TM-Entrepreneurship and Employabilityskill - Two

Ethiopian TVET System
Entrepreneurship and Employability skills
Module II
Module Title: - Developing Entrepreneurship and Employability skills
LG Code: ENT EMP M2 LO (1-6)

TTLM Code: ENT EMP M2 TTLM 0821V1z
August, 2021
Adama, Ethiopia
Federal TVET Agency Training module-Entrepreneurship and Version -1

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Author/Copyright Employability skills Module II July 2021
Table of Contents
Learning Outcome - 1..................................................................................................................................10

Understanding Marketing......................................................................................................................10
Information Sheet - 1.............................................................................................................................12
Identifying Marketing Philosophies...................................................................................................12
1.1.1 Marketing philosophy: Meaning, Importance, and Types.........................................................12
Information Sheet 2...............................................................................................................................17
Utilizing marketing information system............................................................................................17
1.2.1 Marketing information system..................................................................................................17
1.2.2 Sources of Marketing Information System...............................................................................18
1.2.3 Process of Market Research......................................................................................................21
1.2.4. Marketing intelligence.............................................................................................................24
1.2.5. Competitive Analyses..............................................................................................................26
Applying Marketing Strategy............................................................................................................29
1.3.1 What is Marketing Strategy?.....................................................................................................29
1.3.2 Customer driven market strategy..............................................................................................31
Developing Marketing Plan...............................................................................................................34
1.4.1 Marketing Plan.........................................................................................................................34
1.4.2. Market Mechanism (laws of demand & supply)......................................................................38
1.4.3 How Do Supply and Demand Create an Equilibrium Price?.....................................................39
Learning Outcome- 2.................................................................................................................................43
Maintaining Financial Records..............................................................................................................43
Financial Record keeping..................................................................................................................44
2.1.1 Definition of Financial Records................................................................................................44
2.1.2 Importance of Financial Records..............................................................................................45
2.1.3 Source document......................................................................................................................46
2.1.4 Types of Financial Records......................................................................................................46
2.1.5 Monitor the progress of your business.................................................................................48

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2.1.6 Financial statements.............................................................................................................49
2.1.7 Chart of accounts......................................................................................................................52
2.1.8 Analyzing and Recording Transactions....................................................................................57
Preparation of Financial Statements..................................................................................................69
2.2.1 Income Statement and Balance Sheet.......................................................................................69
Costing and pricing............................................................................................................................71
2.3.1 Different types of cost and how are they managed...................................................................71
2.3.2 Concept of Pricing....................................................................................................................74
Learning Outcome - 3................................................................................................................................78
Improving and Sustaining the Business.................................................................................................78
Information Sheet -1..............................................................................................................................80
Business Diagnosis............................................................................................................................80
3.1.1 Business Diagnosis Definition..................................................................................................80
3.1.2 Sources of data for Business Diagnosis....................................................................................81
Information Sheet -2..............................................................................................................................82
Conducting SWOT analysis and PESTLE.........................................................................................82
3.2.1 SWOT Analysis........................................................................................................................82
3.2.2. PESTLE Analysis....................................................................................................................87
Benchmarking the business...............................................................................................................90
3.3.1 What is Benchmarking?............................................................................................................90
3.3.2 Why is Benchmarking Important?............................................................................................91
3.3.3 Types of Benchmarking............................................................................................................91
3.3.4 Key Indicators for Benchmarking.............................................................................................93
Perform GAP analysis.......................................................................................................................95
3.4.1 What is GAP analysis?.............................................................................................................96
3.4.2 How to Conduct GAP Analysis?...............................................................................................96
Applying Problem Solving and Decision Making Techniques..........................................................98

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3.5.1 Overview of Decision-Making..................................................................................................99
3.5.2 Decision Making Techniques..................................................................................................101
Information Sheet - 6...........................................................................................................................108
Taking corrective actions.................................................................................................................108
3.6.1 Taking Corrective Actions......................................................................................................108
Information Sheet – 7..........................................................................................................................110
Impact of emerging or changing technology on business sustainability..........................................110
3.7.1 Business sustainability............................................................................................................110
3.7.2 The impact of technology in sustainable development?..........................................................110
Learning Outcome - 4..............................................................................................................................113
Analyzing Change and Innovation.......................................................................................................113
Information Sheet -1............................................................................................................................115
Understanding Nature of change.....................................................................................................115
4.1.1 Definition of Change and Innovation......................................................................................115
4.1.2 What is the difference between Change and Innovation?........................................................122
Define Change Resistance...............................................................................................................122
4.2.1 Defining Change Resistance...................................................................................................123
Identifying and implementing Change resistance reducing techniques............................................124
4.3.1 Change resistance reducing techniques...................................................................................124
Change Management.......................................................................................................................126
4.4.1 Change Management..............................................................................................................126
Relationship of Change and Innovation...........................................................................................128
4.5.1 Change and Innovation...........................................................................................................128
Learning Outcome - 5..............................................................................................................................132
Understanding Basics of Business Management Skills........................................................................132
Concepts of Business Management.................................................................................................134
5.1.1. What is a business?................................................................................................................134

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5.1.2. Business management............................................................................................................134
Determining Human and Non-Human Resource.............................................................................137
5.2.1. Human resource management (HRM)...................................................................................137
5.2.2 Human resource management functions.................................................................................137
5.2.3. Human and non-human resources..........................................................................................139
Work place problems and its management......................................................................................140
5.3.1. Definition...............................................................................................................................140
5.3.2. Steps of Workplace Management..........................................................................................141
5.3.3. Managing work place problems.............................................................................................142
Risk Management............................................................................................................................144
5.4.1. Sources of Risk......................................................................................................................144
5.4.2. Identification and assessment of risks....................................................................................145
5.4.3. Types of Risks.......................................................................................................................145
5.4.4. Risk management techniques.................................................................................................147
Information sheet - 5...........................................................................................................................148
Managing Micro and Small Enterprises (MSE)...............................................................................148
5.5.1 Definition................................................................................................................................148
5.5.2 Definition of Micro and Small businesses in Ethiopia............................................................148
5.5.3 Key success factors in setting up Micro, Small and Medium Businesses...............................149
Managing Growth and Transition of a Business..............................................................................150
5.6.1 Managing business growth.................................................................................................150
5.6.2 Managing Transitions.............................................................................................................150
Business Growth Strategies.............................................................................................................157
5.7.1 Business growth strategies.....................................................................................................157
Creating and Maintaining Business Relationships...........................................................................159
5.8.1 Creating & maintaining business relationships to promote goodwill and trust.......................159

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5.8.2 Build trust and respect in business relationships.....................................................................163
5.8.3 Maintaining successful business relationship..........................................................................169
Learning Outcome- 6...............................................................................................................................172
Developing a Business Plan.................................................................................................................172
Information sheet – 1...........................................................................................................................175
Identify Business Planning Process.................................................................................................175
6.1.1 Definition of Business Plan....................................................................................................175
Identify and Implement Essential Components of Business Plan....................................................178
6.2.1 Essential Components of Business plan..................................................................................178
6.2.2 Source and applications of funds............................................................................................193
Writing a business plan (Guide Line)..............................................................................................194
6.3.1 Business Plan..........................................................................................................................194
6.3.2 Optional Method to Calculate Needed Capital........................................................................203
Operation Sheet...............................................................................................................................207
Project Work....................................................................................................................................207
REFERENCES....................................................................................................................................210
Appendix-I..........................................................................................................................................211
Acknowledgments...............................................................................................................................226

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List of Tables
Table 1: Sample marketing plan of promotion..........................................................................................37
Table 2: Income Statement........................................................................................................................50
Table 3: Format of Balance Sheet..............................................................................................................51
Table 4: Parts of Chart of Account Classification.....................................................................................55
Table 5: Debit and Credit rules of accounts..............................................................................................56
Table 6: Debit and Credit Effects on Assets, Liabilities, Owners Equity Revenue, and Expenses.............56
Table 7: Standard Form of a General Journal............................................................................................60
Table 8: General Journal............................................................................................................................61
Table 9: Posting illustration to the account in the ledger...........................................................................61
Table 10: Trial Balance.............................................................................................................................65
Table 11: Work Sheet...............................................................................................................................67
Table 12: Income Statement......................................................................................................................69
Table 13: Statement of Owner’s Equity.....................................................................................................70
Table 14: Balance Sheet............................................................................................................................70
Table 15: SWOT Analysis........................................................................................................................82
Table 16: SWOT Analysis........................................................................................................................83
Table 17: Coverage of a SWOT analysis..................................................................................................83
Table 18: SWOT Analysis Worksheet.......................................................................................................84
Table 19: Internal Weakness Analysis......................................................................................................85
Table 20: External (O&T) Analysis (A)...................................................................................................85
Table 21: External (O&T) Analysis (B)....................................................................................................86
Table 22: SWOT Comparison with Competitors.......................................................................................87
Table 23: SWOT Analysis Summary Worksheet......................................................................................87
Table 24: PESTLE Factors.........................................................................................................................88
Table 25: Monthly Sales Plan (All products, product range or service)...................................................187
Table 26: A sample operating budget (cost) for first three month (Birr).................................................188
Table 27: Monthly Operational Cost Plan Planning is based on the monthly Sales Plan........................188
Table 28: Income Statement Format.......................................................................................................189
Table 29: Cash Flow Plan format............................................................................................................191
Table 30: Sample balance Sheet.............................................................................................................192
Table 31: Fixed Asset/Start-up Expense List sample format..................................................................203
Table 32: Unit Selling Price and Cost Analysis sample format...............................................................203
Table 33: Method to Calculate Needed Capital sample format..................................................................204
Table 34: Example on calculation of Break even....................................................................................205

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List of Figures
Figure 1: Marketing Research Process Chart________________________________________________19
Figure 2: Marketing Strategy____________________________________________________________33
Figure 3: Supply and Demand curve_______________________________________________________39
Figure 4: Business Diagnosis Cycle_______________________________________________________80
Figure 5: Diagnostic approach___________________________________________________________81
Figure 6: PESTLE Factors______________________________________________________________88
Figure 7: SWOT & PESTLE Factors______________________________________________________89
Figure 8: Gap Analysis_________________________________________________________________98
Figure 9: Kepner-Tregoe Matrix_________________________________________________________101
Figure 10: Situational Analysis__________________________________________________________101
Figure 11: Problem Analysis____________________________________________________________102
Figure 12: Decision Analysis___________________________________________________________102
Figure 13: Potential Problem Analysis____________________________________________________103
Figure 14: Decision Making Matrix Sample________________________________________________104
Figure 15: Pareto Diagram_____________________________________________________________105
Figure 16: The Future Wheel___________________________________________________________106
Figure 17: Force Field Analysis_________________________________________________________107
Figure 18: Change in the flowering process of a plant________________________________________115
Figure 19: The nature of Organizational Change____________________________________________116
Figure 20: External and Internal Change Forces_____________________________________________117
Figure 21: Two organizational change approaches___________________________________________117
Figure 22: Change Management Process__________________________________________________127
Figure 23: Risk Managment____________________________________________________________147
Figure 24: Risk Management Techniques_________________________________________________147

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MODULE INTRODUCTIION
The major sources of wealth and development for human being are land, manpower, capital,
Information Technology and Entrepreneurship. The first four can be easily seen, measured and
acknowledge. Entrepreneurship however, is something that cannot be easily identified, measured
and recognized. Economists and business people agree that entrepreneurship is vital for
stimulating economic growth and employment opportunities in all societies. This is particularly
true in the developing world, where successful small businesses are the primary engines of job
creation and poverty reduction.
In the developing world, successful micro and small enterprises (MSEs) are the primary
engines of job creation, income growth, and poverty reduction. Entrepreneurship and
Employability skill course is designed to provide trainee’s knowledge, skills and practice of
the required attributes and challenges for starting and operating a successful MSEs.
Moreover, it aims to encourage trainees to take action and give meaning to their work, to their
life and to their community to make the world a better place.
Moreover, Entrepreneurship and Employability skill course l e a r n i n g module-II is

designed to realize the objectives of TVET institutes for level III and Level IV trainees.
Therefore, a trainee is expected to actively participate in the learning and training process in
order to able to acquire the needed entrepreneurial and Employability skill, knowledge and
attitude. Module I is the pre-requisite for module II. In module –II there are major advanced
concepts of Entrepreneurship and Employability skills are compiled.
Module Objectives
At the end of this training module, trainee will be able to:

Understand Marketing
Maintain Financial Records
Improve and Sustaining the Business.
Analyze Change and Innovation
Understand Basics of Business management Skills
Develop a Business Plan

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Learning Outcome - 1 Understanding Marketing
Introduction
In module one, marketing is defined as social and managerial process by which individuals and
organizations obtain what they need and want through creating and exchanging value with
others. And Marketing mix is the set of marketing tools that the firm uses to pursue its marketing
objectives in the target market. These tools are classified into four broad groups that are called
the four Ps of marketing: product, price, place, and promotion. The 4Ps make up a typical
marketing mix - Price, Product, Promotion and Place. However, nowadays, the marketing mix
increasingly includes several other Ps like Packaging, Positioning, People and even Politics as
vital mix elements.
Marketing is the process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods and services to create exchanges that satisfy individual and
organizational objectives. Marketing management is also defined as the art and science of
choosing target markets and getting, keeping, and growing customers through creating,
delivering, and communicating superior customer value. Module two will mainly focus on the
marketing philosophies, marketing information system and marketing mix strategy.
Learning objectives:
At the end of the training, the trainees will be able to:
Identify marketing philosophy
Utilize marketing information system
Apply marketing strategy
Develop marketing plan
Activity 1: Individual Assignment

Assume, Abebe is planning to go into business and decided to start his business in his home
town because he had lived there all his life and knew most of the people, and they all liked
him. The business he wants to start is Auto Shop service then what marketing
activities/strategies do you recommend to Abebe to become successful in his business?

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Instructions Sheet
This guide will also assist you to attain the learning outcome stated below. Specifically, upon
completion of this Learning outcome, the trainees will be able to:
 Identify the marketing philosophies
 Utilize the marketing information system
 Apply marketing mix strategies in businesses
 Develop marketing plan
Learning Instructions:
1. Read the specific objectives of this Learning Guide.
2. Follow the instructions described below
3. Read the information written in the Information Sheets and Try to understand what are
being discussed.
4. Attempt all activities, group assignment and “Self-check question in each information
sheets and the project work
5. Ask your trainer/teacher for correction (key answers) or you can request your teacher to
correct your work. (You can get the answer key only after you finish answering the Self-
checks).

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Information Sheet - 1 Identifying Marketing Philosophies
Introduction
Marketing is not only much broader than selling; it is not a specialized activity at all. It
encompasses the entire business. It is the whole business seen from the point of view of its final
result, that is, from the customer’s point of view. Concern and responsibility for marketing must,
therefore, permeate all areas of the enterprise. Marketing maturity does not happen at a time. It
tends to be a gradual developmental process. Many firms who have reached a full marketing
orientation have done so by evolving through different stages of development.
1.1.1 Marketing philosophy: Meaning, Importance, and Types
Marketing philosophy is one of the simplest ideas in marketing, and at the same time, it is also
one of the most important marketing philosophies. At its very core are the customer and his or
her satisfaction. And states that the organization should strive to satisfy its customers' wants and
needs while meeting the organization's goals as well as society’s interest at different relative
weights. As we know "the customer is a king". Marketing management wants to design strategies
that will engage target customers and build profitable relationships with them. But what
philosophy should guide these marketing strategies? What weight should be given to the interests
of customers, the organization, and society?
The importance of a marketing philosophy

Marketing is about the process of creating, communicating, and delivering products to customers
to satisfy their needs profitably. The marketing philosophy underlines how the company achieves
this. It is about the way of doing business. It’s not just the domain of the marketing department.
Its application affects processes and activities throughout the organization, requiring synergies
between the marketing department and other departments such as operations, finance, and human
resources.
Types of marketing philosophies

Marketing philosophies or concepts evolve over time in line with changes in the relative weights
between the organization’s interests, customers, and society. There are five alternative
concepts/philosophies under which organizations design and carry out their marketing strategies.

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The marketing concept/philosophy is the strategy that firms implement to satisfy customers'
needs, increase sales, maximize profit, and beat the competition. Here are five of its evolutions:
1) Production concept
2) Product concept
3) Selling concept
4) Marketing concept
5) Societal marketing concept
Each of these philosophies was dominant in its time. However, that does not mean a philosophy
dies with the end of the era of domination. They are still in use today.
1. The Production Concept
The production concept holds that consumers will favor products that are available and highly
affordable or cheap. Therefore, management should focus on improving production and
distribution efficiency. This concept is one of the oldest orientations that guide sellers.
The production concept is still a useful philosophy in some situations. But, companies adopting
this orientation run a major risk of focusing too narrowly on their own operations and losing
sight of the real objective—satisfying customer needs and building customer relationships. Most
times, the production concept can lead to marketing myopia. Management focuses on
improving production and distribution efficiency.
If a firm decides to operate based on this concept, it will try to minimize production costs by
making the production process efficient. Moreover, for its products to be favored by the
consumers, it will try to make its distribution as extensive as possible.
This production concept is found to be applicable if two situations prevail.

1) When the demand for a product exceeds supply. This is seen in markets that are highly
price-sensitive and budget-conscious. Under such situations, consumers will basically be
interested in owning the product, not the quality or features of it. Thus, producers will be
interested in increasing their outputs.
2) If the production costs are very high, that discourages consumers from buying the
product. Here, the company puts all of its efforts into building production volume and
improving technology to bring down costs.

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Reduction in production costs helps the firm to reduce, helping the market size to increase. A
company can thus try to create a dominant position in the market where it operates.
Production Concept example: - You see, in Amazon or retail stores; the market is flooded with
cheap products from china. Everything from the cheap plastic product from China is on your cart now.
2. The Product Concept
The product concept holds that consumers will favor products that offer the most in quality,
performance, and innovative features. The main emphasis here is on the product. Therefore, it is
understood that in the product concept, the management fails to identify what business it is in,
which leads to the marketing myopia – i.e., short-sightedness on the role of marketing.
Product Concept example: - For example, suppose a company makes the best quality Floppy
disk. But a customer does need a floppy disk? She or he needs something that can be used to
store the data. It can be achieved by a USB Flash drive, SD memory cards, portable hard disks,
etc. So that the company should not look to make the best floppy disk, they should focus on
meeting the customer’s data storage needs.
3. The Selling Concept

Many companies follow the selling concept, which holds that consumers will not buy enough of
the firm’s products unless it undertakes a large-scale selling and promotion efforts. The Concept
proposes that customers, be individual or organizations will not buy enough of the organization‘s
products unless they are persuaded to do so through selling efforts. Such aggressive selling,
however, carries high risks. It focuses on creating sales transactions rather than on building long-
term, profitable customer relationships. The aim often is to sell what the company makes rather
than to make what the market wants.
Selling Concept example: - Every saw an ad online or TV commercial that you almost can’t
escape and hide from? The Selling Concept is in play. Almost all soft drinks and soda drinks
follow the selling concept. These drinks have no health benefits (actually harm your health
more); you can easily replace them with water (the most available substances on the earth). And
the soft drink companies know it, and they run ads 24×7, spending millions.

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4. The Marketing Concept
The marketing concept holds that achieving organizational goals depends on knowing the needs
and wants of target markets and delivering the desired satisfactions better than competitors do.
Here marketing management takes a “customer first” approach. Under the marketing concept,
customer focus and value are the routes to achieve sales and profits. Instead of a product-
centered make-and-sell philosophy, the marketing concept is a customer-centered sense-and-
respond philosophy. The job is not to find the right customers for your product but to find the
right products for your customers.
According to Philip Kotler, the marketing concept holds that the key to achieving organizational
goals consists of being more effective than competitors in integrating marketing activities toward
determining and satisfying the needs and wants of target markets, or determining the needs and
wants of target markets and delivering the desired satisfactions more effectively and efficiently
than competitors.
To sum up this topic, the marketing concept is based on four main pillars:
a) Market focus -The marketing concept suggests that a company should focus its attention on
marketing rather than production and selling.
b) Customer orientation – Focusing on a particular market does not guarantee a company’s
success in the marketplace. What is needed for success is customer orientation, i.e.,
carefully defining customer needs from customers’ points of view. A company can do this
with market research, and hence, the role of market research plays a dominant role in
marketing concept-oriented companies.
Customer orientation is important in the sense that a company’s future and progress depend
on the customers. Customers can be new and old. A company must retain its old customers
since attracting new customers is very difficult and costly. A satisfied customer will buy
again and again, and he/she will speak high about the company, which will increase the
company’s image and help attract new customers. Therefore, it is very important for a
company to be customer-oriented, i.e., to identify their needs and wants and reasonably
satisfy those.
c) Coordinated marketing - The marketing concept is a total enterprise concept. To be
successful, all marketing functions must be coordinated among themselves, and second,

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marketing itself must be well-coordinated with other departments. A company managed
under the marketing concept must plan, organize, coordinate, and control its entire operation
as one system directed toward achieving a single set of objectives applicable to the total
organization to eliminate conflicts and to ensure team work spirit. And
d) Profitability – The end of the marketing concept is to make profits through customer
satisfaction. This suggests that profit is to be made by satisfying customers’ needs.
Marketing Concept example: - Restaurants and startups do follow the marketing concept.
They try to understand the consumer and deliver the best product or service, which is better
for the competition.
5. The Societal Marketing Concept
Here the Societal Marketing Concept puts human welfare on top before profits and satisfying the
wants. This concept calls upon marketers to balance three considerations in setting their
marketing policies: company profits, consumer want satisfaction and public interest.
Societal Marketing Concept example: - While large companies sometimes launch programs or
products that benefit society, it is hard to find a company that is fully committed socially. Tesla
promises a big push for green energy with electric cars and solar roof panels/tiles.
Activity 1: Group Discussion

Today, most leading companies are developing customer-oriented approach towards
marketing. List and describe the ways marketers use marketing concept/philosophies to
satisfy customers.
Activity 2: Individual Assignment

Describe clearly each of the marketing concepts /philosophies?

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Information Sheet 2 Utilizing marketing information system
Introduction
The marketing information system refers to the use of technology for the arrangement of the
relevant data related to the market, sales, promotion, price, competition and allocation of goods
and service. This information is acquired after a proper analysis and understanding of the
marketing environment to ensure effective decision making in the organization. To reach at
marketing decision, it uses different components such as: internal company information,
marketing research and marketing intelligence as a source of getting inputs for decision making.
Pre-lesson activity: - Group Discussion

Activity: Why do businesses conduct marketing research?
1.2.1 Marketing information system
A marketing information system is a continuing and interacting structure of people, equipment

and procedures to gather, sort, analyze, evaluate, and distribute pertinent, timely and accurate
information for use by marketing decision makers to improve their marketing planning,
implementation, and control. The ingredients for a good marketing information system are
consistency, completeness, and orderliness. Marketing plans should be implemented on the basis
of information obtained from the intelligence network.
The real value of marketing information lies in how it is used—in the customer insights that it
provides. Companies must design effective marketing information systems that give managers
the right information, in the right form, at the right time and help them to use this information to
create customer value, engagement, and stronger customer relationships.
A marketing information system consists of people and procedures dedicated to assessing

information needs, developing the needed information, and helping decision makers use the
information to generate and validate actionable customer and market insights.
There are three primary types of marketing information marketers use to gain insights that will
contribute to wise marketing choices: internal data, competitive intelligence, and Marketing
research.

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1.2.2 Sources of Marketing Information System
The information needed by marketing managers comes from three main sources:
1. Internal company information – Internal information is information generated from within the
business, covering areas such as operations, maintenance, personnel, and finance. E.g. sales, orders,
customer profiles, stocks, customer service reports, etc.
2. Marketing intelligence – This can be information gathered from many sources, including
suppliers, customers, and distributors. Marketing intelligence is a term which includes all the
everyday information about developments in the market that helps a business prepare and
adjust its marketing plans. It is possible to buy intelligence information from outside
suppliers who set up data gathering systems to support commercial intelligence products that
can be profitably sold to all players in a market.
3. Market research – Marketing research is a process that identifies and defines marketing
opportunities and problems, monitors and evaluates marketing actions and performances, and
communicates the findings and implications to the management.
Marketing research is also the systematic design, collection, analysis, and reporting of data
relevant to a specific marketing situation facing an organization. Companies use marketing
research in a wide variety of situations. For example, marketing research gives marketers
insights into customer motivations, purchase behavior, and satisfaction.
It can help to assess market potential and market share or measure the effectiveness of pricing,
product, distribution, and promotion activities. Some large companies have their own research
departments that work with marketing managers on marketing research projects.
Management cannot always wait for information to arrive in bits and pieces from internal
sources. Also, sources of market intelligence cannot always be relied upon to provide relevant or
up-to-date information (particularly for smaller or niche market segments). In such
circumstances, businesses often need to undertake specific studies to support their marketing
strategy – this is market research.

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Figure 1: Marketing Research Process Chart
The components of marketing information system in the figure 1 above shows that information
sources are fed into an analytical process that guides decision-making and provides feedback
which can then suggest modifications to the original course of action. Marketing research and
marketing intelligence are the best-known function of the information process.
Market intelligence is concerned with wider issues that affect the company, as well as
monitoring a particular market. Monitoring of the marketing environmental factors is the
responsibility of the intelligence system. Its role is to provide information that precedes action,
and also to forewarn management of any tendencies that might significantly alter the market.
A marketing information system (MIS) is a management information system designed to support

marketing decision making. It brings together many different kinds of data, people, equipment
and procedures to help an organization make better decisions. It enables managers to share
information and work together virtually.
Why Conduct Market Research?

Marketing research is conducted to:
 develop product, price, promotion, place/distribution, and people plans
 identify problems in their marketplace and discover new opportunities
 Learn about competitors and how they are marketing their products.
 find out what consumers think about their product category
 gauge the performance of existing products

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How to conduct market research
Talk to potential competitors to find out:
 Their products or services (for example quality and design)
 2 What prices they charge
 What exactly they sell
 How their product/services differ from yours
 Where they get their inputs?
 Where they sell?
 How they promote their product/service
 Any special approaches to customer care
 How you can compete
All research studies can be categorized under the following three types, which are referred to as
research designs:
Exploratory Research: It is defined as collecting information in an unstructured and informal

manner. It is often used when little is known about the problem. Analyzing secondary data in a
library or over the Internet is one of the most common ways of conducting exploratory research.
Exploratory research is/are
 Used to better define a problem or scout opportunities.
 Commonly used In-depth interviews and discussions groups.
Descriptive Research: Descriptive research designs refer to a set of methods and procedures
that describes marketing variables. Descriptive studies portray these variables by answering who,
what, why, and how questions. These types of research studies may describe such things as
consumers ‘attitudes, intentions, and behaviors, or the number of competitors and their strategies.
Although most descriptive studies are surveys in which respondents are asked questions,
sometimes descriptive studies are observation studies that observe and record consumers
‘behavior in such a way as to answer the problem.
Descriptive research:
 Is used to assess a situation in the marketplace (i.e., potential for a specific product or
consumer attitudes)
 Methods include personal interviews and surveys.

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Causal Research: Causal Research explores the effect of one thing on another and more
specifically, the effect of one variable on another. The research is used to measure what impact a
specific change will have on existing norms and allows market researchers to predict
hypothetical scenarios upon which a company can base its business plan. For example, if a
clothing company currently sells blue denim jeans, causal research can measure the impact of the
company changing the product design to the color white. Following the research, company
bosses will be able to decide whether changing the color of the jeans to white would be
profitable. To summarize, causal research is a way of seeing how actions now will affect a
business in the future.
Causal research:
 Is used for testing cause and effect relationships.
 Typically through estimation
Activity 1: Group work

List and explain marketing information system components?
1.2.3 Process of Market Research
The followings are marketing research process.

1. Identify the Research Purpose - The research purpose comprises a shared understanding
between the manager and the researcher.
Points included in research purpose are:
a) Problems or opportunities to be studied
 Which problems or opportunities are anticipated?
 What is the scope of the problems and the possible reasons?
b) Decision alternatives to be evaluated
 What are the alternatives being studied?
 What are the criteria for choosing among the alternatives?
 What is the timing or importance of the decision?
c) Users of the research results
 Who are the decision makers/users?
 Are there any covert purposes?

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The very first and the most important step in research: A problem well-defined is half solved‖ –
Nature of the problem determines the type of study to conduct. – Symptoms, for example,
declining sales, profit, market share, or customer loyalty are not problems.
Defining the problem is the most important step in the research process. Why? What else matters
if we have defined the problem incorrectly? Unfortunately, managers are good at clearly seeing
symptoms and are less adept at seeing the real problem. Clear problem definition is of crucial
importance in marketing research as in terms of both time and money research is a costly
process. Careful attention to problem definition allows the researcher to set the proper research
objectives which in turn facilitate relevant and economic data collection
2. Establish Research Objectives - The research objective is a statement, in as precise

terminology as possible, of what information is needed. The research objective should be
framed so that obtaining the information will ensure that the research purpose is satisfied. If
you do not know what you are looking for, you won‘t find it‖. Research objectives are
related to and determined by the problem definition. In establishing research objectives, the
researcher must answer the following questions:
 What specific information should the project provide?
 If more than one type of information will be developed from the study, which is the
most important? What are the priorities?
 When specifying research objectives, development of hypotheses, might be very
helpful.
 When achieved, objectives provide the necessary information to solve the problem.
3. Sampling Plan - Marketing researchers usually draw conclusions about large groups of
consumers by studying a small sample of the total consumer population. A sample is a
segment of the population selected for marketing research to represent the population as a
whole. Ideally, the sample should be representative so that the researcher can make accurate
estimates of the thoughts and behaviors of the larger population.
Designing the sample requires three decisions. First, who is to be studied (what sampling
unit)? Second, how many people should be included (what sample size)? Large samples give
more reliable results than small samples. However, larger samples usually cost more, and it is

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not necessary to sample the entire target market or even a large portion to get reliable results
Finally, how should the people in the sample be chosen (what sampling procedure)?
There are two types of samples. Probability and non-probability samples: in probability
sample each population member has a known chance of being included in the sample, and
researchers can calculate confidence limits for sampling error. But when probability sampling
costs too much or takes too much time, marketing researchers often take nonprobability samples
even though their sampling error cannot be measured. These varied ways of drawing samples
have different costs and time limitations as well as different accuracy and statistical properties.
Which method is best depends on the needs of the marketing research project.
4. Probability Sample - Simple random sample every member of the population has a known
and equal chance of selection.
 Stratified random sample - The population is divided into mutually exclusive groups
(such as age groups), used if the study population is heterogonous
 Simple random samples are drawn from each group by chance
 Cluster (area) sample the population is divided into mutually exclusive groups (such as
blocks), and the researcher draws a sample of the groups to interview.
5. Nonprobability Sample
 Convenience sample - the researcher selects the easiest population members from which
to obtain information.
 Judgment sample - the researcher uses his or her judgment to select population members
who are good prospects for accurate information.
 Quota sample - by assigning of quota the researcher finds and interviews a prescribed
number of people in each of several categories
6. Data Collection Methods - The data can be classified in the following three ways:
 Quantitative and Qualitative data: - Quantitative data are those set of information which
are quantifiable and can be expressed in some standard units like rupees, kilograms,
liters, etc. Qualitative data, on the other hand, are not quantifiable, that is, cannot be
expressed in standard units of measurement.

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 Sample and Census Data: - The data can be collected either by census method or sample
method. Information collected through sample inquiry is called sample data and the one
collected through census inquiry is called census data.
 Primary and Secondary Data: - The primary data are collected by the investigator
through field survey. Such data are in raw form and must be refined before use. On the
other hand, secondary data are extracted from the existing published or unpublished
sources, (example books, research papers, newspaper, magazines internet etc.)
The primary data can be collected through the following methods: interview method,
questionnaire method and observation.
7. Data Analysis - Once data are collected, data analysis is used to give the raw data meaning.
Data analysis involves entering data into computer files, inspecting the data for errors, and
running tabulations and various statistical tests. Typically, data analysis is conducted with
the assistance of a computerized data analysis program such as SPSS. Data analysis has the
great advantage that it allows us to be as precise as possible in our interpretations of the
findings we have obtained.
8. Report writing - The last step in the marketing research process is to prepare and present
the final research report—one of the most important phases of marketing research. Its
importance cannot be overstated because it is the report, or its presentation, that properly
communicates the study results to the client.
Activity 1: Group Discussion and Reflection

Discuss the process of marketing research?
Activity 2: Group work

Demonstrate by giving examples the three data collection methods
1.2.4. Marketing intelligence
Market intelligence is the permanent collection, analysis, monitoring, evaluation, storage and
distribution of information on markets. It is a continuous process, which focuses on what
happens outside the enterprise and provides on-going information about the market.

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Marketing research is focused, market intelligence is not. A marketing intelligence system is a
set of procedures and data sources used by marketing managers to shift information from the
environment that they can use in their decision making. This scanning of the economic and
business environment can be undertaken in a variety of ways. The sources of marketing
intelligence can be classified as internal sources vs. external sources. The internal sources to
marketing intelligence include company executives, front desk staff, service staff, purchasing
agents, and sales force. The external sources of marketing intelligence includes suppliers,
convention and tourist bureaus , travel agencies, trade publications, associations, consultants,
banks and financial institutions.
Competitive marketing intelligence is the systematic monitoring, collection, and analysis of

publicly available information about consumers, competitors, and developments in the
marketplace. The goal of competitive marketing intelligence is to improve strategic decision
making by understanding the consumer environment, assessing and tracking competitors’
actions, and providing early warnings of opportunities and threats. Marketing intelligence
techniques range from observing consumers firsthand to quizzing the company’s own
employees, benchmarking competitors’ products, online research, and monitoring social media
buzz. Good marketing intelligence can help marketers gain insights into how consumers talk
about and engage with their brands. Many companies send out teams of trained observers to mix
and mingle personally with customers as they use and talk about the company’s products.
There are a number of information sources, which are used by market intelligence agents:
 Internal company information: sales records, production costs, technical efficiency ratios,
customer records, etc.
 Suppliers, intermediaries and customers. These are excellent sources of information
which should not to be left untapped.
 Secondary information such as the press reviews, radio, television, trade fairs,
advertising, official gazettes, newsletters from professional associations and chambers of
business and industry.
 Information on competitors, on prices, product qualities and promotion strategies.
 National licensing or patent offices and research and development institutions.

