Business IA Finalmrpronan.weebly.com/uploads/3/7/8/3/37835975/2013_ia_hl_22_cop… · SWOT analysis shows the current situation faced by Ser Wong Fun. Investment appraisal helps to

International Baccalaureate Business and Management Higher Level Internal Assessment Should Ser Wong Fun (HK) invest in a customized point of sale

retail system to improve its table management?

Name: Sin Chung Kei Nathan Candidate Number: School Name: Victoria Shanghai Academy Research proposal: 486 words Main body: 1,995 words

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Content Page

1. Research Proposal………………………………………………………..3-5

2. Executive Summary………………………………………………………..6

3. Introduction………………………………………………………………...7

4. Procedure and Methodology……………………………………………….7

5. Main Results and Findings………………………………………………....8

6. SWOT Analysis…………………………………………………………9-10

7. Revenue and Costs for Ser Wong Fun…………………………………….10

8. Investment Appraisals…………………………………………………11-13

9. Decision Tree……………………………………………………………...14

10. Force Field analysis……………………………………………………….15

11. Conclusion and Recommendation………………………………………...16

12. Bibliography…………………………………………………………...17-18

13. Appendix 1: Interview with manager…………...……………………..19-20

14. Appendix 2: Interview with worker……………………………………….21

15. Appendix 3: Competitor analysis on the Chinese Restaurants in Central...22

16. Appendix 4: Observation 1…………………………………….………23-24

17. Appendix 5: Observation 2……………………………………………..…25

18. Appendix 6: Full SWOT Analysis……………………………………..26-27

19. Appendix 7: Monthly operation costs for Ser Wong Fun………………....28

20. Appendix 8: Costs for initial investment…………………………...….29-30

21. Appendix 9: Investment Appraisal Calculations………………………31-32

22. Appendix 10: Decision Tree Calculations………………………………...33

23. Appendix 11: User Appraisal Screenshots………………………………..34

24. Appendix 12: Letter of Consent…………………………………………..35

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Research Proposal Research question:

Should Ser Wong Fun (HK) invest in a customized point of sale (POS) retail system

to improve its table management?

Rationale: Ser Wong Fun is a traditional Chinese restaurant that has been a family business since

1941 in Hong Kong and is located Central. During dinner hours, the restaurant is

always full and there is a long queue for its customers, resulting in lost sales. To

solve this problem, a POS (point-of-sale) system that could improve its table

management is examined.

Theoretical Framework/Key Areas of Syllabus:

Both financial and non-financial tools are used to evaluate whether Ser Wong Fun

should implement such a system could enhance their efficiency. Quantitative tools

such as investment appraisals and decision tree would be used to see the affordability

for them to purchase such a system. Qualitative tools such as force field and SWOT

analysis would also be used to analyze the advantages and disadvantages of their

capital investment.

Organizational planning tools such as decision tree, Force Field and SWOT analysis

would be used to evaluate the whether introducing a POS system benefits Ser Wong

Fun.

Investment appraisal tools allow a quantitative analysis of the potential returns of

Ser Wong Fun’s investment in POS.

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Methodology

Primary research:

• An interview with both the workers and the manager of the restaurant for

insights about the current ordering and billing system and possible affects of

introducing a POS system.

• Observations to estimate the daily revenue and the loss of customers when the

restaurant is at full house.

Secondary research:

• Research on the prices of POS systems from manufacturer’s directory.

• Research on customers’ response on the restaurant on restaurant rating

websites to evaluate the value of implementing such system.

Problems likely to occur

Possible problems Solutions

Interview with the

manager might be

biased.

Balance the opinions

with observations and

interview the workers.

Financial information is

not available.

Using observations in

the restaurant to

estimate sales revenue.

Difficult to obtain up to

date information for

prices of POS systems.

Use credible websites

and visits to such shops

to ensure the validity of

the price.

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Action Plan

Dates Action Modifications

22 June 2012 Begin Secondary Research

29 June 2012 Prepare for interview

22 July 2012 Complete background research Delayed to 1st of August 2012.

3 August 2012 Interview with manager and worker

Moved to 14th August 2012.

3 August 2012 Observation research Moved to 14th August 2012. Decided to observe again 25th of August due to insufficient data collected.

15 August 2012 Complete investment appraisals, decision tree

Moved to 25th August 2012 due to the delay in primary research.

25 August 2012 Complete SWOT analysis, Force Field diagram

Delayed to 5th September 2012.

9 September 2012 First draft

6 November 2012 Final Submission

Word Count: 478

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Executive Summary Ser Wong Fun is a Chinese restaurant in Central. They are currently losing customers

due to slow table turnovers that cause a long waiting time. To solve this problem, it is

vital to increase efficiency and hence this report aims to investigate:

Should Ser Wong Fun (HK) invest in a customized point of sale retail system to

improve its table management?

This research includes the use of both primary and secondary sources. Primary

research includes observations in the restaurant to estimate revenue, and interviews

for staff feedback. Secondary resources like restaurant appraisal websites and

government publications were also used to increase the validity of the claims and

calculations.

SWOT analysis shows the current situation faced by Ser Wong Fun. Investment

appraisal helps to determine the returns, including payback, ARR and NPV. A

decision tree is used to consider the risks and outcomes logically. The Force Field

analysis allows a qualitative evaluation by weighting out the driving and restraining

factors.

In conclusion, Ser Wong Fun should not invest on the POS system due to worker’s

potential resistance to accept this technological change. Liquidity issues may be of

concern.

Word count: 187 words

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Introduction Ser Wong Fun had been serving Chinese sausages and its famous snake soup since 1941. Over the years, this family business had grown from a small stall on the streets to a prominent restaurant. Because of its good reputation, it allows them to sell their foods at a premium price. However, its long waiting queue drives customers away during dinner periods. One

way to solve the problem is to increase their table turnovers to get customers seated

quicker. A customized POS system bundled with software would allow Ser Wong

Fun to take and track orders and to perform transactions. This allows them to

improve its efficiency of table management.

To investigate whether implementing a POS system would successful, quantitative and qualitative factors must be considered.

Procedure and Methodology The following tools are used:

• SWOT analysis of Ser Wong Fun Investigating the internal and external factors of Ser Wong Fun to assess its business position.

• Investment Appraisal Analysis on the payback period, Account rate of Return and Net present value to see whether it is a profitable investment.

• Decision Tree allows considerations of risks and outcomes of the POS investment.

• Force Field analysis Weighs driving and restraining factors and provides a qualitative input to the investigation.

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Main results and findings Restaurants businesses are very competitive in Central, where 9 out of 42 ‘OpenRice Best Restaurants 2012’1 are located in their district. It is a concentrated business area that draws huge crowds of customers during lunch and dinner periods. Since Hong Kong’s landmark, the International Financial Center, is also located nearby, a lot of tourists would have their meals in Central2. Ser Wong Fun is losing customers due to long waiting queues, where customers might become frustrated3. Ser Wong Fun’s customers have to stand outside to wait, which could disappoint some potential customers and hence loses sales. As mentioned in user appraisals of Ser Wong Fun from TripAdvisor.com, “Go early if you wish to avoid waiting for over an hour”4 and “…almost busy all day, but if don’t mind waiting, you are in for a treat…”5 shows the value in introducing a Point of Sale system to improve their efficiency, the table turnovers and ultimately to increase revenue.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 http://www.openrice.com/award/winner.htm 2 Appendix 1: Interview with manager – Question 5 3 "Restaurants Manage Wait times to Improve Service." Market Watch. N.p., 02 June 2011. Web. 5 Oct. 2012. <http://www.marketwatch.com/story/restaurants-manage-wait-times-to-improve-service-2011-06-02>. 4 Refer to Appendix 10 for Screenshots 5 "Ser Wong Fun, Hong Kong." - Restaurant Reviews. N.p., n.d. Web. 12 Oct. 2012. <http://www.tripadvisor.com/Restaurant_Review-g294217-d777502-Reviews-Ser_Wong_Fun-Hong_Kong.html>. !

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SWOT Analysis of Ser Wong Fun Information derived from the interview with the Chan Suk Yau, the manger, and observations from both inside and outside of the restaurant allows a SWOT analysis of Ser Wong Fun (See Appendix 6). Strengths (Internal):

• Offers distinctive snake soup and Chinese sausages which could only be found in a few places in Hong Kong, therefore gives competitive advantage

• Being in Central, a business and shopping concentrated area, attracts both local and tourists to have their meals there. Their secret recipes result in the brand loyalty from its customers.

Weaknesses (Internal):

• Ser Wong Fun would lose customers due to the waiting time to get seated, especially during the winter, due to the size constraint of the restaurant. (8 people who left because the restaurant was full6)

• Workers, without a suitable amount of training, would not be able to fully use the POS system.

• Restaurant is affected by seasonal factors, some dishes are more popular in winter.

Opportunities (External):

• Potential to franchise their Chinese sausages for market penetration.

• Premium brand image of Ser Wong Fun is known in the Central district.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!6 Appendix 5: Observation 2

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Threats (External):

• Ser Wong Fun is located in Cochrane Street, which is clustered with many restaurants

• Fast / Western food restaurants have a relatively shorter waiting time.

• Recent changes in Hong Kong’s Exchanging hours7 caused them to lose sales Overall, Ser Wong Fun’s business has a lot of opportunities, in which they could further highlight their distinctive food to more people, hence building a larger customer base to improve both their reputation. Their major weakness is the long waiting time for customers before they could get seated. Rather than to relocate to a bigger premise, one method to solve the problem is through increasing table turnovers. This could be achieved by introducing a POS system. Revenue and Costs for Ser Wong Fun Observations were conducted to estimate the revenue since financial reports were unavailable due to confidential information. Assuming that the revenues are the same everyday, it shows the following:

Figure 1: Predicted monthly revenue for Ser Wong Fun8

Daily revenue Monthly revenue $7,107 + $305 + $11,400

� $18,812

$18,812 x 30 = $564,320

Figure 2: Monthly profit and loss account for Ser Wong Fun9

Costs Revenue $564,320

Less: Cost of Goods sold ($197,512) Less: Indirect Costs ($323,056)

Net profit before interest and tax $42,752

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7!O'KEEFFE, KATE. "Hong Kong Exchange to Extend Trading Hours." The Wall Street Journal. N.p.,

22 Nov. 2010. Web. 1 Sept. 2012. 8 Appendix 4: Observations 1 9Appendix 7: Monthly operation costs!

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Investment appraisals To forecast the extra revenue that the POS system would contribute to the restaurant, it is required to find the average customer spending.

$18,812 ÷ 151 = 124.5827815 ≈ $125

Contribution per month = $125×8×4*=$4,000 *Average customer spending×Estimated gain of customers each week×weeks per month

The contribution per month was based on an observation outside of the restaurant to see the number of people leaving due to the Ser Wong Fun being full10. It was assumed that they had the same number of customers, recovering the lost sales from the POS system.

It is also essential to find the initial costs of the POS system with additional software and miscellaneous costs. This system is chosen by a compare and contrast analysis (See Appendix 7). Figure 3: Costs for Initial Investment11

Initial Investment $94,439

Payback period12 For simplicity, the contribution per month is assumed to be constant, where $4,000 would be earned every month by the increased efficiency of the POS system.

Initial!InvestmentContribution!per!month

= 94,439 ÷ 4000

= 23.6 months

One limitation of using the payback period is that it is the value of sales is assumed, where the fluctuation in sales, caused by seasonality, was not considered. There are different demands in their food in different time periods of the year, i.e. the hot soup is a lot more popular during winter.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!10 Appendix 5: Observation 2 11 Appendix 8: Costs for initial investment 12 Detailed calculations in Appendix 9: Investment appraisal calculations (p.30)!

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Accounting rate of return13 5 years14 of a constant net cash flow is used for estimation as it is assumed that it would have a useful life of 5 years. However it ignores the timing of cash inflows and with the dynamic environment in the food industry, figures obtained might not represent the whole picture.

((!"#!!"#$!!"#$!–!!"#$#%&!!"#$%&'$"&)!"#$%&!!"!!"#$% ) ÷ Initial investment

(!"#,!!!!–!!",!"#)

! = 24,112.20

(!"##!.!")!",!"# ×100 = 25.5%

Net present value15 Similarly, a constant net cash flow was assumed for every year, yet there might be unforeseeable factors that fluctuates the net cash flow in different years. The discount factor is based on the current inflation rate of 4%16. Figure 4: Net Present Value for 5 years of operation of the POS system

Net cash flow from the system ($)*

Discount Factor (4%)17 Net Present Value ($)

Year 1 43,000 0.9615 41,344.50 Year 2 43,000 0.9246 39,757.80 Year 3 43,000 0.8890 38,227.00 Year 4 43,000 0.8548 36,756.40 Year 5 43,000 0.8219 35,341.70

Total: 191,427.40 *Gain of customers per month×months in a year – miscellaneous fees involved

NPV = $41,344.50 + $39757.80 + $38227.00 + $36756.40 + $35341.70 = $191,427.40 – $94,439.00 = $96,988.40

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!13!Detailed calculations in Appendix 9: Investment appraisal calculations (p.31)!14!Inland Revenue Department Hong Kong, 2009, Machinery and Plants – Depreciation Allowances 15!Detailed calculations in Appendix 9: Investment appraisal calculations (p.31)!16!"Headline Rate Estimate 3.5%." News.gov.hk. N.p., 01 Feb. 2012. Web. 05 Oct. 2012. <http://www.news.gov.hk/en/categories/finance/html/2012/02/20120201_094723.shtml>. 17!Hoang, Paul. Business and Management. Victoria (Australia): IBID, 2011. 314. Print.!

