Financial Plan For Implementing Integrated Outsourcing In Nuvista Accounting Essay

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Financial plan is the most crucial part of business operations, since it presents before an individual, organization or even a country, the current financial position and the adjustments in the spending pattern, and also helps to meet the goals. It is important to plan finances in order to reap long term benefits through the assets in hand. Every decision regarding our finances can be monitored if a proper plan is devised in advance. Our present report will explain and elaborate the importance of the financial plan for a company before launching new product/service to their business operations. The present report deals with feasibility of implementing new services (Integrated Outsourcing Services) launched by Nuvista Technologies, Singapore and gives a detail financial plan and budgeting for three financial years. It evaluated the initial investment and cost incurred in running the service and also estimates the revenue generation for the next three years. The cost and revenue estimations are further supported by the budgeted income statement and cash flow statement which gives a details cost and revenue variable for three years. Cost estimations are based on service costing models which helps to efficiently allocated the direct and indirect cost incurred in rendering the services.

INTRODUCTION

1.1 OUTSOURCING IN SINGAPORE

Outsourcing is often viewed as involving the contracting out of a business function - commonly one previously performed in-house - to an external provider. In this sense, two organizations may enter a contractual agreement involving an exchange of services and payments1. The outsourcing concept comes way back from 1960 with start of outsourcing information technology (IT) or systems (IS). Today, it IT/IS managers are more into this potentially viable business solution to remain competitive in the present and everchanging business world.

Singapore has increasingly playing an important role in the increased performance of outsourcing industry and also helping the nation to build biggest BPO hub in Asia. U.S. Department of Commerce ranked Singapore as the second fastest-growing hub for outsourcing among U.S. businesses2. While reports by AT Kearney, PricewaterhouseCoopers and the Economist Intelligence Unit have found Singapore to be amongst the top destinations for off shoring3. Many multinational companies including Citibank, Credit Suisse First Boston, Hewlett-Packard, IBM and Microsoft,(according to the Infocomm Development Authority of Singapore), have already located their business process outsourcing activities in Singapore to improve their operational efficiencies.

Apart from big multinational, Singapore is also encourages SMU's to effectively contribute to the outsourcing revenue of the nation and to push the small island nation in Asia to develop into a "trusted BPO hub of the region.

1.2 OUTSOURCING SERVICES IN NUVISTA

NuVista Technologies Pte. Ltd, Singapore, an Engineering and IT outsourcing firm(include both On-Site and Off-Site Outsourcing), provides onsite technical resourcing and project based offsite services or a combination to multinational clients to farm out their requirements to specialized project teams set up specifically for their projects. It provides specialized outsourcing services with reduced costs and technically experienced teams.

Nuvista follow ISO standards to implement our Services. The services includes-

Application Development: Development in J2EE, .NET and wireless technology

Enterprise Integration: Seamless integration of Web-based system with existing infrastructure and SAP/ Oracle services.

CRM: Implement contact centre with Supply chain as core processing services.

As Engineering and IT outsourcing firm, NuVista provide its clients with a facility to farm out their requirements to specialized project teams set up specifically for their projects. As company's multinational clients look for reduced costs, technically experienced teams to provide them with solutions for their various projects, Nuvista extended their services bandwidth with the introduction of integrated outsourcing services.

Nuvista sees an opportunity to develop Integrated Outsourcing Services (IOS) which involves following:

HR Outsourcing Services

Logistics and Procurement Outsourcing

IT Infrastructure Outsourcing

ERP Outsourcing

The present report deals with the financial plan for the Integrated outsourcing services in Nuvista. The financial plan includes budget estimation for the implementing the services for the next three years. It gives a detail plan for spending and saving future income .This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings.

LITERATURE REVIEW

2.1 FINANCIAL PLAN

Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department1. A financial plan can also be expressed as budgeting the new project of business entity. The goal of financial plan is to make the company operating process into a decision support service so that the benefits of the operation activities exceed the costs. This can be done by manipulating financial variables (costs, sales, investments, taxes, etc.) to see the outcome of a decision before it is made. This can help facilitate strategic thinking within the budgeting process.

