Integrating Business Skills into Ecotourism

1. Integrating Business Skills into Ecotourism BUSINESS PLANNING David Gachuru 21st June 2011

2. Study Objectives • To understand the basics of planning; • To appreciate the importance of visualizing the big picture of a finished eco-product first, in the planning process; • To sensitize on the important areas of financial planning in business; • To highlight the current trends in staff management in ecotourism, in particular; • To challenge and encourage the participants to do further research on the key highlights of the program and apply the same.

3. Life “A mountain is composed of tiny grains of earth. The ocean is made up of tiny drops of water. Even so, life is but an endless series of little details, actions, speeches, and thoughts. And the consequences whether good or bad of even the least of them are far-reaching”. Sivananda

4. Discipline “Discipline is based on pride, on meticulous attention to details, and on mutual respect and confidence. Discipline must be a habit so ingrained that it is stronger than the excitement of the goal or the fear of failure”. Gary Ryan Blair

5. Ecotourism in a nutshell • The essence of ecotourism is sustainability. Sustainability requires a change in mindset and value towards conservation. It recognizes: • Global Interdependence, • Environmental Stewardship, • Social Responsibility • Economic Viability.

6. Business Considerations “Schemes that transfer risk from poor farmers to global financial markets are viable” ………….... Hassan Mahmud – Minister of State Affairs, Bangladesh speaking at the World Climate Conference in 2009

7. Business Considerations FEASIBILITY STUDY DECISION TO COMMIT TIME, MONEY & EFFORT BUSINESS PLANNING

8. ‘The Starting Point’ Regulatory Requirements

9. Business Planning • Planning consists of four elements: • Identifying the Overall Purpose of the business • Identify the Activities to be performed • Place the activities in proper Sequence • Identify the Resources required to accomplish them • Business planning is done after passing Feasibility Test • A Business Plan is then created to facilitate development of the enterprise

10. The Planning Process • Identify the Purpose of the business • Visualize the Plan completed (Vision) • Develop Measurable Goals (SMART) • Identify activities needed to accomplish the objectives • Place the Activities in a proper sequence • Determine Resources needed to achieve the plan • Resources: People; Space; Equipment; Supplies; time; Money.

11. A Business Plan A Strategic Plan whose role is: • To outline the enterprise targets in respect of marketing, operations, management and environment • To analyze the financial implications of these targets to ensure that stakeholders’ expectations can be met • To determine the human resource requirements in meeting/exceeding the enterprise targets • To provide a Contingency framework for Business Continuity.

12. An ecotourism enterprise BP • Different from other business plans in that it takes into consideration • Social Factors • Environmental Factors • Sustainability • Conservation • Responsibility

13. Creating a Business Plan

14. Creating an Ecotourism Business Plan (cont.)

15. Financial Planning • “Unless you have enough cash available, it does not matter how ‘profitable’ your business is because the people you owe money to (creditors) will not wait to be paid” Equity Bank A Guide to Business Management and Development (2009)

16. Understanding Financial Planning • Planning to stay in business • Ability for the business to generate enough cash to pay the bills on time • Priority setting: Focus on CASH first, then PROFITS and finally GROWTH. • Creating short, medium and long term financial goals.

17. Key Terminologies • Cash – Money available now (Cash box; Bank; OD) • Flow of cash – Debtors; Stocks; Creditors • Working Capital – Creditors; Stocks; Cash & Bank Balances; Expenses • Working Capital Cycle – Right amount of cash in the right place at the right time • Break-even Point – This is the point at which the income and the costs are equal. Reducing costs increases business survival.

18. Financial Projections • Financial Statements the Business Plan provides to potential investors, informing on the business ability to cover: • Operating Expenses • Investment Costs • Three different types of Financial statements: • Cash Flow Statement • Income Statement • Balance Sheet • Financial Decisions are made based on the Analysis & Interpretation of these financial statements.

19. Cash Flow Statement • Reports on income and spending at the time money comes into and out of the business. • Net cash flow is the amount of cash remaining after cash out is subtracted from cash in. • Cash flow statements can be done daily or periodically. • Cumulative cash flow indicates the business capability of becoming financially stable or not.

21. Income Statement • Reports the cash in-flows of the business, periodically (Monthly/Quarterly/Annually) • Takes into account the Seasonal Variations of the business. Seasonality in Tourism is real and must be taken into account • Income Statements enable Investors to plan when to inject cash into the business, or plan for shortfalls or windfalls.

23. Balance Sheet • Lists values of assets and liabilities of the business, including bank loan; • It is a measure of the value of the business, not necessarily profitability; • It reveals who owns the value of the business. • What are the assets of an ecolodge? What are some of the liabilities of an ecolodge?

25. Budgeting • The budgeting planning involves systematically looking at the future to enable decisions to be made so as to achieve desired results in the future. • A budget is a financial plan; a quantitative expression of a plan of action and an aid to coordination and implementation; • It quantifies the expectations regarding future income, cash flows, financial position and supporting plans. • Budgeting has both Long Term Planning and Short Term Planning

26. Long Term Planning • Also called Capital Budgeting, • A process of making decisions to purchase assets with long term profitability implications. • It aims to maximize the value which is added to the company by selecting projects which offer the highest return • The most significant principle - each capital investment decision must earn the required return if it is to add value to the business. • Considerations: Strategic importance of the project, potential future spin off benefit, opportunity cost etc. • NB: One distinctive approach to all capital budgeting process – cash flow count. Several techniques are used: Payback Period Model, Time value of money, Discounted Payback Period and Net present value.

