Business Processes Slide 1 Introduction to Business Processes for Web Developers Rhys Parry

Business Processes Slide 2 Costs and Pricing What is the difference? –Costs What it costs YOU to deliver a product or service –Price Is what your CUSTOMER pays

Business Processes Slide 3 Costs Purchase costs –Raw materials –Equipment Costs Costs of Finance –Interest Payable or Lost Direct Labour Costs –Salaries –Pensions Overhead Costs –Premises, Admin, Sales & Marketing –Not attributable to projects

Business Processes Slide 4 Costs of Running a Car Cost £10,000 Run for 3 years Sell for £4,200 10,000 miles per year

Business Processes Slide 5 Cost of Running a Car ….. Fixed Costs: Depreciation5800 Loss of Interest927 Car Tax475 Insurance1500 Total Fixed Costs p/mile Variable Costs: Petrol3300 Servicing300 Total Fixed3600 TOTAL COST p/mile No Inflation

Business Processes Slide 6 Costs…… Fixed –Premises –Administration –Sales & Marketing –Costs of Finance Variable –Raw Materials –Direct Labour Costs

Business Processes Slide 7 Fixed & Variable Costs Production Units Can Have Fixed Costs –Independent of Sales –Magazine Publishing –Toy Manufactures –Software Development

Business Processes Slide 8 Depreciation Need to know value of Equipment and Stock Too costly to revalue every Item Simplified: –Straight Line –Reducing Balance Must be Consistent and Used & Declared in Annual Accounts

Business Processes Slide 9 Straight Line Depreciation YearDepreciationEnd Year Value

Business Processes Slide 10 Reducing Balance Depreciation YearDepreciationEnd Year Value

Business Processes Slide 11 Reducing Balance…….. Need to Identify Classes of Equipment Computers – High depreciation rate Buildings - Low rate Cars – Medium rate Furniture – Low rate

Business Processes Slide 12 Labour Costs Salary plus on costs: –National Insurance –Pensions Persons Day rate –Statutory & Ordinary Holidays –Sickness –Training –Idle time –Unchargeable Time

Business Processes Slide 13 Staff Costs Total Work Days 260 Junior Staff – 220 Chargeable days Senior Staff- 160 Chargeable days Junior on £20,000 –Cost £24,000 (No overheads) –Overheads £24,400 –Cost per day = £220 per day

Business Processes Slide 14 Overhead Costs Not Attributable to Particular project –Building Costs –Administration Personnel Finance Sales & Marketing Support Fixed Costs and are very Real!! Computer Industry –100% Small Company –200 – 250% Large Company

Business Processes Slide 15 Pricing

Business Processes Slide 16 Pricing in the Computer Industry Cost Plus Services Fixed price Products

Business Processes Slide 17 Cost Plus Agree with Client your Costs per day –Usually on Direct Labour –Overhead Agree Profit margin “Body shopping” Unsuitable today for projects

Business Processes Slide 18 Fixed price Total of: –Direct Labour –Bought in Items –Indirects Profit added Used in Competitive Tendering Risks versus Profit

Business Processes Slide 19 Software Product Pricing Marginal Costs Very Low –Manual, Box and CD Rom < £10.00 Large Development Costs Sales proportional to marketing Sales fall with increasing price

Business Processes Slide 20 Customer Expectations PriceNature (Low to High) FreeShareware etc. Some great products (Winzip) £20Buyer’s Risk – Internet Sales £100 -£500High volume - Real Software – Microsoft, Macromedia, Adobe £10,000Real product – low volume – Bugs and Support £100,000On the drawing board!!

Business Processes Slide 21 Support and other Issues Large percentage of income –10% - 25% of turnover –Sage, Microsoft Support & Updates Must be Real and Valuable Annual Licence fee charges Per use Charges Application Service Providers