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 Engaging outside consultants specialized in monitoring the behavior of market sectors
and company performance is very expensive and surpasses the budget of many
producers’ associations.
Ways to Undertake Marketing Intelligence

Unfocused scanning: - Any information that may be useful is gathered without any specific
purpose in mind.
Semi-focused scanning: - no specific purpose. The manager is not in search of particular pieces
of information that he/she is actively searching but does narrow the range of media that is
scanned. For instance, the manager may focus more on economic and business publications,
broadcasts etc. and pay less attention to political, scientific or technological media.
Informal search: - limited and unstructured attempt to obtain information for a specific purpose.
For example, entering the business of importing frozen fish from a neighboring country may
make informal inquiries as to prices and demand levels of frozen and fresh fish.
Formal search: - this is a purposeful search for information in some systematic way. Marketing
intelligence is carried out by the manager him/herself rather than a professional researcher.
Scope of the search in this case is likely to be narrow and far less intensive (less rigorous) than
marketing research.
Activity 1: Group discussion:

Demonstrate the ways marketing intelligence can be conducted.
Activity 2: Individual Assignment:

Explain the situations in which marketing research should be used versus market intelligence.
1.2.5. Competitive Analyses
Competitive analysis refers to determining the strengths and weaknesses of competitors and
designing ways to take opportunities or tackle threats posed by competitors.
Uses of Competitive Analysis

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Competitive analysis is important for businesses since it has the advantages stated as follow:
 It helps management understand its competitive advantages/ disadvantages relative to
competitors.
 It generates understanding of competitors’ past, present (and most importantly) future
strategies.
 It provides an informed basis to develop strategies to achieve competitive advantage in
the future (e.g. how will competitors respond to a new product or pricing strategy?)
 It helps forecast the returns that may be made from future investments.
Competitive analysis is a method of gathering data about competitors from different sources. To
study your competitors’ businesses you need to find about the following
 Who are your competitors?
 What customer needs and preferences are you competing to meet?
 Their products or services, for example quality and design
 What prices they charge
 What exactly do they sell?
 How does their product differ from yours?
 Where do they get their inputs?
 Where do they sell?
 How can you compete
 How do they promote their product/service?
 Do they have any special approaches to customer care?
Steps of Competitive Analysis

Every business owner should have a complete understanding of the competitive landscape in the
market. Competition is defined as any business that provides a similar service or product in the
same market, region or industry. A strategic business owner not only knows who its competitor
is but also understands the best way to position ahead of its competitor. The following provides a
step-by-step process in creating your competitive analysis.

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1. Identify your competitors: - Determine both local and international competitors. Be sure to
define the competitive landscape broadly. Your competitor includes anything that could
draw customers away from your business.
2. Gather information about competitors: - At this stage you need to know; what markets or
market segments your competitors serve; what benefits your competitors offer; why
customers buy from them; and as much as possible about their products and/or services,
pricing, and promotion strategies.
3. Gathering Information on Competitors: - To gather information about your competitor
you can go either to your competitors’ company site or to the company's Web site (if any)
using which you can learn about; promotion strategies by visiting their business site; prices;
your competitors’ customers; vendors or suppliers, and their employees; trade shows; and
publicly available information - from Newspapers, magazines, press releases and online
publications.
4. Analyzing the Competition: - After studying the information you have gathered about each
of your competitors, ask yourself these primary questions:
 How are you going to compete with that company?
 Is there a particular segment of the market that your competitor has overlooked?
 Is there a service that customers or clients want that your competitors do not supply?
5. Make the decision: - The last step in the process is to develop a pricing model and other
decisions in relation to your competitors that represent what you are offering to the market
and the value you bring to your target buyers. There are many factors that go into designing
the appropriate pricing structure so you will need to do some research and evaluate what
price levels your market will bear, your cost basis for the development of your product, how
much you need to cover overhead and marketing costs and lastly how much profit you think
is appropriate for what you are offering. Do not immediately think you have to price your
products below your competition, people appreciate the value in your product and set your
price accordingly.
The goal of your competitive analysis is to identify and expand upon your competitive
advantage. To make your competitive analysis effective, transfer the weaknesses of your
competitors into potential strengths for your business.

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Activity 1: Group Assignment
Select three similar businesses around your area and conduct competitive marketing
analysis and present to the class and discuss with your classmates.
Information Sheet 3 Applying Marketing Strategy
Introduction
A marketing strategy is a process that can allow an organization to concentrate its limited
resources on the greatest opportunities to increase sales and achieve a sustainable competitive
advantage. A company has many alternatives strategies (product. Pricing, promotional and
place/distribution) that helps to get advantages over its competitors.
Pre-lesson Activity 1: - Individual assignment

Assume, you have a small beauty salon and have sufficient clients at present time. Someone
by observing your success wants to open nearby area another beauty salon to share your
market. What strategy would you follow to retain your present clients and attract others to
be effective in your business?
1.3.1 What is Marketing Strategy?
Marketing strategy is a method of focusing an organization's energies and resources on a course

of action which can lead to increased sales and dominance of a targeted market.
A marketing strategy combines product development, promotion, distribution, pricing,
relationship management and other elements; identifies the firm's marketing goals, and explains
how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the
choice of target market segments, positioning, marketing mix, and allocation of resources. It is
effective when it is an integral component of the overall firm strategy, defining how the
organization will successfully engage customers, prospects, and competitors in the market arena.
Product strategy

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Product Before making a product the company should focus on what customers want and need
and then accordingly they should develop a product to meet the need of the potential customers.
Let‘s consider, the competitor‘s products offer the same benefits, same quality, and same price.
In such a scenario you should differentiate your product with the following:
 Design ,image, brand  Convenience  Accessories
 Technology  Quality  Warranty
 Usefulness  Packaging
Pricing Strategy
A product is only worth if a customer is prepared to pay for it. Therefore, the companies focus on
various pricing strategies while pricing their products:
 Premium Pricing: - This strategy involves using high pricing where there is uniqueness
about the product or service. This approach is used where a substantial competitive
advantage exists. Such high prices are charge for luxuries such as Cruises, Luxury Hotel
rooms, Designer products.
 Penetration Pricing: - It is the strategy of entering the market with a low initial price to
capture greater market share.
 Price Skimming: - The practice of price skimming ‘involves charging a relatively high
price for a short time where a new, innovative, or much-improved product is launched
into a market. The prices are set high in order to attract least price sensitive customers to
generate high profits.
 Competitive Pricing: If your product is sold at the lowest price regarding all your
competitors, you are practicing competitive pricing. Sometimes, competitive pricing is
essential.
Promotion Strategies
Promotion is the communication of the company and its products to customers. Who are your
Target Markets?
 How will you reach your Target Markets? (What Media will you use?)
 How will you motivate them to buy? (What Message will you stress?)
 What is the cost and timetable for implementation of the marketing plan?

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Promotional strategy is choosing a target market and formulating the most appropriate promotion
mix to influence it. An organization’s promotional strategy can consist of:
Advertising: - It is any paid form of non-personal, one-way, mass communication about an

organization, good, service, or idea by an identified sponsor.( e.g TV, radio and newspaper etc.)
Personal selling: - This is the two-way flow of communication between a buyer and seller, often
in a face to face encounter, designed to influence a person’s or group’s purchase decision.
Public relations: - Public relation is a form of communication that seeks to change the
perceptions of customers, shareholders, suppliers, employees and other publics about a company
and its products.
Sales promotion: - This promotion type involves short term incentives of value such as
discounts, free samples, and prizes to be offered to arouse interest of customers in buying the
good/service. Businesses may use one of the above promotional mix elements to arouse the
interest of customers and make them take action by informing, persuading and reminding about
the goods and services that they provide to the market.
Place/ Distribution Strategies

A successful product or service means nothing unless the benefit of such a service can be
communicated clearly to the target market. For product-focused companies, establishing the
most appropriate distribution strategies is a major key to success, defined as maximizing sale and
profits. Unfortunately, many of these companies often fail to establish or maintain the most
effective distribution strategies. It refers to the place where the customers can buy the product
and how the product reaches out to that place. This is done through different channels like:
Retails Wholesale Internet Mail orders Direct Sales.
1.3.2 Customer driven market strategy
The figure 2 below shows the four major steps in designing a customer value–driven marketing
strategy. In the first two steps, the company selects the customers that it will serve.
Market segmentation: - Involves dividing a market into distinct groups of buyers who have
different needs, characteristics, or behaviors and who might require separate marketing strategies
or mixes. The company identifies different ways to segment the market and develops profiles of
the resulting market segments.

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Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying
practices. Through market segmentation, companies divide large, diverse markets into smaller
segments that can be reached more efficiently and effectively with products and services that
match their unique needs. In this section, we discuss four important segmentation topics:
segmenting consumer markets, segmenting business markets, segmenting international markets,
and the requirements for effective segmentation. There is no single way to segment a market. A
marketer has to try different segmentation variables, alone and in combination, to find the best
way to view market structure. Major variables that might be used in segmenting consumer
markets are geographic, demographic, psychographic, and behavioral
Market targeting (or targeting): - consists of evaluating each market segment’s attractiveness
and selecting one or more market segments to enter. In the final two steps, the company decides
on a value proposition—how it will create value for target customers. Target Marketing involves
breaking a market into segments and then concentrating your marketing efforts on one or a few
key segments. Target marketing can be the key to a small business‘s success. The beauty of
target marketing is that it makes the promotion, pricing and distribution of your products and/or
services easier and more cost-effective.
Differentiation: - beyond deciding which segments of the market it will target, the company
must decide on a value proposition—how it will create differentiated value for targeted segments
and what positions it wants to occupy in those segments. Segmentation involves finding out what
kinds of consumers with different needs exist. In the auto market, for example, some consumers
demand speed and performance, while others are much more concerned about roominess and
safety. In general, it holds true that ―You can‘t be all things to all people,‖ and experience has
demonstrated that firms that specialize in meeting the needs of one group of consumers over
another tend to be more profitable
Positioning: - After the organization has selected its target market, the next stage is to decide
how it wants to position itself within that chosen segment. A product position is the way a
product is defined by consumers on important attributes - the place the product occupies in
consumers’ minds relative to competing products. Products are made in factories, but brands
happen in the minds of consumers

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Figure 2: Marketing Strategy

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Information Sheet - 4 Developing Marketing Plan
Introduction
Successful marketing requires planning and careful execution. A marketing plan serves several
purposes within a company.
 It serves a base for all marketing activities of the firm for the next year
 It ensures that marketing activities are in agreement with the business strategic plan.
 Helps in the budgeting process
 Monitors actual result against the expected result
It is advisable that the marketing plans should be written every year because plans which are
written for more than a year are not very effective. While planning only the manager should not
be responsible rather he should sit with his team and make marketing plans. It not only helps in
team building but also provides training to the young team members who have a long way to go.
1.4.1 Marketing Plan
 Executive Summary: – It is imperative that this section should be give importance and
written carefully in short because the top management does not read the entire plan but goes
through the executive summary in detail. It should include a few charts and graphs as well.
 Corporate Connection: – It is imperative that while framing the marketing plans they
should be in line with the strategic plans of the organizations like:
o Corporate goals with respect to profit, growth
o Positioning of the company
o Vertical and horizontal integration
o Product line breadth and depth
 Environmental Analysis and Forecasting: – While formulating the plans the team should
keep in mind several environmental factors that are likely to affect the industry and what
impact will it have on marketing. The team should also design ways to respond quickly and
intelligently to new trends and events. Major environmental factors are:
o Social – For example, crime, AIDS, and changing demographics, they will vary in their
intensity and geographical incidence. ―The hotel market within India had long been

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considered as uninteresting by many hotel chains.
o Political – Laws affecting taxation, pension benefits,
o Economic – Changes in employment, income, savings and interest rate should be
recognized because the hospitality industry is sensitive to such issues
Apart from this the team should also focus on the market trends like:
o Visitor trends – spending habits, length of stay, demographics etc.
o Competitive trends – location, type of products offered, occupancy level, average rate etc.
o Related industry trends – It means dependence of a industry on other industry. For
instance, hotel industry will depend on flight schedules, convention centers, construction
of airports and highways etc.
 Segmentation Analysis: – A marketing plan will not be successful if it does not get its
segmentation and target market right. While selecting the segment firstly, one should
determine what the company is and what it wishes to be, secondly, study the available
segments and see whether they fit in the company‘s desires and capabilities.
Target markets are selected from the list of available segments. If wrong target market is selected
then all efforts of promoting and advertising will go waste. Let us take the example of hotel
industry. Women travelers considered security, room service and low priced hotels whereas men
preferred fax machines, suite rooms with separate space for bed and office. Therefore, marketers
should keep into mind these preferences and design their plans accordingly.
 Next Year’s Objectives: – The organizations objectives provide direction to the marketers
for making their plans. Objectives should be: Specific, Measurable, Achievable, Realistic,
Time bound,
 Action Plans: Strategies and Tactics: – Strategies and tactics should be made in such a
manner that they fit the needs and culture of a company and allow it to meet and exceed
objectives. Let us discuss the strategies in detail: Sales Strategies
Each strategy is followed with two tactics:

External tactics: – Telephone, direct mail and personal sales calls Trade booths at trade shows
organizing lunch for key customers etc.

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Internal tactics: - Training of sales staff Motivational and control programs, Involvement and
support of management.
Promotion Strategies: - These should be established by people who are working within the
company. It is essential that while formulating these strategies the team should work closely with
supporting groups like advertising agencies, promotion firms etc. It is not recommended that the
supporting group must be given the utmost responsibility because even though they may produce
the best of advertisements but in most cases they may fail to meet the objectives of the company.
Pricing Strategy: – Pricing is one of the crucial factors that need a lot of attention. If the
products and services are not priced right then they may prove to be a failure in the market.
Different pricing strategies need to adopt as per the clientele and location.
Product Strategies: – Every product has its life cycle. There comes a time when the existing
product needs to be improved or new products need to be developed. This is where marketing
plays a major role. Marketing can help to enhance revenue from product changes as additions to
the current product line.
 Resources Needed to Support Strategies and Meet Objectives:
o Personnel
o Equipment and space
o Monetary support (E.g. travel expenses, motivational costs)
o Research, consulting and training
o Budgets
Presenting and Selling the Plan: – One must never assume that the marketing plan that has
developed is so practical / logical that it will sell itself. For a plan to be successful it must be sold
to various people Members of marketing / sales department – Many people within the
department consider planning a waste of time. Such an issue exists because of lack of experience
and fear of the process. Marketing / Sales managers need the support of their subordinates in the
planning process. Rather than forcing the acceptance of the plan it is better to sell the benefits of
the process to the team.
Vendors / Ad agencies: – These people should be made aware that they are also an integral part
of the planning process and without their involvement things may not turn out to be great.
Top management: – Marketing / Sales managers must sell the plan to top management in the
form of meetings over lunch or coffee and through presentations as well.

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Preparing for the Future: – Market planning is considered as a tool for growth: both for the
organization as well as for the people working in the organization. In times of good or bad
situation in the market or in the organization, consistent planning pays good dividends to the
firm. If marketing strategies are well planned and in place then it helps in better functioning of
the organization. Corporate culture and management support also plays an important role while
planning.
Table 1: Sample marketing plan of promotion
Means Details Cost
Advertisement
Develop a website to share information about how recycled cloth
Websites bags are environmentally-friendly and describe the products 500
Buy banners on women’s forums (as they are the target

customers) to briefly introduce the environmentally friendly bags 4000 for 6
Online banners months
and link to the web
Print leaflets with the location of the business and a description of
the types of bags that are sold, distribute the leaflets to shoppers at 1000 leaflets
Leaflets cost 1000
the entrance of the shopping mall
Publicity/ Direct marketing

Make a story telling how the use of cloth bags benefits both the I will do it
Educational story customer and the environment, post it on a social networking site myself
Sales promotion
Impressive display The bags will be attractively arranged on shelves and stuffed with
of bags products that are appropriate to their types and sizes. N/A
Demonstration The shopkeeper will demonstrate new products to customers N/A
Buy one product and get a discount voucher of 5% on the next
Discount purchase (applicable for only the opening week) 200
Total promotion costs for the year 3000

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1.4.2. Market Mechanism (laws of demand & supply)
Market mechanism is often interpreted as a ‘free’ market system. For a layman ‘free’ means that
when you go to a market, there is no restriction – you can buy as much as you want or sell any
amount or choose to do nothing. These decisions operate in terms of demand and supply for a
good, which are collectively referred to as the market mechanism.
The law of supply and demand is a theory that explains the interaction between the sellers of a
resource and the buyers for that resource. The theory defines the relationship between the price
of a given good or product and the willingness of people to either buy or sell it. Generally, as
price increases, people are willing to supply more and demand less and vice versa when the price
falls.
The theory is based on two separate "laws," the law of demand and the law of supply. The two
laws interact to determine the actual market price and volume of goods on a market. The law of
demand states that, if all other factors remain equal, the higher the price of a good, the less
people will demand that good. In other words, the higher the price, the lower the quantity
demanded. The amount of a good that buyers purchase at a higher price is less because as the
price of a good goes up, so does the opportunity cost of buying that good.
On the other hand, the law of supply demonstrates the quantities that will be sold at a certain
price. But unlike the law of demand, the supply relationship shows an upward slope. This means
that the higher the price, the higher the quantity supplied. From the seller's perspective, the
opportunity cost of each additional unit that they sell tends to be higher and higher. Producers
supply more at a higher price because the higher selling price justifies the higher opportunity
cost of each additional unit sold. The relationship between demand and supply is shown using
simple curves. These curves clearly show the interaction of the two market forces (demand and
supply) which restricts consumers’ choices. Let’s use vertical line to the price and horizontal line
to the quantity on the curve below to represent clearly the two market forces.
Price Supply Curve

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Equilibrium Price
Equilibrium
Demand Curve
Equilibrium Quantity. Quantity
Figure 3: Supply and Demand curve
1.4.3 How Do Supply and Demand Create an Equilibrium Price?
The equilibrium price (market-clearing price,) is the price at which the producer can sell all the
units he wants to produce and the buyer can buy all the units he wants.
With an upward-sloping supply curve and a downward-sloping demand curve, it is easy to

visualize that at some point the two will intersect. At this point, the market price is sufficient to
induce suppliers to bring to market the same quantity of goods that consumers will be willing to
pay for at that price. Supply and demand are balanced, or in equilibrium. The equilibrium price
can be influenced by a number of factors. These factors emanate from both supply and demand
sides.
Factors affecting supply are production costs such as labor and materials, the physical
technology available to combine inputs; the number of sellers and their total productive capacity
over the given time frame; and taxes, regulations, or other institutional costs of production.
Factors Affecting Demand - Consumer preferences among different goods are the most
important determinant of demand. The existence and prices of other consumer goods that are
substitutes or complementary products can modify demand. Changes in conditions that influence
consumer preferences can also be important, such as seasonal changes or the effects of
advertising. Changes in incomes can also be important in either increasing or decreasing quantity
demanded at any given price.
Free market is also associated with a capitalist economy, as opposed to socialist economy where
markets follow plans made by the government. This reduces the ‘freedom’ of the market

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mechanism, though a ‘market’ may still exist. The ‘freedom’ given to market mechanism is
therefore the crucial distinction between capitalism and socialism.
Activity 1: Project work for Group Assignment

Select any product or service you want to start for business and prepare marketing plan about
your price, place, promotion, market segmentation, positioning and differentiation.
Activity 2: Group Discussion and Reflection

If you observe market environment, prices are sometimes increasing and decreasing, what
would be your observation results for this fluctuation. Explain
Summary
Marketing philosophy is one of the simplest ideas in marketing, and at the same time, it is also one of the
most important marketing philosophies. At its very core are the customer and his or her satisfaction.
There are five alternative concepts/concepts under which organizations design and carry out their
marketing strategies: the production, product, selling, marketing, and societal marketing concepts.
The components of marketing information system sources are fed into an analytical process that guides
decision-making and provides feedback which can then suggest modifications to the original course of
action.
PostMarketing
– lessonresearch and marketing intelligence are the best-known function of the information
activity:-
process and competitive analysis is a method of gathering data about competitors from different sources
Market simulation activity: Group Assignment
to study your competitors’ businesses.
Objective(s) of activity: Participant will get to experience marketing through a live simulation. At the
end marketing
Lastly of the activity participants
strategy will the
determines be able to: of target market segments, positioning, marketing mix,
choice
experience the interplay of factors influencing the market such as price, product, place and
andpromotion
allocation of resources. It is effective when it is an integral component of the overall firm strategy,
realizehow
defining the difficulties new entrepreneurs
the organization have when
will successfully engageentering the market
customers, place and competitors in the
prospects,
observe the impact of different marketing strategies on the capturin of market share
market arena. Market mechanism demonstrates the operation of the laws of supply and the laws of
Materials/
demand Handoutsthe
in determining needed:
equilibrium market price at which the two forces met. The equilibrium market
• Materials found in the classroom e.g. pens, paper, mobile phones, bag, shoes etc.
price can be affected by many factors from both sides (supply and demand). The equilibrium price is the
Instructions:
market clearing price.
Divide participants into buyers and sellers.
In the first round, four sellers set up shops in class room and sell their allocated products to the
buyers at a set selling price.
The buyers are divided into high, middle and low-income groups. Each income group is given a
limit on how much it can spend to purchase products.
Reflection questions:
• What are your thoughts on your experience of the exercise?
• What have you learnt aboutTVET
Federal marketing
Agencyand competition analysis during the exercise?
Training module-Entrepreneurship and Version -1
Page 40 of 227
• What lessons can youAuthor/Copyright
apply in your business today?
Employability skills Module II July 2021
Extension/ Simplification options:
1. One of the, buyers in this round is an entrepreneur who wants to start a business.
2. In the second round, he/she (entrepreneur) uses the opportunity to study the competition and
potential customers and develop a marketing strategy that will ensure a profitable market share is
captured.
3. In the second round the fifth seller enters the market and applies his/her marketing strategy.
4. The second round is less restrictive than the first round as selling prices, demarcated areas and
products are not allocated to sellers.
The fifth seller’s success depends on the strategy applied, his/her selling ability and how the other
competitors respond to their market shares being encroached upon .The role of the fifth seller is
similar to that of the participants, after the training, as they are new entrepreneurs about to enter an
existing market.

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Self-Check Questions
Part I: Multiple Choices - Choose the Best Answer
1. Aggressive selling is a characteristic of which of the following concept of marketing?
A. Production concept C. Marketing concept
B. Selling concept D. Product concept
2. The skimming, penetration, bargaining and bundling are decided in the ______ of the marketing Mix
strategy
A. Price decision C. Place decision
B. Promotion decision D. Product decision
3. Which one of the following is the importance marketing research
A. To learn about competitors and how they are marketing their products.
B. To find out what consumers think about their product category
C. To gauge the performance of existing products
D. All of the above are answers
E. None of the above are answers
4. Which one of the following refers finding out what kinds of consumers with different needs exist
A. Segmentation C. Differentiation
B. Positioning D. All of the above are answers
5. Products are made in factories, but brands happen in the minds of consumers this statement refers
A. Segmentation C. Differentiation
B. Positioning D. All of the above are answers
6. “Buy it now” refers to which one of the following options?
A. Personal selling C. Sales promotion
B. Advertising D. All are answers
7. Which one of the following refers permanent collection, analysis, monitoring, evaluation, storage and
distribution of information on markets?
A. Marketing research C. Competitive analysis
B. Marketing intelligence D. None of the above are answers
8. You are approached by a person in the street who asks you to participate in a study on life insurance by
answering a number of questions. The method of sampling which has been used to select you is:
A. Random sampling C. Stratified sampling
B. Purposive sampling D. Convenience sampling
9. ______is a part of the yearly planning process for the marketing area and is also a component of the
overall business plan of the organization
A. Marketing intelligence C. Marketing plan

B. Marketing research D. None of the above are answers
10. The demand curve slopes
A. Up word C. down ward
B. Horizontal D. vertical

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Learning Outcome- 2 Maintaining Financial Records
Introduction
Every business organization should maintain records of events under taken during the course of
operation in the provision of goods and service to its customers and partners. One of the records
to be maintained in a systematic way is financial record. The type of records business
organizations should keep and procedure of basic record keeping and related concepts are
discussed in detail to achieve the main learning Objective of the lesson
Pre lesson Activity 1
What is a business record?
How do you maintain your personal financial information?
How do you understand recording keeping cycle?
What types of record you maintain daily and monthly?
Instructions Sheet
At the end of this module the trainees will be able to:
 Define Business record keeping
 Explain the importance of record keeping
 Identify types of financial record
 Understand the basic record keeping cycle
Learning instruction
3. Read the information written in the Information Sheets and try to understand what are being
discussed.
4. Accomplish the “Self-checks 1, 2, 3,4 and 5” in each information sheets
5. Ask from your teacher the key to correction (key answers) or you can request your teacher to
correct your work. (You are to get the key answer only after you finished answering the Self-
checks).

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Information Sheet 1 Financial Record keeping
Introduction
Business record is a document (hard copy or digital) that records business dealing. Business
records include meeting minutes, memoranda, employment contracts, and accounting source
documents. Record keeping simply means writing down all the information that is important to
your business. The financial records of an organization are vital for determining the profitability
of the business which is used as a measure of its performance. The financial records of a business
begin when a transaction or event takes place. Without financial records, an owner or manager
does not have the information necessary to evaluate the operating effectiveness and performance
of the business and make decisions. Without good records, it is impossible to determine the
financial condition or profitability of the business. Likewise, in order to survive a small business,
we must achieve a positive cash flow on long term.
Financial record keeping is important to sustaining and expanding a business. Without it, one
runs the risk of hitting cash flow crunches, wasting money, and missing out opportunities to
expand. When you are devising or revising your financial statement, remember that the purpose
of record keeping is to have record of past financial events of the business (financial history)
that will help you manage your business and to enable tax agencies to evaluate your business
activities. As long as your financial record keeping achieves its objectives, it can and should be
as simple as possible.
2.1.1 Definition of Financial Records

Financial record is the formal documents, which represents the transactions of a business, an
individual or any other organization. Financial record is being maintained by companies
including income statement, balance sheet, cash flow statement, Statement of Owner’s Equity,
statement of retained earnings, and tax returns. Keeping the financial record in an organized way
is a key indication of a successful business. Such kind of record is required to present financial
information of the company or an individual in a concise and clear manner for the stakeholders.

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2.1.2 Importance of Financial Records
i) To provide useful information to the users of financial reports. The information

should be useful from a number of perspectives, such as whether to provide credit to a
customer, whether to lend to a borrower, and whether to invest in a business. The
information should be comprehensible to those with a reasonable grounding in business,
which means that it should not be laced with jargon or burdened with so much detail that
it is impossible to extract the essentials about a business from its financial statements .
ii) To provide information about the cash flows to which an entity is subjected,
including the timing and uncertainty of cash flows. This information is critical for
determining the liquidity of a business, which in turn can be used to evaluate whether an
organization can continue as a going concern.
iii) To disclose the obligations and economic resources of an entity. There should be an
emphasis on the changes in liabilities and resources, which can be used to predict future
cash flows.
Everyone in business must keep records. Keeping good records is very important to the business.
Some of the uses of good records are;
a. Monitor the progress of your business
b. Prepare your financial statements
c. Identify sources of your income
d. Keep track of your deductible expenses
e. Keep track of your basis in property
f. Prepare your tax returns
g. Support items reported on your tax returns
Basic Features of Good Record Keeping System is/are:

1. Simple to use
2. Easy to understand
3. Reliable
4. Accurate
5. Consistent
6. Designed to provide information on a timely basis

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2.1.3 Source document
A source document, often called business paper, is the document produced with each business
event and used to record every business transaction. In other words, it’s a physical or electronic
document that lists the details of a transaction and is used by the accounting department
to journalize accounting information.
Source documents are records containing financial information about an economic event called
transaction (business transaction). Some of these documents are:
a. Receipt: A receipt is a document prepared to show evidence of money received. Receipts
should be printed, having a counterfoil or carbon paper and should be consecutively
numbered. Spoilt receipts should be cancelled and not detached from the counterfoil and no
blank counterfoil should be accepted
b. Invoices: This is a document submitted by suppliers demanding payments for goods and
services that they have an invoice which provides information to the buyer about the cost of
goods, trade discount and net amount as a document submitted by the suppliers demanding
payments for the goods or services supplied that they had provided on credit and it is
normally reconciled with other documents such as delivery notes
c. Vouchers: It is documentary evidence in support of a transaction in the books of accounts
and the act of establishing the accuracy and authenticity of entries in the books of account is
called Vouching.
d. Cheque (Check) & Cheque stub: A financial paper used to make payment to through bank.
2.1.4 Types of Financial Records
Depending on their requirements, businesses may keep different records. Below are some
examples of the basic types of records that are kept at most businesses:
 Cash transactions: This is a record of the money that your business receives and disburses
every day and the total amount of money in your cash box.
 Details of debtors: This record shows how much your customers owe you.
 Sales: This is a record of daily, monthly and yearly sales.
 Costs: This record shows how much money is spent and where your business spends the
money. It is useful for calculating the cost of your goods or services.

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 Bank transactions: This records the amount that is deposited and withdrawn each day and
the total in your business bank account at any given time.
 Assets and liabilities: This record is important for managing your business assets and
liabilities. It records the value of your assets and how long each asset has been used. It also
tells the amount your business owes to other people or businesses.
 Salary/payroll: This record is important for managing labour costs. It is a monthly record of
how much you pay your staff.
 Inventory: This record shows you the value of the stock in your business. If your company
stores substantial amounts of raw materials for production, or finished goods for sale, you
should keep this record.
 Tax: Businesses are subjected to different types of taxes, such as value added tax, corporate
income tax, payroll tax, capital gains tax, etc. This is a record of all the taxes that the
company is required
Activity 1: to pay.
Group work
Go to nearby
 Agreements withenterprises
customersandor observe theirAll
suppliers: financial recordwith
agreements keeping practiceorand
customers suppliers
Present your observation in a class using the following checklist.
should The
be money
in writing, preferably
you invest in yourinbusiness
the form of a contract. This record is important for
managing relationships with different organizations and individuals that provide services or
How much money does your business receive?
goods. It is a written record of all agreements, including pricing, delivery and payment terms.
How much money does your business pay out?
How much has been sold on credit?
How much does your business owe?
Agreements and contracts between your business and its suppliers or customers
How you monitor the progress of your business.
Identify Business strength and weakness in record keeping

What you learn from the business.
Select at least five financial records mentioned above and describe the contents
/information contained in.

Page 47 of Select
227 at least five financial records mentioned above and describe the contents
Author/Copyright
/information contained in. Employability skills Module II July 2021
2.1.5 Monitor the progress of your business
You need good records to monitor the progress of your business. Records can show whether your
business is improving, which items are selling, or what changes you need to make. Good records
can increase the likelihood of business success.
Financial Statements
Business Transaction is the occurrence of an event or condition in line with its activities that
must be recorded. After transactions /business record/ have been recorded and summarized,
reports are prepared for users. The accounting statements that communicate or report essential
information of a business enterprise to users are called financial statements.
 The most common Financial Statements are :
 Income Statement
 Balance Sheet
 Owner’s equity statement &
 Cash Flow Statement
 Income Statement (Profit/Loss Statement): - A summary of the revenue and expenses for a
specific period of time, such as a month or a year.
 Revenues less Expenses = Net Income
 Also called the Statement of Earnings
 It helps to determine whether a business is operating at a profit or a loss for a given time
period of one month to one year.
 It is calculated for a specific time period, such as a month, three months, six months or a
year.
 Balance Sheet (Position) Statement: - A list of the assets, liabilities, and owner’s equity as
of a specific date, usually at the close of the last day of a month or a year.
 The balance sheet is a financial statement which indicates what you own and what
you owe on any given day in the life of a business.
 It can be calculated at any time and is designed to give a “snapshot” of the financial
condition of the business.
 The financial figures on the balance sheet change from day to day because money is
always coming in and going out of the business.