In business, a financial plan usually include three primary financial statements -Budgeted cost sheet, and revenue and budgeted income statement, and cash flow statement) created within a business plan.  But a financial plan refers to estimating future income, expenses and assets.

The financial plan for Nuvista new project- integrated outsourcing service includes estimating cost and revenue budget. The main focus is on the cost budget and pricing the services.

2.2 BUDGETING

Fig: Components of annual budget

Sales Budget

Cost Budget

Cash Budget

Budgeted Income statement

Budgeted balance Sheet

Operating Budgets

Financial Budgets

Fig.2.2. Budgeting flowchart

A budget is a detailed plan that shows the financial consequences of an organization's operating activities for a specific time period. It acts as a financial model that summarizes future operations and it is usually viewed as a core component of an organization's planning and control system

Financial budget: consists of the budgeted income statement, the budgeted balance sheet, the cash budget and the capital expenditure budget.

Operating budget: the sales budget and the various costs budgets that are directly associated with the operating activities of the organization.

The operating Budget:

The operating budget includes the sales budget, based on forecast sales of goods/services, and a series of cost budgets that specify how operations will be carried out to meet the forecast sales demand.

The sales budget:

It is a detailed summary of the estimated sales units and revenue from the organization's products for the specified period based on sales forecast. Sales forecast: it involves estimating which product/service will be sold and in what quantities. For e.g.: the company can forecast size of the team required for the demanded service. Also forecast the number of services demanded by the client and for what period. It is very difficult to accurately forecast the sales. Prior research is necessary to access the sales in future period. The two major factors that are considered when forecasting sales:

Internal factors:

Past sales levels and trends for the company.

New services planned by the company

The intended pricing policy of the company

External factors:

General economic trends. (is the industry growing? Hoe fast is it growing?)

Political and legal events.( increase government taxes)

Expected activities of competitors and customers.

The typical starting point in forecasting sales volume is to consider the sales achieved in the current year, and then to assess the likely effect of the factors on the budget year sales volume.

Cost budget

It details the cost of the operations that will be carried out to support the forecast demand for its services.

Based on the sales budget for its services, the firm can develop a set of budgets that show how the demand for those services will be met. The cost budget for an outsourcing firm uses a service costing model. This model is very useful in estimating direct and indirect cost involved in rendering the service and evaluating the price for the service. Unlike product costing, where the cost involved (like raw material, manufacturing etc) can be easily calculated, service costing involves particular process to access the cost involved.

Service costing Process:

Indentify the item to be costed

Classify the cost by major cost categories: for example service, labor, materials & supplies, technology cost, occupancy cost and other service overhead.

Determine the direct cost: all dose cost that can be directly identified with the service such as labor , material s, parts , supplies, telephones and other cost

Identify the indirect costs: such as occupancy costs, information's systems, administration support and office management.

Assign the indirect cost: this cost assignment should reflect a casual relationship between service provided and demands it places on shared resources, allocation base is the factor that establishes the relationship between the costs of common resources and how these are consumed by the item being costed. The cost allocation rate is used to assign these indirect costs. It is calculated by dividing the total cost of the common resources by the allocation base. Ex: suppose the total occupancy cost for the hospital is $10000 the hospital has the area of area of 10000sqft. The total square footage is chosen as allocation base for the occupancy cost.

Calculate the total service cost: sum of direct and indirect cost.

The financial Budget:

Once the operating budget is complete, the financial budgets can be prepared. Financial budget includes three processes namely. Cash budget, budgeted income statement and budgeted balance sheet.

The cash budget:

Shows detailed expected cash receipts and planned cash payments. Most cash receipts results from selling services. Cash payments will relate to planned payments for all purchase to be made throughout the specified period include major purchases, which are identified from the capital expenditure budget. A capital expenditure budget is a plan for the acquisition of long-tem asset, such as building, plant and equipment.

