Operational Analysis - Explained
What is an Operational Analysis?
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What is Operational Analysis?
The next part of the feasibility analysis is operational in nature.
Operational analysis regards the initial analysis of what operational aspects are required to carry on the business. This is essential for determining the feasibility of a business idea.
An idea may have potential many aspects, but the operational aspects are not feasible.
An operational plan provides a working outline of the numerous components that make up or affect the intended business operations.Here, you examine the process by which you would exchange value with customers.
In reality the operation analysis regards the availability of resources to get started in and carry out the intended business idea. You should identify all of the actual resources (not just the cost of those resources) required to begin operations and those to carry out the business activity.
In other articles, we discuss preparing detailed financial projections. In these projections you will present your intended growth path and required resources at each stage of business development. Here your preliminary look should give you an idea of whether the resources required to startup and begin operations make the business plan feasible.
- Example: Many industries have high costs of entry that keep individuals from entering the industry. The resources required to begin and to continue operations are more extensive than the availability of those resources. The best example of this is the airline industry. Purchasing planes has such a high capital cost and the availability of planes for purchase is so limited that it is difficult for new businesses to break into the market during times of airline profitability (e.g., high travel and low fuel costs).
Back to: Entrepreneurship
The primary resources you will want to examine are categorized as follows:
Location- Where will you locate in order to carry out your business operations?
- Note: Your business idea may require that you have multiple or diverse locations. You may need to secure manufacturing at one location, while concentrating your sales effort at another. Some service industries may require extensive travel or locating personnel in diverse regains. In any event, you will have to examine what locational requirements exist to carry on operation and maintain access to customers. ReferenceForBusiness.com does an excellent job of outlining the Considerations for Location Analysis.
Manufacturing/Service Process Operations- What processes need to be in place to carry out operations?
- Note: People undertake franchises to avoid developing operational plans. For example, a McDonalds franchise will provide a plan for required personnel, the required equipment, cooking procedures, cleaning procedures, advertising material, hours of operation, etc., etc. You should examine up front the extent of resources required to set up operations. It could require professional services (such as legal or accounting help), construction, expert consultants (as industry experts), etc. Quora provides an interesting article concerning What is Required of Individuals Tasked with Setting Up Operations.
Raw Material- What physical resources will be consumed in carrying on your business
- Note: Assessing the required raw material is greatest in manufacturing businesses, but exists in service businesses as well. Raw material includes anything that is consumed in carrying on the business. This could include anything from office supplies (office) to lumber (construction), depending on the nature of the business. SmartSheet.com does an incredible job of explaining Materials Requirements Planning for Operations, also known as MRP.
Equipment- What physical assets do you need in the daily operations of your business?
- Note: Equipment is a concern for both service and manufacturing businesses. In the example above, starting an airline requires lots of equipment. Even in traditional service industries (Medicine, Consulting, Law, Accounting) there are lots of equipment costs associated with operations. SWJ Breilman is a company that specializes in operational planning. Take a look at the equipment planning services that they offer as an example of the type of thought and planning required.
Distribution Channels - How will you deliver your product or service to customers?
- Note: Within a product-based business you will have to account for shipments of raw materials from suppliers as well as the shipment of goods to customers. Service businesses will have to account for the medium for providing the services. Some businesses require in-person services, while others can provide services through other means (such as the internet). In any event, product and services businesses will have to account for the channels by which it will offer to sell goods or services to its customers. Will this require sales agents, distributors, out-sourced service providers, etc. Investopedia does a good job of identifying the Characteristics and Types of Distribution Channel.
The above sections are just brief overviews of the type of operational analysis you should do in determining the feasibility of your business. You will examine the operational feasibility be comparing the anticipated availability of resources with the resource requirements that you identify in this section.