Module 4

BUSINESS PLANNING
ENT550
MODULE 4 :
THE OPERATIONS PLAN
Entrepreneurship Dept, FBM

(2009)
ETR/ENT300 MODULE 9 : The Operations Plan
LEARNING OUTCOMES
At the end of the module, students should be
able to:
understand the concept of operations
function in business
understand the topics that are included in an
operations plan
prepare an operations plan for their proposed
project

(2009)
INTRODUCTION
Operation is one of an important function in a
business organization
Managing operations is crucial to make sure
that the business is able to produce product or
deliver services according to the specification,
quality and time specified by the customer
Operations management can be defined as the
process of marshalling business input to
transform them into output in the form of product
or services
(2009)
COMPONENTS IN AN OPERATIONS SYSTEM

The components of an operations system that is
involved in the transformation of business input into
output comprises of the following:
Business Input
Transformation Process
Output
Feedback
External Environment

(2009)
SCHEMATIC DIAGRAM OF AN OPERATIONS SYSTEM

The components of an operations system can be
portrayed in the schematic diagram as shown below:
External Environment Factors
Input
Transformation
Transformation
Process
Process
Output
Feedback

(2009)
OPERATIONS PLAN
The operations plan is the one of the section
that is included in the business plan
This section will demonstrate the operational
aspect of the business that is crucial in
transforming the business input into output
The operations plan will ensure the business is
able to produce the product or to provide the
services that the business had planned in the
marketing plan

(2009)
The operations plan comprises of the

following topics:
Process Planning
Operations Layout
Production Planning
Material Planning
Machine and Equipment Planning
Manpower Planning
Overheads Requirement
Location Plan
Business and Operations Hours
License, Permits and Regulations Required
Operations Budget
Implementation Schedule

(2009)
PROCESS PLANNING
Process planning involve the identification of the
step-by-step processes from beginning to end in
making the product or in providing the services
For manufacturing business, the processes
involved will be explained clearly such as the
activity involved, its duration and the equipment
used
For service business, the process planning will
explain all the steps that should be taken from
start to finish to provide the service to the
customer
(2009)
PROCESS PLANNING (cont.)

The step by step processes can be illustrated
using diagram such as a flow chart or a process
chart
The process chart will use symbols that are
universally recognized in the operations
management field
These symbols are also used in the job activity
chart to show a workers activity

(2009)
Symbols Used in the Process Chart

Symbol
Activity
Description
Operation
Activity that modify, transform or

give added value to the input
Transportation
Movement of material of goods

from one place to another
Inspection
Activity that measure the standard

or quality
Delay
Process is delayed because in

process materials are waiting for
next activity
Storage
Finished product or goods are

stored in the storage area or
warehouse

(2009)
10
FLOW CHART FOR THE PRODUCTION OF MIXED

FRUITS JELLY
Transfer the fruits from the store to the production area
Check the quality of the fruits and segregate the bad fruits
Clean the fruits under running water
Put the fruits into the fruit chopper for chopping process
Put the chopped fruits into the boiler for steaming process
Use electric ladle to stir the fruit until the fruits change into pulp
Add ten parts of water into the mixture

Boil the mixture for 90 minutes
(2009)
11
ACTIVITY CHART FOR WEB DESIGNING SERVICES

Greet the client
Invite the client into the discussion room
Get the relevant information from the client
Brief the client about terms and conditions
Get the agreement from the client regarding terms and
condition
Send the client to the door
Work on the design of the web
Make a presentation to the client
Get the feedback from the client
Make the amendment accordingly

(2009)
12
OPERATIONS LAYOUT
Illustrate the layout of the operations
Layout refers to the arrangement of machine,
equipment, workers and other facilities used in
the operations
The layout must be design in such a way that
the production of goods and services can be
done smoothly and efficiently
There are three types of layout:
Layout based on process
Layout based on product
Layout based on marketing
(2009)
13
TYPES OF LAYOUT
Layout based on product
This type of layout is suitable for a business that
has product focus or continuous flow production
The design of this layout is made according to
the sequence of activities to product the product
Example of a business that have this kind of
layout is a food processing factory

(2009)
14
TYPES OF LAYOUT (CONT.)

