BSBMGT517

BSBMGT517 MANAGE OPERATIONAL PLAN

Learner Guide and student workbook
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Introduction
This Learner Guide supports the unit BSBMGT517 Manage operational plan.
This unit describes the skills and knowledge required to develop and monitor implementation of the
operational plan to provide efficient and effective workplace practices within the organisation’s productivity
and profitability plans.
Management at a strategic level requires systems and procedures to be developed and implemented to
facilitate the organisation’s operational plan.
This unit applies to individuals who manage the work of others and operate within the parameters of a
broader strategic and/or business plan.
No licensing, legislative or certification requirements apply to this unit at the time of publication.
At the end of the unit you will be able to:
1 Develop operational plan
2 Plan and manage resource acquisition
3 Monitor and review operational performance
Before you begin
The content of this guide is designed to cater to visual, auditory and kinaesthetic learning preferences. The
guide throughout will define text with pictures and an array of You Tube clips to assist with auditory and visual
learning
This guide uses a series of icons to help focus your learning.
Case study or scenario
This icon asks you to consider a matter. For example: Answer a question or reflect on your current
work practices
Watch the You Tube clip or DVD extract – Please note that website addresses can change from time
to time. If you can’t access a website or you tube link try using a search engine such as
www.google.com.au to find other relevant resources. If you can access a website but can’t find a
relevant document try searching for it using the website’s search engine or sitemap. Notify your
trainer/assessor immediately
Extra support reading
These icons indicate suggested resources to assist you such as:
Websites
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This icon indicates an activity that provides an opportunity to apply your skills and knowledge and
reinforce your understanding.
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Contents
…………………………………………………………………………………………………………………………………………………. 5
Develop operational plan …………………………………………………………………………………………………………….. 5
Plan and manage resource acquisition…………………………………………………………………………………………. 25
……………………………………………………………………………………………………………………………………………….. 33
Monitor and review operational performance ……………………………………………………………………………… 33
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1.1 Research, analyse and document resource requirements and
develop an operational plan in consultation with relevant personnel,
colleagues and specialist resource managers
1.2 Develop and/or implement consultation processes as an integral
part of the operational planning process
1.3 Ensure the operational plan includes key performance indicators to
measure organisational performance
1.4 Develop and implement contingency plans for the operational plan
1.5 Ensure the development and presentation of proposals for
resource requirements is supported by a variety of information
sources and seek specialist advice as required
1.6 Obtain approval for the plan from relevant parties and explain the
plan to relevant work teams
SECTION ONE
Develop operational plan
What you will learn
Maintain physical appearance of the workplace
Section 1
Maintain physical appearance of the workplace
Section 1
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Develop operational plan
Research, analyse and document resource requirements and develop an operational plan in consultation
with relevant personnel, colleagues and specialist resource managers
Operations management can significantly contribute to the success of your business by using your available
resources to effectively produce products and services in a way that satisfies customers.
To do this you must be creative, innovative and energetic in improving processes, products and services. The
four main advantages an effective operation can provide to your business include:
Purpose of an Operational Plan
Reducing the costs of producing products and services and being efficient
Increasing revenue by increasing customer satisfaction through good quality and service
Reducing the amount of investment that is necessary to produce the required type and
quantity of products and services by increasing the effective capacity of the operation
Providing the basis for future innovation by building a solid base of operations skills and
knowledge within the business
1
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It is important to understand the difference between an “operational plan” and a “strategic plan”. The
strategic plan is about setting a direction for the organisation, devising goals and objectives and identifying a
range of strategies to pursue so that the organisation might achieve its goals. The strategic plan is a general
guide for the management of the organisation according to the priorities and goals of stakeholders. The
strategic plan DOES NOT stipulate the day-to-day tasks and activities involved in running the organisation.
On the other hand the Operational Plan DOES present highly detailed information specifically to direct people
to perform the day-to-day tasks required in the running the organisation. Organisation management and staff
should frequently refer to the operational plan in carrying out their everyday work. The Operational Plan
provides the what, who, when and how much:
The difference between and operational and strategic plans

Strategic Plan Operational Plan
A general guide for the management of the
organisation
A specific plan for the use of the organisation’s
resources in pursuit of the strategic plan.
Suggests strategies to be employed in pursuit of the
organisation’s goals
Details specific activities and events to be undertaken
to implement strategies
Is a plan for the pursuit of the organisation’s mission
in the longer term (3 – 5 years)
Is a plan for the day-to-day management of the
organisation (one year time frame)
A strategic plan enables management to formulate an
operational plan.
An operational plan should not be formulated without
reference to a strategic plan
The strategic plan, once formulated, tends not to be
significantly changed every year
Operational plans may differ from year to year
significantly
The development of the strategic plan is a
responsibility shared and involves different categories
of stakeholders.
The operational plan is produced by the chief
executive and staff of the organisation.
AssignmentTutorOnline

The purpose of the Operational Plan is to provide organisation personnel with a clear picture of their tasks and
responsibilities in line with the goals and objectives contained within the Strategic Plan.
What – the strategies and tasks that must be undertaken
Who – the persons who have responsibility of each of the
strategies/tasks
When – the timelines in which strategies/tasks must be completed
How much – the amount of financial resources provided to complete
each strategy/task
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Basically, the Operational Plan is a plan for the
implementation of strategies contained within the Strategic
Plan.
It is a management tool that facilitates the co-ordination of
the organisation’s resources (human, financial and physical)
so that goals and objectives in the strategic plan can be
achieved.
Developing an Operational Plan
An Operational Plan is the next step after a Strategic Plan has been created.
The task is to take every single strategy contained within the Strategic Plan and allocate resources, set a
timeline and stipulate performance indicators.
Each of these elements is explained below:
Allocating Human Resources
Every strategy must have an “owner” i.e. somebody has to be responsible for that strategies implementation.
If someone is not made responsible for the strategy, it is highly likely that it will not be implemented.
In the operational plan, the person responsible for the strategy is generally referred to by their JOB ROLE.
The strategy may be allocated to just one person, or to a group of people e.g. a team of people, a subcommittee or a department.
Allocating Financial Resources
Not every strategy requires money, but most will. If people have to be paid to do work, then there will be
financial resources needed for remuneration. If volunteers are involved, money may be need to be set aside
for food and/or other perks for them. Many strategies will involve administration costs in the form of
telephone calls, printing and photocopying and postage. Some strategies will need purchases of equipment, or
materials, or promotional costs such as advertising.
The point is that thought has to be given to all possible costs that might be incurred if a strategy is
implemented. If there is an inadequate allocation of money for the implementation of a strategy, chances are
it will fail.
Setting Timelines
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The implementation of any strategy needs a timeline that is a time period during which work is performed to
achieve the desired outcome. The time period can be as short as a day, or it can be several months. The time
period could be in the near future, or it might be scheduled for a future year.
The purpose of inserting a timeline for each strategy in the Operational Plan is to give order to the great many
tasks that need to be done. There is always limited resources and therefore, at any given time, decisions need
to be made as to priorities and where work effort should be focused. There is no use focusing work effort on
strategies that don’t need to be completed as yet while no work is performed on strategies that are urgent.
For example:

Strategy Timelines
Submit application for Government funding Costing completed by 30 March 2013
Submit application by 30 June 2013

Set Performance Indicators
There are a number of reasons why it is a general practice of business planning to set performance indicators.
The term ‘performance indicator’ may be defined as a standard or target that should be achieved. If the
standard is reached or the target is achieved, then the strategy might be considered as “performed”, in other
words a success.
For example:

Strategy Performance Indicator
Conduct series of three Clinics for Coaches 20 coaches attending each
Host an Open Day 100 visitors from public

Implementing the Operational Plan
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The Operational Plan is a basic tool that directs the day-to-day activities of organisational staff. All staff should
be aware of the existence of the operational plan, what its purpose is and why it is important to them. The
Operational Plan is only as good as the diligence of staff in putting it into action.
To ensure that there is sufficient understanding of the operational plan, the highest echelons of management
within the organisation must thoroughly communicate the operational plan to staff.
Communication strategies can include:
The implementation of the Operational Plan requires management to regularly monitor achievement and
exert control to reduce any variance from the plan.
A series of staff / team meetings in which senior
management are engaged in explaining key
aspects of the operational plan and dealing with
questions that staff raise about the plan.
A breakdown of the overall operational plan into
subsets and communication of each subset to the
work team or section that takes responsibility. This
enables the work team to more clearly
understand, and be focused on, their part in
implementing the whole plan.
The development of systems that enable progress
of strategies / tasks to be measured and reported
within a work team, and to management.
The provision of training so that staff may better
understand their tasks and responsibilities, and
especially how they can contribute to the overall
achievement of the operational plan.
Aspects of the Operational Plan can be described
in position descriptions of employees.
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This control by managers will involve:
The Transformational Process
All operations produce products and services by changing inputs into outputs. They do this by using the ‘inputtransformation-output’ process. In other words, operations are processes that take in a set of input resources
which are used to transform something, or are transformed themselves, into outputs of products and services.
There are two categories of inputs in any operation’s processes; transformed and transforming resources.
Transformed resources are the resources that are treated, transformed or converted in the process. The three
main types of transformed resources include:
The other set of inputs to any operations process are transforming resources. These are the resources which
act on or carry out the transformation process. There are two main types of transforming resources:
Investigating on a regular basis
of what has been achieved, and
what has not
Implementing corrective action
where tasks are not achieved, or
achieve on time
Checking that resources will be
available when needed
Supervising, supporting and
motivating the people of the
organisation to ensure tasks are
undertaken
Adjusting the operational plan if
there is a need
Reporting problems to superiors
e.g. directors, committee
personnel, the Board Members
of the organisation
Materials: involves transforming either physically (e.g. manufacturing), by
location (e.g. transportation), by ownership (e.g. retail) or by storage (e.g.
warehousing).
Information: This can be transformed by property (e.g. accountants), by
possession (e.g. market research), by storage (e.g. libraries), or by
location (e.g. telecommunications).
Customers: They can be transformed either physically (e.g.
hairdressers), by storage (e.g. hotels), by location (e.g. airlines), by
physiological state (e.g. hospitals), or by psychological state (e.g.
entertainment).
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The exact nature of both facilities and staff will differ between operations. For example, most staff employed
in a factory assembling air conditioners may not need a very high level of technical skills. In contrast, most staff
employed by an accounting firm will require a higher level skills and qualifications. Similarly, the facilities in
both types of work would differ quite significantly.
Although products and services are different, sometimes it can be hard to differentiate between the two.
Therefore as a general guideline, products are usually tangible while services are intangible. That is, you can
physically touch a product, such as a computer, but you cannot touch a consultancy advice. Also, services
usually have a shorter stored life while products can usually be stored for a period of time.
An Operational Plan is a detailed plan used to provide a clear picture of how a team, section or department
will contribute to the achievement of the organisation’s strategic goals.
The strategic goals of an organisation are outlined in the Strategic or Business Plan, which highlights the
organisation’s intended direction.
Strategic plans identify:
Facilities – the buildings, equipment, plant
and process technology of the operation.
Staff – includes all the people involved in
the operations process.
The organisation’s strengths and weaknesses
The organisation’s position in the marketplace
Potential growth areas
Areas of vulnerability
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The Operational Plan should align with the organisation’s overall objectives as detailed in the Strategic Plan.
This alignment can be achieved by ensuring that the team, section or department purpose aligns with the
objectives of the Strategic Plan. In turn, the Operating Plan of the team, section or department should align
with the purpose.
Operational plans are used to identify:
Although there are no strict rules as to the format of an Operational Plan they normally contain the following
information:
An indication of how long goals will take to achieve
Develop and/or implement consultation processes as an integral part of the operational planning process
The goals of the team,
section or department
How the goals will be
achieved
What resources are required
to meet the goals
Specific goals Actions required to achieve
goals Human resources required
Physical resources required Budget required
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Consultation Process
The process of consultation is an extremely important concept in the context of managing an organisation.
Organisations exist to create value for stakeholders and consultation is a process by which the management of
the organisation aims to better understand the needs, wants and expectations of stakeholders, so that value
can be created.
Consultation is an active process in which organisation management opens formal and informal
communication channels between the organisation and its stakeholders.
These formal and informal communication channels might include:
The purpose of consultation is three-fold:
Open meetings e.g. stakeholders
are invited to come to an open
meeting or a series of meetings
Surveys e.g. stakeholders are
invited to complete a survey
(paper or online type)
Focus group e.g. a select crosssection of stakeholders, small in
number, are invited to attend a
meeting or series of meetings
Invitation to send a written
response e.g. stakeholders are
invited to submit comments in
writing on a proposal or plan
Informal meetings e.g.
organisation management might
mingle with people at an event a
canvass certain ideas and see
what response they get
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There is a widespread view that if a plan is conceived without proper consultation with stakeholders then it
has far less chance of successful implementation.
There is a clear need for anyone responsible for the formulation of a plan to consult with all persons who will
be affected by the plan. For example, a budget for any area of organisation operation should not be set
without consultation with people who work in that area of operation. Likewise, management should not
construct a plan for a new sport program without consultation with people who likely be program users.
Setting an Operational Plan without consultation disadvantages the organisation because:
Ensure the operational plan includes key performance indicators to measure organisational performance
The business world regularly uses key performance indicators, or KPIs, to track the performance and project
the future success of a business organization. No standard list of KPIs exists that the business world recognizes
and adheres to as a way to track these. Instead, KPIs can vary from industry to industry and even from
business to business within the same industry.
Definition
According to Ibis Associates, key performance indicators are sometimes misunderstood, so much so that many
have come to associate a KPI with anything measurable within a business. The fact that so many businesses
differ on what they consider the most important KPIs, makes it that much more difficult to define what they
are. In short, a KPI is a measure imposed on important financial and non-financial business information that
provides an indication of either success or failure for the business.
Examples
1
•To invite stakeholders to provide advice to the management of the organisation about their
needs, wants and expectations. In other words, tell the organisation what value it wants and
how it can provide this value.
2
•To invite stakeholders to comment on plans that have been created by organisation
management to provide this value requested by stakeholders.
3
•To quell any criticism that organisation management have not taken account of, or are not
listening to the needs of stakeholders in developing strategic and operational plans.
A lack of consultation fails to take advantage of all
available knowledge and expertise
A lack of consultation makes people
feel left out and creates negativity
toward the emerging plan.
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Businesses use various types of KPIs and these differ greatly because each type of business has its own
concerns and measures of success. Of course, profitability is usually the bottom line, but that, in and of itself, is
not necessarily a KPI. A KPI could, however, include the improvement in profit from one quarter to the next
because this provides an indication of whether the company is moving forward and, if so, at what rate that
movement takes place. Other KPIs can include those used in human resources such as employee retention
rates. Closing ratios in sales are another. A business could conceivably consider any level of measurable change
as a KPI.
Role
The role of KPIs in the strategic planning process stems from the belief that KPIs provide a measurable and
objective standard by which business leaders can track progress and implement change. Businesses use KPIs in
the strategic planning process to provide benchmark by which they can measure current performance.
Business leaders rely upon these KPIs to help them make more objective and scientific planning decisions, thus
reducing the chance of human error. A business tracks KPIs over time to determine what progress the business
is making and what changes it needs to implement if positive change does not occur.
Considerations
Ibis Associates and Advanced Performance Institute cite several problems that can stem from the use of KPIs.
Business managers and executives can run the risk of being tied to their KPI paradigm so much that it becomes
the only way they measure success. Also problematic is the tendency to measure anything and everything as if
all quantifiable data were useful in some way. This can result in a tendency for a business to collect massive
amounts of data, only to be overwhelmed by it and not able to use it in any real or meaningful way.
The role of Key Performance Indicators (KPIs) in the organization is to provide internal and external clients with
actionable metrics in easily accessible, customizable formats they can use to increase the effectiveness and
efficiency of their operations. What differentiates KPIs from the wealth of metrics that can be generated from
any business is that they are key leading and lagging indicators that can be used to reflect the strategic
performance of the organisation.
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In selecting your KPIs it is important not to be tempted to label as KPIs the “top 40” metrics but rather
generally at the top level you should limit yourself to the top 1-3 KPIs per strategic objective. These should
only include those metrics that are essential to the success of the organization. In addition, each department
will have their own contributing KPIs. The departmental KPIs should be selected so that they can be rolled up
in support of the overall strategic goals.
The effectiveness of KPIs can be directly related to the care with which they are defined and implemented.
Critical questions to consider when developing your KPIs include:

1 How does this measure contribute to the strategic goals?
2 Is it quantifiable?
3 Is the data currently available?
4 Can current performance, benchmarks, and target values be defined?
5 How will it be used as a management tool?
6 What is the high level plan for the establishment of reporting?
7 Is there an outline for how continuous improvement activities will be implemented?
8 Has a cascading plan to all levels of the organization been developed?

A brief discussion of the detailed considerations for each of the above questions is included to assist with the
process of initiating a KPI program.
 How does this measure contribute to strategic goals? – The success of using KPIs will be dependent
on how effective they are at contributing to a better understanding of what drives the success of the
organization. Keep in mind that KPIs will differ based on the type of organization and its goals. For
example, a non-profit organization such as a school or a hospital will have different fiscal KPIs than a
publically traded company. Each KPI should reflect the mission and goals of the organization.
 Is it quantifiable? – A common mistake in developing KPIs is to take too general a statement such as
“Improve customer service” as a KPI. To be effective it needs to be specific and measurable so
“improve customer service satisfaction scores or increase customer repeat order rates” would be
more appropriate measures.
 Is the data currently available? – Another factor to be considered is whether the data to be used for
each potential KPI is currently available. The expense of gathering additional data including system
changes should be weighed against the value that the measure will provide.
 Can current performance, benchmarks, and target values be defined? – To be effective a KPI must
define a clear target so success can be determined. Industry benchmarks can often be useful in setting
these targets. For example, an IT department may have as a target 99.999% availability of key systems.
Meeting this target in turn will enhance customer satisfaction, ordering functions, etc. and support the
other strategic objectives.
 How will it be used as a management tool? – A clear understanding of how this KPI will be used, how
improvement opportunities will be developed, and consequences for deteriorating performance
should all be clearly mapped out before implementation.
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 What is the high level plan for reporting? – Publishing and reporting of KPIs is critical to monitoring
progress. Formats for reports should be customised by role and function so that executives will see a
summary view while department heads would have a much richer set of detailed metrics.
Consideration should be given to the mix between dashboards, scorecards, detailed reports, and selfservice tools for ad hoc analysis.
 Is there an outline for continuous improvement activities? – A process improvement process allows
the KPI values to be used to identify where focus should be placed to enhance performance.
 Has a cascading plan been developed? – Each level of the organisation needs to understand how their
operations support the overall strategic goals. Cascading the KPIs clearly delineates their contributions
and their opportunities for improvement.
Implementing a well thought out and comprehensive set of KPIs is the first step to a more proactively
performance- based operation. This program will provide all levels of the organisation clear targets and
objectives with the ultimate goal of materially contributing to the success of the organisation.
Here are five rules for selecting the best KPIs for your manufacturing organisation:
1. Focus on the critical few, not the trivial many. If you measure too many things, you’re really not measuring
anything. Managers have a habit of adding KPIs but never “rightsizing” the list to drive strategic intent. This
causes confusion as to what is really important.
2. Ensure that selected KPIs drive toward your strategic intent: KPIs should not just measure
performance. They should measure performance toward the strategic objectives that you’ve laid out as part of
your operations strategic plan. It is absolutely critical that these KPIs measure the most important factors in
achieving your success.
3. Ensure that KPI are relatable on all levels of the organisation: It is very easy to measure performance
purely in terms of financial factors. It’s important to remember that members of your production staff at all
levels should be able to relate to the metrics. KPIs like overhead absorption percentages are common, but they
are not particularly effective for production personnel. Instead, metrics like units shipped per hours worked
will give a meaningful KPI (if your objective is to increase production and/or reduce hours per unit).
4. Ensure the data for KPIs are valid: Much like any Six Sigma project, before seeking process improvement,
we should ensure that our measuring system is valid. This means validating the repeatability and
reproducibility of our measuring system. Will the system yield data that are meaningful, timely and reliable for
sound management decision-making?
5. Ensure controllable KPI are selected: When someone is placed in charge of a KPIs for their portion of the
organization, is it really something they can control? Is the individual empowered to make necessary changes
in order to drive performance of the KPI? This is an often-forgotten factor in successful operational
strategy. What you measure is what you get … but more importantly, what you measure must be controllable
in order to obtain the strategic objectives you desire.
Finally, when selecting and implementing KPIs, please be certain to train your employees to work in a KPIdriven environment. All too often, manufacturers roll out the latest and greatest KPIs for their production
environment with little or no plans to educate production personnel as to what it takes to be successful.
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Develop and implement contingency plans for the operational plan
Contingency planning involves creating an alternative plan in the event of circumstances changing. Setting an
Operational Plan involves making a best estimate as to what will happen. However, circumstances may change
resulting in the original plan becoming unsuitable. Therefore, it is important that you have an alternative
strategy to deal with changes.
The level and degree of contingency planning you carry out will depend on the impact of your plan on the
business and the degree to which the environment might change.
Example:
One contingency plan that is often created for a Contact Centre is for unplanned absences. This type of
contingency plan will provide a strategy for how unplanned absences will be covered. The plan will indicate
whether casuals will be used, overtime will be used or if team members not on the roster will be called in.
Risk management involves identifying unfavourable events that could negatively affect your business if they
happen to occur and developing strategies to overcome them.
Risk events that could potentially occur range from minor to serious and likely to unlikely. This range includes:
Natural Disaster Key business staff leaving
Key suppliers relocating or
closing down, or a change
in their credit policies
Family emergency Poor cash flow Litigation
A breakdown in
occupational health and
safety
Bad debts
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There are four key strategies that you can implement to cope with business risk:
Conducting a risk analysis can also be a good risk reduction technique. This involves identifying a risk,
determining its probability of occurring and developing strategies to overcome the risk, if any. There are a
number of available worksheets and explanations available online to assist you in performing a risk analysis
and development of a risk management plan.
Risk Prevention: guards are put in place to stop or deter the risk
from ever happening. This may include putting guards on
production equipment to prevent common workplace accidents or
security locks and alarms on your business premises.
Risk Avoidance: this involves developing strategies or not
undertaking activities so that the business would not have to face
the risk. An example is not entering into a contract to avoid facing
a particular liability.
Risk Retention: this is when you accept that a risk event may occur
and taking no action to prevent, avoid or stop it from happening.
You plan to deal with the problem when it actually occurs.
Risk Transfer: in some cases you can transfer the risk of an event
happening onto others, usually in the form of a contract. Examples
include taking out insurance and selling your outstanding debtor
accounts to a debt collection agency.
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Ensure the development and presentation of proposals for resource requirements is supported by a variety
of information sources and seek specialist advice as required
Planning and designing systems and processes for business operations involves the arrangement of
management and staff, their roles and functions and business administration requirements. It also takes into
account business facilities and equipment, inventory management as well as policies and procedures for other
business functions.
To plan business systems effectively you can utilise the following planning process:
To ensure a smooth and effective business operations start up, it is important to have the right equipment in
place at the outset. This includes not only production equipment but administration and communication
equipment. After determining the equipment you require, you will also need to finance the costs.
The equipment you require for your business to become fully operational is dependant on your particular
situation.
Some small business owners will find that they require very little in terms of equipment or use equipment that
need only be purchased once at the initial start-up stage. Other organisations will need more substantial
equipment, such as in a production company, with higher initial costs as well as ongoing maintenance and
upgrading expenses.
There are a number of methods that you can use to finance the initial acquisition of equipment. Depending on
your circumstances, you may seek finance from friends or relatives, your own personal savings or loans from
financial institutions. It may also be possible to secure credit from your suppliers or lease equipment on a
periodic basis.
Choosing business premises requires careful planning and consideration. An inappropriate or poor location can
be damaging to your business, particularly where the business relies on ease of access or exposure to
consumers.
In order to make an informed decision when selecting a facility from which to conduct business, you should
keep in mind the needs of your employees, customers and general operations.
Analyse the Business Situation:
this involves taking into
consideration the current
business environment and the
costs and benefits of
implementing a new system.
Establish the System Purpose
and Goals: define the purpose of
the new system and what you
expect to achieve from it. This
could be for example, to
improve staff productivity when
making a sale.
Assign Responsibility and
Milestones: assign responsibility
for implementing the strategy to
individual employees, with a
timeline to achieve the
identified goals.
Communicate the Strategy and
Plan to Employees: ensure that
employees understand what is
required of them and the
direction that they follow.
Acknowledge Achievement of
Goals: when goals and
objectives are met, offer some
form of reward as an incentive
to encourage and thank people
for their efforts.
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Facility Requirements
Costs
Convenience
There are a number of different types of facilities available for businesses to operate from, with each suiting
different circumstances.
Does your business have any special needs such as low noise levels, space for equipment, storage, parking,
etc.?
What type of space do you require in order to effectively interact with your customers?
Is there any competition or other businesses in the area that could cause problems or difficulties with
your operations?
Are the premises large enough for what the business needs both now and into the future?
How much can the business
afford to spend?
Will the location cost customers
any money (parking, etc.)? Consider land tax expenses.
How will the cost of the facility
impact business profitability and
product pricing?
Does the facility require any
costly alterations?
Can customers find, travel to and
access the business easily?
Is their enough exposure to
attract customers (traffic,
pedestrians, etc)?
Availability of parking.
Do your clients have any special
needs (disabilities, etc)? How secure and safe is the area?
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A commercial lease provides you with the right to occupy the premises for a fee, however you will need to
consider the terms of the lease agreement before entering into it.
It may also be possible in some cases to work from home which is convenient but can come with distractions.
A business may also choose to purchase a building outright if the plan is to conduct operations from the
location for an extended period of time.
Obtain approval for the plan from relevant parties and explain the plan to relevant work teams
The Manager’s Role in Operational Planning
An operational plan is a key tool for managing an organisation. It provides the manager with detailed
information on the work that must be done to ensure that planned goals and objectives are achieved.
The management process should involve continual checking of the implementation of the Operational Plan
and exercising control of the organisation’s resources to ensure success.
What needs to be checked by the manager if management team includes:
Methods of control
Managers will therefore need to control the above factors on a week-to-week basis.
This control by managers will involve:
Being an operations manager involves overseeing and having responsibility for all the activities in the
organisation which contribute to the effective production of goods and services. Depending on the
Timelines – have strategies
been commenced and will
all tasks be completed by
the scheduled timelines?
Performance Measures –
has progress been made
according to performance
measures? Is it likely that
targets will be met?
Responsibilities – is there
anyone having difficulty
with the tasks allocated to
them? Does there need to
be any reassignment of
responsibilities?
Physical Resources – the
assignment of assets e.g.
equipment, vehicles, space
in a building or outdoors
Budget – the allocation of
money e.g. pay salaries,
purchase equipment, hire
venues, undertake
advertising and promotion
Investigating on a
regular basis of what has
been achieved, and
what has not
Implementing corrective
action where tasks are
not achieved, or achieve
on time
Checking that resources
will be available when
needed
Supervising, supporting
and motivating the
people of the
organisation to ensure
tasks are undertaken
Adjusting the
operational plan if there
is a need
Reporting problems to
superiors e.g. directors,
committee personnel,
the Board Members of
the organisation
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organisational structure, the exact nature of tasks that are classified under the operations function may differ
from business to business. However, the following activities are usually applicable to all types of operations:
Understanding strategic objectives: Operations managers must
clearly understand the goals of the organisation and develop a
clear vision of exactly how operations will help achieve them. This
also involves translating these goals into implications for the
operation’s performance, objectives, quality, speed,
dependability, flexibility and cost.
Developing an operations strategy: Due to the numerous decisionmaking involved with operations, it is critical that operations
managers have a set of guidelines that are align with the
organisation’s long term goals.
Designing the operation’s products, services and processes: Design
involves determining the physical form, shape and composition of
products, services and processes.
Planning and controlling: This involves deciding what the
operations resources should be doing and making sure that it is
getting done.
Improving the performance of operation: Operations managers are
expected to continually monitor and improve the overall
performance of their operation.
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2.1 Develop and implement strategies to ensure that employees are
recruited and/or inducted within the organisation’s human resources
management policies, practices and procedures
2.2 Develop and implement strategies to ensure that physical
resources and services are acquired in accordance with the
organisation’s policies, practices and procedures
2.3 Recognise and incorporate requirements for intellectual property
rights and responsibilities in recruitment and acquisition of resources
and services
What you will learn
Maintain physical appearance of the workplace
Section 1
Maintain physical appearance of the workplace
Section 1
SECTION TWO
Plan and manage resource acquisition
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Plan and manage resource acquisition
Develop and implement strategies to ensure that employees are recruited and/or inducted within the
organisation’s human resources management policies, practices and procedures
There are many points that require consideration when employing people to assist with the operation of your
business. These relate to the hiring of staff, your legal obligations to employees, staff management and the
termination of employment.
When hiring new staff, you will need to consider:
You will also need to make yourself aware of your legal obligations as an employer including:
Type/Number of employees Hidden costs of employment Employee roles and
responsibilities
Employee skills, attributes and
experience
Recruitment costs, time and
resources
Occupational Health and Safety
regulations Workers Compensation cover Employee Superannuation
Equal Employment Opportunity
and anti-discrimination legislation Wages and leave entitlements Taxation obligations and records/reporting
2
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It is also important to be able to manage and retain your employees. In order to effectively do this you should
consider:
At some stage you may be faced with ending a staff member’s employment. Therefore it is important to have
thought about the following:
Effectively managing the people within your business is fundamental to its success. It is important to be able to
find, recruit, develop and retain good employees. By doing so, you can ensure that your employees
understand the objectives of the business and work towards business development and customer satisfaction.
Develop and implement strategies to ensure that physical resources and services are acquired in accordance
with the organisation’s policies, practices and procedures
Physical resources relate to the types of equipment that you need to use to achieve your goals.
Some of the physical resources you may need to include are:
Employee induction, training and development
Policies and procedures to reduce and deal with complaints, disputes and employee relations
Reviews, feedback and incentives in regards to employee performance
Policies and procedures for ending
employment through either resignation,
redundancy or dismissal
Employer obligations to employees who have
resigned, been made redundant or dismissed
Telephone equipment
Stationery items
Computers
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Information for Operational Plans
When creating an Operational Plan for your team you need to ensure that you gather accurate information. It
is a good idea to consult other employees in your organisation, such as:
Systems
There are a range of different systems which can provide the information you require to prepare Operational
Plans in a Customer Contact Centre environment.
Automatic Call Distributor (ACD), which are the telephone systems used in incoming Customer Contact
Centres, provide a vast array of information which can be used for Operational Plans.
ACDs can provide a range of information including:
Customer Contact Centre
Manager Finance Manager HR Manager
Other Team Leaders Your team members
Length of call queues
How long calls last
Computer response times
Where calls are routed
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Much of this information will help you decide the length of time tasks take, the level of staffing required and in
turn the costs involved.
Other systems which can provide valuable data in a call centre environment include:
Recognise and incorporate requirements for intellectual property rights and responsibilities in recruitment
and acquisition of resources and services
When you start a business, it’s a good idea to look at the ways you can protect your intellectual
property (IP) to give you an advantage.
If you start a business with a weak approach to IP it can prove disastrous down the track and very difficult to
rectify.
To make sure you start on the right foot, this section outlines how IP can work for you. There is plenty of
information in this section to assist both new and old business owners in everything from business planning to
franchising.
Buying a business
When you buy a business you are buying the intellectual property and the rights to use it. Just as you need to
value the stock, fixtures and fittings, you need to value the IP and other intangible assets.
IP associated with a business
The following list identifies IP and other intangible assets that may be associated with a business:
Voice Response Units
(VRUs) Telephone networks Databases
Patents and trade marks Domain names Copyright and industrial
design registration Franchises and licences
Distribution agreements
Newspaper
mastheads/publishing
rights
Secret processes and
formulas
Information databases,
including client lists
Computer systems
software Core technology
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Intangible assets such as trademarks, patents or licenses should be recorded at their value on the date you buy
a business. Just as with physical property, depreciation can apply to IP assets but successful businesses can
also see the value of IP increase.
The key thing when buying a business is to ensure ownership of all IP assets are transferred into your name.
Your intellectual property (IP) assets are part of the resources and assets of your business. Your business plan
should include the strategies you will use to benefit from your IP.
Business plans
A business plan is a detailed look at the current state of a business, how it is positioned and how it is going to
achieve its identified goals. It may also be developed to assess the feasibility of a business idea or to raise
funds for a business.
One of the fundamentals of business planning is to consider how your resources can be maximised.
Your IP assets are part of your resource pool and as such IP should be a core element of your business plan.
When you focus on your IP, you may be surprised just how much of an asset it can be. It can add up to a
substantial percentage of your company’s total value and it is essential that you account for it.
When developing your business plan there are a number of things to consider to ensure you best protect your
IP.