In addition, large cash inflows, for example from borrowing or from the sale of assets, will be included in the cash budget as cash receipt.

By considering the timing of all cash receipts and cash payments, the cash budget will reveal when the firm will have cash shortages throughout the budget year, and when there will be cash surplus available for short-term investment. The cash budget allows the business to plan how and when it will acquire its financial resources.

The budgeted income statement and balance sheet.

Budgeted income statement shows the expected revenues and planned expenses of the firm during the period. The budgeted balance sheet sets out the expected financial position at the end of the budget period. These budgeted financial statements show the complete financial results of the planned operations for the budgeted period.

Income statement: Also known as Profit and loss statement, gives a complete summary of the company's profit/loss and net income during a given year. It records all the revenue and expenses incurred by the company during this given period. It helps to determine the operating performance of the business over a period of time.

2.3 The procedure for the financial budget:

The sales budget:

The first step in estimating the sales budget is to consider the size of contract for the current financial year and forecast for next three years

The second step in to estimate the average contract price (selling price) for the budgeted year.

Service no. Of contracts price per service weighted selling values

The budgeted income statement:

With the use of fixed and variable cost estimation, a budgeted income statement is prepared.

Year 1 Year 2 Year 3

Sales revenue

Expenses

Building expenses

Variable cost

Fixed cost

Selling expenses

Variable cost

Fixed cost

Administration cost

Variable cost

Fixed cost

Finance expenses

Variable cost

Fixed cost

Fig.2.3. Budgeting income statement

2.4 BUDGETED CASH FLOW STATEMENT

Cash flow is one of the most important aspects of running any business - large or small. Managing cash flow therefore is vitally important in the smooth running, survival and success of a business. Cash flow forecasting enables you to predict peaks and troughs in your cash balance. It helps you to plan borrowing and tells you how much surplus cash you're likely to have at a given time. Many banks require forecasts before considering a loan. The cash flow forecast identifies the sources and amounts of cash coming into your business and the destinations and amounts of cash going out over a given period. 

There are a few things we need to make clear about these forecasts.

Receipts: This is an estimate of the predicted sales revenue for each month.

Payments: it gives the details of the payments that the firm expects to have to make during the year. This will be added together to give a 'Total Payments' for each month.

Net cash Flow: This shows the difference between the total payments and receipts.

Opening balance: The money firm carried over from the previous month.

Closing Balance: the money that a firm left with at the end of the month. This is the difference between the net cash flow and the opening balance.

FINANCIAL PLAN- NUVISTA TECHNOLOGIES.

3.1 INTRODUCTION:

Nuvista now plans to develop Integrated Outsourcing Services (IOS) which involves following: HR Outsourcing Services, Logistics and Procurement Outsourcing, IT Infrastructure Outsourcing and ERP Outsourcing.

Fig 3.1.1. Planned outsourcing services

Nuvista wants to understand what will be the total cost incurred to run these 4 services and total expected revenue generated from these services for next years. In short a financial planning is required for three years.

3.2 PRICING STRATEGY

A right price for the service will be that covers all the cost (fixed and variable) incurred by the company allowing it to earn incremental required profits every year and providing a competitive edge over its competitors to attract clients and projects to meet its targeted revenue per year.

In order to price the client for each service, we have to consider the following

Fig 3.2.1. Factors influencing the cost

the total cost for the company while providing the service

It includes the (variable) cost incurred that is mentioned in the table plus (fixed) initial investment made in software and hardware.

Profit percentage expected by the company

Nuvista wants to have minimum of 15 % profits in year 1, 25 % in year 2 and 30 % in year 3. Thus the pricing of the services should be such that it meets its profits margin.

The market prices.

One has to consider what the competitors are pricing the same services. If charged more, it will not attract clients or projects. Hence knowing what the market charges for the services will help to decide what should be apt prices charged to the client and this in turn help to reduce the cost in order to meet the expected profits margins.

3.3 COST:

Fixed cost + variable cost = total cost.