Layout based on process
This layout is suitable for a business that
produce several products using similar
processes
This type of layout is design based on the
similarity of processes where by machine and
equipment that perform similar function will be
grouped together
Example of business with this type of layout is a
steel workshop and a tailor store

(2009)
15
TYPES OF LAYOUT (CONT.)

Layout based on marketing
This layout is designed with an intention to
maximized the area available to display goods
Examples of layout based on marketing can be
observed in the retail business such as book
store or departmental store

(2009)
16
Office
Fruits Cleaning Area
Receiving
Area
Washing Area

(2009)
Fruits Chopper
Steaming
Finished
Goods
Storage
Filling Area
EXAMPLE OF LAYOUT BASED ON PRODUCT
17
EXAMPLE OF LAYOUT BASED ON PROCESS

Office
Milling
Machine
Grinding
Machine
Drilling
Machine
Tool
Room
Storage
Area

(2009)
18
EXAMPLE OF LAYOUT BASED ON MARKETING
Store
Aisle
Aisle
Aisle
Pastry Products
Frozen Food
Cashier

(2009)
19
Example of Layout in a Restaurant
Cashier
Food
Counter
Store
Kitchen
Dining Area
Toilet

(2009)
Beverages
Food Display Counter
20
PRODUCTION PLANNING
It is important to make sure that the business is able to

produce output or to provide services that is enough to
fulfill the expected market demand or sales
This can be achieved by having a good production
planning
In production planning, the business will determine how
much output to produce for a certain period of time such
as in a day, a week or a month
The business may need the information from the
marketing plan, e.g. average sales forecast

(2009)
21
EXAMPLE OF CALCULATION FOR OUTPUT PER DAY

Average sales forecast per month= RM 25,200.00
Price per unit
= RM 15.00
Number of output per month
= RM 25,200.00
RM 15.00
= 1,680 units
If the number of working days per month is 24 days
The amount of output to be produced per day is:
= 1,680 units
24 days
= 70 units per day

(2009)
22
MATERIAL PLANNING
Material planning is done to determine the type
and amount of raw materials need for the
production
Material planning involved four steps:
Identify and list down the raw materials
required
Prepare the Bills of Materials
Calculate the quantity of raw material
required
Identify the suppliers of raw materials

(2009)
23
IDENTIFY AND LIST DOWN THE RAW

MATERIALS REQUIRED
Usually in manufacturing business, the raw
materials used is easily identified
For example, to manufacture pencils, raw
materials needed are hollow wood, lead, eraser,
metal band, paint, glue and packaging box
In case of retail business, the raw materials is
known as goods. The business need to estimate
the amount of initial goods to be purchased to
start the business operation

(2009)
24
Prepare the bills of materials

The bills of materials will contains a complete
list of materials, parts or components and the
amount needed to produce a unit of product
To prepare the bill of material, the entrepreneur
must understand the design of the product
This bill of material is important information for
purchasing activities

(2009)
25
EXAMPLE OF BILLS OF MATERIALS
To produce a unit of pencil, the bills of materials is as

follows:
Product No.
Description
101
Half hollow wood
17 cm long
102
Lead
17 cm long
1.5mm diameter
103
Eraser
0.75 cm long
6mm diameter
104
Metal band
2 cm long
105
Paint
0.5 ml
106
Glue
0.5 ml

(2009)
Specification
Quantity
26
Examples of Materials Requirement

Schedule
Material
Quantity
Safety
Stock
Total Material
Requirement
Price /
unit
(RM)
Total price
(RM)
Flour
50 Kg
5 kg
55
1.2
66
Sugar
50 Kg
5kg
55
2.8
154
Eggs
200 units
20
220
0.15
33
Corn Syrup
100 Liter
10
110
330
Margarine
100 Kg
10
110
220
Total

(2009)
803
27
MACHINE & EQUIPMENT PLANNING

Steps to determine
requirement:
machine and equipment
1. List out all machine and equipment required

base on the process flow chart or process plan
2. Determine the amount of machine and
equipment required based on the venture
capacity requirement
3. Identify the suppliers that are reliable in term of
price and after sale services

(2009)
28
FACTORS TO BE CONSIDERED IN
PURCHASING MACHINE AND EQUIPMENT
Price
Quality and reliability
Availability of spare parts
Break down maintenance facility
Technology & user friendly
Supplier reputation
After sale services