There are a number of points you need to consider before you prepare your business plan. These range
from understanding the nature of your business and your target markets through to identifying your
intellectual property (IP) and its commercial relevance.
The following list is a summary of issues to consider. It is not complete because each business will have its
own specific requirements. The answers to these and other questions will help you to identify strategies
appropriate for your business, and will result in an informed planning process.
If you are having trouble answering any of the questions, brainstorm with your colleagues and advisers, as
you cannot effectively start drafting a business plan if you are unclear about some aspects of your business.
Summary of issues to consider
 What business are you in? Describe this in terms of the major benefit you provide to customers,
rather than the product or service. Focus on the value you create for your customers.
 What are the unique features of your business’s products or services? Work out what really sets
your business apart from competitors.
 What product or service advantages give you an edge in the market? Describe how your products or
services compare with those of your competitors.
 What part does your IP play in creating your competitive edge? Outline your IP and how you can use
it to sustain your competitive edge.
 What market trends will affect your business and your future IP requirements? Analyse the market
as it is now, and brainstorm about future movements.
 What is your target market? Outline who you expect to buy your products and services.
 Will this change in the future? Assess the elements that may shift your target market’s loyalties.
 How will you position your business’s products or services against those of your competitors? Assess
what part IP might play in this, and how much you know about your competitors’ IP strategies and
patent portfolios. Assess how your IP adds value to your customers and contributes to your
competitive edge.
 What security do you have to protect your IP? Review your patents, trade marks and registered
designs and assess whether they go far enough to protect your business’s competitive advantage.
 What policies do you have in place for developing your IP ability? Review from a current and future

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perspective and assess against benchmarks to ensure they are adequate.
 How far have you assessed the potential to commercialise your IP through licensing and selling it?
Review how these actions might affect your competitive situation.
 Have you conducted an IP audit and evaluated the cost and value of your IP? Classify your patents
and pending patents according to whether they are currently being used, are potentially useful, or
no use to the business. Once done, you will have a basis on which to decide whether to keep, sell or
retire your IP.

