Break-Even Analysis:

An analysis to determine the point at which revenue received equals the costs
associated with receiving the revenue. Break-even analysis calculates what is known
as a margin of safety, the amount that revenues exceed the break-even point. This is
the amount that revenues can fall while still staying above the break-even point.

Break-even analysis depends on the following variables:

1. Selling Price per Unit: The amount of money charged to the customer for
each unit of a product or service.
2. Total Fixed Costs: The sum of all costs required to produce the first unit of
a product. This amount does not vary as production increases or decreases,
until new capital expenditures are needed.
3. Variable Unit Cost: Costs that vary directly with the production of one
additional unit.

Total Variable Cost The product of expected unit sales and variable unit cost,
i.e., expected unit sales times the variable unit cost.

4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you
wish to find out the number of units that must be sold in order to produce a
profit of zero (but will recover all associated costs)

Each of these variables is interdependent on the break-even point analysis. If any of

the variables changes, the results may change.

Total Cost: The sum of the fixed cost and total variable cost for any given level of
production, i.e., fixed cost plus total variable cost.

Total Revenue: The product of forecasted unit sales and unit price, i.e., forecasted
unit sales time’s unit price.

Break-Even Point: Number of units that must be sold in order to produce a profit
of zero (but will recover all associated costs). In other words, the break-even point
is the point at which your product stops costing you money to produce and sell, and
starts to generate a profit for your company.

One may use the JavaScript to solve some other associated managerial decision
problems, such as:
  setting price level and its sensitivity
 targeting the "best" values for the variable and fixed cost combinations
 determining the financial attractiveness of different strategic options for your
company

The graphic method of analysis (below) helps you in understanding the concept of
the break-even point. However, the break-even point is found faster and more
accurately with the following formula:

Q = FC / (UP - VC)

Where:

Q = Break-even Point, i.e., Units of production (Q),

FC = Fixed Costs,

VC = Variable Costs per Unit

UP = Unit Price

Therefore,

Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)

Purpose:
The main purpose of break-even analysis is to determine the minimum output that
must be exceeded in order to make profit. It also is a rough indicator of the earnings
impact of a marketing activity.

The break-even point is one of the simplest yet least used analytical tools in
management. It helps to provide a dynamic view of the relationships between sales,
costs, and profits. For example, expressing break-even sales as a percentage of
actual sales can give managers a chance to understand when to expect to break even
(by linking the percent to when in the week/month this percent of sales might occur).

The break-even point is a special case of Target Income Sales, where Target Income
is 0 (breaking even). This is very important for financial analysis.

Limitations:
 Break-even analysis is only a supply-side (i.e., costs only) analysis, as it tells
you nothing about what sales are actually likely to be for the product at these
various prices.
 It assumes that fixed costs (FC) are constant. Although this is true in the short
run, an increase in the scale of production is likely to cause fixed costs to rise.
 It assumes average variable costs are constant per unit of output, at least in the
range of likely quantities of sales. (i.e., linearity).
 It assumes that the quantity of goods produced is equal to the quantity of goods
sold (i.e., there is no change in the quantity of goods held in inventory at the
beginning of the period and the quantity of goods held in inventory at the end
of the period).
 In multi-product companies, it assumes that the relative proportions of each
product sold and produced are constant (i.e., the sales mix is constant).
Brainstorming

Generating ideas: Questioning and brainstorming

Sometimes ideas for reengineering or improving a process become apparent after
documenting the process and carefully examining the areas of substandard
performance hand-offs between departments, and steps where customer contacts s
high.

Ideas can be uncovered (because there is always a better way)by asking six questions
about each step in the process, and about the process as a whole:

1. What is being done?

2. When is it being done?

3. Who is doing it?

4. Where is it being done?

5. How is it being done?

6. How well does it do on the various metrics of importance?

Nominal group technique

Participants are asked to write their ideas anonymously. Then the facilitator collects
the ideas and the group votes on each idea. The vote can be as simple as a show of
hands in favor of a given idea. This process is called distillation.

After distillation, the top ranked ideas may be sent back to the group or to subgroups
for further brainstorming. For example, one group may work on the color required
in a product. Another group may work on the size, and so forth. Each group will
come back to the whole group for ranking the listed ideas. Sometimes ideas that were
previously dropped may be brought forward again once the group has re-evaluated
the ideas.

