Fixed Costs:
Monthly Rent 100000
Insurance (24000 per year 24000/12 months = 2000) 2000
Total Monthly Fixed Costs 102000
Variable Cost:
Materials 5
Total Variable Cost 12
Selling Price: 25
Break Even Point Calculation Break Even Point = Fixed Costs / (selling price - variable costs) Break Even Point = 102000 / (25-12)
Break Even Point = 102000 / 13 Break Even Point = 7846
To break even the company must sell 7846 units per month.
If the Company just broke even, then its Profit and Loss Statement would look like the following:
Monthly Profit and Loss Statement Sales
Gross Sales (25 per unit times 7846 units) 196150
Less Cost of Goods Sold (12 per unit times 7846 units) 94152
Net Sales 101998 Or 102000 Expenses Rent 100000 Insurance 2000 Total Expense 102000 Net Profit 0
Projected Profit and Loss:
The table below shows the profit and loss statement for NetBazaar. The itemized costs for fixed technology, corporate and advertising are reflected in the sales and marketing row in the table:
Fixed Technology Costs: represents a percentage of revenues allocation for all fixed computer and Internet-related developments and charges. In 2013, Tk. 2000,000 is
allocated for the proprietary software development, Tk. 1000,000 for the website design, and Tk. 500,000 for systems integration.
Fixed Corporate Costs: represent a percentage of revenues allocation for all fixed corporate cost associated with office related charges. In 2013, Tk. 600,000 is allocated for initial sales force hire, Tk. 500,000 is allocated for hiring and training expenses, and another Tk. 450,000 is allocated for the office setup and purchase and lease of necessary computer equipment and infrastructure.
Advertising: represents a percentage of revenues allocation for advertising in all media. In 2013, Tk. 2000,000 is allocated for the industrial marketing campaign. In the subsequent years, the much larger budgets include allocations for TV, Newspaper, advertising.
Sales & Marketing: represents a percentage of revenues allocation for marketing and selling activities, including commissions paid on sales. In 2013, Tk. 1000,000 is allocated for the initial sales and marketing related activities.
Research and Development: represents a percentage of revenues allocation for R&D activities. In 2013, Tk. 350,000 is allocated for testing and fine-tuning of the computer systems and programs.
General & Administrative: represents a percentage of revenues allocation for expenses associated with running a corporation. In 2013, Tk. 200,000 is expensed against the initial set-up, legal and accounting fees, etc.
Depreciation: represents a depreciation on all capital investment; straight-line depreciation over 25 years.
Pro Forma Income Statement
Year 1 Year 2 Year 3
Sales 5000,000 8000,000 12000000
Direct Cost of Sales 2200,000 2300000 2700000
Other 200,000 200000 300000
Total Cost of Sales 2400,000 2500000 3000000
Gross Margin 2600,000 5500000 9000000
Gross Margin % 52% 69% 75%
Expenses
Projected Balance Sheet
The Balance Sheet shows solid growth in both sales and net worth.
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash 1000000 2000000 3000000
Accounts Receivable 0 0 0
Other Current Assets 100000 1500000 2000000
Total Current Assets 1100000 3500000 5000000
Long-term Assets 5000000 5000000 5000000
Accumulated Depreciation 100,000 100000 100000
Total Long-term Assets 5100,000 5100000 5100000
Total Assets 6200,000 8600000 10100000
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable 500000 1000000 1500000
Current Borrowing 300000 600000 1000000
Other Current Liabilities 100000 200000 300000
Subtotal Current Liabilities 900000 1800000 2800000
Long-term Liabilities 1000000 1000000 1000000
Total Liabilities 1900000 2800000 3800000
Paid-in Capital 4300000 6000,000 6300000
Retained Earnings 0 0 0
Total Capital 4300000 6000000 6300000
Sales and Marketing and Other
Expenses 1000,000 1200000 1400000
Depreciation 100,000 100000 100000
Research & Development 350,000 400000 500000
Payroll Taxes 150,000 165000 225000
Other 100,000 115000 125000
Total Operating Expenses 2700,000 3080000 3850000
Profit Before Interest and Taxes (100,000) 2420000 5150000
Interest Expense 200,000 220000 250,000
Taxes Incurred 0 330000 735000
Net Profit (300,000) 1870000 4165000
Total Liabilities and Capital 6200000 8600000 10100000
Business Ratios
The following table presents important business ratios for the business services industry, as determined by the Standard Industry Classification (SIC) Index code 7389, Business Services, nec (not elsewhere classified).