Benefits of including IP in your business plan
The motivations for developing a business plan may include raising funds or attracting a buyer for a business.
When IP is included in your business plan and is recognised, managed and valued, you will benefit your
business by:
How to protect your intellectual property
You can keep a competitive advantage by protecting your intellectual property (IP). Imagine if a competitor
discovered your secret and started replicating it. Or, you shared your idea and then realised too late that you
had lost the legal right to make it exclusively yours.
The key is not to talk about your idea or make your IP public knowledge before you have protected it.
Make sure you:
Register your IP
You may need to consider more than one type of IP protection depending on your creation.
Keep your idea a secret
Do not promote or disclose your idea to other people.
If you need to involve other people ensure they sign a confidentiality or non-disclosure agreement.
TIP: Have the agreement signed, dated and witnessed.
Demonstrate that the idea is yours
Raising finance for
research and
development
Easing the process
of getting approval
for a loan or
refinancing for
expansion
Making your
business more
attractive to a
potential investor or
buyer
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Keep all records and documentation of your idea.
Do not use someone else’s IP
Protection may not be available if your idea is similar to one that is already covered.
Search data on existing patents, trademarks and designs.
Include IP clauses in contracts
When employees create original works as part of their job the copyright will usually belong to the employer. It
is good practice to include clauses regarding IP and confidentiality in employment contracts.
If you engage contractors in your business, make sure their contract outlines an agreement as to how
copyright will be assigned.
For example, if you engage a photographer to take photos for use on your website, it is important to confirm
who will retain copyright ownership. If ownership remains with the photographer the images can be used or
sold to other people.
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3.1 Develop, monitor and review performance systems and processes
to assess progress in achieving profit and productivity plans and
targets
3.2 Analyse and interpret budget and actual financial information to
monitor and review profit and productivity performance
3.3 Identify areas of under-performance, recommend solutions and
take prompt action to rectify the situation
3.4 Plan and implement systems to ensure that mentoring and
coaching are provided to support individuals and teams to effectively,
economically and safely use resources
3.5 Negotiate recommendations for variations to operational plans
and gain approval from designated persons/groups
3.6 Develop and implement systems to ensure that procedures and
records associated with documenting performance are managed in
accordance with organisational requirements
What you will learn
Maintain physical appearance of the workplace
Section 1
Maintain physical appearance of the workplace
Section 1
SECTION THREE
Monitor and review operational performance
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Monitor and review operational performance
Develop, monitor and review performance systems and processes to assess progress in achieving profit and
productivity plans and targets
The operational plan is a section of the overall business plan that concerns how the
company will operate from day to day. However, entrepreneurs and business
managers must consider external factors that aren’t so easy to predict in
these plans. Even a monthly review of operational plans cannot catch factors
that are far off into the future. Other factors may happen over long
distances, in other countries. Still one way to examine how external factors
affect the operational plan is to start with overall issues that are generally out
of control for many businesses and then focus on the factors that can be
brought under control with effort and planning.
What External Factors Can Affect an Operational Plan?
Company employees sit down and develop business plans together.
Natural and Man-Made Disasters
If companies or their suppliers succumb to a natural or artificial disaster, the operational plans are put on hold
or scrapped. For example, PC and automobile makers commonly outsource single hardware and software
components to third-party builders and developers around the world. If a factory becomes flooded by heavy
rains from a typhoon or hurricane, the equipment is useless. This disrupts the supply chain of parts to other
companies that do the finally assembly of the products. Owners and operations managers can’t control nature,
but companies can develop disaster recovery plans. Prevention measures, such as installing storm proof
windows or improving water runoff, are extra expenses that many small businesses cannot afford.
Commodities and Natural Resources
Much of the inventory at small businesses needs to be reliably replenished on a constant basis, especially if the
company deals with food products and service. For example, a local indie coffee shop might rely on whole
coffee beans imported from countries around the world. Even whole milk and dairy products might arrive from
farms and processing centers hundreds of miles away, thanks to the trucking industry. Coffee beans and milk
are commodities, and the prices of these goods fluctuate on the trading market. Small businesses have little
control over the prices of commodities. Again, the best they can do is to closely monitor price fluctuations and
make adjustments afterward, such as increasing prices for the consumer at the register. Also, the scarcity of
natural resources, such as coal and crude oil, affect electric utility and trucking fuel costs, respectively; again,
these costs are sometimes passed along to the consumer.
Physical Location
Small business operational planning involves making sure the location and building have adequate square
footage, as well as sound and efficient architecture. Many small retail stores and shops are located in shopping
centers, anchored by one or two larger businesses, such as a major supermarket or department store chain.
These larger stores can sometimes attract business for smaller stores, but the trick is locating the small
business in a center that has other successful businesses. Unfortunately, after an economic downturn, several
stores in a shopping center can see reduced customer traffic or even shut down altogether, which can affect
your small business.
Governmental Policies
3
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The legal environment is especially tricky for small and large businesses, alike. Even on the Internet — which is
supposedly “free” and “neutral” — local, state and federal governments can still enact regulations and policies
that affect businesses. Companies must contend with higher business taxes, health care mandates and
requirements by various agencies that oversee business activity. Although businesses can participate in the
political process, such as lobbying, they must still operate within the confines of established law. Nonetheless,
owners and managers still have access to and can control the knowledge that helps make business decisions.
Companies can use lists that rank states for being business-friendly, such as the Small Business Survival Index
that is published by the Small Business & Entrepreneurship Council.
Supply-Chain Defects and Recalls
Recalls are a hassle to large and small businesses, especially when they get to the point where the Consumer
Product Safety Commission on the federal level gets involved. Consumers become aware of recalls by direct
mail and email, as well as through TV and print ads. These external factors can cause an abrupt halt to
operations if a vital part needed to make a product or offer a service is pulled from the market. Worse, people
use extreme caution after hearing about recalls and may stop doing business with local companies, even
though they are not the source of the problem. For example, an independent computer and electronics store
might get a large shipment of laptops, but then a recall is later issued for batteries that can catch on fire. Even
after resolving the issue with a replacement battery, the consumer may be leery of shopping at the store in the
future. Small companies can verify the quality of products from suppliers by checking up on a company’s
history.
Innovation and Competition
Companies must explain production techniques as well as the associated costs in formulating an operational
plan. When companies can make products or offer services that are better, faster or cheaper but still maintain
quality, they are “operational innovators,” according to an article penned by Michael Hammer for the Harvard
Business Review Magazine in April 2004. He posits that companies can out-operate competitors just by
devising a newer way of running business operations. Luckily, this is something that nearly any smart and
savvy business owner can control, being that innovation often stems from personal creativity and ideas.
Patents
Patents protect processes, methods and inventions that are “novel,” “non-obvious” and “useful.” If granted, a
patent gives you a 20-year monopoly on selling, using, making or importing an invention into the United
States. The requirements for a patent are complex, but here they are in a nutshell:
Your work must be novel. This means it must not be known or used by others in this country, or patented or
described in a printed publication here or abroad, or in public use or for sale in this country more than one
year prior to the application for patent.
Your work must be non-obvious. This means it must not be obvious to a person having ordinary skill in the
pertinent art as it existed when the invention was made.
Your work must be useful. This means that it must have current, significant, beneficial use as process,
machine, and manufacture, composition of matter or improvements to one of these. According to the Patent
Office: “The word ‘process’ is defined by law as a process, act or method, and primarily includes industrial or
technical processes. The term ‘machine’ used in the statute needs no explanation. The term ‘manufacture’
refers to articles that are made, and includes all manufactured articles. The term ‘composition of matter’
relates to chemical compositions and may include mixtures of ingredients as well as new chemical compounds.
These classes of subject matter taken together include practically everything which is made by man and the
processes for making the products.”
Patent protection requires full public disclosure of the work in detail and therefore precludes maintaining any
trade secret protection in the same work.
Trademarks
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A trademark is like a brand name. It is any word(s) or symbol(s) that represent a product to identify and
distinguish it from other products in the marketplace. A trademark word example would be “Rollerblades.” A
trademark symbol would be the peacock used by NBC.
A trademark can be registered in three ways:
The (TM) mark may be used immediately next to your mark. The ® registration symbol may only be used when
the mark is registered with the PTO. It is unlawful to use this symbol with your mark before receiving an issued
registration from the PTO.
What qualities make for a strong trademark? The cardinal rule is that a mark must be distinctive. The more
distinctive it is, the easier your trademark will be to enforce. This is why so many trademarked products have
unique spellings.
Trademark rights last indefinitely if the company continues to use the mark to identify its goods or services.
When the mark is no longer being used, the registration is terminated. The initial term of federal trademark
registration is 10 years, with 10-year renewal terms.
Trade Secrets
There is a great deal of confusion regarding trade secrets. Many people think that a trade secret is some type
of protection provided by the government that allows them to seek recourse in court should someone infringe
upon their idea. However, unlike copyrights, trademarks and patents, a trade secret is not registered with any
government office to provide a verifiable public record of any claims to the secret. You can, however, declare
one to a patent lawyer in a notarised and signed disclosure. In this manner the trade secret belongs to you
forever–or until someone leaks it.
Trade secrets refer to items such as recipes that are unique and provide a business with a competitive
advantage, but which cannot be safeguarded under current forms of idea protection such as copyright,
trademark or patent. The best form of protection for these items is to keep them a secret. One of the most
famous and best-kept trade secrets is the formula for Coca-Cola.
The best way to secure the information for a trade secret is to restrict access to the secret and have individuals
and companies sign nondisclosure agreements with you should you enter into a relationship with them which
will require them to know some aspects of the secret. If someone independently develops or reverseengineers your trade secret, there’s nothing you can do. If someone does leak it, you can sue for theft. Suing,
however, cannot stop the person from using the leaked information. So although you may get money from the
suit, you lose the larger potential profits you could have made from the idea. Still, if your luck holds and your
trade secret remains secret, royalty income from it can last significantly longer than the patent period.
By filing a “use” application after the mark has been used.
By filing an “intent to use” application if the mark has not yet been used.
In certain circumstances in which a foreign application exists, you can rely on that.
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Five intellectual property mistakes start-ups must avoid
Toiling away at a business only for a competitor to steal your product idea or brand may be the nightmare of
many entrepreneurs, but research out this week shows that worryingly few are prepared to do anything about
it.
According to the Australian Bureau of Statistics, 67.1% of businesses with zero to four employees use no form
of protection when it comes to intellectual property.
Slightly larger businesses aren’t much better. More than 60% of businesses employing between five and 19
employees use no IP protection methods.
This alarming state of affairs should send start-ups scurrying to their IP lawyers. Before you do so, however,
make sure you haven’t committed any of these five common IP mistakes.
1. Not realising the value of your IP
If you think that registering your business name and a decent trading history is enough to protect your IP,
you’re wrong.
If, on top of that, you fail to realise that your brand, logo, processes and products can all fall under the IP
banner, you are compounding your initial error.
“Most businesses think they don’t generate IP but they actually do,” explains an IP Australia spokesman.
“Tradesmen are always inventing things that solve little things. Unless they protect their IP, they’re not going
to benefit from that.”
“A classic example is [appliances retailer] Kambrook – the guy developed a multiple power adaptor board. He
invented that and didn’t patent it.”
“He lost millions of dollars of potential income. Other companies copied it because he didn’t realise the IP had
value.”
Analyse your brand and product names, slogans, taglines and logos – can you trademark these in Australia at
least?
Also look at the reproduction and distribution of your product – you may be able to copyright it. In some cases,
you may even be able to get a patent.
Don’t be in the dark about the IP you create – it’s the very essence of your business’ proposition. If you’re
unsure where you stand, speak to an IP lawyer as soon as you can.
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2. Not safeguarding your brand name properly
The recent introduction of a National Business Name Register may have given you the impression that you
merely have to register your business name with ASIC and it is protected across Australia.
Alas, this isn’t the case. A trademark is the only way that you will be able to prevent another business
infringing upon your brand, even with a decent trading history behind you.
It may cost around $1,600 and take seven months to process, but that initial outlay will be more than worth it
if you’re faced with the prospect of having to tear up all of your marketing material because someone else got
there first.
Lawyer James Omond explains: “The only way to secure a ‘proprietary interest’ in a name that you are using
[i.e. an ownership interest] is to register it as a trademark.”
“This not only means that other people cannot stop you from using that name, it also allows you to assert
your ownership rights in the name against someone else.”
“Using a business name will give you ‘common law’ rights to that name, but if you want to sue someone else
for using the same, or a similar name, you can only succeed if you can prove that you have built a reputation in
the name, and suffered actual damage as a result of the other person using it.”
“This can be very a difficult and expensive exercise in court. These requirements do not have to be fulfilled if
you have a trademark registration.”
“So let me bang the drum again – you need to register your business name as a trademark if you want to truly
own it, and be able to protect it.”
3. Discussing your idea carelessly
When you concoct an idea for a start-up business, it’s natural to be excited and blurt out your concept to
family and friends. Indeed, many successful businesses have been shaped by the early advice and support of
people close to the founder. However, tread carefully.
“I’ve seen a few cases where someone has told friends and family an idea and the idea has found its way to a
competitor,” says Joe Seisdedos, senior associate at law firm Griffith Hack.
“You have to be careful even when talking to friends and family. Once an idea is out there, you can’t really
draw it back in. Generally, the law says that if you disclose an invention to others, even if they are friends and
family, your ability to get a patent may be seriously compromised.”
Seisdedos advises start-ups to talk to an attorney before discussing any innovative business idea and demand
that non-disclosure agreements are signed by potential business partners.
Even if they won’t sign NDAs, an agreement in principal, agreed over email for example, should be enough to
protect you.
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4. Failing to see the global picture
The internet may be a wondrous tool for businesses, but it can create countless headaches in terms of
intellectual property.
Where once you would merely worry that a rival in the next suburb may copy your brand and business model,
IP theft can now take part in any corner of the world, by anyone who has the ability to log onto your website.
IP law is slowly playing catch-up, with the Madrid Protocol allowing businesses in 80 countries – including
Australia – to file a common trademark across different international markets.
It’ll cost you around $800 initially, with individual fees for each country or territory you hope to trade in.
After making sure you are protected in Australia, it’s worth looking into how your IP can extend overseas.
5. Selling yourself short
Some start-ups can get sucked into the web of larger rivals that promise to expand their business. Without
proper IP protection, the start-up can find that their ideas are stripped away without recourse. Even a patent
won’t deter some large corporates.
Paul Brennan, of Brennan Law, says: “Some large companies say to a small firm ‘come with us, we’ll take you
with us and franchise you’. You can get merged in and once you lose everything else, all you have is your IP.”
According to Seisdedos, big business will usually attempt to get your product or idea under license rather than
crush any patent entirely.
“Many larger companies would rather talk to you with a view to licensing the technology,” he explains.
“If they knock over the patent entirely, then it’s available to all of their competitors, so it’s in their best
interests to work with you rather than against you.”
Analyse and interpret budget and actual financial information to monitor and review profit and productivity
performance
What is budgeting?
On this page:
A budget is a financial plan. It is a projection (forecast) of what will happen financially if certain strategies and
decisions are implemented. This is something we all do from time to time.
For example, if you plan to buy a new car with a bank loan, you will want to know how much the loan
repayment installments will be. This helps you to construct a financial plan which includes determining the
extent of the loan that you can afford. This type of planning is very much a budgeting activity.
See below a personal budget showing a person’s income and expenditure on a monthly basis. Constructing a a
personal budget in this manner enables a person to calculate their probable surplus or deficit at the end of
each month. Such a task would be very useful to the individual before committing to repayments of a bank
loan for a car.
Sample personal budget Sample budget for a sport club
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In another example, the committee of a sport club would need to know whether there is any likelihood of
making a profit if the club hosts a particular event. This question can only be answered by working out possible
revenues (income) and expenditures. The committee would need to investigate what the event needs, talk to
people who have experience, obtain quotes from suppliers and estimate how many people might attend. All
these activities such as investigating, consulting, obtaining quotes and estimating are all typical budgeting
activities.
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Simple event budget:
Budgets are more than just a few calculations that we throw away when our questions are answered. In a
business context, a budget, once constructed, becomes an essential tool for the financial management of the
business. In fact operating a business without a budget is very bad management.
By developing budgets, business managers set income and expenditure targets to be achieved. The business
manager can constantly compare actual financial outcomes with targets in the budget and take corrective
action if the targets in the budget are not being met.
Business managers need to continually review the budget and use it as a guide when making financial
decisions. If a proposed course of action has been anticipated in the budget, then managers will feel confident
in making a decision to go ahead. But if a proposed course of action has not been costed in the budget, then
managers will appreciate that going ahead will entail financial risk.
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Purpose of Budgeting
In the context of business management, the purpose of budgeting includes the following three aspects:
Forecast of income and expenditure
Budgeting is a critically important part of the business planning process. Business owners and managers need
to be able to predict whether a business will make a profit or not. The purpose of budgeting is basically to
provide a model of how the business might perform, financially speaking, if certain strategies, events, plans
are carried out.
In constructing a Business Plan, the manager attempts to forecast Income and Expenditure, and thereby
profitability.
Tool for decision making
The purpose of budgeting is to provide a financial framework for the decision making process i.e. is the
proposed course action something we have planned for or not.
A forecast of income and expenditure (and thereby profitability)
A tool for decision making
A means to monitor business performance
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In managing a business responsibly, expenditure must be tightly controlled. When the budget for advertising
has been fully expended, the decision on “can we spend money on advertising” is likely to be “no”.
Monitoring business performance
The purpose of budgeting is to enable the actual business performance to be measured against the forecast
business performance i.e. is the business living up to our expectations.
In the figure opposite, “variance” is the difference between budgeted expenditure and actual expenditure.
Budgeting Principles
For those who have the task to develop budgets or to be involved in the process of developing budgets, it is
important to have a good knowledge of budgeting principles that can make the difference in the financial
health of the organisation. Failure to engage in sound budgeting processes would rank as one of the main
reasons why companies and organisations fail.

1 Be conservative not optimistic The first principle of budgeting is to avoid budgeting on the basis that everything will turn out as
expected. Be very cautious about optimistic forecasts. Try to build in a safety factor by tending to
underestimate your income and overestimate your expenses. There will always be unexpected events and
therefore a common strategy in developing a budget is to insert an additional expense called
“contingencies”. This item in the expense budget is an insurance policy against the unforeseen.
2 Team work and consultation One of the most important principles of budgeting is that it requires teamwork and consultation.
Although one person may be responsible for the overall compilation of the budget, one person should not
be responsible for all the work involved. The task of budgeting should be split and allocated among those
individuals who have the best chance of knowing what expenditure is likely to be needed and what
income is reasonable to expect. Involvement by many people in budgeting might slow the process down,
but the answer is far more likely to be accurate and dependable.

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3 Allow plenty of time Budgeting is not an activity that is completed in a few hours. A good budget may be worked on for several
weeks, if not months, adding and changing figures as new information comes to light. For this reason,
budgeting is often referred to as an iterative process. The budgeting process is lengthy because much
research and consultation has to be carried out before people involved in the process can be confident of
the figures they supply.
4 Excellence in documentation It is very important that the author(s) of the budget strive to produce documents that can be read and
understood by anyone. If budget workings are unclear and figures are not clearly labelled even the author
will, as time passes, have trouble understanding where the figures come from and how the calculations
were made. It should be assumed that budgeting workings will be:
 Circulated to many different people who may have lower levels of financial literacy
 Useful again in a year’s time when the budgeting process begins again. Unless workings are well
labelled it may be difficult to remember.
Example of labelling:
5 Provide Training Ensure people who have a significant role in the budgeting process have a reasonable understanding of
the principles of budgeting, how it relates to the strategic and operational plans, and how everyone must
live with the consequences of the finalised budget in the year ahead. Training need only be a single
meeting in which those who have experience of budgeting provide knowledge to others involved who are
less experienced.
6 Get Sign Off Another one of the important principles of budgeting is to ensure that all persons formally involved in the
budgeting process agree to the final iteration of the budget. This agreement by those involved is often
referred to as the “Sign Off”. In other words, those involved add their signature to the final iteration of
the budget. This ensures that there will be no argument later about who agreed to what.

