business planning for laboratories

UNIDO PROJECT Trade Related Technical Assistance (TRTA II) Program   Development of Business Plans for Laboratories in Pakistan :

UNIDO PROJECT Trade Related Technical Assistance (TRTA II) Program Development of Business Plans for Laboratories in Pakistan Nirmala M. Pieris Expert in Testing Service Capacity Development Mission to Islamabad, Lahore & Karachi 13 th to 23 rd March 2011

Laboratory business :

2 Laboratory business Laboratory should be viewed as a business operating at an acceptable standard with an expectation of profit Profit although an overall aim would not necessarily be required for every test On an overall basis, your laboratory must make every endeavor to cover costs Must be run in a systematic, continuous and regular businesslike manner. (must have ordinary commercial principles governing your laboratory such as sales, customer and accounting records Have to also generate new business by searching for new markets and customers, retain your present customers and motivate your team to perform at the optimum level whilst adhering to all the principles of providing high quality services and customer satisfaction

What is a Business Plan :

3 What is a Business Plan A Business plan is an essential tool to write and store all the information you need to know to make your business a success. It will also help you to define and focus on your objectives using appropriate information and analysis

Value of a Business Plan :

4 Value of a Business Plan You will get value for your plan when you implement your Business plan Make the plan a management tool for you to manage your laboratory better to achieve the future that is expected

How good is your Plan :

5 How good is your Plan Plan must be realistic, specific and simple in a way that you can follow-up and implement the plan You have to continuously review the plan (6 monthly reviews are not uncommon) to make sure you are doing what you planned to do If not you have to correct and create new plans Use this whole process as a management tool to make sure that you are proactively determining your laboratories future

Business Plan must be SMART :

6 Business Plan must be SMART Your Business Plan must be SMART The 5 characteristics of an efficient plan Specific Measurable Attainable Relevant Timely

Your Plan must be SPECIFIC :

7 Your Plan must be SPECIFIC "Specific" illustrates a situation that is easily identified and understood It is usually linked to some mathematical determinant that imprints a specific character to a given action Most common determinants are numbers, ratios and fractions, percentages, frequencies In this case, being "specific" means being "precise“

Your Plan must be MEASURABLE :

8 Your Plan must be MEASURABLE Measurable, means there is a stringent need to have the possibility to measure, to track the action(s) associated with the given objective Example – “Our laboratory business must grow" - not measurable “Our business must grow in sales volume with an increase of 20% annually“ - measurable

Your Plan must be ATTAINABLE :

9 Your Plan must be ATTAINABLE What ever you say in your Business plan must be achievable. You have to think of your staff capacities, Your lab capacities Motivation of your staff, are they sufficient in order for the plan to be achieved? Do you have the means and capabilities to achieve them?

Your Plan must be RELEVANT :

10 Your Plan must be RELEVANT Being "relevant" refers to setting appropriate objectives for a given individual or team You need to think if they can truly do something about it or is it irrelevant for the job they perform .

Your Plan must be TIMELY :

11 Your Plan must be TIMELY Every performable section in your Business plan must have a clear timeframe of when it should start and/or when it should end. Without having a timeframe specified, it is practically impossible to say if the objective is met or not.

Preliminary Sections :

12 Preliminary Sections Cover page Table of Contents Executive Summary (must do last)

Cover page :

13 Cover page Should include, Institute/Lab name and logo, Date and month issued. Be innovative, make it special but simple The other side of the cover page should contain, Address, Telephone numbers, e-mail and web address

Table of Contents:

14 Table of Contents This you can do with the pages indicated after the main plan is over

Executive Summary:

15 Executive Summary This is the first thing the readers of your business plan will read so must be well written Should not exceed about 2 pages and should contain the following: A description of the lab including your services Your Mission statement Management of the laboratory The market and your customers Your competition Your business operations Your financial projections and plans End with a sentence or two designed to persuade the readers of your business plan that your business is a winner Can do this section last

Major Sections:

16 Major Sections We have 18 Major sections We will take one at a time

Institute/Laboratory Profile :

17 Institute/Laboratory Profile Year, established Why established Do you function within the purview of any particular Ministry What are the major objectives Number of employees Have you many locations etc. About ½ a A4 page

Vision Statement:

18 Vision Statement The Vision statement is for you and the other members of your laboratory It is not for your customer It is for example where you want to be in the next 5 years Discussions with your staff is useful Example - To be the leading accredited chemical, microbiological and food testing laboratory in the country increasing revenues to 10 Mn PKR by 2016

Mission Statement:

19 Mission Statement Your Mission statement should reflect your laboratories special niche The major elements of your laboratory; it can be a few sentences Example: The NEH laboratory provides ISO 17025 accredited services in chemical and microbiology areas with excellent service delivery. We view ourselves as partners with industry and aim to become a regionally recognized laboratory. We aim to capitalize on the continuously growing demand for exports by growing our laboratory business to achieve annual profitability

Keys of Success:

20 Keys of Success Some examples: Provide professional quality services on time and on budget Develop a follow-up strategy to gauge performance with all clients Implement and maintain a quality control and assurance policy Have professional, integral, and honest team members Have a high compromise toward the acquisition of new technologies Give preparation, experience, and training to the team members in order to insure the integrity of services Ensure services satisfy customer requirements Reduce service turn around time Reduce operating costs by improvement of efficiency

Goals & Objectives :

21 Goals & Objectives

Goals :

22 Goals Goals are qualitative, they are broad, general intention and abstract Some examples To undertake testing to improve product quality To provide accredited calibration services to other laboratories and industry To be a recognized laboratory in the country/region for chemical and environmental testing having accreditation with international recognition

Objectives:

23 Objectives Objectives are narrow precise, tangible, concrete and can be validated Some examples To maintain the ISO/IEC 17025 accreditation status To generate an annual income of PKR …..Mn from local industry To generate an annual income of at least …….Mn from overseas customers To extend scope of accreditation to cover……….tests by the year 2012 To participate in a minimum of ……..PT schemes as per ILAC requirements

Business :

24 Business

Line of Business:

25 Line of Business What is your main line of business: Chemical testing Microbiological testing Textile & Garment testing Environment testing Calibration of equipment Any other

Service Description :

26 Service Description List your major service offerings

Strategic Direction SWOT Analysis Strengths, Weaknesses, Opportunities & Threats :

27 Strategic Direction SWOT Analysis Strengths, Weaknesses, Opportunities & Threats

SWOT Analysis :

28 SWOT Analysis Strengths, Weaknesses, Opportunities & Threats Strengths - Examples ISO/IEC 17025 accredited laboratory Qualified and experienced staff Well equipped laboratory Special experience in Environment testing Ability to have Technicians working in any area of testing

SWOT Analysis :

29 SWOT Analysis Strengths, Weaknesses, Opportunities & Threats Weaknesses - Examples Under-utilization of available equipment Sub-optimal exploitation of human resources Lack of costing/pricing policy Insufficient business knowledge Insufficient staff motivation Loss of staff due to poor employment conditions and having to undertake continual training Inadequate marketing

SWOT Analysis :

30 SWOT Analysis Strengths, Weaknesses, Opportunities & Threats Opportunities - Examples Increasing demand for quality related services Increasing exports

SWOT Analysis :

31 SWOT Analysis Strengths, Weaknesses, Opportunities & Threats Threats - Examples Other competing laboratories being established which may duplicate the work

Critical Success Factors (CSFs):

32 Critical Success Factors (CSFs) Examples Test Methods – Availability of appropriate standard test methods Equipment - to be in working order, with any breakdowns being attended to within the shortest turn-around time Consumables – Minimum stocks maintained for timely availability Sample collection, storage and handling – Well organized Department with electronic reporting Employees - Retention of qualified and trained employees Accreditation - Maintaining ISO 17025 accreditation status with implementation of QMS system, scope expansion, participation in PT schemes and being able to bear cost of annual accreditation fees Marketing – Making industry aware of the accredited services

Market Information :

33 Market Information

Customer Categories:

34 Customer Categories What are your customer categories? Example Government Exporters Domestic industry What are their major needs? List these needs

Market Segmentation:

35 Market Segmentation Define your market segment Example Industries manufacturing food products Industries exporting fish Industries manufacturing garments List also the major service types provided to each of these segments Which segment brings you the largest volume of services?

Emerging Opportunities:

36 Emerging Opportunities Are there any emerging opportunities? Example Diversify line of testing through scope expansion Increase of exports in new sectors Government legislation for consumer safety and health Government regulations for environmental monitoring What are their major needs?

Assessment of Competitors:

37 Assessment of Competitors Make a list of Laboratories offering the same line of service Assess their strengths and weaknesses What do they do better than you Consider all their weaknesses and count them as your strength Laboratory City Services Accreditation (yes/no)

Customer Movement:

38 Customer Movement Do you keep a check of your customer movement? Are your customers moving to other Government/Private labs providing same accredited service? If yes identify your direction towards the need for high end tests where your laboratory will have a monopoly Or is the move due to cost considerations

Competitive Edge:

39 Competitive Edge Do you have a competitive edge? How do the services you provide compare for example in terms of accredited facilities What is the price structure of your competitors This can be usually found out through customer surveys Or do customers have to obtain services from your laboratory due to: Legislative requirements Or do they have to obtain services only from a Government laboratory

Costing & Pricing :

40 Costing & Pricing

Costs of Testing :

41 Costs of Testing Have you developed a costing system for your services? describe Or is your costing just ad-hoc? If you do not have a costing system or if your costing is ad-hoc, try and develop a system based on the following for at least 5 tests/calibrations of your laboratory A common approach is activity based costing structure, where you will cost staff time, consumables and overheads from the time the samples are collected/received in the laboratory

Types of Costs :

42 Types of Costs Costs are direct and in-direct, in addition there are also hidden costs as follows: Direct costs – Man-power cost and costs of consumables and reagents In-direct costs – Includes cost of equipment (commonly at the rate of 10% depreciation each year, in most instances this cannot be added to costs as equipment is very expensive and also not used to it’s maximum potential), sample collection fees etc. Hidden costs – Rent, utility payments, communication fees etc. Generally an 80/20 rule can be applied; where 80 is the direct cost and 20 arbitrarily assigned for all other costs (excluding equipment costs)

Costing of a Service :

43 Costing of a Service DIRECT COSTS Man-power cost Say you need 1 Researcher for 2hrs + 1 Technician for 3hrs to carry out test. Then manpower cost will be: Total cost of Researcher/month (160working hours) = A Total cost of Technician/Month (160 1working hours) = B Sample collection fee etc. etc. A x 2 + B x 3 + …….. = MPC 160 160 Cost of consumables + Reagents + ..+ .. = COC INDIRECT COSTS – PT + Accreditation fees + Sample collection fees etc. = IC HIDDEN COSTS – Electricity + Rent + any other = HC Then cost of service will be = MPC + COC + IC +HC

Pricing Policy:

44 Pricing Policy Have you got a pricing policy for example a percentage mark-up on costs (maybe 10% or 20% or 50%) The mark-up need not be the same for all services Do you take into consideration your competitor pricing If you have a pricing policy, please describe, if not try and develop a pricing system

Marketing & Promotion :

45 Marketing & Promotion

Marketing & Promotion Plan :

46 Marketing & Promotion Plan Do you have a Marketing and promotion plan, if so describe, if not make a plan, some examples are: Develop a corporate brochure by …….. Develop a corporate video by……. Develop Laboratory specific business cards by………. Create a basic website to promote services by ……. Advertise in the media by making at least one news release per month Advertise monthly in publications that are aimed at industry Communicate directly with a minimum of ……..customers/month Win back at least …….lost customers

Sales Summary:

47 Sales Summary 2006 2007 2008 2009 2010 Number of services provided Number of samples analyzed /Equipment calibrated or any other Number of customers

Accreditation Status:

48 Accreditation Status Year of achieving ISO/IEC 17025 Accreditation ………………. Is the Accreditation status maintained to date (Yes//No). If No what is the reason for the loss of the status and in which year did this happen?

Financial Plan :

49 Financial Plan

Financial Summary:

50 Financial Summary 2006 2007 2008 2009 2010 PKR Income generated from services Income received from Govt. (for capital) Income received from Govt. (for operational) Staff expenses Other expenses Total Expenditure

Sales & Financial Projections :

51 Sales & Financial Projections 2010 (actual) 2011 2012 2013 2014 2015 No. of units of sales Income generated from services Total expenditure Performance Ratio (Income/Expenditure x 100 20% 35%

Break Even Analysis :

52 Break Even Analysis

Costs & Revenue :

53 Costs & Revenue Total fixed costs – is the sum of all costs that will not change regardless of the level of sales, example, rent if payable, employee costs Total variable costs – is the sum of all expenses that fluctuate directly with the level of activity or sales Total costs – Sum of Total fixed costs and total variable costs Total revenue generated

Variable Cost :

54 Variable Cost Sample type Price Variable cost 1 1000 200 2 2000 400 3 1500 300 4 1250 250 5 2500 500 6 3000 600 Average 1875 375

Costs & Income:

55 Costs & Income No. of samples tested Fixed Cost Variable cost Total cost Income (x 1875) 100 5,000,000 375,000 5,375,000 1,875,000 200 5,000,000 750,000 5,750,000 3,750,000 300 5,000,000 1,125,000 6,125,000 5,625,000 400 5,000,000 1,500,000 6,500,000 7,500,000 500 5,000,000 1,875,000 6,875,000 9.375,000 600 5,000,000 2,250,000 7,250,000 11,250,000

Break Even curve:

56 Break Even curve

Human Resources :

57 Human Resources

HR Summary :

58 HR Summary Category of staff member 2006 2007 2008 2009 2010

HR Projections :

59 HR Projections Category of staff member 2010 (actual) 2011 2012 2013 2014 2015

Employee Job Descriptions :

60 Employee Job Descriptions Do your laboratory employees have Job descriptions? Name Position Job Grade Department Reports to Job Summary Job tasks & Responsibilities Knowledge & Skills Qualifications

Employee Motivation :

61 Employee Motivation Do you have any Employee motivational schemes? This is sometimes important to get the best from the employees Recognition - awards Financial rewards Status upgrades Praise Letters for good performance Job security Public recognition Empowerment Motivation should be towards right priorities and aligned with the Laboratory priorities

HR Benefits:

62 HR Benefits Does your Laboratory implement any special HR benefit schemes? A good employee benefit scheme is a powerful tool for recruiting and retaining staff Provident Fund Pension schemes Personal Insurance Loan schemes Health Insurance Childcare facilities Childcare vouchers Meal discounts

Incentive Schemes :

63 Incentive Schemes Does your laboratory implement incentive schemes ( Special payments to staff based on performance such as a Performance based Incentive scheme) These can include: Appraisal/performance related incentives (financial/non-financial) - an assessment of an individual's work performance during a particular reference period, often a year. Alternatively, the reward may be an additional sum of money paid in the form of a bonus – this scheme is based on output Competency and skills based incentives - Competency and skills-based schemes measure inputs, i.e. what the individual is bringing to the job, unlike traditional performance based schemes which measure outputs – this scheme is based on inputs

Risks & Contingencies :

64 Risks & Contingencies

Risks :

65 Risks It is important to identify any risks as the identification of risks helps you come up with contingencies to mitigate the risks Risks include Financial risks (f ailure to meet sales and financial forecast etc.) Market risks (threat from competitors, u nforeseen industry trends etc.) Operational risks (failure to maintain accreditation status, occupational health & safety risks etc.) Human resource risks (loss of key persons, failure to recruit and retain quality employees etc.) Economic risks (global economic conditions, unforeseen political economic, social and technological events etc.) Technological risks (non-availability of required equipment, non-availability of technical support for maintenance of equipment etc.) Other risks – (Business planning, Laboratory instability etc.)

Contingency Plan :

66 Contingency Plan A contingency plan is an impact-reduction measure. It should describe in detail what you and your staff will do if a particular problem occurs You may need a contingency plan when: you identify a risk that you think has a high chance of happening and will have a high impact you try to find ways of reducing the likelihood of the event, but you cannot reduce the risk to an acceptable level the residual risk is still so large that you need to take a structured approach to reduce its likely impact

Main Considerations for Contingency Plan :

67 Main Considerations for Contingency Plan The main considerations that you should address in a contingency plan are: scope - what particular risk the contingency plan is designed for initiation - how you will know when to put the plan into action actions - what sequence of actions you will take in order to control the problem and minimize impact roles and responsibilities - who will do what and when Good contingency plans are usually based on the shared experience of managers working together.

Timeline for Implementation (Gantt chart) :

68 Timeline for Implementation (Gantt chart) Activity Responsible staff member Time (weeks) Beginning date Completion date Plan finalization Plan approval Costing and pricing of services Marketing activities (can be broken up into several activities) Employee Job descriptions Development of staff motivation schemes Review of Business plan

Making Gantt Chart :

69 Making Gantt Chart Project Management Tool Tasks, Start date, Duration, End date Making Gantt chart - http://www.youtube.com/watch?v=CW_wGSFavTc

Monitoring & Evaluation :

70 Monitoring & Evaluation Activity Responsible staff member Time (weeks) Beginning date Completion date Plan finalization Plan approval Costing and pricing of services Marketing activities (can be broken up into several activities) Meeting Sales projections Meeting Financial Projections Employee Job descriptions Development of staff motivation schemes Review of Business plan

Conclusion :

71 Conclusion Congratulations, you have completed your business plan Wrap your project ideas Conclude by highlighting the main items that point to success of your plan and why your Laboratory is in a position to execute it. TIPS Be brief. This is the best section to transmit your optimism without exaggerating

Sample Conclusion :

72 Sample Conclusion HIVA is a viable Environmental service oriented Laboratory that provides demand driven on-time oriented services to a large gamut of industry sectors. Future growth prospects are extremely positive with the ISO/IEC 17025 Accreditation status as the main driving force propelling not only the Laboratory but also the entire PCSIR Institute to new heights never seen before The finances required for running the laboratory as well as maintaining the accreditation status will be generated entirely from the services provided to industry and other commercial sectors. The business advantages in the marketplace include the emerging new opportunities arising from the expansion of the textile and the garment sector and the Government legislation for environmental protection. The future growth of HIVA ensures a customer focused delivery whilst maintaining the ISO/IEC 17025 Accreditation status.

Annexes :

73 Annexes Institute Organization structure Laboratory Organization structure Location map of Institute Laboratory lay-out diagram Copy of your accreditation certificate Income/Expenditure statements for years 2008 to 2010 Employee list with designations and qualifications Employee Job Descriptions (if any) Service offerings with price list Useful photographs of facilities Any other

Slide 74:

74 Thank You for your attention!