March 11, 2010

ENVC Exercise 2

ENVC Exercise 2 Blog

There is a committee that considers strategic developments on the basis of business plans. It is concerned that it may be too risk averse and requires some new guidance on evaluating business plans. Having worked through the PORES how would you advise the committee?

This question is about risk and uncertainty and its relationship to planning i.e. where it is 'irreducible' then risk/ uncertainty can only be found out by experience. How does this affect decision making (see e.g. Mintzberg) and who is doing the planning?

In the 18th century, swiss scholar Daniel Bernouilli studied the occurence of random events and human interaction behind it. His aim was to create a mathematical tool that will help estimate success prospects for any risky undertakings in financial terms.  Bernouilli also introduced the term "human capital". Neuman&Morgenstern developed in the 1940-ties "Game Theory" that deals with situations where people's decisions are influenced by other people that they interact with "live variables".

Today corporations use several modern techniques to estimate potential for profit opportunities and minimization of risk that financial undertakings bring.

Our texbooks recommend warmly the establishment of business plans before starting up new ventures. It is an important tool and a valuable help to assess the business environment and the conditions for our intended venture. It is also there to help us address risks and uncertainty regarding many aspects of business environment and market conditions and competition that we may face under way.  Bygrave & Zacharakis (2004) see business plans as beneficial for entrepreneurs when assessing the strategy, preparations for start-up and management of the new venture.

PORES analysis (Profit Opportunity Recognition and Exploitation Strategy) will be helpful tool for assessment of our current position in the present market situation. It will allow us to explore possibilities for potential profit opportunities. PORES analysis is built under assumption that a market gap exists and that it should be exploited.  However, one should differ between uncertainty and risk as in Helmer (2005) because even the best business plan cannot predict the future completely just give us some indication of possible outcomes.

The first recommendation to a business plan is to find out if the opportunity exists and if it can be profitably exploited. We must also find out if we have Unique Selling Points (USP's) that will differentiate us from possible competitors. We should try to find out about the market dynamics and choose the right strategy for presenting our product. Key personnel, technology, production site, correct pricing of our product are some of the points that will need closer examination. A thorough analysis of present and future competitors is also improtant for proper business planning.

Mintzberg (2001) suggests that different decision making models are used to different situations. Mintzberg describes 3 different decison making models described below:

minz(Mintzberg 2001)

In giving a recommendation to the management team regarding planning and managing the risk I would say that PORES does not give us a clear picture of our potential market situation in the future and how the potential growth of the venture is going to be handled. PORES is mainly static in nature and some more dynamic models should be used when appropriate such as "sensitivity analysis". The ultimate decision will be for the strategic committee to make based on the background and findings of the PORES analysis and other relevant frameworks such as business plan.

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  1. Harminder Singh

    Hi Drasko
    the introduction sets out why markets and the future is unpredictable/volatile – however PORES is a way of producing information to enable the committee to accept ventures which would otherwise be rejected with traditoinal Business Planning which is historical in nature. Uncertainty is thus turned into risk, allowing a decision to be made. At that stage there is no ‘dynamic’ as there is no business – clarify the difference between an ordinary BP and a dynamic BP. It is why, after the venture is experienced we can return to BP (which is cheaper) What would your position regards PORES be now?
    Also what do you think about the role of the entrepreneur – is the committee funding the project or the person?

    15 Mar 2010, 20:22

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