Investments done in the software and hardware are the fixed cost

Total variable cost includes following components

Fig 3.3.1. components of variable cost

Maintenance cost :

Maintenance cost includes the maintenance of software and hardware throughout the year. Every year some cost is incurred to upgrade softwares and maintain or repair the hardware. Generally about 18 - 20% of total investment goes as maintenance cost for the year. We have taken 18% of the total hardware and software investment for investment per year in each service. The table shows the initial investment done in hardware software and the maintenance cost for in each service.

Particulars (SGD)

HR

Procurement

ERP

INFRA

Total

Initial Hardware & software investments

20,000

20,000

50,000

0

-

Maintenance % per year

18%

18%

18%

0

-

Maintenance cost per year

3,600

3,600

9,000

0

16,200

Table 3.3.1. Maintenance cost

The maintenance cost remains constant for all 3 years. The data for initial investment for hardware and software is given by the mentor. There's no maintenance cost in INFRA because the contract will be given to the third party.

Administration Cost:

Administration cost includes expenses incurred in controlling and directing an organization. It include cost items like

Stationary

Photocopying, mailing

Telephone, fax and Internet

Heating, electricity

Office rent, office furniture, maintenance

Other administration expenditure necessary for the successful completion of the operation

The monthly administration cost for Nuvista is taken to be SGD 3000*. This is equally divided in 4 services per month for simplicity as shown

Particulars (SGD)

HR

Procurement

ERP

INFRA

Total

Administration cost per month

750

750

750

750

3,000

Administration per year

9,000

9,000

9,000

9,000

36,000

Table 3.3.2. Administration cost

The Administration cost remains constant for all 3 years.

Common Work force:

It includes the salaries of the in house employees of Nuvista- managers, marketing & sales Officers and other employees. The total monthly amount is SGD 32000. Only one employee is need to work for the INFR since it been given to third party about SGD 1250 can be allotted to him/her. The remaining (32000-1250) SGD 30,750 is equally distributed among the other services.

Particulars (SGD)

HR

Procurement

ERP

INFRA

Total

Administration cost per month

10,250

10,250

10,250

1,250

32,000

Administration per year

1,23,000

1,23,000

1,23,000

15,000

3,84,000

Table 3.3.3. Common work force cost

The common work force remains constant for all 3 years.

Labor Cost:

It includes the salary of employees working in teams for each service in particular. A team will consists of one team specialist who will manage employees from Singapore and other from India. Taking employees from India is strategy to reduce the labor cost.

In case of Procurement, apart from the salary it also includes the goods such as oil and gas commodities.

The number of projects or clients is expected to increase every year. Hence Labor cost will change every year as shown below.

YEAR 1

HR services:

Nuvista has to keep 15 employees taking care of all HR services as shown.

Particulars (SGD)

Team specialist

Singapore team

Indian team

Team for payroll

Total

No of employees

1

5

7

2*

15

Salary per month per employee

4,000

3,000

700

3,000

Total labor cost per year

48,000

1,80,000

58,800

72,000

3,58,800

Table 3.3.4.1. HR cost for year 1

*2 extra employees for payroll since Nuvista expects a good deal of clients. These employees are from Singapore.

Procurement & Logistics Outsourcing:

Particulars (SGD)

Team specialist

Singapore team

Indian team

Goods for 10 project for year

Total

No of employees

1

1

2

10

-

Salary per month per employee

4,000

3,000

700

18,5000

Total labor cost per year

48,000

36,000

16,800

1,85,000

2,85,800

Table 3.3.4.2. Procurement cost for year 1

Minimum of 10 projects are targeted in year 1 for procurement

IT ERP Outsourcing:

Particulars (SGD)

Team specialist

Singapore team

Indian team

Total

No of employees

1

1

3

7

Salary per month per employee

4,000

3,000

700

Total labor cost per year

48,000

36,000

25,200

1,09,200

Table 3.3.4.3. ERP cost for year 1

Total Labor Cost for year 1

Particular (SGD)

HR

Procurement

ERP

TOTAL

Total cost per year

3,58,800

2,85,800

1,09,200

7,53,800

Table 3.3.4.4. Total labor cost for year 1

Year 2.