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Basic Balance Sheet Equation
Asset = Liabilities + Owners’ Equity
(Economic Resources) (Economic Obligations) (Net Assets)
 Statement of Owner’s Equity: - A summary of the changes in the owner’s equity that have
occurred during a specific period of time, such as a month or a year.
 Statement of Owner’s Equity = Big. Capital, + Investment + Net Income – with Drawing
 Statement of Cash Flows: - A summary of the cash receipts and cash payments for a
specific period of time, such as a month or a year.
 Reports the entity’s cash flows (cash receipts and cash payments) during the period.
 Money is either coming into the business as a debit (+) in the cash book or is going out
of the business as a credit (-). The current balance represents how much money the
business has on hand.
 Cash that flows into a business is in most cases cash from sales of products, goods or
services.
 There are also other inflows of cash that could come from bank credits or overdrafts, or
selling of old equipment, and so on.
 Cash that flows out of the business is mainly payment of salaries, operational costs,
capital costs and so on.
 Cash flow plan is an instrument that allows the entrepreneur to estimate how much cash
is expected to enter the business and how much has to be paid out every period of time.
 Cash flow plan helps a businessperson to avoid her/his business running out of cash.
2.1.6 Financial statements
i- Preparing Income statement

Revenues – are the gross increases in owner’s equity as a result of selling of goods, rendering of
service etc. for customers.
Expenses – are costs that were incurred during generating revenue.
Table1:- Income statement Format (see below in the next page)

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Table 2: Income Statement
Name of the Business
Income Statement
Specific Date, Month and Year
Revenue Amount
Service Revenue XXX
Operating Expenses
Expenses
Salary Expense XXX
Rent Expense XXX
Pre-operating Expense XXX
Depreciation Expense XXX
Total Operating Expense XXX
Net Profit Before Tax XXX
Less Estimated Tax XXX
Net Profit After Tax XXX
ii- Preparing Balance Sheet

When an accounting system is started in any business, new or existing, the first task is to
determine
 What the business owns (Assets)
 What the business owes (Liabilities) and
 What the business is worth (Capital)
After properly identified and calculated the Assets, the Liabilities and Net Worth/Capital of the
business, the information obtained should be recorded in an accounting format called a balance
sheet. A balance sheet is prepared for a specific date. The documents from which data is taken to
record on a balance sheet are known as source documents. The format of a balance sheet is
shown below
• In any balance sheet, the total of the assets should be equal to that of the total liabilities
and capital. This is known as the basic accounting equation. i.e,
Total Assets = Total Liabilities + Capital

Page 50 of 227
• The balance sheet is prepared on a piece of paper and therefore, it is a temporary record.
Table 3: Format of Balance Sheet

Name of the Business
Balance Sheet
Specific Date, Month, Year
Assets Liabilities
Capital
Total Assets Total Liabilities & Capital
iii. Preparing Owner’s Equity Statement

 Statement of Owner’s Equity
= Binging Capital + Investment + Net Income – Withdrawing
iv. Preparing Cash Flow statement

Basic Form of Cash Flow Statement
 Cash Flow From Operating Activities
 Cash Flow from investing activities
 Cash Flow from financing activities
Total (positive or negative) cash flow is added to beginning cash balance and should result in
ending cash balance
 Flow from Operating Activities
 The cash flow from operating activities section includes cash transactions that enter into the
determination of net income.
Includes:
 Current assets
 except marketable securities and short term notes receivable which are investing
 Current Liabilities
 except short term notes payable which are financing

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 Revenue and Expenses (includes interest expense and revenue, and dividends received)
 Flow from Investing Activities
 The cash flows from investing activities section reports the cash transactions for the
acquisition and sale of relatively long term or permanent type assets.
Includes:
 Long-term investments; example acquisition of land.
 Short-term and long term notes receivable
 Property, Plant and Equipment (depreciation affects operating activities)
 Intangible Assets
 Flow from financing Activities
The cash flows from financing activities section reports the cash transactions related to cash
investments by the owner, and borrowings and cash withdrawals of the owner.
Includes:
 Short-term and long-term loans
 Sale of capital stock and paid in capital in excess of par
 Retained earnings (net income aspect is operating)
 Dividends paid (cash withdrawal by owner)
2.1.7 Chart of accounts

A chart of accounts is a list of all accounts used by a business with their identification number.
An illustration of a chart of account is shown below: The number of accounts maintained by
specific business affected by the type of business operation, the volume of business, managerial
decision, tax authority, etc.
It is a chart containing names of accounts
 Account is a name of any item whose amount is to be recorded in an
accounting/bookkeeping format.
 A chart of Accounts is a list of all accounts used by a business with their identification
number
 The number of accounts maintained by specific business is affected by
 the type of business operation,  managerial decision,
 the volume of business,  tax authority, etc.

Page 52 of 227
Classification of accounts
There are 5 types of Accounts

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1) Assets 4) Revenues
2) Liabilities 5) Expenses
3) Owners' Equity (Stockholders' Equity
for a corporation)
1. Assets: - any physical thing (tangible) or right (intangible) that has a value is an asset.
a. Current asset: - asset that may reasonably be expected to be realized in cash or sold or
used up usually within one year or less. Example: cash, account receivable, supplies,
inventory, short term notes receivable.
b. Plant assets (fixed assets): - tangible asset used in the business that are of a permanent or
relatively fixed nature. Fixed assets include: equipment, machinery, buildings, and land.
2. Liabilities: - debts owed to outsiders (creditors)
a. Current liabilities: - liabilities due within a short time (usually one year or less) and that
are to be paid out of current assets. Example: account payable, short note payable,
salaries payable, interest payable, tax payable, unearned revenue.
b. Long term liability: - liability that will not be due for a comparatively long time (usually
more than one year) or company’s obligations not expected to be paid within one year (or
a longer operating cycle). Example: long term notes payable, bonds payable, lease
liabilities.
3. Owner’s equity: - residual claim against the business asset after the total liabilities are
deducted.
4. Revenues: - gross increase in owner’s equity as a result of the sale of merchandize,
performance of service to customer, rental of property, lending of money, and other business
and professional activities.
5. Expenses: - costs that have been consumed in the process of producing revenue are expired
costs or expenses.
Drawings: - drawings represent the amount of withdrawals made by the owner of business.
 Standard form of account has three major parts:
1. The account title and number
2. The left side, which is called the debit side
3. The right side, which is called the credit side.
I. Balance sheet accounts are classified as assets, liabilities, and owner’s equity.
II. Income statement accounts are classified as revenues and expenses.
 A group of accounts for a business entity is called a ledger.
 Thus, Chart of accounts is list of accounts in the ledger.
 The accounts are normally listed in the order in which they appear in the chart of accounts.
 For example:
 The balance sheet accounts are listed first, in the order of assets, liabilities, and
owner’s equity.
 The income statement accounts are then listed in the order of revenues and expenses
 Outline the order of accounts in the ledger
 Directory of accounts available in the ledger
 Each account number has two digits
 The 1st digit indicates the major division of the ledger in w/c the account is placed.
 Accounts beginning with a number:
 1- represents assets;
 2- liability;
 3- Owner’s equity (Owner’s equity);
 4- Revenue and
 5- Expenses.
 The 2nd digit indicates the position of account within its division.
 The advantage of such numbering system is the later insertion of new accounts in their
proper sequence without disturbing other account number.
 It also serves as a guide in journalizing by showing the account title that is to be used
when you record business transactions.
 The initial preparation of the ledger based on the chart of accounts is often referred to as
opening the ledger.
Table 4: Parts of Chart of Account Classification
Balance Sheet accounts Income Statement accounts
Account No Account Title Account No Account Title

1. Asset Account 4. Revenue Account
11 ------ Cash 41 ----- Sales
12 ------ Accounts Receivable 42 ----- Fees earned
13 ------ Supplies 43 ----- Inter/Income
14 ------ Prepaid Rent 44 ------ Rent Income
15 ------ Furniture
16 ------ Office Equipment 5. Expenses Account
17 ------ Accumulated Depreciation 51----- Supplies Expense
2. Liability Account 52 ----- Salaries Expense
21 ---- Accounts Payable 53 ----- Rent Expense
22 ---- Notes Payable 54 ----- Depreciation Expense
23 ----- Salaries Payable 55 ----- Utilities Expense
1. Owner’s equity Account 56 ----- Miscellaneous Expense
31 ----------- Biftu, Capital
32 ----------- Biftu Drawing
33 ----------- Income Summary
Rules of Debit and Credit

 When an amount is entered on the left side of an account, it is a debit, and the account is
said to be debited.
 When an amount is entered on the right side, it is a credit, and the account is said to be
credited.
 The abbreviations for debit and credit are Dr. and Cr., respectively.
 Whether an increase in a given item is credited or debited depends on the category of the item.
 By convention, asset and expense increases are recorded as debits, whereas liability, capital,
and income increases are recorded as credits.
 Assets and expenses decreases are recorded as credits, whereas liability, capital, and income
decreases are recorded as debits. The following tables summarize the rule.
Account Increase side Decrease side Normal Balance
Any Asset Debit Credit Debit
Any Liability Credit Debit Credit
Owner’s equity (Capital) Credit Debit Credit
Any Revenue Credit Debit Credit
Any Expense Debit Credit Debit
Owner’s drawing Debit Credit Debit
Table 5: Debit and Credit rules of accounts
Normal Balance of an account
Account balance is the difference between the increase and decrease recorded in an account. The
normal balance of all accounts are positive rather than negative because the sum of the increases
recorded in an account is usually equal to or greater than the sum of the decreases recorded in the
account.
Double-Entry Accounting System
 Equal debits and credits made accounts for each transaction
 Total debits always equal the total credits
 Accounting equation always stays in balance
i.e., Assets = Liabilities + Equity
Table 6: Debit and Credit Effects on Assets, Liabilities, Owners Equity

Revenue, and Expenses
Debits Credits
Increase assets Decrease assets
Decrease liabilities Increase liabilities
Decrease owners’ equity Increase Owners equity
Increase drawing Decrease drawing
Decrease revenue Increase revenue
Increase expense Decrease expense
2.1.8 Analyzing and Recording Transactions
Journal
The journal, or day book, is the book of original entry for accounting data. Afterward, the data is
transferred or posted to the ledger, the book of subsequent or secondary entry. The various
transactions are evidenced by sales tickets, purchase invoices, check stubs, and so on. On the
basis of this evidence, the transactions are entered in chronological order in the journal.
Thus,
 Is the book in which the records of a business are written.
 It is a chronological record of events.
General journal
 Is the original book of entry
 Information recorded on this book is usually extracted from the source documents such as
invoices, receipts, contracts agreements and many other relevant documents.
 It would usually show the account to be debited and credited and short description on the
transaction.
 Information on this book will be posted to the ledger.
 General journal is used to record all kinds of entries
Typically, a general journal has spaces for: dates, account titles and explanations, references,
and two amount columns.
The journal makes several significant contributions to the recording process:
1. It discloses in one place the complete effect of a transaction.
2. It provides a chronological record of transactions.
3. It helps to prevent or locate errors because the debit and credit amounts for each entry can
be readily compared.
Special Journals
 A journal in which only one kind of business transaction is recorded. A special journal
used to record only one type of entries.
 Special journals differ from the general journal or the combination journal in that they are
meant only for specified types of transactions - only one type.
Journalizing
 The process of recording a transaction in the journal is called journalizing. The entry
in the journal is called a journal entry.
The flow of accounting data from the time a transaction occurred to its recording in the ledger
may be shown in the following diagram. Periodically the journal entries are transferred to the
accounts in the ledger. This process of transferring the debits and credits from the journal entries
to the accounts is called posting. The flow of a transaction from its authorization to its posting in
the accounts is shown in the diagram below
Posting
 The process of transferring the debits and credits from the journal entries to the
accounts is called posting
 The process of transferring information from the journal to the ledger for the purpose of
summarizing is called posting and is ordinarily carried out in the following steps:
1. Record the amount and date. The date and the amounts of the debits and credits are
entered in the appropriate accounts.
2. Record the posting reference in the account. The number of the journal page is
entered in the account
The ability to analyze the effects of transactions on financial statements is an essential skill for a
successful career in business. As we illustrated earlier in the chapter, the double entry accounting
system is a very powerful tool in this analysis. Using this system, analyzing transactions can be
summarized as follows:
1. Determine whether an asset, a liability, owner’s equity, revenue or expense account is
affected by the transaction.
2. For each account affected by the transaction, determine whether the account increases or
decreases
3. Determine whether each increase or decrease should be recorded as a debit or credit.
Illustration of Analyzing and Summarizing Transactions

To illustrate recording a transaction in an all-purpose journal and posting in a manual accounting
system, we will use the following steps:
Step - 1: The date of the transaction is entered in the Date column.
Step - 2: The title of the account to be debited is recorded at the left-hand margin under the
Description column, and the amount to be debited is entered in the Debit column.
Step - 3: The title of the account to be credited is listed below and to the right of the debited
account title, and the amount to be credited is entered in the Credit column.
Step - 4: A brief description may be entered below the credited account.
Step - 5: The Post. Ref. (Posting Reference) column is left blank when the journal entry is
initially recorded. We will use this column later in this chapter when we transfer the
journal entry amounts to the accounts in the ledger.
The following is a useful method for analyzing and journalizing transactions:

1. Carefully read the description of the transaction to determine whether an asset, a liability,
an owner’s equity, revenue, an expense, or a drawing account is affected.
2. For each account affected by the transaction, determine whether the account increases or
decreases.
3. Determine whether each increase or decrease should be recorded as a debit or a credit,
following the rules of debit and credit shown in Exhibit 3.
4. Record the transaction using a journal entry.
Illustration: 1
1. Aster established a business by initially investing Br.30, 000 cash in bank. The journal entry
for the above transaction could be written as:
Cash…………………..…………………………. 30,000.00
Aster, Capital…………………………………………30,000.00
2. Aster purchased equipment at a cost of 12,000 by paying 10,000 in cash and agreed with the
seller to pay the remaining 2,000 within one week. The journal entry to record the above
transaction is
Equipment ………………………………………….12,000.00
Cash ………………….………………………………..10,000.00
Accounts Payable.......................................…………….2,000.00
As a general rule what the business owns is contributed by creditors or owner of the business. In
a double entry book keeping, the equality of debit and credit for each transaction is inherent in
the equation
A = L + C = The equation is referred to as Accounting/booking equation.
A = Asset L = Liability C= Owner’s Equity
Journals and Accounts
The initial record of each transaction is evidenced by a business document, such as sales tickets,
or bills. On the basis of evidence provided by the business documents, the transactions are
analyzed and entered in chronological (date-wise) order in a journal with appropriate source
document. The amounts of debits and credits in the journal are then transferred or posted to the
accounts in the ledger.
Table 7: Standard Form of a General Journal
Post
Date Account Title Debit Credit
Ref
The Standard Form of Ledger

Account: _________ Account No. ___
Post Balance
Date Item Ref. Debit Credit Debit Credit
Illustration-2: Journalizing and Posting: Aster operated a retail merchandising business known
as Aster Retail Shop:
Table 8: General Journal
General Journal Page No 01

Date Account Title Post Debit Credit
Reference
2021 1 Cash. 11 3,500 00
Mar
Accounts Receivable 12 950 00
Supplies 13 1,200 00
Shop Equipment 12,000 00
Aster Hill, Capital 30,000 00
SD* No. 01
1 Prepaid Rent 14 2,400 00
Cash 11 2,400 00
SD* No. 02
4 Accounts Payable 2,500 00
SD* No. 03
5 Cash 850 00
Accounts Receivable 850 00
SD* No. 04
6 Newspaper Advertisement 125 00
Miscellaneous Expense 125 00
SD* No. 05
10 Cash 500 00
Accounts Payable 500 00
SD* No. 06
13 Cash 575 00
Salary Expense 575 00
SD* No. 07
31 Sales 1,675 00
Accounts Receivable 1,675 00
SD* No. 18
31 Ann Hill Drawing 1,500 00
Cash 1,500 00
SD* No. 19
Total 35,524 00 35,524 00
SD* = Source Document
Table 9: Posting illustration to the account in the ledger
Account: Cash Account No. 11
Post Balance
2021 1 G01 3500 00 3500 00
March
1 2400 00 1100 00
5 850 00 1950 00
6 125 00 1825 00
10 500 00 1325 00
16 1980 00 2730 00
20 650 00 2080 00
31 69 00 1436 00
31 1870 00 3131 00
31 1500 00 1631 00
Account: Accounts Receivable Account No. 12
Post Balance
2021 1 950 00 950 00
Mar
5 850 00 100 00
31 1675 00 1775 00
Account: Supplies Account No. 13
Post Balance
2021 1 1200 00 1200 00
Mar
20 650 00 1850 00
Account: Prepaid Rent Account No. 14
Post Balance
2021
Mar
1 2400 00 2400 00
Account: Shop Equipment Account No. 17
Post Balance
2021 1
Mar
15000 00 15000 00
4 2500 00 17500 00
Account: Accounts Payable Account No. 21
Post Balance
2021 1 2500 00 2500 00
Mar
500 00 2000 00
Account: Aster, Capital Account No. 31
Post Balance
2021 1 20650 00 20650 00
Mar
Account: Aster, Drawing Account No. 32
Post Balance
2021 31 1500 00 1500 00
Mar
Account: Sales Account No. 41
Post Balance
2021 16 1980 00 1980 00
Mar
31 1670 00 3650 00
31 1675 00 5525 00
Account: Salary Expense Account No. 52
Post Balance
Date Item Ref. Debit Credi Debit Credit
t
2021 13 575 00 575 00
Mar
27 575 1150 00
Account: Miscellaneous Expense Account No. 59
Post Balance
2021 6 125 00 125 00
Mar
31 69 00 194 00
31 175 00 369 00
Note: Some ledger accounts are presented above in the illustration only for sample.
Trial Balance
The equality of debits and credits in the ledger should be verified at the end of each accounting
period. Such verification is called a trial balance. Example for Ann Aster Retail Shop is as
follows:
Table 10: Trial Balance
Aster Retail Shop
Trial Balance
December 31, 2021
Cash 00
Accounts Receivable 00
Supplies 00
Prepaid Rent 00
Shop Equipment 00
Accounts Payable 2,000 00
Ann Hill, Capital 20,650 00
Ann Hill Drawing 00
Sales 5,525 00
Salary Expense 00
Miscellaneous Expense 00
28,175 00 28,175 00
Activity 3: Journalizing
Journalize the following transactions and check the equality of Debit and Credit
Jemal and Kedija deposited 45,000Br and 55,000 Br respectively in a bank to start a new business.
They bought equipment for 20,500 Br paying 15,000Br in cash and the remaining amount on credit
Paid the liability of 5500 Br to the creditor
Purchased merchandise for 40,000 Br
Sold merchandize for 10,200 Br
Adjustments Column
Both the debit and credit parts of an adjustment should be inserted on the appropriate lines before
going on to another adjustment.
Supplies: account………………………………………………….$1,850.00
Less: Supplies on hand…………………………………………………890.00
Supplies Expense…………………………………………………………960.00
Rent: Prepaid rent (for month)………..…………………….…….$2,400.00
Less: Remaining prepaid rent (2 month)…………………….……………….1,600.00
Rent Expense for March………………………………………………………...800.00
Depreciation: depreciation of photographic equipment is estimated to be $175 for the month:

Depreciation expense……………………………………………..175.00
Accumulated depreciation ……………………………………………..…175.00
Salaries: Salaries accrued but not yet paid at the end of the month of March is $115. This is an
increase in expense and an increase in liability.
Adjusted Trial Balance

The data in the trial balance columns are combined with the adjustments data and extend to the
adjusted trial balance columns.
Income Statement and Balance Sheet

The data in the adjusted trial balance columns are extended to one of remaining four columns.
The amounts of assets, liabilities, owner’s equity and drawing (or dividends) are extended to the
balance sheet columns; and the revenues and expenses are extended to income statement
columns.
The net income or net loss for the period is the amount of the difference between the totals of the
two income statement columns. If the credit column total is greater than the total of debit
column, the excess is the net income. The net balance will be transferred to the capital account
(or retained earnings account) in the ledger. This transfer is accomplished on the work sheet by
entries in the income statement and balance sheet.
Illustration: For Aster Retail Shop work Sheet is transferred as debt in income statement
column and credit in balance sheet.
Table 11: Work Sheet
Aster Retail Shop

Work Sheet
For the Month Ended December 31, 2021
Adjusted Trial
Trial Balance Adjustments Income Statement Balance Sheet
Account Title balance
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 1631 00 1631 00 1631 00
Accounts receivable 1775 00 1775 00 1775 00
Supplies 1850 00 (a) 960 00 890 00 890 00
Prepaid Rent 2400 00 (b) 800 00 1600 00 1600 00
Shop Equipment 17500 00 17500 00 17500 00
Accounts Payable 2000 00 2000 00 2000 00
Ann Hill Capital 20650 00 20650 00 20650 00
Ann Hill Drawing 1500 00 1500 00 1500 00
Sales 5525 00 5525 00 5525 00
Salary Expense 1150 00 (d)115 00 1265 00 1265 00
Miscel. Expense 369 00 369 00 369 00
28175 00 28175 00
Supplies Expense (a)960 00 960 00 960 00
Rent Expense (b)800 00 800 00 800 00
Depreciation Exp. (c)175 00 175 00 175 00
Accumulated Depreciation (c )175 00 175 00 175 00
Salaries Payable (d) 115 00 115 00 115 00
2050 00 2050 00 28465 00 28465 00 3569 00 5525 00 24896 00 22940 00
Net income 1956 00 1956 00
5525 00 5525 00 24896 00 24896 00

Information Sheet - 1 Preparation of Financial Statements
2.2.1 Income Statement and Balance Sheet
The data in the adjusted trial balance columns are extended to one of remaining four columns.
The amounts of assets, liabilities, owner’s equity and drawing (or dividends) are extended to the
balance sheet columns; and the revenues and expenses are extended to income statement
columns.
The net income or net loss for the period is the amount of the difference between the totals of the
two income statement columns. If the credit column total is greater than the total of debit
column, the excess is the net income. The net balance will be transferred to the capital account
(or retained earnings account) in the ledger. This transfer is accomplished on the work sheet by
entries in the income statement and balance sheet.
Illustration: For Aster Retail Shop work Sheet is transferred as debt in income statement
column and credit in balance sheet. Work sheet is an aid in preparing financial statement. The
income statement, statement of owner’s equity and balance sheet prepared from work sheet. For
Aster Retail Shop, the financial statements are presented as follows
Table 12: Income Statement
Aster Retail Shop
Income Statement
For Month Ended March 31, 2021
Sales 5,525 00
Operating Expenses:
Salary Expense 1,265 00
Supplies Expense 960 00
Rent Expense 800 00
Depreciation expense 175 00
Miscellaneous Expense 369 00
Total Operating Expenses 3,569 00
Net Income 1,956 00
Table 13: Statement of Owner’s Equity
Aster Retail Shop
Statement of Owner’s Equity
For Month Ended March 31, 2021
Ann Hill Capital, March 1, 2021 20,650 00
Net Income for the Month 1956 00
Less: Withdrawals 1500 00
Increase in Owner’s Equity 456 00
Ann Hill Capital, March 31, 2021 21106 00
Table 14: Balance Sheet

Aster Retail Shop
Balance Sheet
December, 2021
Assets
Current Assets:
Cash 1,631 00
Account Receivable 1,775 00
Supplies 890 00
Prepaid Rent 1,600 00
Total Current Assets 5,896 00
Plant Assets:
Less: Accumulated Depreciation 175 00 17,325 00
Total Assets 23,221 00
Liabilities
Current Liabilities:
Account Payable 2,000 00
Salaries Payable 115 00
Total Liabilities 2,115 00
Owner’s
Activity 4 Equity
(preparing financial statement)
Aster Capital
Determine the gross profit of Aster Grocery based on the following information. 21,106 00
TotalAster
Liabilities
groceryand
sold owner’s
merchandiseEquity 23,221
on cash Br. 14,000 and 8,000 on account during the month 00
She paid 2500 for rent, 800 telephone bill, 150 water, 450 electric bill and 1300 miscellaneous expenses
The cost of merchandise sold is estimated as 6,700.
Information Sheet - 2 Costing and pricing
2.3.1 Different types of cost and how are they managed

I. Costs of starting an enterprise
 Costs
 Costs are resources consumed or used to produce a unit of product or service
 Every business generates costs, even if there is no ongoing production, service or trading
activities.
 To understand this, it is essential to know that there are direct costs and indirect costs.
Direct and Indirect Costs

A. Direct costs:
 are those that only arise when an enterprise is manufacturing goods or producing a
service or buying goods to resell. These costs depend directly on the number of
products, services or goods produced.
 are composed of two cost sub-groups
i) Direct material costs:
 Expenditures for all items that become part of a product, or are used to produce a
service, or are bought for resale, enter into the category of direct material costs.
 Costs linked to the acquisition of raw materials, such as transport, are included in the
direct costs
ii) Direct labor costs:
• All wages for workers and helpers that are directly involved in the production or the
delivery of services.
• This also includes costs for social security.
• Staff wages for the retailer and wholesaler are not considered as direct costs because
one person generally sells many different items.
B. Indirect costs:
 are all other costs generated from business activities that are not direct costs.
 are costs that cannot directly be attributed to a specific product or service. for example
rent for the office premises, salary for the bookkeeper, interest on the bank loan,
telephone costs, fire and car insurance, etc are also called overhead costs.
 In wholesale or retail business, all staff costs are indirect costs.

Total cost of a product or service:
Sum of Direct Material Costs:
+ Sum of Direct Labor Costs
+ Proportion of Indirect Costs
= Total cost per product or service
 Classification of Costs by Categories

 Entrepreneurs also have to know the total amount of costs their business generates during
a month and during a year.
 This information is of importance because it shows the cost structure of the enterprise,
and also gives an indication of when particular costs are unnecessarily high.
 With this information an entrepreneur can try to reduce costs and become more
competitive.
 A business starter has to forecast the total costs of his/her business for at least one year in
order to find out whether the planned sales cover the costs or not.
 All costs that the business’ activity creates for the community are called externality costs.
All costs that occur in a business can be put into the following categories:
 Staff costs  Sick leave
 Material costs  Social security
 Other costs  Workplace accommodations for employees
 Capital costs with disabilities
This enumeration shows that staff costs are not only salaries or wages.
The additional costs that come on top of the salaries are often calculated as a percentage of the
salary.
2. Material costs
 All materials that are used for the manufacturing of a product, or to provide a service, fall
under the category “materials”.
 Materials that are not used for a product, but are necessary for the functioning of the
business, such as office supplies or detergents for office cleaning, are also counted as
material costs.
 In production, a distinction is made among different kinds of materials:
1. Raw materials, e.g. plywood, metal bars, metal sheets, leather, wool, woven fabrics,
plastics, fluor, butter, etc.
2. Standard materials, e.g. nails, screws, bolts, nuts, fittings, electrical appliances, spare
parts, buttons, zippers, etc.
3. Auxiliary materials, e.g. glue, paint, welding electrodes, welding gas, saw blades,
grinding paper, yarn, threads, etc.
 In wholesale and retail business the costs for acquiring finished goods for reselling are
classed as material costs.
3. Other costs
 All expenditures for items and services that do not fall under the above-mentioned
categories are put into the category “other costs”.
 These costs are mainly for electricity, water, telephone, internet, insurance, rent,
publicity, administrative fees, etc.
4. Capital costs
 A businessperson, who contracts a loan, has to pay interest for the duration of the loan.
 Interest is also due for an overdraft on the entrepreneur’s current account.
 These payments are called capital costs.
 There is a very particular kind of capital cost that is called depreciation.
 Depreciation is the loss of value of machines, equipment or cars that are operating in an
enterprise.
 How is depreciation calculated?
 Quite simply, the price of the newly bought machine, car or whatever it may be deduct
salvage value and is divided by the expected lifespan of the machine.
 For example, a new delivery pick-up is purchased for 12,000 Birr and salvage value is
2400Br its calculated lifespan is five years.
 Its annual depreciation = 12,000 Birr-2400Br / 5 = 1,920 Birr/year.
2.3.2 Concept of Pricing

The primary motivation in starting a business is to make a profit. This is also true of a rural
entrepreneur's cooperative group starting a business. If the group makes a profit, it is successful
in business. Whether the group makes a profit or not depends on the pricing of the
product/service sold.
Therefore, one of the most important decisions that the group must take is about the pricing of
the product. In order to be able to do so, members must first know the cost of the
product/service. They must also know at what price the customers will be ready to buy their
product/service.
Profit can be calculated using the formula below.

Profit = Total revenue minus Total costs
Profit margin = Total revenue minus Total costs of article
The price should be fixed such that it covers full costs, earns the group some profit and gives
good value for money to the customers.
The following explains the concept of profit and the different ways of fixing prices.
Method 1: 'Cost Plus' pricing

The first method of fixing price, which is followed by many entrepreneurs’ groups, is the 'cost
plus' method. The entrepreneurs decide what profit margin they can add to the cost and fix the
sales price. For instance, the cost of product is 150 Birr. They may decide to add a margin of 10
percent and fix the sales price at 165 Birr.
Total costs + Profit margin = Sales price`
Method 2: Pricing at 'What the market can bear'
Another way of pricing is to price at what the market can bear.
Judging or understanding what the customer is willing to pay and profit margin together gives
sales price.
Entrepreneur must know the current sales price in the local market in order to calculate the price
using this formula. Therefore, it is important that they know the prices prevailing in the local
market. In fact, for good pricing decisions, they need to know the prices in urban markets as
well. What did you learn from the group work
Here are some Points to remember
 Costing is important to ensure that all expenses are covered and the group fixes a price
that ensures a profit.
 The first and most important step is to identify all the costs of a business: production,
sales, administrative, overheads, etc.
 The next step is to classify costs into fixed and variable costs.
 Break-even analysis helps with decisions regarding pricing and production levels.
 Pricing can be done on the basis of 'Cost Plus' thinking and this ensures a minimum
margin over costs.
 Market considerations are important in pricing and are taken into account by pricing at
'What the market can bear'.
 The price fixed lies within this range of possibilities. Therefore, it is important that
groups calculate the costs and have an understanding of the final market for their
products.
Summary
 Business record is a document (hard copy or digital) that records business dealing.
 Financial record keeping is important to sustaining and expanding a business.
 Financial record is the formal documents, which represents the transactions of a business,
an individual or any other organization.
Importance of Financial Records
 To provide useful information to the users of financial reports.

 To provide information about the cash flows to which an entity is subjected,
 To disclose the obligations and economic resources of an entity.
 Source documents are records containing financial information about an economic event
called transaction (business transaction).
 Business Transaction is the occurrence of an event or condition in line with its activities
that must be recorded.
 The accounting statements that communicate or report essential information of a business
enterprise to users are called financial statements.
 The most common financial statements are :
Income statement Owner’s equity statement &
Balance sheet Statement of Cash Flow
 Fundamental accounting equation Asset = Liability + Owners Equity
 Chart of account is also considered as a list of accounts in the ledger. There are five types
of accounts i.e. assets accounts, liability accounts, owner’s equity accounts, revenue
accounts, and expense accounts.
 Costs are resources consumed or used to produce a unit of product or service.
 Direct costs are those that only arise when an enterprise is manufacturing goods or
producing a service or buying goods to resell.
 Direct material costs Expenditures for all items that become part of a product, or are used
to produce a service, or are bought for resale; enter into the category of direct material
costs.
 Direct labor costs all wages for workers and helpers that are directly involved in the
production or the delivery of services.
 Indirect costs are all other costs generated from business activities that are not direct
costs.
 The first method of fixing price, which is followed by many entrepreneurs’ groups, is the
'cost plus' method.
 Costing is important to ensure that all expenses are covered and the group fixes a price
that ensures a profit.
Self-check questions
1. What is the importance of keeping financial records for businesses?
2. What the common known financial statements. Describe them and their uses
3. What is/are chart of accounts? What does it serve?
4. Explain the difference between General Journal and Special Journal.
5. Explain the following financial records
 Ledger
 Trial balance
 Journalizing
 Posting
 Account Number
 Account Title
 Source Document
6. What is cost?
7. How Business organizations manage cost?
8. What is the benefit of manage cost?
9. List type of cost and describe it.
10. Select one business organization in your surroundings, list out all expenses the business
organization incurs and how the business organizations manage it.
Learning Outcome - 3 Improving and Sustaining the Business
Introduction
The business operation has to be overlooked regularly to make sure that the operation goes
smoothly and positive operating results are achieved. In a turbulent economic environment and
amid fierce completion in the market, enterprises should examine whether the operation is going
well or unhealthy and decide how to stay active and competent in the market. This is by
identifying problems and potential areas of improvement. To this effect, this part of the module
briefly presents how the health of a business operation is checked through different
methodological approach and tools.
Training objectives:
At the end of this training, the trainees will be able to:
Understand business diagnosis
Conduct SWOT analysis and PESTLE
Explain benchmarking the business
Perform GAP analysis
Apply problem solving and decision making techniques
Make corrective actions
Impact of emerging/changing technology on business sustainability
Pre- lesson Activity

How do you identify problems in the business operation?
What are the major problem areas in the course of a business operation?
What do we do to improve the performance of the business?
Instruction Sheet
At the end of the training, trainees will able to
 Understand the concept of business diagnostics
 Conduct the SWOT, PESTLE and GAP analysis
 Determine KPI and conduct benchmarking
 Understand and apply Problem Solving and Decision Making techniques
 Identify the impact of emerging or changing technology on the sustainability of the
business
Learning Instruction

3. Read the information written in the Information Sheets and Try to understand what are being
discussed.
4. Do the “Self-checks1, and 2 activities and group assignment in each information sheets.
5. Ask your trainer/teacher for answer key to correction or you can request your teacher to
checks).
Information Sheet -1 Business Diagnosis
3.1.1 Business Diagnosis Definition
Business Diagnosis is a process that helps enterprises to improve their capacity by assessing
and changing inefficient patterns business operation. Business diagnosis is an effective way to
determine gaps between current and desired performance and how goals can be achieved.
Effective business diagnosis provides the systematic understanding of the operation of
enterprise necessary for designing appropriate change interventions intended to resolve
problems and ultimately improve performance.
Business diagnosis is a cyclical process that involves data gathering, interpretation, identification
of the problem areas and possible action programs. During the diagnosis process, it is important
to look at both the environment (external) and enterprise (internal) attributes. This process is
shown in the following diagram.
Figure 4: Business Diagnosis Cycle
Specifically, business diagnostics can be defined as a framework for identifying, analysing and
interpreting data to identify possible need and priorities of the organization and entertain those
needs and priorities. The main focus of business diagnosis is people, marketing, finance and
business operation.
Figure 5: Diagnostic approach
3.1.2 Sources of data for Business Diagnosis.
Primary and secondary data sources are used to collect important information from internal and
external business environment. The primary data are collected from employees and customers
through direct observation, questionnaire and interview. The secondary data sources include
printed documents of an organization and stakeholder institutions or agencies. Financial reports,
periodic performance reports, human resource data, marketing survey results, and baseline data
are some of secondary data sources.
Data Gathering Methods for Business Diagnosis

 Direct observation  Questionnaire-based surveys
 Secondary sources of data  SWOT analysis
 Employee survey  Task analysis
 Interviews (can be structured, semi-structured or informal)
The most common business diagnostic tools are discussed in next parts of this module
Information Sheet -2 Conducting SWOT analysis and PESTLE
3.2.1 SWOT Analysis
SWOT is an acronym of four words.

