W12_WAS_IRR for Takoyaki

1. Problem Statement
There is a minimarket which has a big parking lot near to my house. Many food truck services park their “truck” there, from Kebab, meatball, noodles, to snow ice. Residential usually buy a snack in those food trucks when shopping at the minimarket. I wonder if I make my own food truck, will it be profitable or not?

2. Feasible Alternatives
I’m thinking to make a Takoyaki food truck as it is quite easy to make and popular for young people.
To calculate the economic value of Takoyaki food truck business, I’ve collected some data of takoyaki’s tools & ingredients. I assumed takoyaki booth worker is paid IDR 50K per day for 8 hours from 11 am to 7 pm, and for 30 days she will get IDR 1,500K.

Table 1: Takoyaki Business Economic Profile

Market value is assumed to be:
Pessimistic 18 portion of takoyaki/day
Most Likely 20 portion of takoyaki/day
Optimistic 25 portion of takoyaki /day
while price per portion IDR 9.000 is quite cheap compared to takoyaki’s price at malls IDR 15.000.

3. Outcomes of Each Alternative
The next step is to calculate Interest Rate of Return using Microsoft Excel:

4. Setting Minimum / Selection Criteria
If IRR > MARR 13.13% (refer to my 11th blog), then this business plan is economically justified.

5. Analysis / Comparison of the Alternatives Against the Criteria
In this Takoyaki business, higher revenue can be obtained by increasing sale, increasing selling price, or minimizing cost. Other factors such as location, promotional tools, and human resource capabilities also play a big role.

6. Selection of Best / Preferred Alternative
Since IRR (most likely) of takoyaki business is higher than MARR (33% > 13.13%), then this project is worth to try.

7. Performance Monitoring and Post Evaluation of Result/ Follow up Assessment
There’s also a risk of not getting sales as much as in the plan, or who knows, maybe I have a chance of getting higher sales? After the first 3 months of running this business, I should re-calculate the assumption of monthly sales for a new strategy. Should I add more stock (ingredient) or reduce it? Or should I open a new booth in a strategic place?
Next blog I will discuss about ERR and Break Even Analysis.

References :

1. Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012), Engineering Economy. Chapter 5 Pp. 178 – 211, Fifteenth edition, Prentice hall.
2. Gerobak Unik (2013). Jenis dan Tipe Gerobak. [ONLINE] Available at:http://www.gerobak-unik.com/. [Last Accessed 11 December 2013].
3. Bhinneka (2013). DOMO Kompor Gas [DP 7202]. [ONLINE] Available at:http://www.bhinneka.com/products/sku00512322/domo_kompor_gas__dp_7202_.aspx. [Last Accessed 11 Desember 2013].
4. Noercholis (2013). Pengusaha Klaim Pasokan Elpiji 3 Kilogram Normal. [ONLINE] Available at: http://tabunggasmurah.blogdetik.com/. [Last Accessed 11 December 2013].
5. Yummy Takoyaki (2011). Peluang Usaha Dengan Modal Terjangkau. [ONLINE] Available at: http://yummytakoyaki.blogspot.com/. [Last Accessed 11 Desember 2013].