BizCafe Is a Computer Simulation Part 2

Default Used Furniture (Costs $2,000) Used New Furniture Options (Each Costs $4,000) Modern Country Green Elegant Weekly Decisions Manag Manageement Ma Mana na naggers Each store starts with two full-time managers to cover Monday through Friday. The first management decision is what to pay your managers. One manager must always be on site from one hour before the shop opens until one hour after the shop closes. You are guaranteed to always have two managers, but their effectiveness (productivity) will depend upon the wages you pay them and how well you manage the server staff. If you decide to open on weekends, a third manager may be needed—depending on the total hours your cafe is open. Managers are salaried employees that work a minimum of 40 hours a week and you must pay the same salary to all managers. Ser Serve ve vers rs Managers cannot do all the work in the shop; you will need to hire staff to help serve customers. Each server is part-time and works 10 hours per week. In addition to the number of servers, you will need to set their wages. Wage rates should be competitive with other shops in the simulation. Pay your servers too little, and you might not attract the best employees while those you do hire may be more likely to change jobs. Workers like to be busy, but not stressed out, so be sure to hire an appropriate number of servers to meet demand. Marke Marketin tin tingg Pri Pricin cin cingg Coffee typically comes in three sizes: small, medium, and large. You start out offering mediumsize cups and may be able offer additional sizes as the simulation progresses. Every week you will need to set a price for each size. Prices must be set such that the difference between sizes ranges from 20¢ to $1.00, and larger sizes must have higher prices. Jane has also set a minimum of $1.00 per cup and a maximum of $6.00 per cup. Be careful about increasing prices as it may frustrate and disappoint customers, but it’s better to have a price that works than one that doesn’t cover your fixed costs. Ad Adve ve vertis rtis rtisin in ingg aan nd PPromo romo romotio tio tion n Students may choose to advertise online or on one of the local radio stations. Radio spots can be used to promote awareness of the cafe. Online advertising includes listings on the web, search engine optimization, as well as banner and mobile ads. Special promotions—one for 50¢ off a cup of coffee, the other a 2-for-1 coupon—may be run simultaneously with the online ads. Cre Creati ati ativve D Des es esig ig ign n These options allow you to use your more creative side. Your instructor may ask you to design a logo, advertisement, and coffee cup for your cafe. Logo and ad images may be created in a design program of your choice; saved in GIF, JPG, or PNG format; and dropped into the BizCafe program. Opera ratio tio tion ns Sho Shop pH Hou ou ours rs Students set the days and times the store will be open for business. The shop may open between 7 and 10 a.m. and close between 8 and 11 p.m. The hours Monday through Friday must all be the same. In addition, if your instructor allows, you will be able to open the store on the weekends and set those hours as well. Employees set-up for an hour before the cafe opens and clean-up for an hour after the cafe closes. Cof Cofffee PPu urch rchas as ase e Coffee is ordered weekly in bulk, and you must specify the number of pounds to order. You must also choose coffee quality: good quality, high quality, or organic. Small cups use 1 shot of espresso, medium use 2 shots, and large cups use 3 shots. It is estimated that each shot of espresso requires approximately 7 grams of coffee, or about 1/64 of a pound—but you may want to allow a bit extra in case your servers spill some. Thus, a large size would use approximately 3/64 of a pound of coffee. Fresh coffee grounds are discarded immediately after use. Any coffee left at the end of the week is discarded for quality and freshness reasons. If you run short, local purchases are made at a higher cost than when ordering in bulk. Cu Cup p Purc rcha ha hase se Cups with a printed logo can be ordered in bulk on a weekly basis. Any unused cups will be kept in inventory until they are needed. If you don’t have enough logo cups, standard cups from a local vendor are available but at a slightly higher cost and without logos. Specia ciall D Deecis cisio io ion n Inc Incide ide ident nt ntss If your instructor selects this option, some weeks you may have an “incident,” which you will need to address. An incident is like a mini-case. Your team will need to discuss the issue presented and enter an appropriate response. Any costs associated with an incident will automatically appear in your checkbook just like any other expense. Measuring Performance The success of your coffee shop will depend on the quality of your decisions in relation to the environment and in relation to each other. For example, when you are making pricing decisions, have you considered the impact a change has on other functional areas of your business such as staffing and product purchases? What impact does it have on demand for your product and net income? As the manager of a small coffee shop, you must make sure that all functional areas of your business are in line with your overall objectives and that all of your decisions are integrated—working toward producing the desired results. There are a number of reports under the COMPANY menu that you can use to track performance as you operate your business. The Dashboard to provides an overview of your cafe’s performance on various measures. Tiles colored in green show improvement on the metric. You may also see your cafe’s rank within the Collegetown market (industry). The Dashboard also highlights happenings in the simulation for your industry and cafe. Another essential tool is the Checkbook, used to monitor cash flow. Payments for rent, utilities, wages, advertising, product purchases, and interest are automatically made at the appropriate times during the month. Daily cash receipts from sales are taken to the bank’s night deposit and added to your balance the following morning—except Sunday. You can track your current cash balance at any time by reviewing the