Order 1368007: products and services

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1.4 – Ensure that timelines and costs for promotion of activities are realistic and consistent with budget resources

Time lines or CPS (Critical Path Schedules) are pieces of the puzzle, not the overriding decision making process.

Many executives who come from a particular background, such as Accounting or Financial Management, often place the decision on a budget or other financial supporting document where it should be treated as a support mechanism so those empowered with the final decision can make such a decision from an informed position.

Critical Path Schedule

Item to action Month Week Days Period other other

By knowing and tracking the critical path for your promotional activities or any project you may undertake, you can visually keep track on finishing dates and or conflicts between tasks. You can use this information to determine which tasks will affect your activity competition date and make adjustments along the way; nothing is set in concrete. Charts can be altered as long as you communicate the changes to everyone.

Other similar charts achieve the same result:

Pert Charts:

The Program (or Project) Evaluation and Review Technique, commonly abbreviated PERT, is a model for project management designed to analyse and represent the tasks involved in completing a given project. It is commonly used in conjunction with the critical path method or CPM.

Gantt Charts

A Gantt chart is a type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project. Terminal elements and summary elements comprise the work breakdown structure of the project.

Gantt Chart

Use time lines realistically

Using and executing realistic timelines is a skill that not everyone you will be working with has. It’s important because it

keeps your clients happy keeps you sane helps keep staff and contractors on time, even if they are not good at this helps you and the company reflect a positive image to clients and customers

Tip One:

Give yourself sufficient and realistic time to complete everything, not just the easy tasks! In fact, it is generally regarded as ‘best practice’ with task management to commence with what appears or actually is the most time consuming or complicated. Maybe leave a few days clear in the chart towards the end to allow some breathing space. Waiting until the last minute does not allow you to do your best or the best for the team.

Tip Two:

If you’re using an online or linked CPS system make sure it’s set to your computer calendar. Setting reminders and distributing them to colleagues

will add another ‘assistant’ to keeping on track that you don’t even need to worry about if it’s set correctly. You can set most reminders to email, SMS or Facebook, Tweets or other communication methods.

Costs for promotion of activities

Of all the areas you will encounter when developing promotional activities, cost is the one which will need to be discussed and examined the most. A promotional budget can be prepared by:

allocating certain amount of expected sales that would equate to the promotion activity’s cost.

planning a promotional activity and just allocating expenses for it.

A good place to start the cost analysis process is to use the past year’s budget or a similar type of promotion, as a guide; then, at a later time, any new promotional strategies that are developed can be added.

There are no rules to guide you, but some (unsubstantiated) companies say: 5% percent (anywhere between 1 and 10 percent) of the annual gross revenues should be spent on promotional activities.

However, as this varies by a huge amount, depending on whom you speak with, it is only a guide or a way that in a class room environment you could begin a ‘hypothetical’ activity.

EXAMPLE ONLY

Promotional costs

Estimated cost Budget

Media costs Subset Print Magazines TV Etc

Advertisements Subset Print Magazines TV Etc

Client functions Subset Special

announcements Product

launches

Web pages Subset Development Management Hosting

There are also differing views on costs spent for promotional areas, especially if it’s a new company or one that is expanding its market share objectives.

Previous sales records will not necessarily be available in those circumstances.

Costs for these promotional activities will need to be estimated and placed within a new budget as part of the overall financial forecast or expectations.

It is generally regarded as good or best practice that an identifiable formula should exist between the ratios of costs outlaid on promotional activities and the expected revenue generated from sales.

Your planned promotional activity strategy should be carefully examined and stakeholders involved should be assured and confident that there is a realistic link between costs to expected sales, or else be brave and re-design.

As mentioned earlier, budgets should not be set in concrete, but they are be part of the evaluation material, so placing unrealistic costs in the budget for the promotions department will impact heavily on the overall result when it is reviewed.

Budget resources

The next piece in the jig-saw when addressing questions of costs and how they relate or are consistent with budget, is to look at the typical budget framing.

In other sessions, budgets and the structure of creating them would address a complete range of cost and income areas. For promotional activities to be consistent with budget resources, that means keeping them within expectations.

As outlined previously, costs for promotions are twofold, those that are regular and that you can reflect back on for adjustments based on practical experience, and those that are new and need to be estimated and are unproven at this stage.

EXAMPLE 1 – COMPARATIVE BUDGETS FOR THIS YEAR ONLY

ASSUMPTIONS: 1. For example purposes the revenue refers to the total income received from

a direct result of this promotion for a particular range of goods or services. This is gross income.

2. For example purposes the expenses listed are, that only, examples and should not in any way be interpreted to relate to any real product or service. They are direct expenses only and do not include wages or salaries.

HISTORICAL PROMOTIONAL PLAN EXAMPLE

REVENUE PAST YEAR

THIS YEAR

BUDGET PAST YEAR

BUDGET THIS YEAR

BUDGET NEXT YEAR

Total revenue

$200,000 $150,000 $210,000 $200,000 ?

TOTAL $200,000 $150,000 $210,000 $200,000

EXPENSE ITEMS

PAST YEAR

THIS YEAR BUDGET PAST YEAR

BUDGET THIS YEAR

BUDGET NEXT YEAR

Product giveaways

$5,000 $6,000 $4,000 $5,000

Product discounts

$5,000 $5,600 $5,000 $5,500

Special offers

$10,000 $12,000 $8,000 $10,800

Trade events

$8,000 $10,000 $6,500 $9,000

Print items $5,000 $6,000 $5,000 $5,500

TV ads $20,000 $30,000 $18,000 $22,000

Billboards $5,000 $6,500 $4,000 $6,000

TOTALS $58,000 $76,100 $50,500 $63,800

OUTCOMES:

Revenue this year: $150,000

Budget this year: $200,000

IMPACT: -$50,000

Consistent with budget resources?

In this example, we will explore budget expectations, without getting into complex accounting, the real impact, positively or negatively, would need to see this promotional sub-budget compared with the total company budget and, more importantly, the cash flow indicators to really determine its impact.

As a standalone budget, revenue has not reached budget and that in itself is not consistent with the indicative (resources) budget.

Expenses this year: $76,100

Budget this year: $63,800

IMPACT: $12,300

Consistent with budget resources?

As a standalone budget, expenses have exceeded budget and that in itself is not consistent with the indicative (resources) budget.

OVERALL IMPACT

Revenue this year $150,000

Expenses this year $76,100

% of expenses –v- revenue

%51 Unsatisfactory

A simple rule is that many companies strive for 33% for expenses, 33% for staff and 33% profit.

Take the PAST YEAR’S results

Revenue PAST year $200,000

Expenses PAST year $58,000

% of expenses –v- revenue

%29 SATISFACTORY

Activity 1.4

1. Create NEXT YEAR’S budget and explain how you would address EACH ISSUE that has EXCEEDED budget.

Expenses Only -

Expense Items

This Year

Budget This Year

Budget Next Year

Explain how you would address EACH ISSUE to bring it into your new budget projections.

YOUR BUDGET MUST SHOW A PROFIT RESULT

Product giveaways

$6,000 $5,000

Product discounts

$5,600 $5,500

Special offers

$12,000 $10,800

Trade events

$10,000 $9,000

Print items

$6,000 $5,500

TV ads $30,000 $22,000

Billboards $6,500 $6,000

TOTALS $76,100 $63,800

Notes: