Objective:

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Lesson 7- Operations Management
Introduction List all the risks that could
potentially affect a
small business operation.
Do, or do not. There is no try. --Yoda


Objective Develop a strategy for
day-to-day business operations
--including risk prevention, Develop a
process to recruit, select and retain good
employees that meet organizational needs.
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Lecture Point One
Part of your responsibility as a business owner
is to anticipate all the "worst-scene scenarios"
that could impact your business operation.
Unless you are looking at the world through
"rose-colored glasses", you realize that even
well-planned events can go wrong. So, it makes
sense that not only do you examine the potential
for negative circumstances to occur, you
determine how you can prevent them from
happening. And, should they happen anyway, your
plans should include a "plan B". I presume you
are taking seriously the Introduction activities
at the beginning of each lesson. This would
mean that you have already compiled a list of
risks that could impact your business enterprise.

Here is a list presented by some of my previous
students lawsuit by a customer injured on
the premises fire that destroys business
inventory loss of business because of a
road closure or catastrophe prolonged
illness by the business owner theft by
employees and/or customers erroneous
anticipation of customer needs - overstocked
equipment failure (e.g. freezer, tractor,
delivery truck) computer virus destroys
data road construction blocks significant
entry to business prolonged negative
weather pattern (e.g. rain for a carwash)
legal infraction (e.g. sell liquor to minor,
health department warning) employee
charged with harassing a customer etc.
etc. etc.
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Now that you are depressed, it's time to revisit
that list and establish a guide to prevention of
those risks. Notice that I said "prevention". A
common response to many of these (e.g. fire
destroying inventory) is to purchase insurance to
cover the loss. While this is advisable to avoid
financial ruin because of the major loss,
insurance doesn't prevent anything. And, since
you really don't want the harassment of dealing
with the insurance adjuster, It is important to
consider what you can do to prevent the fire in
the first place. Developing operational
guidelines that include procedures for storage,
regular maintenance of machinery, and properly
placed extinguishers and sprinkling systems would
do more for prevention of his hazard. Risk
management does, however, include evaluation of
the need for insurance coverage.

• Business risks should be identified and prepared
  for. Your first
• line of defense should be self-insurance
  (training, good habits),
• Then consider insuring for potential loss, then
  organize to protect
• Against legal invasion of your assets. Two
  questions will guide you
• To analyze your risks
• Is the cost of managing the risk greater than the
  risk itself?
• Would you lose production due to the
  interruption?
• Would new costs arise because of the loss?
• Could the loss happen anywayeven with
  protection?
• What is the probability cost of a loss happening?
• (e.g. A plate glass window has a 10 chance of
  being broken. It
• Costs 300. You could budget 30 per year for 10
  years to cover
• The probability of it being broken. What will
  the insurance cost?

