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Balogne Pty. Ltd’s Financial Forecasting Issues Report


Executive Summary

The second part of the Business Report for Balogne Pty. Ltd addresses the issues of financial forecasting and the sphere of business and technology. Microsoft Excel has been applied to the creation of four graphs and one table demonstrating the company’s predicted performance based on such key indicators as earnings, earnings by product, variable costs, and sell prices. It has been explained how certain market influences, such as inflation/deflation, can affect the calculations of predictions. Further, contemporary business issues have been addressed, including knowledge management, business intelligence, Five Forces, and security.

Introduction

Upon reflecting on the role of business modeling and process modeling in decision-making, the use of Microsoft Excel for calculations, and the adoption of Web 2.0 applications for internal and external communications, the business analyst of Balogne Pty. Ltd, a company that produces several types of sugar products, turns to forecasting and strategic business planning.

For the newly appointed General Manager, it is important to receive predictions as per the company’s expected performance and factors that may affect the operation in the nearest future. Three areas will be addressed as part of these business analytics efforts: forecasting financial performance (with the use of graphs demonstrating key indicators of financial dynamics), accumulating predicted financial data (with the use of a pivot table), and investigating contemporary issues related to technology and business, including knowledge management, business intelligence, market forces, and security.

Forecast Graphs

In financial planning, strategic decisions should be based on future projections; even though such projections’ accuracy may be questionable (due to the constantly changing market trends and influences), there is still a need for Balogne Pty. Ltd to build forecasts as per such crucial financial indicators as revenues, costs, and earnings and such considerations as the dynamics of these indicators among the company’s products. The first prediction to be designed is the prediction of earnings; it should be based on the current indicators, inflation/deflation rates, and volume sold. The result of the prediction is presented below (Figure 1).

Yearly USD earnings forecast by product.
Figure 1: Yearly USD earnings forecast by product.

Earnings are calculated as the difference between revenue and cost: revenue, in turn, is the product of multiplying volume sold by the selling price, and the cost is the product of volume sold and variable cost plus fixed cost (overhead).

In 2016 and 2017, costs and prices are affected by the inflation/deflation rate, and there is growth/loss dynamics for volume sold, too. By considering all these factors and inputting data correctly into relevant software, such as a Microsoft Excel spreadsheet, a business analyst will be able to predict earnings and provide the General Manager with the information needed for strategic decision making. Further, looking into the dynamics of earnings distribution among different products is needed to improve product policies of Balogne Pty. Ltd (Figure 2).

Estimated percentage of total earnings by-product (2015 to 2017).
Figure 2: Estimated percentage of total earnings by-product (2015 to 2017).

As can be seen from the graph above, golden syrup is accountable for the smallest portion of earnings. White sugar sales generate the largest portion of earnings, and these earnings are expected to grow in 2017 (Figure 1). The product accountable for the second-largest portion of earnings is brown sugar (Figure 2), but it has been demonstrating a consistent decline in earnings generation within the three years (Figure 1).

However, as it has been mentioned, this information is based on certain predicted financial rates, and it should not be overlooked that these rate’s dynamics may be significantly different from the predictions. The use of such software as Microsoft Excel provides convenient opportunities for incorporating these considerations into a business analysis spreadsheet.

By modifying the rate in one cell (which contains a fixed inflation/deflation rate), a user can see the changes in numbers in all the cells that refer to inflation/deflation, i.e. the numbers that depend on the rate; also, the graph immediately changes and displays new numbers based on the newly determined rate. For example, variable cost per unit dynamics can be explored for the situation in which the inflation/deflation rate for 2016 and 2017 is not -5 percent and 20 percent respectively but 15 percent and 25 percent respectively (Figure 3).

Variable cost per unit dynamics at an alternative inflation/deflation forecast.
Figure 3: Variable cost per unit dynamics at an alternative inflation/deflation forecast.

When modifying the variable cost per unit dynamics, a user immediately modifies the total annual cost indicator and the total earnings level. However, it should be considered that the growth of variable cost per unit cannot pass unnoticed for the market, as it will affect the selling price per unit indicator. According to a new prediction, the latter rate in 2016 and 2017 is 25 percent and 35 percent respectively instead of 5 percent and 10 percent (Figure 4).

