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ENTREPRENEURSHIP
Module 3
ORGANIZATION PLAN, PRODUCTION PLAN,
AND OPERATIONAL PLAN

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ENTREPRENEURSHIP – Grade 11

Module 3: Organization Plan, Production Plan, and Operational

Plan

Republic Act 8293, section 176 states that: No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the government
agency or office wherein the work is created shall be necessary for exploitation of such
work for profit. Such agency or office may, among other things, impose as a condition
the payment of royalties.

Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names,
trademarks, etc.) included in this book are owned by their respective copyright holders.
Every effort has been exerted to locate and seek permission to use these materials
from their respective copyright owners. The publisher and authors do not represent
nor claim ownership over them.

Regional Director: Gilbert T. Sadsad

Assistant Regional Director: Jessie L. Amin

Development Team of the Module

Writer: Marijo S. Balin

Editor: Cynthia C. Competente

Reviewers: Edwin L. Mias

Christie L. Alvarez

Illustrator/ Layout Artist: Jaypee M. Ignacio

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I. Title of Material/Introduction

ORGANIZATION PLAN, PRODUCTION PLAN

AND OPERATIONAL PLAN

This module will discuss other areas of the business plan, particularly involving
the organization, production and operation.

II. Objectives

At the end of this lesson, the learner should be able to implement the business
plan. Specifically, the learner must be able to :

1. Identify the important areas in the organization plan,

2. Determine the critical areas in the production plan, and

3. State the significant factors in the operation plan.

III. Vocabulary List

Suppliers – refer to individual persons or companies that provide the required

materials, parts, or services to the business.

Creditors – refer to banks, financial institutions, and financial intermediaries

engaged in the lending of money to the borrower usually for a fee or charge in
the form of interest.

Liability - is an obligation between one party and another not yet completed
or paid for.

Demand - is an economic principle referring to a consumer's desire to purchase

goods and services and willingness to pay a price for a specific good or service.

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 In transit - means that the product is no longer in the custody of the seller, but
the buyer has not yet received it.

IV. Pre-Test:

Multiple Choice. Write the letter of your answer.

1. Which part of the plan outlines the form of the business organization,
liability of the owner or owners, organizational structure, roles and
responsibilities, salary requirements?
a. Organization Plan c. Operational Plan
b. Production Plan d. Marketing Plan

2. All other mandatory benefits are included in the Salary Requirements

section except ________________ .
a. Social Security System c. Pag-Ibig
b. Philhealth d. Loans

3. The _______________ presents the total number of goods to be

produced and the expected time to produce them.
a. Production Process b. Production Schedule
c. Production Cost d. Sources Material

4. In the case of business dissolution and there still remains unsettled

financial obligation of the business, the creditor cannot go after the
personal property of the business owner. This is what you called
_________________.
a. Limited Liability c. Unlimited Liability
b. Internal Liability d. External Liability

5. Why it is a must the business should conduct a critical evaluation of the

suppliers of raw materials?
a. It is a part of the business plan.
b. To choose the cheapest supplier.
c. To minimize or avoid defects or damages in the supplies.
d. For personal choice.

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V. Learning Activities

1. Read the things all about Organization Plan and its different forms.
2. Read about Production Plan and study how it is done.
3. Read about Operation Plan and learn how business is being operated.

Take time to Read Young Entrepreneur !

ORGANIZATION PLAN

The organization plan provides a detailed description of the business in terms

of the following:

1. Form of the business organization

2. Liability of the owner or owners
3. Organizational structure
4. Roles and responsibilities
5. Salary requirements

In case a feasibility study has been prepared prior to the preparation of the
business plan, most of the information contained in the organization plan can be found
in the management aspect of the feasibility study.

Forms of the Business Organization

A business organization can come in the form of a sole proprietorship, a

partnership, or a corporation. There must be a purpose for the selection of the most
appropriate business form. In other words the mere statement, “The ABC
Manufacturing shall be in the form of a sole proprietorship, “ is an incomplete
description of the business organization.

The factors affecting the selection of the most appropriate business form
include the following:

1. Capital requirement
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 2. Liability of the owner or owners
3. Management and supervisory skills
4. Tax implications
5. Government intervention
6. Nature of the Business
7. External financing requirement

Liability of the Owner or Owners

This section describes the extent of the owner’s financial obligations with
creditors. The creditors can be in the form of individual persons, suppliers of raw
materials and supplies, or financial institutions. The extent of financial liability can
either be limited or unlimited.

