Croatian Operational Research Review (CRORR), Vol.

4, 2013

APPLICATION OF AHP METHOD FOR THE SELECTION OF

BUSINESS PLAN SOFTWARE

Marko Hell
Faculty of Economics, University of Split,
21000 Split, Cvite Fiskovića 5, Croatia
E-mail: [email protected]

Mira Krneta
Croatian Bank for Reconstruction and Development,
10000 Zagreb, Trg J.J.Strossmayera 9, Croatia
E-mail: [email protected]

Petar Krneta
Faculty of Economics, University of Split,
21000 Split, Cvite Fiskovića 5, Croatia
E-mail: [email protected]

Abstract

This study seeks to determine the importance of tools that are offered within the software (simplicity,
help, etc.) and sort them according to your preferences. The results are intended for novice users in
business planning. The study was carried out among students who are familiar with the possibilities of
five programs for business planning. The students conducted the evaluation in accordance with each of
the presented programs that were selected by experts from the problem areas. The practical importance
of the results of this research is seen as a recommendation of faculties of economics in procurement of
software for business planning for educational purposes. It is possible to apply the already appointed
multi criteria (AHP) model to the target group with extensive entrepreneurial experience, with a
change to the set of criteria weights.

Key words: Planning, Multi-criteria, Business planning software

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Croatian Operational Research Review (CRORR), Vol. 4, 2013

1. INTRODUCTION

Business planning is a process of defining goals, strategies and activities that a business entity realizes
within the stipulated time frame. It is usually focused on making profits and managing risk that could
have negative impact on the business1.

Various aspects of planning in a broad sense have been the subject of special interest to researchers
and managers for more than three decades. Results of numerous studies indicate the relationship
between planning and business performance, measured by different sets of indicators. Planning is also
considered as one of the key elements of leadership. Dynamic, complex and uncertain environment,
including internationalization and globalization of business, makes the planning process an important
activity for sustainable growth and development. Similar to many other areas, the growing
development of information technology has influenced on the development and application of IT to
business planning. Today there are numerous programs for business planning. Used by independent
business owners, managers and professional advisers. The paper analyzes the possibility of applying
the AHP method to choose the appropriate software package to create a business plan. The study was
conducted on a sample of student population of final year of graduate studies. Knowledge acquired
from education is considered relevant to assess the importance of each criterion in the selected set of
SW to create a business plan, which is currently one of the ten most commonly used SW2.
Furthermore, this is a population of students who will be business owners or professionals involved in
the planning process.

The paper briefly presents the relevant results of research on the relationship of business planning and
business performance, particularly with regard to small and medium-sized businesses that have an
important role in the economies of developed and developing countries. We defined the criteria for the
evaluation of the program and compared the selected program using a software package Expert
Choice3.

2. BUSINESS PLANNING AND PERFORMANCE

There are many researches related to the type, content, scope of planning process and performance.
The following questions are of particular concern to the research: (1) whether the planning and

1
See Web page: http://www.businessdictionary.com/definition/business-planning.html
2
See Web page: http://business-plan-software-review.toptenreviews.com/
3
See Expert Choice software, http://www.expertchoice.com.

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development of business plans are important for the success of the business, especially in the start-up
projects, and (2) whether the application of tools for business planning in the form of software to
create a business plan would generally be helpful to entrepreneurs.

Empirical research suggests that planning is more important for businesses in the category of small
and medium-sized enterprises than for larger ones (Rue Ibrahim, 1998). Also, they are suggesting a
better financial performance of business units that generate formal practice plans, especially applying
sophisticated techniques of planning, compared to those who have no such practice (Berman, Gordon
Sussman, 1997). Lack of planning, in the stage of preparation for the implementation of business
intentions, or before starting an independent business, is one of the reasons for failure of small and
medium enterprises and low survival rate of start-up (Boyd, 1991; Birley, Niktari, 1995;
Castrogiovanni, 1996).

Research of nascent and start-up entrepreneurs demonstrate the usefulness of planning and prepared
business plans in the starting phase of the initial period of the project, including independent business
(Karlsson, Honig, 2007). Start-up entrepreneurs, who are preparing a business plan, are generally
more persistent in entrepreneurial activity (Perry, 2001; Delmar, Shane, 2003; Liao, Honig, Karlsson,
2004; Gartner, 2006; Brickman, Grichnik, Kaps, 2010). There is a suspicion, however, whether the
persistence of entrepreneurial activity is the measure of success, especially in relation to the efficient
use of resources (Honig, Samuelsson, 2012).