HR services:

Due to increase in the clients and project for the second year, the number of employees working will be increased to manage the work load from 15 to 21 but the salaries will remain the same.

Particulars (SGD)

Team specialist

Singapore team

Indian team

Team for payroll

Total

No of employees

1

7

10

3

21

Salary per month per employee

4,000

3,000

700

3,000

Total labor cost per year

48,000

2,52,000

84,000

1,08,000

4,92,000

Table 3.3.4.5. HR cost for year 2

Procurement & Logistics Outsourcing:

Particulars (SGD)

Team specialist

Singapore team

Indian team

Goods for 20 project for year

Total

No of employees

1

2

4

20

-

Salary per month per employee

4,000

3,000

700

-

Total labor cost per year

48,000

72,000

33,600

1,90,000

3,43,600

Table 3.3.4.6. Procurement cost for year 2

Minimum of 20 projects are targeted for procurement

IT ERP Outsourcing:

Particulars (SGD)

Team specialist

Singapore team

Indian team

Total

No of employees

1

2

4

7

Salary per month per employee

4,000

3,000

700

Total labor cost per year

48,000

72,000

33,600

1,53,600

Table 3.3.4.7. ERP cost for year 2

Total Labor Cost for year 2

Particulars (SGD)

HR

Procurement

ERP

TOTAL

COST

4,92,000

3,43,600

1,53,600

9,89,200

Table 3.3.4.8. Total labor cost for year 2

Year 3.

HR services:

27 employees to take care of entire HR services.

Particulars (SGD)

Team specialist

Singapore team

Indian team

Team for payroll

Total

No of employees

1

10

12

4

27

Salary per month per employee

4,000

3,000

700

3,000

Total labor cost per year

48,000

3,60,000

1,00,800

1,44,000

6,52,800

Table 3.3.4.9. HR cost for year 3

Procurement & Logistics Outsourcing:

Particulars (SGD)

Team specialist

Singapore team

Indian team

Goods for 10 project for year

Total

No of employees

1

2

4

30

-

Salary per month per employee

4,000

3,000

700

-

Total labor cost per year

48,000

72,000

33,600

1,95,000

3,48,600

Table 3.3.4.10. Procurement cost for year 3

Minimum of 30 projects are targeted for procurement

IT ERP Outsourcing:

Particulars (SGD)

Team specialist

Singapore team

Indian team

Total

No of employees

1

3

5

7

Salary per month per employee

4,000

3,000

700

Total labor cost per year

48,000

1,08,000

42,000

1,98,000

Table 3.3.4.11. ERP cost for year 3

Total Labor Cost for year 3

Particulars (SGD)

HR

Procurement

ERP

TOTAL

COST

6,52,800

3,48,600

1,98,000

11,99,400

Table 3.3.4.12. Total labor cost for year 3

3.3.5. Total variable cost for all 3 years is put up in the table

Particulars (SGD)

Year 1

Year 2

Year3

Maintenance Cost

16,200

16,200

16,200

Administration cost

36,000

36,000

36,000

Common work force cost

3,84,000

3,84,000

3,84,000

Labor Cost

7,53,800

9,89,200

11,99,400

Total

11,90,000

14,25,400

16,35,600

Table 3.3.5. Total variable cost for all three years

3.3.6. The total cost in each service

We have to charge 3.5 % of the fixed cost per year to each client for HR services and 4.8% for Procurement and ERP. The reason for lower percent age for HR was to reduce the cost in HR in order to meet required profit margin. The taken percentage will remain constant for all years.

