Understand the relationship between business objectives and structures
Analyse the impact of change on an organisation
Although change may be an inevitable part of doing business, it is not always embraced with open arms by employees, managers or business owners.
Workers may be hesitant to leave the familiarity of their comfort zone or fear that they won't be able to adapt to the change.
While the short-term effects of change can sometimes be painful, it can have a positive impact on a business' success in the long run.
Staying Current
Change can help a business stay current with industry trends, which can make it more attractive to potential customers as well as help maintain current customers. For example, if a competitor develops and markets a successful new product, a business can ensure that it doesn't fall behind by developing and marketing a similar product of its own.
New Opportunities
The ability to embrace change can help employees in a business by creating new opportunities. A worker who enthusiastically applies herself to learning the new office computer system can also train others who are more hesitant. By assuming this leadership role, the employee may position herself as someone who is capable of assuming additional responsibilities, making her a possible candidate for future promotion.
Encouraging Innovation
Businesses that are adept at handling or even embracing change can foster an environment that encourages innovation. Employees who feel that their ideas will be considered by a manager or business owner may be more willing to think creatively, which can help a business grow. One good product or marketing idea can make a big difference in the success of a small business.
Increased Efficiency
Change can increase the efficiency of work processes, which can make for more satisfied customers as well as employees. A new delivery process can increase the speed in which a customer receives merchandise. Switching to a computerized payroll process may mean that a salesperson is paid his commissions sooner. A new piece of machinery can aid a worker in speeding up a portion of the production process in a factory.
Improved Attitudes
A philosophical or personnel change in an organization can have a positive effect on employee attitudes and morale. A change in human resources philosophy that allows for a more relaxed work environment, such as implementing a casual dress code, may be welcomed by employees. When a close-minded manager is replaced with one who is open to new ideas, employees may feel that they have more input regarding their job functions.
Assess how an organisation structure contributes to its objectives
Organizational structures can inhibit or promote performance, depending how effectively the supervisory relationships and workflow influence productivity. These define departmental structure and the reporting hierarchy. Performance management involves goal-setting activities and periodic reviews by managers in the reporting hierarchy. Without defined policies and procedures that are consistently enforced throughout the organization, performance management strategies can fail to achieve their desired goal of improving product and service quality for end-user customers.
Purpose
Steps associated with performance management include reviewing organizational goals, prioritizing work, specifying targets, identifying specific measures and metrics, aligning employees’ goals to the company’s strategic objectives and defining standards. For example, you may institute a rating system with three levels: below expectations, meets expectations and exceeds expectations. Managers conduct appraisals and develop plans to address any gaps in performance as well as rewarding exemplary behavior in the organization, which could lead to promotions, lateral moves or expansion of responsibilities.
Entrepreneurial
In an entrepreneurial organization, your company typically has a simple, flat structure. This type of organization is relatively unstructured and informal, so performance management also may need to be flexible. There’s significant risk to achieving strategic goals if employees have no replacement or backup, should they leave or fail to meet performance objectives for whatever reason.
Bureaucratic
In a bureaucratic organization, work is very formalized, with many routines, policies, procedures and standards. Clearly articulated job descriptions and job levels establish a well-defined career path in each functional area of the company. Usually, there are fairly rigid vertical structures, so a performance review typically results in a promotion within the department but usually not into other departments, limiting growth and development.
Professional
In a professional organization structure, highly-trained individuals, such as service providers, perform work independently. Workers have a great deal of autonomy over their own performance. Because authority and power get shared, performance management may be inconsistent. Changes may be hard to implement when everyone controls his own work.
Divisional
In a divisional organization, a central headquarters supports several autonomous divisions or departments that make their own decisions and may have their own performance management policies, procedures and standards. If your company has a wide range of products and services, operates in many different locations or supports many different types of customers, you may need this type of flexibility in performance management. Conversely, this may lead to conflict if employees feel they are being treated unfairly.
Innovative
In innovative organizations, few rules exist. Their project-based organizational structure adjusts to market demands. Performance management in this environment tends to be informal. These types of companies frequently maintain a core set of employees but hire contingent workers as needed. Performance reviews and career development usually are not provided to contingent workers.
An organizational structure defines how activities such as task allocation, coordination and supervision are directed toward the achievement of organizational aims.
Organizations need to be efficient, flexible, innovative and caring in order to achieve a sustainable competitive advantage.
Organizational structure can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.
Organizations are a variant of clustered entities.
An organization can be structured in many different ways, depending on its objectives.
The structure of an organization will determine the modes in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup, and individual.
Organizational structure affects organizational action in two ways: it provides the foundation on which standard operating procedures and routines rest.
it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization’s actions.
Role of Organizational Structure on Effectiveness and Performance
Organization is uniform, structured and co-ordinate effort for achievement of economic/financial objectives for profit seeking firms and social for non-profit Organizations. To Satisfy Objectives, organization channel employee endeavors in unified direction and establishes means of allocating resources/responsibilities and control under arrangements referred as structure. Designing structure that fits company needs is a major challenge. Each structure has its advantages and disadvantages on how it contributes to its effectiveness, and organization has to mull over the decision on what structures it follows, plus the autonomy organizations provide to its employees for purpose of decision making.
Definition of Organizational Structure
Buchanan and Huczynski (2004) define structure as:
"A formal system of task and reporting relationships that controls, co-ordinates and motivates employees so that they work together to achieve Organizational goals"
Thus structure is synonymous to a rope that employees hold and binds all employees towards unified direction and aids the identification of Who is Who and What is What of organization. Structure serves as basis for orchestrating organizational activities. Organizations shall understand importance of structure in carrying out business operations. Organization can choose from variety of structure like, functional, divisional, project teams, holding companies and matrix structure. Failure to choose an effective structure has it consequences on organization as it will not only affect health of the organization it will also affect employees loyalty, motivation at work and job satisfaction, thus organization when deciding for designing structure needs to take care of all aspects that relates to people and working of organization.
Mullins (2005) emphasizes that structure affects both productivity and economic efficiency and also morale and job satisfaction. Important notion stemming from Mullins assertion is that good structure will not only have tangible effects i-e financial but in-tangible affects like motivation thus impacting organizations' operational effectiveness as employees carry out operations/tasks of organization.
Role of Organizational Structure in Strategy Implementation
Bloisi (2007) highlights importance of structure as a mean of getting people work towards common goals thus acting as facilitator in pursuit of organizational goals. Looking simple but organization will have to make sure that employees identify with organizational thoughts and willingly forgo personal interests. Thus putting greater burden while designing structure which accommodates employees and harnesses an environment where staff takes organizational goals as their own and share believe of being valued through their work, hence good structure should provide right blend of command and control plus employee independence without feeling of resentment that hinders organization pursuit of its mission.
Superior structure promotes cultural values; cultivate integration and coordination as it seeks to strengthen relationship of individuals and tasks. Jones (2007) notes that from this relationship emerge norms and rules contributing to improved communications and common language that improves team performance. Contrary to Jones, Turner (2006) points to structure as primary reason why organization struggle with cultural change as these structure often box people in old styled formations which are not aligned to new business philosophies.