Ratio Analysis
Year 1 Year 2 Year 3
Net Profit Margin (-300000/5000000) = -6% (1870000/8000000)=23.38% (4165000/12000000)=34.71% Return on Asset (-300000/6200000) = -4.84% (1870000/8600000)=21.74% 4165000/10100000)=41.24% Return on Equity (-300000/4300000) = -6.98% (1870000/6000000)=31.16%(4165000/6300000)=66.11% Current Ratio (1100000/900000) =1.22 (3500000/1800000)=1.94 (5000000/2800000)=1.79
ROI (-300000/6000000) = -5% (1870000/7000000)=21.71% (4165000/9000000)=46.28%
Net Income Margin: This ratio measures net income per dollar of sales; it is computed by dividing net income by sales. In year one Net Bazaar had earned net income margin of (6%) after all costs and expenses including interest, taxes had been deducted. In year two and three it was respectively 23.38%, 34.71%.From the above result we observe that net profit margin There was some percentage of profit for the shareholder. From 2009 to 2011 net profit went positive. There were some incentives for the shareholders.
Return on Asset (ROA): The ratio of net income to total assets; provides an idea of the overall return on investment earned by the firm. This ratio is computed by dividing net income by total assets. In 2009 ROA was 8.95% which shows effectiveness of management in generating profits with its available assets. In 2010 and 2011 it was respectively 9.39%, 9.93%. As well as from 2009 to 2011 there were negative profit; firm could generate profits with its available assets.
Return on Equity (ROE): The ratio of net income to common equity; measures the rate of return on common stockholder‟s investment. This ratio is calculated by dividing net income by
total stockholder equity. In 2009 SAIC earned 21.69% of return on its equity. In 2010 and 2011 it was respectively 21.69%, 24.81%. From 2009 to 2011 the figure went into positive, the return earned on the common stockholder investment in the firm were positive. In 2011 return generate from the past years.
Current Ratio: This ratio is computed by dividing current assets by current liabilities. It indicates the extent to which current liabilities are covered by assets expected to be converted to cash in near future. In 2009, 2010 and 2011 it was respectively 1.91 times, 1.87 times, 2.20 times. In 2009 company current assets comfortably exceeded it‟s the current liability but it was below the standard. In 2010 company current ratio was decreased it was also below the standard; and in 2011 company current ratio was increased it was the standard it means firm‟s was able to meet its short term obligation.
Return on investment (ROI): It measures the gain or loss generated on an investment relative to the amount of money invested. ROI is usually expressed a percentage and is typically used for personal financial decisions, to compare a company's profitability, or to compare the efficiency
of different investments.
Risk Management Plan:
Risk in e-commerce: We are aware that e-commerce is not a fad; we are here to stay. We do believe that today, it is an organization‟s ability to understand and manage the full spectrum of risk which further bifurcates the boundary between success and failure, more so when all government and private organizations depend, to a large extent, on information technology. Criticality criteria of e-commerce: we will focus on the protection of customer interest, total up-time (obviating down-time), security of payment gateway, credentials during log-in and log- out, protecting the financial position from damage to reputation, setting standards of corporate governance, keeping a record of accountability and avoiding data degradation. Also included are critical appliances partnership and contracts, enhanced credibility, external evaluations and audit, 360-degree management enhancement, business continuity, real-time decision-making, social responsibility, customer decision-making, loop inducting, motivation and need recovery,
information search, alternative evaluation, purchase decision and outcomes (purchase/performance/feedback/execution), repeat purchase and brand loyalty need to be addressed.
