Capstone Team Project

Finance Section by Jenny Cole

46988505
Major in Finance & international business

Financial analysis, planning, budgeting, modelling

Financing the development and production of AI bins and prospects for future growth ensures
a healthy financial position throughout the project. This starts with financial analysis and
planning before moving on to budgeting, financial modelling and allocating the remaining
budget for future growth. We are given a budget of $1,000,000 to fund our project with an
initiative to grow revenue by 3% over the next five years while engaging in sustainable
financial frameworks.

Part of financial analysis and planning is having an overview of the current financial position.
To do so, here are the highlights of the project's finances drawn from the budgeting plan
above:
- Initial production: The initial objective is to first develop and produce 20 AI bins.
Given the total cost of production of $169,000 and revenue of $220,000 from the sale
of 20 bins, the project generates a $51,000 profit from the first 20 sales to MQ
University.
- One-time expenses: The one-time expenses are up to $150,000 for research and
development towards our engineers and marketing team to launch the project off the
ground. These were crucial investments in promoting the product to our MQ partner
and future buyers as well as developing the product.
- Assuming the cost of one-time expenses this batch of sales will be accounted for
following years in case of needing more R&D and marketing to continuously improve
the product.
- Remaining budget: after combining the remaining budget with the revenue received,
there is $1,051,000 to utilise.
- Future growth: plan growth of the project to maximise the achievement of SDGs with
the increased use of our self-sorting AI bins, it is important to invest the remaining
budget strategically.

Given financial planning suggestions from accounting, marketing and management

departments, their input was also integrated into the next step of budget allocation and
financial modelling. Crayon's communication executive shares the importance of setting clear
budget constraints with the whole team. With $1,051,000 available for the expansion and
growth of the project, this is the budgeting plan:

- Expansion for Marketing: To improve on the initial marketing campaign, more funds
will be allocated towards the marketing team. To create a sustainable financed project,
it will be important to reach a wider audience and create a market presence to increase
sales. Funds will be allocated towards different marketing platforms to raise
awareness of issues in consumption and production and our initiative to target SDG
11&12 will be marketed.
- Production efficiency: To reduce cost with economies of scale and reduce per unit
costs, funds will be e allocated towards more R&D for more efficient manufacturing
techniques, better equipment, and automation. Also, to improve product sorting
accuracy and customer experience.
- Customer support: With increased sales, there will also be increased demand for
customer support. Funds will be allocated towards maintenance service to keep
customers satisfied, thus increasing sales.
- Distribution channels: finding new partners and distribution channels to increase sales
involving e-commerce and collaborations with local and international retailers.
Revenue growth modelling will reflect the objective of a steady 3% growth rate over 5 years.
Given revenue of $220,000 from selling the first 20 units to MQ University, and a gross
profit of $51,000 the total remaining budget for growth is $1,051,000. Over the next 2-3
years, the project’s focus will be revenue growth and expansion beyond the forecasted 3%.
To strategically achieve this objective a renewed budgeting plan and analysis along with
continuous performance monitoring will be necessary. The figure below represents the
forecasted 3% growth of revenue as well as 3% decrease in expenses, resulting in a gradual
increase in gross profit.

Financial and risk management

To ensure prospects for growth, and efficient production are a success, there will be
continuous financial and risk management. The financial management process will ensure
long-term financial sustainability and feasibility. The first 20 sales giving the project a
$51,000 gross profit is a good starting indicator of financial success. With this information,
the remaining budget of $1,051,000 will be confidently used towards strategic investments
such as expanding marketing techniques, material/production efficiency, tailored customer
support and improving product quality. Financial strategy management will consist of
renewing the budget plan to yield higher returns and lower expenses through revenue
diversification, CF management and investing in R&D.

Risk management associated with the project’s unforeseen expenses, market fluctuations,
changes in competition and economy. To reduce and mitigate those risks, it is suggested we
take a risk management approach by first identifying those potential risks (Sarfraz et., 2021).
Risk consultant at EY stresses the importance of staying up to date with whatever is
happening in the world, it gives you the current perspective of current risks there could be.
With transparent team conversations, we identified potential risks from the beginning. Some
potential risks/disadvantages identified include; high initial investment, Technical
Obsolescence, the product already exists in another country in Europe, so there will not be
first mover advantage, high maintenance costs and risks with technology reliability. After
identifying those risks, a personalised plan will be put in place to mitigate unforeseen
circumstances such as; high maintenance costs, legal issues or manufacturing issues, a
contingency fund will help mitigate all those expenses. Market research will mitigate the risk
of market acceptance and ideas for innovation will drive away competition risks. You cannot
predict the future, but you can anticipate the future, as the Project officer of the NSW treasury
office mentioned.

