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In this tutorial, we will be going over HR and organizational management in the business simulation. Before you start this tutorial, you should have finished how to play and familiarized yourself with how to analyze and reduce fixed cost in your project. In our last tutorial for financial management, we looked over many of the general fixed costs apparent in our business simulation. Now we wish to further refine our understanding of project costs in regards the salaries of our employees. Let's start by looking at our current business model.

Our example business can be broken down into two units. Unit one represents our already established restaurant. We have a chef, bar keeper, and clients already worked out before we start this project. It is our unit two, the new addition to our business, where we will be focusing our attention.

Unit two of our business deals with the wholesale of our product. In order for this unit to function, we will need a manager to run our office. Under the manager, we will need office assistants to deal with miscellaneous tasks, sales personnel to advertise and sell our product, and maybe a few consultants.

Now that we have the general model for our business, we can start to think about the necessary salaries to keep this model running. To model these salaries, we need to make two decisions. The first is what the base pay for each position should be.

This can be thought of as a function of how critical the position is and the average salary for the region. If we have sales personnel critical for our company's success, it makes sense that we would want to pay them above the market rate. Less key personnel, such as office assistants, might be paid just based on the average salary of the region, which can be estimated using sites like salary.com.

The second decision is how much work is necessary for each position. It is important to remember that just because we have a manager in our business model, it does not mean we need exactly one dedicated manager role. We might be able to save costs by delegating aspects of the managerial position to other key personnel in return for extra compensation.

Now that we have a general idea of how to deal with compensation, let's head to the business simulation. To begin, I will start a new cycle in organizational management. Now we need to figure out our starting budget for employees. If you had just watched the finance tutorial, we had already decided on a general budget for our workers, which we'll now begin to refine slightly.

Let's look at the average salary for each position. Using SWOT analysis and salary.com, we have synthesized the following information. So let's edit our budget based on this info.

Earlier, we had decided that a part-time office assistant would be enough. Our initial estimate of this cost was $12,000. However, based on more detailed analysis, we have decided that $15,000-- or in other words, half of $30,000-- would be a more appropriate number. And 11% salary increase seems a bit far-fetched for our taste. Originally, we had budgeted for up to 10%, but now we think we can get away with only five.

Now onto our salesmen. We had already budgeted for only one of these. Our initial salary estimate was $35,000 per year.

However, for our example, it would be disastrous to lose our sales personnel to competitors. They must be incentivized to stick with our company, so we are going to pay them extra to ensure recidivism. Therefore, we will add an extra $10,000 to the pot.

Earlier, we have decided that a dedicated executive was unnecessary for the project. To keep our initial budget of around $12,000, we would need to pay about 1/7 of an executive salary. Therefore, it would be in our best interest to delegate part of the work onto our sales personnel, and maybe pay them an extra $10,000 a year for

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the added effort. This has the bonus effect of tying our sales even more closely into the business, helping ensure that they stick around.

Finally, we have our consultants. If needed, we could probably do away with this cost entirely. For now, I will play it safe and use our aforementioned budget of $30,000. If necessary, we can edit this in the future.

Now we move on to section two, the employee compensation. Note that for this and the following section, the changes we just made above aren't filled in automatically. We need to manually re-enter in order for the changes to take effect. Think of it as a more detailed view of section one.

Using knowledge from our SWOT analysis, we are going to change this section to reflect our market research. Here we break even sales down into our critical sales personnel, whom we have discussed in much detail, and other salesmen that work beneath them. From our projects start page, we know that we have already budgeted for one critical sales person.

Given their vital importance to the company, it is in our best interests to keep them around. To reflect this, we have decided to grant them a salary well above the industry average. We might also want to increase their salary growth to 10% per year.

Now onto the sales associate. Originally, we had budgeted for one part-time worker. Maybe now we decide we only need the extra help during our most popular season, so we will try reducing this number to 0.25.

Notice that we are now over budget. We could deal with this by decreasing salary or work hours, but this could negatively affect our operation. Instead, we will simply increase our budget for sales to $47,000.

Now that these numbers are relatively balanced, we can move on to workers' compensation. Again, we break down into critical workers and the workers beneath them. In this case, our critical worker is our beer master. We can't operate without them, so we will incentivize them with a little salary boost.

Let's just stick mostly with the critical for now and assume the same 0.25 ratio for the workers beneath them. Take note that even with a salary boost, we are still operating way above budget. The budget here, however, is determined by labor cost. For now, submit the cycle.

To balance the budget we were left with, we need to change the labor costs. Start a new cycle in marketing management. Lowering labor cost results in a decreased budget for workers, so we can start by dropping this number. It may take a bit of playing around to find numbers that work.

In order for the changes to be seen in the HR tab, we have to submit our current cycle and start a new one in HR. Once you are done balancing the budget, you can submit your work and head back to the Financial tab. The changes we made aren't automatically updated in the Financial tab, so we need to fix those numbers.

Let's head to the SIM report to gauge the effect of our recent changes. Not only is our profit increased, but we can rest assured that our employees are being adequately compensated. Ultimately, a business's profitability relies on its employees. Mapping out the structure of a business and choosing the right people for the task is essential for continued survival.