Business Planning, Financial Analysis, and HR Development

Posted on Jan 27, 2025 in Social Work

Business Planning Steps

The development of plans involves five key steps:

Establish mission and objectives: The ultimate purpose of the business is usually set out in a mission statement. This is a broad statement of intent, which attempts to capture the essence of the business. The strategic objectives set out how the mission of the business can be achieved and will usually include quantifiable goals.
Undertake a position analysis: This involves an assessment of where the business is currently placed in relation to where it wants to be, as set out in its mission statement and strategic objectives.
Identify and assess the strategic options: The business must explore various ways in which it might move from where it is now to where it wants to be.
Select strategic options and formulate plans: This involves selecting what seems to be the best of the courses of action or strategies and formulating a long-term strategic plan. This strategic plan is then normally broken down into a series of short-term plans, one for each element of the business. These plans are the budgets.
Perform, review and control: Here the business pursues the budgets derived in step 4. By comparing the actual outcome with the budgets, managers can see if things are going according to plan or not. Action would be taken to exercise control where actual performance appears not to be matching the budgets.

Mission, Objectives, Plans, and Budgets

The relationship between the mission, strategic objectives, strategic plans and budgets is the following:

The mission sets the overall direction and, once set, is likely to last for quite a long time, perhaps throughout the life of the business.
The strategic objectives, which are also long-term, will set out how the mission can be achieved.
The strategic plans identify how each objective will be pursued.
The budgets set out, in detail, the short-term plans and targets necessary to fulfill the strategic objectives.

Benefits of Budgets

Budgets tend to promote forward thinking and the positive identification of short-term problems. Identifying the potential problem early gives managers time for calm and rational consideration of the best way of overcoming it. The best solution to the potential problem possibly may only be feasible if action can be taken well in advance.
Budgets can be used to help co-ordination between the various sections of the business. It is crucially important that the activities of the various departments and sections of the business are linked so that the activities of one are complementary to those of another.
Budgets can motivate managers for better performance. Having a stated task can motivate managers and staff in their performance. Simply to tell managers to do their best is not very motivating, but to define a required level of achievement is more likely to be so. Managers will be better motivated by being able to relate their particular role in the business to its overall objectives.

Statement of Cash Flow Layout

Explain the standard layout of the statement of cash flow?

Cash flows statement sets out the cash receipts and cash payments, while Income statement sets out the revenue and expenses for the period.

Cash Flow from Operating Activities

Cash flow from operating activities: It’s concerned with the net cash flows for the period that arose from normal trading activities after taking account of the tax that has to be paid on them and the cost of servicing the finance (equity and borrowings) needed to support them. Note that the amounts of cash received and paid during the period that feature in the statement of cash flows are not the revenue and expenses for that period. However, the income statement deals with the revenue and expenses, similarly the tax and dividend payments that appear in the statement of cash flows are those made in the period covered by the statement.

Cash Flow from Investing Activities

Cash flow from investing activities: It’s concerned with cash payments made to acquire additional non-current assets and with cash receipts from the disposal of non-current assets, Such as; buildings and machinery. It includes cash receipts arising from financial investments (loans and equities) made outside the business. These receipts are interest on loans and dividends from shares in other companies.

Cash Flow from Financing Activities

Cash flow from financing activities: It’s concerned with the long-term borrowing to finance the business other than very short-term and share issues. It’s concerned with repayment/redemption of finance as well as with the raising of it. It also includes dividend payments made by the business and shows the net cash flows from raising and/or paying back long-term finance.

Net Increase or Decrease in Cash

Net increase or decrease in cash and cash equivalents: The total of the statement must be the net increase or decrease in cash and cash equivalents over the period concerned.

Payback Period

Define and explain the payback period?

Payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment.

The formula to calculate payback period of a project depends on whether the cash flow per period from the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = Initial Investment / Cash Inflow per Period

Relevant Costs

The three attributes for a relevant cost are:

A cost must relate to the objectives that the decision is intended to work towards. In most businesses this is taken to be wealth enhancement. This means that any information relating to the decision that does not impact on wealth enhancement is irrelevant, where wealth enhancement is the sole objective. In practice a business may have more than one objective.
A cost must relate to the future. Past costs cannot be relevant to decisions being made about the future.
A cost must differ between the options under consideration. Where a cost will be the same irrespective of the outcome of the decision that is to be taken it is irrelevant. It is only on the basis of things that differ from one outcome to another that decisions can be made.

