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Strategic Plan/Business Plan 131 Business Plan An effective business plan identifies the product provided and the resources necessary to pro- duce and deliver the product and provides a plan to use the resources efficiently to produce and deliver the product. In the business plan of a transportation organization, the following are necessary components (U.S. Small Business Administration, Small Business Training Network, accessed December 3, 2010): Business description and vision Definition of the market Description of products and services Organization and management Marketing and sales Financial management If the ferry operation, or even a ferry system, is considered one product of a broader busi- ness, whether that be a private corporation's suite of businesses or a government's overall transportation strategy, the ferry "product" needs a specific business plan. Business Description and Vision The business description and vision summarize what the ferry operation is, who will run it, and how it will be operated. This component of the business plan references the mission statement and vision identified in the strategic plan and then identifies the near-term goals for the ferry product. As an example, a ferry operation in an urban area could be described as follows: Acme Ferry Service provides direct ferry service from Acme Point to Metro City to fulfill Metro Region's Vision to connect the central business district directly to all communities of more than 25,000 residents. We work closely with Acme Point city officials to develop and operate a service to meet resident needs and support the city's development and transportation objectives. Our goals include operating ferry services at frequencies that compete with other modes and travel times that are better than our competition. Acme Ferries have high on-time performance and moderate operating cost, which allows us to charge a premium fare for a value-added service. We expect to generate a small profit of at least 5 percent of fares annually. Acme Ferry Service is led by CEO Ben Jefferson, who has 25 years experience in transportation and ferry services, and he is supported by CFO Penny Payup and Chief of Operations Jonas Grumby. Definition of the Market The definition of the market component describes and explains the critical need for the ferry service. The market should be identified, and the targeted demographics should also be devel- oped. In addition, the business plan should estimate the market share for the service. An exam- ple definition of the market is the following: Acme Ferries operates in the competitive Acme Point to Metro City travel market. Each day, more than 50,000 trips are taken between the two locations. Our niche is the high-value, time-sensitive trav- eler willing to pay for more time savings and reliability. Our competition includes the public bus ser- vice and the private automobile, via the Metro Bridge. Acme Ferries passengers can travel from their homes to their jobs in Metro City in 20 minutes. Our bus competitors can make the same trip in 35 minutes, and automobile passengers can make the trip in 15 minutes on most days, although relia- bility is poor. As a result of our time advantages, Acme Ferries carries about 18,000 passengers daily, or more than one-third of the market. Our goal for the next year is to increase our market share to 40 per- cent of the market, or about 20,000 commuter trips daily; we also seek to capture about 5,000 to 7,000 daily midday non-commute trips.

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132 Guidelines for Ferry Transportation Services Description of Products and Services The description of products and services presents, from a passenger perspective, the ferry service offered and its competitive advantage. In the Acme Ferries example, this section could expand on the definition of the market and merge that with a description of the service provided, as follows: Acme Ferries operates a fleet of five 400-passenger ferries that carry more than 18,000 weekday passen- gers. Our ferries operate every 7.5 minutes in the morning and afternoon peak periods and provide a 15-minute trip between the Acme Point terminal and Union Ferry Depot in Metro City. At midday and on nights and weekends, service is provided every 15 minutes. Ferries are large, stable catamarans that are well appointed and have a full complement of beverages and snacks. At Acme Point, the ferry terminal is integrated into Acme Point's Waterview Development. Waterview includes more than 7,500 residential units, all within a 5-minute walk of the ferry terminal. Most Waterview units are condominiums and sell for about $500,000 each, resulting in a high-income neighborhood adjacent to our services. In addition to this walk-in market, we also operate a network of shuttle feeder buses to more distant locations in Acme Point, so that everyone in town can have a connected ride to Metro City. At Union Ferry Depot in Metro City, almost 400,000 jobs are within a 10-minute walk of the terminal; also there are connections to local buses. Acme Ferry charges a round trip fare of $6, and our competition charges $5 for the bus and $2 for the Metro Bridge toll. We also partner with other businesses and with educational institutions to promote our services in lower demand periods. Organization and Management The organization and management component of the business plan covers operations and maintenance plans for the ferry service. The basic organization structure should be provided, identifying the key roles and the tasks that are performed in those roles. The relationship between different functions and departments should be presented. In a transportation operation, under the chief executive, are the following departments: the operating department, the maintenance department (sometimes reports to the operating department), the engineering department (both for ongoing facilities and for capital projects), the finance and administration department, and the planning and marketing department. An example of a simple work flow statement is the following: Acme Ferries is organized into five major groups: operations, maintenance, engineering, finance/ administration, and planning/marketing. Planning and marketing are responsible for developing ser- vices, projects, and proposals that will entice customers and encourage use of our product; this group designs the service plan and then seeks to fill our seats. Operations runs the vessels according to the ser- vice plan and schedules developed by planning/marketing; operations management seeks to deliver a quality customer experience through safe and reliable operations and great customer service provided by happy and motivated employees. Maintenance is responsible for upkeep of the vessels and other system assets; maintenance will produce the vessels for operations to sail and will ensure system vessel safety and reliability. Finance and administration provides the staff functions for all departments to ensure that budgets are met and revenue is collected and accounted for. Key elements of the organization and management section of the business plan are operations and maintenance plans. These are detailed plans that identify how the service product will be delivered, what resources are necessary to deliver the product, and what constraints are on those resources. The operations plan must identify the total employees needed to staff each vessel and the total service delivery. The operations plan must also describe the qualifications necessary for staff fill- ing those positions, and it must provide an estimate of the cost to deliver the people and services identified. Other issues, such as operations of terminals, descriptions of the actual routings, and "deadheading" routes should all be included. The maintenance plan should include the actions necessary and the people and resources required to keep the fleet and facilities in a "state-of-good-repair," including the location and