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Developing a Budget: Sources of Information
Sources of Information
The following diagram illustrates the three main sources of information required to develop a budget.
This diagram created using Inspiration® 7.5b by Inspiration Software®, Inc.
The business plan
Historical information from
the organisation’s
accounting system
The knowledge of key
personnel in the
organisation
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The Business Plan
Business plans tend to change from year to year and this can have a significant impact on the budget. Anyone
who is involved in budgeting must acquaint themselves with the Business Plan. It is important to determine
whether there are completely new strategies, expected changes in the level of business, changes in staffing
level, special events, planned maintenance and other factors that will obviously impact on the budget.
Organisations in the sport industry, tend to have a strategic plan as part of the business planning process. The
strategic plan usually has a timeframe of 3-5 years and it provides an overview of the organisation’s goals and
objectives. This is helpful as it does give important clues to personnel involved in budgeting about changes to
income and expenditure levels from previous years.
It is also a practise of many organisations to have an operational plan that details the work that must be done
to pursue the organisation’s goals and objectives. Usually the operational plan has a timeframe of 1 year. The
operational plan and the budget are inextricably linked together. The budget is part of the operational plan,
and you cannot really have an operational plan without a budget. This last point is important as an
organisation can only implement strategies in the plan if it has the resources, including resources.
Historical Information for Budgeting
Unless the organisation is in its first year of existence, the audited financial accounts provide a wealth of
information about how the organisation performs financially. For example, the financial accounting system can
provide detailed information on:
In circumstances where there is little change in the organisation’s business plan, figures from previous year’s
accounts can be an excellent starting point for estimating income and expenditure for next year. However,
there are also dangers in placing too much reliance on historical information. There are no short cuts to good
budgeting. Each and every item needs to be well considered. Even seemingly simple matters such as
estimating electricity cost is not just a matter of looking at last year’s figures and adding 5% for inflation.
Electricity costs could change dramatically if there are changes to facilities or staff. This is why it is always
necessary to consult other people and read the business plan.
Typical sources of income for
the organisation Gross profit margins
Overheads such as electricity,
rates, maintenance, salaries,
office costs, etc
Loan repayments Other costs that can be easily
overlooked
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Knowledge of Key Personnel
It is probably a fairly dangerous prospect for one person to attempt to develop a budget for an organisation on
their own. A much wiser strategy is to involve a team of people, each of whom is given the task to provide
estimates of revenues (if any) and costs for a section or department of the organisation for which they have
responsibility. It is likely that such individuals will be able to provide reasonably accurate forecasts of income
and expenditure. However, they will also present a “wish list” which those in charge of the budgeting process
will need to examine for financial feasibility.
The involvement of many people in the budgeting process greatly adds to how long it takes to produce a
budget that is accepted by persons involved. From start to finish, it is necessary to allow a month in small
organisations and three months in larger organisations.
Use historical information
In creating a budget for next year, your first step is to have a look at last year’s financial statements and
budget (if they exist).
Unless there is a change in the number of people employed, or the location and type of business, the
overheads of the business for last year will be a good indicator of next year’s overheads.
Costs such as electricity, rent, rates, administration costs, leasing and audit fees are overheads, and they will
largely remain the same from year to year. However a small increase should be planned due to inflation.
If your organisation has been in operation at least one year, there should be plenty of historical financial data
to help you predict next year’s income and expenditure.
Look at the business plan
Business plans and budgeting are inseparable. All businesses should develop a business plan. The purpose of
developing a business plan is to set the goals and objectives of the business (the strategic plan), and to
determine what work must be done and by whom to achieve these objectives (the operational plan).
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Although historical data helps to predict income and expenditure for next year, the business plan may contain
new strategies that will radically change the pattern of income and expenditure.
Formulating a budget is therefore a major part of the developing the business plan.
Developing a Budget
Business Strategy Examples
The following three tables provide an example of developing an overall organisation budget by setting the
amount of funds to be spent on each strategy contained within the business plan.
The accuracy and reliability of this method of developing a budget relies on:
Limiting expenditure only to
planned strategies (e.g. if a
project is not in the budget, it
does not go-ahead)
Obtaining quotes for work to be
done (e.g. painting and repairs to
clubhouse)
Conducting research on actual
costs (e.g. conduct two level one
coaching courses)
Having historical information
(e.g. Office expenses, audit fees)
Making a decision to set a
remuneration level (e.g.
employment of Administration
Officer)
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Provided some real thought is expended, strategy by strategy, this method of developing a budget is an
improvement on basing a budget mostly on historical costing.
Professional Development

Strategy No. Strategy Cost
2.1 Conduct two level one coaching courses $1,000.00
2.2 Conduct coach update courses $ 500.00
2.3 Conduct two referee courses $ 400.00
2.4 Send two delegates to Nat. Coaching Conf. $1,500.00
TOTAL $3,400.00

Facility Development

Strategy No. Strategy Cost
3.1 Painting and repairs to clubhouse $1,000.00
3.2 Improvement to drainage of playing fields $5,000.00
3.3 New gate for car park $ 500.00
3.4 Architect fees for new extension to club $ 500.00
TOTAL $7,000.00

Administration

Strategy No. Strategy Cost
4.1 Employment of Executive Director (F/T) (incl. on costs) $ 33,000.00
4.2 Employment of Administration Officer (P/T) $ 15,000.00
4.3 Office expenses $ 5,000.00
4.4 Committee expenses $ 500.00
4.5 Production of Annual Report $ 300.00
4.6 Audit Fees $ 750.00
TOTAL $ 54,550.00

Direct and Indirect Costs
Every expense incurred by your organisation will either be:
Direct Costs
A direct cost – a cost that is directly attributable to a service, event, program or other activity
carried out by the organisation
An overhead (indirect cost) – a cost that cannot be directly attributed to a service, event, program
or other activity.
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During the budgeting process you will have to look closely at every event, program and service that you intend
to provide and work out every direct cost
Examples of direct costs include:
Overheads – Indirect Costs
There will be many costs incurred by an organisation that cannot be directly attributed to specific events,
programs and services. It may well be the case that the organisation’s overheads are proportionately greater
than direct costs. Therefore it is extremely important to ensure that the budgeting process takes account of all
overheads.
Examples of overheads include:
Providing a reasonably good forecast of the total cost of overheads will depend on:
Trophies Hire of staff specifically for an
event or program
Travel costs associated with
attending or providing a
service, event or program
Advertising and other
promotion costs that
specifically relate to an event
or program
Costs of hiring venues/
facilities for events and
programs
Costs of hiring or purchasing
equipment for an event or
program
Lease of the office (and office
equipment if applicable)
Administration and secretarial
salaries
Office costs such as telephones,
postage, photocopying and
general printing (i.e.
association newsletters) for
administrative reasons
Depreciation of equipment,
motor vehicles and buildings
etc.
Audit costs Insurance
Building maintenance
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In real life the budgeting process is so complex that it must be divided up into smaller more manageable
portions and allocated to many individuals who might have specific knowledge of the organisation’s programs.
Cash flow Forecasting
Many business, during the course of a year, will
fluctuate between positive and negative bank
balances. The chart below depicts a business that
has a positive bank balance in January, April, May,
June, October, November and December. It also
has a negative bank balance in February, March,
July, August and September.
So how can a business have a negative bank
balance? What does this mean?
The answer is that a business can have a negative
bank balance if it has an Overdraft. An Overdraft is
a facility whereby a bank allows a business to
continue to draw funds even when it has exhausted all the funds in its account. In such a situation, where the
business’s bank account goes below zero, the business is in fact using the bank’s money to pay its bills.
Usually a bank imposes an Overdraft Limit, that is a limit to how much the business goes below zero in its bank
account. If the overdraft limit is set to $10,000, then the business must not go beyond a negative $10,000 bank
balance.
A bank is in business to make a profit, and so businesses that want to set up an overdraft are usually charged a
fee by the bank for this privilege.
Accurate financial records of previous years
Understanding the factors that tend to increase overheads i.e.
engaging more employees, moving to bigger premises, increasing the
number of members of the organisation, etc.
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The main purpose of cash flow forecasting is to predict what will happen to the bank balance. It is important
for a business to know when it is likely to run out of funds in its bank account, and by how much.
If the business knows (by creating a cash flow forecast) when it will run out of funds, arrangements for an
overdraft facility can be made in a timely fashion.
Generally, a bank will not create an overdraft facility unless it feels that the business has the capacity to repay
the borrowed money.
Therefore the cash flow forecast has two main benefits:
1
•It predicts when the business will need an overdraft
2
•It helps to assure the bank manager that the business will recover to a positive bank balance
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In the illustration above, the business slips into a negative bank balance at the end of June, but recovers and
moves back to a positive bank balance in October.
Cash flow Budgeting
The illustration below sets out the typical format for a Cash flow Budget (click on image to enlarge). There are
13 columns and the first column is a Year Total column.
It is important to note at the outset that the Total column is equal to the sum of all the months. If you look at
Sponsorship, the total is $9,000 for the year, and this comes all in the month of April. Similarly, the Total for
Athlete Development is $5,000 and this comes in two months, February ($3000) and April ($2000).
Salaries on the other hand is $3,000 every month, and since there are 12 months, the Total for the year is
$36,000.
Look in the left column and you will see ‘Opening Balance’, ‘Total Income’, ‘Total Expenses’ and ‘Closing
Balance’. These are the main components that enable a calculation that predicts what the Bank Balance will be
at the end of each month.
In easy English terms the calculation can be stated:

Opening Balance (what you have in bank at the start) plus Total Income (what money comes in) minus Total
Expenses (what money goes out) equals Closing Balance (what money you have left).

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January
Opening
Balance
The Opening Balance is the amount of cash at the beginning of the month (1st day of
month).
January Closing
Balance
The Closing Balance is the amount of cash at the end of the month (last day of month).
The Closing Balance is calculated by the following equation:
Closing Balance = Opening Balance add Total of Income less Total of Expenditure.
February
Opening
Balance
The Opening Balance of February will be the same as the Closing Balance for January. The
Opening Balance of any month will always be the same as the Closing Balance of the
previous month.
Events Income In a Cash Flow forecast the Total column will equal the sum of all of the months. In the
situation of Events Income, this organisation plans to obtain $3,429 per month for seven (7)
months. The other months there is no Events Income. Therefore the Total of Events Income
for the year is $24,000. How does the organisation know or guess what income it will
achieve in any one month. Well, the organisation will need to work out what events it will
stage each month and calculate the likely income it will receive.
Sponsorship In the case of Sponsorship Income, the organisation believes it has a sponsor who will pay up
$9,000 in April.
Other Income The Cash Flow forecast shows an amount of $1,000 per month for “Other Income”. When
preparing a Cash Flow forecast it is not always possible to have an idea of how much income
will be received in any month. Therefore it is simpler to divide the Total by the number of
months and every month has the same figure.
* Note:
The concepts and principles that apply to Income (as above) also apply to Expenditure.

Break-Even Analysis
Joe is a voluntary club administrator and he has the responsibility to organise a sporting event.
This event requires the expenditure of the following amounts:

Venue Hire $400.00
Advertising and Promotion Costs $300.00
Trophies $200.00
Telephone, Postage and Stationery $100.00
Total Fixed Costs $1,000.00

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These amounts will be spent no matter how many people turn up to the event, and therefore they are called
Fixed Costs.
At event, however, there will be other costs which will be dependant upon the number of people who turn up
and participate. These costs are as follows:

Each competitor will receive each
Food and drink $10.00
Hat $5.00
Variable Costs per Competitor $15.00

These costs are referred to as variable costs because the amount of cost will vary with the number of
competitors.
Joe is worried about how many competitors he needs to break-even if he charges a competition entry price of
$20.00 per participant. He wants to calculate the minimum number of participants he needs so that the event
does not lose money.
The term break-even means that all event costs will just be covered by all event income.
This problem is an every-day problem for businesses of all types but fortunately it is not a difficult one.
In solving this type of problem it is necessary to distinguish between fixed and variable costs (as above). This is
how Joe calculates the solution:

Competition Entry Fee $20.00
less
Variable Costs per Competitor $15.00
Contribution of each Competitor
towards Fixed Costs
$5.00
Total Fixed Costs $1,000
divided by Contribution $5.00
No of competitors required is 1000/5 = 200

The answer is 200 competitors!
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The above a solution is a commonsense way of putting it but if you would like a formula this one is an easy one
to remember:

Formula for Break-Even
Point
Fixed Costs
Price – Variable Costs
Don’t forget that (Price – Variable Costs) =
Contribution

Variance Report
The purpose of a “Variance Report” as shown below is to identify
differences between the planned financial outcomes (the Budget)
and the actual financial outcomes (The Actual). The difference
between Budget and Actual is called the ‘Variance”. The Variance is
depicted below in dollar ($) and percent (%) terms. Calculating the
variance in percent (%) is useful as it gives the relative size of the
variance. When calculating the Variance in percent (%) – divide the
Variance in dollars ($) by the Budget (and not by the Actual).

Budget
1 Jan to 30 Apr
Actual
1 Jan to 30 Apr
Variance
$
Variance
%
Income
Govt Grant 15,000.00 20,000.00 5,000.00 33%
Sponsorship 3,500.00 3,750.00 250.00 7%
Membership Fees 2,800.00 2,650.00 -150.00 -5%
Events Income 4,200.00 7,735.00 3,535.00 84%
Profits from Trading 14,800.00 12,900.00 -1,900.00 -13%
Other Income 280.00 570.00 290.00 104%
Total 40,580.00 47,605.00 7,025.00 17%
Expenditure
Advertising & Promotion 1,500.00 200.00 1,300.00 87%
Athlete Development 1,650.00 4,700.00 -3,050.00 -185%
Bank Charges 160.00 400.00 -240.00 -150%
Competition Costs 1,000.00 2,100.00 -1,100.00 -110%
Management Committee 160.00 230.00 -70.00 -44%
Photocopying & Printing 430.00 570.00 -140.00 -33%
Postage 650.00 1,150.00 -500.00 -77%
Rent 1,300.00 1,000.00 300.00 23%
Repairs & Renewals 300.00 225.00 75.00 25%
Salaries 18,300.00 18,300.00 0%
Stationery & Computer 500.00 630.00 -130.00 -26%
Team Funding to Nationals 1,650.00 1,650.00 100%
Telephone 1,000.00 1,665.00 -665.00 -67%
Total 28,600.00 31,170.00 -2,570.00 -9%
Surplus/Deficit 11,980.00 16,435.00 4,455.00 37%

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Budgets are one of the most important business financial statements. If planned and managed well, a budget
allows you to monitor the financial impact of your business decisions and operational plans.
What is a profit and loss budget?
The profit and loss budget is a summary of expected income and expenses. It is usually prepared annually
although the period can be shorter or longer, depending on what you are going to use the budget for.
Income and expense information is set against the business operating plans for the budget period.
Your accountant can help you prepare the budget but you need to understand how it has been developed. You
also need to know how to monitor your business outcomes against the prepared budget so that you’re
tracking if your business is achieving the goals and remaining profitable.
Steps for preparing a profit and loss budget
Start by understanding your business goals and involve key staff. This ensures your budget is aligned to your
goals and is prepared and reviewed by the appropriate people.
Document and follow a process for preparing an annual budget. Steps could include:
1. Review the approved business operating plan and note all required activities for the budget period
2. Separate activities into existing and new for the new budget period
3. Identify and document all assumptions that have been made for the budget period
4. Review prior year’s profit and loss statements by regular periods (monthly, quarterly etc.)
5. Prepare the profit and loss budget for the selected period using the financial statements template.
Monitor and manage your profit and loss budget
Where the profit and loss statement is prepared on a monthly basis, the budget will need to be separated into
months for the budget period.
Regular monitoring of the budget against actual results provides information on whether your business is on
track to meet the goals you were aiming for when you first prepared your budget.
When the actual results vary from the budget
At the end of each month, compare the actual results from the profit and loss statement with the budgeted
results. Note and analyse any variances, with explanations. Categorise all variances as either a ‘timing’ or
‘permanent’ variance.
 A timing variance is where the estimated result did not occur but is still expected to happen at some
point in the future
 A permanent variance is where the expected event is not likely to occur at all.
This information will help minimise future variances. You’ll be able to implement new or improved activities to
ensure you are still able to achieve the strategic goals of your business.

