NMO S4 SPRINT ONE | BUSINESS CASE SCENARIO - 04 | Airway Delivery: A New Business Opportunity
Submission BCS
Preparation of Financial Budgeting for each department with Cash Flow statement & Profit and Loss statement for achieving Break Even in one year
Submission Date & Time: 2022-01-28 12:35:44
Event Name: NMO S4 Sprint One - IIM Kashipur
Solution Submitted By: Ashutosh Sushil Gupta
Assignment Taken
Preparation of Financial planning for the Organization for FY 2021-22Case Understanding
The Case of Airway delivery has its focus on providing efficient drone delivery to the customer based on hyperlocal delivery model. As we know, that the drone can be used to carry multiple weights to provide the items, hence we had 4 types of delivery modes with premium pricing options. A thing which is very clear in the case is that the user whom the organization shall target must have the financial power as in high purchasing power, also who has the needs to have immediate delivery of day-to-day items which may range from groceries shopping, or restaurant order or rather medical supplies. The objective of the organization is to penetrate in high-purchasing customer segment with the habit of ordering online who is ready to pay the money for fast delivery. The organization has good budget of 10Cr which can be allocated to various departments in order to achieve the sales target to get Break – even in one year.BCS Solution Summary
The solution here entails a budget allocation of more than 8.8 Cr with the budget usage of around 5 Cr. With the special focus on department who will be responsible for demand generation and capacity development, the Departments such as Marketing, IT & Infra, and HR will be needing the most budget allocation. Unit Economics: 1. Average Price Per order: It is assumed that normal delivery of Restaurant and Groceries weigh more than 500 gm upto 1000 gms. Thus, it is assumed Type B & C will constitute more orders per day. Hence, the average order cost is calculated as Rs 85/- per order 2. Number of deliveries for per day: As the short-range drones can travel up to 150 KMs per day. On average round trip delivery distance is around 5 – 6 Kms. The number of delivery on single charge can be up to 200 KMs. Profit and Loss: With the so much money been spent, it is imperative to understand that the business shall not make profit in one year. In one year, the organization has made a loss of – 47615800 Rs.\ With the FC expenditure of 3760000 and the Sales revenue generated as 4896000 for one year, it is imperative to have a break-even to be achieved in one year in the month of November NPV of the project : -1336292.07 IRR of the project: 3.43%Solution
Overall Budget Available for FY 2021 - 22
10 Cr for Fiscal Yr 2021 – 22
Department Budget Allocation
|
|
Budget Division |
In Cr |
|
Budget Available |
10 |
|
|
Sr. NO |
Departments |
Budget Allocation |
|
1 |
Marketing Department |
2.50 |
|
2 |
HR Department |
1.80 |
|
3 |
IT & Operation Department |
2.50 |
|
4 |
Infrastructure Development |
1.00 |
|
5 |
Miscellaneous Expenses |
1.00 |
|
6 |
Emergency Budget |
1.20 |
Strategies for Budget Allocation
- Since the organization needs to penetrate hard into the target market, hence high amount of budget needs to be allocated for Marketing, IT & Operation, and HR department to initiate the starting.
- As the market response is really unknown, hence the finance department needs to have an Emergency Fund (1.2 Cr) in hand so as to tackle if the planning does not go as planned
Unit Economics:
- Average Price Per order: It is assumed that normal delivery of Restaurant and Groceries weigh more than 500 gm upto 1000 gms. Thus, it is assumed Type B & C will constitute more orders per day. Hence, the average order cost is calculated as Rs 85/- per order
- Number of deliveries for per day: As the short-range drones can travel up to 150 KMs per day. On average round trip delivery distance is around 5 – 6 Kms. The number of delivery on single charge can be up to 200 KMs.