Sell price per unit dynamics at an alternative inflation/deflation forecast.
Figure 4: Sell price per unit dynamics at an alternative inflation/deflation forecast.

Along with the fixed cost, both indicators presented in the two graphs above will affect total earnings. Therefore, their dynamics should be monitored by a business analyst. Particular attention should be paid to the role of external market influences on the variable cost and sell price.

Pivot Table

Pivot tables can be successfully used for analysis in various spheres, and Microsoft Excel provides proper technologies for that. It has been claimed by researchers that a pivot table is a “highly flexible contingency table” (Dierenfeld & Merceron 2012, p. 116), which means that the format of a table allows modifying previously inputted data using formulas and connections established among different cells. A pivot table for Balogne Pty. Ltd is presented below (Table 1).

Table 1: Pivot Table of Balogne Pty. Ltd’s Earnings from 2015 to 2017 by Product.

Earnings Forecast by Product
Brown Sugar
2015 $6 447 500
2016 $5 673 800
2017 $4 198 612
Product earnings $16 319 912
Caster Sugar
2015 $1 465 800
2016 $1 377 852
2017 $1 240 067
Product earnings $4 083 719
Golden Syrup
2015 $407 000
2016 $431 420
2017 $457 305
Product earnings $1 295 725
Icing Sugar
2015 $598 000
2016 $663 780
2017 $1 008 946
Product earnings $2 270 726
Raw Sugar
2015 $3 553 000
2016 $4 050 420
2017 $5 063 025
Product earnings $12 666 445
Sugar Cubes
2015 $329 400
2016 $467 748
2017 $725 009
Product earnings $1 522 157
Treacle
2015 $713 000
2016 $470 580
2017 $414 110
Product earnings $1 597 690
White Sugar
2015 $2 042 500
2016 $2 042 500
2017 $2 369 300
Product earnings $6 454 300
Total 2015 $15 556 200
Total 2016 $15 178 100
Total 2017 $15 476 374
Total Product Earnings $46 210 674

The table allows accumulating the earnings indicators within three years for each of the eight products. Also, it can be used for the creation of graphs, such as graphs presented in the previous section (see Forecast Graphs) to visualize the predictions and dynamics of the key indicators of the company’s financial performance. In case the predictions change (e.g. by the changing inflation/deflation), the data in the table can be modified for each product, and the final indicators, i.e. total earnings, will be recalculated by the software.

Investigation of Contemporary Issues: Technology and Business

Further analysis of Balogne Pty Ltd’s current and expected performance will encompass the issues of knowledge management, business intelligence, Five Forces, and security. Concerning knowledge management, scholars pay much attention to the way the work of knowledge workers can be improved, optimized, and made more efficient, and the definition of a knowledge work that is widely adopted by scholars today includes “both the utilization and creating of abstract/theoretical knowledge” (Hislop 2013, p. 71). Also, an important aspect of knowledge work is that it is intellectual and mostly non-routine.

Therefore, it may present challenges for managing, monitoring, and evaluating because the product and value of intellectual work are hard to measure. Many business management strategies have been proposed, and a particular aspect of a company’s performance addressed by them is a situation with senior workers in Balogne Pty. Ltd. Senior workers are used to certain practices and procedures that may be unfamiliar or poorly understood by new workers, and the former do not always document information related to these practices and procedures because it is a routine for them. As a result, business analysts are not supplied with complete information on the company’s internal operation, and the effectiveness of analytics is undermined.

A way to address this complication is to establish a teaching and learning environment. Senior workers should be encouraged to share various aspects of their experience with new workers. As a result, the process of new workers’ improvement will be accelerated, and all the necessary documentation of processes in which senior workers are involved will be maintained because they will be asked to properly reflect on the practices they teach.

Also, additional training provided by senior employees will contribute to the knowledge management efforts of the company because relevant knowledge will be accumulated and exchanged. This practice will help the company pursue the purpose of business intelligence, i.e. ‘to support better business decision making’ (Business intelligence n.d., para. 1) using collecting, storing, retrieving, exchanging, and analyzing information.