The term limited liability means that in the case of business dissolution and
there still remains unsettled financial obligation of the business, the creditor cannot go
after the personal property of the business owner. The liability of the owner is only up
to the extent of his/her financial contributions to the business. On the other hand, the
term unlimited liability means that the creditors can run after the personal property
of the owner in the event that the business fails to fully settle its financial obligation
during business dissolution.

The extent of the liability of the owners in a sole proprietorship and a partnership
is usually unlimited. In a corporate form of business organization, the shareholders
have limited liability. They are only liable to the extent of their investments in the
corporation. The investment of the shareholders is represented through ownership of
shares or stocks.

Organizational Structure

The organizational structure of the business is usually shown or reflected in the

organizational chart. It shows and defines the hierarchy of the different positions in the
organization and the interrelationships of the different offices or departments. The
organizational chart depicts the flow of communication within the organization, and the
line and staff authority that must be observed and executed.

A corporation has the most complicated organizational structure, since most

corporations are composed of a huge workforce and also if the corporation operates
across the different parts of the Philippines. On the other hand, a small business, like

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the business that you intend to pen, has a very simple organizational structure- the
owner acts as the president or general manager and, at the same time, the head of
the production and marketing operations.

The entrepreneur prepares the structure that best fits the organization and hires
the most qualified people to do the tasks.

Roles and Responsibilities

The roles and responsibilities of the various positions in the business

organization must be clearly defined in order to minimize and avoid misunderstanding
and overlapping of functions. The educational requirements and experiences required
of the workers must also be specified. Complete information about the expectations of
a particular job or positions facilitates evaluation and hiring of qualified personnel and
the assessment of performance of existing workforce. Furthermore a clear set of
selection criteria for every position in the organization eases the hiring process and
assures the organization that only qualified personnel are hired. It will be better if the
entrepreneur prepares early a list of positions together with the respective job
specifications.

Salary Requirements

The organizational plan must show the total estimated monthly and annual
salary requirements of the business. All other mandatory benefits like the employer’s
contributions to the Social Security System (SSS), Pag-Ibig, and Philhealth must
likewise be specified. If some legal plans and moves of the Congress of the Philippines
will bring about increases in the salaries of personnel, the projected amount must be
included in the disclosure as well.

PRODUCTION PLAN

The Production plan presents or describes activities related to the production

of goods. The production plan is the result of the industry analysis, particularly the
study of supply and demand and consumer behavior.

The production plan usually includes the following:

1. Production Schedule
2. Production Process

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 3. Processing Plant and equipment
4. Sources of Material
5. Production Cost

This section basically applies to manufacturing entities. For service entities, this
section must be modified and labeled as Service Provision Plan.

Production Schedule

The production schedule presents the total number of goods to be produced

and the expected time to produce them. The total number of units to produce, however,
is usually affected by the following factors :

1. Demand for the product

2. Availability of resources
3. Capacity of the plant

The primary factor that influences the number of goods to be produced is

market demand. The entrepreneur must produce goods based on the total demand of
the consumers. The second consideration is timing. Producing the goods exactly at
the time when the consumers need them is an excellent production practice.

Production Process

This section of the plan must show the estimated cost of production. The three
elements of cost, namely labor, direct materials, and factory overhead must be
properly described and accounted for. In the event that the final product involves the
use of several direct or indirect materials, all the materials used in the production of
goods must be properly listed and provided with the cost. The total cost of the
proposed product may serve as the basis in setting its selling price, which not be lower
than its production cost.

OPERATION PLAN

The operation plan is a major section of the business plan that outlines the
various activities, from the acquisition of raw materials to the delivery of the products
to the target consumers.

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 The operation plan commonly covers the following areas:

1. Evaluation of suppliers
2. Materials requisition and receiving procedures
3. Storage and inventory control system
4. Shipment system and control
5. Functions of support services

Evaluation of Suppliers

The new basic entrepreneurial concept of quality management is that control

starts from the suppliers of raw materials. It used to be a common practice that a
business starts to implement its control system upon receipt of the materials. The
suppliers of raw materials must practice total quality management to minimize or avoid
defects or damages in the supplies. This concept extends from the suppliers of the
business to the suppliers of the suppliers. The business must conduct a critical
evaluation of the suppliers of raw materials and establish harmonious working
relationships with them to reduce the threats they posed.