checkbook. The change in balance for the week will give you an idea of whether your sales receipts are sufficient to cover expenses. Keep in mind that some weeks will see more cash going out than others due to payments made once a month, such as rent, utilities, interest, and payroll taxes. Using the Cash Budget Analysis can help you anticipate these payments. If cash from the loan provided by Jane runs out, you may be eligible for an additional small business loan if you provide sufficient rationale to your lenders. For a detailed analysis of sales, view the Daily Receipts report. It shows the daily capacity, or the maximum number of cups you could have sold based on your equipment and staff; the actual number of cups sold; and the average price of the coffee sold (including promotions and different cup sizes). Comparing cups served to capacity is one way to measure how busy your staff was for a given day. If you served at capacity, it probably means that your servers were always busy and some customers may have left due to the long lines. The Weekly Purchases report, located under the DECISIONS menu, provides information about the coffee and cups used in the past week. Check this report before ordering cups as you may have enough in stock (inventory) to meet demand for the coming week. Unlike cups, coffee is perishable and any coffee not used during the week will be discarded at the end of the week. If you do not order enough coffee or cups to meet demand, a local source will be used to fulfill orders, though at a higher cost than purchasing materials ahead of time. You will need more than weekly reports to ensure that you are making good business decisions. Fortunately, the university found a retired accountant who has offered to create a monthly income statement, balance sheet, and cash flow statement for you. The Income Statement shows revenues and expenses on an accrual rather than cash basis, so items are expensed in the period they are used, rather than when they are purchased. For example, each month shows a depreciation expense for the equipment you bought at start-up, and cups are expensed as they are used, rather than when they are purchased. The Balance Sheet shows your firm’s assets, liabilities, and equity. It “balances” because assets must equal the sum of liabilities and equity. Examples of assets are cash, rent and utility deposits, inventory, and equipment. Liabilities include taxes payable and loans. Cumulative profits will appear under equity on the balance sheet. Unlike the income statement, which shows results over a specified period, the balance sheet is a snapshot of your business at a point in time. The Cash Flow Statement (optional) shows the changes in your cafe’s cash position over the month. The statement begins with net income from the income statement, then adjusts for any differences in cash flow from operations to calculate net cash from operations. Then any adjustments due to investment activities and financing activities are made to arrive at the net increase or decrease in cash for the month. In addition to viewing reports for your business, you will want to look at what is happening in the local market. Under the MARKET menu you will find important market and customer information. The Local Labor report provides the averages for manager and staff wages, average turnover rate (which tells you about how often the staff at local businesses is quitting), the area's minimum wage, and the number of employees for the other coffee shops in the area. The Customer Survey shows customer satisfaction with your cafe, an important measure of your performance. As the simulation progresses, the marketing research firm that surveys satisfaction may provide additional information depending on your decisions. The Industry Menus option shows the menus for all your competitors so you may compare competitor prices, coffee quality, and cafe hours with your own. Finally, under CREATIVE, Industry Branding is where you can view your competitors' logos, ads, cup design and menus once they have been designed. Next Steps Jane Valdez is confident you will be successful in managing the coffee shop. While the fixed costs associated with running the shop are high, she is sure there is sufficient demand in the local market for your team to generate enough revenue within the next two months to have positive cash flow. Your experience in BizCafe will have wide application for business management: • • • • Make a good plan. Coordinate your management, marketing, and operations decisions. Analyze results. Make adjustments. Remember to enter start-up decisions. Best of luck in running your cafe! BIZCAFE Business Essentials Why study business? To start with, all of us interact with businesses every day. Many of us will spend much of our lives working at a business. As consumers of products and services, we decide on a daily basis whether to purchase products and services and which particular ones to choose. Some of us may decide to study business because it is a fascinating and dynamic activity that offers us good career opportunities. Others may study business because it helps us better understand how the economy operates and how our actions and decisions may affect those around us. No matter what your particular reason for choosing to study business, you will find that businesses share many common traits. These traits are common whether the business is small or large, for-profit or non-profit, or provides a product or service. Businesses need to consider what they want to accomplish (objectives), whom they serve (markets and other stakeholders), and how to create and deliver value for these markets and stakeholders. Within this general framework there are many variations, but keep these simple ideas in mind as you further explore topics in business. BizCafe is an opportunity to explore business through the use of a dynamic computer simulation. In the simulation you will open and manage a coffee shop in a university town for up to 16 weeks. During this exploration you will learn about different aspects of running a business at a fundamental level and gain insights into questions such as: • • • • Whom should I hire? What should I pay them? What price