct materials
• Manufacturing supplies
• Wages tied to production
https://www.investopedia.com/ask/answers/041515/what-difference-between-direct-costs-and-variable-
costs.asp
Variable Cost are costs that vary as production of a product or
service increases or decreases. Unlike direct costs, variable costs
depend on the company’s production volume. When a
company’s production output level increases, variable costs
increase. Conversely, variable costs fall as the production output
level decreases.
Direct costs can be variable costs or fluctuate with volume. For
example, the packaging costs associated with a product would be
a direct cost, but also a variable cost since the packaging costs
would increase as sales increased. The raw materials used to make
the product would also be variable costs since the cost of materials
would rise and fall depending on sales volume of the product. The
raw materials would also be a direct cost.
https://www.investopedia.com/ask/answers/041515/what-difference-between-direct-costs-and-variable-
costs.asp
Cost of Goods/Services – costs that are related to
manufacturing or implementation of services being sold. It may
be direct or indirect cost.
1. Direct costs are resources directly involved in creating the
product like materials, supplies, packaging, and direct labor
cost or service cost. Eg. Salary of the machine operator and
material purchases.
2. Indirect costs include overheads and other charges that may
be shared by production with sales, marketing or
administration. Eg. Electricity and water usage.
What is the difference between cost and expense?
Definition of Cost
A cost might be an expense or it might be an asset.
Definition of Expense
An expense is a cost that has expired or was necessary in order
to earn revenue. The matching principle guides accountants
as to when a cost will be reported as an expense.
Example of a Cost
A company's property insurance bill for the next six months of
insurance shows a cost of $6,000. Initially the cost of $6,000 is
reported as the current asset Prepaid insurance (or Prepaid
Expense) since the cost has not been used up
(has not expired).
https://www.accountingcoach.com/blog/cost-expense-2
Operating Expenses - needed to keep the business running that

are not directly related to the manufacturing or implementation
of services being sold.
Fixed costs remain the same regardless of how much output is

achieved.
• Rent • Research and development
• Utilities • General & administrative
• Communication costs • Advertising & Marketing
• Accounting/bookkeeping • Legal/insurance/licensing fees
Variable costs fluctuate depending on how much resources are
used.
• Salaries
• Transportation
• Travel and accommodation
• Gasoline
GROUP ACTIVITY:
Direction
1. All learners shall go around the room and select among the
four corners with a sample problem to solve.
2. Identify each account either direct or indirect cost or fixed or
variable expenses.
3. With the given assumptions, each learners shall compute for
the projected three years cost in their own activity sheets for
budgeting purposes.
4. Discuss within your group what you deemed correct and
proper identification and computation of each account.
5. Each group shall present their output in a Manila Paper.
6. A rubrics shall serve as guide in presenting their output.
Forecasting/budgeting costs and expenses
If you have an ongoing business, you can make a forecast by
using historical data from your accounting records as the base
figure, and adjust this for any anticipated changes in your
business plan.
If you are just starting a new business where there is no historical
data, it is important to get a best estimate and start the
financial projections. Anyway you can always adjust them later
as the business plan takes shape.
Sources of information for projecting cost and expenses
1. Information from similar businesses or trade associations.
2. Industry benchmark data and statistics.
3. Contact suppliers for quotation.
4. Check whether the expense can be linked to a percentage
of revenues, and use a benchmark operating expense ratio
to determine the cost.
5. For certain controllable cost such as advertising and
promotion, decide on the amount you are prepared to
spend.
6. For salaries, check the Dept. of Labor for minimum wage rate
or determine wage rate for certain work provisions.
4.5 Compute for profits; and 4.6 Create the company’s five (5) year projected
financial statements. CS_EP11/12ENTREP-0h-j-16 CS_EP11/12ENTREP-0h-j-17
Create a Five-Year Projected Financial Statement
Business Plan Financial Projection
Your financial investors are interested in their investment. To
them, the heart of your business plan is represented by the
financial projections which must include your income
statements, balance sheets, and cash flow statements. These
statements must convince your investors that your business will
generate enough profit and cash.
Projected Income Statement
The income statement (or profit and loss statement) shows the
revenue, expenses, and net income (net loss) for a period of
time. Net income is the amount by which total revenue
exceeds total expenses. The resulting profit is added to the
retained earnings account (accumulated earnings of a
company since its inception less dividends). A net loss reduces
the retained earnings account. The projected income
statements demonstrate that your business has the ability to
earn profits.
Sample Projected
Income Statement
ACTIVITY
Divide the class into two and permit them to create a sample
Income Statement based on their previous simple business plan.
Projected Balance Sheet
The balance sheet is a statement that shows the financial
position of a business that consists of total assets, total liabilities
and owner’s equity as of specific date. Owner’s equity is the
residual interest or the amount of the assets to which the owners
have claim, because creditor claims liabilities legally come first.
Owner’s equity in a business derives from two sources: paid-in
capital, which is the investment of cash or other assets in the
business by the owner or owners; and retained earnings, which
are the accumulated profits of the business less the losses and
withdrawals.
Projected Cash Flow Statement
Cash flow statement shows the net cash receipts less cash
payments. Revenue does not necessarily mean receipt of cash
because some sales are receivables. And expense does not
mean a cash payment because some cost are on credit terms.
Net income and net cash flow are different. For example, taking
out a bank loan generates cash, but this cash is not revenue since
no merchandise has been sold and no services have been
provided. Loan repayments consume cash, but do not reduce
income since they are recorded as a reduction to liabilities. This is
a simple check for potential investors or lenders on how the
company will perform.
4.6 Create the company’s five (5) year projected financial statements.

Projected Cash Flow Statement
Cash flow statement shows the net cash receipts less cash
payments. Revenue does not necessarily mean receipt of cash
because some sales are receivables. And expense does not
mean a cash payment because some cost are on credit terms.
Net income and net cash flow are different. For example, taking
out a bank loan generates cash, but this cash is not revenue since
no merchandise has been sold and no services have been
provided. Loan repayments consume cash, but do not reduce
income since they are recorded as a reduction to liabilities. This is
a simple check for potential investors or lenders on how the
company will perform.

4Ms of Production Management

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4. Demonstrate understanding of the 4Ms of operations. https://www.scribd.

How seductive are your product descriptions?

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1. Define Your Buyer Persona

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4. Create a Scannable Format

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5. Write a First Draft

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6. Edit Your Text to Boost Your Persuasiveness

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Value/Supply Chain in Relation to the Business Enterprise

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1. Group the class into four.

Direct costs include:

Operating Expenses - needed to keep the business running that

Fixed costs remain the same regardless of how much output is

Create a Five-Year Projected Financial Statement

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