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Analysis Payback period is the time required to earn enough money to cover the initial costs of the investment18. The payback period for the POS system is 23.6 months, which is around 2 years. Accounting rate of return refers to the average profit of an investment in terms of a percentage19. Based on the calculations above, it has a high ARR at 25.5%. Even comparing to the existing inflation rate of 3.8%20, there still seems to be a substantial amount of return. Net present value is the discounted cash flow that compares the value of the money earned in the future and today21. The above figure ($191,427.40) also shows an acceptable return when compared to 5 years of their net profit before interest and tax

($33,752×12×5=$2,025,120). In sum, it would be favorable for Ser Wong Fun to introduce a POS system considering the high ARR and NPV. However, Ser Wong Fun’s monthly net profit before interest and taxes is only $33,752, which suggests that they might not be able to pay off the initial costs ($94,439) when considering fluctuations and the taxes to be paid. This implies that they might have to acquire a bank loan. As a small business, a shorter payback is more important to maintain its liquidity, therefore having a long payback period could bring the business into risk. 2 years for the payback period is not long and is reasonable, therefore suggests Ser Wong Fun to pursue this investment. Yet, there are limitations to this investment appraisal where it was assumed that the income from the system is constant every month, and the numbers of extra customers are based on observations. There are expected fluctuations throughout the year, and affects the contribution per month.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!18!Hoang, Paul. Business and Management. Victoria (Australia): IBID, 2011. 310. Print.!19!Hoang, Paul. Business and Management. Victoria (Australia): IBID, 2011. 312. Print.!20!"Hong Kong Inflation Rate." Hong Kong Inflation Rate. N.p., n.d. Web. 05 Oct. 2012. <http://www.tradingeconomics.com/hong-kong/inflation-cpi>. 21!"Net Present Value - NPV." Net Present Value (NPV) Definition. N.p., n.d. Web. 01 Oct. 2012. <http://www.investopedia.com/terms/n/npv.asp>. !

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Decision Tree

Figure 5: Decision Tree on whether to invest on the new POS system

Net Expected values: (estimated revenue × percentage of success – initial cost) Refer to Appendix 10 for detailed calculations

Invest: $1,944,671 Do not invest: 2,106,125 The decision tree shows different options and considers the risks involved, and thereby reveals the best option to pursue22. Probabilities and revenues are based estimations from the interview with manager and workers, the observation and the research on the restaurants nearby to determine the success of introducing a POS system in Ser Wong Fun. Not investing on the new system gives a higher net expected value for Ser Wong Fun. It also suggests that by attracting more customers by other means (such as promotion and advertising) could have a return higher than the success from the system ($2,430,144 to $2,240,120). Not investing in the POS system seems to be more favorable.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!22!Hoang, Paul. Business and Management. Victoria (Australia): IBID, 2011. 90. Print. !

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Force Field Analysis

Force Field analysis is a decision-making tool that allows managers to weigh out driving and against forces for a change23. Each factor is measured from 1 (weak) to 5 (strong), to help to decide whether introducing a POS system to Ser Wong Fun would be viable. These ratings are based on the interview from both the manager and workers, and my observations shown in Appendix 1,2 and 3.

Driving factors

Should Ser Wong

Fun (HK) invest in a

customized point of

sale retail system to

improve its table

management?

Restraining factors

It would increase their efficiency by increasing table turnovers.

Workers and the manger needs time to get used to the equipment, hence they

might be prone to errors.

The POS system could differentiate themselves by providing better service.

The quality of food is more important where customers would

wait for better food.

Since less waiting time is required, it would help to improve their reputation.

Workers might need to attend training sessions to familiarize

themselves with the system; such classes

could be costly.

It helps the restaurant to be more organized.

There might be technical breakdowns that could affect the

business.

Total: 14 Total: 12

According the diagram above, the driving forces (14) outweigh the restraining forces (12) and suggest Ser Wong Fun to introduce the POS system. However, the worker’s ability to adapt to the new system24 should be taken into a deeper consideration, as it is the biggest force that holds back the plan. It should also be noted that the analysis is subjective and might comprise bias, and the actual result should still be considered.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!23!Hoang, Paul. Business and Management. Victoria (Australia): IBID, 2011. 126. Print.!24!Appendix 2: Interview with worker – Question 1 (p21)!