In analyzing Balogne Pty. Ltd’s supplier power, the Five Forces model designed by Porter can be applied (Dobbs 2014, p. 32). The model encompasses four kinds of external influences—two bargaining powers (of suppliers and buyers) and two threats (of new entrants and substitutes)—and one internal, ongoing influence: industry rivalry, i.e. the competition itself. For a company, it is important to recognize all five influences and adjust its operation to the changing conditions of the market. It is particularly relevant for Balogne Pty. Ltd because the company is currently growing, which means that its enlarging operation is more likely to face the impact of industry trends and possible external changes. Future sales can be particularly affected by the two threats recognized in Porter’s model.

Recent research confirms that sugar is a much more harmful substance for humans than it was previously believed (Groopman 2017); therefore, it can be expected that, in the nearest future, many new players will appear in the industry that will offer sugar substitutes, and many people may be willing to buy those substitutes instead of sugar and sugar products produced by Balogne Pty. Ltd.

Also, the company should not overlook the bargaining power of its suppliers, i.e. farmers, on future sales. In case suppliers face difficulties due to the decreasing demand for sugar, they may renegotiate the existing conditions of collaborating with the company. Depending on the extent of amending the current agreements, the company may face the need to reorganize its operation and its production facilities. Finally, there is a factor within the industry.

The company’s competitors can manage to adapt to the arising conditions of decreasing demand for sugar, i.e. by offering substitutes, and this will mean that these competitors will address the same needs of the same customers as those they addressed before but in a new way. In the case of Balogne Pty. Ltd fails to make this shift in the nearest future, its indicators of successful financial performance will be damaged.

Finally, in terms of security, the new General Manager needs to take into consideration different threats, both external and internal. In this context, security is understood as the company’s ability to collect, store, and retrieve information regarding its suppliers, customers, and internal operation safely. Two internal threats to proper security are poorly designed information systems and poorly trained employees. To address the former threat, the General Manager should ensure that the software used by the company for any operations with information is of good quality, regularly updated, and adjusted to the company’s needs.

The processes of selecting and operating information systems should be coordinated by the management so that the risk of compromising important (and often confidential information) is minimized. Concerning the latter threat—poorly trained employees—it should be recognized that important data can be compromised due to the incorrect use of information systems or data collection instruments (McBride, Carter & Warkentin 2012, p. 1).

However, employees should be trained not only on the technical aspects of working with information (i.e. on how to use particular software) but also on corporate ethics, e.g. it should be generally understood and respected that certain types of information should remain confidential so that the company does not let down its suppliers, customers, or employees.

Conclusions and Recommendations

Balogne Pty. Ltd is expected to demonstrate moderately successful financial performance, as its earnings growth for most products, although the earnings for some popular products decrease. However, an important threat is recognized: the demand for sugar can decline significantly in the nearest future, which should prompt the company to look for alternative ways of addressing its customers’ needs.

Improved knowledge management strategies will allow pursuing the goals of business intelligence, and increased attention to the selection and operation of information systems and technology- and ethics-related training for employees will allow improving the company’s security. Overall, it is assessed that the company, with its current performance, can overcome these challenges, and a properly designed business strategy will help address the issues outlined above.

Reference List

Business intelligence n.d. Web.

Dierenfeld, H & Merceron, A 2012, ‘Learning analytics with Excel pivot tables’, in Moodle research conference proceedings, Beuth University of Applied Sciences, Berlin, pp. 115-121.

Dobbs, ME 2014, ‘Guidelines for applying Porter’s five forces framework: a set of industry analysis templates’, Competitiveness Review, vol. 24, no.1, pp. 32-45.

Groopman, J 2017, ‘’, The New Yorker. Web.

Hislop, D 2013, Knowledge management in organizations: a critical introduction, 10th edn, Oxford University Press, Oxford, UK.

McBride, M, Carter, L & Warkentin, M 2012, Exploring the role of individual employee characteristics and personality on employee compliance with cybersecurity policies. Web.

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