Key components of a business plan, Gantt charts and critical path analysis (Business Management HL)

Page three of the Station Road plan: In 6.5.1 the bank asked Lena and Marco for their plan for a fourth shop, and you saw its order: the summary, the business, the market, how it will work, the finance, the risks.

Now open it. The loan officer turned straight to page three, the market. If nobody buys, no other page matters.

The market analysis answers one question: who will buy, and how many of them are there? It holds the evidence, from research the bakery did itself (primary research, 4.4.1) and from figures others had already published (secondary research, 4.4.2).

The marketing plan comes next. The market analysis says who the customers are; the marketing plan says how the shop will win them. It sets out the marketing mix (4.5): what the shop sells, at what price, where and when, and how people will hear about it.

The foundation: Every number later in the plan starts from the sales forecast, and the sales forecast starts here. A market section built on real evidence makes the whole plan believable.

After the market, the bank had a second worry: can the bakery actually make and sell all this? Two components answer it. The operations plan says how the products are made and delivered. The human resources plan says who will do the work.

A plan that sells more than it can deliver: Writing the operations plan showed a problem: two vans reach three shops by opening time (3.2.1), and four shops do not fit.

So the plan had to say what happens: lease a third van for $750 a month. An operations plan that skips a problem like this makes the sales forecast impossible to deliver.

The human resources plan (a workforce plan, 2.1.1) sets out the people: how many are needed, with what skills, how they will be recruited and trained, and who manages them.

Why the bank reads these pages: A lender does not need to know how to bake bread. It needs to see that someone has worked out how the bread gets made, carried and sold on time, and by whom.

If these pages are vague, the sales forecast may be right and the business may still fail to deliver it.

The page the bank checks twice: The market pages say people will buy. The financial plan turns that into money: what the project costs, where the money comes from, and whether the cash will cover the repayments.

Of all these, the cash-flow forecast matters most to a lender, because a shop can make a profit over the year and still run out of cash in one month. Here is Marco's forecast for the first three months after opening, in thousands of dollars.

A chain of numbers: The market analysis gives the sales forecast. The sales forecast gives the cash in. Cash in, less the costs, shows whether the loan can be repaid.

Change the first number and every number after it moves.

A plan that only shows the good news is hard to trust. The risk assessment lists what could go wrong and what the business would do about each problem.

Risks make a plan more believable: A plan with no risks looks as if nobody looked for them. Each risk named with its response shows the lender that the owners have thought ahead.

The responses are a plan B for each risk (a contingency plan).

Two short components sit at the front. The business description says who is asking: Lena's Bakery Ltd, a private limited company run by its directors Lena and Marco, with three shops, a bakehouse and the objective of eight shops within five years (1.3.2). The executive summary then gives the whole plan in brief; it is written last, once every other component exists (6.5.1).

The test of a good plan: Every component tells the same story. The market supports the sales forecast, operations and people can deliver it, the finance shows the loan is repaid, and the risks say what happens if it is not.

Fourteen weeks to opening day: Once the bank agreed the loan, Marco had six jobs to fit in before Station Road opened in September: the lease, the builders, the staff, their training, the leaflets and a tasting week.

He counted back from the opening day, and drew the jobs on one page.

A Gantt chart is a bar chart of a project. Each task is one row. Its bar starts when the task starts and ends when it ends, measured along a timeline in days, weeks or months. It is named after Henry Gantt, the engineer who made it popular more than a century ago.

Bars for time, not for links: A Gantt chart answers what happens when. To see which tasks must wait for which, and which ones can slip, Marco needs a second tool: critical path analysis.

Critical path analysis (CPA) shows a project as a network. Each task is a line, drawn in the order the tasks must happen. The lines meet at circles called nodes: a node is the moment one task ends and the next can begin. You will be given the outline of the diagram and asked to complete it.

A, B and F: 14 weeks: The critical path runs A, B, F: sign the lease, fit out the shop, run the tasting week. Along it, every task starts the moment the one before ends.

So the minimum project time is 3 + 10 + 1 = 14 weeks, the EST at the last node. A week lost on the fit-out is a week lost on the opening day.