Evaluate how an organisation’s structure affects its internal operation
By looking at three different organizational structures – functional, matrix and projectised – we will discover how each distinct organizational style affects project management.
Functional Organizational Structure. These firms are organized into functional divisions based on primary functions such as engineering, human resources, finance, IT, planning and policy. Each different functional division operates independently and isolated groups of workers in a division report to a functional manager. The functional manager generally both allocates and monitors the work and carries out tasks such as performance evaluation and setting payment levels. In this model project managers have very limited authority. Functional organisations are set up for ongoing operations rather than projects and so this organisational structure is often found in firms whose primary purpose is to produce standardised goods and services.
Matrix Organizational Structure.In a matrix organisation control is shared. The project manager shares responsibility for the project with a number of individual functional managers. Shared responsibilities can include assigning priorities and tasks to individual team members. But functional managers still make the final decisions on who will work on projects and are still responsible for administration. Project managers take charge of allocating and organising the work for the designated project team. In this type of structure there is a balance between ongoing operations and projects, so it is a common structure for organisations that have these dual roles. For instance, local body organisations that are responsible for both maintaining existing infrastructure (ongoing operations) and commissioning the construction of new infrastructure (projects) often have matrix structures.
Projectised Organizational Structure. In a projectised organisation the project manager has full authority over the project. This includes the authority to set priorities, apply resources, and to direct the work of team members assigned to the project. All members of the project team report directly to the project manager and everybody is assigned to a project. After completion of the project, resources will be re-assigned to another project. This type of structure is common in firms that work on sizeable, long-term projects, such as in the construction industry.
Organizational structure defines the supervisory relationships, departmental structure and workflow within a company.
Performance management involves the systematic improvement of individual and team performance through goal-setting and regular performance reviews.
Performance management systems and policies can be greatly influenced by a company's organizational structure, and organizational performance goals can help to shape a company's structure, as well.
Understanding the interplay between these two concepts can help you to design the most effective performance management systems for your organizational structure.
Structure and Performance
Organizational structure focuses on the layout of departments and job roles in a company in the context of reporting relationships. A company's structure can be drawn as a top-down flowchart, with each connected node representing a different position in the company that reports to the position above it and possibly supervises the positions directly below it. Since performance management revolves around the relationships between supervisors and their subordinates, organizational structure can provide guidance on which positions should include responsibility for monitoring and reviewing the performance of people in other positions.
Reporting Relationships and Performance Reviews
Organizational structure delineates who reports to and receives instructions from whom. This in turn affects the ways in which performance reviews are handled. If your organizational structure features a tall hierarchy, for example, individuals are likely to work closely with a departmental supervisor who helps them to set performance goals and performs an annual review of progress toward those goals at least once per year. If you have a flatter hierarchy, on the other hand, performance goals are more likely to be set by employees themselves, while 360-degree feedback is more likely to be used to monitor individuals' progress. Design performance review policies around the structure of reporting relationships in your company to make individual performance feedback more relevant to organizational goals.
Team vs. Individual Performance
Organizational structure can influence whether performance-management systems focus on individual or team performance. Traditional departmental structures with redundant job roles can lend themselves well to individual performance reviews. In an accounting department with five accounts-receivable clerks, for example, it would be more logical to review each clerk's individual performance and contributions to the department than review the team as a whole. In organizational structures featuring close-knit, cross-functional teams, on the other hand, it can be more meaningful to assess performance for the group as a whole. In a team-oriented structure, managers must choose between using team performance to make decisions on individual compensation or to combine individual and group considerations to ensure fairness to top performers.
Remote vs. In-House Employees
The distribution of in-house and remote job roles in a company is defined by organizational structure, and it can impact a few practical considerations in performance management. In many cases, remote or work-at-home employees can find themselves at a disadvantage in performance reviews. It can be challenging to accurately track how much overtime a remote employee puts into a special project, for example. Remote employees can find fewer opportunities to help others, provide strategic input in meetings, coach new employees and contribute to team cohesiveness -- all of which can influence the outcomes of performance reviews. Remote employees can also struggle to keep up with new administrative policies as they evolve in the office, which can tarnish others' perception of quality in their work. If you employ a large number of remote employees, design your performance review policies to work around these disadvantages by focusing on individual goals related to individual job roles.
Analyse the relationship between an organisation’s business strategy and a department’s operation
Links Between Strategic & Operational Plans
The process of business planning is made up of several steps.
A strategic plan is used to outline company objectives and to identify the methods in which those objectives can be reached.
An operational plan is the comprehensive way in which each department or division will use its resources to achieve company goals.
Strong links between the strategic plan and the operational plan are needed to allow the company to operate efficiently.
Budgets
The primary financial link between a strategic plan and an operational plan is the establishment of a departmental budget. The strategic plan gives a budget estimate that is based on projected revenue. The operational plan gives a more accurate number that can be used to gauge the success of a strategic plan. If the operational budget is more than the strategic plan provides for, then the company needs to work to bring the two numbers more in line.
Resource Allocation
An operational plan is used to determine job duties and the proper use of company resources, such as equipment and facilities. A strategic plan outlines what kind of resource allocation is needed to achieve the goals of the plan. The operational and strategic plan are then put side-by-side to determine the most effective allocation of resources for each department while pursuing the objectives of a strategic plan.
Performance Management
Operational plans base their needs on performance management numbers. For example, if the manufacturing department is expected to produce 20 units an hour, but the current personnel only allows for 15 units an hour, then that performance management number dictates the need for more personnel. Those performance management numbers are set by the projections in the company strategic plans.
Details
One essential link between the strategic plan and the operational plan is that the operational plan provides the details necessary to execute the strategic plan. For example, if part of the strategic plan involves building a new distribution centre, then the operational plan would go into the details of getting contractors, finding land, obtaining permits for doing business in that state and populating the new facility with employees.
Determine the departmental key performance indicators (KPIs) from a business plan
Communicate organisational vision to others This could be posters, website, social media, logo and tagline Advertising boards, banners, local newspaper, Handbook, radio, promotion.
Mission Statement Examples
Life is Good: To spread the power of optimism.
sweetgreen: To inspire healthier communities by connecting people to real food.
Patagonia: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.
American Express: We work hard every day to make American Express the world's most respected service brand.
Warby Parker: To offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.
InvisionApp: Question Assumptions. Think Deeply. Iterate as a Lifestyle. Details, Details. Design is Everywhere. Integrity.
Honest Tea: To create and promote great-tasting, healthy, organic beverages.
IKEA: To create a better everyday life for the many people.
Nordstrom: To give customers the most compelling shopping experience possible.
Cradles to Crayons: Provides children from birth through age 12, living in homeless or low-income situations, with the essential items they need to thrive – at home, at school and at play.
Universal Health Services, Inc.: To provide superior quality healthcare services that: PATIENTS recommend to family and friends, PHYSICIANS prefer for their patients, PURCHASERS select for their clients, EMPLOYEES are proud of, and INVESTORS seek for long-term returns.
JetBlue: To inspire humanity – both in the air and on the ground.