Materials Requisition and Receiving Products

The procedures in requisitioning raw materials and other manufacturing

supplies and receiving them must be explained in the operation plan. The person
assigned to conduct inspection upon receipt of the materials must be included.

This section covers the following areas:

1. Basis of receiving the raw materials

2. Comparison of the order and receipt
3. Quality of materials received

The basis of the receiving report is the purchase order of the business. It must
be signed by authorized personnel. After the inspection, the person receiving the
materials usually prepares the receiving report.

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Storage and Inventory Control System

The operation plan describes how the business stores the finished goods and
protects its inventory against possible theft and losses. Goods that have been
completed in the processing plant are transferred to the warehouse or storeroom.

This section deals with the following:

1. Owning or renting a warehouse

2. Management of the warehouse
3. Procedures in the transfer of goods.
4. Control of inventory in the warehouse

Under the just-in-time manufacturing system, also known as JIT production

system, storage and warehousing are eliminated because only actual orders are
produced at the exact required time. The JIT system also eliminates wastage of
expired products and requires less capital since only essential stocks are ordered.

Shipment System and Control

The basis of sales invoice and other shipment documents are the purchase
order received from the customers. The sales contract and shipping documents must
be properly approved before the product is shipped to the customers.

This section covers the following:

1. Approval of shipping and sales documents

2. Terms of shipment
3. Manner of shipping the product
4. Other terms and conditions like sales contract.

The proper operation plan on the shipment of goods must be clearly defined. It
would be too costly on the part of the business to lose millions of pesos on shipment.
For example, who owns the products in transit that cost ten million pesos? In transit
means that the product is no longer in the custody of the seller, but the buyer has not
yet received it.

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 In a situation like where the shipment terms have not been clearly defined,
problems will definitely arise. Normally, the seller will opt to collect the amount from
the buyer since the goods have already been shipped, but the buyer may refuse to
pay because he/she has not yet received the goods.

Functions of Support Services

The operation plan defines and describes the functions of other support
services relative to the acquisition, processing, and shipment of goods to the
customers. It also includes the important role of other support services such as the
maintenance personnel and the security officers and staff.

Most businesses consist of three or four functional areas as follows:

1. Finance
2. Marketing
3. Operation
4. Human resources

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VI. Practice Tasks

Practice Task 1 - CONNECT ME!

Look for words inside the box which are connected to Organization Plan,
Production Plan, and Operation Plan.

Salary Requirements Liability of the owner or owners

Schedule Shipment System and Control
Materials Roles and Responsibilities
Evaluation of Supplier Organizational Structure
Functions of Support Services Cost
Process Plant and equipment
Form of the Business Organization Storage and Inventory Control System
Materials requisition and Receiving Procedures

Questions:
1. What does the organization plan cover?
2. What are the five (5) important areas under production plan?
3. What are the significant factors in the operation plan?

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 Practice Task 2 - JUSTIFY ME.

Write True if the statement is correct. Otherwise write False and

state your reason briefly/change the word/s that make it false.

1. Any form of business organization fits the proposed business.

2. In most instances the sole proprietor and partners have limited

liability.

3. The different positions and the relationships of the positions in the

business are usually depicted in the organizational chart.

4. The roles and responsibilities of the management must also be

included in the organizational plan.

5. The production schedule shows the total material needed to produce

a product.

6. The production schedule reflects the exact process of making a

product.

7. The selection of the production plant site must be provided with a

clear description as to its proximity to the source of raw materials.

8. The suppliers of raw materials need not be reviewed and evaluated

as long as they extend credit terms to the business.

9. Anybody in the business can receive the goods shipped by the

supplier as long as the order has been authorized.

10. The functions of other service departments need not be included in

the operation plan since they do not have any direct participation in
making the product.

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 Practice Task 3 – REFLECT ON ME!

Martha is running a t-shirt printing shop. If you are Martha and

you are going to choose between two suppliers, who are you going to
choose between Supplier A and Supplier B and why?

Supplier A who gives you a cartridge printer at Php 1999 price.

Supplier B who gives you a bottomless printer at Php 4990 price.

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VII. Post Test

ANSWER ME!

Answer the following.

1-5 Identify the important areas that must be properly described in the
organization plan.