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Lecture Point Two
While the examination of business risks is
important to the stability of a business
operation, so to is the acquisition of productive
employees. Perhaps those of you who are not
going to have employees at the start can breathe
a sigh of relief--temporarily. However, over the
years, the most prevalent complaint by small
business owners is the ability to attract and
keep qualified employees. Chapters 18 and 19 in
your text focus on employee issues. Perhaps you
are not at that stage in your business--some of
you never will be--but it's not a bad idea to
have an awareness of the issues that surround the
employment of others. Pay particular attention
to the independent contractor guidelines. The
IRS takes a hard-line on violators. And,
although you are probably not a prime focus for
investigation of legal hiring practices, it
makes sense to know what is correct--just to be
ethical in your actions. Please go to Study Quiz
7.
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Initially, many small business owners perform all
tasks associated with the business. However, as
the business expands, the owners time becomes
more valuable in critical areas and thought must
be given to acquiring help to do some of the
functions. Hiring your first employee has to be
given serious thought because it increases your
responsibilities, increases your paperwork, and
has a major impact on the quality of your
business. There are three areas to consider when
hiring employees recruiting, selecting, and
retaining good people.
Recruiting Most people do not consider small
business as an employment opportunity because
they perceive big companies to be more capable of
providing more benefits, and providing more
promotional opportunities. This presents a
challenge to the small business owner to
creatively package the small business
opportunity. For example, an employee in your
business could have flexible hours that cannot be
offered in large companies, a more interesting
span of work activities to enrich their skills,
and more freedom to design how tasks are
performed. To determine if an employee is needed
and what skills will be required, you should
examine your management audit (Lesson Nine
assignment) to identify the skill areas in which
you are least capable. If you have had the
foresight to create an organizational chart and
job descriptions for all functional areas of
your business (even though you may be the only
person in the business), a complete job function
can be easily identified for the added person.
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Your next task will be to write a job
specification that identifies the specific skills
the person needs to complete the job as described
in the job description. The specifications
become the points of evaluation for job
candidates. Specifications could include an
amount of weight the person must be able to lift,
the number of words per minute they must type,
software programs they must know how to use, or
whether they have a car that may be needed on the
job. Other questions you should consider when
determining the job specifications are
a) What is the purpose of the
job? b) What day-to-day
duties will be performed? c)
How will the position be supervised?
d) How much (little) control is
exercised over the position? e)
What machines or equipment must be
operated? f) To what
extent is this position involved in analysis and
planning? g) What
internal and external contacts are required?
h) What verbal, numerical, or
mechanical aptitudes are needed?
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The acquisition of employees is an incredibly
serious action. Your employees tend to be the
ones on the front-lines--the customer's first
impression of your business. Make sure you have
developed a clear job description for each person
on your staff. To do this, go back to that tree
diagram you developed in Lesson Seven. As a
result of that process you should have isolated
clusters of duties that collectively could become
someone's job. Your next task is to write a
general job description for the responsibilities
you want delegated to an employee. Here is an
example for an Assistant Store Manager "Manages
the daily functions of a specialty department in
the retail operations. The assistant store
manager has responsibility for customer service,
supervision of sales clerks, new employee
training, merchandising, and inventory
maintenance."
Of course, that's too general to clearly
delineate specific actions that will be done, so
you provide a list of principle duties and
responsibilities. Assists customers in
merchandise selections, returns, and layaway.
Clarifies questions or problems that sales
clerks encounter. Trains, coordinates,
directs, and supervises department sales clerks.
Maintains inventory records.
Prepares the department for opening at the
beginning of each day. Ensures that the
department remains professionally organized and
orderly.
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Now that you are clear on what they will be
doing, you set to the task of defining what
skills are needed to accomplish each of those
skills. Education Two-year college degree in
marketing or related discipline. Experience
Six months to one year in a retail environment.
Knowledge, Skills, and Abilities basic
math skills effective interpersonal skills
good judgment and independent thought
self-starter, highly motivated high
integrity good computer skills Physical
requirements standing and walking
required for 90 percent of work day
ability to lift and carry boxes weighing
approximately 15 pounds or less
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Once you have accomplished the previous items,
you are ready to look for the right candidate.
Oh, by the way, you've just completed the
person's job description--which drives the
advertisement and the questions you ask the
candidates. When writing job announcements or
advertisements, be concise but clarify the job
duties and required specifications. The source
of candidates will depend a lot on what type of
position you wish to fill. Local secondary
schools, colleges, and trade schools have
students in need of part-time work. Many of
these schools also have internship programs that
can provide students at a lower cost because they
will be acquiring course credit along with the
work experience. Classified sections of the
newspaper are certainly an option, as well as
state and private employment agencies.
Another source of employees, especially if you
are not positive you need an employee and you
have little time available to do a search, is a
temporary service. The temporary service acts as
your employment department and screens candidates
according to your specifications. When the
employee reports to work there is a mutual
evaluation of the other party. You determine his
or her acceptability as an employee he or she
evaluates your work setting. Advantages of using