Workday: To put people at the center of enterprise software.
Prezi: To reinvent how people share knowledge, tell stories, and inspire their audiences to act.
Tesla: To accelerate the world's transition to sustainable energy.
Invisible Children: To end violence and exploitation facing our world's most isolated and vulnerable communities.
TED: Spread ideas.
Where does customer loyalty come from?
Think about those brands that you purchase from over and over, even when there are cheaper options out there. Do you usually fly on a particular airline? Do you buy your coffee from the same place every morning? Do you recommend a specific restaurant whenever out-of-towners ask for suggestions?
Often, the reason we stay loyal to brands is because of their values. The best brands strive to combine physical, emotional, and logical elements into one exceptional customer (and employee) experience.
When you successfully create a connection with your customers and employees, many of them might stay loyal for life -- and you'll have the chance to increase your overall profitability while building a solid foundation of brand promoters.
But achieving that connection is no easy task. The companies that succeed are ones that stay true to their core values over the years and create a company that employees and customers are proud to associate with.
That's where company vision and mission statements come in. A mission statement is intended to clarify the "what" and "who" of a company, while a vision statement adds the "why" and "how" as well. As a company grows, its objectives and goals may change. Therefore, vision statements should be revised as needed to reflect the changing business culture as goals are met.
Check out some of the following company vision and mission statements for yourself -- and get inspired to write one for your brand.
The Difference Between a Company's Mission and Vision
Let's start with a bit of a vocabulary lesson. A mission statement declares an organization's purpose, or why it exists. That often includes a general description of the organization, its function, and its objectives.
A mission statement often informs the vision statement, which describes where the company aspires to be in the future. These two statements are often combined to clearly define the organization's reason for existing and outlook for internal and external audiences like employees, partners, board members, consumers, and shareholders.
So, what does a good mission and vision statement look like? Have a look at the examples below.
17 of the Best Vision & Mission Statement Examples From Real Companies
1. Life Is Good: To spread the power of optimism.
The Life is Good brand is about more than spreading optimism -- although, with uplifting T-shirt slogans like "Seas The Day" and "Forecast: Mostly Sunny," it's hard not to crack a smile.
There are a ton of T-shirt companies in the world, but Life is Good's mission sets itself apart with a mission statement goes beyond fun clothing: to spread the power of optimism. This mission is perhaps a little unexpected if you're not familiar with the company's public charity: How will a T-shirt company help spread optimism? Life is Good answers that question below the fold, where what the mission means is explained in more detail, with links to programs implemented to support it: its #GrowTheGood initiative and the Life is Good Kids Foundation page. We really like how lofty yet specific this mission statement is -- it's a hard-to-balance combination.
2. sweetgreen: To inspire healthier communities by
connecting people to real food.
Notice that sweetgreen's mission is positioned to align with your values -- not just written as something the brand believes. We love the inclusive language used in its statement, letting us know that the company is all about connecting its growing network of farmers growing healthy, local ingredients with us -- the customer -- because we're the ones who want more locally grown, healthy food options.
The mission to connect people is what makes this statement so strong. And that promise has gone beyond sweetgreen's website and walls of its food shops: The team has made strides in the communities where it's opened stores as well Primarily, it provides education to young kids on healthy eating, fitness, sustainability, and where food comes from. The sweetlife music festival attracts 20,000 like-minded people every year who come together to listen to music, eat healthy food, and give back to a cause -- the sweetgreen in schools charity partner, FoodCorps.
3. Patagonia: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.
Patagonia's mission statement combines both the values that bring them market success (building safe, high-quality products) and the values that contribute to a better world (philanthropic efforts to help the environment). For the people behind the brand, "a love of wild and beautiful places demands participation in the fight to save them." In the name of this cause, the company donates time, services, and at least 1% of its sales to hundreds of grassroots environmental groups around the world.
If your company has a similar focus on growing your business and giving back, think about talking about both the benefit you bring to customers and the value you want to bring to a greater cause in your mission statement.
4. American Express: We work hard every day to make American Express the world's most respected service brand.
The tweet above is from Simon Sinek, and it's one that we repeat here at HubSpot all the time. American Express sets itself apart from other credit card companies in its list of values, with an ode to great customer service, which is something it’s famous for.
We especially love the emphasis on teamwork and supporting employees, so that the people inside of the organization can be in the best position to support their customers.
5. Warby Parker: To offer designer eyewear at a
revolutionary price, while leading the way for socially
conscious businesses.
Speaking of quirky, this "objective" statement from Warby Parker uses words The longer-form version of the mission reads: "We believe that buying glasses should be easy and fun. It should leave you happy and good-looking, with money in your pocket," which further shows how Warby Parker doesn't hold back on letting its unique personality shine through. Here, the missions statement's success all comes down to spot-on word choice.
Iterate as a Lifestyle. Details, Details. Design is
Everywhere. Integrity.
These days, it can seem like every B2B company page looks the same -- but InvisionApp has one of the cooler company pages I've seen. Scroll down to "Our Core Values," and hover your mouse over any of the icons, and you'll find a short-but-sweet piece of the overall company mission under each icon. We love the way the statements are laid out under each icon. Each description is brief, authentic, and business babble-free -- which makes the folks at InvisionApp seem like trustworthy, B.S.-free types.
7. Honest Tea: To create and promote great-tasting, healthy, organic beverages.
Honest Tea's mission statement begins with a simple punch line connoting its tea is real, pure, and therefore not full of artificial chemicals. The brand is speaking to an audience that's tired of finding ingredients in its tea that can't be pronounced, and have been searching for a tea that's exactly what it says it is.
Not only does Honest Tea have a punny name, but it also centers its mission around the clever company name. For some time, the company even published a Mission Report each year in an effort to be "transparent about our business practices and live up to our mission to seek to create and promote great-tasting, healthier, organic beverages."
8. IKEA: To create a better everyday life for the many people.
The folks at IKEA dream big. The vision could have been one of beautiful, affordable furniture, but instead, it's to make everyday life better for its customers. It's a partnership: IKEA finds deals all over the world and buys in bulk, then we choose the furniture and pick it up at a self-service warehouse.
"Our business idea supports this vision ... so [that] as many people as possible will be able to afford them," the brand states.
Using words like "as many people as possible" makes a huge company like IKEA much more accessible and appealing to customers.
9. Nordstrom: "To give customers the most compelling
shopping experience possible.
When it comes to customer commitment, not many companies are as hyper-focused as Nordstrom is. Although clothing selection, quality, and value all have a place in the company's mission statement, it’s crystal clear that it’s all about the customer: "Nordstrom works relentlessly to give customers the most compelling shopping experience possible."
If you've ever shopped at a Nordstrom, you'll know the brand will uphold the high standard for customer service mentioned in its mission statement, as associates are always roaming the sales floors, asking customers whether they've been helped, and doing everything they can to make the shopping experience a memorable one.
10. Cradles to Crayons: Provides children from birth through age 12, living in homeless or low-income situations, with the essential items they need to thrive – at home, at school and at play.