It is important that the facilitator be trained in this process before attempting to

facilitate this technique. The group should be primed and encouraged to embrace the
process. Like all team efforts, it may take a few practice sessions to train the team in
the method before tackling the important ideas.
Group passing technique:

Each person in a circular group writes down one idea, and then passes the piece of
paper to the next person, who adds some thoughts. This continues until everybody
gets his or her original piece of paper back. By this time, it is likely that the group
will have extensively elaborated on each idea.

The group may also create an "idea book" and post a distribution list or routing slip
to the front of the book. On the first page is a description of the problem. The first
person to receive the book lists his or her ideas and then routes the book to the next
person on the distribution list. The second person can log new ideas or add to the
ideas of the previous person. This continues until the distribution list is exhausted.
A follow-up "read out" meeting is then held to discuss the ideas logged in the book.
This technique takes longer, but it allows individuals time to think deeply about the
problem.

Team idea mapping method:

This method of brainstorming works by the method of association. It may improve

collaboration and increase the quantity of ideas, and is designed so that all attendees
participate and no ideas are rejected.

The process begins with a well-defined topic. Each participant brainstorms

individually, then all the ideas are merged onto one large idea map. During this
consolidation phase, participants may discover a common understanding of the
issues as they share the meanings behind their ideas. During this sharing, new ideas
may arise by the association, and they are added to the map as well. Once all the
ideas are captured, the group can prioritize and/or take action.

Directed brainstorming:

Directed brainstorming is a variation of electronic brainstorming (described below).

It can be done manually or with computers. Directed brainstorming works when the
solution space (that is, the set of criteria for evaluating a good idea) is known prior
to the session. If known, those criteria can be used to constrain the Ideation process
intentionally.

In directed brainstorming, each participant is given one sheet of paper (or electronic
form) and told the brainstorming question. They are asked to produce one response
and stop, then all of the papers (or forms) are randomly swapped among the
participants. The participants are asked to look at the idea they received and to create
a new idea that improves on that idea based on the initial criteria. The forms are then
swapped again and respondents are asked to improve upon the ideas, and the process
is repeated for three or more rounds.

In the laboratory, directed brainstorming has been found to almost triple the
productivity of groups over electronic brainstorming.

Guided brainstorming:

A guided brainstorming session is time set aside to brainstorm either individually or

as a collective group about a particular subject under the constraints of perspective
and time. This type of brainstorming removes all cause for conflict and constrains
conversations while stimulating critical and creative thinking in an engaging,
balanced environment.

Participants are asked to adopt different mindsets for pre-defined period of time
while contributing their ideas to a central mind map drawn by a pre-appointed scribe.
Having examined a multi-perspective point of view, participants seemingly see the
simple solutions that collectively create greater growth. Action is assigned
individually.

Following a guided brainstorming session participants emerge with ideas ranked for
further brainstorming, research and questions remaining unanswered and a
prioritized, assigned, actionable list that leaves everyone with a clear understanding
of what needs to happen next and the ability to visualize the combined future focus
and greater goals of the group.

Individual brainstorming:

"Individual brainstorming" is the use of brainstorming in solitary. It typically

includes such techniques as free writing, free speaking, word association, and
drawing a mind map, which is a visual note taking technique in which people
diagram their thoughts. Individual brainstorming is a useful method in creative
writing and has been shown to be superior to traditional group brainstorming.
Question brainstorming:

This process involves brainstorming the questions, rather than trying to come up
with immediate answers and short term solutions. Theoretically, this technique
should not inhibit participation as there is no need to provide solutions. The answers
to the questions form the framework for constructing future action plans. Once the
list of questions is set, it may be necessary to prioritize them to reach to the best
solution in an orderly way.

"Qu storming" is another term for this mode of inquiry.

Reference:

 Operations Management Process and Supply Chains, 9th edition by Manoj K.

Malhotra, Ritz man.
 Operations Management by the core by Robert Jacobs & Richard Chase.
 Operations Management by Dummies
 Operations Management Process and value chains, 8th edition by Manoj K.
Malhotra, Ritz man.