 S stands for strength  O stands for opportunity
 W stands for weakness  T stands for threats
This type of analysis is best performed when the business is new. In the case of an existing
business, SWOT analysis helps determine the strengths and weaknesses of the business while
allowing identification of opportunities that an enterprise can use to make bigger profits.
A SWOT Analysis is also used to assess information about competitors. What are their strengths
and weaknesses? What opportunities are they able to make use of? What are the threats to
competitors and how would they would be able to respond to these threats.
Table 15: SWOT Analysis

Quality
SWOT Analysis Good Things Challenges
Strengths
Looking at the
enterprise
What are we strong at? What do Weaknesses

Internal-
we have that we can further take Where are we not strong yet?
advantage of? Where do we need to improve?
Perspective
Opportunities Threats
Looking at the
Which existing or future Which existing or potential

environment
External -
opportunities can we exploit to threats do we have to consider

strengthen our enterprise and in order to avoid risks for our
business? enterprise and business?
Table 16: SWOT Analysis
When conducting a SWOT analysis, the following attributes should be considered. The area of
coverage of the required data is categorically presented in the table below.
Table 17: Coverage of a SWOT analysis

FINANCIAL ASPECTS PHYSICAL ASPECTS
 Capital of owner  Building
 Projected cash flow  Workshop and machinery
 Access to additional resource  Technology /incubator
 Investment requirement  Location
 Profitability  Transport facilities
 Risk  Infrastructure and utilities
MANAGEMENT AND OPERATOR
CAPABILITIES
MARKET
 Management competency  Profile of target market
 Age /experience  Competitors marketing strategy
 Skill availability  Market share
 Technical know how  product feature /quality
 Management /contacts/network  expanding /contracting /stagnant market
 Salesmanship of owner/staff  Demand /supply situation (past present ,future)
 Personnel management
INFORMATION SUPPLY OF RAW MATERIALS
 Is the necessary information available  Are the sources adequate in terms of quality and price?
 Is it available in time for decision  Are new materials becoming available which would be
making and for taking corrective useful to the enterprise
action  Will they continue to be adequate
Social Environment Production Process
 Are people accepting the products?  Is product going to be produced in mass?
 Is there any particular prejudice like  Is it labour intensive?
or dislike for the product?  Is there job order or continuous operation?
Benefits of SWOT Analysis
 It enables to continue with the selected business idea and make a full feasibility study
 It make changes to the business idea or drop the business idea completely for new business
ventures.
 Check the feasibility of the envisaged business idea
 Check the availability of raw materials and others suppliers
 Check the availability of appropriate equipment /technology and technical skills
 Enterprise and management
 Check the financial capacity and availability of appropriate loan facilities
With the understanding of the type of data required to conduct the analysis, the four elements are
clearly defined and the tools are presented as templates
Strengths
Strength – Those things that the organization does well, the high value or performance points.
Strengths can be tangible and are attributed to loyal customers, efficient service delivery, very
high quality products and excellent financial condition. Strengths can also be intangible such as
good leadership, strategic insights, customer intelligence, solid reputation and high skilled
workforce which are often considered as “Core Competencies” which is the best leverage points
for growth without draining resources. The internal strengths of an enterprise can be evaluated
using the following worksheet
Table 18: SWOT Analysis Worksheet
SWOT Analysis Worksheet
Internal Strength(S) Analysis
Department/Work Unit_______________
Agreement scale
Rank:
No. Enhancing Factors Affecting the Enterprise 5=very good, 3=satisfactory,1= poor
1 2 3 4 5
Weaknesses
Weaknesses are internal; they are within the control of the organization. Weaknesses include:
Bad leadership, unskilled workforce, insufficient resources, poor product, quality, slow delivery,
long waiting time outdated technologies, lack of planning, high overhead, lack of supplier
relationships and poor reputation. This part tries to give evidence based answers to the following
questions.
1. What could you improve?
2. What should you avoid?
3. What are people in your market likely to see as weaknesses?
Table 19: Internal Weakness Analysis

Internal Weakness (W) Analysis
Department/Work Unit______________________
Agreement scale
Rank:
No. Impending Factors Affecting the Business 5=very good, 3=satisfactory,1= poor
1 2 3 4 5
Opportunities
Opportunities refers to potential areas for growth and higher performance Opportunity is
external in nature and includes factors such as marketplace, unhappy customers with
competitor’s, better economic conditions, more open trading policies. As external factors,
opportunities may help in reaching the desired outcome, including new technologies, increased
customer demand and loosened regulations. The following template can be used to conduct the
analysis.
Table 20: External (O&T) Analysis (A)

External Opportunity (O) and Threat (T) Analysis
Department____________________
Probability of Occurrence Impact on High

No. OPPORTUNITIES (L)=1 – H(10) (L)=1 – H(10) REMARK
Threats
Threats are external challenges confronting the organization. Threats covers a wide range
factors including bad press coverage, shifts in consumer behavior, substitute products/service,
and new regulations, .it is usually useful to classify or assign probabilities to threats. The more
accuracy in identifying threats, the better position for dealing with the “sudden ripples” of
change
Threats as external factors that may hinder the achievement of the desired goal can also be
explained using Porter’s 5-Forces model
As source of threat the 5 competitive forces are
1. Potential new entrants
2. Threat of substitutes
3. Bargaining power of suppliers
4. Bargaining power of buyers/patients
5. Rivalry among competitors
Table 21: External (O&T) Analysis (B)
External Opportunity (O) and Threat (T) Analysis
Department_________________
PROBABLITY OF OCCURRENCE IMPACT ON HGH
REMARK
No. THREATS (L)=1 – H(10) (L)=1 – H(10)
After pertinent information is collected, the next step is a comparison with the strength and
weakness of competitors in the target market using the template given below.
Table 22: SWOT Comparison with Competitors
Internal Strength (S) and Weakness (W) Analysis
Comparison with Major Competitors
Category(S /W)_______ Department/Work Unit_______________
No. Factors Affecting the Business Organization Weight Comparison with competitors
(100) (L) =1 – (H)=10
Own A B C D
TOTAL
The last step in the analysis is to come up with strategies to improve the performance of the
business and remain competent and visible in the market
Table 23: SWOT Analysis Summary Worksheet
SWOT Analysis Summary Worksheet

To Develop Strategic Option
Department___________________________
INTERNAL
FACTORS STRENGTH (S) WEAKNESS(W)
OPPORTUNITY(O) SO STRATEGIES WO STRATEGIES
EXTERNAL
THREAT(T) ST STRATEGIES WT STRATEGIES
Activity (project work.15%)fgv

Instruction
Form a group of 4 members to conduct SWOT Analysis in the local
Select an enterprise in your locality which you consider is competitive in the market
3.2.2. PESTLE Analysis
Get the consent of the owner manger of the business to conduct the analysis and get necessary
Whatinformation
is PESTLE analysis?
Conduct the analysis using the templates given below
PESTLE analysis is a detailed view of the environment a business is situated in. It can be simply
Identify alternative strategies to improve the performance of the business
called a bird’s eye view where a company or an individual tries to ascertain specific trends of the
market from a macroeconomic perspective or a thorough view on the external environment in
which an organization operates. The factors are beyond the control of the business. On the
contrary, SWOT analysis tends to be more product/service specific as an individual or an entity
PESTLE is an acronym of six external factors namely political, economic, social, technological,
legal and environmental.
Figure 6: PESTLE Factors
The variables under each factor is listed in table below

Table 24: PESTLE Factors
Political Economic Social
 Political stability  Economic growth  Population growth
 Corruption  Interest rate  Age distribution
 Foreign trade policy  Inflation  Cultural barriers
 Tax policy  Disposable income of  Consumers views
 Funding grants consumers’  Workforce trends
 Labor costs
Technological Legal Environmental

 Emerging technologies  Regulations  Climate
 Maturing technologies  Employment laws  Environmental policies
 Copyright and patents  Consumer protection laws  Availability of inputs
 Production and  Tax policies  Corporate social
distribution  Anti-trust laws responsibilities
 Research and
development
The relationship between SWOT analysis and PESTLE as a business diagnostic tool is illustrated
in the figure below
Figure 7: SWOT & PESTLE Factors
Information Sheet - 3 Benchmarking the business
3.3.1 What is Benchmarking?
Businesses are always striving for high performance, from creating more efficient processes to
selling more of their products and services. But how can an enterprise determine whether it is
successful or not? Through the benchmarking process, any business can compare itself against a
standard and develop a consistent way of measuring performance.
In business, benchmarking is a process used to measure the quality and performance of your
company’s products, services, and processes. As these measurements don’t have much value on
their own, the data needs to be compared against some sort of standard. For example, assume
that it takes 20 minutes to produce a product in organization A. Is the 20-minute measurement
good or bad? The only way for to know is to compare the time it takes another organization to
produce a similar product. If another organization can produce the same type of product in less
than 20 minutes, then its time can be taken as a benchmark for measuring own processes and
procedures.
The objective of benchmarking is to use the data gathered in benchmarking process to identify
areas where improvements can be made by: the main objectives of benchmarking include:
 Determining how and where other companies are achieving higher performance
levels than an organization has been able to achieve.
 Comparing the competitor’s processes and strategies against your own.
Common areas of focus for benchmarking analysis include cost per unit, time to produce each
unit, quality of each unit, and customer satisfaction. The performance metrics helps from these
targets to compare targets against others to help determine best practices for improving own
operations.
3.3.2 Why is Benchmarking Important?
Benchmarking can be an effective tool for planning and implementing change processes that lead
to organizational improvement when the knowledge gained is converted into a detailed action
plan to improve competitive advantage'. Benchmarking can also be used as a goal-setting
process, an aid in setting performance objectives to achieve performance improvements.
Benchmarking is one of many tools used as part of any continuous improvement model for the
business organization. Consistent benchmarking can help
 Improve processes and procedures.
 Gauge the effectiveness of past performance.
 Give a better idea of how the competition operates, which will help you to identify
best practices to increase performance.
 Increase efficiency and lower costs, making your business more profitable.
 Improve quality and customer satisfaction.
There are two basic kinds of improvement opportunities: continuous and dramatic. Continuous
improvement is incremental, involving only small adjustments to reap sizeable advances.
Dramatic improvement can only come about through reengineering the whole internal work
process. Benchmarking will point out what changes will make the most difference, but it’s up to
you to actually put them in place.
3.3.3 Types of Benchmarking

There are many different types of benchmarking that fall into three primary categories: internal,
competitive, and strategic. Benchmarking
Internal Benchmarking
If other teams or organizations within the company have established best practices in processes
similar to own enterprise, internal benchmarking involves analyzing what they are doing to find
out areas to improve and be more efficient.
Competitive benchmarking
This type of benchmarking is a comparison of products, services, processes, and methods of
direct competitors. It gives an insight into a position within the industry and what needs to do to
increase productivity.
Strategic benchmarking
This type of benchmarking looks beyond own industry to identify world-class performance and
best practices so as to look for ways to adapt the methods to procedures and processes.
Steps in the benchmarking process
Benchmarking is a simple, but detailed, step-by-step process: there are eight step in
benchmarking process. Each step is discussed below.
1. Select a subject to benchmark

Executives and other senior management should be involved in deciding which processes are
critical to the company’s success. The processes should then be prioritized based on which
metrics are most important to all stakeholders. After prioritizing, selecting and defining the
measures to be collected come in..
2. Decide which organizations or companies to benchmark
Determine whether to benchmark processes within own company, a competitor, or a company
outside of the industry. It may be hard to collect all the required data if the company to
benchmark is a direct competitor. So, different organizations should be selected to study in order
to get the data needed.
3. Document the current processes
Mapping out the current processes can help identify areas that need improvement and more
easily compare against the chosen organization. The road to improvement starts with a better
understanding of where the organization is at now.
4. Collect and analyze data
This step is important—but it can prove difficult when trying to gather data from a competitor
because a lot of that information may be confidential. Information can be gathered through
research, interviews, casual conversations with contacts from the other companies, and with
formal interviews or questionnaires. Secondary information can be obtained from websites,
reports, marketing materials, and news articles. However, secondary information may not be as
reliable as the first hand primary information. It is advisable to analyze the data with all
stakeholders after adequate data is collected.
5. Measure own performance against the data collected

The data collected should be looked side by side with the metrics of the analysis of own
processes and determine the gap. In analyzing the comparisons, it is easy to identify what causes
the gaps in the process. Brainstorming ideas to effectively and efficiently fill those gaps is done.
6. Create a plan
A plan should be developed to implement changes are identified as being the best to close
performance gaps. Implementation requires total buy-in from the top down. The plan must
include clearly defined goals and should be written with the company’s culture in mind to help
minimize any pushback from employees.
7. Implement the changes

The changes and employee performance should be closely monitored. If new processes are not
running smoothly as expected, areas that need to be addressed should be identified. Make sure all
employees understand their jobs, are well trained, and have the expertise to complete their
assigned tasks. All processes need to be documented and make sure all employees have access to
documentation and instructions so that all are on the same page working toward the same goal.
8. Repeat the process

After successfully implementing a new process, it’s time to find other ways to improve. A
review of the new processes implemented is done to see if there are any changes that need to be
made. If everything is running smoothly, other areas or more ambitious projects that need
benchmark should be looked into and started the process again.
3.3.4 Key Indicators for Benchmarking
Benchmarking key performance indicators are the key metrics that indicates how well an
organization is performing against its critical success factors. In addition, Key Performance
Indicator (KPI) is a measurable value that demonstrates how effectively an enterprise is
achieving key business objectives. The key indicators are the following items:
A. Financial Matrix
1. Profit: - To determine how the enterprise is achieving its profit target.
2. Cost: - Measure cost effectiveness and find the best ways to reduce and manage enterprise costs.
3. Revenue vs. Target: - This is a comparison between actual revenue and forecasted revenue.
4. Cost of Goods Sold: - By tallying all production costs for the product the company is selling,
a better idea can be generated about what product markup and actual profit should be.
5. Day Sales Outstanding (DSO): - this is done by taking accounts receivable and divide
them by the number of total credit sales, the number then will be will be multiplied by the
number of days in the time frame considered.
6. Expenses vs. Budget: - Comparing actual overhead with forecasted budget will help
understand where the deviation from your plan is and the create a more effective
departmental budget in the future.
B. Customer Matrix
1. Customer Lifetime Value (CLV): - helps to look at the value that the organization is getting
from a long-term customer relationship. This performance indicator is used to narrow down
which channel helps business gain the best customers for the best price.
2. Customer Acquisition Cost (CAC): - is calculated by dividing total acquisition costs by the
number of new customers in the time frame, this indicator help to evaluate how cost effective
marketing campaigns have been.
3. Customer Satisfaction & Retention: - Multiple performance indicators can be used to
measure CSR, including customer satisfaction scores and percentage of customers repeating
a purchase.
4. Number of Customers: - By determining the number of customers gained and lost, it is
possible to further understand whether or not the organization is meeting its customers’ needs.
C. Process Matrix
1. Customer Support Tickets: - Analysis of the number of new tickets, the number of resolved
tickets, and resolution time will become the best customer service department in the industry
2. Percentage of Product Defects: - Take the number of defective units and divide it by the total
number of units produced in the time frame under examination. This will give the percentage
of defective products. Clearly, the lower this number, the better production will be..
3. Efficiency Measure: - used to measure organization’s efficiency by analyzing how many units
were produced every hour, and what percentage of time the plant was up and running.
D. People Metrics
1) Employee Turnover Rate (ETR): - To arrive upon ETR, take the number of employees
who have departed from the company and divide it by the average number of employees. If
the is a high ETR in your department, it is advisable to spend some time examining the
workplace culture, employment packages, and work environment.
2) Percentage of Response to Open Positions: - When there are a high percentage of qualified
applicants applying for open job positions, the organization is doing a good job maximizing
exposure to the right job seekers.
3) Employee Satisfaction: - Measuring employee satisfaction through surveys and other
metrics is vital to organizational health.
The difference between benchmarks and KPIs is often misunderstood. Both KPIs and
benchmarks are used to identify opportunities for improving performance, which may be where
the confusion arises. Both concepts are related but also different.
Benchmarks are reference points that are used to compare own performance against the
performance of others. These benchmarks can be comparing processes, products or operations,
and the comparisons can be against other parts of the business, external companies (such as
competitors) or industry best practices. Benchmarking is commonly used to compare customer
satisfaction, costs and quality.
KPIs, on the other hand, are decision-making and monitoring tools, used to track performance in
relation to strategic goals. KPI is used to check whether an individual, project, team, business
unit or entire company is on track to achieve its objectives. KPIs are a bit like an early warning
system, flagging up where things might be heading off-course and where action might be needed.
So, when we use KPIs, we are actually comparing progress in relation to a specific goal. And in
the case of benchmarks, we are own performance comparing against others..
Information Sheet - 4 Perform GAP analysis
3.4.1 What is GAP analysis?
Gap analysis is a process of comparing the current state with the desired state for an organization
and creating solutions to meet their goal. When gap refers to how far the performance is behind
the target point; GAP analysis takes to that point.
A GAP analysis is a method of assessing the differences in performance between a business'

information systems or software applications to determine whether business requirements are
being met and, if not, what steps should be taken to ensure they are met successfully.
It is a method that examines all strategies and possible opportunities to provide optimization.
You can use it for a single process or the entire business; and apply in various areas such as
sales, employee satisfaction or productivity. It could also be considered as strategic or
operational approaches which are both concrete. Operational approach focuses on daily work,
while strategic one focuses on planning and future strategies.
3.4.2 How to Conduct GAP Analysis?
There are 8 essential steps for conducting the analysis and discover what needs to be done to
reach desired goal. Here are the steps:
Each step in the GAP analysis is further discussed as follows.
1) Identify your current state
Before heading towards the goal, we need to be aware of the existing situation and the main
focus of an enterprise, it is important direct the focus on whichever processes or features to
improve.
2) Identify the desired state
With the conscious of what organization is doing, a target point is set. To determine reasonable
goals, we must know what the organization is and isn’t capable of doing within the bound of
time.
Be aware of the strong and weak sides an organization then set their goals using SMART
methodology. Goals should be specific, realistic, measurable, achievable, relevant, and time
bound.
3) Go back to the current state and define the gap
Now you know where you stand as an organization and where you want to be. It’s time to handle
the gap in between.
4) Create solutions
If it is discovered why the gap occurs, an action should be taken to fix it. After evaluating
possible solutions then a decision should be made which ones are applicable to the problem.
5) List the possible solutions
Which way is the best to close the gap? Consider all the suitable options and how you can benefit
from them.
6) Compare with pro’s and con’s
It is needed to reconsider the options with their pros and cons, bringing a new solution for an
existing issue may cause a potential problem or it may cost too much and cause loss. Therefore,
approaching problems from different angles helps to eliminate unprofitable opinions.
Overview of the solutions

After comparing them, choose the most suitable solutions. Review them and make a plan about
how you will implement it.
Bridge the gap

In this stage, we need to share the plan with the organization and present it to others. In order to
implement the changes to plan, approval of these people may be necessary. So we should be
prepared to convince them. Finally we can have an action plan that leads us.
Benefits of GAP Analysis

 Gives an overview of the company performance
 Helps to detect what needs to be improved
 Helps to solve the problems
 Turns potential into performance
 Gives insight about better usage of capability
 Highlights the changes
Figure 8: Gap Analysis
Information Sheet - 5 Applying Problem Solving and Decision Making Techniques
3.5.1 Overview of Decision-Making
The cultural norm often is that men have more power than women. In practice, however, success
in decision-making depends on skills and capacities of a person and not on their sex.
Entrepreneurs must be more creative than conventional managers in their approach to making
decisions. They must approach problems from various perspectives and seek innovative ways to
solve them. Given a particular situation, they must use insight to visualize the potential outcomes
and consequences of alternative solutions.
Because many entrepreneurial decisions are subjective, they cannot be completely free of
emotional involvement. To see past the emotional aspects of a decision, entrepreneurs should
identify the advantages and disadvantages of a potential solution; this will help entrepreneurs to
see the outcomes of a specific decision more objectively.
The word decision is defined as: a choice made between two or more alternatives. Thus decision-
making can be defined as the selection of a course of action from among alternatives. When
trying to make a good decision; a person must weigh the positives and negatives of each option,
and consider all the alternatives. For effective decision making, a person must be able to forecast
the outcome of each option and determine which option is the best for that particular situation.
1. Steps of the Decision-Making Process
1. Identify the major problem 4. Evaluate the potential solutions
2. Determine major causes of the 5. Select the best solution
problem 6. Implement the solution
3. Determine potential solutions 7. Verify the solution is correct
2. Positive aspects of group decision-making

1. The total sum of the group’s knowledge is greater
2. Groups generally develop a much wider range of alternatives.
3. Participation increases the acceptability of the decision to the group.
4. Group members understand better why a decision was made.
Problem Solving
Problem solving is the process of finding the root cause of a deviation (cause analysis) whereas,
decision making is the process of choosing from alternative courses of action (choice analysis)
Problem-solving is a mental process that involves discovering, analyzing and solving problems.
The ultimate goal of problem-solving is to overcome obstacles and find a solution that best
resolves the issue.
Problem Solving Versus Decision Making

Decision making and problem solving are two processes that people consider whenever resolving
a problem. They follow the same technique in order to come up with a solution but this does not
mean that decision making is similar with problem solving.
While decision making primarily refers to the process that involves identifying alternative
solutions and choosing an appropriate alternative, problem solving on the other hand deals with a
much bigger process that mainly begins with defining the problem and ends with an assessment
on the usefulness of the preferred solution.
Decision making as a concept is based on action for the most part where as problem solving, on
the contrary, is a process that requires a technique, a form of a system, or a procedure that are
intended to reach a solution.
Table-24: Decision Making and Problem solving Difference
The difference between Decision Making and Problem solving
Decision Making Problem solving
Identify the objectives(goals) of the decision Identify and try to understand the problem
Making a judgment Developing a plan

Choosing an option Analyzing a problem
Making choice between alternative Creating a plan of action
Asks Who, What, Where, When Asks how and why

Select best course of action Select the best solution
3.5.2 Decision Making Techniques
Decision making is broadly random, intuitive or analytical. In business, an analytical approach

can lead to informed decisions which are more likely to provide real business value. In helping to
make informed business decision, here are some alternative techniques. No tool can guarantee
that you will make the right decision every time – no one makes the right choice every time – but
being familiar with tools is a big step in the right direction.
i) The Kepner-Tregoe Matrix - use this matrix to guide your thinking when facing a
particularly important decision, it helps to frame the question at hand in a number of
important ways. Rather than just ‘going with your gut’, this tool helps you to sort out all of the
important factors before making your final choice. To use the Kepner-Tregoe Matrix, you are
going to work through a four-step process. These are:
Figure 9: Kepner-Tregoe Matrix
i. Situational Analysis. This is the high level of the decision, where you weigh everything
that is involved in the choice which needs to be made. That means thinking of the decision
in broad terms, trying to decide what you want to accomplish and what success will look
like.
Figure 10: Situational Analysis
ii. Problem Analysis. The details of the decision start to come into focus during this
step.
Step 2 - Problem Solving

Figure 11: Problem Analysis
3. Decision Analysis. Here you are going to actually make your choice. Here have
various options with potential weighed benefits and risks on the table at this time
Figure 12: Decision Analysis
4. Potential Problem Analysis. With your decision made, you are now going to imagine
that you have put the decision into action – before you have actually done so. Do you
see any potential problems coming up as a result of this choice? What could you do to
mitigate those issues?
Figure 13: Potential Problem Analysis
ii) Decision Matrix Analysis - As you are probably aware, the best way to make an important
decision is to work through the various options at hand one by one, weighing each based on a
number of factors before coming to a conclusion. To create your decision making matrix,
steps.
Step 1 - List all of your options as the row labels on the table, and list the factors that you need
to consider as the column headings. For example, if you were buying a new laptop,
factors to consider might be cost, dimensions, and hard disk size.
Step 2 - Next, work your way down the columns of your table, scoring each option for each of
the factors in your decision. Score each option from 0 (poor) to 5 (very good).
Step 3 - The next step is to work out the relative importance of the factors in your decision.
Show these as numbers from, say, 0 to 5, where 0 means that the factor is absolutely
unimportant in the final decision, and 5 means that it is very important.
Tip: These values may be obvious. If they are not, then use a technique such as Paired
Comparison Analysis to estimate them.
Step 4 - Now multiply each of your scores from step 2 by the values for relative importance of
the factor that you calculated in step 3. This will give you weighted scores for each
option/factor combination.
Step 5 - Finally, add up these weighted scores for each of your options. The option that scores
the highest wins!
Tip: If your intuition tells you that the top scoring option isn’t the best one, then reflects
on the scores and weightings that you’ve applied. This may be a sign that certain factors
are more important to you than you initially thought.
Figure 14: Decision Making Matrix Sample
iii) The Analytic Hierarchy Process - The Analytic Hierarchy Process (AHP) is a method
for organizing and analyzing complex decisions, using math and psychology. AHP
provides a rational framework for a needed decision by quantifying its criteria and
alternative options, and for relating those elements to the overall goal.
iv) Pareto Analysis - Pareto Analysis is a statistical technique in decision-making used for
the selection of a limited number of tasks that produce significant overall effect. It uses
the Pareto Principle (also known as the 80/20 rule) the idea that by doing 20% of the
work you can generate 80% of the benefit of doing the entire job. Take quality
improvement, for example, a vast majority of problems (80%) are produced by a few key
causes (20%). This technique is also called the vital few and the trivial many.
We can apply the 80/20 rule to almost anything:

 80% of customer complaints arise from 20% of your products and services.
 80% of delays in the schedule result from 20% of the possible causes of the delays.
 20% of your products and services account for 80% of your profit.
 20% of your sales force produces 80% of your company revenues.
 20% of a systems defects cause 80% of its problems.
The Pareto Principle has many applications in quality control. It is the basis for the Pareto
diagram, one of the key tools used in total quality control and Six Sigma. To use Pareto Analysis
effectively, you are going to follow the steps below.
a) Find your problems. Make a complete list of the problems you would like to solve in your
organization.
b) Match up root causes. For each of those problems, do your best to identify and highlight a
root cause.
c) Give the problems a score. Not all problems are created equal – rate the problems you
would like to solve, with the highest scores going to the most important issues.
d) Create groups. Take some time to group your problems into like categories so you can
attempt to solve more than one problem at the same time.
e) Score the groups. The problem groups which have the highest total score are those which
should be addressed first. This simple process will help you to make sure your time and
attention are being spent on problems which are affecting the business in the most
significant way.
Figure 15: Pareto Diagram
v) The Futures Wheel - This is a tool which was created in the early ‘70s and remains very
much relevant today. Using this model starts by writing a proposed change in the middle
of a sheet of paper – this will become the hub of your wheel. From there, you are going to
move out to write down lower-level changes that would need to occur in order to achieve
the main change that is the focus on this process. The idea here is to move into deeper
and deeper levels of change, one step at a time.
Figure 16: The Future Wheel
vi) Force Field Analysis: Aim of the tool - To identify and assess the strengths of the various
forces influencing a desired change both supportive and restraining/holding back/.
 When to use it? - This tool can be used at the design or evaluation state of an
intervention or for decision making on organizational changes.
 How difficult is it to use it? - Easy – moderate – for experienced users/facilitators – it is
a tool for thought and for action. It provides a framework for addressing complex
problems.
 Issues to be aware of: - The forces identified might be subjective and not based on
objectives factors
Description of the tool - The force field analysis was developed by Kurt Lewin. It evaluates the
net impact of all forces that influence change. These forces can be divided into two groups:
driving forces and restraining forces. Driving forces are all forces that promote change. These
change drivers promote and encourage the change process.
Some examples of driving forces are executive mandate, stakeholder demands, and increased
efficiency. Restraining forces are forces that make change more difficult. These forces counteract
driving forces and lead to the avoidance or resistance of change. Some examples of restraining
forces are fear, lack of training, and the lack of incentives.
If the two sets of forces are equal, then there is no change. Discuss with colleague how the change
can come about by decreasing the strength of the restraining forces or by increasing the strength of
driving forces. It is a valuable change-management tool.
Figure 17: Force Field Analysis

Information Sheet - 6 Taking corrective actions
3.6.1 Taking Corrective Actions
Corrective action is a process of communicating with the employee to improve attendance,

unacceptable behavior or performance. No corrective action is required when the deviations are
within acceptable limits. However, when the deviations go beyond the acceptable range,
especially in the important areas, it demands immediate managerial attention so that deviations
do not occur again and standards are accomplished.
Corrective action might involve training of employees if the production target could not be met.
Similarly, if an important project is running behind schedule, corrective action might involve
assigning additional workers and equipment to the project and permission for overtime work.
 Corrective action is a process of communicating with the employee to improve

attendance, unacceptable behavior, or performance.
 Taking corrective action requires identifying the problem and implementing a potential
solution.
 In any business, at some point employers such as human resource managers, managers, or
small business owners have to take corrective actions and/or discipline employees.
The basic control process includes the following steps:

1) Establishment of Standards: - Managers must translate plans into performance standards.
A standard should be tangible, for better evaluation. Performance standards are expressed
in terms of cost, quality, quantity, and time.
2) Measurement of Actual Performance: - If performance is not measured, it cannot be
ascertained whether standards have been met. Work, operations, and turnout should be
observed, measured and facts collected. Statistical data, reports, opinions, accounting
information, etc. will help in measuring the actual performance.
3) Comparison of Actual Performance with the Original Standards: - Accept or reject the
product or outcome. The comparison may disclose either agreements or deviations from the
standards established.
4) Taking Corrective Action: - Managers must determine why standards were not met.
Corrective action should be taken immediately, without any loss of time. Corrective action
may be improving the techniques, organizational structure, proper selection, training, and
remuneration of workers.
5) Feedback: - If the feedback is positive and reveals accomplishment, the manager must
encourage and appreciate the subordinates. If the feedback brings negative results, the
manager has to take corrective action and alter the operations accordingly. Feedback will
help in getting information well in time about work performance, and it also motivates
people.
6. How can you identify areas for improvement?
Impact of emerging or changing technology on

Information Sheet – 7
business sustainability
What should I put for areas of improvement?
3.7.1 Business sustainability
Sustainability is a business approach to creating long-term value by taking into consideration

how a given organization operates in the ecological, social and economic environment.
Sustainability is built on the assumption that developing such strategies fosters company
longevity.
HYPERLINK "https://www.indeed.com/career-advice/career-development/areas-of-imp
3.7.2rovement-for-employees"
The impact of technology in sustainable development?
How do you identify opportunities for improvement in your work *?
The tools of sustainable development are economic instruments, legislative measures and
consumer pressures which are aimed at achieving technological changes such as recycling, waste
minimization, substitution of materials, changed production processes, pollution control and
more efficient usage of resources.
Technology has positives impact on sustainable development. Hardware, software, know-how,

and other technologies are essential tools for sustainable development.
HYPERLINK "https://www.forbes.com/sites/forbescoachescouncil/2018/01/15/want-to-
make-an-impact-heres-how-to-identify-areas-for-improvement-at-your-company/" W
hat are top 3 areas that need improvement to increase professional performance?
HYPERLINK "https://getsling.com/blog/areas-of-improvement-for-employees/"
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Summary
Business is about more than making profits; it also means ensuring that operations will
successfully continue in the long term. Sustainable products and operations help ensure that there
will be sufficient raw materials for future products and services.
Benchmarking is a continuous and systematic process for evaluating the products, services and
work processes of organizations that are recognized as representing best practice for the purpose
of organizational improvement.
In today’s competitive environment, businesses cannot afford not to change. Trends towards
globalization dictate that companies need to be highly flexible and outward oriented.
Self-check questions
The self-check test has two parts Attempt all questions in each part and give your answers
as per the instructions.
PART I. Write “True” or “False” for each of the following questions
1. SWOT analysis is best methodological approach to analyze the impact of external. Factors
2. Benchmarking and SWOT analysis are technically different but similar in their purpose.
3. Diagnostics of the business is not mandatory procedure for an enterprise operating in a
highly competitive market.
4. PESTLE concerns itself with controllable internal factors affecting the business operation.
5. Best practices are the final output of benchmarking.
6. KPI are identified as a reference to benchmark practices of competitors.
7. Technology does not have an impact on the performance of businesses
PART II - MATCHING
Instruction: match item under B with item listed under column A
A B
iii. Strength A. Reference to measure performance
iv. Opportunity B. Best practices
v. Benchmarking C. Internal perspective
vi. Business diagnostics D. Examining the functioning of a business
vii. KPI E. Uncontrollable factor
Learning Outcome - 4 Analyzing Change and Innovation
Introduction
This learning outcome discusses about the meanings of change, innovation, creativity and
management of change. It also explains the stages of organizational change and how to reduce
resistance of change by individuals in an organization. The factors that bring change within the
organization are dealt with adequate elaborations. Finally, the relationship between change and
innovation is clearly outlined
Learning Objectives
At the end of this lesson, the trainees will be able to
 Understand the meaning of change
 Distinguish the factors of change
 Determine the factors of change resistance
 Develop skills of managing change
 Know the differences and similarities of change, creativity and innovation