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Conclusions and Recommendations The SWOT analysis suggested that introducing a POS system could solve the weakness of Ser Wong Fun’s business. The Force Field diagram resulted in 14 (driving): 12 (restraining) in which the main concern is the adaptability of the workers to use the system efficiently when it is first introduced. Financially it is more beneficial for Ser Wong Fun not invest in the point-of-sale system. The decision tree shows that not investing would be more beneficial, and has a higher expected value than to invest ($2,106,125!to!$1,944,671). However in investment appraisal, it shows that there are high returns (25.5% ARR) while the payback period is reasonable (2 years). Despite this fact, liquidity could be an issue as this requires high initial cash outflows.! To conclude, it is recommended that Ser Wong Fun should not invest on the POS system, because of the high risks and the low I.T. competency of the workers (as revealed from the interview Appendix 2). Despite the high returns, Ser Wong Fun should seek for other methods to solve their problems on table turnovers. However, there are still limitations in the research. It should be noted that figures used for calculations are based on assumptions and estimations. Also, the observation period may not be representative and may not explain the whole situation. The accuracy of this report could be improved if Ser Wong Fun releases its financial report. It is recommended that Ser Wong Fun should take a longer perspective to improve its table management. For instance, they could consider training workers to upgrade their skills, streamlining ways to take orders, and to enrich the job of the workers. These could prepare the workers from Ser Wong Fun to work efficiently on the POS system, allowing them to have long-term benefits like meeting future demands with advances in technology. On the other hand, there are also some unresolved questions. Implementing a POS system depends on how risk adverse the owners of Ser Wong Fun are, and the culture of Ser Wong Fun because such decisions could drastically change the working environment of the workers. This may eventually affect the whole business in general.

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<http://www.openrice.com/restaurant/article/detail.htm?article_id=1694>.

Clarke, Paul. Business and Management: Course Companion. Oxford: Oxford UP,

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"Common Food & Labor Cost Percentages." Small Business. N.p., n.d. Web. 01 Sept.

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14700.html>.

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<http://www.news.gov.hk/en/categories/finance/html/2012/02/20120201_094

723.shtml>.

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<http://www.tradingeconomics.com/hong-kong/inflation-cpi>.

"HP All-in-One POS System." N.p., n.d. Web. 01 Sept. 2012.

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Appendix 1: Interview with Ser Wong Fun’s Manager and Employees Time: 14 August 2012 (Wed)

Place: Ser Wong Fun (Hong Kong)

Interviewee: Chan Suk Yau (Manager of Ser Wong Fun)

1. How many days do you open in a week?

• We open everyday from 11:30 a.m. to 10:30 p.m., we only rest on 3 days during

the Chinese New Year holiday.

2. Could you please briefly summarize the customer mix?

• The most we have are Mainland China customers where they are mostly from

Shanghai and Beijing. The second most are customers from Hong Kong where

they tend to usually come during lunch and dinner periods. We also have other

customers from Japan, Korea, Malaysia and Singapore. Most Singaporeans come

to our restaurant to buy Chinese sausages to bring back to their country, which is

also one of our most important revenue incomes.

3. How many workers are there in your restaurant, and what do they usually speak?

• We have 15 workers in total. They usually speak Cantonese with customers.

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4. Who do you think are your main competitors and how has the business been

lately?

• In Central I think that the competitors does not affect us much. We have loyal

customers and we sell good quality food. However we have been drastically

affected by the shrink of lunch hours from the economic industry. 1 hour of lunch

break caused the workers not being able to come out and have lunch.

• Revenue had always been unexpected, sometimes we would have a single

delivery of 10 soups and to have our seats all full, while another day we could

have 0 deliveries, and quiet during the night. We are also affected by seasonal

factors. Our soups help to keep the body warm, and customers tend to come and

drink them during winter. Therefore generally we earn a lot more money during

winter than summer.

5. Do you mind telling me the monthly operation cost of your restaurant?

• Its around $200,000, and sometimes we would reach $300,000. We’ve bought

this place so we won’t have to pay our rent every month.

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Appendix 2: Interview with a worker in Ser Wong Fun Time: 14 August 2012 (Wed)

Place: Ser Wong Fun (Hong Kong)

Interviewee: Mr. Gan (Worker in Ser Wong Fun)

1. Can you briefly describe the general technological knowledge of your

workers?