should I charge? How do people find out about me? What should I purchase? What equipment do I need? How do I keep track of money – my revenues and expenses? Using business terminology, we might translate these questions into the different functional areas of a business at a fundamental level as follows: • • • • Management = Whom should I hire? What should I pay them? Marketing = What price should I charge? How do people find out about me? Operations = What should I purchase? What equipment do I need? Accounting = How do I keep track of money – my revenues and expenses? In no way do the questions reflect the full range of issues in each of these functional areas, but they do represent a good place to start, and that is the purpose of BizCafe—to allow you to experience some of the issues in running a business before your paycheck depends on it! Before we go into more detail on these functional areas, we should talk about general organizational approaches used in companies. For instance, in a traditional functional organization, all of these functional managers would typically report to a President or CEO of the company. Thus, there would be a human resource manager (or Vice President), a marketing manager, an operations manager, etc. all of whom would report to the President of the company. However, there are alternatives to this approach, such as organizing by product or service, or by geographic area, for example. With BizCafe, we will focus on the more traditional functional approach, but realize that one of the most important decisions for a company is deciding how best to be organized. The remainder of this section provides a brief description of each of these different functional areas of running a business. Your textbook and instructor will likely provide much more detail and examples, but for purposes of BizCafe, this general introduction to each of these basic functional areas will provide a helpful framework. Management Although management could encompass running the entire business, in the context of BizCafe as well as many business courses, management often refers to the narrower definition of human resource management, or managing people. However, even with this narrower definition, management is one of the most challenging, complex, and important areas of running a business. Let’s consider some of the key areas that (human resource) management encompasses. These include, but are not limited to, job analysis, recruitment and selection, compensation and benefits, training, and employee motivation and morale. There are many other important aspects to management, but these are common to almost all organizations, large or small. Let’s take a few moments to better define each of these in a broad sense. First, within the organizational structure, someone must define both what general roles are necessary within the company as well as the specific tasks to be done by the employee in that role. Generally, this would be considered job analysis and would result in a series of job descriptions and job specifications. Once these are determined, the company will also need to understand how many employees will need to be provided in order to perform these functions. The expected level of work that needs to be done should drive the overall staffing level; however, determining that expected level of work is not a simple matter. Typically, a manager would look at expected sales and estimate the support necessary for that level of sales based on historical data or industry norms. It is important to remember that service quality and profitability objectives should also play a role in determining appropriate staffing levels. Once the jobs and staffing levels have been decided, the next issue for management is how to recruit and select the best employees for the jobs. Recruiting would include on-campus recruiting, internet sites, newspaper ads, job fairs, and television advertising; it would also include developing supporting materials, such as brochures, and scheduling on-site visits. Selection would encompass all the different ways of matching the best candidates for the jobs. This would include, for example, candidate testing and interviewing procedures to sift out which candidates are best qualified for the job as well as who are likely to accept and be retained. This brings us to the next aspect of management, which relates to compensation and benefits. This would include deciding on appropriate salaries for different positions and candidates as well as choosing different benefit options for your employees. Compensation would also include incentive compensation and bonuses. All of these decisions will impact your ability to recruit, motivate, and retain employees. Employees also need training. This is especially important when they start, but training and education should be part of an on-going process of developing employees to maximize their potential. Employees are one of a corporation’s most important assets. To not develop their skills is not only poor motivation for employees but also often a poor investment decision. Finally, related to training and compensation is motivation and company morale. Training and compensation are two ways to provide motivation, but obviously there are many other considerations for how to improve employee job satisfaction and morale. This topic begins to bring in behavior theory, company culture, managerial styles and leadership, all of which are topics in their own right. The bottom line is that there are many factors that will impact an employee’s performance. As a manager, one must take all of these into account to the best of one’s abilities to bring out the best in an employee as well as meet company objectives. As you may imagine, it is a daunting task to do well. In BizCafe, management is simplified to two decisions that represent all the above issues at a very basic level. The first decision is hiring the right number of servers to keep your cafe running smoothly and to keep customers and staff satisfied. Second is determining the right amount to pay your staff (servers and managers) to motivate them and meet your financial objectives. Though simple, these two decisions will impact the performance of your business.