(2009)
29
EXAMPLES OF MACHINE & EQUIPMENT

REQUISITION PLANNING SCHEDULE
No.
Machine
1.
Mixer
2000
2000
2.
Cutter
1000
2000
3.
Cash Register
1500
1500
Total
5500

(2009)
Quantity Price / Unit Total Price

(RM)
(RM)
30
STEPS TO DETERMINE QUANTITY FOR

MACHINE & EQUIPMENT
1. Determine the planned rate of production per day
2. Determine the standard production time per unit
for the planned machine
3. Determine the machine productive time:
Operation hours (Setting up time + Down Time)
4. Calculate the amount of machine required using the
formula given in the next slide

(2009)
31
FORMULA TO CALCULATE THE

AMOUNT OF MACHINE REQUIRE
No. of
Machine =
Required
Planned Rate of Production per day

Machine Productive Time per day

(2009)
Standard
Production
Time / Unit
32
MANPOWER PLANNING
Steps to determine the amount of direct labor
required by the venture:
1. Determine the planned rate of production per day for
the particular section of job
2. Determine the standard time for a worker to produce
one unit of product or to complete a particular job
3. Determine workers productive hours:
Working hours per day rest time or workers idling
time
4. Calculate the amount of direct labor required
(2009)
33
Formula To Calculate the amount of direct

labor required
No. of
Planned Rate of Production per day
Worker Standard
X
Worker =
Production
Worker Productive Time per day
Required
Time / Unit

(2009)
34
EXAMPLE OF DIRECT LABOUR

PLANNING SCHEDULE
No
Position
No. of
Staff
Required
Salary/
Month
(RM)
EPF
(RM)
13 %
Operation
Manager
2000.00
260.00
Socso
(RM)
2%
Total
(RM)
2260.00
2
Total

(2009)
35
OVERHEADS REQUIREMENT
Determine the overheads that are required in
the operations
Overheads refers to requirements other than
direct raw materials and direct labour
Examples of overheads are indirect labour
costs,
indirect
material,
insurance,
maintenance and utilities

(2009)
36
LOCATION PLAN
The entrepreneur has to make decision which
premise is the best for the business to operate
Choice of location is important because it will
affect:
Sales revenue
Business operation cost
Long term investment

(2009)
37
FACTORS THAT INFLUENCE THE CHOICE

OF LOCATION
1.
MANUFACTURING ACTIVITY
Priority should be given to the cost factors
In manufacturing cost saving would contribute to profit
2.
SERVICE ACTIVITY
In service priority should be given to distance from
market or customers.
Distance from customers will influence sales revenue
In service business cost saving may not contribute to
sales revenue
Increase in revenue will contribute to increase in profit

(2009)
38
FACTORS TO BE CONSIDERED FOR CHOICE

OF LOCATION
Distance from raw
material / suppliers
Labor supply
Transportation
Price of Land or
rentals
Infrastructure
Climate
(2009)
Local Government
Policy
Security
Facility for expansion

and business
development
39
BUSINESS AND OPERATIONS HOURS

Business hours refer to the time the business is
open to the customers
Operation hours refer to the hours the workers
have to work.
For manufacturing, usually the business will
operate on 8-hours per shift. Thus the
entrepreneur will only decide whether the
business will runs for one shift or more. This
will depends upon the planning for production

(2009)
40
BUSINESS AND OPERATIONS HOURS (cont.)
For service business, the entrepreneur will has to state

the business hours in terms of days and hours
For example, a restaurant may open to the customer

from 7 a.m. to 10 p.m. every day
However, the operations hours for the workers will be

different
The working hours may be from 5 a.m. to 12.a.m
The entrepreneur may have 2 shifts for the workers;

the first shift will starts from 5 a.m. to 3 p.m. and the
second shift starts from 3p.m. to 12 a.m.