• Our workers would have to take some time to adapt to new technologies and

they are not really familiar with technological devices.

2. To what extent do you think the POS system would help to improve

efficiency?

• Unquestionably it would increase the efficiency because there would be fewer

errors and instructions would be clearer. But to this moment I would not like

a change in the current situation because it would require a lot of time for us to

adapt to this new technology. There might be errors and might even affect our

reputation.

3. I see that you have a lot of customers at night, how to you organize to make

sure they would be seated quickly?

• We ask for their name and record how many seats they would need. Usually

when the number of customers start to increase, i.e. dinner periods, it is

normal to see 2,3 groups of customers sitting in a table in order to maximize

the occupancy of the restaurant.

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Appendix 3: Competitor analysis of the Chinese restaurants in Central

Source: Openrice.com.hk

Name of

restaurant

Type of food Rating by

customers (Thumbs up /

Total rating)

x 100

Overall

Rating by appraisal

website

(out of 5)

Average

price range for each

customer

The Chairman Guangdong food 92.6% 4.1 $151 - $300

Lin Heung Tea

House

Guangdong food 88.9% 3.4 $41 - $100

Luk Yu Tea

House

Guangdong food 88.0% 3.7 $151 - $300

Ser Wong Fun Guangdong food 86.2% 3.5 $151 - $300

Lin Heung Kui Guangdong food 85.8% 3.4 $41 - $100

Yung Kee

Restaurant

Guangdong food 76.9% 3.5 $151 - $300

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Appendix 4: Observation 1 Observation Details: Date: 15 Aug 2012 (Wed)

Time: 1130 – 1500, 1500 – 1530, 1800 – 2200

Seats/Tables: 1 small tables (max. 5 people), 3 big tables (max. ~12 people)

This observation took place in Ser Wong Fun, Central. Since there are no

other branches, the observation could only be taken in this place. This restaurant is

located in Cochrane street, where it takes around 7 minutes of walking from the

nearby MTR station and the International Financial Center. The location of the shop

is not easy to find as there are a lot of shops, buildings and restaurants in that steep

path, but a big shop sign helps to neglect this weakness.

The observation took place during two time periods, the lunch hour and the

dinner period. My main goal for this observation is to count the number of daily

customers and estimate the sales revenue since the financial report was not available

to me.

Observation Results:

Time observed

Total number of customers

Estimated revenue (HKD)

Remarks

1130 – 1500

(Lunch Hour)

|||| |||| |||| |||| |||| |||| |||| |||| |||| |||| |||| ||||

|||| |||| || (72)

7,107 • Restaurant opens at 11 for preparation, customers starts to come in at 12

• Tables are not full • Cashier was not crowded, smooth

paying process •

1500 – 1530

(non-peak hour)

||| (3) 305 • Restaurant turns off air conditioner and partial lights

• Several workers leaves the restaurant for a break

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1800 – 2200 (Dinner period)

|||| |||| |||| |||| |||| |||| |||| |||| |||| |||| |||| ||||

|||| |||| |||| | (76)

11,400 • There are more customers that comes in big groups and ones that are willing to spend more for their dinner

• Workers that left for the afternoon break returned to their positions

• Large tables were always occupied but there weren’t any queues waiting for seats

• Paying and ordering was smooth

Other observations:

• There were also customers that speak English, and asked some questions

about the ingredients used in the soup. The manager came out without

hesitation and explained the positive effects to the human body after drinking

the soup.

• I noticed that in their pantry, they have first marked down the prices of dishes

on a small piece of paper and the table number for customers that order a lot.

This increased their speed in calculating the total amount for a customer.

• The billing procedures are organized well. Normally the customers would go

to the front desk to pay after the waiter gives them the bill. However for

customers that came in big groups or when the counter is full, the waiter

would give a small plate with the invoice to the customer to pay on the tables.

This caused the paying process to be smooth and does not crowd the cashier

area.

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! 25!

Appendix 5: Observation 2 This observation took place in Ser Wong Fun, Central. Continuing from the

previous observation, since during weekdays the tables were not full during busy

hours, i.e. lunch and dinner periods, another observation is required to see the number

of customers who leaves the restaurant for investment appraisals for the point-of-sale

system. The observation took place during two time periods, the lunch hour and the

dinner period.

!

Observation Details: Date: 25 Aug 2012 (Sat)

Time: 1130 – 1400, 1800 – 2100

Observation Location: Public seats that

were opposite to Ser Wong Fun.