27. Short Term Planning • Also called The Master Budget, it is a comprehensive plan, comprising of operating budget and the financial budget. • Its objective is to consider the implementation of decisions through planning and control. • Future events - basis for performance evaluation • Direction to management • Cost awareness to line managers • Development of a master budget is a sequential process in which information from one budget is carried to another budget. E.g.: 2009/2010/Budget 2011

28. The Main Operating Budgets ‘ecotourism’ • Examples: • The Sales and Marketing; Operations; Payroll and Related Costs; FF&E/R&M and Conservation • Budget Processes • Zero Budgeting – Starts from zero base; considers ‘value for money’, hence a tool for identifying unproductive operations • Incremental Budgeting – Takes the current level of activities as a base and adjusts for changes which are expected to occur during the new budget period (e.g. higher prices caused by inflation)

29. Pricing • The Traditional Way - 03 methods of pricing: Cost Based; Demand Based and Competition Based. • The New Way - Market Dynamism. It is called dynamic pricing. Its focus is Yield Management. Its Premises: • Relatively small changes in pricing can lead to disproportionately large impacts on the firm’s bottom line. • There is no such a thing as fixed price, in a dynamic Market place. • The optimum price should reflect customer needs, market position and the economic aspect.

30. YIELD STRATEGY • Four considerations of Yield Management: PRODUCT; PRICE; CUSTOMER; TIME. • Most effective way to approach Yield Management: SEGMENT THE CUSTOMER BASE (demand) INTO DIFFERENT TYPES OF DEMAND. Each type of demand will have different room/tent needs, rate tolerance and lead time before booking (BOOKING WINDOW). • A further revenue optimization strategy is to look at the product and extent of service offered to the right hotel. By adding value, ask premium price.

31. RevPAR • Revenue per Available Room Night. For ‘eco’ properties, replace room with your main product. E.g. Tent/Banda • The essence of yield management is to optimize RevPAR. “SELL THE RIGHT ROOM, AT THE RIGHT PRICE, TO THE RIGHT CUSTOMER AT THE RIGHT TIME” • Optimizing RevPAR does not always mean highest price and achieving the highest ARR as RevPAR is the product of occupancy and average rate.

32. Value Based Price – ‘A product perception’ • The value based price is derived from: • Cost – of the product • Service – delivered directly • Image – Self worth? Emotional? • Time - Promise • Quality – Conformance to set standard • Impact – Emotional

33. Management and Organization • Irreducible Minimums of Management: Management activity may be reduced to two basic categories: the management of “things” and “ideas”. Unfortunately, people often fall into the things category, to be used to get current work done. • Things are tangible while ideas are not. Hence, a lot of time is spent on managing things, and completely ignore ideas. • The future of organizations is in ideas; after all, everything done was someone’s idea. People have unlimited creativity and they need to be given an opportunity.

34. Staff Management‘The role of Organizing’ • Designing the Organization Structure • Defining relationships between different positions • Position descriptions in terms of scope and tasks • Establishing job specifications (The human element) • Staffing: Recruitment; Induction: Training; Development; Performance Appraise; Promotion. • NB: Recruit for attitude and Train skills. • Directing: Motivation; Coordination; Inducing change

35. Changing Human Resource Management Trends • Declining 0lder Workforce • Increasing Generation ‘Y’ workforce • Increased Employee Migration • Gender Considerations • Career Management complexities • Increased number of Global Managers • New Labour Laws in Kenya • Social responsibility of the business

36. ‘A take home’ “Sustainability is a journey. It has to be a way of life. We must have the discipline to go the full length in our time. One day, generations to come will be proud of the heritage that we create today”

37. References/Resources • Issue 24, December 2009/January 2010. Global Change. International Council for Science • Equity Bank (2009) - A Guide to Business Management. Nairobi, Kenya • Regent Business School (2009), Financial and Managerial Accounting. Durban, SA. • Drumm, A., Moore A., Sales A., Patterson C., Terborgh J E., (2004), The Business of Ecotourism development and Management. Arlington, USA. The Nature Conservancy • Thompson A., (2005), Entrepreneurship and Business Innovation • Rush M., (2002), Management: a Biblical Approach. Colorado, USA. Word Alive Publishers Ltd. • Harigopal K., (2006), Management of Organizational Change, ‘Leveraging Transformation. New Delhi, India. ’Sage Publications Pvt Ltd • Sagimo P O., (2002), Management Dynamics - Towards Efficiency, Effectiveness, Competence and Productivity. Nairobi, Kenya. Sunlitho Ltd • http://www.business.gov.sg/EN/BusinessTopic/SelectingPremises/ • http://www.savevid.com/video/tourism-vs-eco-tourism.html • http://bestentrepreneur.murdoch.edu.au/Understanding_Dimensions_of_Business_Viability.pdf • http://www.youtube.com/watch?v=GJi1zQh9Ohc