Opportunity Cost

Opportunity cost: can be defined as the value, in monetary terms of being deprived of the next best opportunity in order to pursue the particular objective.

Committed Cost

Committed cost: arises where an irrevocable decision has been made to incur the cost because, for example, a business has entered into a binding contract. It is considered a past cost, despite the fact that the cash may not be paid until some point in the future.

Negative Cash Flow from Operations

A negative cash flow from operating activities could be because of two possible reasons:

The business in unprofitable. This leads to more cash being paid out to employees, to suppliers of goods and services, for interest, and so on than is received from trade receivables in respect of sales. This would be particularly alarming, because a major expense for most businesses is depreciation of non-current assets. Since depreciation does not lead to a cash flow, it is not considered in ‘net cash inflows from operating activities’. This means that a negative operating cash flow might well indicate a very much larger trading loss – in other words, a significant loss of the business’s wealth; something to concern management.
The other reason might be less alarming. A business that is expanding its activities (level of sales revenue) would tend to spend quite a lot of cash relative to the amount of cash coming in from sales. This is because it will probably be expanding its assets to accommodate the increased demand. For example, a business may well need to have inventories in place before additional sales can be made, or staff must be employed and paid. Even when the additional sales are made, those sales would normally be made on credit, with the cash inflow lagging behind the sales.

Types of Costs

Fixed costs: fixed costs remain constant (fixed) when changes occur to the volume of the activity examples: rent, salaries, insurance.

Variable costs: variable costs vary according to the volume of the activity. Examples: cost of raw materials, labor costs.

Semi-fixed cost (or semi-variable cost): are costs that have an element of both fixed and variable cost.

Depreciation and Cash Flow

The periodic depreciation expense is irrelevant to cash flow. Since the profit before taxation is derived after deducting the depreciation expense for the period, we need to eliminate the impact of depreciation by adding it back to the profit figure. This will give us the profit before tax and before depreciation, which is what we need.

Information Systems Categories

In terms of business objectives, information systems fall into three major categories: operational, tactical and strategic:

Operational Systems

Operational systems: Information systems of this type concern those operations carried out by the organization in its normal trading environment. These systems perform necessary routine activities and include applications such as stock control, order processing, retailing systems, and on-line booking systems and so on.

Tactical Systems

Tactical systems: are usually associated with those processes that supply information for immediate decision making. Such decisions usually refer to management activities involved with the monitoring of financial budgets pricing levels, human resourcing, production schedules, and stock level planning and so on.

Strategic Systems

Strategic systems: are invariably concerned with those decisions that affect the long-term policy objectives of the organization. Such decisions usually regard matters like determining the types of products/services supplied by the organization, the organization’s center of activities, investment plans in research and development and issues concerning the financing of the enterprise.

Strategic HR Development

McCraken and Wallace develop a redefinition of strategic HR development. They suggest nine characteristics of a strategic approach to HR development, which are:

Top management are leaders rather than just supporters of HR development.
There is strategic integration with other aspects of HRM.
HRD professionals have a role in influencing the organizational culture.
HR development shapes the organization’s mission and goals, as well as having a role in strategy implementation.
Line managers are not only committed and involved in HR development, but involved as strategic partners.

HR Development Methods

Learning on-the-job is another method. Such learning can be derived from peers, line managers, coaches, mentors or natural learning through experience and the practice of ‘doing’ and self-development.
E-learning involves distance learning, mediated through electronic communications and presents vast opportunities for organizations and the development of their staff.
Blended learning can refer to the process whereby e-learning is combined with more traditional methods of learning such as face-to- face techniques.

Off-job methods:

Elements of Payment

The elements of payment:

Basic Rate: the irreducible minimum rate of pay is the basic. In most cases this is the standard rate also, not having any additions made to it.
Plussage: sometimes the basic has an addition to recognize an aspect of working conditions or employee capability. Payments for educational qualifications and for supervisory responsibilities are common.
Benefits: Extras to the working conditions that have a cash value are categorized as benefits and can be of great variety. The most common are company cars, subsidized meals, childcare vouchers, private health insurance and occupational pensions.
Premia: where employees work at inconvenient times- night shifts, they receive a premium payment as compensation for the inconvenience. This is for inconvenience rather for additional hours.
Overtime: it is customary for employees working more hours than normal to be paid for those hours at an enhanced rate, usually between 10 and 50 % more than the normal rate according to how many hours are involved.