Executive Summary
In view of the issues facing the ABC management, the key solutions identified relates to three issues on cash and budget, innovation and product development as well as theft and fraud reduction. With that, The Cost and budget management solution is meant to enhance the business performance by reducing the excessive and unnecessary use of the company resources. That would be achieved through key initiatives involving effective management of the sales and expense as well as debt management that would cut on expenses and the interest paid on debt by having more responsible personnel overseeing the accounts and their authorization.
Regarding the innovation and product development, the solution would be seeking to enhance the effectiveness in meeting the market demand through better services and added value in a manner that does not entail unnecessary developments. That is to be achieved through effective market forecasting and product planning.
Finally, the pay off for the theft and fraud reduction would be reducing the loss of the company resources as well as customers. Collectively, the solutions are meant to enhance the company performance through enhanced service delivery, reduced wastage as well as effective meeting of the customers’ needs. That would be through the establishment of effective controls in addition to policies regarding the company operations and installations.
Introduction
Addressing issues require identifying them and choosing the right solutions. However, that requires the right analysis models, and this report presents an analysis of three operational issues facing ABC Management, the applicable quantitative operational models, and solutions as well as their implementation plan. To achieve the objective the report begins by providing a background of the company describing its operations followed by an analysis of the solar industry with a focus on the residential solar systems. Further, the report identifies the three key operational issues facing the ABC Company and the suitable quantitative operation modeling techniques to address them followed by a proposal of a possible solution. Finally, the report outlines an implementation plan noting the responsibilities and their timeframes.
The main key to any successful installation tends to be the identification of energy problem for a home or business. In that respect, the ABC Company defines such problems as something that might be fixed, reversed and stopped. Several factors determine the type and size of the solar system to be built. The main constraints to a solar generation include:
Size of the nearest utility substation
Size of the feeder from that utility
Size of the main panel amp
Space needed for the equipment
Ground or roof space
Actual building usage
Obstructions and shade
The permit process
The rules as well as size regulations
The financing (ABC, 2016).
Solar industry analysis
Overview
The US solar panels market is likely that it doubled in 2012, a lot of thanks to the government policies as well as falling prices but new tariffs for panels that were imported from the nation of China could add to slower economic growth in the year 2013, a study claimed. The US developers probably installed approximately 3300 MW for solar panels within the year 2012. That was nearly double that amount installed during the year 2011, as per a study that was released by Solar Industries Association Research. The solar-power global market has always been unstable for manufacturers because prices plunged amid a panels oversupply. But the decreasing prices and faster development of large-scale plants of solar-power have driven very high demand for the solar equipment within The US., a report found (Energy Gov, 2016).
Residential sector
Source: SEIA. (2016b).
While there is the growth of solar industry, so does economy benefit. According to Solar Foundation, in U.S, there are about 174000 workers for the solar sector resulting in more than 20% rise over the employment totals for the year 2013. These employees are employed in 6100 enterprises within every state. Increasing value for the projects has indeed injected life into the economy of U.S. In the year 2013, the solar installations at that time were valued to be $13.7 b, in comparison to $11 b in the year 2012 and $ 7.7 b in the year 2011.
With the majority of the Americans making considerations that solar power is their energy source, it’s not a wonder that more households now than before are shifting to solar. GTM Research, as well as the SEIA, made a release for an edition of Insight Report of US Solar Market, which showed the first 3 months of the year 2015 to be the ever best quarter of residential installations for solar system. Actually, solar represented 51 % of the new electric producing capacity that was brought on the line with the very first quarter for 2015, outpacing the natural gas also. The US made 1306 MW installations of the solar photovoltaics within the Q1 of 2015, being a mark of the 6th consecutive quarter which US added beyond 1 gigawatt of the PV installations. The residential solar topped by growing by a 76 % over the 1st quarter of the year 2014, with a 437 MW of the residential installations of PV. That’s 11% jump over the last quarter, previous market segment’s high-water point (SEIA, 2016a).
Market Outlook
There was an expectation of another record period for United States PV market during the year 2015, having installations touching 7.6 GW, which is a 24 percent rise from the year 2014. The greatest growth was expected to come from residential segment, that is at a pace to increase beyond 2 GW as first time, that is following the year that the segment made installations of beyond 1 GW as first time . The PV market for non-residential is expected to increase by 8 percent and the utility PV to increase by 16 percent while the latter segment of the market fuels beyond 50 percent for all installations that are sold online for a fourth year consecutively.
