Steps in Developing an Operational and Cost Plan

  1. DECIDE WHAT YOU NEED TO IMPROVE IN ORDER TO ACHIEVE OPERATIONAL OBJECTIVES
    • Look at operational objectives for the year
        1. Increase productivity
        2. Reduce waste
        3. Improve product quality
    • Review past performance and recent changes in the market:
        1. Sales report
        2. Production log book
        3. Customer feedback
        4. Market analysis
    • What specific activities does the business need to undertake to achieve these objectives?
        1. Staff training
        2. Regular inventory checks
        3. Office renovation
        4. Replacement of old equipment
        5. Promotional campaigns
  1. DETERMINE YOUR MONTHLY PRODUCTION SCHEDULE
    • Assess sales forecast
    • For each month, work out a specific monthly production quantity that will ensure your business always has products/services available to meet customer demand while meeting operational objectives
    • For products, either
        1. Match production rate to demand rate in sales forecast or
        2. Maintain a constant production rate and keep a stock of finished goods for high demand months
    • To determine which approach is better, for each option. translate production schedule into required capacity:
        1. Staff resources
        2. Equipment
        3. Storage space
    • Estimate production capacity based on past experience but remember that the improvements you have decided to make may also impact productivity and efficiency
        1. Staff may become more effective
        2. New production process may reduce downtime
    • Consider the business’ constraints with regard to its current production capacity and the costs involved in each option
    • Decide on a monthly production schedule that utilizes capacity efficiently
    • If current capacity can’t meet forecasted sales, consider:
      1. Outsourcing
      2. Increasing capacity
      3. Reducing sales
      4. For services, plan ahead to meet customer demand
  1. DEVELOP A COST PLAN
    • Estimate monthly production costs
      1. Cost of producing 1 unit or service – material costs, labor costs (use past records but consider impact of improvements)
      2. Multiply by production quantity
    • Estimate overhead
      1. Add overhead expenses – sales, advertising, rent, utilities, insurance and licenses (use past records and adjust for next year
    • Estimate total costs = Direct costs + overhead