- Short Range Drones – 7.5 Hrs / Single Charge
- Short Range Drones – 15 Hrs / Double Charge
- Charging_Short Range Drones – 2 hrs
- Charging Long Range Drones -4 Hrs
- Maximum Delivery orders based on Double Charge – 320
|
Category of Couriers |
Courier Weight |
Price |
%share |
Average Delivery Cost |
Yearly Deliveries |
Monthly deliveries |
Daily Deliveries |
|
A |
<500 |
60 |
20% |
12 |
8899 |
742 |
25 |
|
B |
<1000 |
80 |
40% |
32 |
17799 |
1483 |
49 |
|
C |
<5000 |
100 |
35% |
35 |
15574 |
1298 |
43 |
|
D |
<10000 |
110 |
5% |
5 |
2225 |
185 |
6 |
|
Average |
85 |
44497 |
3708 |
124 |
|
Range |
Avg Round Trip |
No of Delivery’s (1st Cycle) |
Maximum Utilisation Per Day In Hrs |
Charging Time |
2nd Cycle |
Drone Utilisation per Day |
|
150 |
5 |
30 |
7.5 |
2 |
7.5 |
15 |
|
150 |
5 |
30 |
7.5 |
2 |
7.5 |
15 |
|
150 |
5 |
30 |
7.5 |
2 |
7.5 |
15 |
|
150 |
5 |
30 |
7.5 |
2 |
7.5 |
15 |
|
650 |
5 |
80 |
20 |
4 |
0 |
20 |
|
200 |
50 |
|||||
|
Distance |
5 |
Maximum of deliveries in one day |
320 |
|||
|
Time |
15 |
Sales Revenue: The Number of deliveries per month will start from 50 orders and will subsequently grow by 20 order per month upto 270 orders the end. Hence, with the average delivery price of 85 / order, the organization is aimed at achieving Rs. 4896000 /- in FY 2021 -22
Cost Structure
- Marketing Cost: This cost will include the cost spent in digital marketing as in the form of geo-fencing. As the company is expanding into the new domain. Thus, there needs to be an extensive money spent on marketing. With the budget allocation of 2.5 Cr, the utilization expected is around 1.8 Cr. With the additional budget shall be used in case of new ventures related to marketing.
- Admin & Human Resource Cost: As most of the cost incurred will be related to expenditure in having human resource at hand also, money spent in the form of rent and Training Expenses related to workforce. The budget allocated for the department is around 1.80 Cr with 1.6 Cr in use.
- Infra and IT Cost: This is the area where most of cost is going to get incurred as this will increase our capacity to work in accordance with demand. Since the whole drone based delivery platform is essentially based on IT Backbone, hence following are the areas of expenditure. The budget allocated for the department is 2.50 Cr, but with the budget usage of around 1.35 Cr. The remaining budget can be used in case of any new cost come up.
- Software
- CRM: For Customer management
- Website: For customer engagement and brand development
- API integration: For smooth functioning between other platforms
- Maintenance Cost: As the drones might need repair as batteries of drones shall get depleted easily.
Profit and Loss:
With the so much money been spent, it is imperative to understand that the business shall not make profit in one year. In one year, the organization has made a loss of – 47615800 Rs.\
Break Even Calculation
|
Break Even Calculation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Cost |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
3760000 |
|
Sales Generated |
4896000 |
127500 |
178500 |
229500 |
280500 |
331500 |
382500 |
433500 |
484500 |
535500 |
586500 |
637500 |
688500 |
|
Remaning Cost |
-3632500 |
-3454000 |
-3224500 |
-2944000 |
-2612500 |
-2230000 |
-1796500 |
-1312000 |
-776500 |
-190000 |
447500 |
1136000 |
|
|
Break Even Month |
November |
|
|
|
|
|
|
|
|
|
|
|
|
The NPV for the project, considering a 10% discount rate is -1336292.07, which with respect to currrent 1 Year Projection seems low.
However the IRR for the project is around 3.43%, for 1 year, which can be considered good.
Conclusion
The break even shall be achieved in the month of November. The business can generate good profits, if the target market is increased also, if the number of drones are increased. In order to estimate better NPV, projections for Next 5 years is required to have an adequate estimation of the organisation.Attached File Details
View Attachment file (Financials.pdf)Comments
Article Type: Business Case Scenario, Case Study Solution Submission
Business Case Detail
Title: NMO S4 SPRINT ONE | BUSINESS CASE SCENARIO - 04 | Airway Delivery: A New Business Opportunity
Type: Case Study
Stream: Management
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