Cradles to Crayons divided its mission and model into three sections that read like a game plan: The Need, The Mission, and The Model. The "rule of three" is a powerful rhetorical device called a tricolon that's usually used in speechwriting to help make an idea more memorable. A tricolon is a series of three parallel elements of roughly the same length -- think "I came; I saw; I conquered."
11. Universal Health Services, Inc.: To provide superior
quality healthcare services that: PATIENTS recommend to family and friends, PHYSICIANS prefer for their patients, PURCHASERS select for their clients, EMPLOYEES are
proud of, and INVESTORS seek for long-term returns.
A company thrives when it pleases its customers, its employees, its partners, and its investors -- and Universal Health Services endeavors to do just that, according to its mission statement. As a health care service, it specifically strives to please its patients, physicians, purchasers, employees, and investors. We love the emphasis on each facet of the organization, by capitalizing the font and making it red for easy skimming.
12. JetBlue: To inspire humanity – both in the air and on the ground.
JetBlue's committed to its founding mission through lovable marketing, charitable partnerships, and influential programs -- and we love the approachable language used to describe these endeavors. For example, the brand writes how it "set out in 2000 to bring humanity back to the skies."
For those of us who want to learn more about any of its specific efforts, JetBlue's provided details on the Soar With Reading program, its partnership with KaBOOM!, the JetBlue Foundation, environmental and social reporting, and so on. It breaks down all these initiatives really well with big headers, bullet points, pictures, and links to other webpages visitors can click to learn more. Finally, it ends with a call-to-action encouraging website visitors volunteer or donate their TrueBlue points.
13. Workday: To put people at the center of enterprise
software.
Workday, a human resources (HR) task automation service, doesn't use its mission statement to highlight the features of its product or how it intends to help HR professionals improve in such-and-such a way.
Instead, the business takes a stance on the state of enterprise software in general: There's a lot of great tech out there. But at Workday, it revolves around the people. We love how confident yet kind this mission statement is. It observes the state of its industry -- which Workday believes lacks a human touch -- and builds company values around it.
14. Prezi: To reinvent how people share knowledge,
tell stories, and inspire their audiences to act.
If you know Prezi, you know how engaging it can make your next business presentation look. According to its mission statement, the company's clever slide animations and 3-dimensional experience aren't just superficial product features. With every decision Prezi makes, it's all about the story you tell and the audience that story affects.
15. Tesla: To accelerate the world's transition to sustainable energy.
A car company's punny use of the word "accelerate" is just one reason this mission statement sticks out. The main reason Tesla makes this list is because of how its mission statement describes the industry.
It may be a car company, but Tesla's main interest isn't just automobile sales -- it's promoting sustainable energy. And sustainable energy still has a "long road" ahead of it (pun intended) -- hence the world's "transition" into this market.
Ultimately, a mission statement that can admit to the industry's immaturity is exactly what gets customers to root for it. And Tesla does that nicely.
16. Invisible Children: To end violence and exploitation
facing our world's most isolated and vulnerable communities.
Tenacity is hard to come by in the non-profit sector, and that's what makes this mission statement so distinguished. Invisible Children is a non-profit that raises awareness around the violence affecting communities across Central Africa, and the company
The most valuable quality of this mission statement is that it has an end goal. Many companies' visions and missions are intentionally left open-ended so that the business might always be needed by the community. Invisible Children, on the other hand, wants to "end" the violence facing African families. It's an admirable mission that all businesses -- not just non-profits -- can learn from when trying to motivate their customers.
17. TED: Spread ideas.
We've all seen TED Talks online before. Well, the company happens to have one of the most succinct mission statements out there.
TED, which stands for "Technology Education and Design, " has a two-word mission statement that shines through in every Talk you've seen the company publish on the internet. That mission statement: "Spread ideas." Sometimes, the best way to get an audience to remember you is to zoom out as far as your business's vision can go. What do you really care about? TED has recorded some of the most famous presentations in the world, but in the grand scheme of things, all it wants is to spread ideas around to its viewers.
10 tips for communicating vision
Talk about the vision with excitement and enthusiasm.
Tell a story: a story gives context and life to a vision. It m,,akes it memorable
and is easier to repeat.
Identify influencers. Who are the people in the team whose support for the vision
will bring others on board?
Communicate one-on-one continually. Personalise the conversation. Listen to
feedback. Answer questions, honestly. Let people know the important role they
personally play in achieving the vision.
Communicate externally and internally. Customers and suppliers who buy into your vision become part of the team. Bring them on board.
Walk the talk: what do you do that demonstrates the values and the aims of the
vision you have set up for all to believe in?
Make sure people have the opportunity to translate the broad goals of the vision
into tasks, goals and behaviours that build towards the vision.
Share success stories from around the organisation that demonstrate the values
and behaviours that will build towards the vision. Recognition is a powerful reward and reinforces the change you want to see happen.
Create a feedback loop with staff and customers to let you know whether you
remain on track as you move towards the vision.
Consistently and continuously articulate the vision.
Visions with vision from around the corporate world
Qantas – To operate the world’s best premium airline, Qantas, and the world’s best low fares carrier, Jetstar.
Boost Juice – Every Customer will leave a Boost Juice Bar feeling just that little bit better.
Westpac – To be one of the world’s great service companies, helping our customers, communities and people to prosper and grow.
Disney – To make people happy.
Oxfam – A just world without poverty.
Ikea – To create a better everyday life for the many people.
Walmart – To be the best retailer in the hearts and minds of consumers and employees.
Bill Gates – A computer on every desk and in every home.
Amazon – To be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
General Electric – We bring good things to life.
PepsiCo – We aim to deliver top-tier financial performance over the long term by integrating sustainability into our business strategy, leaving a positive imprint on society and the environment.
Understand how the external environment affects business models
Explain the relationship between supply and demand in a business environment
What Is ‘Supply and Demand’ in Business?
‘Supply’ and ‘demand’ are valuable concepts in both business and economics, in their own right. However, put the two together (as supply and demand, or The Law of Supply and Demand) and you now have a world-recognized economic model which defines price determination in a market.
In this article, we’ll be introducing you to the terms ‘supply’, ‘demand’, and ‘supply and demand’ — as well as explaining the concepts to which they refer — in an approachable and informative way What Is Supply? Supply is the amount or quantity of something that providers are willing to bring to the market at a given price.
The supply of a product can be determined by the following factors: The willingness of the provider to take their product to market, influenced by: The demand for the product at a particular price point Forecasts for the future price of the product The ownership of the product The taxes that will be incurred The physical availability of the product, influenced by: The speed at which the product can be produced The efficiency at which the product is created The availability of resources (physical and human) required to create the product The ability to provide the market with the product, influenced by: The legality of the product Trade bans or sanctions The logistics involved in selling the product The supply of a product is an important quantity, because not only does it determine whether or not something can be bought, but also (at least partially) the price at which it can be bought.