On the January 1st 2017, 30 percent federal Tax Credit has a schedule to make a drop to 10percent for the third party managed non-residential, residential, and PV utility projects that are under tax code Section 48, while credit for the purchases of the residential PV that is under the Section 25d has been scheduled to be expiring entirely. The solar developers and installers shall aim to create too more capacity on-the-web before the step-down which is scheduled. The Solar development shall continue though some markets shall fare better beyond others, as well as the resumption of growth after the year 2017 shall look different compared to the growth that has been experienced over the last eight years. Intention for all the market segments is that all addressable market shall shrink post-the 2016, some of the states shall fall off that solar map completely, and the resumption of the growth at national level shall be because of several states having better economic performance.
The market`s utility-scale shows the greatest dramatic drop during the year 2017, not just because of challenges that are posed by lower ITC, other than also because the developers have greatly turned their all attention to bring their projects that are contracted on-line prior to the 2016 year end so as to get the full 30percent credit. The majority of the projects have got long-run PPAs that starts in 2017 and later but shall sell electricity on spot market so as to bridge a gap between the date of commercial operation and the starting of the long-run PPAs. Such a pull-in for the solar pipeline utility shall render a dramatic ITC cliff. Installations are all expected to have a drop of 55percent in 2017 (SEIA, 2015).
Operational Issues
Hot water system
Swimming pool solar system
On the other hand, given the industry performance and trends, it is clear that market for solar systems mainly the residential sector is on growth. With that, ABC Company should be in a position to serve the market effectively and expand its market share as well as its revenues base. However, the business is marked by notable operational problems that need to be addressed before it can achieve success. With that, the following is a summary of the operational issues and their effects.
Cost and budget issues
Having well controlled costs and operations in line with a company budget is key to ensuring financial success. However, ABC has problems in cost management and budgeting hence a need to look into areas that needs to be addressed.
Innovation and product development
Everyone desires the next huge thing, and they need it now as the today’s world has a fast pace and its consumer driven. Thus, for the manufacturer to remain relevant, it requires continuing at a quickening speed for product innovation and development. However, it’s increasingly tempting for one to compromise and cut corners on quality so as get the product to the market at a fast rate though ultimately, your margins of profit shall pay that price. Thus, the Company should be well structured in approach to the innovation and implement procedures that ensure a steady flow of new invention ideas is well kept within the pipeline. Making reviews on innovation as well as market trends makes sure that there shall be no any caught out while it has to make a compromise on the quality so as to succeed in the market.
Theft and Fraud
Fraud has been a problem for the company across its operational processes. That ranges from equipment production where it is identified that some equipment are produced outside the planned schedule and finally sold by workers for their benefits. Further, some employees are identified as engaging in illegal deals for installations and maintenance swindling customers and the company. With that, the Company loses revenues and resources while the affected customers launch claims on the company resulting in financial losses, poor reputation and loss of customers.
Solutions and models
Given the identified issues, the Company’s operations and the industry analysis, the following solutions and the models have been proposed to help reshape the operations making them more flexible, responsive, secure, agile and sustainable.
Applicable Quantitative operational models suitable for each issue
Several types of the quantitative methods may help drive a business decision. Some of commonly used comprise of regression analysis, factor analysis, linear programming as well as data mining. In that respect, the following is a summary of the key methods that could be applied in addressing the problems for the ABC Company.
Regression Analysis: Address the Innovation and product development
A technique that is popular among the economists as well as statisticians the regression analysis makes use of complex equations of statistics to estimate the impact of a single or, even more, factors that are known as independent variables or predictors, within an interesting outcome, known as a dependent variable. The Economists have made use of regression analysis so as to estimate the impact of experience and education on employees’ annual earnings. A business economist or company manager could make use of the regression analysis to make an estimate advertising expenses effect on a company's profits. Data analysis using this technique might estimate if a correlation does exist between those two and if that relationship statistically is significant.
In addressing the product development and innovation, the method can be used to forecast the product development in the market and also the demand for potentially innovations. With that, the business could conduct surveys and collect data on market sentiments and status hence can determine the suitability of developing or producing certain equipment among its systems. For instance, the business can apply the method to study the most common solar systems for certain categories of residential customers such as based on their income and be able to identify where to target their systems more effectively.