Observation Results: Time

observed Number of customers that left

Remarks

1130 – 1400 (Lunch Hour)

(0) • Tables were full for around 10 minutes, there were 3 people waiting to be seated and stood outside of Ser Wong Fun.

• Those 3 people did not leave, and short after they were seated

• Restaurant was not as busy as night hours

1800 – 2100 (Dinner period)

||||| ||| (8) • There are more customers that comes in big groups (families with children)

• Large tables were always occupied; different groups of customers were required to sit in the same table.

• Restaurant is busy, workers moving around hastily.

• Around 7 people were waiting to be seated. • A large group of 8 came, knew that there was a

long queue and left.

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! 26!

Appendix 6: Detailed SWOT Analysis for Ser Wong Fun Strengths (Internal): Ser Wong Fun offers premium Guangdong food and had been one of the top Chinese

restaurants in its district. One of their unique selling points is their snake soup in

which only a few other restaurants in Hong Kong provide such food to customers.

They also have distinctive soups and sausages that attract customers from both locally

and overseas. Such advantages give them a strong position and the competitive

advantage among other restaurants in Central. It has also led to receive various

awards in the recent years. On the other hand, being located in Central attracts a lot

of customers because it’s a concentrated business area that attracts customers during

lunch and dinner periods. Additionally, since Hong Kong’s landmark, the

International Financial Center, is also located nearby, a lot of tourists would also have

their meals in Central25.

Weaknesses (Internal):

Ser Wong Fun loses customers due to the waiting time to get seated. As the manager,

Chan Suk Yau, mentions, ‘Sometimes during the summer aren’t always full, but when

its winter, we’re always full.’ Customers tend to leave the restaurant when there’s a

long queue to wait, and hence Ser Wong Fun would lose potential customers.

Human resources are another concern that Ser Wong Fun has in the long run.

Currently their main chef is ageing and it’s hard to hire another one with similar skills

and familiarity with both the restaurant and the type of dishes they offer. In the long

run, it could affect their reputation because of the change in food taste and quality.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!25!!Appendix!1!

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! 27!

Introducing a new ordering and billing system to Ser Wong Fun could be undesirable

to the business rather than to bring benefits to them. Both the manager and workers

are used to write down the orders on paper and count the price mentally. On top of

that, some workers are also technophobia and might not get used to the system.

Ser Wong Fun is not as profitable and might not be able to support the initial costs of

the computer and billing system. Their soups are more popular in the winter than in

the summer, and with the fluctuations in food prices, their business is unstable.

Opportunities (External):

Ser Wong Fun once attempted to sell their sausages in a food fair in Times Square,

Hong Kong a few years ago to promote both their sausages and brand. It would be a

benefitting option to franchise their sausages to other places around Hong Kong to

gain more revenue. On the other hand, they could also consider opening branches

elsewhere attract more customers from different geological locations. These could

help them to gain more reputation and build a larger customer base when they expose

their products to the public.

Threats (External):

Central is not only a business concentrated area, but also a place with famously

branded shops that attracts both local citizens and tourists. Being in Central has a lot

of opportunities because of its high human traffic, but this would also attract

competitors. Ser Wong Fun is located in Cochrane Street, which is clustered with

different restaurants around, like the famous Pizza Express and Mak’s Noodle and is a

big threat for them.

!

! 28!

Appendix 7: Estimated monthly operation costs for Ser Wong Fun

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!26!"Common Food & Labor Cost Percentages." Small Business. N.p., n.d. Web. 01 Sept. 2012. <http://smallbusiness.chron.com/common-food-labor-cost-percentages-14700.html>. 27!"Statistical Reports." Wages and Labour Earnings. N.p., n.d. Web. 1 Sept. 2012. <http://www.censtatd.gov.hk/hkstat/sub/sp210.jsp?subjectID=21>. 28!"Classified Post: Salary Index 2012." Classified Post. N.p., n.d. Web. 1 Sept. 2012. !

Item $ $

Revenue 563,320

Less: Cost of sales (Food cost (35% of revenue)26)

563,320 x 35% = 197,512

Gross Profit 365,808

Less: Indirect costs

Wages for cooks27 13,926 x 7 = 97,482

Wages for dishwasher 8,948 x 3 = 26,844

Wages for waiters 9,746 x 5 = 48,730

Salaries for managers28 50,000 x 2 = 100,000

Miscellaneous / Overheads 50,000

(323,056) Net Profit before interest

and tax 42,752

!

! 29!