What Is Demand? Simply put, demand is the amount or quantity of something that consumers want to buy at a given price. As with supply, there are a number of factors than can influence the demand for a product: The appeal of the product The necessity of the product The price of the product The logistics involved in receiving the product Demand is also a very noteworthy quantity, as it can decide whether or not something will sell and influence the price at which it is bought. So, What Is ‘Supply and Demand’? Supply and demand is an economic model which states that the price at which a good is sold is determined by the good’s supply, and its demand. When the supply of a good is equal to its demand (known as economic equilibrium), it reaches a stable price which buyers and sellers can agree on. If the supply of a good is higher than its demand, then the price will drop (various sellers will have to compete with each other by offering lower prices, which will in turn create more demand), until eventually the supply and demand equalize. When the supply for a good is greater than the demand, it is referred to as a surplus. If the demand for a good is greater than its supply, then the opposite will occur. Suppliers will increase their prices to earn more profit with the products they already have, until eventually the supply and demand reach an equilibrium at some peak price. When the demand for a good is greater than the supply, it is referred to as a shortage. Conclusion Not only are supply and demand two very important factors in a competitive market, but they also make up one of the world’s most popular economic models. Supply is the amount of a good at a given price that can be provided to the market, while demand is the amount of a good at a given price that is desired by buyers in the market. Together, the two form the basis of The Law of Supply and Demand which states that products reach a stable price when the demand is equal to to the supply (known as economic equilibrium). In case of shortages and surpluses, the market is capable of self-correcting by price adjustment. This can mean a number of different things for your business — including how you might have to adjust the prices of products, or how you should be prepared for particularly low or high volumes of sales.
Analyse the relationship between revenue and profit in an organisation
What Is the Relationship Between Total Revenue,
Profit & Total Costs?
Defining The Terms
Total revenue refers to all the money generated through the sale of the company's products or services.
Total costs are all the expenses incurred to generate these revenues and pay for administrative overhead and other expenses such as interest cost and taxes.
Net profit is the amount left over after all the expenses are paid. Net profit margin is net profit for the period divided by total revenue.
Evaluate the impact of the external environment on an organisation’s business model
Political Economic Social Technological Legal Environmental
Five Components of an Organization's External Environment
Organizations don't exist in a vacuum.
Rather, each organization operates in an environment that affects everything, from the availability of skilled workers, to the price of raw materials.
Understanding your organization's external environment helps you proactively take advantage of opportunities and nimbly sidestep threats.
Competition
Whatever your organization or business offers, you'll be well-positioned to succeed, if you have a deep and broad understanding of who else provides similar offerings, or who else has different products or services that can meet the same need. If you run a car service, you're in competition with other car and taxi services, and also with public transportation, ride sharing services, and even bicycle and vehicle-sharing companies. When analyzing your competitive landscape, think in terms of the customer need that you're trying to meet, and list every imaginable way that this need can be addressed.
Economic Landscape
Your external economic environment determines whether people have money to spend and how willing they are to spend it. Consumer optimism about the economy is influential in generating consumer spending, and fear of economic instability prompts them to hang onto their money. Some products and services may actually do better in an economic downturn. If your business offers an affordable staple such as food or clothing, customers may be more likely to choose it over more luxurious alternatives when times are hard.
Consumer Tastes
Customers tastes can be fickle, influenced by fads and trends, among other things. Demographics also influence the types of products that your customers are likely to buy. You can respond to customer tastes by proactively studying your external environment, including evolving trends. You can also take the lead by coming up with innovative products and services which entice customers to want what you offer. Your customers may even become influencers, encouraging their friends to try your offerings as well.
Regulatory Environment
Your organization operates in a landscape of laws and regulations which determine what you can and cannot do. If you vend at farmers' markets selling wine or beer, you'll be more likely to succeed if your local government allows you to sample alcohol, than if sampling is prohibited. Permits and licenses can also be expensive, adding to your cost of doing business. The price of permits and licenses isn't always an obstacle, however. If it is expensive to obtain permits for your industry and you have deeper pockets than your competitors, the permitting environment could actually work to your advantage.
Technology
The technology available to your business affects what you're able to do and how you're able to do it. Digital photography gave photographers the opportunity to snap and choose from a great many more photos, and new medical devices enhance the ways that doctors treat maladies. New technologies can also put your organization at a disadvantage: the introduction of digital photography was catastrophic to some film manufacturers.
Explain the difference between management, leadership and supervision
Difference between a leader and a supervisor
A third difference between supervisors and leaders is the way they are viewed by other workers and the organization as a whole. ...
Thus, a supervisor is normally seen as someone whose orders must be followed, while a leader is someone who takes the initiative and is naturally followed by other workers.
What is Leadership? What is Management?
The words “leader” and “manager” are among the most commonly
used words in business and are often used interchangeably.
But have you ever wondered what the terms actually mean?
What Do Managers Do?
A manager is the member of an organization with the responsibility of carrying out the four important functions of management: planning, organizing, leading, and controlling. But are all managers leaders?
Most managers also tend to be leaders, but only IF they also adequately carry out the leadership responsibilities of management, which include communication, motivation, providing inspiration and guidance, and encouraging employees to rise to a higher level of productivity.
Unfortunately, not all managers are leaders. Some managers have poor leadership qualities, and employees follow orders from their managers because they are obligated to do so—not necessarily because they are influenced or inspired by the leader.
Managerial duties are usually a formal part of a job description; subordinates follow as a result of the professional title or designation. A manager’s chief focus is to meet organizational goals and objectives; they typically do not take much else into consideration. Managers are held responsible for their actions, as well as for the actions of their subordinates. With the title comes the authority and the privilege to promote, hire, fire, discipline, or reward employees based on their performance and behaviour.
What Do Leaders Do?
The primary difference between management and leadership is that leaders don’t necessarily hold or occupy a management position. Simply put, a leader doesn’t have to be an authority figure in the organization; a leader can be anyone.
Unlike managers, leaders are followed because of their personality, behaviour, and beliefs. A leader personally invests in tasks and projects and demonstrates a high level of passion for work. Leaders take a great deal of interest in the success of their followers, enabling them to reach their goals to satisfaction—these are not necessarily organizational goals.
There isn’t always tangible or formal power that a leader possesses over his followers. Temporary power is awarded to a leader and can be conditional based on the ability of the leader to continually inspire and motivate their followers.
Difference Between Leadership and Management
Leadership is a quality of influencing people, so that the objectives are attained willingly and enthusiastically. It is not exactly same as management, as leadership is one of the major element of management. Management is a discipline of managing things in the best possible manner. It is the art or skill of getting the work done through and with others. It can be found in all the fields, like education, hospitality, sports, offices etc.
One of the major difference between leadership and management, is management is for formal and organized group of people only, whereas leadership is for both formal and informal groups. To further comprehend the two concepts, take a read of the given article.
Leadership is a skill of leading others by examples.
Management is an art of systematically organizing and coordinating things in an efficient way.
Basis
Trust
Control
Emphasis on
Inspiring People
Managing activities
Power
Influence
Rule
Focus on
Encouraging change
Bringing stability
Strategy
Proactive
Reactive
Formulation of
Principles and guidelines
Policies and Procedures
Perspective
Leadership requires good foresightedness.
Management has a short range perspective.