With application of the model for ABC Company as shown in Appendix 1, it has been identified that the rate of the solar systems intake by the middle income segment does not follow same trend with that of the high income earners. That is shown by the negative coefficient for the high income segment installation percentage of the total installations where the middle income segment is the dependent variable. That means that the middle level income segment made of those with income between $40000 and $89000 that have high installation percentages makes the best segment contrary to the Company’s current practice of targeting and developing products for the high income level segment.
Factor Analysis: Address fraud and theft
This is an analysis and data reduction technique frequently used within survey data, hence making it popular among the market researchers. The factor analysis tries to find out correlations in the available data the underlying, the unmeasured factors which could explain the relationships. For instance, market researchers may use the factor analysis in analyzing data on the customers spending habits so as to identify factors which may explain a particular pattern of purchasing, as a preference for certain kinds of products.
Factor analysis is a significant tool for making investigations on variable relationships to the complex concepts like socioeconomic status. It allows the researchers to make investigations on concepts which are easily not measured directly through collapsing a bulky number of the variables to a small number of interpretable fundamental factors.
In that view, the method is suitable for addressing the fraud and theft issue. With that, it can be identified the factors that contribute to the problem and their significance. Thus, as the method helps identify the correlations between the key factors and aspects, it would be easy to address the most relevant factors.
For ABC, the analysis has been done as shown on Appendix 2 using data collected from a survey on three variables and three factors seeking to identify the factors that led to various type of theft and fraud. Correlations between the factors and the variables are used to determine the most significant factors that should be addressed. With that, it has been identified that lack of controls have the highest correlation hence the most crucial aspect that should be addressed first. The second critical factor is the lack of supervision that should be addressed. Finally, poor pay features as the least critical factor among the three.
Data Mining: Address costs and budgeting issues
A combination of statistical as well as skills in computer programming, data mining recently has popularly grown as the size and quantity of the statistical data that set have also grown. The data mining is a class of methods that is used for making analyzes of huge data sets, making uncovering for correlations and patterns buried in raw data masses. The online retailers like Amazon have made use of data mining as their techniques to create profiles of their customers buying habits as well as used that information to make a recommendation for particular products that are based on customer's history of purchases, and those of the customers who purchased the same products.
With the method, it would be easy to trace the significant variances in the company’s financial statements by analyzing the Data. Regarding the ABC Company. The method’s application as shown on Appendix C identified a significant variance in selling and generela expenses and the interest expense hence a need to adress the two items.
Solutions
Given the three identified problems, the following is a summary of the proposed solutions
Cost and budgeting issues
Effective management of sales and general expenses
Given the identification of a significant variation in the expense item in the 2015 quarterly reports, it is proposed that the expense be allocated a more responsible person to manage it and ensure efficient use of company resources in sales and general expenses.
Effective debt management
One of the key items identified as having a significant variance in the 2015 reports is the interest expense that indicates a fluctuation in debt level and interest payment. With that, debt management should be more effective to avoid overburdening the company with significant expense increase.
Innovation and product development
Effective market forecasting
Effective production planning
Product development requires effective planning to ensure that the new products do not only get to the market at the right time but also serves the most appropriate needs of the time featuring sustainability. With, that the Company will not be involved in the development of products that the market do not need
Fraud and theft
Establish effective controls
There should be effective controls all along the supply chain from the production process to the systems installation and maintenance. That should involve clear guidelines on the production quantities; responsible personnel, client’s management responsibilities, and installation contracts protocol. Further, there should be close supervision of all the operations including the production and the clients’ projects.
Effective supervision and developing policies and guidelines on installation and maintenance
With clear guidelines on the procedures to be followed in approving the installations and maintenance projects as well on the responsibilities allocation, it will reduce the cases of customers and potential customers being defrauded by the company employees and other persons purporting to work for the company.
Economic Benefit to the organization
In view of the analysis and the solutions proposed, the forecasted income statement for the Company as shown on Appendix 4, indicates the expected increase in revenues and decrease in costs that would result in enhances performance in terms of net income. In that respect, the company would have a 37.65% increase in the Net profit.
Unwanted effects
The possible unwanted effects of the cost and budget management could be excessive cost cutting that could hurt key operations. In that regard, the business could fail to offer quality services to customers or would results to use of sub standard equipments in line with the cost cutting measures. Further, the intended reduction in debt level could limit the business ability to advance where funds are needed for more effective operations.
The possible unwanted effects in innovation and product development could be excessive costs for the business that would have a negative impact on the short term financial performance in terms. The excessive costs could possibly result from unnecessary or excessive R&D operations or development of high cost products that would negatively impact on the company’s margins.