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Identify areas of under-performance, recommend solutions and take prompt action to rectify the situation
When everyone is working to their full potential, a business runs like a well-oiled machine – boosting
productivity and creating a healthy workplace environment.
However, there are a number of reasons why employees may be underperforming in their roles, which will
need to be addressed with the right leadership skills.
So why your staff members might be failing to meet expectations? Here are some of the common issues put
forward by the Australian Fair Work Ombudsman:
Mismanagement of underperformance
A number of problems can be created by the mismanagement of underperformance, which if left long enough
may cause discontent across the entire workplace.
One of the major issues is that staff members are often unaware that they are not carrying out their duties to
the company’s expectations, meaning they are unlikely to improve their performance on their own.
This can lead to other personnel becoming resentful or even lowering their own performance levels, which can
have a drastic effect on motivation, productivity and output.
While the confrontational aspect of dealing with underperformance in the workplace can be a challenge for
both employees and managers, it is a vital part of leadership development to be able to effectively resolve
such situations.
Employee is unaware of goals and workplace standards
Mismatch between staff skills and the role they are doing
Lack of feedback means employee doesn’t know they are underperforming
Low workplace morale or lack of motivation
Personal issues, including stress, alcohol problems or mental health complaints
Workplace bullying
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Tips for improved performance management
Implementing a structured performance management system is vital for supporting a balanced workplace
culture and maintaining standards.
These tips should help businesses and managers to keep on top of underperforming employees.
Identify the problem: Clearly identifying the problem will enable you to understand the possible reasons for
underperformance.
Is the worker not following instructions? Are they not completing the work to adequate standards? Do they
show resentment towards the work environment that is affecting other colleagues?
Once you have a good idea of what the problem is, you can then assess the underlying causes.
Analyse the issue: How big is the problem? Is it affecting just one employee or an entire team or office?
Answering these questions will enable you to start approaching a solution, but you must also find out how long
these issues have existed.
You’ll also need to judge how big the gap is between expectations and what is being delivered – this may
affect how radical your action plan will be.
Meet with the employee/s: No issues can be resolved without speaking with the employees, so make sure to
set up a meeting once you’ve identified and analysed the problems.
Give them plenty of warning and inform them of what will be discussed – this will enable them to adequately
prepare and potentially bring somebody to the meeting in support.
Things to remember in meetings
When meeting with employees, there are several things to remember to ensure the process runs smoothly.
If everything goes well in the meeting, you should be able to agree a way of moving forward that pleases
everyone.
It is often advised to let the employee contribute to the solution, as they are much more likely to act on a
process in which they had some input.
From here, it is important that you set up regular feedback sessions and organise an appropriate method of
monitoring the employee’s performance to ensure they remain on track with targets.
Underperformance is a negative deviation between the performance you have planned to achieve or could
have achieved and the actual situation.
Talk about the issue;
don’t get personal Remain encouraging Explore why there is a problem Be clear and concise
Summarise to ensure
everyone is on the same
page
Ask plenty of questions –
this is a two-way process
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You might have identified a performance problem while you:
You can find a solution to a performance problem by going through a 4 step process (graphic 1). The work
involved in the different steps is explained further down below.
Graphic 1: Finding a solution to a performance problem
Monitored performance Conducted a performance
assessment
Conducted a benchmarking
process
Conducted a workshop Interviewed key personnel
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Identify potential causes and key factors (step 1)
Conducting interviews
A first approach to determining potential causes and key factors for a problem like underperformance could be
to interview
Using questionnaires
An anonymous way of finding out potential causes and key factors for underperformance is to use
questionnaires and ask people with special knowledge for their opinion.
Examples:
Employees who are directly involved in the process, product or service that seems
to have a performance problem (e.g. an operator of a machine).
The person who noticed the problem (e.g. internal auditor).
People who are affected by the performance problem (e.g. Community in
which a development project is implemented).
What causes in your
opinion the
underperformance?
Which do you
consider the key
factors and why?
With which of the
key factors would
you deal first and
why?
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Holding brainstorming sessions
Alternatively you could hold a Brainstorming session with a group of people who will search for causes for
underperformance in a creative way.
Afterwards a team could rank causes for underperformance identified during brainstorming according to their
perceived importance or by means of prioritization tools.
Benchmarking: Learning from others
Another approach to identify potential causes and key factors for underperformance would be to learn from
others that perform a comparable process without a problem.
Generate a list of possible solutions (step 2)
Once you have identified the most important causes you will want to generate a large number of possible
solutions without immediately evaluating them.
There are different ways to achieve this:
Evaluate different solutions and select the best (step 3 & 4)
At this stage you will first eliminate those solutions on your list that clearly do not make sense.
Once you have generated a shortlist of possible solutions you should evaluate each solution by answering
questions like:
Ask internal or external experts
for alternative solutions.
Search for possible solutions in
written materials (e.g. manuals,
research reports, web sites).
Develop ideas in brainstorming
sessions.
Research whether the same
problem occurred in your
organization in the past and how
it was solved then.
Analyse those of your internal
processes that achieve target
performance and try to identify
how these are managed.
Conduct benchmarking with an
organisation that is considered to
use “best practice” in order to
find out how others achieve a
better performance.
Will the solution solve
the performance
problem long-term?
What are likely
consequences of
choosing the solution?
Could we implement the
solution with existing
resources?
Do we have enough time
to implement this
solution?
Does the solution make
economic sense?
What are solutionspecific risks?
What is the probability
that this risk really
occurs?
Could the risk be
managed?
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You can conduct this step of the problem solving process by means of:
These process steps should help you to find a solution that fulfills best the relevant criteria.
How to manage poor performance in the workplace
Performance management makes up a significant part of every manager’s job, and this means managers must
deal with poor performance. Managers often view this as one of the less desirable responsibilities that come
with the job because too often our perception of managing poor performance is clouded by thoughts of tense,
uncomfortable situations that may result in finger pointing, anger and denial.
If you believe that you have to put yourself and your employee through an awkward and stressful event to
effectively confront poor performance, you should tear down that perception of the process and reimagine it.
The simple fact is that managing poor employee performance should not be a huge event; it should be quick
and relatively pain free, for both the manager and the employee, and something that’s done incrementally at
the first sign of any deviation in ‘expected’ behaviour. When poor performance goes unaddressed for long
periods of time, as too often it does, it can become a major problem and manifest itself into a situation that
can blow out of control.
Importantly, managers must understand that poor performance that is not addressed quickly is in reality seen
by the employee as being condoned by the manager. This is because people respect what you ‘inspect’, not
what you expect! Consequently your team, your people, pay attention to what you pay attention to. So if the
behaviour you’re getting is not what you expect, act on it now.
A simple guideline for managing poor performance with your staff can be summarised in three basic steps:
Identify why the employee is underperforming
At the first sign of a deviation in behaviour, managers too often ask themselves, “What’s wrong with that
person?” But as soon as we do that, we have a tendency to personally indict the employee and possibly even
attack them verbally. So regardless of personal likes or dislikes, managers must work on being objective, focus
on the behaviour (not the personality) and ask, “why are they not performing as we expect them to do?”
In particular a manager must determine if there is some form of task interference or consequence imbalance
occurring.
Asking people with special
knowledge to fill in a
questionnaire.
Interviewing experts (e.g.
as part of a benchmarking
process).
Studying written materials
(e.g. research reports,
internal evaluations done
in the past when the same
problem occurred).
Identify what behaviour is causing the employee to underperform
Confront their poor performance
Redirect their behaviour to improve performance
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Task interference refers to anything that prevents the employee from performing their job to an expected
standard. This can be something as basic as a new procedure or system that has caused the employee to be
less productive, or it can be something that the employee doesn’t have, like proper resources, tools, skills or
training (this includes managerial support).
Employees experience consequence imbalance when there’s a mismatch between their actions and the
consequences of those actions, such as a manager failing to follow up when they said they would. Oftentimes
managers may see that the team is performing well, but if they haven’t made time to personally observe who
are and aren’t the real drivers of team performance, they praise everyone. To the poor performers, this
reinforces their ineffective behaviour and for the top performers it can cause them to question why they
should work harder and produce more, only to have their deserved recognition given to others.
So a consequence imbalance occurs when negative behaviour is positively rewarded (e.g. no action is taken to
address it) or when positive behaviour produces a negative outcome (e.g. no recognition or feedback).
Confront poor performance
There are six rules you should observe when confronting a poor performing employee:
1. Never confront in anger: do not let this become an emotional situation. Do whatever you need to do
to get your emotions in check before confronting; maybe walk around the block, count to ten or have
a coffee.
2. Do it immediately: take however long you need to get your emotions together, but as soon as you’ve
done that, confront the poor performing employee without delay.
Failure to confront immediately is what causes so much angst around the idea of confronting poor
performance. When you let inappropriate actions continue unaddressed for too long before
confronting them, the situation can get out of control. When managers consistently confront
immediately, at the first sign of a deviation in behaviour, the process of managing poor performance
becomes painless – and potentially even gratifying!
3. Do it in private: this doesn’t automatically mean going into your office and shutting the door, just don’t
do it within earshot of other staff. You don’t need to turn it into a big event. In fact, confronting poor
performance can be done quite casually, for example, at the water cooler or while getting a coffee or
even walking down the corridor. Many times, taking the employee into your office and closing the
door can create a tense atmosphere – the same tension that has given such a stigma to the process of
managing poor performance – before saying a word.
4. Be specific: use evidence and factual information to state your case and focus on behaviour. When you
bring hearsay or impressions into the conversation, you can find yourself squabbling over details, no
matter how big or small.
5. Use data: just as you should be specific with factual information, support your assertions with data
whenever possible. In the process of confronting, tell them what they have done, how you feel about
their actions (concerned, disappointed, angry) and why you feel that way. It’s not unusual to feel
anger, you can be human! If you’re emotionally invested in your business you’ll feel angry, and you
have a right to feel angry….you just don’t have the right to act out that anger!
6. Be clear: do not confuse people by watering down the fact that this is a reprimand. Because they feel
uncomfortable, managers will often end a confrontation with something like, “….but overall, you’ve
really been doing a great job.” The problem is people choose to hear what they want to hear, so
employees latch onto such comments and leave the meeting thinking they just got praised. So don’t
confront and praise in the same interaction.
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Redirect behaviour to improve performance
After confronting a poor performing employee with ‘what, how and why’, at the same time also begin the
process of redirecting their behaviour towards what you expect of them.
First, get their opinion of your assessment of the behaviour that’s at issue. Ask them: “how do you feel about
this situation?” What perspective do they have of their performance/behaviour? Then ask them to propose a
solution; what would they suggest be done to address the problem? Don’t simply mandate a solution for
them, get them to take ownership of it. This is to ensure that not only have they bought into the fact that
they’ve been performing poorly, but also because they so often will know themselves, better than anyone
else, what an appropriate solution will be….perhaps better than what you might have in mind!
Once you’ve agreed on the solution and the interaction is over, observe the employee’s behaviour over a
period of time. In other words, make sure you follow up. If the solution doesn’t adequately address the
situation, that’s okay, because you’ve addressed it early on. In fact, it can become a learning process for the
employee as they figure out how to get their behaviour where it needs to be. As long as they’re taking
incremental steps in the right direction, learning each time, you’ll be in good shape.
As you observe the employee making changes and improvements to their behaviour, positively reinforce their
actions by telling them what you’ve seen them do differently, how that makes you feel (and this time your
feelings are positive) and why you feel that way. The clarity of your communication will ensure they
understand the impact of their improved performance to themselves, the team and the organisation.
Managing poor performance is not a big deal
Setting aside all of these techniques for managing poor performance, if there’s one thing you should
remember about how to manage poor performing employees, it’s that it should not be the big deal that we so
often make of it. If you address inappropriate behaviour when it first appears, you will start viewing it not as a
burden but as an opportunity to coach, develop and grow.
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Plan and implement systems to ensure that mentoring and coaching are provided to support individuals and
teams to effectively, economically and safely use resources
There are different types of advisers who can help you with different aspects of your business plan.
To get the best from your adviser, you should plan and be very clear about what you need – particularly in
relation to your Intellectual Property (IP). Planning will help you clarify and prioritise your questions.
The main objective of seeking advice is to confirm your action plans and identify alternative strategies, if
they’re required. Remember that the final decision will always be yours to make.
Types of advisers
The type of adviser you deal with will vary depending on the nature of your business, but you will more than
likely deal with one of the following.
Branding consultants or graphic
designers will create a name
and/or image for your company
and/or product. They can also
help develop products for
marketing your business.
Accountants will provide advice
on company structures, taxation
arrangements and other related
areas of financial controlling. It is
important that these advisers
understand how to value your
ideas and the potential of your IP.
Financial advisers will provide
advice on gaining new finance and
the implications of different debtto-equity arrangements.
Commercial lawyers will set up a
legal framework and structure for
your business.
Management consultants can help
assess how you can expand your
business and the financial
implication of this. They can also
help identify any external factors
(such as changes in government
policy or assessment of the
general business environment)
that may impact on your business.
They can also help you build a
strong and productive working
team.
Marketing consultants or
researchers can assist in market
analysis, demographic research
and strategies to reach your target
markets.
Franchising or export consultants
can help identify new markets and
strategies for breaking into them.
Advertising agencies can create
campaign strategies to help you
promote your product or services.
They will research your market
and devise strategies that use a
variety of media, as well as direct
and non-direct marketing.
Information technology
consultants can help your
business build information
structures to help your daily
transactions and business
reporting needs.
Trade mark and patent attorneys
can develop strategies to protect
your IP and help you benefit
commercially from it.
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Managers are responsible for the performance and deliverables of their team. And a key part of a manager’s
job is developing and improving the skills of their employees to support improved employee performance.
When your team is continually growing and developing, then they will be more effective and productive in
their individual roles. This contributes to the effectiveness of the team and the organization as a whole.
Employee Performance Management and Development through Coaching
Coaching is one of the best ways to grow and develop
your team. And it topped the list of top manager skills in
Google’s Project Oxygen study. The objective of Project
Oxygen was to identify the characteristics employees at
the Googleplex admire most in bosses. After scouring
years of performance reviews, feedback surveys and
more, Project Oxygen identified eight top traits. Coaching
topped a list that also included career development.
Most people tend to think of coaching in sporting terms,
where the coach assists the athlete to improve their
physical skills and performance. Coaching employees in
the corporate world is no different. Coaching employees
may not be about improving physical or athletic skills. But it is about improving employee performance and
employee productivity.
Coaching Employees the Right Way
Like many things there is a wrong way to coach employees and a right way to coach employees. Coaching
employees the wrong way will result in:
But when you coach employees the right way you will:
Poor skill development
Decreased employee motivation
Reduced employee engagement
Underperformance and reduced employee performance and productivity
Save valuable time and
money correcting
underperformance
Encourage improved
employee performance
Give your staff new
capabilities that will
support their career
progression
Delegate more
effectively to your staff
because coaching
supports delegation
Improve employee
engagement
Improve employee
retention
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The first step to effective employee coaching is identifying employee coaching opportunities.
Using a Coaching Worksheet
A coaching worksheet will show you how to identify employee coaching opportunities. The Manager
Foundation Coaching Worksheet is a:
Coaching as a Manager Skill: Identifying Employee Coaching Opportunities
At the end of the coaching worksheet you will also have a list of:
Coaching in Management: A Powerful Manager Skill
Coaching in management is a powerful employee performance management tool. Coaching is also a different
approach to developing employees’ potential. Using coaching as a tool for employee development provides
your staff with the opportunity to grow and achieve optimal performance through:
Coaching Tool to identify which
activities your staff need to
improve their skills in
Coaching Tool to evaluate whether
or not your current staff
development process is working
Coaching Tool to quantify the cost
of ineffective staff development
Employee performance
activities that need to be
improved
Employee skills that need
to be improved
The most important tasks
you depend on your staff
for
Goal-setting
Consistent feedback
Guidance and counselling
Mentoring
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Coaching your staff means that you don’t run the risk of waiting to address underperformance in annual
performance reviews. Coaching your staff means that you can provide your employees with year-round,
consistent support along the path to meeting their goals.
When employee coaching is done correctly it:
What is Workplace Coaching?
Workplace Coaching is:
The process of equipping people with the tools, knowledge, and opportunities they need to fully develop
themselves to be effective in their commitment to themselves, the company, and their work.
A “designed alliance” focused on developing an individual to become their “best self” and to contribute their
“best fit” and talents.
An ego-less process in which coachable moments are created to draw out distinctions and promote shifts in
thinking and behaviour.”
Many organizations, researchers and leaders have identified coaching as a critical leadership and management
competency. In addition, employees are asking more and more for coaching. True coaching improves
employee and organizational resiliency and effectiveness in change.
We define workplace coaching as the skills, processes and knowledge through which people involve
themselves in making the maximum impact and constantly renewing themselves and their organizations as
they experience continuous change.
Coaching is not management skills re-packaged, although coaching draws on certain management skills and
competencies. Coaching deals with employee growth, development, and achievement by removing roadblocks
to performance and enhancing creativity. Management deals with supervision, evaluation and meeting
objectives.
Workplace Coaching is not therapy or counselling, although coaching uses some of the same communication
processes. Coaching is about creativity, performance and action, while therapy deals with resolution and
healing of the past.
Coaching is not mentoring or consulting, although coaches will use their experience, diagnose situations and
give opinions or advice at times. Coaching uses all of one’s knowledge and experience to enable the person
being coached to create and develop their own best practices, connections and resources.
Finally, coaching is not training. Coaches give information, but they support those they coach in developing
their own skills and knowledge.
Encourages consistent
and continuous
improved performance
Increases employee
motivation
Increases employee
engagement and
employee retention
Increases employee
productivity
Increases organisational
profitability
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Why Coaching in the Workplace and Why Now?
Coaching promotes creativity, breakthrough performance and resilience, giving organizations a competitive
edge and an effective way to flow and operate within an environment of continuous change. Successful
organizations like Hewlett Packard, IBM, MCI and others have recognized that managers must be able to coach
their employees and each other, and have included coaching in their management/leadership development.
Coaching has been identified by these organizations as a critical leadership and management competency.
Organizations are discovering that the traditional “command and control” style of management is no longer
effective in today’s environment, which requires rapid response, leveraged creativity, resilience, and individual
effort and performance in order to remain competitive.
Retention is critical, and coaching supports employee career/professional development and satisfaction, which
keeps valued employees.
Employees who are coached to performance rather than managed to performance are more committed to and
invested in the outcomes of their work and achievement of organizational goals.
Successful organizations have also discovered that on-going training of the workforce is necessary to remain
competitive. However, without coaching, training loses its effectiveness rapidly, and often fails to achieve the
lasting behavioural changes needed. While training is an “event”, coaching is a process, which is a valuable
next step to training to insure that the new knowledge imparted, actually becomes learned behaviour.
Coaching has never been more necessary than now and into the future.
Moving forwards change will be the norm and individual resilience and performance will be crucial to team
and organizational success. Coaching leverages individual strengths and abilities for maximum performance.
Coaching also provides for direct on-the-job learning as well as just-in-time learning tailored to the particular
situation. By enabling behavioural shifts, coaching allows projects and people to move forward immediately
and with less effort. Change in business today is often not linear, and requires quick shifts into entirely new
models. True coaching supports people in quick shifts needed to meet changing business demands.
Today’s employees are experiencing the new employment “covenant” which developed in the ‘80’s and is now
a part of corporate life. Career self-reliance is a critical employee competency under the new covenant, in
which employee’s trade skills and contribution for development and opportunity. Managers and leaders must
coach their employees, as they become career self-reliant and engage in continuous career development.
In today’s marketplace, adding value is key to business success.
Successful coaching adds value to employees, who then add value to their organizations by giving their best.
Employees want to be happy, productive and innovative, and coaching creates the environment where this
can happen. Coaching also supports diversity by recognizing every employee’s uniqueness.
Research and experience shows that employees perform better when positively coached, rather than being
constantly evaluated. Researchers have also seen that people with more positive attitudes are more likely to
succeed in their jobs and careers. Coaching fosters more positive employee attitude as a key component of
development, and enhances positive attitude through positive support.
Finally, coaching skills build and enhance team and work group performance, motivates sales production,
improve management and leadership, and promote diversity awareness and leveraging. Human resource
professionals have identified that in order to work well in the future, companies will need to hire employees
for their fit with the organization, rather than to fill job descriptions. Employee fit is assessed and developed
through coaching.
Managers also coach employees to become more career self-reliant and to develop their careers more
effectively.
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Who Coaches in the Workplace?
Successful managers and leaders today are developing their coaching skills, in order to support and enhance
employee performance and development. Managers with coaching skills also “peer coach” each other, as a
key way to provide each other with support and guidance in challenging environments. Finally, managers in a
360º feedback situation may “coach up” by coaching their superiors to enhance their own ability to lead and
manage.
Coaching provides not only a context for feedback, but also a process to support changed behaviour. The best
workplace coaches are those who understand and develop their own coaching style, rather than following a
cookie cutter approach, who know how to “flex” their style to coach others, and who can use the coaching
process and concepts effectively through understanding and skill development.
How do Managers and Leaders Develop Effective Coaching Skills and Competencies?
Managers and leaders develop their competency in coaching by:
While some managers may “take to” coaching more naturally than others at first, we find that the managers,
leaders and clients we work with all enjoy and become effective coaches once they are supported by a model
in finding and using their own unique coaching strengths. Coaching truly provides a win-win for both coach
and employee.
Increasing their awareness of coaching and its benefits, and “buying in” to the concept and process
Educating themselves on coaching concepts and tools
Identifying their own coaching style and skill level, and learning to identify others’ preferences
for being coached
Practicing coaching using the best coaching tools and their own strengths; and continuously
improving and installing their coaching competency through feedback and on-going coaching
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Negotiate recommendations for variations to operational plans and gain approval from designated
persons/groups
There is much discussion about continuous improvement, kaizen and operational excellence pursuits in
operations management. Many times, the topic of process improvement neglects the more important topic of
how to change a process. While there is a desire to avoid stifling creativity among the best and brightest within
an organization, a process change without process discipline can become the opening of Pandora’s Box and
lead to degraded performance. Following are eight steps that, if followed, allow us to properly change a
process with discipline while still embracing the insights and excitement of our rank-and-file operators.
1. Know the Current Process
One of the most important questions to ask at this stage is “Why is the process in its current state?” All too
often, we see individuals try to drive change without understanding what caused the process to become the
way it is. It is a sign of lazy analytics if the change proposer assumes the process is flawed because individuals
who designed it were lacking in process design knowledge. Perhaps the changes we seek are only possible
because of new technology or change in supplier. Regardless of the reasons, we need to understand the
lineage of the process to avoid past mistakes. Additionally, we need a readily communicable model of the
current process. If the organisation is ISO-certified and fully compliant, a good documentation of the process
should be readily available.
2. Know Why We Wish to Change the Process
The typical reason for process change is either cost reduction or variation reduction. For cost-reduction
changes, a good cost deployment is essential. For variation reduction, the change agent should know whether
random variation or special-cause variation (or both) is to be eliminated. We can typically erase special-cause
variation with rifle-shot solutions (turn off the special cause and we turn off the variation). For random
variation, typically increased capital expenditure (except in the cases of very sloppy processes) is needed to
decrease variation.
3. Clearly Identify the Change to be made
Once the current process is found to be deficient in some way, the new process should be articulated clearly
and concisely. This may be in the form of a text-based document, a flow chart or other organizationappropriate form of documentation. Sample testing of the documentation to ensure clarity is important. Can
operators look at the document and explain back to you how the new process will work? Do several operators
understand the documentation the same way, or do they interpret it differently? Documentation should lead
to clear understanding with little to no operator-to-operator interpretation variation.
4. Obtain Feedback and Buy-in from All Affected Stakeholders
In a forum of your choice (town hall meeting, posting with opportunity for anonymous feedback, etc.), the new
process should be expressed to all individuals who are affected by the change. This includes all individuals who
provide an input to the process as well as those who receive an output from the process. Will they be affected
in a meaningful way? Will the change cause unanticipated results in their portions of the process? Will this
process change add value (or eliminate value-destroyers) for the customer?
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5. Revalidate Process Discipline, Data and Measuring Systems for the Change
At all times, we should be certain that processes are followed, data are reliable and our measuring systems are
capable of providing data we can use to make good managerial decisions. That said, once we “shine the
management light” on the process we are working to improve, change can occur that makes it necessary to revalidate our behaviours, methods and measurements.
Before driving the change in our process, we must ensure that the process that’s in place is adhered to
properly. This alone can drive significant reduction in random variation. Once we’re certain of strong process
discipline, we should measure the process once again and ensure that we are obtaining reliable data from our
measuring systems. If necessary, a good gage R&R should be conducted to ensure quality and reliability of
data.
6. Train for the Change
After the process changes have been detailed and documented with feedback from all stakeholders, and a
method of measurement is implemented, all affected and responsible operators should be trained. This
training must be documented and, if possible, operators should have the ability to review the training offline.
7. Declare a Clean Line, and Execute the Change
Using our measuring system, we should be able to determine a clean line. The clean line is a point in time,
prior to the change, which will allow us to categorize data as “before the change” or “after the change.” This
will be a critical step as we go forward in order to keep track of the changes and analytically validate their
effectiveness.
8. Measure, Analyse, Improve and Control
After the change is implemented, results should be measured and analyzed. Was the change effective? Was
the source or sources of variation eliminated? If appropriate, use the analyzed data to further improve the
process, make adjustments based on reality and, most importantly, control the process. Be certain that the
changes that were made are maintained and the process is controlled. Review all process documentation
created throughout the process and ensure it accurately reflects the new process.
If a proper change management process is maintained, we can minimize special-cause variation due to
individualized process approaches and still embrace improvement recommendations as they occur in our
organisations.
Planning and Operating Variances
Explaining the causes of variances is a key step in variance analysis. In some cases the cause is purely
operational (e.g. the price of raw materials went up due to market shortages) but in some cases the cause is
due to poor budgeting and planning (e.g. we used an out of date price list when setting the standard cost of
materials). Often causes are a mixture of planning and operating factors. Some firms seek to make these
distinctions more explicit by separating out planning and operating variances.
The basic approach is to have two budgets – the original budget and a revised one that takes into account
planning issues. We can then determine two sets of variances:
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Planning and operational variances for sales
The sales volume variance can be sub-divided into a planning and operational variance:
Planning and operating variances for costs
When applying planning and operating principles to cost variances (material and labour), care must be taken
over flexing the budgets. One accepted approach is to flex both the original and revised budgets to actual
production levels:
Illustration 1- Revising the budget
Rhodes Co manufactures Stops which it is estimated require 2 kg of material XYZ at $10/kg In week 21 only
250 Stops were produced although budgeted production was 300. 450 kg of XYZ were purchased and used in
the week at a total cost of $5,100. Later it was found that the standard had failed to allow for a 10% price
increase throughout the material supplier’s industry. Rhodes Ltd carries no stocks.
Planning and operational analysis
The first step in the analysis is to calculate:
1
•Actual Results
2
•Revised flexed budget (ex-post)
3
•Original flexed budget (ex-ante)
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Illustration 2 – Revising the budget
A transport business makes a particular journey regularly, and has established that the standard fuel cost for
each journey is 20 litres of fuel at $2 per litre. New legislation has forced a change in the vehicle used for the
journey and an unexpected rise in fuel costs. It is decided retrospectively that the standard cost per journey
should have been 18 litres at $2.50 per litre.
Required:
Calculate the original and revised flexed budgets if the journey is made 120 times in the period.
Solution
When should a budget be revised?
There must be a good reason for deciding that the original standard cost is unrealistic. Deciding in retrospect