Definition of Leadership
The skill of leading a group of people and inspiring them towards a direction is known as Leadership. It is an interpersonal process which involves influencing a person or a group, so as to ensure achievement of objectives, willingly and enthusiastically.
It is not a lesson to be taught, but a quality which is possessed by only a few number of people. The person who owns this quality is known as a leader. A leader is someone who has a large number of people following him, as their inspiration.
Leadership is an activity of guiding and directing people to work together in achieving the objectives. It requires a good vision of thinking across the boundaries.
In an enterprise, you can see a number of leaders who are responsible for the work of their team members. For the achievement of a single objective, the employees of the organisation are divided into teams and each team is assigned a task which they have to complete within the specified time. Each team comprises of a leader who is appointed on the basis of merit cum seniority.
In the business environment, leadership is not only limited to persons, but an organisation can also attain leadership in the market by defeating its competitors. Leadership can be in terms of product, market share, brand, cost, etc.
Definition of Management
The word management is a combination of four terms, i.e. man+age+men+t (technique). In this way, management refers to a technique used by a man for dealing and managing persons (men) of different age group, to work together for achieving a common objective.
Although management is not confined to men only, it incorporates a complete balance of 5M i.e. Men, Money, Material, Machine, and Methods. The person who is in charge of the activities of management in an organisation is known as Manager.
Management Process
Now, let’s discuss what management is? And from where it starts? The answer is management starts from your home. All of us have seen our mother taking care of our needs whether they are small or big, maintaining the budget of the household, takes decisions regarding investment or finance, makes plans for our future, keeps a check on our activity, organizes the schedule, guides and motivates us for achieving our career objective etc. that’s all management. These are the functions of Management, i.e. Planning, Controlling, Organizing, Leading & Motivating and Decision Making.
Key Differences Between Leadership and Management
The major difference between leadership and management are as under:
Leadership is a virtue of leading people through encouraging them. Management is a process of managing the activities of the organisation.
Leadership requires trust of followers on his leader. Unlike Management, which needs control of manager over its subordinates.
Leadership is a skill of influencing others while Management is the quality of the ruling.
Leadership demands foresightedness of leader, but Management has a short range vision.
In leadership, principles and guidelines are established, whereas, in the case of management, policies and procedures are implemented.
Leadership is Proactive. Conversely, management is reactive in nature.
Leadership brings change. On the other hand, Management brings stability.
Conclusion
Leadership and Management are inseparable in nature, if there is management, there is leadership.
In fact, the qualities of a manager require leadership skills to inspire his subordinate. In an organisation, you can see both management and leadership.
There is a manager in a department and a number of leaders who work with their teams in assisting the organisation in the accomplishment of their goals.
Many times managers play the role of a leader too, at the demand of the organisation.
So they both go side by side as a complement to each other.
An organisation needs both for its growth and survival.
Explain the difference between responsibility and accountability
Accountability vs. Responsibility.
The main difference between responsibility and accountability is that responsibility can be shared while accountability cannot.
Being accountable not only means being responsible for something but also ultimately being answerable for your actions.
The main difference between responsibility and accountability is that responsibility can be shared while accountability cannot.
Being accountable not only means being responsible for something but also ultimately being answerable for your actions.
Also, accountability is something you hold a person to
only after a task is done or not done.
We all know the mantra: people leave managers, not companies.
The role of the manager in the workplace is perhaps the most significant in terms of impact on organizational performance. Managers have the most direct influence on employees they line manage. They carry the responsibility for aligning the performance of their department and its staff with overarching organizational goals. They play a vital role in shaping organizational culture.
Fundamentally, they are the link between senior management and those operating at grass-roots level. Given the interconnected nature of these duties, the approach, style and success of company managers has a wider effect than any other workplace function. So, how do we ensure our managers are delivering?
This blog breaks down those areas where managers have greatest impact, and explores how this affects different aspects of business. The role of a manager
Before we explore the ways in which a manager can impact on business results (and how to get that right) it’s worth stepping back and reminding ourselves what the role of a manager actually is.
Although the job title of ‘manager’ is used widely to describe a variety of responsibilities – from managing a function to a department or an event – we refer here to managers of people:
Though individual responsibilities vary from business to business, renowned management consultant Peter Drucker divided what he saw as the ‘primary functions’ of a manager into five distinct components:
Set objectives– setting goals for the group, and determining how best to meet those
Organize– divide work into manageable activities, and assign these to relevant team members
Motivate and communicate– communicating decisions clearly and creating a team ethos amongst staff
Measure– establish appropriate yardsticks and targets, and analyze and interpret performance
Develop people– developing staff as company assets
In recent years, rewarding and recognizing staff has also come to be recognized as an important element of management. A shift in talent management practices and the growth of Millennials in the workplace has seen focus move to coaching and continual feedback, with the offer of a clear incentive or pathway essential to maintain motivation levels. Motivating through performance management
Building and supporting a strong and well-executed performance management culture is one of the key areas in which a manager can impact on business results.
A well designed system allows for regular meetings between manager and employee, offering a platform for assigning clear, measurable performance objectives as well as an opportunity for mentoring. Yet despite the supporting evidence, research shows many managers are failing to deliver on their responsibilities:
How can managers provide effective motivation through performance management?
The answer lies in a move towards agile performance management processes, rather than structured annual reviews alone. Regular appraisals allow not only for easier identification of underperformance, but also the celebration of success, and a reassurance for the employee that there is an obvious route to personal growth and development within the organization.
Engaging employees through positive management
No statistic captures the influence of a manager on the day-to-day experience of an employee than that uncovered by Gallup research that managers account for 70% of variance in employee engagement scores. In assessing this analysis, the Harvard Business Review cites two additional behaviours which impact both employee engagement and performance levels within the business.
The first of these is, unsurprisingly, communication.
Gallup studies have report a strong link between consistent managerial communication with higher engagement levels, with those combining face-to-face, phone and communication tools seeing the best results. However, evidence shows 69% of managers report feeling uncomfortable communicating with employees in general.
Investment into soft skills training, combined with effective internal communication tools such as social networks or intranet platforms, can support managers in overcoming barriers to communication.
An interpersonal coaching approach to leadership also yields positive feedback, with those who feel that their manager is invested in them as a person more likely to feel engaged. Managers who can appreciate that each team member is different, and understand how best to deal with each individual personality, are crucial to fostering a culture of engagement across the team.
Second is a focus on an employee’s strengths, and building upon these, as opposed to identifying and improving weaknesses. A strengths-based culture allows team members to learn more quickly and produce a greater quality and quantity of work, allowing staff to use the best of their natural talents. Poor management and its negative impact
Whilst the characteristics of substandard managers can be wide-ranging, from poor communication to lack of integrity or courage, the effects of these can be extremely damaging to morale and productivity. In fact, poor management not only affects employee productivity, but can also have indirect consequences for workplace innovation and the ability to adapt to changing business conditions.
One of the direct impacts of bad management can be worker stress, which could be triggered by instances a strained relationship with a supervisor or an unmanageable workload. It is widely accepted that a majority of engaged, productive staff achieve a healthy work-life balance; however, stress at work can carry over to misery or dread at home, resulting in an emotionally-drained employee who is most likely unhappy in their job.