Pre lesson activities
What do we mean by change?
What are the factors for change?
How do we reduce change resistances of people?
What is the nature of relationship between change and innovation?
Ask from your teacher the key to correction (key answers) or you can request your teacher to correct
your work. (You are to get the key answer only after you finished answering the Self-checks).
Instruction Sheet
At the end of the training, trainees will able to
 Understand the concept of business diagnostics
 Conduct the SWOT, PESTLE and GAP analysis
 Determine KPI and conduct benchmarking
 Understand and apply Problem Solving and Decision Making techniques
 Identify the impact of emerging or changing technology on the sustainability of the
business
3. Read the information written in the Information Sheets and Try to understand what are being
discussed.
4. Do the “Self-checks1, and 2 activities and group assignment in each information sheets.
checks).
Information Sheet -1 Understanding Nature of change

4.1.1 Definition of Change and Innovation
i) Change
Change simply refers to a result that brings difference in the existing conditions of an
organization or any objective reality. The economic and social environment is so dynamic that
without adapting to such change even the most successful organizations cannot survive in the
changed environment. Change is endemic and all around us. Organizations need to change in
order to respond to the many pressures they face from their environment. Often these pressures
require organizations to change the way they operate. This can include small incremental
changes that redefine roles, eliminate ineffective processes or instigate new ways of working. At
other times, these pressures require a major disruption within the organization. This transforms
the culture, reorganizes people, process and systems, and radically changes the organization’s
strategy.
Figure 18: Change in the flowering process of a plant
Nature of change
In management, change is expected as part of organizational life. Change refers to an alteration
in the present business environment. Some examples of organizational change are:
(1) A new method of doing the work,
(2) A new product or process,
(3) A new organization structure and
(4) Changes in personnel policy or employee benefits.
Every individual and organization has to experience change. At times the change is planned for.
Sometimes changes are imposed — events beyond the individual’s or organization’s control
initiate the change. In the first situation there exists a great possibility to predict what may
happen and thereby to control events. In the second situation, reaction to unforeseen events can
be the response. Since change is certain to occur, it has to be managed. So it is necessary at the
outset to examine potential sources of change.
Organization change is defined as “any alteration in one or more elements of the organization”.
Changes can be made in any of the following: work schedules, basis for departmentation, span of
management, overall organization design, or people themselves.
It is also important to bear in mind that any change in an organization may have effects
extending beyond the actual arena in which the change takes place. For example, a job
enrichment program could require the purchase of new machinery that might, in turn, affect other
processes in the work system. Understanding the nature of changes and its effects are very
important to control and to manage it.
Figure 2 below summarizes the nature of organizational change. It represents the forces for
change and brings into focus the distinction between two types of change—planned and reactive.
The important point to note here is that while reactive change emerges as the result of an
environmental ‘push’, planned change anticipates this push. In the next section, we outline the
general process of Organization Change, with a stress on planned change.
Figure 19: The nature of Organizational Change

Forces of change come from external and internal sources of the organization. External
pressures or factors of change originate outside the organization. Internal pressures or factors of
change come from inside the organization. Key elements of external factors of change are:
• Changes in global markets • Customer feedback
• New competitors • World Politics
• New technology • Social Trends
• Government legislation
While the key elements of internal factors of change are:
• Policies and procedures
• Pay structures
• Employee feedback
• Motivation of the workforce
• Hiring, firing and retiring of employees
• Production technologies
The above Internal & External Change Forces can be shown using a simple diagram below:
Figure 20: External and Internal Change Forces
Ways of Dealing with Change:

Management has already been defined as the art and science of getting things done through
people. Thus favorable change can be brought about only by working through people.
Figure 21: Two organizational change approaches

Figure 21 above shows that there are two major ways of dealing with organizational change. The
first is a reactive process of change, whereby management adapts on a piecemeal one-step-at-a
time manner in order to tackle problems or deal with issues as soon as they arise. An alternative
seems to be for management to use the proactive process of change and develop a program of
planned change.
Planning change
To survive today, you must be prepared for rapid change. A change plan is developed to
implement projects that have been specified for change. It’s important for all companies to have
a change plan, but it plays an even more significant role in small companies, because the very
nature of being small lends itself to greater potential for growth and rapid change.
Change requires courage, a certain degree of risk, some discomfort, and often a lot of hard work,
but today, an ongoing change plan should be the norm rather than the exception. The
development of a change plan is an integral part of all successful people’s playbook. Prepare
yourself for ongoing change by developing and executing a change plan that should include the
following steps.
Step 1: Evaluate the changes required

This includes answering the following questions:
 Why is the change required?
 What external issues are driving this change?
 What internal factors can impact this change?
 What does success look like?
 How does this change support the strategic direction of the organization?
Step 2: Ensure support for the change from senior management.

The support from the start is essential to the success of any change initiative. This step requires:
 Identification of project sponsors and key stakeholders who can authorize the changes,
commit resources to achieving the delivery and provide direction for its development and
implementation.
 Stakeholder analysis to understand how the change will affect each stakeholder and how
much influence stakeholders have on its implementation. This information can be used to
build a communications plan. Such a plan should provide details of the different
audiences and types of communication required during the change.
 An understanding of what type of leadership style will be required to implement the
change, for example, adaptive, connective or visionary.
Step 3: Develop an end state vision.

It is essential that everybody affected by the change understands the rationale for the change,
how it will affect them and what the end state will look like. Key activities during this step
include:
 obtaining current performance data that can be used as a benchmark to measure the
success of the change
 assessing levels of dissatisfaction with the current situation and using the analysis to
explain to those affected why the change is necessary
 Understanding how people react once the change is announced.
Step 4: Create a team to deliver the changes

Key activities in this stage are:
 identifying appropriate individuals to be involved in the team
 providing a clear remit and scope for the team
 assigning roles and responsibilities to the change team
 formulating a plan to identify all activities involved in developing and implementing the
change
 Allocating activities to team members based on experience and ability.
Step 5: Develop the change activities

During this step, the focus is on delivering the change activities. At this stage, those directly
impacted by the change should be engaged in the initiative. Activities might include:
 workshops and training sessions
 development of super-users
 help desk facilities
 user manuals
 drop-in clinics
Step 7: Embed the change
The final stage is embedding the changes so that they achieve their long-term desired objective.
This is likely to include transitional activities such as:
 communicating the changes that have taken place and reinforcing that the old ways of
working are no longer applicable
 providing a forum for people to discuss any implications the changes have on them
personally
 providing ongoing training and support to fill any ‘gaps’ in understanding or capabilities
 changing recruitment, promotion and reward policies to attract and retain the right people
and reinforce the right behavior
Stages of Organizational Change

Change is occurred through time to time in anything and condition including business
organization. Because of various internal and external factors, changes occurred in any business
organization. These changes pass through 3 stages as suggested by Kurt Lewin (1958):
1. Unfreeze the present situation 3. Refreeze the new situation
2. Move to the new situation
1. Unfreezing
• Recognition that existing work practices are no longer effective;
• Reduction of the forces that are maintaining the organization’s present behavior;
• Confrontation or re-education of participants, customers and other stakeholders for
purpose of bringing change;
2. Moving
• Taking action after having identified the need to move from the existing situation.
• A range of alternatives for action considered and the most appropriate selected.
• There should be a careful support and the creation of safe circumstances for change.
3. Refreezing
• Strives to destabilize the organization in its new state, i.e. avoiding factors that may
revert to the previous state
• Promote the development of the organizational culture and the practices that constitute
the new culture
Advantages and disadvantages of change
Change is important for any organization because, without change, businesses would lose their
competitive edge and fail to meet the ever-changing needs of customers. So, change is
important for a business
 To cope up with the ever-changing world of technology
 To meet constantly evolving customer needs
 To cope up with the changing global economy
 Because it brings growth opportunities
 To change the status quo
The disadvantages of change include

 it will result in employees going through the feelings of tension, stress, and uncertainty,
which results in a negative impact on employees’ productivity output, and achievement
 During organizational change, staff members might experience loss of attachment. Most
of the time, change requires working with new members, such as a new leader, or a new
team
 Organizational changes might lead to staffs having low morale. When the staffs opposed
a change that is taking place in the workplace, they become less confident and felt
hopeless about their professional future with the organization
 Organizational change may result in less efficiency in employees. This is due to the
employees spending much time focusing on withstanding the changes taking place in the
organization, which will results them becoming less attentive in their daily work routine
ii) Innovation
Innovation is the practical implementation of ideas that result in the introduction of new goods or
services or improvement in offering goods or services. In other words, Innovation is an idea that
has been transformed into practical reality. For a business, this is a product, process, or business
concept, or combinations that have been activated in the marketplace and produce new profits
and growth for the organization. It can be defined as something original and new being
introduced to the world. In a management context, Peter Drucker (2002) has noted that
innovation is a specific function of entrepreneurship and its ability to create new wealth,
producing resources or improving the wealth creation ability of existing resources. Innovation
can be intentional or accidental. Innovation is not a value addition, but the creation of new value.
Innovation begins with the analysis of the sources of new opportunities. The opportunities are
the unsatisfied needs. Through innovation, these needs are being satisfied.
4.1.2 What is the difference between Change and Innovation?
As we have looked at the above definition of both change and innovation, now we will compare
between them to identify the key differences between these two terms.
Definition of Change and Innovation

 Change: The difference in a state of affairs related to different points of time.
 Innovation: Innovation is something original and new, being introduced to the world. It
can be new ideas, new devices or new processes.
Characteristics of Change and Innovation

Knowledge
 Change: Previous knowledge and resources are required for a change to happen.
 Innovation: Previous knowledge is not necessary for innovation to happen.
Comparability
 Change: Change is comparable with a previous situation or product and is relative in
nature.
 Innovation: Innovation is not easily comparable as it does not have near factors to be
compared with as it’s unrelated in
Need
 Change: Change will only improve on the ability to satisfy a need which already has a
solution. Change will not assist in answering an unsatisfied
 Innovation: Innovation will be the answer to satisfy an unsatisfied need which did not
have a solution earlier.
Continuity
 Change: Change is a continuous and natural process of adoption and efficiency
improvement.
 Innovation: Innovation is discontinuous in nature and usually originates from
perceptional change.
Information Sheet -2 Define Change Resistance

4.2.1 Defining Change Resistance
Change resistance is the tendency of most people to avoid or dislike changes of any type.
Resistance to change is natural. It is obvious that resistance to change tends to focus on human
relations problem, although it may appear to be related to the technological aspect of change.
Workers resist the changes which will affect their social relationships, upset their status and
threaten their security. A change may give them a feeling of insecurity, since it challenges their
way of doing things and may bring less labor oriented processes. Moreover, it is difficult for the
workers to give up their old habits and customs. They also resist the change if they do not know
it well. Resistance to change is caused by individuals’ attitudes which are influenced by many
economic, psychological and social factors.
1. Economic Factors
These factors are related to the basic economic needs of the workers like necessities of
life, job security and safety
2. Psychological Factors
These factors arise when workers perceive that factors relating to their psychological
needs will be affected adversely by the proposed changes.
3. Social Factors
Individuals do have certain social needs like friendship, belongingness, etc. for the fulfillment of
which they develop informal relations in the organization.
Identifying and implementing Change resistance
Information Sheet -3
reducing techniques
4.3.1 Change resistance reducing techniques
Change resistance in business organizations by workers is one of the common and the most
difficult problem that blocks the benefits that comes along with the change to the business. So,
the business should utilize available mechanisms to reduce these resistances’ to change by the
workers. The major techniques used to reduce resistance to change are described as follows;
1. Education and communication - Employees in the businesses are objected to be educated

about the nature of and need for change before implementing and the logic of change needs
to be explained.
2. Participation and involvement - Allowing people to planning, designing and implementing

the changes provide school members to contribute ideas and advices that lead change. This
strategy is useful when change initiators do not have all the information they need to design
the changes and other members have important information and considerable power to
resist.
3. Facilitation and support - People having hardships of change are actively listened by
management about their ideas, problems and complaints with using their ideas that have
merit. That is, supportive principals make the work environment more pleasant and
enjoyable for change process. This strategy is essentially utilized when workers are
frustrated by work constraints and difficulties that are encountered in change process and
have adjustment problems.
4. Negotiation and agreement - Incentives to actual or potential change resistors in the

workplace are offered in negotiation and agreement method. In fact, trade-offs for special
benefits are arranged with these resistors and unblocking of the change initiatives is assured.
This approach is preferred when someone in the organization clearly loses something of
value in change process and has power to resist.
5. Manipulation and co-optation - In order to reach the desired change, influencing other
people in organization is attempted, the necessary information is provided and the required
events for change are structured. When previous techniques do not work and are seen as
expensive, manipulation and co-optation approach is common.
6. Explicit and implicit force - Change initiators employ the force of their authority for
acceptance of the change by people in organization. Resistors in the workplace are
threatened with undesirable situations if they do not go along the proposed changes. When
speed is essential like in crisis situations and change agents have considerable power, this
method may be used. However, it should be kept in mind that there are negative effects of
using force such as frustration, fear, revenge and alienation which in turn may give birth to
poor performance, dissatisfaction and turnover.
Information Sheet - 4 Change Management
4.4.1 Change Management
There are many different types of change and different approaches to managing change.
However, it is clear that it is those organizations that are most capable of managing change that
ultimately survive and thrive. As Charles Darwin wrote in the 19th century: ‘It is not the
strongest of the species that survive, nor the most intelligent, but the one most responsive to
change.’ In thinking about what is meant by “change management,” at least four basic definitions
come to mind:
1. The task of managing change
2. An area of professional practice
3. A body of knowledge
4. A control mechanism
These definitions are shown below

1. The task of managing change
Managing change is itself a term that has at least two meanings.
One meaning of “managing change” refers to the making of changes in a planned and
managed or systematic fashion.
The second meaning of managing change, namely, the response to changes over which the
organization exercises little or no control (e.g., legislation, social and political upheaval, the
actions of competitors, shifting economic tides and currents, and so on).
2. An area of professional practice
The second definition of change management is "an area of professional practice." It is expertise
in this task of managing the general process of change that is laid claim to by professional
change agents.
3. A body of knowledge
Change management consists chiefly of the models, methods and techniques, tools, skills and
other forms of knowledge that go into making up any practice. The content or subject matter of
change management is drawn from psychology, sociology, business administration, economics,
industrial engineering, systems engineering and the study of human and organizational behavior.
4. A control mechanism
Here, change management is defined as a control mechanism consisting of requirements,
standards, processes and procedures within an organization.
Change management, in most common use of the term, refers to a range of tools, techniques
and processes aimed at successfully implementing change. Typical tools and techniques that a
change management practitioner might use during a change initiative include:
 questioning skills to gather information about the ‘as is’ and ‘to be’ status of the business
process
 process mapping for both ‘as is’ and ‘to be’ processes
 gap analysis
 business case development
 project management
 problem solving
 requirements elicitation techniques
 negotiation skills
Change management, as a cyclical process of action, has the following steps:
1. Request for change
2. Impact analysis of change
3. Approve / deny of change
4. Implement change
5. Review / reporting change
Diagrammatically, it is depicted below:
Figure 22: Change Management Process

Information Sheet - 5 Relationship of Change and Innovation
4.5.1 Change and Innovation
The term, innovation, dates from the 16th century, and is derived from the Latin, innovates, “to
renew or change,” from in - "in to" + Novus "new." In today’s business environment, innovation
is essential for survival in a constantly evolving technologies and market dynamics.
Innovation is the activity of organizations to change themselves and the environment. It
means breaking routines and dominant ways of thinking, introducing new things and behaviors,
launching new standards. Kinds of innovations can basically be:
 A product innovation (e.g. New goods or services put on sale);
 A process innovation, which changes the way a given good is produced within the firm or across
a supply chain;
 A Behavioral innovation, when an organizational routine is replaced with new ones, including
the main features of its "business model".
 Innovation has been studied through the lenses of economics, engineering, political science,
sociology, and other fields. From the organizational perspective, innovation is defined as the
successful introduction of a new thing or method. Innovation is the embodiment, combination, or
synthesis of knowledge in order to produce valued new commodities, processes, or services.
Some people equate innovation with creativity but there is a distinction between the two. The
universal fact of these two terms is all innovation begins with creative ideas. We define
innovation as the successful implementation of creative ideas within an organization. In this
view, creativity by individuals and teams is a starting point for innovation; the first is necessary
but not sufficient condition for the second.
In organizations, innovation occurs as knowledge and experience are applied to generate new
products and services, new insights into competitive advantage, and new systems, processes, and
ways of conducting business. Innovation can be manifested in new organizational structures,
such as modular offices, virtual teams, matrices, and flattened hierarchies. Organizational
innovation requires a cultural orientation that is targeted to anticipating trends, generating and
evaluating ideas, communicating solutions, and leadership dedicated to promoting, executing,
and sustaining initiatives.
Summary
Change simply refers to a result that brings difference in the existing conditions of an
organization or any objective reality. There are internal as well as external factors that bring
change. While the internal factors are within the control area of the business, the external factors
are outside the control area of the business. Planning change is important in order for the
business to benefit from the change and in addition to this, to reduce the bad impacts of the
change.
The stages of organizational change are unfreezing the present situation, move to the new
situation and unfreeze the new situation. Change resistance is the tendency of most people to
avoid or dislike changes of any type It occurs because of economic factors , psychological
factors and social factors .
Change management, in most common use of the term, refers to a range of tools, techniques and
processes aimed at successfully implementing change. The steps in the process of change
management include request for change, impact analysis of change, approve / deny of change,
implement change and review / reporting change.
Innovation is change that is brought about by creative ideas and is practically implemented in a
good, service or process of work.
Post lesson activities
Case Study
Consider a time period of 10 year ago in your life and answer the following questions
1. Mention the various changes brought about in your life up to now.
2. What were the reasons for these changes in your life?
Take an example of a good or a service,
1. An example of a situation where simple change but not innovation occurred in this good
or service
2. An example of a situation where innovation but not only simple change occurred in this
good or service
Self check: 1
Direction: Match the terms in column A with that of column B (1 mark each)
COLUMN A COLUMN B
1. Unfreezing A. Sold goods
2. Change resistance B. External factor of change
3. Innovation C. Service innovation
4. New goods on sale D. It is natural
5. New competitors E. Product innovation
F. First stage of organizational change
G. Successful implementation of creative ideas
H. It is growth oriented
Short answer questions

1. What are the three major factors for resistance to change? (3 Marks)
2. What are the stages of organizational change by kurt lewin? (3 Marks)
3. What are the three types of innovation? (3 marks)
Project 1: Analyzing change and Innovation

Direction: Visit a nearby business of any kind. Ask the owner or manager of this business about the
different changes brought about for the last 5 years. Based on your findings, answer the
questions in the following table;
Topics to be understoodQuestions
Determining factors of organizational changeWhat are the changes brought about for the
last 5 years?Which of the above changes come because of internal factors and why?Which
of the above changes come because of external factors and why?Determining factors for
change resistanceWhen and why the workers in your business resist the change?What were the
reasons for their resistance to these changes?
Applying change managementWhich of the changes during the 5 years come because of the
internal factors of change?Which of the changes during the 5 years come because of the internal
factors of change?Discuss with your classmates how the business managed these changes?
Understanding Basics of Business
Learning Outcome - 5
Management Skills
Introduction
We can perceive from the experiences of companies the importance of employees and their
loyalty and commitment to the organization. Also significant to potential investors is the
management team and its ability and commitment to the new venture. Investors will usually
demand that the management team not attempt to operate the business as a sideline or part-time
venture while employed full time elsewhere. It is assumed that the management team is prepared
to operate the business full time and at a modest salary. It is unacceptable for the entrepreneurs to
try to draw a large salary out of the new venture, and investors may perceive any attempt to do so
as a lack of psychological commitment to the business.
Pre Lesson Activity: - Group Activity
Discuss the concepts of Business management
Describe work place problems and its management
Discuss types and functions of MSE
Instructions Sheet
At the end of the lesson, trainees will be able to:
 Understand the concepts of Business Management

 Distinguish Human and Non-human Resource
 Identify Work place problem and its Management
 Analyze Risk Management
 Explain Managing MSE
 Recognize Managing Growth and Transition of a Business
 Analyze Business growth strategies
 Understand the necessity of Creating &Maintaining business relationships
being discussed.
4. Attempt all activities, group assignment and “Self-check question in each information
sheets and the project work
checks)
Information Sheet - 1 Concepts of Business Management
5.1.1. What is a business?
A business is a set of regular activities conducted by an individual or a group of individuals to

generate profit by fulfilling the needs of other people. To generate a profit, businesses conduct
three basic activities
• buying (equipment and materials)
• producing (goods or services)
• selling (goods or services)
5.1.2. Business management
Business management is managing the coordination and organization of business activities. This
typically includes the production of materials, money, and machines, and involves both
innovation and marketing. Management is in charge of planning, organizing, directing, and
controlling the business's resources so they can meet the objectives of the policy.
1. What Does Management Do?
2. What Is Business Management System?
3. Business Management Tactics
4. Management Styles
i) What Does Management Do?

Managers and directors have the responsibility and power to look over an enterprise and make
decisions. The management size can be anything from a single person in an organization to
thousands of managers in companies that are in different nations. In bigger organizations, the
policy is defined by the board of directors and then carried out by the CEO, or chief executive
officer.
Some people think the best way to evaluate a company's future and current worth depends on the
experience and quality of the managers. The goal of management is to get people together to
achieve the same desired objectives and goals by using the resources that are available in an
effective and efficient way.
Management functions include the following:
 Planning
 Organizing
 Staffing
 Directing or leading
 Controlling an organization
They also encompass the manipulation and deployment of financial resources, natural resources,
human resources, and technological resources. Management is necessary to facilitate a united
effort towards achieving the company's goals.
ii) What Is Business Management System?

Business Management System is a toolset that's used for tactical implementation and strategic
planning of practices, processes, policies, guidelines, and procedures to use in the deployment,
execution, and development of business strategies and plans, as well as any associated
management activities. They provide a foundation for both tactical and strategic business
decisions when it comes to current processes, tasks, activities, and procedures with the goal of
meeting all objectives an organization has and satisfying the customer expectations and needs.
The main idea of Business Management System is to give management the tools for monitoring,
planning, and controlling their activities and measure the performance of a business. They also
aim to put into effect continuous improvement processes in the company. This system finds the
principles of the organization's existence and is linked closely to business success criteria. It is a
multi-level hierarchy of different business solutions that show how an organization that's profit-
oriented will perform different functions, such as marketing, sales, staffing, and purchasing to
complete a task successfully.
iii) Business Management Tactics

The functional group of a BMS finds what the tactical techniques and approaches are when it
comes to implementing busin11ess plans that are linked to their business strategies. Tactical
solutions should only be brought up during the decision-making part. They should be executed
based on the timeframes that are in the document for the business management strategy. Extra
business schedules can be formed and assigned to this tactical implementation practice as well.
Business Management Tactics are defined as activities that follow the business standards that
were identified in the company's policies. They put into effect business tasks and plans so they
can meet the goals that have been prioritized.
There are also processes and guidelines in this functional group to develop business management
plans. The guidelines have practical instructions and directions to show how decision makers can
control all the tactical solutions. They include operations and procedures that show how
performers get daily tasks and activities accomplished. This group also directs the staff towards
the completion of business solutions and recognizing implementation plans that is aligned with
the management tactics.
iii) Management Styles

There are several types of management that are common, including democratic, autocratic,
paternalistic, and laissez-faire. Democratic management style is used when employees are able
to give feedback or input on business decisions. Autocratic management lets the business owner
be the person in charge of making all decisions and leading the company through the business
environment. When the best work environment possible is created for each employee, it's known
as paternalistic management. Laissez-faire has the most employee autonomy and lets decisions
be made with little to no business owner oversight.
Traditional management is a hierarchy of employees, with low, mid, and senior-level

management. The manager creates expectations for the goals employees need to make.
Activity 1: Group Work (15 min)

Observing carefully your organization, and explain activities that can be performed
daily by your management groups to your group.
Information Sheet - 2 Determining Human and Non-Human Resource
5.2.1. Human resource management (HRM)

Human resource management is the planning, organizing, directing, and controlling of the
procurement, development, compensation, integration, maintenance, and separation of resources.
Human resource management is that part of management concerned with people at work and
with relationships with in an enterprise. It is to bring together and develop in to an effective
organization that men and women who makeup an enterprise and having regard for the wellbeing
of the individual and working groups to enable them to make their best contribution to its
success.
5.2.2 Human resource management functions

Human Resource management is seen as a system. The system entails the performing of six
functional areas associated with effective human resource management. These are Human
resource planning, requirement and selection, human resource development, compensation and
benefits, safety and health, employee and labor relations, and human resource research. It is these
exerted and integrated performances that human productive factors of production; i.e. people
with its skill, knowledge, experience, and inventiveness will be created and maintained for
organizational purpose. Some of its(hrm) functions are:
1. Human resource Planning - Human resource planning is the process of systematically
reviewing human resource requirements to ensure that the required numbers of employees,
with the required skills, are available when they are needed. Human resource planning is the
process of matching the internal and external supply of people with job openings anticipated
in the organization over a specified period of time.
2. Recruitment - Recruitment is the process of attracting individuals in sufficient numbers and
encouraging them to apply for jobs with the organization. It is the process of identifying and
attracting a pool of candidates, from which some will later be selected to receive employment
offers.
3. Selection - Selection is the process of choosing from a group of applicants the individual’s
best suited for a particular position. Whereas recruitment encourages individuals to seek
employment with a firm, the purpose of the selection process is to identify and employ the
best qualified individuals for specific positions.
4. Orientation - Orientation is the formal process of familiarizing new employees with the
organization, their job, and their work unit. Through orientation (also called socialization or
induction) new employees will acquire the knowledge, skills and attitudes that make them
successful of the organization.
5. Training and Development - Training and development aim to increase employee’s ability
to contribute to organizational effectiveness. Training is a process designed to maintain or
improve performance (and skills) in the present job. Development is a programmed designed
to develop skills necessary for future work activities. It is designed to prepare employees for
promotion.
6. Compensation administration - Compensation administration refers to the administration
of every type of reward that individuals receive in return for their services. In its boarder
sense, compensation represents all sorts of rewards that individuals receive as a result of their
employment.
7. Performance Evaluation - Performance evaluation is a formal system of periodic review
and evaluation or an individual’s job performance.
8. Safety and Health - Safety involves protecting employees from injuries caused by work
related accidents. Health refers to the employee’s freedom from illness and their general
physical and mental well – being. These aspects of the job are important because employees
who work in a safe environment and enjoy good health are more likely to be productive and
yield long-term benefits to the organization.
9. Promotion, Transfers, Demotions and Separations - Promotion, Transfers, Demotions and
Separations reflect an employee’s value to the organization. High performers may be
promoted or transferred to help them develop their skills, while low performers may be
demoted, transferred to less important positions, or even separated.
10. Human Resource Research - Human Resource research is a systematic gathering,
recording, analyzing, and interpretation of data for guiding human resource management
decisions. Every human resource management function needs effective research.
11. Other areas - Such as employee and labor relations, collective bargaining, employee rights
and discipline, and retirement are also concerns of human resource management
5.2.3. Human and non-human resources
Human resource management is defined as the utilization of human resources to achieve
organizational goals. Human resource management is the process of hiring and keeping the best
people for the organizational goals achievements
A. Human Resources - Human resources is the set of people who make up the workforce of an
organization, business sector, industry, or economy. A narrower concept is human capital,
the knowledge and skills which the individuals command. Similar terms include manpower,
labor, personnel, and associates or simply: people:
• Energy - Good health is essential to maintaining a high energy level.
• Skills - Skills are developed when a person learns how to do a task competently.
• Knowledge - A real zest for life and an active curiosity will stimulate one’s learning.
Reading, observing and listening are ways of staying in the mainstream of life. Entrepreneurs
must take responsibility for acquiring knowledge by developing communication skills such
as reading, writing, speaking and listening.
B Non- human resources - Non-human resources are tangible things or objects that exist
externally of people. They can be seen, experienced and used by people. Non-human
resources are also known as material resources. Examples include cars, hospitals,
banks, libraries, parks petrol, computers, books, clocks, plants, money etc.
Activity: Group Assignment (each group member should perform) (5 min)

List some Human and non-human resources that can be found in the work area.
And discuss with you group.
Information Sheet - 3 Work place problems and its management
5.3.1. Definition
Workplace management: is a series of activities for planning, designing, using and disposing
items surrounding the workplace for the purpose of helping employees organize their daily tasks
and optimize the use of resources and facilities. Managing the workplace means following
specific management approaches and having a plan to understand the potential needs of
employees and address the challenges they could face at their workplace, while ensuring that
employees have everything they need to do their tasks and duties.
vii) Strategic level of workplace management

On a strategic level, workplace management ensures a full, long-term alignment with the
company’s strategy, both in business strategy and workplace strategy. Business growth, entering
new markets, cultural and demographical aspects, HR policies - they all impact the size and type
of your workplace offering. Workplace strategies include transformations from fixed to flexible
or shared workplace concepts, new collaboration concepts, and policies around working from
home. These all impact your future needs for real estate, space, facilities, services and processes.
Strategic space and workplace planning functions allow you to forecast future needs and create
scenarios regarding different workplace concepts. As a result, you ensure maximized alignment
of your workplace strategy with core business goals.
viii) Tactical level of workplace management

At the tactical workplace management level, the aim is to implement the chosen strategy
successfully, monitor and validate workplace performance continuously and improve where
needed. This process includes all space and workplace optimization projects as well as managing
changes that are initiated by the business.
An Integrated Workplace Management System (IWMS) supports tactical workplace

management with a wide diversity of utilization, occupancy and cost analyses, and tools to plan
and manage any change. In most cases an IWMS includes integration with Computer Aided
Design (CAD) systems to visualize actual and forecasted utilizations. Project management, move
management, scenario planning, and financial back charge functions complete the toolbox for
space and workplace managers on a tactical level.
5.3.2. Steps of Workplace Management

You read about the workplace management definition. Now it is time to find out how to manage
the workplace or what the basic workplace management steps are. Let’s review the steps shown
below (a small checklist).
1. Label Items by “Needed” and “Unneeded” - The right way to separate your items is to use
labels and tags. By labeling the items you can always find necessary information in a few
seconds. Following this step means labeling your items by “Needed” and “Unneeded” and
putting the needed items in front of you at arm’s length. The things labeled by “Unneeded”
should not hinder you from your work but be quickly found any time you need.
2. Use Workplace Management Software - Such software is used to organize things
surrounding your workplace in the way that helps you do your daily tasks without any
interruptions. It might be a software solution that could help you plan your tasks, manage
documents, and make records. Also workplace management solutions allow you to create an
electronic list of all the items and organizing them into the “Needed” and “Unneeded”
categories.
3. Clean and Maintain Workplace - You should use your workplace management software to
schedule daily maintenance tasks and schedule regular cleaning checkpoints. You can design
a maintenance schedule and put there cleaning checkpoints to be passed every day. Your
workplace requires daily cleaning inspection so be ready to spend a few minutes each day to
clean it.
4. Be Disciplined and Self-Organized - This workplace management step involves you in
falling into the habit of maintaining and following the specified procedures and rules of the
efficient workplace management checklist. You have to learn of being a self-organized and
disciplined person who can do things efficiently by planning tasks and using to-do lists and
schedules at the workplace.
Practical Activity: Individual Assignment

Take a sample business and discuss the daily works/activities of that business in a group
of maximum 10 members. Share your thoughts in 5 minutes.
Daily Work Requirements and Work Habits
The daily work requirement is activities/tasks an employee and parties involved have to
implement each day to accomplish the objective of the enterprise. The daily work requirement
concerns also about the task type, arrangement of materials and equipment required, industry
information, planning the task, predictions of problems that may arise, accepting responsibilities
and promoting productive work environment. With the implementation of these elements, an
enterprise can be on the track towards productivity and quality of work to attain its objectives.
The work habits include the behaviors the job holder’s exhibit in relation to the work and the
culture within the enterprise. An effective work habit and culture is an indication for success
through discharging responsibilities.
5.3.3. Managing work place problems

As organizations continue to diversify, the opportunities for workplace problems intensify. Small
business owners and managers typically face one or more of three potential levels of conflict --
employee, team or organization-wide issues. Often the underlying causes of these problems are
the lack of open, flowing communications or using the wrong organizational structure. Many
businesses compound problems by avoiding communicating a clear chain of command path.
A. Employee Issues - Individual employee problems can be personality conflicts, supervisor
issues, personal trauma, or company structure oriented. Management must learn the cause
of the problem and who or what keeps "fueling the fire." If there is no clear trigger, the
answer could fall back to insufficient or confusing communications. For example, an
employee in a decentralized organization may feel they must answer to multiple
supervisors if the chain of command is not communicated clearly.
B. Team Problems - To be high performing, teams must be dedicated to working toward an
agreed goal. Should they experience personal disconnect with other team members, the
team can become non-functional. These issues often stem from organizational or
management communication breakdowns that confuse team and personal common goals.
Team leaders must offer constant feedback and foster cohesiveness. When facing team
issues, managers must diagnose the problem and take immediate corrective action to avoid
more serious performance breakdowns.
C. Organization-wide Problems - Simple employee or team issues can quickly expand to
your total organization if you don't take immediate corrective action. You must avoid this
situation at all costs, as it often results in your staff forming two groups, both at odds with
each other. Should all your avoidance actions fail, be ready to take much more dramatic
corrective measures. You must prevent these problems from negatively changing the
corporate culture you have carefully cultivated to make your company and workplace a
high performing entity.
Organizational Problem Solving Steps