a temporary service are they handle the salary
and tax deductions for the employee, and the
service may also be able to provide health
insurance benefits that would be out of your
reach. Of course you will be paying a
percentage to the temporary agency for their
overhead and profit. Even if you dont extend a
permanent offer to the employee, a temporary
service will work very well to deal with seasonal
fluctuations and vacation substitutions.
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Selecting Employees Selection of an effective
employee is crucial, and your approach should be
very professional. The process you use will set
the tone of your employer-employee relationships.
You should use an appropriate application form
that systematically collects background data and
serves as a guide to investigate the applicants
experience and character. However, be sure to
avoid questions concerning race, national origin,
age, marital status, religion, disabilities, or
arrests unless there is a clear reason to do so
because of the job expectations. You can locate
preprinted application forms at most office
supply stores. Be sure to select one (or create
one) that is appropriate for the position. You
will use a different form for a management
applicant than a clerical applicant.
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During the interview these sensitive issues
should also be avoided. If possible, have more
than one person interview the candidate to
compare notes. Be sure to take as much time as
you need to secure an effective interview. For a
job with heavy responsibility, one hour may be a
pretty insignificant effort. The interview
should be a two-way process with a healthy
give-and-take of ideas and questions to determine
a match of personalities, job qualifications, and
job definition. There are many approaches to
interviewing. One of my favorite methods is
based on a model produced by Proctor Gamble.
The interview questions follow a pattern that
asks the interviewee to "describe a work or
non-work situation that describes a situation
where he or she demonstrated leadership,
responsibility, or other identified
characteristics needed for the job." Notice that
a key element of each question is that the
description doesnt have to focus on a work
setting. If a person can demonstrate the quality
being sought (e.g. responsibility) in a non-work
or volunteer position, it probably can transfer
to a work setting.
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To assist in the objective analysis of
candidates, you should develop a grid checklist
that identifies the key factors being evaluated
across the top and lists the candidates
vertically. A value can be assigned to your
impression of the factors demonstrated by each
candidate and, when the interviews are done, a
total can reveal comparative strengths. If
the job requires specific skill, you should test
the candidate (e.g. speed and accuracy of data
entry). Avoid any tests that do not focus on
needed job requirements. If there are physical
demands on the job, a physical may be in
order. However, the Americans with
Disabilities Act requires that employers
provide reasonable accommodations for
many disabilities. If your employees will
be driving vehicles or the performance of
other responsible functions, a drug test
may be in order. Your policy for payment for
these tests may include the candidate paying for
the test, but being reimbursed if satisfactory
and subsequently hired.
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Occasionally, candidates will not be truthful in
hopes that you will not actually check their
background. Before hiring anyone, be sure to
check their references by calling identified
references and previous employers. Open-ended
questions regarding the candidates work skills
and habits are most productive. During these
inquiries you should also check for accuracy of
their employment start and end dates. If gaps
are evident, this is cause to investigate
further. When the new employee is brought on
board you must complete the paperwork to
establish the employer-employee relationship.
This includes the completion of the Form SS-4
for the Internal Revenue Service, an I-9 to
establish citizenship status, etc. You will
also be required to withhold state and federal
income taxes, and FICA. In addition, you must
calculate and contribute your share of FICA,
unemployment insurance and workers
compensation. Check with your accountant for
forms and appropriate rates.
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A factor that isn't obvious in the job
description, and from my experience not
considered by many small business owners when
hiring, is the "type" of worker hired as compared
to the "type" of worker you are. Many employers
will follow an interview with their choice
candidate with words that expound on how well
related to each other and you seemed to be
thinking along the same track. If this is true,
it's likely you hired the wrong person. You
don't want to hire a clone you want to hire
someone who complements your style. So how do
you know what style you are? I've got a test.
Take a few minutes to evaluate your current work
style. Return here, and then, we'll evaluate
what you should do as a result. Click here for
the test Now that you have identified your
predominant style, take a moment to analyze
your style, and how you should relate to
other styles. Most important, consider your
need to hire those who are opposites and how
you should communicate with them. For those
business owners that employ people, your
biggest risk will be eliminated if you choose
well in the hiring process.
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Lecture Point Three
My final point for this lesson centers on the
risk management associated with financial issues.
It is important that you determine what kind of
a credit and collections policy you will use.
Even if you decide to have a "cash only"
business, that is a defined credit policy. Here
are some guidelines for credit and
collections. There are three major factors when
evaluating a credit applicant 1. ability to
pay 2. willingness to pay 3. potential
profitability of the account Verify information
provided on the application. 1. check place of
employment to verify they have an income
source 2. verify existence of bank account and
average account balance 3. the local credit
bureau can also provide information to
members (membership fees are usually based on
business size and a nominal fee for each
inquiry) 4. check for stability in employment
and residence Your final task for this lesson is
to analyze your business enterprise with regard
to your maximum capacity to respond to customers,
and related to that, an indication of your
operating advantages as well as potential hazards
or "worst-scene scenarios" that could affect your
operation. And, it will examine your credit,
inventory, and personnel utilization policies.
Please go to the Operational Controls project.