Risks in e-commerce projects: we are well aware of that E-commerce projects are risk-prone mainly due to complexity and integration challenges. Business service exchanges, sharing of database, registry and repository have perpetuated risks. Cost over-runs, choosing the wrong solution, implementation problems etc, are also risk factors in e-commerce projects. However, by using risk management procedures, companies learn to balance their risks with desired outcomes, hence making projects successful.
Risk management in e-commerce: Risk is a problem waiting to happen and the goal of risk management is to make this inherently risky process of applications development successful and consistent. A risk management approach is crucial to success in e-commerce; the need is for proactive risk mitigation both in planning and in development. In the development of a new technical system or project, there is a constant need to minimize uncertainty and errors, which accompany an unprecedented endeavor.
A project manager can never manage risks to the point of eliminating them altogether. Only proven methods of risk management and strategic plans can be used to draw up and identify or monitor, and thus, mitigate risks.
Broad guidelines: There is a framework to assess, manage and plan risk involves identification, analysis, envisaging consequences, planning, tracking and control. The broad guidelines may or may not follow a sequential pattern as given above. However, the individual components are explained below.
Identify risk: Risk is assessed at all the stages of a project; it can be attributed to factors such as non-executive support or users‟ resistance to change. In such a case, the project team should be proactive and not reactive, as the risk may reach a threshold and might be uncontrollable.
Analyze risk: The way to go about it is to analyze, prioritize and communicate risk so that the project team and the user are aware, and an alternative or contingency can be implemented.
Envisage consequences: It is easier said than done, it is here that most project leaders or even team members forget about this factor. Forethought and perceptual thinking will help in evaluating the future of a particular risk factor.
Plan for risk: All the three factors mentioned above obviate the requirement of planning, which can be classified into immediate, urgent and essential based on the degree of risk—high, medium and low respectively.
Track risk: We generally tend to ignore the importance of tracking risk; documentation is also another tool that helps in tracking.
Controlling risk: Risk management works hand-in-hand with project management processes, controlling risk is not at all difficult if a systematic approach is taken with sequential preparation and plans.
The most important aspect to mention in risk management is that, it is not done once, but requires scheduled periods along the way to ensure that there is a constant re-evaluation of the risk. Risk management needs to be an ongoing process to be successful. If you don‟t keep up the pressure, the risks will always win. Hence, it is a „go-go‟ situation and not a „no-no‟, „no-go‟ or a „slow-go‟ situation.
From another perspective, we see managing risk in e-commerce and projects under two holistic heads, „physical aspects‟ and „psychological aspects
Physical aspects: The physical aspects include risk management planning, plan verification, risk forethought, scope of risk management organization, risk identification, qualitative and quantitative analysis, proposal planning and monitoring and control.
Psychological aspects: The psychological aspects are as follows: -
Impulsive decisions: Impulse-driven decisions during the course of the project will increase risk in e-commerce projects.
Result psychosis: The need to attain results is influential in the decision-making process during the course of planning, development and implementation.
Zero error syndromes: Project managers tend to lose faith in their subordinates or fear that the assigned task may not be accomplished with the desired quality or time frame. Further, the project manager may end up accumulating risk in the course of the project. Risk assessment:
Risk management can be simplified as risk assessment plus risk mitigation. Risk assessment is as important as mitigation. What we do is take the risks that are discovered in step one and give them a designation of high, medium or low risk. Further one needs to think and quantify about each risk‟s possible overall impact.
Project management is a continuous process; hence laxity in risk management will culminate in losses. We can coin a term Daily Loss Expectancy (DLE) that can be evaluated on a day-to-day basis. This helps in quantifying losses in terms of miss-management of risks.
Daily Loss Expectancy (DLE) = Likelihood of failure (L)/failure mitigation possibility (M) -Both the variables are quantified in percentage.
-DLE ranges between 1 and 9. -The ideal value of DLE is 1. -If 3>=DLE>1, then DLE is low. -If 6>=DLE>3, then DLE is medium. -If 9>=DLE>6, then DLE is high.
-If DLE<1, then the evaluation is not realistic.
Selecting the right people will reduce risk manageability issues. The ability of selecting the most suitable project manager is a major factor that affects management of risk in e-commerce projects, mitigating risk calls for unconventional ways of planning and execution.
Concluding Remarks: