Preparing a Two-Year PlanGuidelines

Dr. Ellen A. Drost

MGMT497

Title Page

• Title= Two Year Plan• Company name• Professor’s name• World and Team number• List names of group member

• Each member signs report to verify their contribution to the report

• Date

Format

•Double-spaced, one-inch margins, 12-pitch font, 15-40 pages INCLUDING exhibits

•Table of contents–Include page numbers–Include exhibits and/or appendix

•Number every page–Including exhibits and/or appendix

•Include Peer Evaluation Form

Contents and Grading1. Introduction (5%)2. Organization (5%)3. Objectives and Industry Analysis (15%)4. Strategies (15%)5. Sales forecast (15%)6. Production plan (15%)7. Financial statements (25%)

a. Pro-forma assumptions (5%)b. Income statements, balance sheets and cash flow statements (15%) c. Pro-forma analysis (5%)

8. Overall appearance of report (5%)

Introduction and Organization•Introduction

–Overview of content of plan–Briefly describe your company–DO NOT include product descriptions

•Organization–Describe your organization structure–Include executive titles for each team member–Include roles and responsibilities of each team member–Do not include fictitious resumes–Include organization chart

Objectives and Industry Analysis•Provide tables and graphs (note that the table requirement is NOT stated in syllabus, but is required in Dr. Drost’s 2-year report) indicating the performance of each company in the industry over the past 8 quarters for sales in dollars, sales in units (required by Dr. Drost), net income, ROA, ROE, and stock price.

•Provide consolidated (i.e. all four areas together) quarterly and total columns, where applicable, for each year

•Use actual quarterly historical data through Y4Q4 for your analysis.

•Discuss overall trends and performance of your company relative to competitors and to industry averages for each of the above indicators

•Explain your method

Quarterly Consolidated Industry Sales for Year 3 by Company in dollars

Company/Quarter

QUARTER1

QUARTER2

QUARTER3

QUARTER4

TOTAL

Company 1 100,000 100,000 100,000 100,000 400,000

Company 2 100,000 100,000 100,000 100,000 400,000

Company 3 100,000 100,000 100,000 100,000 400,000

Company 4 100,000 100,000 100,000 100,000 400,000

Total 400,000 400,000 400,000 400,000 1,600,000

Please note that the above forecast does not include seasonal cycles

Quarterly Consolidated Industry Sales for Year 3 by Company in units*

Company/Quarter

Quarter 1 Quarter 2 Quarter 3 Quarter 4 TOTAL

Company 1 10,000 10,000 10,000 10,000 40,000

Company 2 10,000 10,000 10,000 10,000 40,000

Company 3 10,000 10,000 10,000 10,000 40,000

Company 4 10,000 10,000 10,000 10,000 40,000

Total 40,000 40,000 40,000 40,000 160,000

Please note that the above forecast does not include seasonal cycles

Quarterly Consolidated Industry Net Income for Year 3 by Company in dollars

Company/Quarter

QUARTER1

QUARTER2

QUARTER3

QUARTER4

TOTAL

Company 1 20,000 20,000 20,000 20,000 80,000

Company 2 20,000 20,000 20,000 20,000 80,000

Company 3 20,000 20,000 20,000 20,000 80,000

Company 4 20,000 20,000 20,000 20,000 80,000

Total 80,000 80,000 80,000 80,000 320,000

Please note that the above forecast does not include seasonal cycles

Quarterly Industry ROE for Year 3by Company in Percentages

Company/Quarter

QUARTER1

QUARTER2

QUARTER3

QUARTER4

Average

Company 1 10% 10% 10% 10% 10%

Company 2 10% 10% 10% 10% 10%

Company 3 10% 10% 10% 10% 10%

Company 4 10% 10% 10% 10% 10%

Average 10% 10% 10% 10% 10%

Please note that the above forecast does not include seasonal cycles

Quarterly Industry ROAs for Year 3 by Company in Percentages

Company/Quarter

QUARTER1

QUARTER2

QUARTER3

QUARTER4

Average

Company 1 5% 5% 5% 5% 5%

Company 2 5% 5% 5% 5% 5%

Company 3 5% 5% 5% 5% 5%

Company 4 5% 5% 5% 5% 5%

Average 5% 5% 5% 5% 5%

Please note that the above forecast does not include seasonal cycles

Quarterly Industry Stock Prices for Year 3 by Company in Dollars

Company/Quarter

QUARTER1

QUARTER2

QUARTER3

QUARTER4

Average

Company 1 $10.00 $10.00 $10.00 $10.00 $10.00

Company 2 $10.00 $10.00 $10.00 $10.00 $10.00

Company 3 $10.00 $10.00 $10.00 $10.00 $10.00

Company 4 $10.00 $10.00 $10.00 $10.00 $10.00

Average $10.00 $10.00 $10.00 $10.00 $10.00

Please note that the above forecast does not include seasonal cycles

Objectives and Industry Analysis•Show both Preliminary and Final Weighting Factors

•Explain why you selected these weights and explain any changes between the Preliminary and Final Weights.

•For each of the six performance measures in the weighting factors provide quantified financial objectives for years 5 and 6. State “how much” and “when” for each objective so that they can be measured unambiguously. For example:

•Net Income $5,000,000 for year 5

•Net Income $8,000,000 for year 6

•Stock Price, $15.00 at the end of year 5 and $25.00 at the end of year 6.

Strategies•State the mission and strategy of your firm

–business level strategy•Discuss your specific functional strategies for:

•Marketing, such as price, advertising, R&D•Operations, such as new product introductions, quality and feature levels, new lines and/or plants•Finance, such as CDs, dividends, issuing/buying back stocks and bonds, financing of plants/lines

•Include specifics about each variable you control in the game•Tables and charts are recommended•Be specific, provide a detailed outline

•An effective strategy is quantified and guides decision making•Use your decision input sheet as a guide to discuss/write-up your functional strategies•Discuss your decision models and decision making process

Sales Forecast (Y5 & Y6)•Prepare quarterly consolidated (i.e. all four areas together) sales forecasts in units and dollars for the entire INDUSTRY as a whole and for your COMPANY, specifically, for Y5Q1 through Y6Q4, by quarter with yearly totals.•Present and discuss how the forecasts are computed and outline all the model equations used.•Detailed regression analysis charts must be included in appendix.• In the body of the text provide a summary chart indicating the consolidated quarterly sales forecasts in both units and dollars for the industry as a whole and for your company, specifically.•Show price and exchange rate assumptions•If you plan to introduce new models, the forecast must show each different model as separate line item•Include your detailed regression analysis charts in the appendix

Example of Quarterly Company Sales Forecast by Area

Year 5 (in dollars) Quarter/

AreaMerica 1in dollars

Merica 2 in dollars

Merica 3in dollars

ForeignArea

in dollars*

TOTAL

Quarter 1 25,000 25,000 25,000 25,000 100,000

Quarter 2 25,000 25,000 25,000 25,000 100,000

Quarter 3 25,000 25,000 25,000 25,000 100,000

Quarter 4 25,000 25,000 25,000 25,000 100,000

Total 100,000 100,000 100,000 100,000 400,000

Exchange rate assumption: $1 = 10 foreign currencyPlease note that the above forecast does not include seasonal cycles

Example of Quarterly Company Sales Forecast by Area

Year 5 (in units)Quarter/

AreaMerica 1 Merica 2 Merica 3 Foreign

AreaTOTAL

Quarter 1 2,500 2,500 2,500 2,500 10,000

Quarter 2 2,500 2,500 2,500 2,500 10,000

Quarter 3 2,500 2,500 2,500 2,500 10,000

Quarter 4 2,500 2,500 2,500 2,500 10,000

Total 10,000 10,000 10,000 10,000 40,000

Please note that the above forecast does not include seasonal cycles

Example of Quarterly Industry Sales Forecast by Area

for Year 5 (in dollars)

Quarter/Area

Merica 1 Merica 2 Merica 3 Foreign Area

TOTAL

Quarter 1 100,000 100,000 100,000 100,000 400,000

Quarter 2 100,000 100,000 100,000 100,000 400,000

Quarter 3 100,000 100,000 100,000 100,000 400,000

Quarter 4 100,000 100,000 100,000 100,000 400,000

Total 400,000 400,000 400,000 400,000 1,600,000

Please note that the above forecast does not include seasonal cycles

Example of Quarterly Industry Sales Forecast by Area

for Year 5 (in units)

Quarter/ Area

Merica 1 Merica 2 Merica 3 Foreign Area

TOTAL

Quarter 1 10,000 10,000 10,000 10,000 40,000

Quarter 2 10,000 10,000 10,000 10,000 40,000

Quarter 3 10,000 10,000 10,000 10,000 40,000

Quarter 4 10,000 10,000 10,000 10,000 40,000

Total 40,000 40,000 40,000 40,000 160,000

Example of Quarterly Consolidated Sales Forecast for Company

and Industry for Year 5 (in dollars)Quarter Company Industry % of industry

Quarter 1 100,000 400,000 25%

Quarter 2 100,000 400,000 25%

Quarter 3 100,000 400,000 25%

Quarter 4 100,000 400,000 25%

Total 400,000 1,600,000 25%

Example of Quarterly Consolidated Sales Forecast for Company

and Industry for Year 5 (in units)Quarter Company Industry % of industry

Quarter 1 10,000 40,000 25%

Quarter 2 10,000 40,000 25%

Quarter 3 10,000 40,000 25%

Quarter 4 10,000 40,000 25%

Total 40,000 160,000 25%

Production Plan•Provide a quantitative quarterly production plan for each of your factories for Year 5 and Year 6.

–Expected beginning and ending inventory in each area–Provide a summary consolidated production plan (showing total units per quarter), in a table in the body of text, as follows: starting inventory + total units produced – unit sales forecast = ending inventory

•Where produced and shipped•Business Plan Game template

•Include table showing changes in plant capacity for each quarter•Plant and equipment additions

–Lines, shifts, OT (over time) for each quarter in each area with a plant

•List your assumptions in developing your production plan •(i.e. over time, second shifts, number of lines, safety stocks, etc.)

•Discuss decision-making process and models used

Financial Statements1. Pro-forma assumptions

• State each of the assumptions used in calculating your pro-formas at the beginning of your Financial Statements.

• For example: advertising expense = 1 % of quarterly sales; dividends = $0.05 per share every quarter.

• These assumptions should be the same as in the Strategy section of your Two-Year Plan.

2. Income Statements, Cash Flow Statements and Balance Sheets

• Provide quarterly consolidated statements (i.e. all four areas together) for Y 3 through Y6 expressed in dollars. You must remember that Y5 and Y6 are pro-forma. (Please note that financial statements by geographical area are not required and count as additional info., only)

3. Pro-forma Analysis 1. For each of six measures of performance (CWFs), compare

your pro-forma results with the Goals/Objectives from section 3, above. This analysis tests whether your plan works

For example, compare your Net Income from section 3 (objective) to your pro-forma Net Income. State the difference and discuss what you think attributed to the difference.

Example of Consolidated Pro-Forma Income Statement (this example indicates only a limited number

of items from an Income Statement)YEAR 5 (in dollars)

ITEM QUARTER1

QUARTER2

QUARTER3

QUARTER4

TOTAL

Net Sales 400,000 400,000 400,000 400,000 1,600,000

Total Sales 400,000 400,000 400,000 400,000 1,600,000

Cost of GoodsSold

285,000 285,000 285,000 285,000 1,140,000

Income BeforeTax

115,000 115,000 115,000 115,000 460,000

Less Tax 35,000 35,000 35,000 35,000 140,000

Net Profit 80,000 80,000 80,000 80,000 320,000