YEAR 1

Particulars (SGD)

Fixed Cost (initial investment in software & hardware)

(A)

% of fixed cost charged per year

(B)

Total variable cost per year(adm, maintenance, com wrk force and labor) (C)

Total cost incurred for delivering the service

D=B+C

HR

20,000

3. 5% A =700

4,94,400

4,95,100

Procurement

20,000

4.8%A=960

20,86,404

20,87,364

ERP

50,000

4.8%A =2,400

2,50,200

2,52,600

Table 3.3.6.1. Total cost for year 1

YEAR 2

Particulars

(SGD)

Fixed Cost (initial investment in software & hardware)

(A)

% of fixed cost charged per year

(B)

Total variable cost per year(adm, maintenance, com wrk force and labor) (C)

Total cost incurred for delivering the service

D=B+C

HR

20,000

3. 5% A =700

6,27,600

6,28,300

Procurement

20,000

4.8%A=960

40,89,204

40,90,164

ERP

50,000

4.8%A =2,400

2,94,600

2,97,000

Table 3.3.6.2. Total cost for year 2

YEAR 3

Particulars (SGD)

Fixed Cost (initial investment in software & hardware)

(A)

% of fixed cost charged per year

(B)

Total variable cost per year(adm, maintenance, com wrk forc and labor) (C)

Total cost incurred for delivering the service

D=B+C

HR

20,000

3. 5% A =700

7,88,400

7,89,100

Procurement

20,000

4.8%A=960

61,39,200

61,40,160

ERP

50,000

4.8%A =2,400

3,39,000

3,41,400

Table 3.3.6.3. Total cost for year 3

The cost of goods is expected to increase per year due to inflation.

3.4 REVENUE:

To meet the expected profit margin for each which already mentioned above we have to consider the total cost Nuvista will incur in delivering the service and price accordingly by understanding what the market charges the services. To meet higher profit margin each year, the revenue generated should be more keeping the cost minimal. Thus the clients and projects should be increased each year. The tables below show how the revenue can be generated by appropriated pricing strategy for each service and what should be the minimum target of clients and projects per year needed to meet the profit margins.

YEAR 1

From the past records, Nuvista is doing a good business in HR outsourcing. Hence, there should be 20 clients for each month having minimum of 20 employees each. We should charge SGD 37 for each employee of the client. This is the average charge in the market. Payroll revenue is done on per month basis.

In recruitment, one client is expected per month. About 5 minimum employees would be recruited for client. We expect the annual salary for the employee to be SGD 66000. We charge 10% of the annual salary i.e. 6600 per employee.

There will be 5 minimum projects in both learning & development and Compensation & benefit per year and SGD 5000 will be charge per project.

About 10 projects are expected in Procurement and a charge of 240000 per project. Minimum of 2 ERP project is expected and will be charged 20000 per project.

Particular (SGD)

Min no of employees per client

Min of clients or projects

Min charge to per client or project

Number of months

Revenue per year per service

HR

Payroll per month

20

20

37

12

1,77,600

recruitment

per month

5

1

6,600

12

3,96,000

L&D projects

per year

5

5,000

25,000

Comp &

benefit project

per yr

5

5,000

25,000

6,23,600

Procurement

10

2,40,000

24,00,000

ERP

2

2,00,000

4,00,000

Total

34,23,600

Table 3.4.1. Total revenue for year 1

Year 2

The target should we 30 clients per month for payroll. We charge 35 for the existing clients and 37 for the new clients. The average of 36 is taken in the table. On an average, minimum of 7 employees to be recruited for the clients per month is required. The target of 7 projects per year for learning and development and compensation & benefit per year is needed. The pricing remains the same for the other three services in HR.

The projects this year in procurement and ERP should be doubled to 20 and 4 respectively. The prices charged are increased due the increase in cost of goods in future.

Particular (SGD)

Min no of employees

Min of clients or projects

Min charge to per client or project

Number of months

Revenue per year per service

HR

Payroll per month

20

30

36

12

2,59,200

recruitment

per month

7

1

6,600

12

5,54,400

L&D projects

per year

7

5,000

35,000

Comp &

benefit project

per yr

7

5,000

35,000

8,83,600

Procurement

20

2,50,000

50,00,000

ERP

4

2,10,000

8,40,000

Total

67,23,600

Table 3.4.2. Total revenue for year 2

YEAR 3:

The target should we 40 clients per month for payroll. The minimum of employees per client should be 22 for year 3. We charge 36 for the existing clients and 38 for the new clients. The average of 37 is taken in the table. On an average, minimum of 10 employees to be recruited for the clients per month is required. The target of 10 projects per year for learning and development and compensation & benefit per year is needed. The pricing for the other three services in HR is shown in the table.