6-15 Name the critical areas that must be included in the production
plan and the operation plan.

16-22 State some factors that must be considered in selecting the form of
organization that is best suited to the business.

23-25 Enumerate at least 3 factors involved in selecting the machinery and

equipment for the production of goods.

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VIII. Assignments

LET US ORGANIZE, PRODUCE and OPERATE!

Work with your group in the previous lessons. Do as instructed.

1. Prepare the organization plan of your proposed small business using the
format below as a guide.

ORGANIZATION PLAN

This section describes the form of the business organization, the liability of the
owner, the organizational structure, the role of the owner, and the proposed salary.

Form of Business Organization

Liability of the Owner

Organizational Structure

Role of the Owner

Proposed Salary

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 2. Prepare the production plan of your proposed business using the format below
as a guide.

PRODUCTION PLAN

This section presents the production schedule, production process, equipment

required, sources of materials, and estimated production cost.

Production Schedule

Production Process

Equipment Required

Sources of Materials

Estimated Production Cost

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 3. Prepare the operation plan of your proposed business using the format below
as a guide.

OPERATION PLAN

This section presents the evaluation of suppliers, purchase procedures,

storage and inventory control, and sales procedures.

Evaluation of Suppliers

Purchase Procedures

Storage and Inventory Control

Sales Procedures

Scoring rubric for each activity will be used.

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 SCORING RUBRICS

Category Beginning Developing Proficient Highly Excellent

Proficient
2 4 6 8 10

Completeness The work is Many questions Two or One All

very are more question is questions
incomplete. missing/partially questions partially are
complete. are answered answered
missing or or completely.
partially completely
complete. missing.
Correctness The work is Some There are There is 1 There are 0
full of questions/tasks 2 or 3 error in the errors in
errors. were not errors in output. the output.
answered the
correctly. output.
Collaboration We did the Only some of We We worked Everyone
work by the group worked together so worked
ourselves. members are together that together
We talked cooperative. most of everyone using
a little the time. contributed his/her
among Sharing to the final knowledge
group ideas output. and
members regularly. abilities to
make the
output
come
together.
Cleanliness Our final There are some Our work Our final There is no
output is erasures. is clean. output is erasures.
full of very clean
erasures.

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IX. ANSWER KEY

Pre-test
1. A 2. D 3. B 4. A 5. C

Practice Task 1 - CONNECT ME!

ORGANIZATION PLAN
1. Form of the business organization
2. Liability of the owner or owners
3. Organizational structure
4. Roles and responsibilities
5. Salary requirements

PRODUCTION PLAN
1. Production Schedule
2. Production Process
3. Processing Plant and equipment
4. Sources of Material
5. Production Cost

OPERATION PLAN
1. Evaluation of suppliers
2. Materials requisition and receiving procedures
3. Storage and inventory control system
4. Shipment system and control
5. Functions of support services

Practice Task 2 - JUSTIFY ME.

1. True
2. False, unlimited
3. True
4. True
5. True
6. False, production process
7. True
8. False, need to be reviewed
9. True
10. False, need to be included

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 Practice Task 3 – REFLECT ON ME!
Wisely speaking, students should choose Supplier B with
bottomless printer because it more economical than Supplier A with
cartridge printer. Even though, Supplier B’s price is more expensive than
A at first purchase, Martha would save more on the next days because
of the quality of service bottomless printer would give. It is alright if you
purchased higher at first than you have higher expenses later and you
take in consideration the quality of service you will use.

Post Test
1. Form of the business organization
2. Liability of the owner or owners
3. Organizational structure
4. Roles and responsibilities
5. Salary requirements
6. Production Schedule
7. Production Process
8. Processing Plant and equipment
9. Sources of Material
10. Production Cost
11. Evaluation of suppliers
12. Materials requisition and receiving procedures
13. Storage and inventory control system
14. Shipment system and control
15. Functions of support services
16. Capital requirement
17. Liability of the owner or owners
18. Management and supervisory skills
19. Tax implications
20. Government intervention
21. Nature of the Business
22. External financing requirement
23. Finance
24. Marketing
25. Operation/Human resources

Assignments
Students’ response will vary.

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References

Aduana, Nick L (2017).Entrepreneurship in Philippine Setting for Senior High School,

Quezon City, Philippines : C & E Publishing Inc. pp.101-102 , 233-244.

www.investopedia.com

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