Resources and budget
Wait with processing this part till you have seen some more modules. Your teacher will trigger you when you are ready for the Resources and Budget calculation. In real life, you should of course already master this theory and should start early on with resources and budget iterations.
Introducing and running the e-business solution will cause costs and a workload on our organization. This chapter provides an estimation of those costs and workload. Please refer to excel file “e-commerce budget template.xlsx” for more detail on those calculations.
The e-commerce plan has to provide an estimation of those costs and workload. This will enable you to plan for the extra work (do you need extra resources), and plan for the budget you will need. If those costs are not lower than the additional revenue you get out of online sales, you need to motivate why you still want to do this project… The point where it gets profitable is called “break-even” point. There can be very good reasons to still do the project. You should have listed those in your objectives statement, and they will often be in the “intangible objectives” category.
For example, those could be reasons to still do it:
- you are offering also extra e-services in aftercare to your brick channel customers to give them a better warranty service.
- if you don’t have a webshop, you are afraid you will lose brick channel customers to competitor webshops
The methodology to calculate this consists of following steps:
- Identify the tasks (WHAT has to be done)
- Identify the resources (WHO will do this)
- How much time it will take to do this (WHEN will this be done, what is the duration)
- Link the resource and duration to a cost
- You need also to list the non-labor costs, and when they occur
If you then add all up, you have your budget estimation. Let's try this now...
Project timeline assumption
We assumed that the project will have an analysis, design & implementation phase and an ongoing operations phase. During the ongoing operations phase the e-commerce solution is used in production:
Following timeline was assumed:
Analysis, Design & Implementation
(Cut and paste your timeline from tab “cover” in “e-commerce budget template.xlsx”, after filling in the cover tab. Read the instructions on the cover tab for doing this. Look also at fields with comments posted)
Tasks & Resources
Below italic text is a backgrounder for this exercise. Scroll down a couple of screens if you are looking for continuing on the e-commerce plan itself...
First, you have to identify the different tasks. Tasks during the analysis, design and implementation phase, and tasks during the ongoing phase.
1. Design and implementation phase (3 months)
- Project management
- Analyze the needs (business needs, Legal needs, Integration needs,…)
- Design the solution (Use scenario, Integrations, Test plan, …)
- Implement the solution (Software and Hardware setup, Content development, Integration development,…)
- Testing (Test users, Test plan)
2. Operations (3 years, starting immediately after the Design and Implementation)
- Operations management (Manage the webshop team)
- Order processing (Process the incoming orders in the backend part)
- Catalog management (Add, update, delete products)
- Technical Infrastructure management (Keep the webshop running and healthy)
Try now to enter your activities in the excel file "e-commerce budget template.xlsx". Go to the tab "hc_walk" and fill in your activites (left column. Keep it +- in chronological order. Look to the filled in example "e-commerce budget filled in example.xlsx"
|Project management||Project Manager|
|Analyze & Design (e-com team)||ICT Consultant|
|Analyze & Design (input to team)||Administration Expert|
|Implementation (e-com team)||ICT Standard|
|Implementation (support for questions)||Administration Standard|
|Testing (e-com team)||ICT Standard|
|Testing (end users)||Administration Standard|
|Manage webshop team||Manager|
|Order processing||Administration Junior|
|Warehouse, packaging, returns||Worker Junior|
|Catalog management||Administration Standard|
|Technical management||ICT Junior|
Identify for each task which joblevel (profile) will perform that activity. The reason to do this is to catch differences in labor cost (an ICT consultant has a higher wage then an administrative assistant). You will also have to define if this can be done with your internal company resources or you will have to hire or outtask.
Have a look in tab "cost" of excel template "e-commerce budget template.xlsx".You should in this tab add/edit the names of the jobprofiles you need and their fully loaded yearly cost. Full loaded cost is bruto sallary + social security + other costs the employer want to assign to this employee (for example office space cost). The figures here below are reasonably realistic.
|Joblevel||Fully loaded yearly cost (Euro)|
By filling in this table, the drop down menu on the fields below "Joblevel" (kolumn B) in excel sheet "e-commerce budget template.xlsx" will be updated, and by selecting from this menu the associated salary will be used for calculations.
Then, you have to quantify the amount of work per activity. How many people (or parts of a person) are needed to actually perform this activity. One will often express this as an FTE (Full Time Equivalent). An FTE is an imaginary person who is every week working (so never sick, never on holiday, never on training) You need 1,3 employees for 1 FTE (the 0,3 is what is lost by sickness, training, holidays,…). If you think it is more handy, you can also use “days”, “hours”, “headcount” as measurement unit. A headcount is a real person (who does not always work...) Look at the drop down menu on the fields below "Unit" in column "D" to select all this.
Look on below picture to the first activity, project management. The project management is required only during the design and implementation. It is done by the joblevel "project manager", who has a fully loaded cost of 65000 Euro per year. We will count his effort in days. We assume that during "month 1" (m1) and month 2 this project manager will spend 5 working days on this project. So do this for all the activities you have. Look to the example template "e-commerce budget filled in example.xlsx" on how to do this (that template contains a high level example for an e-commerce estimation)
Let's now continue with the text of our e-commerce plan itself - we wanted to present the paragraph "tasks and resources"
Tasks & Resources
Below table provides an overview of the main tasks, the resources who will handle those, and the effort to be spend over time for those activities.
(Cut and paste your tasklist from tab “hc_walk” in “e-commerce budget template.xlsx”)
The headcount evolution required for our project then looks as:
Besides the resources required for our e-commerce project, we do have a number of fixed and variable costs. Those are:
(example - this is a Cut and paste from tab “hc_walk” in “e-commerce budget template.xlsx” - the lower part about non-labor costs)
Backgrounder: If you use a service provider to build your webshop, you will have to pay them for their work. You will have other costs. Think about the following:
- You will need to foresee a budget for the webhosting (or host yourself in which case you need servers and bandwidth)
- Software and hardware licenses & maintenance fees
- Hosting fees (webhosting)
- Analysis & implementation cost charged by your service provider
- Ongoing operations and support costs charged by your service provider (if they do this)
- Maintenance contract with your service provider
- Internet marketing budget (e.g. Adwords,…)
- Other recurring costs
The excel template provided should be used as follows: in the block "Non-labor cost", the first 2 kolomns contain free text. Use the first one to explain the nature of the cost, and the second one to mention if it is a fixed cost (does not change if you get more traffic, products, sales on you e-commerce solution, or a variable cost (it increases if you get more customers). In the column "Cost", you should place the cost for this item counted for a whole year. So if you have a monthly fee for something, multiply by 12. In the time table, enter a "1" for each period where the cost occurs. If you use another number then 1, that will work as a multiplication factor, increasing or reducing the cost.
Based upon above estimations and assumptions, we believe this project will required following running budget:
|Grand Total Cost:||282,1||Keuro|
(Cut and paste this graph and table from tab “hc_walk” in “e-commerce budget template.xlsx”)
The conclusion recapitulates the main attention points (e.g. resource peak, required budget) and also refer to bringing this cost in relation to the expected sales increase you hope to achieve. You could further refine this by working with an accountant in order to calculate break-even, projected profit and loss, gross margin, etc…