Question

It has come to the attention of the Managing Director, Tom Copeland, that due to the current economic climate, sales volume may be 20% below target this financial year. Tom is worried that this may severely impact profit projections. The company can accept as much as a 10% variance in profit projections; however, more than this could severely affect the company’s ability to pay obligations and invest. Reliable data to determine whether the risk has eventuated should be available by midway through the second quarter (Q2), when sales data for the company’s product are in.

You have also received the following feedback from team members:

• Full-time workers and sales people are resentful of time wasting and distracting contract employees.
• Overtime not used but employees resentful of suggestion it might not be approved if needed.
• Training suited the needs of many sales team members but was not relevant to about half the team members.
• Sales team members were happy with the incentives program and tried hard to make sales in the third quarter (Q3); however, they were also resentful at the threatening tone of emails and soon lost enthusiasm.
• Effect of one-day training wearing off.
• Fifty percent of direct wages costs are attributable to short-term contract employees whose contracts have expired and who are no longer needed.
• Employees concerned about lack of attention paid to wastage: water; electricity: paper; raw materials.
• Employees feel left out of budgetary decision-making in general.

The Managing Director would like you to submit a revised contingency plan and contingency implementation plan to bring income and expenses under more
effective control.

You must identify 3 risks (2 must be financial risks) and develop a range of mitigation strategies for each of them

At least 2 of all your recommendations must recommend alterations to the budget

Documents required to submit

• Revised Contingency Plan
• Revised Contingency Implementation Plan

Answer 1

Revised contingency plan:

Risk

1. Sales falling below 20% and thus profit falling below 10%.

2. Incurring cost which could have been avoided like cost on contract labours, training cost, wastage cost. All the cost will further reduce the profit.

3. Growing resentment among the employees because of threating tone in emails, burden to meet the sales target, competition from contract labourers.

Folowing are some of the points which should be considered for contingency plan

1. As profit is revenue less expenses so we should focus on both increasing sales and reducing expense.

Sales can be increased by giving incentives to employees for doing more sales. Company should also try to promote its product in the market either by giving discount or through other sales promotion techniques so that it boost the demand for the product.

Company should curb it expenses by reducing the contract labourers if they are not required.

2. Human resource is the most important resource for an organisation so focus should be made on increasing their efficiency by proving them training which is helpful to them. Training program should also me made effective in terms that it is helpful to all the employees.

Revised contingency implementation plan:

1. Incresing the revenue by offering me robust incentive program along with rewards and recognistion to employees. Employees with most sales in 3rd and 4th quater can be paid monetary reward or can be given recognisition. This will make employees competitive which in turn would help company earn more revenue.

Reduce the wastage on water, electricity, paper, raw material, etc. by using better production techniques. This will help reduce the cost for the comapny which can increase their profit.

2. Improving the efficiency of employees by:-

a. Providing training in shorter period so that it is fully effective and devdeloping the training program which is helpful to all the employees not only to half of the employees.

b. Making them feel that they are part of the organisation by getting the teir opinions on budgetary decisions.

c. Laying off the contract workers will not only reduce the direct wages cost by 50% but would also give more opportunity for the existing employees to grow. Existing empoyees can me made to work overtime if they are interested and paid accordingly.

d. Threating tone to employees in emails should be avoided as it hampers their performance. It nullied the positive impact which incentive program created in mind of employees.