Financial performance measurement, performance evaluation, and strategy reflection

Financial performance measurement, performance evaluation, and strategy reflection are

crucial for this project. They allow for the assessment of profitability, resource efficiency,
and initiative achievement (Omran et al.,2021). With set clear objectives it is a must to
evaluate performance holistically, strategy refinement for competitiveness, allocation of
resources judiciously, and proactively identify and mitigate risks. These allow for effective
decision-making that gains stakeholders' confidence as well as continuously aligning these
decisions with the sustainable development goal (responsible consumption and production).
Making sure the project has long-term feasibility and sustainability is influenced by the
Founder of Greenfluence, who shares making better financial decisions in a broader sense
will be better for the planet and communities. Examples of this are choosing to invest in clean
energy, sustainable practices, green technology and overall reduce carbon footprint whilst
achieving SDG 12.

Performance measurement will consist of ongoing sales performance seasonally or each

batch of sales. For the first 20 units sold gross profit margin can be used to measure sales
performance which will equal 81.36%. This tells us profit after deducting COGS, therefore
implying efficiency of management of production expenses. With first sales, 81.36% gross
profit margin is positively high, implying effective management of expenses. Another
measurement that can be used is the return-on-investment ratio, which will be 30.18%. This
percentage compares profitability reflecting total investments and since the number is
positive it signifies a profitable project.

Performance evaluation is the foundation of efficient financial management. It assesses how

well the project is meeting its objectives and growth prospects of 3%. It will consist of a sales
performance evaluation by monitoring the distribution channels and marketing strategies'
effectiveness in pushing sales. Evaluating operational efficiency by using the asset turnover
ratio will indicate how efficiently the business is using revenue to generate profit. The asset
turnover ratio for this business is 22%, a positive ratio thus indicating efficient use of assets.
Despite this, the ratio could be higher, implying company has not effectively used their
money to expand just yet. This will be worked on in the following years. Evaluating customer
satisfaction regularly is also important to improve business strategy or production by
receiving constructive feedback. People & culture consultant at Suncorp states that you must
ask the right questions to receive effective feedback. High customer satisfaction will
effectively drive business to more sales.
Strategy reflection is evaluating current strategies by using performance measures mentioned
in order to make required adjustments and measure progress. This provokes innovation to
make improvements in financial strategies, resulting in lower expenses and increased
revenue. Regular review of the risk management strategies also prepares the business for
unexpected expenses. This will expand on unexpected scenarios, to come up with a solution
and renew the business’s sensitivity analysis.

Importance of financial management to business and SDG

This financial section plays a crucial role in the Binbot project. The main objective is to
Target SDG 12 by ensuring responsible consumption and production, and to continue to
reach this target the project will need to conduct efficient allocation, risk management,
performance evaluation and strategy reflection. Growing the business is a necessity to help
achieve the sustainability objective, as more sales contribute to more usage. More usage
contributes to more responsible consumption and production. Making effective financial
decisions is crucial to achieving 3% growth and increasing awareness of consumption and
production issues (Osipov et al., 2022). To make informed financial decisions accounting,
marketing and management departments have contributed their specialised input and
opinions. Feasible financial practices and continuous strategy evaluation are crucial for
achieving long-term success.
References

Omran, M., Khallaf, A., Gleason, K., & Tahat, Y. (2021). Non-financial performance measures
disclosure, quality strategy, and organizational financial performance: a mediating
model. Total Quality Management & Business Excellence, 32(5-6), 652–675.
https://doi.org/10.1080/14783363.2019.1625708

Osipov, V. S., Krupnov, Y. A., Semenova, G. N., & Tkacheva, M. V. (2022). Ecologically
responsible entrepreneurship and its contribution to the green economy’s sustainable
development: Financial risk management prospects. Risks (Basel), 10(2), 1–19.
https://doi.org/10.3390/risks10020044

Sarfraz, M., & Ivascu, L. (Eds.). (2021). Risk Management. London, England: IntechOpen.
https://doi.org/10.5772/intechopen.91067