Many roads can lead to organizational problems at the workplace. Successfully solving these
issues, however, usually follows the same plan.
 First, manage and resolve the current problem right away. For example, two or three
employees may have interpersonal conflicts. If you are not part of the problem, you must
become the solution.
 Second, learn the problem's root causes. Address and correct these issues to avoid a
repetition of the problem. This is simple to state, but often more difficult to accomplish.
Yet, it is imperative you take these two steps to maintain a high-performing staff.
Activity 1: Group Drill

Using the following simple three-step plan, please try to solve one workplace problem that you
observed and finally present the outcome to your group:
Identify the problem: Understand the nature of what’s happened. Break down the issue so
you know how to address it.
Investigate: Look into why the difficulty occurred and how to go about fixing it.
Fix it: Once you have all the facts, address the issue in the most appropriate manner.
Information Sheet - 4 Risk Management
Introduction
Risk is a potential variation in outcome. When risk is present, outcome cannot be forecasted with
certainty. As a result risk gives rise to uncertainty. Risk is an object concept, meaning it is
measurable. Exposure to risk is created whenever an act or circumstances gives rise to possible
gain or loss that cannot be predicted with certainty.
5.4.1. Sources of Risk

The following are some of the possible sources of risk
1. Physical environment: Physical environment is fundamental sources of risk. Earthquake,
droughts, or excessive rainfall can lead to loss. The ability to fully understand our
environment and the effects we have on it-as –well as those it has on us-is a central aspect of
this source of risk.
2. Social environment: Changing the traditions and values, human behavior, social structures
and institution are a second source of risk. In fact, changing cultural values also create
opportunities, as when new attitudes regarding women in the workforce open a door to a
significantly talent pool.
3. Political environment: Within a single country, the political environment can be an
important source of risk. A new president or prime minister can move the nation in to a
policy direction that might have dramatic effects on particular organizations.
4. Legal environment: A great deal of uncertainty and a risk arises from a legal system of a
country. Not only are standard of conduct uphold a punishments enforced, but as the system
itself evolves new standards arises that may not be fully anticipated.
5. Operational environment: Process and procedures of an organization generate risk and
uncertainty. A formal procedure far promoting, hiring, or firing employee may generate a
legal liability. The manufacturing process may put employees at risk of physical harm. The
operational environment also provides gains, as it is the ultimate sources or the goods and
services by which an organization succeeds or fails.
6. Economic environment: Although economic often flows directly from the political clam,
the dramatic expansion of the global marketplace has created an environment that is greater
than may single government
Risk management: is the identification, assessment, and prioritization of risks defined in as the
effect of uncertainty on objectives) followed by coordinated and economical application of
resources to minimize, monitor, and control the probability and/or impact of unfortunate events
or to maximize the realization of opportunities. Risk management’s objective is to assure
uncertainty does not deflect the endeavor from the business goals.
5.4.2. Identification and assessment of risks

Ensuring that adequate and timely risk identification is performed is the responsibility of the
owner, as the owner is the first participant in the project. The sooner risks are identified, the
sooner plans can be made to mitigate or manage them. Assigning the risk identification process
to a contractor or an individual member of the project staff is rarely successful.
5.4.3. Types of Risks

1. Financial Risk
Financial risk is the possibility that shareholders will lose money when they invest in a company
that has debt, if the company's cash flow proves inadequate to meet its financial obligations.
When a company uses debt financing, its creditors are repaid before its shareholders if the
company becomes insolvent. Financial risk also refers to the possibility of a corporation or
government defaulting on its bonds, which would cause those bondholders to lose money.
2. Non-financial risk (NFR)

Non-Financial Risk can be related to compliance failures, misconduct, technology, or operational
challenges, has only a downside. And the downside is large.
Yet the direct financial consequences of NFR are not the only concern. The reputational damage
wrought can hit a bank hard at a time when customers, shareholders, and public stakeholders are
questioning banks’ business models. And there are also the personal consequences for senior
managers, whom regulators increasingly hold accountable for misconduct or failure to comply
with laws and regulations. All of this, and the prospect of still tighter regulation, puts
considerable pressure on banks to manage NFR better.
The most common types of risk management implemented in business include avoidance,
mitigation, transfer and acceptance.
i. Avoidance of Risk
The easiest way for a business to manage its identified risk is to avoid it altogether. In its most
common form, avoidance takes place when a business refuses to engage in activities known or
perceived to carry risk of any kind. For instance, a business could forgo purchasing a building for
a new retail location as the risk of the location not generating enough revenue to cover the cost of
the building is high. Similarly, a hospital or small medical practice may avoid performing certain
procedures known to carry a high degree of risk to the well-being of the patient. Although
avoiding risk is a simple method to manage potential threats to a business, the strategy also
results in lost revenue potential.
ii. Risk Mitigation (Loss Control)
Businesses can also choose to manage risk through mitigation or reduction. Mitigating business
risk is meant to lessen any negative consequence or impact of specific, known risks, and is most
often used when business risks are unavoidable. For example, an automaker mitigates the risk of
recalling a certain model by performing research and detailed analysis of the potential costs of
such a recall. If the capital required to pay buyers for losses incurred through a faulty vehicle is
less than the total cost of the recall, the automaker may choose to not issue a recall. Similarly,
software companies mitigate the risk of a new program not functioning correctly by releasing the
product in stages. The risk of capital waste can be reduced through this type of strategy, but a
degree of risk remains.
 loss prevention: reduce frequency of loss
 usually impossible or impractical (e.g., to maintain income —> insurance or adopt a
healthier lifestyle
 loss reduction: reduce the severity and financial impact eg, upon disability —> physical
rehabilitation, cross train a backup
 safety measures, pooling, segregating (e.g., key employees travel separately),
diversifying (not imperiling group by one member’s actions)
iii. Risk Acceptance (retain)

Risk management can also be implemented through the acceptance of risk. Companies retain a
certain level of risk brought on by specific projects or expansion if the anticipated profit
generated from the business activity is far greater than its potential risk. For example,
pharmaceutical companies often utilize risk retention or acceptance when developing a new
drug. The cost of research and development does not outweigh the potential for revenue gene
rated from the sale of the new drug, so the risk is deemed acceptable.
Figure 23: Risk Managment

iv. Transfer of Risk
In some instances, businesses choose to transfer risk away from the organization. Risk transfer
typically takes place by paying a premium to an insurance company in exchange for protection
against substantial financial loss. For example, property insurance can be used to protect a
company from the financial losses incurred when damage to a building or other facility takes
place. Similarly, professionals in the financial services industry can purchase errors and
omissions insurance to protect them from lawsuits brought by customers or clients claiming they
received poor or erroneous advice.
5.4.4. Risk management techniques
Diagrammatically the four types of risk management shown below,
Figure 24: Risk Management Techniques
Activity 1: individual Assignment (2 min)

A case manager can proactively avoid consequences by _____
Responsibly dealing with issues when they arise.
Making a referral without adequate research.
Taking a class.
Practicing proper self-care.
Information sheet - 5 Managing Micro and Small Enterprises (MSE)
5.5.1 Definition
“A business is small if the owner has direct lines of communication with the operating managers
and has personal contact with a large proportion of the work force, including key personnel.”
Small businesses are playing an important role in the industrial economy of the world. An
entrepreneurial venture often is a growth-oriented innovative company with product or service
offerings that are new to the market. Small businesses could be entrepreneurial ventures. Most
entrepreneurial ventures start as a small business. However, some discernible characteristics still
differ them.
Most small businesses’ owners work with known products and services aimed at incremental
growth, and their innovation is focused on sales, marketing, and market expansion.
Entrepreneurial ventures incorporate a different set of strategies. These entities are aimed at rapid
growth and apply innovation and creativity at every node of the business process. They work
with new offerings, and they face a lot more uncertainties; hence, their strategy calls for
continuous work on mitigating uncertainty and risk reduction
5.5.2 Definition of Micro and Small businesses in Ethiopia
Micro: - Number of employees - less than or equal to five (owner, family members and employed
employees)
- Start-up capital excluding building:
Service: Less than or equal to 50,000
Industry: Less than or equal to 100,000
Small: -Number of employees - 6 to 30 employees (owner, family members and employed
employees)
- Start-up capital excluding building
Service: 50,001 – 500,000
Industry: 100,001 – 1, 500,000
5.5.3 Key success factors in setting up Micro, Small and Medium Businesses
 Sell each unit at a profit: Evaluate each and every product that you sell and determine if you
are selling them profitably. If not, you may need to identify how to make its current sales
profitable, whether by reducing your costs for that product or increasing its price.
 Continue to reduce overhead costs.: A lower overhead should be a continuing objective for
your business. You can cut costs by evaluating your insurance needs, reducing your reliance
on outside consultants and service providers, or cutting down unnecessary supplies and
equipment.
 Develop new products while maintaining the high quality of existing products: Ensure that your
products are created or chosen in response to the needs of your customers. Ask for customer
feedback through surveys or direct interaction with them to find out what are the items that
they need and expect from your business.
Activity 1: Group Assignment

By using term of criteria for the two words - explain micro and small enterprises (mse.)
Information Sheet - 6 Managing Growth and Transition of a Business
5.6.1 Managing business growth
While still touching virgin ground, a recurrent problem for many business developers is to define
and delimitate their roles and responsibilities. We have heard many business developers
complain about the fact that they are drowning in non-strategic firefighting or have become
problem solvers for the CEO – in effect operating as an advanced corporate secretariat. This
happens because many businesses fail to properly define an organizational context for the
business development function. Even the most talented, experienced and self-motivated
employees have a need for well-defined tasks, roles and responsibilities as well as a suitable
organizing logic and governance structure to be able to deliver what is expected.
(Business Growth in Ethiopian context)

Ethiopia is one of the fastest developing economies in the world. Small enterprises are major
players in the economic resurgence. They are instrument of change and vehicles of growth and
diversification. The industrial sector is contributing its share to the expansion of employment,
export and entrepreneurship.
Today rapid industrialization is one of the most pressing needs for many countries in the African
Continent. The small enterprises/industries occupy a strategic position and play a vital role in
fulfilling the socio-economic objectives of any nation. Ethiopia possesses the second largest
population in Sub-Saharan Africa, 88 million, which could provide the necessary workforce for
labor-intensive industries.
5.6.2 Managing Transitions

i) Change vs. Transition
 Change: is situational and happens without people transitioning
 Transition: is psychological and is a 3 phase process where people gradually accept the
details of the new situation and the changes that come with it.
Interventions to Help Transition
 Communicate individual behavior change
 Identify & understand who will lose what
 Get employees in touch with clients
 Talk to employees and ask what problems they have with the change
 Talk about the transition and let people know its human to feel
 Hold regular team meetings even before the change
ii) Identification of needs for growth (how &why)

Being close to the generation of revenue is safest place to be in most organizations. While a few
of us intuitively know that this is true – that making money for our companies will lead to
increased job security, it’s not always clear why this is the case. This month's lesson will dig a
little deeper into why generating revenue is so important in most organizations.
Needs for Business growth includes:
 Survival  Economies of scale
 Expansion of market  Owners mandate
 Technology  Government policy
 Self sufficiency
There are three measures of entrepreneurship which include
 start-up motive,
 creativity and innovativeness and
 Risk taking.
Government policy is composed of policy implementation, supportive government policies and
funding. Economic development is composed of three measures namely, job creation, SME
development and wealth creation.
The context of the Figure, as shown above, placed importance of the role of government policy
in determining economic development. Government policy is seen as an anchor to all other
factors which are also essential and paramount to any entrepreneurial scheme. The issue here is
that with the presence of government policy moderating on the relationship between the
entrepreneurship and the economic development there is likelihood of a positive outcome of
SME development, wealth creation and job creation within the locality.
ix) Ethiopian Government Policy in Business Growth
Based on the new economic policy, the government formulated a long-term economic
development strategy Agriculture-Led-Industrialization (ADLI) which is geared towards the
transformation of the backward economic structure. It is a two-pronged strategy, incorporating
on one side the external sector (export-led part) and on the other the internal sector which shows
the forward and the backward-linkages between agriculture and industry. In the connection,
1. agriculture will supply commodities for exports, domestic food supply and industrial
output; and
2. Expand market for domestic manufactures. The mining sector is expected to give an
impetus to the development of the export sector.
The country's development strategy is supported by an economic reform programe developed in

cooperation with the World Bank and the International Monetary Fund (IMF) and on a series of
structural adjustment programs since 1992.
Major gains have been made from the reform program, particularly as a result of liberalization,
low inflation, fiscal discipline and low government borrowing, infrastructure improvement and
the growth of the private sector.
The government has initiated a privatization program since 1995/96. Three hundred seventy
five government owned firms were intended to be privatized in 1995/96 out of which so far 201
have been sold and brought over 33 billion Birr to the country. The rest 156 firms are at present
under privatization process thus providing good entry for foreign investors.
iv) Identifying, selecting and implementing growth strategies

A. Identifying growth strategies
Most small companies have plans to grow their business and increase sales and profits. However,
there are certain methods companies must use for implementing a growth strategy. The method a
company uses to expand its business is largely contingent upon its financial situation, the
competition and even government regulation. Some common growth strategies in business
include Franchising, Outsourcing, Sub-contracting, Merging, (licensing)
B. Selecting the Right Growth Strategy
Business growth is truly a double-edged sword. When it is controlled and well managed, it has
the potential of providing tremendous rewards to the leaders and shareholders of an emerging
company. When growth is poorly planned and uncontrolled, it often leads to financial distress
and failure. What this means is that the need of the company to grow must be tempered by the
need to understand that meaningful, long-term, profitable growth is by-product of effective
management and planning. A failure to create this balance will result in vulnerability to attack by
competitors, creditors, hostile employees and creative takeover specialists.
C. Setting the Stage for Growth:

i) Internal Factors
When growing your business, it is critical to first establish an understanding of the foundation
that must be put in place to allow a company to begin its growth path. Before you can prepare
your company for growth, you need to analyze its strengths and weaknesses. Looking for what’s
working well serves to concentrate your efforts where you have the best chance of success.
Looking for strengths enables you also to spot the weaknesses. Start with these internal areas:
 Costs and revenue. Examine every part of your business. Is revenue rising or falling?
How about profit margin? Which divisions or departments stand out? Why? Do you
enjoy a strong positive cash flow?
 Personnel. Do certain employees show exceptional skills or produce outstanding results?
Where in the company is the strongest management, organization and planning? Do you
have the talent on staff to handle anticipated growth, or would you have to hire new
personnel?
 Operations. Are the areas that seem to be trouble-free functioning with little supervision
and always delivering results? How do the managers in these areas achieve such
consistent results?
 Philosophy or mission. Do you have a written statement describing your company’s
philosophy or mission? Does it define the essence of your business exactly so that you
know which kinds of activities fit your company’s goals and which don’t? Are you
diluting your resources by engaging in any activities outside your mission? Have you
developed a set of core values, and have your employees embraced those values?
ii) External Factors
once you’ve sized up your business internally, take a long and careful look at the external factors
that should reveal whether you are in a position to take advantage of current business trends and
cycles. These include the following:
 Your market. Is your market share—your company’s percentage of estimated total
business available—increasing or decreasing? Is your marketing strategy based on careful
research or on instinct and hunches? Is your customer or client base shrinking?
 Your competition. Do you know exactly who your competitors are, and where they pose
the largest threat? Which part of your business is most vulnerable to competition and
which is least vulnerable? Are some parts of your market becoming crowded with
competitors?
 Economic climate. Are changes in economic conditions—interest rates, inflation,
housing starts, industry earnings—likely to affect your company? Do you make efforts to
stay on top of things so that you can anticipate changes in the marketplace, or are you
often surprised by developments that affect your company?
Your answers to these questions will give you an idea of your company strengths, areas that need
improvement and which type of growth strategy would work best. Consider the questions
carefully and respond as if your company’s future growth depends upon your answering them
thoughtfully because it does. These steps will help you and your company to define your growth
objectives, allowing you to keep these objectives in proper perspective and to monitor the
success of your strategy.
The followings are a business growth strategy

A. Franchising D. Merging
B. Outsourcing E. licensing
C. Sub-contracting
A. Franchising
Business Definition: Franchising has been described as:
 A method of distribution of goods and services;
 A method of marketing;
 A method of growth;
 A method of capital acquisition;
Types of Franchises
Historically, franchises have been generally categorized as "product and trade name"
franchises or "business format" franchises. Today, the real difference is that under the "product
and trade name" franchise, the franchisor is usually the manufacturer of a product, which it
wholesales to the franchisee for resale. Under the "business format" approach, the franchisee is
usually not reselling a product manufactured by the franchisor. Under both formats, the
franchisee is operating the business according to the franchisor's rules, methods, and systems.
B. Outsourcing
There are as money definitions of outsourcing as there are ways to screw it up. But at its most
basic, outsourcing is simply the farming out of services to a third party. With regards to
information technology, outsourcing can include anything from outsourcing all management of
IT to an IBM or ED S to outsourcing a very small and easily defined service, such as disaster
recovery or data storage, and everything in between.
Outsourcing involves the transfer of the management and/or day to day execution of an entire
business function to an external service provider. the client organization and the supplier enter in
to a contractual agreement that defines the transferred services. under the agreement the supplier
acquires the means of production in the form of a transfer of people, assets and other resources
from the client. The client agrees to procure the services from supplier for the term of the
contract. business segments typically outsourced include information technology, human
resources, facilities and real estate management, and accounting. Many companies also outsource
customer support and call center functions like telemarketing, customer services, market
research, manufacturing and engineering.
C. Sub-contracting
Subcontracting: is characterized by the search of products and services that are part of the
companies “end” activities of the company.
It is juridical-economic relationship between two agents that inserts, as characteristic a approach,
substitution (the company subcontractor executes, in the contracting party’s place, the operation,
with technical and financial risks) and the subordination (the subcontractor is guided according
to the contracting party determinations).
D. Merging
Merging entails the coming together of two or more firms to become one big firm or it is the
takeover or purchase of a small firm by big firm which are pursuing similar motives.
 The rise of merging scheme scans wide across the globe. Mergers and acquisitions are
borne out of new economic realities which emphasize the strategy of resources for
maximum profitability.
 Merging is a global business terms used in achieving business growth and survival.
E. Licensing
A business arrangement in which one company gives another company permission to
manufacture its product for a specified payment. Licensing continues to be a powerful option for
accelerating growth and extending the value of brands, making the decision to begin a licensing
program a key consideration at strategy meetings worldwide. For those brands exploring licens
ing today and what impact it may deliver, consider the following.
Licensing agreements
The arrangements between the licensor and the licensee are typically laid out in a legal document
known as a licensing agreement. This formal agreement is an important component in a
successful business venture. "While it is impossible to determine the future success of a product,
much can be done in the earliest stages to ensure that a licensed product gets the best chance
possible," Salas wrote. "One might even say that the entire future of a licensed product is laid
out, at least in part, during the process of negotiating a licensing contract."
Activity 1: Individual assignment

Explain briefly the type of franchise business
Information Sheet - 7 Business Growth Strategies
5.7.1 Business growth strategies

Start-ups and small businesses usually set out into their chosen markets fueled by ample
enthusiasm and positivity. This may take them far, but to truly succeed in competitive markets it
is prudent to have a tangible long-term business growth strategy in place.
The unfortunate truth is that many start-ups or small companies fail because they haven’t taken
this crucial step. Without it, a new business can reach a plateau far sooner than expected; this
stage may even be a death knell, yet it is possible to turn things around quickly by implementing
some appropriate business growth strategies. If you are at the stage where your business needs a
boost – and fast – it is time to figure out which growth strategies can be put in place. Here are
some growth strategies for small businesses:
Most small companies have plans to grow their business and increase sales and profits. However,
there are certain methods companies must use for implementing a growth strategy. The method a
company uses to expand its business is largely dependent upon its financial situation, the
competition and even government regulation. Some common growth strategies in business
include market penetration, market expansion, product expansion, diversification and
acquisition.
1. Market Penetration Strategy - One growth strategy in business is market penetration. A
small company uses a market penetration strategy when it decides to market existing
products within the same market it has been using. The only way to grow using existing
products and markets is to increase market share, according to small business experts.
Market share is the percent of unit and dollar sales a company holds within a certain market
vs. all other competitors. One way to increase market share is by lowering prices. For
example, in markets where there is little differentiation among products, a lower price may
help a company increase its share of the market.
2. Market Expansion or Development - A market expansion growth strategy, often called
market development, entails selling current products in a new market. There several reasons
why a company may consider a market expansion strategy. First, the competition may be
such that there is no room for growth within the current market. If a business does not find
new markets for its products, it cannot increase sales or profits. A small company may also
use a market expansion strategy if it finds new uses for its product. For example, a small
soap distributor that sells to retail stores may discover that factory workers also use its
product.
3. Product Expansion Strategy - A small company may also expand its product line or add
new features to increase its sales and profits. When small companies employ a product
expansion strategy, also known as product development, they continue selling within the
existing market. A product expansion growth strategy often works well when technology
starts to change. A small company may also be forced to add new products as older ones
become outmoded.
4. Growth Through Diversification - Growth strategies in business also include

diversification, where a small company will sell new products to new markets. This type of
strategy can be very risky. A small company will need to plan carefully when using a
diversification growth strategy. Marketing research is essential because a company will need
to determine if consumers in the new market will potentially like the new products.
5. Acquisition of Other Companies - Growth strategies in business can also include an

acquisition. In acquisition, a company purchases another company to expand its operations.
A small company may use this type of strategy to expand its product line and enter new
markets. An acquisition growth strategy can be risky, but not as risky as a diversification
strategy. One reason is that the products and market are already established. A company
must know exactly what it wants to achieve when using an acquisition strategy, mainly
because of the significant investment required to implement it.
Information Sheet - 8 Creating and Maintaining Business Relationships
5.8.1 Creating & maintaining business relationships to promote goodwill and trust
It is essential in the hospitality, tourism and travel industries to be able to establish, manage and
sustain business relationships. These business relationships may be with a wide range of people,
organizations and/or bodies. This Section identifies the range of business relationships a business
may need, or elect, to develop and maintain, and describes the environment in which such a
relationship will need to occur for it to be effective.
Who might you want to establish business relationships with?

Exactly who you or your business will seek to establish a business relationship with will vary
between individual organizations. A hotel will have different business relationships to travel and
tourism yet there will be some common relationships. Generically, all businesses will seek to
develop business relationships with some or most of the following:
Customers
These are the people who deal with or buy from the business. Customers may also be referred to
as „clients‟ (especially in travel and tourism‟) or patrons‟ (in hospitality). Customers may be
divided into, or classified in many ways, often aligning with marketing or sales targets or
business-specific „target markets‟, such as:
 Corporate customers and clients
 Government customers – such as local and or national government agencies or authorities
 Private customers – these are individuals, couples or families
 Travel or tourism sectors – for example historical tourists, medical tourists, eco-tourists.
Customers can also be identified by certain demographic characteristics, such as:

 Gender – male or female
 Age – which may be a specific range, or an age range
 Religion
 Income
 Marital status
 Domestic, or international – who may be further divided into country of origin‟ classifications.
A business may also use the following “loose” classifications of customers to describe them and
differentiate between them:
 Regular customers – who use the business services on a „regular‟ basis
 New customers – those who use the business for the first time
 Potential customers – those to whom the business has a chance to sell something
 Prospects – people or businesses that have shown an interest in doing business with, and
buying from the organization.
Suppliers
These are businesses or individual who provide products and services to the organization.
They may be:
 Wholesale businesses – these are businesses who sell only to the retail sector. They will
buy from a manufacturer and on-sell to the retail sector
 Retail businesses – who buy from wholesalers and on-sell to members of the public,
private individuals and other businesses
 Combined wholesalers-retailers
Suppliers are important to businesses because they provide the goods a business sells and they
provide a variety of services (repairs and maintenance; advertising; utilities) the business
requires to sustain its ongoing presence in the marketplace.
Strategic partners
These are other businesses with whom a business has entered into a formal business relationship
with for mutual benefit. They are called “strategic” partnerships because they have been entered
into strategically, that is, for a quite definite and distinct reason (or set of reasons).
Strategic partnerships can be entered into because:

1) There is a logical flow to the relationship – for example, a travel agency having a strategic
relationship with an airline, cruise line or hotel group is a common sense relationship based
on mutual need or benefit.
2) There is advantage to be gained from the relationship – a travel agency can get priority
seating and bookings with a company with which it has a strategic relationship.
3) There can be mutual advertising and promotion at the one time – so the one business
promotes or recommends the partner whenever they are making a sale of their own.
4) There is the potential to save money and generate extra sales.
Finance companies - These may be:

Banks – with whom the business deals on a day-to-day basis to:
 Process purchases through electronic (debit and/or credit) payments
 Obtain change
 Provide overdraft facilities.
Financial institutions – used by the business for loans, lines of credit or leasing facilities to:
 Purchase products and services  Extend and expand the business
 Refurbish the property
Other enterprises
These can be other business with whom a business has “arrangements”. These arrangements can be:
Service contracts – where the other business provides service, repair and or maintenance
services based on the terms of a legally binding contract
Commission-based – where a business is entitled to receive a commission from another

business whenever it refers a sale to them, or makes a booking on their behalf or with them
Association-based – where a business belongs to an association, this membership can

automatically create a relationship with other businesses who are also members of this
association.
Employees
There is always a business relationship with workers. This relationship is (in part) imposed by
law and embraces issues such as:
 Remuneration
 Working conditions  Insurance
 Industrial relations issues  Occupational health and safety
Industry bodies - Industry bodies can include
 Government bodies, agencies or authorities with various industry, business or
employment-related obligations imposed on them under a range of legislation
 Unions – which represented the rights of workers and lobby on their behalf
 Peak industry bodies – which represent the interests of an industry/industry sector to
government, unions, the media, the public and funding bodies.
Local authorities - Local authorities can include:

Local councils – who may apply local by-laws and have local compliance requirements across a
range of environmental, health and planning issues
Local offices of national government agencies or authorities – situated locally to provide a base
of operations for Inspectors to work out of, and a nearby office for businesses to contact in the
event they require information or have to deal with the agency or authority.
Establishing the relationship

A relationship between your business and another party can be started by:
 The business making contact with the other party
 The other party making contact with the business.
This contact may be:

In person – face-to-face contact:
o Where a person walks into a business
o Where a person from a business calls on or visits a potential customer.
Telephone contact
Written contact – fax, email, letter, advertisement, and offer
Where the other party responds positively to the initial contact, a relationship can be said to exist.
A “positive‟ response includes:
 A sale
 A request for (more) information
 Showing of interest.
The environment of a business relationship
Whenever and wherever a relationship exists, it should be occur within an environment that
promotes goodwill, trust and respect between the business and the other party.
Goodwill
The business must act in such a way it generates goodwill towards itself. Goodwill refers to the
positive feelings and sentiments customers (and others) have towards the business.
It translates into the reasons a customer (or other party) likes or prefers the business, and is often
the result of:
 The positive things the business does for the community – sponsorship of clubs,
donations to charity, and support of people and local bodies
 The way it conducts itself in terms of its ethical standards, compliance with legal
requirements and the extent to which it goes beyond its legally imposed obligations
 Gifts – made to customers and potential customers
 Its public statements and actions about issues such as environmental concerns, supporting
the local and national economies, employing locals, buying locally, and being part of the
local community – in brief, being a „good corporate citizen‟
 Its history – the track record of a business indicates the real way it does business, and the
real way it treats others with whom it deals. Advertising and promotion can (and is)
aimed at generating goodwill but will never convince others unless the business
genuinely does what is states it will do or has done.
5.8.2 Build trust and respect in business relationships

Establishing and conducting business relationships requires you to build trust and respect into
these relationships. The concepts of „trust‟ and „respect‟ identifying how it can be created and
maintained in business relationships
Trust - Trust refers to the ability of your customers (and other stakeholders – suppliers,
government authorities) to believe you and believe you will do what you will say you will do,
when you say you will do it. Trust is a result of actions and not promises. This means you must:
 be very careful about what you promise or say you will or can do – never tell customers
or potential customers what they want to hear if you think/know the business cannot
deliver on that promise
 Under-promise and over-deliver – if you tell a customer they will receive an email within
24 hours send them one within the hour; if you tell a customer they will save 5%, make
sure they receive a 6%+ savings
 Read any contracts or agreements you sign – so you know the obligations the business is
under. For example, if your supplier requires payment within 30 days, make sure they
receive payment within this time.
Trust means your customers can rely on you to deliver what you have promised, when you have
promised it and at the price you said it would be provided at.
Building trust requires many things to occur but most of them are relatively simple to achieve:
Follow-up on all things – as promised. For example:
 Send quotations as and by the time promised
 Send information as promised
 Call in to see people as promised
 Call back if you have promised to do so.
Honor promises made – even where this may cost the business money.
Make customers aware of any potentially negative aspects of a deal, arrangement, contract
or booking – for example:
 If there is a cancellation (or re-booking, or change of booking) fee – tell customers about it
and make sure they understand how and when it applies, and how much it is
 Avoid over-booking situations – where the business takes reservations knowing things are
already fully-booked
 Avoid using terms giving a false sense of confidence or which imply something that does
not, in fact, exist – for example, a „guaranteed‟ booking really should be guaranteed and
not subject to some internal interpretation meaning it is not really “guaranteed”
 If certain seats, rooms or tables provide a less than optimal experience, tell the customers
about the down-side, the negative implications of their booking.
Give customers what they are entitled to – even though:
 They may not ask for it – if a sale entitles the customer to a discount or a free item of
merchandise, then all customers must be provided with this as it applies to the
item/service they have purchased
 They may not know it exists or applies to them and to their transaction.
Advise them when:

 A new product or service they have previously shown an interest in becomes available
 A better deal on an item they have booked becomes, or is, available – such as a package
deal providing the same inclusions but at a cheaper price
 A better alternative is available – for example, purchasing tickets „now‟ will save the
customer having to queue in the hot sun when they arrive at the attraction or amusement park
 A possible price rise for something they are considering buying is imminent
 They are close to becoming entitled to a bonus or discount – for example, a significant price
reduction may apply to their purchase if they spend a small amount more on their purchase.
Maintain confidentialities – this means all the information you have about a customer or
business must remain private and not disclosed to any other business
Charge the prices quoted – charging a person or business what you have said you will charge
them is a vital element of building trust with them
Advise suppliers when you have received more than what you ordered and or more than what
you paid for – as opposed to keeping the „extra‟ items and benefiting from their error.
Respect - Respect is the regard you have for customers and stakeholders.
It embodies – and can be demonstrated by displaying – a range of factors such as:
 Consideration for them – and their situation
 Politeness and civility – treating them “properly‟ and as they expect to be treated: using
correct language; using their name; opening doors for them
 Getting to know their needs, wants and preferences – as opposed to believing their needs,
wants and preferences are the same as everyone else’s
 Treating them differently to other people – that is, providing them with deferential
treatment which shows the value you place on them as a person, business or organization
 Acknowledging and showing appreciation for their time – as well as who they are
 Recognizing and appreciating the money they spend with you – and the opportunities
 they provide for doing business with them
 Never taking them for granted, ignoring them or providing them with sub-standard
products or services
 Identifying and showing due regard for individual differences – such as religious
differences, social differences, special needs
 Demonstrating „nothing is too much trouble‟ – when dealing with businesses and
customers: spending extra time with them; being willing to change previously made
arrangements
 Understanding every customer is a unique individual – with unique needs, pressures,
limitations and expectations
 Demonstrating a genuine desire to be of service – as distinct from providing limited
service, or delivering service lacking in real customer focus
The need for on-going trust and respect

Trust and respect are vital to all effective and mutually beneficial business relationships
regardless of whether the other party is a customer, supplier or other. Both “trust‟ and “respect‟
must be demonstrated on an on-going basis. You cannot demonstrated trustworthiness once and
believe, on that basis, the customer will believe all future promises.
Trust needs to be evident in every transaction, dealing or contact for the life of the relationship –
it is a never ending pre-requisite to all business relationships. Likewise, “respect‟ must also be
demonstrated in every contact. For example:
 You must use the person’s name – all of the time: not just when you first meet them
 You must keep appointment times – every time you make an appointment to visit the
person
 You must maintain a professional „distance‟ from the person – refraining from becoming
over-familiar with them: you may strive to become an ally or trusted and respected adviser
but it is inappropriate to try to become their friend
 You must be alert to their non-verbal communication – to identify signals or cues they want
to change the subject, are unhappy with what you are doing or want you to “hurry up‟
whatever you are doing.
 You must refrain from being judgmental – where their customs, habits or preferences are
different to yours, or those of your home country
 You must always dress appropriately – which demonstrates they are worthy of the time and
attention this requires.
Maintain regular contact with customers and suppliers

Productive business relationships are, in part, built on the ability to identify and take up
opportunities to maintain regular contact with customers, suppliers and other relevant
stakeholders. Opportunities to maintain contact with customers and suppliers must be actively
sought out and used.
Good business relationships do not simply “happen‟ – they have to be worked at. Opportunities
to maintain regular contact with customers or suppliers may include:
Informal social occasions