that expected costs should be different from the standard should not be an arbitrary decision, aimed perhaps
at shifting the blame for bad results due to poor operational management or poor cost estimation.
A good reason for a change in the standard might be:
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These types of situations do not occur frequently. The need to report planning and operational variances
should therefore be an occasional, rather than a regular, event.
If the budget is revised on a regular basis, the reasons for this should be investigated. It may be due to
management attempting to shift the blame for poor results or due to a poor planning process.
The basic idea given above is that
A change in one of the main materials used to make a product or provide a service
An unexpected increase in the price of materials due to a rapid increase in world market prices
(e.g. the price of oil or other commodities)
A change in working methods and procedures that alters the expected direct labour time for a
product or service
An unexpected change in the rate of pay to the workforce.
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Develop and implement systems to ensure that procedures and records associated with documenting
performance are managed in accordance with organisational requirements
THE EVALUATION PROCESS
Design
Develop a focus for your evaluation and decide what you want the evaluation to reveal. Is it an evaluation of
the whole organisation –its structure, service delivery and impact within the community – or is the evaluation
considering the effect of a single service or program? Determine what evaluation approach you are going to
take and who is going to drive the process.
Gain formal support and endorsement of the proposed evaluation from your organisation’s board. Without
formal support for your efforts, it is likely that the evaluation will be incomplete or selective in its
investigations and therefore in its results. The outcomes will not be widely accepted and may lead to
inaccurate recommendations.
During the design phase you should conduct an analysis of the external and internal environments in which the
organisation or program operates. The external environment issues might include funding, politics,
technology, legislation, culture or the local community. An examination of the internal environment will
include assessing staffing and workload levels, skills and expertise, resources and funding. This analysis will
assist in the development of performance indicators.
Develop performance indicators which are relevant and for which you have control. Plan data collection
methods which are easy to implement and are seen to be objective and reliable.
Implement
Implement your chosen data collection methods and ensure an ongoing commitment to the evaluation. If just
one staff member or volunteer does not really understand why they are collecting the data, your results are
likely to be inaccurate.
Record the relevant data over an appropriate period of time. One month may be adequate for short-term
projects, but one year may be more appropriate if you are evaluating a whole organisation. Some projects may
need data collection to occur at the beginning and the end of a project, or at regular intervals, and even after
the project has finished (to assess long term outcomes).
In most cases, it is best to conduct a ‘pilot’ at an appropriate time after you have started collecting the data. A
pilot means testing your data collection and results over a period to see if any problems need ironing out
before you go any further. After the pilot, continue to monitor the ongoing progress of your data collection
throughout the project. If you are collecting a large amount of data, or collecting data over a long period,
ensure that it is still relevant and staff remain enthusiastic and clear about the process.
Reflect
The most important task is making sense of the data. This is where you discover if your planning and data
collection methods were successful. There are many ways of collecting both quantitative and qualitative data,
as well as many ways of analysing and interpreting this data.
You need to assess the information collected and sort it into meaningful evidence. The manner in which it is
presented will determine what conclusions are made. For example, if you present the finding that 80% of
people completing a vocational course found work experience, it could mean a positive outcome and that your
program was a success. However, if this 80% had problems at the work experience and left the placement
before completing it, it might demonstrate that your program needs to do more life skills and preparatory
work before sending the participants of the program for work experience.
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Hopefully, you will find that the information collected confirms that you have met your performance
indicators, the number of outcomes produced, and what impact the organisation or program is having. The
data may also reveal the efficiency and cost effectiveness of the program, including the total cost of delivering
the identified outcomes.
Review
If possible, involve as many people from your organisation as possible to review the findings of the evaluation.
Evaluations should help you to make informed decisions which should benefit the organisation, enabling you
to make changes to a service or organisation based on the findings. However, be aware that if your data is too
ambiguous or unreliable, you could be making decisions based on a lack of evidence or subjective opinions and
judgments. This could harm your organisation and cause conflict, rather than improve your services and
programs.
Report the outcomes of the evaluation and make any required changes with support from the board and, if
necessary, your funder.
After the review, return to the planning process to develop new performance indicators and data collection
methods to monitor and evaluate whether the changes have improved your organisation or program.
PERFORMANCE INDICATORS
Whichever evaluation approach your organisation decides to implement, performance indicators are required
to assess what outcomes are being achieved.
Performance indicators are measures of achievement. You need to be careful when writing performance
indicators because if they are not measurable, or do not determine what you want to know, you may waste a
lot of time and resources. Good performance indicators are clearly and consistently defined and are relevant
to the organisation collecting the data and the funding body. Check what performance indicators are required
under your service agreement.
If you were undertaking a literacy program for unemployed people, examples of performance indicators might
be:
Ten unemployed people
attend a six-week
literacy course
Participants
demonstrate increased
literacy skills by taking
pre and post course
tests
During the six-week
course participants read
three books to increase
their reading skills
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COLLECTING DATA
Valid and useful information can be either qualitative or quantitative. Qualitative data is usually information in
the form of feedback, memos, reports and observations. Quantitative data includes statistics, figures and
financial records. You will decide what information is most relevant to your evaluation in the planning stage of
the evaluation process.
These are examples of methods to obtain data:
Community profiles which
describe your local target group
and their needs (available at
http://abs.gov.au Australian
Bureau of Statistics)
Questionnaires, surveys or
discussions/focus groups which
collect client and other
stakeholders’ feedback and
observations
Direct observation
Exit interviews with clients Written feedback from other
organisations
Information and statistics about
who accesses your service
Photographs and video recordings Cost analysis and budgets
Analysis of the time spent by each
staff member or volunteer on
each part of their job
Records – files, case notes, logs,
diaries, correspondence Case studies
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REPORTING
Reporting on the findings of the evaluation is an important part of the process. The report will generally
include: the aims of the evaluation, the specific questions addressed and performance indicators, the data
collection methods, the findings, and recommendations for action.
If you used a survey, present the results in a table. If you interviewed clients, include some verbatim responses
and a summary of responses in table form (these should not identify the client). Raw data allows further
interpretation at a later time, particularly in comparison with another collection of equivalent raw data. Your
report should make some recommendations for any identified areas for change. These recommendations
should be based on the results of your data, reference to other services in other places, or be justifiable on the
basis of what has been found. A draft version of the report could be circulated for comments before producing
the final copy.
The organisation’s Annual Report is a vehicle to report some of the findings and outcomes from the
evaluation. Clearly presented with graphs and even photos, you can demonstrate to your stakeholders and
members that you are a learning organisation which responds positively to evaluations by developing and
strengthening your organisation accordingly.
SELECTING AN EVALUATOR
An evaluation is a co-operative task which provides the best results when there is a wide range of inputs. One
person may have overall responsibility for the evaluation, but input from those involved in the organisation
may yield further important perspectives and information.
Factors to consider in the selection of an evaluator or project team include:
For evaluations which provide feedback to the organisation on a single aspect of operations or a specific
program, you may find that there are staff or volunteers keen to lead the project and develop their evaluation
skills. There are many resources available to help beginners. If the evaluation is more comprehensive, or
intended to underpin a major restructuring of the organisation, an independent and experienced person may
need to lead the project and provide the final recommendations to the board.
If your organisation does not have the finances to pay a consultant to lead the whole process, consider using a
consultant for particular aspects of the evaluation which are particularly sensitive or liable to influence. These
could include developing the design, the performance indicators themselves, or analysing the results of a
confidential survey.
Which staff or organisation members have the time and commitment to lead
the project?
Does the organisation have people skilled in designing and carrying out
this project?
Is an independent perspective required? The chances of ending up with
bias in your final report may be reduced if you can access outside skills and
knowledge.
Does the organisation have the resources or funding to pay an
independent consultant?
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SERVICE AGREEMENTS
If you receive funding from a funding body, it is likely that you will have either a Memorandum of
Understanding or a Service Agreement. Service Agreements outline the responsibilities of both parties and
often detail to what reporting requirements the organisation must adhere. The agreement secures the legal
funding relationship between the funder and the funded organisation and outlines the approved service(s),
including outputs, outcomes, and performance measures.
Most government departments require all funded organisations to sign a Service Agreement. They often
stipulate that the organisation is required to undertake research and data collection, development of policy
and practice, service planning, monitoring and evaluation. Before you sign the agreement, read the document
carefully to ensure that you can deliver the service and outcomes and can meet all of the reporting
requirements.
Depending on the level of reporting required, you may wish to negotiate funding which specifically covers the
resources and expenses related to carrying out monitoring and evaluation.
Do not forget to consider your service agreement(s) when undertaking strategic planning. Include the
outcomes required when writing your performance indicators and deciding what data to collect.
POLICY IN ORGANISATION
Policies underpin all of your organisation’s activities. They should be expressed as formal written documents
so that everyone in the organisation is clear about the organisation’s expectations and limitations. A positive
approach to managing an organisation relies on clear policies which are related to the goals of the
organisation, and which are flexible and responsive to external changes, so that your clients’ needs continue to
be met. Policies determine which choices the organisation makes – for example, how to achieve goals; how to
relate to clients and the wider community; or what management and staff practices to adopt.
It is important that you have a way of determining the appropriateness and success of your policies. Therefore,
policies should be closely linked to planning, evaluation and review processes. Your organisation will then be
managed through a continuous cycle of setting goals and policies; planning and implementing activities;
evaluating the success of those activities; developing modifications or completely new activities; and
implementing and evaluating changes.
There are many different policies which will relate to your individual organisation. Examples include:
Writing these policies all at once will probably be impossible. You may need to prioritise which are most
important to write first or give different staff the responsibility of developing ones relevant to their area of
work.
Confidentiality Access and equity Codes of conduct Critical incidents
Risk management Grievances Health and safety
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DEVELOPING POLICY
To be effective, policies must be clearly documented and respected. Involving the management committee,
staff or volunteers who will be affected by the policy is the most likely way to ensure they are understood and
functional. After consulting with stakeholders, your organisation should be able to determine what types of
policies and related procedures need to be written down and agreed upon. The four major questions involved
in forming policy are:
During the policy making process, it is important to consider the constraints impacting on the organisation
from different sources. This is best done while you are weighing up the benefits of the various policy options.
There may be relevant constraints in the organisation’s constitution, in funding guidelines, or with the
availability of resources, which may affect the choice of the preferred option. Sound policy making recognises
these and takes them into consideration in order to produce policy that is reflective of a real world, rather
than an ideal, perfect or hypothetical set of circumstances. Nobody respects a policy that is impossible to fulfil.
Finding the right words for policies can sometimes be challenging. The main rules include keeping it short and
avoiding jargon. Only use ‘shall’ for mandatory issues and actions. Use ‘may’ when actions are optional or need
to be assessed in different circumstances. Avoid extreme cases, and aim to write balanced and consistent
instructions which give staff and volunteers guidelines that are not unnecessarily restrictive. If you think
people are unlikely to read the whole document, create an Executive Summary with the main points
summarised.
Policies often begin with a Policy Statement. These statements should reflect the reason for the policy being
developed. For example, a confidentiality policy might begin with the statement: “The purpose of this policy is
to establish the Care Organisation’s approach to ensuring the confidentiality of information which identifies
individual persons. The policy covers all service users, community members, staff, volunteers and other
agencies or organisations.”
The steps to formulate and implement a policy may take some time, and may require the use of subcommittees or working groups. In each step, a participatory process will usually lead to better informed
decision making, as well as to a higher commitment by members of the organisation to the policy.
For legal issues, the board may decide to show the final document to a legal expert before ratifying the policy
and disseminating it to all relevant staff and volunteers. They may also decide that staff need some training in
understanding and implementing the policy. For instance, if you write a policy that requires all staff to have a
First Aid Certificate, you will need to make sure that staff know what this is, where and when they should
obtain it, and who is expected to pay for it.
It is important to ensure that policies are reviewed regularly and are monitored so that they reflect the best
ways to manage and deliver services. Of course, the environment is always changing, and policy preferences
must be kept up-to-date. This is why it is necessary to regularly review your policies and make changes, if
necessary.
Does this policy reflect our
values, ethics and priorities?
Have we
considered the
legal
requirements?
Does the policy
reflect reality?
What does the
policy promise,
and can we deliver
it?
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PUTTING POLICY INTO PRACTICE
Policies are important in organisational management and performance, but will only make a difference if they
are effectively implemented. Management and staff must make decisions about the way the practical, day-today operations are conducted. These decisions should be in line with the organisation’s policies. Policies must
be translated into actions.
If you have developed a policy about racism in the workplace, you might action that policy by ensuring that
every new employee receives cross-cultural training. If you have developed a policy about confidentiality, you
may need to review where client case notes are stored and purchase lockable filing cabinets.
To ensure the effectiveness of a policy and its related activities or procedures, a review or monitoring
mechanism should be implemented. For example, you might decide that your organisation will collect
information about the numbers and types of complaints received in a given period, as well as interviewing
clients about their experience of using your service. You could then see whether your ‘Grievance Policy’ has
helped make progress towards your goal of gaining feedback from clients.
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Activity Booklet

What is the purpose of an operational plan and should every organisation have one?

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Who should you consult with during the formation of an operational plan? Why

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State 3 examples of KPI’s that could be included in an operational plan.

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For a business in which you work, or have access to, who is responsible for approving the
organisation’s operational plan?

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State 3 ways to ensure that physical resource requirements and access to services and be met.

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What are 2 examples of intellectual property that an organisation may hold?