(2009)
41
LICENSE, PERMITS AND REGULATIONS
Find out and list down all the license/permits/

regulations that are required to operate the
business
Identify which agency is responsible to approve
the particular license/permit
For example, a restaurant among others will need
the following license/permit/regulations:
License for signboard
Permits for emigrant workers
Typhoid injection for the workers
(2009)
42
OPERATIONS BUDGET
The business need to estimate the budget for
the operations activities
The operations budget can be categorized into:
Fixed asset expenditure
Monthly expenses
Other expenses
This operation budget is important because it
will be one of the input to prepare the financial
plan
(2009)
43
OPERATIONS BUDGET (CONT.)

Fixed Asset Expenditure
Refers to the investment on long term assets
used in the operations to produce the product
or services
Examples are the purchase of machines and
equipment
Monthly Expenses
Refers to the payment made every month in the
operations department
Examples are wages for workers and raw
materials purchased
(2009)
44
OPERATIONS BUDGET (cont.)

Other Expenses
These are expenses that are made and could
not be categorized as fixed asset expenditure
or monthly expenses
Examples are deposits and insurance

(2009)
45
EXAMPLE OF OPERATIONS BUDGET

Item
Fixed
Asset
Machine and Equipment

Factory Renovation
Raw Materials
Wages + EPF + SOCSO
Utilities
Factory Rent
Deposit for rent
Deposit for utilities
RM 35,500
RM 45,000
Total
RM 80,500

(2009)
Monthly
Expenses
Other
Expenses
RM 20,000
RM 6,500
RM 600
RM 3,000
RM 6,000
RM 1,000
RM 30,100
RM 7,000
46
IMPLEMENTATION SCHEDULE
Implementation scheduling involves sequencing
and allotting time to all project activities
To prepare implementation schedule, entrepreneurs
has to decide how long each activity and compute
the requirement on people and other resources
Scheduling normally use Gantt Chart which is a
planning chart used to schedule resources and
allocate time

(2009)
47
THE IMPORTANCE OF PROJECT

SCHEDULING
Project scheduling serves several purposes:
1. It shows the relationship of each activity to
others and to the whole project
2. It identifies the precedence relationship
among activities
3. It encourages the setting of realistic time
and cost estimate for each activity
4. It helps make better use of people, money
and material by identifying critical
bottlenecks in the project
(2009)
48
EXAMPLE OF PROJECT IMPLEMENTATION

SCHEDULE
Activities
Deadlines
Durations
Incorporation Of Business
Jan Mac 2009
3 Months
Application For Permits And

License
Jan April 2009
4 Months
Searching For Business Premise
Feb Mac 2009
3 Months
April 2009
1 Month
April June 2009
3 Months
Recruitment Of Labours
June 2009
1 Month
Installation Of Machines
June 2009
1 Month
Renovation Of Premise
Procurement Of Machines And
Raw Material

(2009)
49
END OF MODULE 4

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BUSINESS PLANNING

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

ETR/ENT300 MODULE 9 : The Operations Plan

COMPONENTS IN AN OPERATIONS SYSTEM

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

SCHEMATIC DIAGRAM OF AN OPERATIONS SYSTEM

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

The operations plan comprises of the

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

ETR/ENT300 MODULE 9 : The Operations Plan

PROCESS PLANNING (cont.)

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

Symbols Used in the Process Chart

Activity that modify, transform or

Movement of material of goods

Activity that measure the standard

Process is delayed because in

Finished product or goods are

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

FLOW CHART FOR THE PRODUCTION OF MIXED

Add ten parts of water into the mixture

ETR/ENT300 MODULE 9 : The Operations Plan

ACTIVITY CHART FOR WEB DESIGNING SERVICES

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

ETR/ENT300 MODULE 9 : The Operations Plan

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

TYPES OF LAYOUT (CONT.)

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

TYPES OF LAYOUT (CONT.)

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

Fruits Cleaning Area

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

EXAMPLE OF LAYOUT BASED ON PRODUCT

EXAMPLE OF LAYOUT BASED ON PROCESS

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

EXAMPLE OF LAYOUT BASED ON MARKETING

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

Example of Layout in a Restaurant

Entrepreneurship Dept, FBM

Food Display Counter

ETR/ENT300 MODULE 9 : The Operations Plan

It is important to make sure that the business is able to

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan

EXAMPLE OF CALCULATION FOR OUTPUT PER DAY

Entrepreneurship Dept, FBM

ETR/ENT300 MODULE 9 : The Operations Plan