Informal social occasions can include:
 Meetings
 “Get together‟
 Parties
 Business events – which always include an “informal social‟ component
All relevant industry sectors are characterized by these informal occasions and they present
excellent opportunities to:
 Make new contacts
 Cement existing ones
 Learn new information.
Industry functions
Again, there are many industry functions ranging from product launches to trade exhibitions, and
they all provide rich opportunities to meet people and establish and build business relationships.
You should plan your attendance at these events:
 Take business cards with you – to hand out to contacts: always ask for their business card
if they do not offer one
 Wear a name tag – identifying you and the business you represent
 Determine who you want to make contact with – plan a strategic approach to making new
contacts, and „touching base‟ with established contacts
 Take pen and paper – to record and capture questions asked of you, promises made and
or arrangements entered into.
Association membership
There are many industry associations and bodies that represent and serve various industry
sectors.
Most are unique to different industry sectors (for example, travel agents will have associations
different to those focusing on hotels, cooking, housekeeping) but some are generic across
industry types (such as Chambers of Commerce organizations, and local employer
organizations).
These associations provide a wealth of relevant industry knowledge and information and an
excellent forum in which to meet people and organizations of like mind to yours.
Your business should join a relevant organization if it is not already a member, and you should
make an effort to attend its meetings and functions to get a feel for what it is all about. At these
meetings:
 Introduce yourself, explain your role and distribute business cards – obtain contact details
of others and promise to make contact
 Offer to be of use to others and to participate in efforts the association is making – these
efforts often involve:
o Industry research
o Petitions to government
o Applications for funding
o Review and or generation of industry standards, codes of practice and similar.
 Volunteer for office bearer responsibilities – be prepared to take on „official‟ roles to
assist the association.
Cooperative promotions
There will be many situations where your business and another organization will join together to
run a promotion.
These cooperative promotions may involve:
 Sharing of market research data relevant to the promotion/target markets being
considered
 Sharing advertising and promotional costs
 Developing and offering package deals combining products and services from both
businesses – for example, a cooperative promotion involving a hotel and an airline would
feature air travel (from the airline) and accommodation, food, beverages and
entertainment (from the hotel)
 Joint acceptance of reservations and payment
These relationships demand of all parties:

 Honesty – this is the key requirement in this type of relationship. All parties must believe
and be able to trust the other parties – without this, all cooperative or joint ventures will
fail
 Full and open disclosure and sharing of all relevant information
 Hard work – to ensure the mutually agreed goals are achieved
 Regular contact – to communicate progress of the promotion, fine tune activities and
revise action to be taken
 Mutual support – so the relationship is genuinely “cooperative‟ where all parties help
each other: support may be practical assistance or it may simply be participating in
discussions and listening to the problems others are encountering.
5.8.3 Maintaining successful business relationship

Establishing business relationships is necessary for the long-term success of your business. But
after you’ve made these connections, they are useless without nourishment.
Most businesses don’t find it difficult to form an initial connection, but the next step is where
businesses often can struggle to maintain these new business relationships. Whether you’re
looking at client relations, partners or stake holders, there are some basic foundations you can lay
down to keep this relationship work at all times. Some technics that help to maintain this
relationship may refer to:
 Keep Regular contact
 Listen and act
 Always keep your word
1. Keep Regular contact - The most obvious aspect of maintaining a strong relationship is
communication. You need to get into a habit of making regular contact. Prompt and
productive communication is a very attractive trait for your company to foster and build a
reputation on. It can be as small as interacting and keeping in touch with customers via
social media or as big as planning events and dinners with partners and investors.
Communication will help you get to know your clients’ needs; it will also help to build
trust between you as you can work to meet their needs through continual contact and
discussion.
2. Listen and act - Famed philosopher Epictetus gave us the much-overused quote “we have
two ears and one mouth so that we can listen twice as much as we speak.” Although it is a
cliché, it’s as true today as it was when he first opined this line of thinking. Listening with
intent – intent to act, to learn, and to communicate – can be difficult at times. It can be easy
to fall into the trap of listening only to wait to say your piece. But if you consciously listen
and open your mind to suggestions and problems, your business relationships will prosper.
Genuine listening, and then acting on what you hear, will earn you appreciation and loyalty
as well as the material gains from an exchange.
3. Always keep your word - It only takes a second to make a promise to someone, but do
you have the time and resources to follow through? If you want your business relationships
to be positive and fruitful, you need to make sure that you always fulfill your promises. If
you don’t, your relationships will suffer as people lose trust in you.
Honesty and transparency are much sought after when it comes to forming bonds with
businesses, so you will become a much more attractive connection if you can nurture these
traits through your existing relationships.
These methods are simple but effective and can bring the biggest changes to your relationships.
The most important theme is openness – regular contact, listening, and keeping promises all
work together to paint a picture of an honest, caring business. You can use this reputation to
forge more connections and strengthen your existing relationships even more. Building and
nurturing business relationships is an on-going effort that will reward you with loyalty and
success.
Summary
Business management is managing the coordination and organization of business activities. This
typically includes the production of materials, money, and machines, and involves both
innovation and marketing. Management is in charge of planning, organizing, directing, and
controlling the business's resources so they can meet the objectives of the policy.
Becoming an entrepreneur is a never ending lesson as new challenges arise that offer experiences
in how to do and not to do things. . This typically includes the production of materials, money,
and machines, and involves both innovation and marketing.. Small businesses include a wide
variety of business types that are independently owned, operated, and financed. By itself, each
individual small business has relatively little impact in its industry. Small businesses provided
the economic foundation on which the country’s economy was built. Today these businesses are
creating new jobs even as large businesses continue eliminating jobs. Small businesses are more
flexible than large
Post Lesson ones-inGive
Activity: the short
products and services
Answer they offer.questions
for the following As the population
- becomes more
What
diverse, the is a business
owners management?
and employees of small businesses are likewise becoming more diverse.
How would you define small Business?
Discuss risk identification and risk Assessment.
Describe the business growth strategy
Self-check:
Individual Assignment - Give short Answer for the following questions
1. One of the following is the major functions of management
A. Planning
B. Organizing
C. Staffing
D. Directing
E. Controlling
F. all
2. Which of the following is the most common types implemented in risk management?
A. Avoidance
B. Mitigation
C. Transfer and acceptance
D. all
3. Which of the following is cause of business failure?

A. Inadequate management
B. Inadequate finance
C. Inadequate materials
D. All
4. One of the following is the most common problems in the work place.
A. Interpersonal conflict
B. Communication problem
C. Gossip
D. all
Learning Outcome- 6 Developing a Business Plan
Introduction
Planning is a process that never ends for a business. It is extremely important in the early stages
of any new venture when the entrepreneur will need to prepare a preliminary business plan. The
plan will be finalized as the entrepreneur has a better sense of the market, the product or services
to be marketed, the management team, and the financial need of the venture. As the venture
evolves from an early start-up to a mature business, planning will continue as management try to
find ways to meet its short term or long term business goals.
A business plan is essential for the inception, growth and overall success of a company. These
plans provide a business with a vision for the future and a clear strategy for how to expand.
There are several essential components of an effective business plan, and understanding each of
these components can help you create a plan that leads your company to success.
Lesson objective:
At the end of this lesson, the trainees should be able to:
Identify business planning process
Identify and Implement Essential Components of Business plan
Identify different Samples of Business Plan Format
Write/ prepare a business plan
Pre-lesson Activity 1:
Answer the following questions from your prior knowledge
1. What is a business plan?
2. Can you mention some importance of business plan?
Instructions Sheet
being discussed.
4. Do the “Self-checks1, 2, and 3,and 5”, 4 and group assignment in each information sheets
and the project work.
5. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-checks).
Information sheet – 1 Identify Business Planning Process
6.1.1 Definition of Business Plan

Business plan is a written document prepared by the entrepreneur that describes all the relevant
external and internal elements involved in starting a new venture. Business plan is a road map
for reaching a set goal in business and for success.
Business plan is a comprehensive set of guidelines for a new venture. It is often an integration of
functional plans such as marketing, finance, manufacturing and human resources. The business
plan should be prepared by the entrepreneur however he or she may consult with many other
professional in its preparation. Lawyers, Accountants, Marketing Consultants and Engineers are
useful in the preparation of the plan.
Business plan is a written document that sets out the basic idea underlying a business and related
start-up considerations. Business plan presents a proposal for launching an entirely new business.
More commonly, perhaps, it may present a plan for a major expansion of a firm that has already
started operation. For example, an entrepreneur may open a small local business and see the
possibility of opening additional branches or extending its success in other ways.
The Importance and Purpose of Business Plan

A business plan is the cornerstone of starting a business as well as a significant tool for
monitoring the progress and growth of your company.
For the entrepreneur starting a new venture, a business plan has four basic objectives:
 It identifies the nature and the context of the business opportunity-why does such an
opportunity exist?
 It presents the approach the entrepreneur plans to take to exploit the opportunity
 It identifies the factors that will most likely determine the success of the venture
 It serves as a tool to raise financial capital
Ten key reasons below are why you should need business plan:
1. To attract investors
2. To see if your business ideas will work
3. To outline each area of the business
4. To setup milestones
5. To learn about the market
6. To secure additional funding or loans
7. To demonstrate your financial needs
8. To attract top-level people
9. To monitor your business
10. To device convergence plans
Business Planning is the process of setting objectives and devising actions to achieve those
objectives. Business planning as a process involves the following five steps:
1) Gathering the necessary Data
 Designing all the questions that might be asked relating to the business,
 Determining what information needs to be gathered to answer all the questions, and
 Obtaining all the necessary data/information.

2) Outlining the Plan
 It should be organized in clearly defined sections covering the different aspects.
 Putting together an outline forces executives to come to some early decisions about
what will be where in the business plan.
 Outlining also requires the executives to understand the necessary level of detail that
should be included in the plan.
3) Determining the kind of Plan
 There are no fixed rules to determine how long and how detailed should a business
plan be.
 Business plan’s length will depend to a great extent on what you want it to
accomplish and how sophisticated and complex your enterprise’s operations will be.
Broadly, there are three kinds of business plans kinds of business plans: Summary
Plan, full business plan and operational business plan.
4) Designating Responsibilities
Business plans can be prepared in the following approaches:
 A work plan detailing assignments and due dates should be prepared (a common
approach is for the head of each management area — such as marketing and sales)
 Chief executive to write a full draft of the plan and then distribute it to top
management for input and revisions.
5) Monitoring the Process
 Systematic monitoring of the implementation of plan is a very important factor for the
success of a business.
 Action plans, monitoring systems and constant feedback should be integrated.
 Participation of team members can have a profound effect
 If key assumptions change, the plan must be adjusted, mid-term corrections are
recommended.
 The key to maximizing the benefits of dynamic planning lies in implementation,

action and keeping the plan up to date.
Self-check Activity 2: Answer the following question in brief

List the five steps in business planning process.
What are the benefits to be derived from a Business Plan?
Identify and Implement Essential Components of
Information sheet - 2
Business Plan
Pre-lesson Activity 3: Answer the following questions from your prior knowledge
Identify the components of a business plan
6.2.1 Essential Components of Business plan

The business plan should be comprehensive enough to give any potential investors a complete
picture and understanding of the new picture and it should help the entrepreneur clarify his or her
thinking about the business. There is no hard and fast rule regarding the components of business
plan and most of the time the following are recommended to be included while preparing
business plan:
1. Cover page
2. Executive summary
3. Name of business and contact details
4. Business description
5. Product or service plan
6. The market plan
7. Manufacturing or operations plan
8. Leadership / entrepreneurial team plan
9. Financial and documentation plan
1. The cover page
This is the title or cover page that provides the brief summary of the business plan’s
contents. It should contain the following:
• The name and address of the company
• The name of the entrepreneur(s), telephone number, fax number, e-mail address and
web site address if available can serve as the title page of your plan. It consists the
following
 Month and year your plan was prepared (important)
 Copy number of the plan
 Copy right of the business
 A paragraph describing the company and the nature of the business
 A statement of the confidentiality of the report, this is for security purpose and is
important for the entrepreneur
The executive summary section is a snapshot of the highlights of your business plan and is
usually the last thing you write. For a standard business plan, the executive summary generally
includes the following information:
1. Purpose of the plan
2. Market opportunity
3. Management team
4. Track record, if any
5. Financial projections
6. Funding requirements
As well as summarizing your plan, you should keep in mind that the executive summary must
grab the attention of the reader. In many cases, this is the section that is read first and if you fail
to excite them about your proposals, then they will be unlikely to read any further. In that sense
the executive summary is your chance to ‘sell’ as well as ‘tell’
Generally the executive summary should address a number of issues or questions that any one
picking up the written plan for the first time would want to know. For example:
• What is the business concept or model?
• How is this business concept or model unique?
• Who are the individuals starting this business?
• How will they make money and how much?
3. Name of business and contact details
The information required here is relatively straightforward and would include items such as:
 Business name
 Legal form of ownership
 Business address
 Telephone
 Business website
 Main contact name (Promoter)
 Main contact telephone and email address
4. Business Description
Here you should try to briefly address the following questions:
 What type of business are you proposing? What is the business concept?
 What business/sector will you be operating in?
 Broadly, what will your offering entail?
 What are your general aims and goals for the business?
 Where is it located? What facilities/amenities will it include?
 Who will the customers be?
 Who will your competitors be?
The key objective here is to provide an overview to the reader as to what your business will
involve, why it is necessary, who will use it and who you will compete against. A business idea
doesn’t have to be totally new to appeal to an investor or lender, but it does have to meet a
defined need or gap in the market and that is what you are trying to highlight here.
5. Product or service
Features of your products and services
 What products and/or services will you offer?
 Here you should seek to describe the range of products and services you will offer
in the business.
Uniqueness of your products and services
 What is special or unique about your offering? Even if you are entering a crowded
field (or perhaps more importantly if you are) you need to show how your products
and services will be different and better than what is already available. What factors
will give you competitive advantages or disadvantages over others?
 Here you should also explain how you will promote and sell the uniqueness of your
products and/or services in your sales and marketing messages.
Benefits of your products and services
 What are the most important benefits of your offering? What will your offering do
for the customer? What will they gain from using your products and/or services?
 In essence the reader should have a clear picture of what your business is offering
and why it is special or unique.
6. The Market Plan
Marketing is of course a vital activity for any business so you need to be very clear as to what
your plans in this area are going to be. In particular, you need to define clearly what your
overall marketing strategy will entail. To guide you’re thinking in this section, and although not
wholly applicable to new businesses, there are four general marketing strategies that can be
considered.
Main Marketing Activities
In this section, you should provide details on the main marketing activities you have planned
and describe how those activities will generate sales for the business. Your marketing activities
might include things like various promotions, direct selling/ attendance at trade shows,
advertising and special offers etc. It is important to demonstrate that there is a clear logic and
rationale to the various activities planned and that they are not simply selected at random.
 Market Research
Here you need to summarize what marketing research you have conducted which has helped you
to identify target markets, define your strategy, prepare you marketing plans and decide on the
most effective marketing activities. For an outsider to your business, this will be important to
give them confidence that there is a sound basis for your marketing proposals
The objective of market research and analysis is to establish that a market exists for the proposed
venture. The most difficult and important part of the plan that entrepreneurs must provide a
credible summary are: potential customers, competitors, assumption about pricing and Promotion
and distribution.
 Potential customers- identifying descriptive and behavioral segments of the customers
Descriptive refers to demographic and geographic segmentation and profile of customers.
Demographic profile of customers include age, sex, income, education, religion etc,
Behavioral –psychographic (lifestyle, personal image) benefit segmentation (expected benefit)
and usage rate (heavy users and brand loyalty). It also considers buying habits and relevant
information for new venture must be collected.
Evaluate market: future markets and funds or changes window of business opportunity, niche
position information is collected. Market niche is a carefully defined segment of a broader
market. It defines the positioning of a product or service to create a distinct marketing focus.
 Competitors: Here existing competitors with similar products or services, future
competitors and ease of entry, and Industry structure are to be analyzed.
 Pricing system- describing the pricing system is essential for developing a customer
profile. High price for luxuries goods, discount for frequent sell, credit policies, etc
 Methods of distribution- is a manner in which a product or service will be brought to
the market. The choice of distribution system defines the market niche, influences prices,
and delineates promotional activities. A creative method of distribution gives a business
and its distinctive competency.
 Pricing Strategy
Pricing is one of the most important decisions you will take in business life - get it wrong and
you will likely find yourself in serious financial trouble at some point.
This is a very detailed area and more information can be found in the Understanding Costs and
Profit guide and the Dealing with Pricing Challenges guide. In this part of the business plan, you
should address the following questions:
 What will your pricing strategy be? How important is price as a competitive factor for
your business? It is important to remember that, even in tough operating times, customers
may not care as much about price as you might think – it’s often value they are focused
upon, not solely price.
 Does your pricing strategy fit with what was revealed in your competitive analysis?
Compare your prices with those of the competition. Are they higher, lower, the same?
Why? For most small businesses, having the lowest price is not necessarily a good policy
as it can deny you the required profit margin and create the wrong image for your
business.
 What will be your customer service and credit policies?
Briefly, there are a number of approaches that you can adopt when setting prices:
Mark-Up Pricing
Mark-up pricing is used frequently, particularly in the pricing of food and beverage menus, and
is normally based on:
 The mark-up you must add to the cost of your products and services to achieve the
desired profit.
 The mark-up used by your competitors.
The mark up, which is usually expressed as a percentage, is added to the cost of the product to
achieve the selling price.
Value Based Pricing

Value based pricing focuses on the price that customers are willing to pay. The perceived value
of a product or a service to a customer may be driven by:
 Convenience - your accessibility to the market, or in certain cases, your opening hours.
Brand or image – if your product is perceived to have a premium image or brand,
customers will pay more for it.
 Supply and demand – if demand for your products and services is high, then you may be
in a position to increase your prices.
 Distribution Strategy
In this section, you should clearly answer some key questions:
 What is the main distribution channels associated with your offering?
 How will you use those channels to sell your offering to Irish and overseas customers?
Detailed information on distribution channels in tourism is provided in the How to Create a

Marketing Plan online guide, but briefly the channels can be:
 Direct Consumer
 Via Travel Agent and/or Tour Operator
Direct to Consumer
 Simplest form of distribution, no intermediary between you and your customers.
 The internet has facilitated the direct provision of information to customers and enhanced
direct purchase options for them.
Via Travel Agents and/or Tour Operators

 You use intermediaries to distribute your offering including travel agents and tour
operators.
 Travel agents and tour operators can now operate on- and offline while online travel
agents (OTAs) represent the fastest growing distribution channel in tourism.
Whilst a significant proportion of your customers will find you by themselves, (either online or
through your other marketing and promotional channels), it’s important to know about the
different distribution channels and how they are likely to impact both on your product and your
costs
 Promotion
In this section you should address the following questions:
 What image do you want to project for your offering? How do you want customers to
view you? Premium, niche or mass-market offering?
 How will you get the word out to your targeted customers? What are your plans for
advertising? What media will be used, why, and how often? Why this mix and not
some other?
 What are your online and social media plans?
 Will you use methods other than paid advertising, such as trade shows, word of
mouth (how will you stimulate it?), network of friends or professionals?
 What plans do you have for other promotional supports? This includes things like
logo design, cards and letterhead, brochures, signage, etc.
 What will your promotional budget be? At start-up phase? On an on-going basis? Is
this sufficient to achieve your marketing and business goals?
In essence, in this section you need to summarize your promotions strategy, the channels you
will use to reach your target market: this will likely include engaging in sales, public relations
and e-marketing activities.
7. Manufacturing or Operations Plan

All business manufacturing or non-manufacturing should include an operations plan as part of
the business plan. This section goes beyond the manufacturing process (when the new venture
involves manufacturing) and describes the flow of goods and services from production to the
customers. It might include inventory or storage of manufactured products, shipping, inventory
control procedures, and customers support service. A non-manufacturer such as a retailer or
service provider would also need this section in the business plan in order to explain the
chronological steps in completing a business transaction. It is important for ventures that
manufacture, design, or sell products as well as for service firms that require capital equipment.
The elements of manufacturing or operation plan are:

 Facilities: purchase or lease, renovation, equipment and technology parking and
transport, legal and zoning issues
 Inventory: opening inventory purchasing system, subcontracting, inventory management
supplies and support
 Human resource: operating personnel skill requirements, supervision services and
support unusual requirement
 Operations: research and development, manufacturing process, service structure, quality
control safety, and maintenance.
 Legal and insurance issues: legal protection such as copyright, patent right and trade
mark; Insurance is also necessary to manage uncertainty of losses or
disasters .Entrepreneurs will need business liability insurance.
8. Leadership / Entrepreneurial team plan

Investors put greater emphasis on the entrepreneurial team than on the business concept. So,
entrepreneurs must take care to profile the entrepreneurial team honestly and effectively. They
should emphasize team member’s strength past success and positive characteristics and
avoid/reduce weaknesses. Each person’s role in the new ventures should be described briefly:
Who does what; Personal data like age, address, salaries to be paid etc, for cost calculation
should be discussed in detail.
You should also include details here on the HR policies and procedures you intend to apply for
areas such as recruitment, training and development, leadership and so on. Don’t be put off by
the thoughts of providing this information because even if there are very few people involved in
your business, you still want to explain your overall philosophy for bringing the best out of those
people and that’s what the staffing plan does
9. Financial information and documentation plan

Like the marketing, production, and organizational plan the financial plan is an important part of
the business plan. It determines the potential investment commitment needed for the new venture
and indicates whether the business plan is economically feasible or not.
NOTE: In addition to the above common components business plan could also incorporate the
following:
. Critical Risks: The investors are interested in knowing the tentative risks to evaluate the
viability of the business and to measure the risks involved in the business. This can further give
confidence to the investors as they can calculate the risks involved in the business from their
perspectives as well.
. Exit Strategy: The exit strategies would provide details about how the organization would be
dissolved, what would be the share of each stakeholder in case of winding-up of the organization.
It further helps in measuring the risks involved in investing.
. Appendix: The appendix can provide information about the Curriculum Vitae of the owners,
Ownership Agreement and the like.
Financial documentation plan

Generally three financial areas are discussed in this section of the business plan
1. The entrepreneurs should summarize the forecasted sales and the appropriate expense for at
least the first three years. It includes the forecasted sale, cost of goods sold and the general
and administrative expenses.
2. Important to determine cash on a monthly basis especially in the first year
3. The last financial item needed in this section of the business plan is the projected balance
sheet. It shows the financial conditions of the business at a specific time. It summarizes the
asset of a business, its liability, the investment of the entrepreneurs and any partners and
retained earnings or (cumulative loss).
 Operating and capital budget (cost)
If the entrepreneur is a sole proprietor then he or she is responsible for the budgeting decisions.
In the case of partnership, where employees to exist, the initial budgeting process may begin
with one of this individuals depending on his or her role in the venture.
Example: - a sales budget (plan) may be prepared by a state’s manager; a manufacturing budget
is prepared by the production manager and so on. The final determination of these budgets will
ultimately rest with the owners or entrepreneurs. A sample of sales plan is given in the following
table:
Table 25: Monthly Sales Plan (All products, product range or service)
Month 1 2 3 4 5 6 7 8 9 10 11 12
Product 1 Price
Quantity
Revenue
Product 2 Price
Quantity
Revenue
Product 3 Price
Quantity
Revenue
All Revenue
products
Note: Revenue = unit Price ⵝ Quantity
Capital budgets are intended to provide a basis for evaluating expenditures that will impact the
business for more than one year.
 Operating cost
Include list of fixed expense incurred regardless of sales volume such as rent, utilities, salaries,
advertising, depreciation and insurance should be completed.
Table 26: A sample operating budget (cost) for first three month (Birr)
Expenses January February March
Salaries 4,640.00 4,640.00 5,240.00
Rent 400.00 400.00 400.00
Utilities 180.00 180.00 180.00
Advertising 2,700.00 2,700.00 3,400.00
Selling expense 200.00 600.00 200.00
Insurance 400.00 400.00 400.00
Payroll taxes 420.00 420.00 500.00
Depreciation 240.00 240.00 240.00
Office expenses 300.00 300.00 300.00
Total 9,480.00 9,880.00 10,780.00
Table 27: Monthly Operational Cost Plan Planning is based on the monthly Sales Plan
Month 1 2 3 4 5 6 7 8 9 10 11 12
Product1 Quantity
Materials All Cost
Product2 Quantity
Materials All Cost
Product3 Quantity
Materials All Cost
(+)staff Total Cost
(+)others Total Cost
(=)Operation Total Cost
(+)Capital Interest
Cost
Depreciation
(=) Total Cost
Financial statements/Information plan

Naturally, the financial information section is a vital element of the overall plan and you should
begin with a general summary of how you intend to manage the financial aspects of your
business, the reports and information you will have to guide you and any external expertise you
might be availing of.
Income statement
This is where you bring together all your sales and expense projections to get an idea of what
returns you can make from the business. As mentioned, your sales projections must be realistic,
and you must include all operating and other expenses relevant to your business, including your
salary. The statement then deducts the cost of goods sold (COGS) to find gross profit. From
there, the gross profit is affected by other operating expenses and income, depending on the
nature of the business, to reach net income at the bottom – “the bottom line” for the business. In
preparation of income statement sales by month must be calculated first.
Key features:
 Shows the revenues and expenses of a business
 Expressed over a period of time (i.e., 1 year, 1 quarter, Year-to-Date, etc.)
 Used to assess profitability
An income statement has three main parts:-

Revenues:
Revenues refer to sales of goods or services that the entity generates during the specific
accounting period. The revenues present in the income statements are the revenues generated
from both cash sales and credit sales. In the revenues section, you could know how much the
entity makes net sales for their covering period.
Expenses:
Expenses are operational costs that occur in the entity for a specific accounting period. They rank
from operating expenses like salary expenses, utilities, depreciation, transportation, and training
expenses to tax expenses and interest expenses.
Profit or Loss:
Profit or loss refers to net income or the bottom line of the income statement that results from
deducting expenses from revenues
Table 28: Income Statement Format

Income statement
Xyz Company
For the 12 Months Beginning
Total Revenue
Cost of Goods Sold(-)
Gross Profit(=)
Less
Accounting & Legal
Admini Salaries
Autos & Vehicles
Depreciation
Entertainment
Equipment Rental
Insurance-Business
Interest
Licenses
Marketing
Miscellaneous
Office Supplies
Rent
Repairs & Maintenance
Taxes-Payroll
Taxes-Other
Travel
Repairs & Maintenance
Total Expenses
Net profit b/r tax
Pre-Tax Profit (Loss)
Cash Flow Statement

It is the summary of cash receipts and cash payments .It is not the same as profit. Profit is a result
of subtracting expense from sales, whereas cash flow results flow from the difference between
actual receipts and cash payments. Sales may not be regarded as cash because a sale may be
incurred but payment may not be made. Cash payments to reduce the principal on a loan do not
constitute a business expense but constitute a reduction of cash. Also, depreciation on capital
assets is an expense which reduces profit not a cash outlay.
Key features:
 Shows the increases and decreases in cash
 Expressed over a period of time, an accounting period (i.e., 1 year, 1 quarter, Year-to-
Date, etc.)
 Undoes all accounting principles to show pure cash movements
 Shows the net change in the cash balance from start to end of the period
Table 29: Cash Flow Plan format
Pre-
Month 1 2 3 4 5 6 7 8 9 10 11 12
operation
Cash beginning
of the month
+ Equity
+ Loans
+ Sales
+ Any other
I: Total cash in
+ Investment
+ Operational
cost
+ Interest
II: Total cash out
I – II Cash at the
end of the month
Balance Sheet
The balance sheet is another fundamental financial document which any business needs and it
shows what items of value are held by the enterprise (Assets), and what its debts are (Liabilities).
When liabilities are subtracted from assets, the remainder is known as Owners’ Equity.
Key features:
 Shows the financial position of a business
 Expressed as a “snapshot” or financial picture of the company at a specified point in time
(i.e., as of July 31, 2021)
 Has three sections: assets, liabilities, and shareholders’ equity
 Assets = Liabilities + Shareholders Equity
Balance sheet has three main parts:-
1. Asset
Represent everything of value that is owned by the business. Value is not necessarily meant to
imply the cost of replacement or what its market value would be but is the actual cost or amount
expended for the asset. Assets are categorized as current asset and fixed asset.
Current asset: - cash and anything else that is expected to be converted into cash or consumed
in the operations of the business during a period of one year or less .These current asset are often
dominated by receivable or money that is owned to the new venture from customers
Fixed asset: - are those tangible and will be used over a long period of time.
2. Liability
Liabilities: - these accounts represent everything owned to creditors. Some amounts may be due
within one year (current liabilities) and other may be long term liabilities (debts).
3. Owner equity
Owner equity:-the amount owners have invested and/or retained from the venture operations.
This represents the excess of all assets over all liabilities. It represents the net worth of the
business. Revenue increase assets and owner’s equity and expense decrease owner’s equity and
either increase liabilities or decrease assets.
Table 30: Sample balance Sheet
Balance sheet
XYZ Company
Jan x, 20xx
Asset Liabilities and Owner’s equity
Current asset Current liabilities
Cash xxx Accounts payable xxx
Account receivable xxx Total
Inventory xxx liabilities…………………………. xxx
Total current Owner’s equity
asset………………………………. xxx Mr. K xxx
Fixed asset Mr. Y xxx
Equipment xxx Mr. Z
Less depreciation xxx xxx
Total fixed asset………………...…. xxx Retained earnings xxx
Total owner’s equity …………………. xxx
Total asset …………………………… XXX Total liabilities and owner’s equity… XXX
6.2.2 Source and applications of funds
It illustrates the deposition of earnings from operations and from other financing. Its purpose is
to show how net income and financing were used to increase assets or to pay off debt. The
source and applications of funds statement emphasize the interrelationship of asset, long term
liabilities, owner equity and dividends to working capital. The statement helps the entrepreneur
as well as investors to better understand the financial well-being of the company as well as the
effectiveness of the financial management policies of the company.
The Source and Application of Funds Statement shows the total sources of new funds rose
between Balance Sheet dates and the total uses of those funds in the same period. The Source
and Application of Funds Statement tells exactly where the company got their money from and
how it was spent.
Table-31: Sample: source and application of funds, end of first year
Source of funds
Personal funds of founder’s xxx
Net income (loss) from operations (xxx)
Add depreciation xxx
Total funds provided xxx
Application of funds
Purchase of equipment xxx
Inventory xxx
Total funds expended xxx
Net increase in working capital xxx
Activity4: group assignment
Complete the product or service and the marketing and /or market components for a
product which you think is a good business opportunity. Use the sample business plan
format, appendix I, provided for you at the end of this module.
Complete the monthly sales plan and monthly operational cost plans given above, tables
1 and 2 respectively, for the product which you select as good business opportunity.
Complete the monthly cash flow plan given above, tables 4, for the product which you
select as good business opportunity.
Pre lesson Activity 5:

How can you prepare a business plan
Discuss the part include the business plan

Information sheet - 3 Writing a business plan (Guide Line)
6.3.1 Business Plan

Writing a Business Plan will probably take a lot of time. Up to 100 hours or more is not uncommon
for a new business that requires a lot of research. A typical plan will have three sections. Section
one is a written section describing Management and Marketing aspects of the business. Section Two
includes financial projections. Section Three is supplemental information.
A short (3-5 pages) Executive Summary is often added at the beginning of more complex business
plans.
Section One should be thorough, but concise and to-the-point. Use headlines, graphs and "bullets"
to improve readability. Length of this section is usually 10 - 20 pages.
 Section Two describes in numbers the outcome of your business strategies and plans.
Your financial projections should be based on facts and research, not “wild guesses.”
Be prepared to justify your numbers.
 Section Three contains supporting information to reinforce the first two sections.
This section’s contents will vary with your type of business.
Owners should be very involved in the planning process. Hiring someone to do it or delegating it to
someone who is not a key member of the company will result in an inferior plan. No plan (or a poor
plan) is a leading cause of business failure. You can improve your chances of success with a good
Business Plan.
Business Plan Outline

- Cover Sheet: Business Name, Address, Phone Number, Principals
- Executive Summary or Statement of Purpose
- Table of Contents
Section One: The Business

A. Description of Business B. Products/Services
C. Market Analysis G. Management and Operations
D. Marketing Plan H. Personnel
E. Location I. Application and Effect of Loan
F. Competition or Investment
Section Two: Financial Data

A. Projected Financial Statements
Income Statements
Cash Flow Statements
Balance Sheets
Assumptions to Projected Financial Statements
B. Break Even Analysis
C. Sources and Uses of Funds
Section Three: Supporting Documents

Historical financial statements, tax returns, resumes, reference letters, personal financial
statements, facilities diagrams, letters of intent, purchase orders, contracts, etc.
Section One: The Business
The following pages describe in detail each part (A through I) of the previous Business Plan
Outline. Disregard any questions that do not apply to your business.
A. Description of the Business
Part A provides an overview of key information which is developed in greater detail in the
following pages. Aim for clarity and simplicity in this part. Too much detail here gets in the
way of the main ideas. The Elevator Test - Can you explain your basic business idea in the
time it takes to get from the lobby to the 5th floor?
Basic Questions:
1) What general type of business is this?
2) What is the status of the business? Start-up, expansion or take-over?
3) What is the business form? Sole Proprietorship, Partnership, Corporation or
Limited Liability Company?
4) What are your products?
5) Who are (will be) your customers?
Additional Questions for Start-Ups:

1) Why will you be successful in this business?
2) What is your experience with this type of business?
3) What will be special or unique about this business?
4) Why will your business be successful?
Additional Questions for Purchase of Existing Business:

1) When and by whom was the business founded?
2) Why is the owner selling?
3) How was the purchase price determined?
4) What are the current financial conditions and trends?
5) How will your management make the business more profitable?
B. Products/Services
In this section, describe your product offering. This will include details of product features and an
overview of unique technology or processes. But don’t stop there and don’t focus too much on
technology. You must also describe the product benefits and why customers will want to buy. For
most businesses, the products/services are not totally unique. If yours are, take advantage of this
while you can and plan for the competitive battles that will come.
If your products/services are not unique, you must find a way to position your products/services in
the mind of your customer and to differentiate them from the competition. Positioning is the
process of establishing your image with prospects or customers. (Examples include: highest
quality, lowest price, wider selection, Best customer service, faster delivery, etc.)
Basic Questions:
1) What products/services are you (will you be) selling?
2) What are the features and benefits of what you sell?
3) What Position do you have (or want to have) in the market?
4) How do your products/services differ from the competition?
5) What makes your products unique and desirable?
6) Why do (will) customers buy from you?
C. Market Analysis
For start-ups or existing businesses, market analysis is important as the basis for the
marketing plan and to help justify the sales forecast. Existing businesses will rely heavily on
past performance as an indicator of the future. Start-ups have a greater challenge - they will
rely more on market research using libraries, trade associations, government statistics,
surveys, competitor observation, etc. In all cases, make sure your market analysis is relevant
to establishing the viability of the business and the reasonableness of the sales forecast.
Questions for Existing Businesses:
1) Who are your current customers? (List largest customers or categories.)
2) What do they buy from you?
3) Why do they buy from you? (Quality, Price, Reputation, etc.?)
Basic Questions:
1) Who are the purchasers of your products or type of products? (Geographic,
Demographic and Psychographic characteristics)
2) What is the size of the market? Is it growing?
3) What is (will be) your share? How will your share change over time?
4) What is the industry outlook?
5) Are there segments of users who are under-served by competition?
6) Do any of these under-served segments present opportunities?
D. Marketing Plan
In this section, you include the highlights or your detailed marketing plan. The basic
components of a Marketing Plan are:
 What are you selling? (What benefits do you provide and what position or image
do you have?)
 Who wants the things you sell? (Identify Target Markets)
 How will you reach your Target Markets and motivate them to buy?
(Develop Product, Price, and Promotional Strategies)
Product Strategies
1) How will products be packaged?
2) How broad will your product line be?
3) What new products will you introduce?
4) What Position or Image will you try to develop or reinforce?
Pricing Strategies
1) What will be your pricing strategies? (For example: Premium, Every Day Low
Price, Frequent Sale Prices, Meet Competitor Price, etc.)
2) How will you compare with competition and how will they respond?
3) Why will customers pay your price?
4) What will be your credit policies?
5) Can you add value and compete on issues other than price?
Promotional Strategies
1) Who are your Target Markets?
2) How will you reach your Target Markets? (What Media will you use?)
3) How will you motivate them to buy? (What Message will you stress?)
4) What is the cost and timetable for implementation of the marketing plan?
E. Location
Locations with greater customer traffic usually cost more to buy or rent, but they require less
spending for advertising to attract customers. This is especially true of retail businesses where
traffic count and accessibility are critical.
Basic Questions:
1) What is the business address?
2) Is it owned or leased? If leased, what are the terms?
3) Are renovations or modifications needed, and what are the costs?