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Strategic Plan/Business Plan 133 suitability of maintenance facilities, the option of internal versus external work force for certain tasks (such as engine rebuilding), and the overall cost to deliver maintenance for the anticipated service. Key performance metrics should be identified (i.e., goals for on-time performance, total passengers annually, seats occupied, and so forth) so that monthly and annual reports can assess performance against plan. Planning, Marketing, and Sales The planning, marketing, and sales component of the business plan details the ferry system's understanding of its existing passengers and the availability and potential of its market. Ferries usually operate in a transportation market best characterized as fragmented, competitive, and dynamic. The transportation market typically has low barriers to entry (which can mean any- thing from a potential customer buying an automobile, to taking a fixed-link route, to taking a bus competitor instead). However, ferry operation has high fixed costs (vessels, terminals, and so forth), normally requires some governmental permitting (or regulation), and has assets that are often not easily transferable. The marketing challenge is not moving assets and products to new markets, but maximizing sales at the times when the service has excess capacity and maxi- mizing yield at times of highest demand. As the case studies conducted in this research indicate, moving demand from the peak periods (which can be either times of day or even entire days) to lower demand times reduces both oper- ating and fixed expenses and spreads more revenue across a lower fixed-cost basis, resulting in better economic performance. This can be done through pricing, and it can also be done through better services in the off-peak periods, including shuttle systems that expand the reach of the sys- tem during those times and promotional incentives with specialized traffic generators (often recreational activities). An example of a simple marketing and sales statement is the following: Acme Ferries has high demand during the traditional 7:00 to 9:00 a.m. and 4:00 to 7:00 p.m. weekday peak periods. Our base level of commuter ridership results in a midday hourly use level of about 25 per- cent of the peak-hour level (as measured by total passengers served during those hours). We seek to use our assets at a higher level outside of the peak periods. Our current passenger distribution is the following: AM Peak Period 6,000 passengers Midday Period 5,200 passengers PM Peak Period 6,000 passengers Nights 800 passengers Our target passenger distribution is the following: AM Peak Period 6,000 passengers Midday Period 12,200 passengers PM Peak Period 6,000 passengers Nights 800 passengers The fares charged for the projected 7,000 additional midday trips would be priced to pay for the marginal operating costs of the service plus contribute to a share of the system's fixed costs and profit. To achieve this objective, our staff actively works with non-traditional markets to encourage off-peak ridership. As part of this plan, we have done the following: Enacted a peak-period ticket surcharge on all commute passengers to encourage com- muters to move trip times by a few minutes and reduce our peak ridership and our peak expenses.

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134 Guidelines for Ferry Transportation Services Created a deeply discounted, "reverse-peak" fare for peak-period trips that are essentially free to operate (since our peak direction fare is priced to pay for the operational round trip). Entered into an agreement with the local "Big Box" store (which has poor access via traditional transit and little automobile parking) to provide a midday and evening shuttle service between the Union Ferry Depot and Big Box. Created 3-day per week "lunch cruises" from Union Ferry Depot that operate from 11:30 a.m. to 1:30 p.m. and are aimed at the business lunch market. Marketed our "school field trip" service from Acme Point to cultural and educational institu- tions with water access, such as Metro Zoo and the Metro Science Academy. Acme Ferries actively markets these promotions through the local business community, by attending community events, and providing liaisons to community groups and educational institutions. We sponsor school fairs and Metro Zoo events to maintain a presence in the community and a high profile. Financial Management The financial management component of the business plan details the ferry system's finances to ensure a good understanding of costs and identify adequate revenue to support a safe and quality service. Four crucial elements of the financial management section are the following: Capital Expenditures. These expenditures include vessels, real property, leases, facilities, and equipment. Profit and Loss Projections. These include operating expenses such as labor, materials and supplies (and loan payments if capital was borrowed), and operating revenues such as ticket sales and concession revenues. These expenses and revenues are typically calculated on a monthly basis. Cash Flow Projections. These projections reveal the liquidity, or cash position, of the ferry operation. While profit and loss statements include invoiced expenses and revenues, cash flow shows the funds actually received versus expended. Cash flow is important, especially in seasonal operations, because positive revenue may be generated in only a few months, and this revenue needs to be either banked or loaned against to cover periods of negative cash activity. It should be noted that sometimes public agencies subsidize private ferry operators. There are a variety of ways to provide public funds to the private sector; these include a direct contract, in which the agency keeps all the revenue and simply purchases services; a "bounty" system, in which the public agency pays a reward for each passenger carried; or even a simple system, in which the public agency builds and operates capital facilities for use by private operators. How the payment is structured is included in the cash flow projections of the operator. Balance Sheet. This document lists the net worth of the enterprise. In a ferry operation, cap- ital expenditures can be expensive. Often, new operators tend to overestimate revenues, which leads to liquidity problems. Start-up costs typically include a long lead time in which to estab- lish a presence in the market during which an enterprise may incur a negative cash flow.