What’s more, poor communication – whether that be the lack of through instruction, or inability to give proper direction – can also contribute to poor employee productivity. Confusion or lack of understanding is likely to lead the team member to misinterpret what has been asked of them, diminishing their own work performance and breeding resentment.
Resentment and blame culture are toxic to morale and therefore productivity, resulting in a less energetic workforce who care less about their quality or work and their overall operative level.
Effect on organizational performance
Given that managers are responsible for an individual organizational department, any drop in efficiency or productivity could have potentially disastrous implications for business performance overall.
A manager sets the context to help each component to deliver its contribution to wider organizational goals, with poor performance in one specific area potentially undermining strategic goals.
A bad or ineffective manager can also affect an employee’s perception of the company’s overall vision and values, potentially causing unhappiness and leading to a high turnover of staff, causing another detrimental cost to the business.
When this occurs, a manager also has a significant impact upon the culture and employer brand of an organization: impacting upon the ability to attract top talent, or how the business is perceived by its customers and stakeholders.
How to nurture and support effective managers
The potential impact of poor managers underlines the critical importance of the management team within any successful organization.
Management consultant James A. Koroma states that in today’s global business, “conscious and conscientious development of competent caring leaders is critical to organizational survival”.
Investing in our leaders and managers is essential to business success. To circumvent potential negative impacts of managerial approach or philosophy, we must:
Recognise the specific skillset required of a manager
Guard against over-promoting employees based on tenure or strong performance in an unrelated role
Provide the necessary tools and communication channels required to connect managers with their teams
Invest in training and up-skilling managers
Move towards an agile performance management culture, encouraging managers to provide frequent
and informal feedback alongside structured reviews
Develop leaders who coach and support, engaging with their teams, as opposed to bosses who dictate
When we have a strong, united and capable leadership team, the benefits can be extensive – and hugely profitable.
Explain how different leadership styles affect team members
The Effects of Leadership Styles on the Organization
Leadership styles have significant effects not only in small businesses but also in the world's largest corporations.
These styles affect everyone from senior management to the newest college intern.
They create the corporate culture that influences the organization and its performance.
Autocratic Style Effects
Also known as authoritarian leadership, autocratic style clearly defines the division between leaders and workers. Autocratic leaders make decisions with little or no involvement from employees. These leaders are supremely confident and comfortable with the decision-making responsibility for company operating and strategic plans. Although research indicates that autocratic leaders display less creativity than more contemporary styles, this style still works when fast decisions must be made without employee involvement. Employees may feel some disconnect with this style.
Participative Leadership Effects
Also called democratic leadership, this style is usually considered the best option for most companies. The opposite of autocratic leadership, this style emphasizes that management offers guidance to its teams and departments while accepting input from individual staff members. Leaders reserve the right to make final decisions but encourage feedback, ideas, and suggestions from all employees. Participative leaders generally have a more content workforce, since each individual has input into decision-making.
Delegative Leadership Effects
This style, also called laissez-faire leadership, is typically considered the least effective option. In stark contrast to the other primary styles, delegative leaders rarely make decisions, leaving this function up to the group. These leaders seldom offer guidance to the team and delegate decision-making to trusted team members. While offering few advantages, this style often creates some disadvantages. Job descriptions and lines of authority become blurred and confusing. A loss of motivation and positivity often accompanies the confusion of team members.
Corporate Culture Effects
Also called organizational culture, corporate culture defines "the way we do things." Leadership styles have strong effects on corporate culture because employees tend to act in ways that mirror their leaders. Staff also subconsciously wants to please supervisors and management. Over time, leaders and employees usually become "comfortable" with each other, which can cause some "culture friction" when new leaders take over. Every business, regardless of size, has a culture. It can help or hurt operations, often dependent on the strength and efficiency of leadership.
Demonstrate leadership in a personal area of responsibility
Assess the sources of finance available for different business requirements
A business has a variety of choices it can make about how it obtains (sources) the
finance it needs.
A business needs to assess the different types of finance based on the following criteria:
Amount of money required – a large amount of money is not available through
some sources and the other sources of finance may not offer enough flexibility for
a smaller amount.
How quickly the money is needed – the longer a business can spend trying to
raise the money, normally the cheaper it is. However it may need the money very
quickly (say if had to pay a big wage bill which if not paid would mean the factory
would close down). The business would then have to accept a higher cost.
The cheapest option available – the cost of finance is normally measured in
terms of the extra money that needs to be paid to secure the initial amount –
the typical cost is the interest that has to be paid on the borrowed amount.
The cheapest form of money to a business comes from its trading profits.
The amount of risk involved in the reason for the cash – a project which
has less chance of leading to a profit is deemed more risky than one that does.
Potential sources of finance (especially external sources) take this into account
and may not lend money to higher risk business projects, unless there is
some sort of guarantee that their money will be returned.
The length of time of the requirement for finance - a good entrepreneur
will judge whether the finance needed is for a long-term project or short
term and therefore decide what type of finance they wish to use.
Internal finance comes from the trading of the business.
External finance comes from individuals or organisations that do not trade
directly with the business e.g. banks.
Internal finance tends to be the cheapest form of finance since a business
does not need to pay interest on the money. However it may not be able to
generate the sums of money the business is looking for, especially for larger
uses of finance.
Examples of internal finance are:
Day to day cash from sales to customers.
Money loaned from trade suppliers through extended credit.
Reductions in the amount of stock held by the business.
Disposal (sale) of any surplus assets no longer needed (e.g. selling a company car).
Examples of external finance are:
An overdraft from the bank.
A loan from a bank or building society.
The sale of new shares through a share issue.
Explain how budgets are developed
Developing Budgets. A budget is a systematic method of allocating financial,
physical, and human resources to achieve strategic goals.
Companies develop budgets in order to monitor progress toward their goals,
help control spending, and predict cash flow and profit.
A business budget is much like any kind of budget you would use for your
personal finances. In business, it can be an effective tool to help you determine
whether or not your business idea is viable. It also gives you an opportunity to
evaluate your current financial situation and tailor your plan in a way that will
help you reach the financial goals of your business. Plus, maintaining a
budget for your business on a regular basis can help you track expenses,
analyze your income, and anticipate future financial needs.
Step 1: Identify Your Goals
The first step of creating a budget is identifying your goals for your business.
Much like the information you would include in a business plan, you will
need to think through what you want to accomplish
with your business, i.e. how much you want to make.
Step 2: Review What You Have
Take time to review documents from your business as it is today, including
your income statement, your balance sheet, outstanding debts, past tax returns, assets,
liabilities and a projection of immediate cash flow. And don’t forget to pull out any current
budgets you use for your business, as they can serve as a starting point for your
new budget.
Step 3: Define the Costs
What are the specific costs associated with each of your goals identified in Step 1?
This is where you would break down each goal into an annual tangible amount of
money, and then break it down by month. Use past data from your business to fill
in all of the costs, and do some research to generate approximations for each item
you do not know the cost for.