4) Describe the property and the surrounding area.
5) Why is this good location for your business?
For Mail Order, Telemarketing, Manufacturing, Consulting, or other companies where the
customer does not purchase while physically at the business address, less location detail is
needed. Modify the location section to fit your situation. In some cases, a good location may
be one close to suppliers, transportation hubs or a complementary business that will also
attract your Target Market.
F. Competition
"Who is your competition?" is one of the first questions a banker or investor will ask. Business
by nature is competitive, and few businesses are completely new. If there are no competitors, be
careful; there may be no market for your products. Expand your concept of competition. If you
plan to open the first roller skating rink in town, your competition includes movie theaters,
malls, bowling alleys, etc.
Basic Questions:
1) Who are (will be) your largest competitors? List them.
2) How will your operation be better (and worse) than your competitors?
3) How are competitors doing? What are their sales and profits?
4) (If Start-Up) How will competition respond to your market entry?
G. Management and Operations
Because management problems are the leading cause of business failures, it is important to
discuss management qualifications and structure. Resumes of Principals should be included in
supporting data. If your business will have few employees and rely heavily on outside
professionals, list these key people and their qualifications. If you are seeking financing, include
personal financial statements for all principals in supporting data section.
Basic Questions:
1) What is the business management experience of the management team?
2) What are the functional areas of the business?

3) Who will be responsible for each functional area?
4) Who reports to whom?
5) What will salaries be?
6) What management resources outside the company are available?
7) How will your products/services be produced? (Describe manufacturing
processes, proprietary technology and key supplier relationships.)
H. Personnel
The success of many companies depends on their ability to recruit, train and retain quality
employees. The amount of emphasis in your plan will depend on the number and type of
employees required.
Basic Questions:
1) What are the personnel needs now? In the future?
2) What skills must they have? What training will you provide?
3) Are the people you need available?
4) What is their compensation? What fringe benefits will be provided?
I. Application and Effect of Loan or Investment
This section is important whether you are seeking a loan, outside investment (equity) or
investing your own money. It may be necessary to complete Section Two, Financial Data,
before completing this part.
Basic Questions:
1) What is the total investment required?
2) How will the loan or investment be used?
3) How will the loan or investment make the business more profitable?
4) When will the loan be repaid?
5) If you are seeking equity (selling part of the business to an investor):
 What percent of the company are you willing to give up?
 What rate of return is possible for the investor? (Note: If your business plan
will be presented to private investors, seek legal counsel to be sure you are in
compliance with securities laws.)
Section Two: Financial Data
A. Projected Financial Statements
The basic purposes of financial projections are:
Establish the profit potential of the business, given reasonable assumptions
 Determine how much capital the company needs and how it will be used
 Demonstrate the business can generate the cash to operate and re-pay loans
It is usually helpful, but not necessary, to complete at least a rough draft of Section One (the
written section) before attempting the financial section. In the written section, you will develop
and describe your strategies for the business. In the financial section, you will estimate the
financial impact of those strategies by developing projected Income Statements, Balance Sheets,
and Cash Flow Statements. It is usually recommended that these projected statements be on a
monthly basis for at least the first twelve months or until the business is profitable and stable.
Activity displayed beyond the monthly detail may be in summary form (such as quarterly or
annually.) The forecast period for most business plans is two to four years.
Before you start developing projected financial statements, gather the suggested information on
the following pages. The personal computer is an excellent tool for financial projections; and
those with a good background in accounting and personal computer spreadsheets may want to
create their own financial forecast model. (There are also some specialized software programs
which have basic templates to help with your financial forecast.)
The quality of your projection depends on the accuracy of the assumptions. (Garbage in -
Garbage out.) Existing businesses will rely heavily on past financial results as the basis for their
forecasts. Start-ups have greater challenges. They must do extensive research to prove the
reasonableness of their numbers. Examples of sources include: Industry data from public sources
and trade associations, personal interviews with potential customers and people in the business,
competitive observation and analysis, etc.
If you would like assistance, gather the suggested information on the following pages and
contact the Small Business Development Center. The SBDC will review the information from
your research and help you develop your projection.
Steps in Financial Projections

For items 1 and 2, use the following “Fixed Asset/Start-up Expense List.”
1) Estimate fixed asset requirements for the first year. Include Land, Buildings,
Leasehold Improvements, Equipment, and Vehicles.
2) Estimate any start-up or one-time expenses. Include any expenses needed to begin
operation such as legal fees, licenses, and initial marketing costs.
For item 3, use the following “Unit Selling Price and Cost Analysis” sheet.
3) Define each “unit” of your product or service and estimate the selling price and
direct cost per unit. In the appropriate places on the form, estimate Cost of Sales and
calculate Gross Profit as a percentage of the selling price.
For items 4 through 6, use the following “Projected Income Statement”.
4) Estimate sales by month for at least one year. (Unit sales price times the number of
units.) Consider how start-up, marketing, and seasonal factors affect sales.
5) Estimate monthly Cost of Sales and Gross Profit based on the percentages of sales
calculated in #3 above. Use a weighted average if multiple product lines.
6) Estimate and itemize fixed expenses by month for at least one year. Include things
like rent, insurance, utilities, salaries, marketing, legal/accounting, etc. Determine all
categories which apply to your business, but don’t include expenses here that are in
“cost of goods (services) sold.”
7) Describe the amount of inventory (if any) required to support the sales forecast.
Express in number of days sales or turnover if possible.
8) Describe your credit, sales, and collections policies. If you will make sales on credit,
estimate the number of days after the sale before the average customer pays.
9) Describe how fast you must pay your vendors for any items you will purchase.
10) Also: - Estimate obligations for Income Taxes.
- Businesses already in operation will need the latest Balance Sheet.
Table 31: Fixed Asset/Start-up Expense List sample format
Fixed Asset Description: Cost

Land/Building
Equipment and/or Vehicles
Leasehold Improvements
(Others)--------------------------------------------------------------------------
Start-up Expense Description:

Legal/Organization Costs
Initial Marketing & Promotion
Licenses and Permits
Beginning Inventory
(Other)
Total Fixed Asset and Start-up Expenses: ______________________________
Note: List major items individually. You may group other, smaller items (like office
equipment) into a single line item.
Table 32: Unit Selling Price and Cost Analysis sample format
Product or Service #1: __________________________________________
A. Selling Price:
less
Direct Costs:
Material coost--------------------------------------------
Labor cost--------------------------------------------------
Sub-contractors
(Other)----------------------------------------------------
B. Total unit cost………………………………………………………
C. Unit Gross Profit (A minus B)------------------------------------------
D. Gross Profit % (C divided by A)--------------------------------------------
6.3.2 Optional Method to Calculate Needed Capital
"Capital," in investment terms, is money to finance the purchase of equipment, supplies and
products. When you buy new equipment, the money spent is called capital. Think of capital as
money to buy things and working capital as money to pay weekly, monthly, quarterly and annual
bills, from payroll to local, state and federal taxes. When planning capital needs for a start-up,
simply calculate the costs of setting up the business.
To determine capital needs for an existing business, calculate the costs of growth and expansion,
but don't include items like salaries, utility costs, insurance, and other fixed business expenses.
Many businesses can get a reasonable picture of their financial future by using the following
formula. If the business will start making sales very soon after opening, you may decide to
multiply monthly fixed expenses by a number smaller than six.
Total Required Capital = Six Months of Fixed Expenses + Asset Purchases + Start-up Expenses
Table 33: Method to Calculate Needed Capital sample format

Monthly Fixed Expenses
Column 1 Column 2
Salaries (include owner)
Payroll Taxes at 12%
Rent
Marketing and Advertising
Supplies
Telephone & Utilities
Insurance
Maintenance
Legal and Accounting
Miscellaneous
(Other)
Monthly Fixed Expense Sub-total x6=
Asset Purchases
Purchase of Land and Building
Decorating and Remodeling
Fixtures and Equipment (plus installation) Deposits on
Rental Property and Utilities Beginning Inventory
Asset Purchase Sub-Total

Start-up Expense You Pay Once
Legal and Accounting Organization Costs
Licenses and Permits
Initial Advertising and Promotion
(Other)
Start-up Expense Sub-total
Total Estimated Cash Needed to Start (Add Column 2)
A. Break Even Analysis
Break even (B/E) analysis is a simple, but very effective financial feasibility test. B/E is used to
find the amount of sales necessary to pay all fixed costs (and have zero income.) In your business
plan, it represents a minimum acceptable performance. Follow these steps to calculate:
1) Determine Contribution Margin Percent. Contribution Margin (CM) equals Sales minus
Variable Expenses. CM% equals CM birr divided by Sales. Note: The biggest variable
expense is usually Cost of Goods Sold (CGS), which is the direct material and labor
necessary to make a product or service ready for sale.
2) List and total all Fixed Expenses for a specific time period (usually one month.)
Fixed expenses do not rise or fall with sales volume. Examples: rent, insurance,
utilities, etc.
3) Break Even Sales is Fixed Expenses divided by Contribution Margin %. (See Example)
Table 34: Example on calculation of Break even

Unit sales price: $10 Monthly Fixed Expenses:
less Cost of Goods Sold: Rent: 2,000
Material & Labor $3 Utilities 1,000
less Other Variable Exp: $1 Salary 3,000
Unit Contribution Margin = $6 Commissions 4,000
( $10-$3-$1)= CM% ($6-$10) Total Fixed Expenses $10,000
B/E = Fixed Expense ⵝ CM % B/E = $10,000 ⵝ (0 .6)= $16,667
A. Sources and Uses of Funds

Business ventures always seek sources of funding to grow the business. Funding, also called
financing, represents an act of contributing resources to finance a program, project, or a need.
Funding can be initiated for either short-term or long-term purposes.
The Sources and Uses of Funds is a statement of how much money you need (and where it will
come from) and how that money will be used. This statement should be included if your business
plan is being presented to a lender or investor. By definition, sources must equal uses.
The following is an example of a typical format.
Sources:
Term Loan………………………………………..xxx
Line of Credit…………………………………….xxx
Personal Equity…………………………………..xxx
Outside Equity…………………………………..xxx
Total Sources……………………………………………..XXX
Activity 6: Group assignment
Complete the fixed asset/start-up expense and unit selling price and cost analysis
tables given above, tables 7and 8 respectively, for the product which you select as
good business opportunity in activity 4 above.
Operation Sheet Project Work
Instruction
Use the business plan format appendix I and prepare a comprehensive business plan in group
which you think to use it after your graduation.
1. using the appropriate business plan format, prepare a complete business plan
2. Request your teacher for evaluation and feedback
Operation Title: preparing a business plan

Purpose: To prepare a comprehensive and feasible plan
Equipment Tools and Materials:
Computer, printer, pen, pencil, paper, marker, sample business plan, demonstration room.
Conditions or Situations for the Operations:
A Cooperativeness of business enterprises, trade organizations, government agencies, NGOs, chamber of
commerce, MSEs, and other specialists.
Procedure:
1. Select the appropriate business plan format
2. Describe the business
3. Prepare the marketing plan
4. Prepare operation plan
5. Prepare organization and management plan
6. Prepare financial plan
7. Checking the feasibility of the plan
Precautions:
• Adequate and reliable data/information
• Basic entrepreneurial competencies
• Fulfilling legal requirements
• Business ethics
Quality Criteria:
• Marketability, Technical and managerial feasibility, and Finical feasibility
Summary
The business plan is a roadmap that details where the cooperative is going and how to get
there. It explains what the business is and how it will be operated. Having a good
business plan will help cooperatives minimize risks of failure. It can also be used by
cooperatives in applying for support from development programs. A business plan should
be reviewed and updated regularly to reflect changes in the business environment and
status of the cooperative.
The business plan should be comprehensive enough to give any potential investors a
complete picture and understanding of the new picture and it should help the entrepreneur
clarify his or her thinking about the business.
There is no hard and fast rule regarding the components of business plan and most of the
time the following are recommended to be included while preparing business plan: cover
page, executive summary, name of business and contact details, business description,
product or service plan ,the market plan, manufacturing or operations plan, leadership /
entrepreneurial team plan and financial and documentation plan
Writing a Business Plan will probably take a lot of time. Up to 100 hours or more is not
uncommon for a new business that requires a lot of research. A typical plan will have three
sections. Section one is a written section describing Management and Marketing aspects of
the business. Section Two includes financial projections. Section Three is supplemental
information.
The Financial Plan section of the business plan provides details on how potentially
profitable the business will be. You will also need to provide projections that would show
that the business will survive on the start-up capital until it makes a profit.
SELF-ASSESSMENT QUESTION
Part I. Say “True” if the statement is correct or “False” if the statement is incorrect.
 Investors put greater emphasis on the business concept than on the entrepreneurial team.
 The exit strategies would provide details about how the organization would be dissolved.
 Cover page is the “reminder” that either captures an investor’s interest or skills all incentives
to read further.
 Income statement summarizes the asset, liabilities and net worth of the entrepreneurs.
 Asset represents everything of value that is owned by the business.
 There is no hard and fast rule regarding the components of business plan.
 Profit is the excess of cost to revenue.
Part II. Match the terms under column ‘A’ with their corresponding concepts in
Column “A” Column “B”
1. Cover page A. . Provide an accurate description of a
product or service.
B. . Its objective is to establish that a market
3. Business description exists for the proposed venture.
C. Indicates whether the business plan is
4. Product or service
economically feasible or not.
5. Market research and analysis D. It enables the investors to ascertain the size
and scope of the business
6. The market plan
E. It provides the brief summary of the
7. Manufacturing/ operations plan business plan’s contents
F. It is prepared after the total plan is written
8. Leadership / entrepreneurial team
G. describes the flow of goods and services
9. Financial documentation from production to the customers
H. It emphasizes strength past success and
positive characteristics or profile of
entrepreneurs’.
I. It builds on market research and describes
how the products or services will be
distributed, priced and promoted.
Part III. Answer the following briefly

1. What is business plan; why it is prepared?
2. Discuss the common components of business plan in their chronological order.
REFERENCES
Addis Gedefaw (2005) Entrepreneurship and Small Business Management, A
handout, Bahir Dar University
Bhatia, B.S. abdBatre G.S. (2003) Entrepreneurship and Small Business Management,
Burns, P. (2001) Entrepreneurship and Small Business Management, Antony
Rowe ltd., Chippenham, Great Britain
Desai, V. (2001) Dynamics of Entrepreneuria l Development and Management, Himalayas
Educational and Professional Publishing Ltd .ISBN 0 7506 4381 1
Fees and warren, Accounting Principles, 24th edition, South Western publishing Company. /
Any recent edition/
Geoff Lancaster and Paul Reynolds (2002). Marketing: The One-Semester Introduction. Reed
th
Hisrich D.R. (220) Entrepreneurship, 5 ed., Tata McGraw - hill, New Delhi ILO
(2008).Know about Business. ISBN 92-9049-396-8
th
Pandey, I M (1999) Financial Management 8 ed. ,Vikas Publication House pvt. Ltd., New
Pearson Education Company
Philip Kotler and Gary Armstrong (2018). Principle of marketing (17th edition). Global edition,
Publication House, Mumbai
th
Robert D. Hirsch and Michel P. Peters, Entrepreneurship, 5 edition, Tata McGraw
-Hill edition, 2002. Support for Growth-oriented Women Entrepreneurs
in Ethiopia, ILO Geneva
TesfayeHailselassie, Dereje Seyoum, SintayehuAbye (2004) private sector Capacity building
program, trade, industry and urban Development Bureau Stevenson L., A. St-
Onge (2005), University, Mekele.
Internet source:
https://www.businessmanagementideas.com/management/organisation-
management/organizational-change-nature-process-and-types-
management/7876
Appendix-I
BUSINESS PLAN
Executive Summary
NAME OF BUSINESS _________________________________________________________
_____________________________________________________________________________
LEGAL FORM _______________________________________________________________
CONTACT ADDRESS _________________________________________________________
Tel. _____________________E-mail________________________
Fax.____________________
TYPE OF BUSINESS
􀂉 Manufacturer 􀂉 Service provider 􀂉 Retailer 􀂉 Wholesaler
BRIEF DESCRIPTION OF THE BUSINESS IDEA
Products or services
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________
CUSTOMERS / TARGET GROUP
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________
OWNER(S) (NAME, ADDRESS, QUALIFICATION, FUNCTION IN THE BUSINESS,
RELEVANT EXPERIENCE)
1.________________________________________________
2.________________________________________________
3.________________________________________________
4.________________________________________________
BUSINESS IDEA AND MARKET
Description of the business idea
(e.g. identified needs (market gap), who are the customers, type of products or services to satisfy
the needs, how to reach the customers, etc.)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________
MARKETING PLAN
Description of the Market :(e.g. geographical area, town, type of customers, size of total market,
description of competitors, market share for the new business, etc.)
______________________________________________________________________________
______________________________________________________________________________
___________________________________
MARKETING PLAN PRODUCT
Detailed description of the product or product range or service
Product/service type
______________________________________________________________________________
______________________________________________________________________________
__________________________________________
What is special about the product/ the unique characteristics of the product?
______________________________________________________________________________
______________________________________________________________________________
______________________________
Specification of the product (e.g. size, color, quality, Packaging etc)

______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________
After sales service
______________________________________________________________________________
______________________________________________________________________________
______________________________
MARKETING PLAN PRICE
How much are customers willing to pay?
 Highest _____
 Average ____
 Lowest _____
How much are competitors’ price?
 Highest _____
 Average ____
 Lowest _____
How much is your price?

 Highest _____
 Average ____
 Lowest _____
What are the reasons for setting your price?
_____________________________________________________________________________________
_____________________________________________________________________________________
________________________________________________________________
Product/service Type(1) Type(2)
Highest ;
Average;
Lowest
Highest ; Highest ;
Average; Average;
Lowest Lowest
Highest ; Highest ;
Average; Average;
Lowest Lowest
Margin for discount? No Yes(_____ %) No Yes(____%)

MARKETING PLAN PLACE
Location of the business
Description of the planned location for the business
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________
Reason for choosing this location
______________________________________________________________________________
______________________________________________________________________________
________________________________________
Reaching the customers by selling to
􀂉 Individuals 􀂉 Retailers 􀂉 Wholesalers 􀂉 Others
Reason for choosing this way of distribution
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________
MARKETING PLAN PROMOTION

Description of the planned actions to inform customers about the opening of the new business
(e.g. printed information, brochures, posters, newspaper articles, radio advertisements, opening
ceremony, etc. Also make inquiries about the costs for the different types of promotion)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________
LEGAL FORM
The legal form of the business will be:-
□ Sole proprietorship □ partnership □ limited company □ Corporation
Reason for choosing this legal form
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________
START-UP CAPITAL
ESTIMATION OF START-UP CAPITAL Amount
Investment
Land
Building
Equipment
Total Investment
Working Capital
____ months of staff costs
____ months of operational costs
Total working capital
TOTAL START-UP CAPITAL
LIST FIXED ASSETS NEEDED AND THEIR COST

No. Item Quantity Amount
1
2
3
4
5
Total
LIST OF RAW MATERIALS NEEDED

Raw materials
No Dimension Quantity Unit Cost Total Cost
needed per month
1
2
3
4
Total cost
SOURCES OF START-UP CAPITAL
SOURCES OF FUNDING
Conditions
Type Source Amount
(duration/interest)
􀂉 Own savings
Equity capital
􀂉 Partner
􀂉 Family
Loan 1 􀂉 Friends
􀂉 Money lender
􀂉 Credit cooperative
Loan 2 􀂉 Government scheme
􀂉 Bank loan
TOTAL FUNDING
Information about funding sources

Loan 1
Name and address of creditor or credit institution
______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________
Credit agreement 􀂉 under discussion 􀂉 finalized
 Money available on (date) ________
Loan 2
Name and address of creditor or credit institution
______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________
Credit agreement 􀂉 under discussion 􀂉 finalized
􀂉 Money available on (date) ________
DEBT SERVICE
Repayment 1 2 3 4 5 6
Period Amount Amount Amount Amount Amount Amount
Loan 1
Installment/principal
Interest
Loan 2
Installment/
principal
Interest
Debt service
Sum of Installments
ORGANIZATION AND STAFF

Staff costs
Position Qualifications Salary Social Total
Per month security staff cost
1. __________ ___________ _________ ________ ______
2. __________ ___________ _________ ________ ______
3. __________ ___________ _________ ________ ______
4. __________ ___________ _________ ________ ______
5. __________ ___________ _________ ________ ______
ORGANIZATION OF BUSINESS PREMISES
(Sketch of planned shop, office or workshop)

BUSINESS OPERATION AND COSTS
Monthly Sales Plan
All products, product range or services
Month 1 2 3 4 5 6 7 8 9 10 11 12
Price
Quantity
Product 1
Turnove
r
Price
Quantity
Product 2
Turnove
r
Turnove
All products
r
Monthly Operational Cost Plan

Planning is based on the monthly sales plan
Month 1 2 3 4 5 6 7 8 9 10 11 12
Product 1 Quantity
Materials All costs
Product 2 Quantity
Materials All costs
Materials Total costs
+ Staff Total costs
+ Others Total costs
Operation Total costs
+ Capital Interest
cost Depreciation
= Grand Total
costs
Cash Flow Plan : Monthly Cash Flow Plan

Pre
Month 1 2 3 4 5 6 7 8 9 10 11 12
operation
Cash beginning of
the month
+ Equity
+ Loans
+ Sales
+ Any other
I: Total cash in
+ Investment
+ Operational cost
+ Interest
+ Any other
II: Total cash out
I – II Cash at the
end of the month
Profit Margin
Monthly Estimation of Net Profit
Month 1 2 3 4 5 6 7 8 9 10 11 12
Quantity
Product 1
Turnover
Quantity
Product 2
Turnover
I. Total Sales
- Operation Total costs
II. Total
Costs
I – II Profit
(before tax)
- Income tax _____%
Net profit
(after tax)
Opening Balance
Opening Balance of My Business (Date)
Assets Value Liabilities Value
Fixed Assets Equity
Land Long-Term Liabilities
Building Mortgage
Equipment Loans
Others Others
Total Fixed Assets Total Long-Term Liabilities
Current Assets Current Liabilities
Cash and bank
Accounts payable
Accounts receivable
Taxes payable
Inventory
Others payable
Total Current
Total Current Liabilities
Total Assets Total Liabilities and Net Worth
Business Operation Costs

Monthly Sales Plan
All products, product range or service
Month 1 2 3 4 5 6 7 8 9 10 11 12
Price
Product 1 Quantity
Revenue
Price
Product 2 Quantity
Revenue
Price
Product 3 Quantity
Revenue
Product 4 Price
Quantity
Revenue
All products Revenue
Monthly Operational Cost Plan
Planning is based on the monthly Sales Plan
Month 1 2 3 4 5 6 7 8 9 10 11 12
Product1 Quantity
Materials All Cost

Product2 Quantity
Materials All Cost
Product3 Quantity
Materials All Cost
Product4 Quantity
Materials All Cost
+staff Total Cost
+others Total Cost
=Operation Total Cost
+Capital Cost Interest
Depreciation
= Total Cost
Cash Flow Plan
Monthly Cash Flow Plan
Month Pre operation 1 2 3 4 5 6 7 8 9 10 11 12
Cash beginning of the
month
+Equity
+Loans
+Sales
+Any other
I:Total Cash in
+Investment
+Operational Cost
+Loan repayment
+Any other
II. Total cash out
I-II Cash at the end of
the month
Company name
Profit and loss statement
Period of operation
Month 1 2 3 4 5 6 7 8 9 10 11 12
Revenue
Cost of goods Manufactured
Direct Materials Used
Direct Labor Cost
Factory Overhead Cost
Total Manufacturing Cost
(+)Beginning work in process inventory
(-)ending work in process inventory
(=)Cost of Goods Manufactured
(+)Beginning Finished good inventory
(-)Ending Finished Goods Inventory
Cost of Goods Sold
Gross Profit
Marketing and Administrative Expense
Salary expense
Rent Expense
Promotion Expense
Utilities Expense
Miscellaneous Expense
Total Marketing and Administrative Expense
Profit before tax
Profit After tax
Acknowledgments
We wish to extend many thanks and appreciation to the representatives of TVET instructors and respective industry
experts who devoted their time and expertise to the development of this Training and Learning Materials (TLM).
Also we like to express our appreciation to the TVET College/ Institutes, ADRA Ethiopia, Ethiopian Water Technology
Institute and Federal Technical and Vocational Education and Training Agency (FTVET) who made the development of
this Training and Learning Materials (TLM) with required standards and quality.
A. The trainers and other participants involved on the 1st Developments
Participant Name Participant’s Educational Participant’s

Educati
S/N First Father Grand- Sex Telephone working Qualification Position or Email Address
on level
Name Name Father Organization (Department) Responsibility
Ethiopians
Gebrekirosg12@g
1 G/kiros G/medhin Berhe M 0912185551 Technical MBA Master Department head
mail.com
University
Harar Planning Director
MBA (Business Worku.estifanos22
2 Eatifanos Worku Tegegn M 0920457778 Polytechnic MBA and A level
Admin) 0@gmail.com
collage Instructor
A.A
MA in TVET Trainers
Tegbareid Kidusgez2004@g
3 Gezahegn Degu Zerfu M 0910382828 Leadership & Masters Development
Polytechnic mail.com
Mgt coordination Head
College
Entoto
Araya.belay@yaho
4 Araya Belay Ashebir M 0911301823 polytechnic B.A in Eonomics B.A Business Trainer
o.com
college
Adama
MSC in ACCT Entrepreneurship abebemersha1219
5 Abebe Mersha Dugo M 0912222622 TVET Msc
& Finance A-level Instructor @gmail.com.
Colledge
MA in Trainees Devt
Federal
managements of Team Leader and godofmuler@gmai
6 Mulugeta Eshete Degefu M 0947339014 TVET MA
Vocational Entrepreneurship l.com
Agency
education trainers
Federal MA in TVET Cumm and Trai. tgkebede27@gmai
7 Tigist Kebede W/kidan F 0912170013 TVET leadership and Master/ Mat. devt Team l.com
Agency Mngt leaders
B. Trainers and other participants involved in the rewiewing and validations )
Participant Name Participant’s Educational Participant’s

S/ Sex Educatio
Father Grand- Telephone working Qualification Position or Email Address
N First Name (M/F) n level
Name Father Organization (Department) Responsibility
Cumm and Trai.
Federal TVET MA in TVET tgkebede27@gmail.com
1 Tigist Kebede W/kidan F 0912170013 Master/ Mat. devt Team
Agency leadership and Mngt
leaders
MA in Trainees Devt
Federal TVET managements of Team Leader and
2 Mulugeta Eshete Degefu M 0947339014 MA godofmuler@gmail.com
Agency Vocational Entrepreneurship
education trainers
Harar Planning Director
MBA (Business Worku.estifanos220@gm
3 Eatifanos Worku Tegegn M 0920457778 Polytechnic MBA and A level
Admin) ail.com
collage Instructor
Hawasa
MA (Marketing
4 Endiga Eshete Wolde M 0916136741 Tegibared MA Higher Instructor engidaeshete@gmail.com
Management)
TVET college
Nifas Silk
MA (Marketing Nahoosenay.432014@gm
5 Yashialem Haile F 0911464521 Polytechnic MA Instructor
Management) ail.com
collage
6 Bahir Dar
MA (Marketing
Eskeder Yirga Belay M 0932816271 Polytechnic MA Higher Instructor 2awinfor@gmail.com
Management)
collage
Woliso
MSc (Accounting
7 Getahun Ayansa Birae M 0911868604 Polytechnic MSc Higher Instructor getuayu11@ gmail.com
and Finance )
collage
Walayita Sodo MSc
MSc (Accounting
8 Yisimaw Hone Asres M 0911032707 Polytechnic (Manufacturing MSc honeyismaw@gmail.com
and Finance )
collage Engineering )

TM-Entrepreneurship and Employabilityskill - Two

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TM-Entrepreneurship and Employabilityskill - Two

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Ethiopian TVET System

Entrepreneurship and Employability skills

Module Title: - Developing Entrepreneurship and Employability skills

LG Code: ENT EMP M2 LO (1-6)

Federal TVET Agency Training module-Entrepreneurship and Version -1

Learning Outcome - 1..................................................................................................................................10

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Moreover, Entrepreneurship and Employability skill course l e a r n i n g module-II is

At the end of this training module, trainee will be able to:

Federal TVET Agency Training module-Entrepreneurship and Version -1

Activity 1: Individual Assignment

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

1.1.1 Marketing philosophy: Meaning, Importance, and Types

The importance of a marketing philosophy

Types of marketing philosophies

Federal TVET Agency Training module-Entrepreneurship and Version -1

1. The Production Concept

This production concept is found to be applicable if two situations prevail.

Federal TVET Agency Training module-Entrepreneurship and Version -1

2. The Product Concept

3. The Selling Concept

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

5. The Societal Marketing Concept

Activity 1: Group Discussion

Activity 2: Individual Assignment

Federal TVET Agency Training module-Entrepreneurship and Version -1

Pre-lesson activity: - Group Discussion

1.2.1 Marketing information system

A marketing information system is a continuing and interacting structure of people, equipment

A marketing information system consists of people and procedures dedicated to assessing

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

A marketing information system (MIS) is a management information system designed to support

Why Conduct Market Research?

Federal TVET Agency Training module-Entrepreneurship and Version -1

Exploratory Research: It is defined as collecting information in an unstructured and informal

Federal TVET Agency Training module-Entrepreneurship and Version -1

Activity 1: Group work

1.2.3 Process of Market Research

The followings are marketing research process.

Federal TVET Agency Training module-Entrepreneurship and Version -1

2. Establish Research Objectives - The research objective is a statement, in as precise

Federal TVET Agency Training module-Entrepreneurship and Version -1

Federal TVET Agency Training module-Entrepreneurship and Version -1

Activity 1: Group Discussion and Reflection

Activity 2: Group work

1.2.4. Marketing intelligence

Federal TVET Agency Training module-Entrepreneurship and Version -1

Competitive marketing intelligence is the systematic monitoring, collection, and analysis of

Federal TVET Agency Training module-Entrepreneurship and Version -1

Ways to Undertake Marketing Intelligence

Activity 1: Group discussion:

Activity 2: Individual Assignment:

1.2.5. Competitive Analyses

Uses of Competitive Analysis

Federal TVET Agency Training module-Entrepreneurship and Version -1