The projects this year in procurement and ERP should be increased to 30 and 6 respectively. The prices charged are increased due the increase in cost of goods in future.

Particular (SGD)

Min no of employees

Min of clients or projects

Min charge to per client or project

Number of months

Revenue per year per service

HR

Payroll per month

22

40

37

12

3,90,720

recruitment

per month

10

1

7,200

12

8,64,000

L&D projects

per year

10

6,000

60,000

Comp &

benefit project

per yr

10

6,000

60,000

13,74,720

Procurement

30

2,60,000

78,00,000

ERP

6

2,10,000

12,60,000

Total

1,04,34,720

Table 3.4.3. Total revenue for year 3

3.5 SUMMARY

The table below gives the summary of the cost and revenue generated for three years (also refer appendix fig 1). With the pricing strategy, the company can realize profits percentage of 17, 25 and 30 respectively each year. This profit percentage is more than the profit margin set up by the company.

Particulars (SGD)

Year 1

Year 2

Year 3

Total cost

11,90,000

14,25,400

16,35,600

Total revenue

34,23,600

67,23,600

1,04,34,720

Profits

5,88,536

1,708,136

3,164,060

Profits percentage

17.1906%

25.4051%

30.3224236%

Profit margin required

15

20

25

Table 3.5. Cost, revenue and profit in nutshell for three years

3.6. INDIVIDUAL ANALYSIS OF SERVICES:

HR

Year1

Year 2

Year3

Cost

495100

628300

789100

Revenue

623600

883600

1374720

Profits

128,500

255,300

585,620

Profit percentag

20.60%

28.89%

42.59%

Procurement

Year1

Year 2

Year3

Cost

2087364

4090164

6140160

Revenue

2400000

5000000

7800000

Profits

312,636

909,836

1,659,840

Profit percentage

13.02%

18.19%

21.28%

ERP

Year1

Year 2

Year3

Cost

252600

297000

341400

Revenue

400000

840000

1260000

Profits

147,400

543,000

918,600

Profit percentage

36.85%

64.64%

72.9%

Table 3.6. Individual analysis of each service

Fig 3.5.1: Graph showing the profits generated in HR, Procurement and ERP services for three years

Consolidated cost, revenue and profits for all the services put together.

Fig: 3.4.2. grapth showing cost incurred every year Fig 3.4.3. Rrevenue generated

Fig 3.4.4. Profits every year

Form the tables above show that, Nuvista will get maximum profits from ERP services with the pricing strategy provided followed by HR and then procurement.

3.7. Distribution percentage of cost, revenue and profit among all 3 services for all 3 years

Cost

HR%

Procurement%

ERP%

year 1

17.46377

73.69838

8.837854

year 2

12.52344

81.59797

5.878592

year 3

10.84821

84.48723

4.664564

Revenue

HR%

Procurement%

ERP%

year 1

18.21474

70.10165

11.68361

year 2

13.14177

74.36492

12.49331

year 3

13.17448

74.75045

12.07507

Table 3.7. Distribution percentage of cost, revenue and profit among all 3 services for all 3 years

Thus we see that the maximum cost is incurred in procurement. This mainly because of cost of goods involved. But the revenue generated is also highest in Procurement. Still the profit percentage is low. On the other end of the spectrum, ERP has low cost incurred but has maximum profit percentage. Thus Nuvista should concentrate on ERP services and stick to the pricing strategy recommended.

3.8. CASH FLOW ANALYSIS:

The budgeted cash flow statement reports the cash that be generated and used during the time interval specified in its heading as defined in Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin. pp. 455. ISBN 0072510773.