Appendix 8: Costs for initial investment Justification of the brand and the type of POS system

HP All-in-one system29 ST-150R All in one Touch

POS System30

Price $9,580 x 3 = $28,740 ≈$5,600 x 3 = $16,800

Points to consider • Reliable brand • Guaranteed service and quality • Operation system included • All-in-one, saves the hassle to

purchase other items

• All-in-one, saves the hassle to purchase other items

• Allows screen to be tilted 90 degrees

Comparing both 2 models, the HP All-in-one system was chosen despite the higher

price because of its more reliable brand. As service and quality are guaranteed, a

longer product life of the HP All-in-one system could be expected. In Ser Wong

Fun’s perspective, pursuing HP’s product would be better because they would not

want to spend large sums of money on such systems, and using a more reliable brand

potentially helps them to reduce the costs.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!29!"HP All-in-One POS System." N.p., n.d. Web. 01 Sept. 2012. <http://www8.hp.com/hk/en/products/pos-solutions/product-detail.html?oid=4093101> 30 "Richmax Technology." 15 Inch Touch Screen POS System ST-150R,View Touch Pos, Product Details from on Alibaba.com. N.p., n.d. Web. 04 Oct. 2012. !

!

! 30!

Item Quantity Cost

Software31 $3,960 x 8 $31,680

HP All-in-on Point of Sale

Machine

$9,580 x 3 $28,740

Cash Drawer $1,870 $1,870

Pole display $1,220 $1,220

PDA machine32 $4,120 x 5 $20,600

Wi-fi Router33 $329 $329

Miscellaneous $10,000 $10,000

Total: $94,439

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!31!"Purchase Amigo Pos 7." Purchase Amigo Pos 7. N.p., n.d. Web. 02 Sept. 2012. <http://www.amigopos.com/Purchase.aspx>. 32!"HP IPAQ 211 Enterprise Handheld (210 Series)." Amazon.com: : Electronics. N.p., n.d. Web. 02 Sept. 2012. <http://www.amazon.com/dp/B000WR0CKE/ref=asc_df_B000WR0CKE2168867?smid=AVEZ4IKM8MEZI>. 33!"Linksys WRT120N - Router - Price.com.hk." Linksys WRT120N. N.p., n.d. Web. 02 Sept. 2012. <http://www.price.com.hk/product.php?p=113420>. !

!

! 31!

Appendix 9: Investment Appraisal Calculations 1. Payback period for the new computer and billing system Figure 6: Payback period with the initial investment and contribution per month

Month Costs

0 ($94,439)

1 $125×8×4=$4000*

2 $4000

3 $4000 *Average customer spending×Estimated gain of customers each week×weeks per month

Initial!Investment!(see!appendix!8)Contribution!per!month

= 94,439 ÷ 4000

= 23.6 months

!

! 32!

2. Accounting rate of return for the new computer and billing system

Year Net cash flow ($)

0 (94,439)

1 4000×12-5,000* = 43,000

2 43,000

3 43,000

4 43,000

5 43,000

Total: 215,000

*Lost customers per month×months in a year – miscellaneous fees involved

(Net!cash!flow!– !Initial!investment)

Number!of!years

(!"#,!!!!–!!",!"#)

! = 24,112.2

(!"##!.!)!",!"# ×100 = 25.5%

3. Net present value for the new computer and billing system

Net cash flow from the system ($)*

Discount Factor (4%)34 Net Present Value ($)

Year 1 43,000 0.9615 41,344.5 Year 2 43,000 0.9246 39,757.8 Year 3 43,000 0.8890 38,227.0 Year 4 43,000 0.8548 36,756.4 Year 5 43,000 0.8219 35,341.7

Total: 191,427.4 *Lost customers per month×months in a year – miscellaneous fees involved

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!34!Hoang, Paul. Business and Management. Victoria (Australia): IBID, 2011. 314. Print.!

!

! 33!

Appendix 10: Decision Tree Calculations

Invest:

Net Expected Value = (revenue × %) – Initial cost

= ($2,240,120×0.4) + ($1,905,120×0.6) – $94,439

= $1,944,671

Do not invest:

Net Expected Value = ($2,403,144×0.3) + ($2,205,120×0.5) + ($1,822,608)

= 2,106,125

!

! 34!

Appendix 11: User appraisal screenshots35

!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!35!"Ser Wong Fun, Hong Kong." - Restaurant Reviews. N.p., n.d. Web. 12 Oct. 2012. <http://www.tripadvisor.com/Restaurant_Review-g294217-d777502-Reviews-Ser_Wong_Fun-Hong_Kong.html>. !

!

! 35!

Appendix 12: Letter of Consent