However, planning and preparing a business plan does not necessarily mean a successful business
(Mintzberg, 1994). The results of extensive research on a sample of 2956 small businesses in the five-
year period in Australia show that formal planning does not necessarily mean higher business
performance (Gibson, Cassar, 2005). In a study conducted in 2002 on the sample of the 500 fastest
growing U.S. companies, with operations not older than 10 years, the founders responded to an inquiry
about whether the business plan they prepared was written before they started a business venture
(Bartlett, 2002). Less than half (40%) answered affirmatively. Among those 40%, more than half
(65%) said that they have changed the original conception of their business plan, in a process of
implementing business enterprise. Data gained from members of Babson College alumni, graduated
between 1985 and 2003, who started an entrepreneurial venture, shows that there is no difference in
performance between the business enterprise operations running with and without a prepared business
plan (Lange, Bygrave, Mollov, and Pearlmutter Singh 2007). Results of research conducted on a

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sample of 400 small and medium-sized businesses in Great Britain show that more than half (54%) of
entrepreneurs approach business planning spontaneously, without making a business plan4.

The importance of planning in the preparation of a business venture was formalized in the form of a
business plan that can be important considering several aspects. (1) Proponents of making a business
plan usually compare the realization of business intentions with a trip to an unfamiliar area. Therefore,
a travel plan prevents wandering as well as, loss of time and money. In the process of preparing and
implementing a business venture a documented business plan can help primarily in assessing the
sustainability of the enterprise market, feasibility and financial aspects. (2) It is generally very difficult
to obtain the necessary funding for business intention, especially from the external sources of
financing, without presenting relevant documentation to potential investors or creditors. (3)
Professionally prepared business plan can be a very useful tool in managing a business in terms of
recognition of key stakeholders, business risk and defining risk management activities.

The development of IT, especially personal computers, has made information and data relevant to
planning more available. In particular it refers to the possibility of performing an analysis of the
impact of external factors on the operations of small and medium enterprises. Also, the conditions
have been created for using tools such as mathematical models to support decision-making and risk
reduction in business enterprises (Georgeoff, Murdick, 1986; Ansoff, 1986). In relation to the planning
process and in particular to the tools and techniques used in planning, it has been shown that more
than one third (39%) of small and medium entrepreneurs who prepare business plans regularly use a
computer or mathematical models in planning and trend analysis, sales projections and other financial
projections (Ibrahim, Angelidis, Parsa, 2004). In recent years, a number of programs aimed at
business planning and in particular the preparation of business plans, have been developed and are
available on the market. Nearly half a million references on Google relating to the business plan
software, and about 160 000 to writing business plans with templates are making the preparation of
business plans easier than ever before. Assessment of the effectiveness of planning by using
specialized software (Business Plan Pro) on a sample of 2877 users of the program, shows a
significant impact on business performance (Ding, Hursey, 2010). Use of the program as a tool for
planning is often associated with: (1) adaptability to different activities, (2) structuring and ensuring
the implementation of the planning process step-by-step, (3) numerous possibilities of financial

4
See Web page: SimmplyBusiness.co.uk: Most SMEs have no business plan;
http://www.smallbusiness.co.uk/channels/start-a-business/news/1281878/most-smes-have-no-business-
plan.thtml; available: 29.08.2012.

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projections and graphic representations, and (4) generating a financial model, the possibility of making
a what-if analysis and risk analysis of a business5.

3. MULTICRITERIA CHOICE FOR BUSINESS PLAN SOFTWARE

Analytic Hierarchy Process (AHP) was originally introduced by Saaty (Saaty, 1980) as an excellent
multi criteria decision making tool. One of the many advantages of Saatys AHP is the simplicity it
exercises in comparing two previously used decision support methods.

AHP method is based on comparing pairs of alternatives, each with each, where the decision-maker
expresses the intensity, weight preference of one alternative over another, within the relevant criteria.
In the same way, it compares the criteria according to their own preferences and their intensity.
Decision making is a process of evaluating alternatives that meets a specific set of goals and criteria.
The problem is to choose the alternative that best meets the complete set of goals.

Solving complex decision problems using this method is based on their decomposition into
components; objective, criteria (sub-criteria) and alternatives. These elements are then linked into a
model with a multi-level (hierarchical structure) where at the top there are the goals and the first level
are the main criteria. Criteria can be broken down into sub-criteria, and at the lowest level given are
the alternatives. Another important component of the AHP method is the mathematical model that
calculates the priorities of the elements that are at the same level of the hierarchical structure.