Step 4: Create the Budget
Taking the information you have from Step 2 and Step 3, develop a spreadsheet.
One way to do this is by working backwards from the bottom line and seeing where
you end up.
Keep in mind that you may need to make some adjustments as you develop your budget.
Your budget should be a tool you use daily in your business, not a document you create
and then forget. By using a working budget, you will become more accurate over time and
be able to make good decisions about your business and any new ventures you’re
considering.
Forecast departmental income and expenditure
The easy answer: Income is money flowing to you - incoming cash or payments.
Expenditures are money flowing away from you - payments which you make; expenses.
In terms of simple payments changing hands between parties, income for one person is an expenditure for another and vice versa.
Assess departmental performance against a budget
Recommend a budget for a project
How to Estimate a Budget for Your Client Projects
In this tutorial, we look at two approaches to professional freelance project estimates: the top-down approach, and the bottom-up.
The top-down approach is for when a client comes to you and says, can you do this project for $X? You have to decide whether to take the project, but first you need to work out all the costs involved to understand what (if any!) profit there would be in it for you.
The bottom-up approach is for when a client asks how much you charge for a project, so you have to put all the elements together to work out your project rate.
First Approach: The Top-Down Estimate
For this tutorial, we are going to use the example of creating a finished version of a white paper, including layout and graphics. As a freelancer, you may only do one part (in this case, writing) so when the client comes to you and says, “We have a budget of $6,000 for this 10-page white paper, are you able to supply the finished product for that?” you need to be able to work out an accurate budget estimate to understand if you are able to take it on.
Step 1: Direct Costs
1. Direct Labor Costs
Direct labor costs cover the costs of hiring other freelancers… but don’t forget to include your costs too! You will need to research the rates and time involved in hiring other freelancers so that you can estimate this accurately.
2. Materials
Do you need to physically print any of the white papers? If so, the cost of materials may include paper and ink for printing. Also think about software or hardware costs if you have to update your existing computing equipment.
3. Travel
Do you need to travel to meetings with the client, or pay for the travel of your sub-contractors? Do you have a mileage rate? You need to estimate your travel costs at the start and be clear who is paying for them.
Step 2: Indirect Costs
Many people estimating projects forget to include the indirect costs – and then find themselves out of pocket by the end of the project. Indirect costs include overheads, such as office space rent, furniture, and equipment costs. These can often be difficult to estimate precisely, but you should be aware of them and factor them into your budget.
1. Office Costs
If the project takes a number of weeks, it is worth considering the ongoing costs of office rental, especially if this is not already included in your hourly rate. There may also be internet, electricity, water and heating costs to take into consideration.
2. Equipment
Equipment costs may include the computer and printer you are using. You can think of this more as 'wear and tear' because you are not buying them solely for this project.
3. Administrative Costs
You may have a contract with an administrative assistant. Although they are not a direct part of the project, they are still part of your overhead costs. If you are hiring an admin assistant specifically for this project, you should add them to the ‘direct labor’ costs.
Step 3: Estimating the Indirect Costs
Once you have an idea how long a project is going to take (see my previous post on creating a project plan), you can calculate the approximate total for the indirect costs. If it will only be a matter of days, you may choose to disregard these costs, but if the project takes weeks or months, you may well want to add them up to ensure your profit margin will not be eaten up by these ongoing costs.
If you know your weekly or monthly bills, you can estimate the costs for the duration of your project. For example, if your project will take 6 weeks and your internet bill is $50 per month, then the cost will be approximately $75 over the project. For other costs, you could look back at what you spent over the last year as a whole and divide it by 52 to give an average weekly cost for expenses such as equipment.
Of course, you may have already calculated your hourly rate to include these expenses, but if not, it might be worth re-visiting your hourly rate to be sure that you take these ongoing costs into consideration.
This table assumes you will be working on this project exclusively for 6 weeks. If not, you could estimate the total number of days you will be working on the project, and calculate the costs based on this total.
Step 4: Questions to Ask the Client
Once you have a detailed breakdown of the costs involved in the project, go back to the client and clarify what the project does and does not cover. Travel expenses, office costs (will you work from their offices or your own?) may have to be discussed at this point. The important thing is that you are discussing these now, rather than after you have your quote agreed on.
Make sure to double-check the exact specifications of the brief, for example whether you are providing hard copies of the white paper or simply the PDF.
The schedule may have an impact on your costs: if the deadline is tight, sub-contracting other freelancers may become more expensive, so you may want to ask about the timescales involved before you agree to anything.
You may also want to ask whether the client would like a breakdown of the costs involved. This is more unlikely if they have come to you with a budget and asked whether you can meet it.
Step 5: Agreeing to the Brief
Once you have determined all your direct and indirect costs, you will have arrived at an overall figure.
The original question asked by the client was, “We have a budget of $6,000 for this 10-page white paper, are you able to supply the finished product for that?”
The total cost estimate for the project is: $5,822, which includes your hourly rate. Any spare money in the budget on top of that can be extra profit.
So the answer is “Yes, I can!”
Step 6: What if Your Estimate is Too High?
Our estimate came out as very close to the proposed budget, but what if it was too high? You have a few options here:
Go back to each of your sub-contractors and explain the situation. They may agree to do it for less if it is a substantial project.
Take a hit on your own hourly rate because of the prestige this project will bring to your portfolio: once you can say you have experience of writing white papers as a service you may be able to increase your rates for next time.
Offer your sub-contractors something in return for a lower fee. Could you give them any free advertising, such as including a link to their company on your website? Or else trade several hours of your time?
Are there any other costs you can cut, such as using video conferencing instead of travel?
Second Approach: The Bottom-Up Estimate
This approach is broadly similar to what we have already covered, except instead of giving us a budget and asking whether we can work within that, a client may come to us and ask, “What would you quote for this work?”
In this case, it is more important to show exactly how we have arrived at this figure. If we came back to the client and said that we would charge $5,800 for producing a white paper, they may think this sounded very high. Once we had presented them with a breakdown of all the costs, however, this may seem more reasonable.
1. Hourly Rates Versus Overall Charges
Many freelancers prefer to give an overall fee for a job such as writing a 10-page white paper. This is because an hourly rate can sound high to a client, who doesn’t realize the costs of freelancing (your rate may already reflect all your indirect costs, as well as pension payments and healthcare). Giving an overall figure for freelancers can sound more persuasive.
Notice that we have simply taken out the hourly rates in this version.
2. Simplifying Your Estimate
Although you may need to go into a high level of detail for yourself to ensure that you account for all your costs, your client will not need to see this level of breakdown. What your client wants is an easy-to-read account of where their money is going: they need to see they are getting value for money.
If you have your indirect costs built into your hourly rate, then you could remove the Indirect costs section to give a concise estimate to the client.
Another option is to give the total for indirect costs (without a breakdown) and name it Administration, which will greatly simplify this estimate.
Professional Appearance
Presenting a well-researched project estimate can go a long way towards securing you the job. Even if yours isn’t the lowest quote, your potential client may see your professionalism as a positive recommendation and trust that you are the most likely to present a white paper of a high standard on time and on budget.
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