Regarding the fraud and theft detection, the possible unwanted effects could be identification of some abnormal items as inappropriate while they relate to actual business fluctuations. That would have a negative impact on employees’ appraisal even in cases where the identified items have had long-term or sustainability benefits. That is a possibility considering the increased concern over the CSR and sustainability initiatives that businesses could engage in and which lack in short term benefits.
Mitigation strategies
As mitigation strategies to the possible unwanted effects of the three identified solutions, the Cost and budget management would require justified and well analyzed cost cutting. With that, the business would not have to compromise the quality of service delivery as well as sustainability of the production operations. On the other hand, the Innovation and product development would require controlled and responsible resources use. That would involve ensuring relevance in R&D operations as well as product development. Finally, the Fraud and detection would require use of well experienced and skilled personnel. The mitigation would mean that no employees are victimized for correct use of the company resources owing to the possible limitations of the techniques applied such as data mining, that could identify and flag items as suspect even when they are warranted and have future benefits for the firm.
Composite plan
In view of the need to address the unwanted effects of the proposed solutions, the following would be proposed in regard to the solutions relating to the three issues.
Close analysis of the long-term effect of any cost cutting measures.
Engagement in R&D operations whose costs meets the company’s return on investment stipulations.
Only scrutinize employees for theft and fraud in case that have been proven and those that have substantial impact on the performance. That would ensure that employees integrity is protected.
Implementation
Given the three problems and the proposed solutions, the following is the proposed schedule for their implementation noting the timeframe and the responsible parties.
The schedule is better presented in a gannt chart as follows indicating the starting time for each proposed action and the duration in days that it would take to complete the tasks.
Source: (Heizer & Render, 2013).
In view of the chart, the most time would be spent in addressing the sales and general expense issues that requires followed by debt management while development of policies and guidelines is indicated as the least in time consumption.
Conclusion
Given the analysis, it is clear that ABC Company faces some operational issues that negatively affects its performance in terms of growth and ability to meet the current market’s demand. With that, the business has challenges in producing enough equipment for the two key residential operations of hot water systems and the swimming pools and has also been losing customers on the same owing to fraud. Further, it has been noted that the business has been inefficient in planning for its product development. With that, and using the key quantitative modeling methods, it has been identified that the issues could be addressed by effective production, market planning, and fraud as well as theft management, The methods identified include the regression analysis, factors analysis and data mining. With that, all the solutions for the three issues are proposed and scheduled to be implemented beginning June 2016 to December 2016 when all the solutions will be in place or continuing.
References
Energy Gov. (2016). Solar in Demand. Retrieved 12 February 2016 from, http://energy.gov/articles/solar-demand
Heizer, J and Render, B. (2013). Operations Management: Sustainability and Supply Chain Management. New York: Pearson Education.
SEIA. (2015). New Report shows explosive growth in residential solar installations.. Retrieved 12 February 2016 from, http://www.seia.org/blog/new-report-shows-explosive-growth-residential-solar-installations
SEIA. (2016b). Solar Market Insight Report 2015. Retrieved 12 February 2016 from, http://www.seia.org/research-resources/solar-market-insight-report-2015-q2
SEIA. (2016b). Solar Industry Data: Solar Industry Breaks 20 GW Barrier - Grows 34% Over 2013. http://www.seia.org/research-resources/solar-industry-data
Appendices
Appendix 1
Appendix 2
Survey questions to the company manager
In a scale of 1 to 10, how do you rate the lack of controls as a key factor contributing to fraud and theft?
In a scale of 1 to 10, how do you rate the lack of supervision as a key factor contributing to fraud and theft?
In a scale of 1 to 10, how do you rate poor pay as a key factor contributing to fraud and theft?
Appendix 3
Data Mining
Appendix 4
Notes to the financial statements:
Selling and administrative expenses: In view of the analysis on the financial statements, there has been identification of an excessive spending for the second quarter year 2015 relative to the other quarters that had been projecting a decreasing expense trend. That warrants further scrutiny as to the items that related to the expense. That is because the expense could either be a fraud or a warranted expense incurred in line with increased business operations.
Interest expense: The interest expense for the third quarter of the year 2015 is noted to have been abnormal item relative to the other quarters given that it presents and excessive debt burden for the company. The item could be a result of excessive debt in terms of loan or credit card use and requires a close scrutiny given that it presents has a material effect on the company finances. However, the item also requires a close scrutiny in relation to the possibility that the company loans repayments are schedules for the third quarter.