This budgeted cash flow statement covers only the operating activities (i.e. converts the items reported on the income statement from the accrual basis of accounting to cash). We cannot cover the financing and investing aspects of cash flow statement since it's a forecast. We have done on monthly basis for three years.

Cash inflow consists of all the revenue from each of the services namely HR, ERP and Procurement. Cash outflow consists of all the monthly expenses - Maintenance, administration, common work force, labor costs as well as the percentage of usage of fixed investment. The entire excel sheet of cash flow is shown in the appendix.

The payment of the service is received after 60 working days. Thus the revenue of January of year 1 is received in April of the year 1. Thus for first 3 months of year, there will be no cash inflows but only cash outflows. The expenses for these months will be total of SGD 709265. Hence Nuvista should have SGD 710000 to run its operations for 3 months.

In April when it gets January revenue SGD 285300 it can use to pay the April's monthly expense SGD 236421.6667. The split up of the revenue and the expenses from various services is shown in the excel sheet. There will cash surplus of about SGD 48878.33333 which will be carry forward to the next months opening balance.

Fig: 3.8.1: Revenue, expenses and closing balance for year 1

For Year 2, monthly cash inflow will be SGD 560300 and cash outflow will be SGD 418121.6667.

Fig 3.8.2: Revenue, expenses and closing balance for year 2

For year 3, monthly cash inflow will be SGD 869560and cash outflow will be SGD 606055.

Fig 3.8.3: Revenue, expenses and closing balance for year 3

The table below shows the opening and closing balance for the 3 years. Also refer appendix fig 3

Particulars in SGD

Opening balance

Closing balance

Year1

0

4,40,105

Year2

4,40,105

21,81,991

Year3

21,81,991

53,44,051

Table 3.8. The opening and closing balance for the 3 years

From the pricing strategy provided, Nuvista will have cash surplus all the 3 years. The cash surplus can be used for investing purpose for market diversification for future growth.

RECOMMENDATION

AND

CONCLUSION

CONCLUSION:

Financial Planning is a continuous process that flows with strategic decision making. The financial plan for Nuvista Technologies shows the company indeed has tremendous growth opportunities with the Integrated outsourcing services.

The financial Plan shows that various costs involved while delivering the services. Out of all 4 variable costs, Labor cost is the highest followed by common work force cost, administration and then maintenance cost. Thus it is necessary to control the labor cost. For this we have increase the number of employees in the team from India.

Procurement has the highest total cost compared to other services. This is mainly due to the cost of goods involved for the project. Though the revenue generated is maximum in procurement but the profits are the lowest. In such case, Nuvista can ask the clients to buy their own goods and Nuvista can provide only consultancy to them. Thus the cost of goods will be reduced and the cost of revenue will increased. They can go for fixed commission model.

The maximum profit earned is in ERP. Hence Nuvista should give prime focus on ERP outsourcing followed by HR. These are the two profit generating services.

REFERENCES

 "Terms and Definitions". ventureoutsource.com. Retrieved 2007-10-05

Matt Evans,CPA,CMA, CFM, Financial Planning & Forecasting Excellence in finncial Management.

www. Nuvistastech.com

Angela Mui, Investigation of IT/IS Outsourcing in Singapore, University essay from Blekinge Tekniska Högskola/Inst. 2003.

Singapore's outsourcing aspirations, United Press International,may 8, 2006, retrieved on aug 17, 2010

Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 502. ISBN 0-13-063085-3.

Long-Term Financial Statements Forecasting: Reinvesting Retained Earnings, Sergei Cheremushkin, 2008

Meigs, Walter B. and Robert F. Financial Accounting, 4th ed. (McGraw-Hill Book Company, 1970) pp. 187-188.

Prospective Analysis: Guidelines for Forecasting Financial Statements, Ignacio Velez-Pareja, Joseph Tham , 2008

Helfert, Erich A. (2001). "The Nature of Financial Statements: The Cash Flow Statement". Financial Analysis - Tools and Techniques - A Guide for Managers. McGraw-Hill. p. 42. doi:10.1036/0071395415

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