Application of AHP method involves four basic steps (Forman, Selly, 2002): (1) selecting a
hierarchical decision making model that includes objectives, criteria and sub criteria at lower levels,
and alternatives, (2) at each level of the hierarchical structure, the elements are compared using a scale
of relative importance, (3) based on the assessment of the relative importance of the elements of a
certain level of structures problems arranged hierarchically, using a mathematical model, priority
criteria, sub-criteria and alternatives are calculated. Overall priority of each alternative is calculated as
the sum of weighted priorities with weights higher levels, (4) analysis of the sensitivity of the model.
In the ranking of SW for Business Planning (Writing a business plan) there are a number of criteria
that may affect buying decision SW. Potentially customer can select multiple criteria and assign them
different importance.

5
See Web page: Why Use Software for UK Business Plans?;
http://www.businesstalent.co.uk/business_plan_software_65-html; available: 31.08.2012.

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3.1. DEFINING THE SET OF CRITERIA AND SUBCRITERIA FOR EVALUATION

OF THE BUSINESS PLAN SOFTWARE

The first step is to determine what has to be obtained as the research output, i.e. in what direction the
changes should be made. Indicators are then defined in accordance with it. The factors selected from
the empirical material are those that best coincide with the following basic dimensions6.

Research Tools: appropriate business plans incorporate financial data and solid explanations of
strategy and development into graphs, charts and reports. To ensure the best information and most
successful presentation the users must do their research.

 Market Analysis is the process of collecting, analyzing and interpreting information about the
market. This means, collecting and analyzing the data on past, current and potential
customers, their characteristics, spending habits, their needs etc.

 Business Publication Resources are a vital part of business for managers, as business people
need to rely on relevant and most updated information. Costs of obtaining publications and
books can be expensive, but the Internet connection and a list of virtual, business websites can
solve the problem.

 Organizational Chart Builder is a useful business tool that shows the structure of the
organization, helps its visualization; it provides help in identifying the role of an individual in
the organization, number of employees by department and in the company hierarchy.

 Statistical Database Resources plays an important role in business. It is therefore important

to have access to the necessary statistics which provide an insight into the market situation and
in business.

Forecasting Tools: one of the most difficult elements of business planning for beginners are the
complex calculations needed in order to provide forecast data that show how expenses and income
will expand or contract over time.

 Graphics, reports and chart represent the business intelligence tools through which
information can be presented in a clear and meaningful way. In other words, information and
data are easier to understand and interpret which makes the entire business reporting process
simpler and more meaningful.

6
See Web page: http://business-plan-software-review.toptenreviews.com; available: 29.08.2012.

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 Automatic Projection tools provide a basis for planning of various processes throughout the
organization, such as demand forecasting, budgeting, sales quotas, marketing campaigns and
procurement activities.

 Budget/Feasibility Plans provide an analysis and assessment to determine if the project is

technically feasible, if it is feasible within the estimated cost and if it will ultimately be
profitable. The criteria that most influence the judgment of the feasibility are cost and values
that have to be achieved.

 Business Valuation Tools include financial analysis relating to the assessment of liquidity,
rate of return, profitability, trend analysis and comparative analysis with other companies in
the same industry. These analyses help in assessing risk, determining the discount rate and
market share.

Import and Export Options: end users often have financial data that they would like to import into a
business plan. Import options may include allowing the user to incorporate Microsoft Excel data, or
even data from bookkeeping software.

 Import; Printing & Publishing options offer the possibility of using relevant data from other
programs, which ultimately saves time and effort.

Help and Support is especially important for the beginner but can also be useful for the advanced
user. Sample plans and recommendations for wording and phrases are some significant support
features.

 Custom Plan Templates implies the creation of a single plan for a specific type of business,
i.e. the possibility of using a custom plan for a specific organization or for specific users.

 Help and Support feature is especially important for users who are only acquainted with the
capabilities and use of the software. This is a quick and easy way to get help at every step of
making a business plan. Users are given instructions for each topic of the program, on how to
use each tool which is included in the program.

 Additional Versions & Options provide the user a guarantee for a refund, if it fails or if the
user is not satisfied with the software. It also enables the possibility of fast downloads of an
online program, formatting the drive and reinstalling the operating system.

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3.2. SURVEYING THE STIDENT POPULATION ON THE IMPORTANCE OF

INDICATORS AND RESULTS

In the analytical part of the study, main criteria and sub-choices of the appropriate software programs
are set out as the business plan rating scale for evaluation of the importance of individual indicators
(per Saaty, with a scale of 1 to 9).

The evaluation was conducted in two steps, by the students of the final year of graduate studies that
had “Business Planning” as an elective subject, where they acquired theoretical and practical
knowledge in the areas of business planning. One group of students analyzed the possibility of using
the following software programs for creating a business plan: Capital Business Plan, Business in a
Box, PlanMagic Business, Planware and Plan2biz.

The SWs used in developing business plans were selected from the top ten best rated SWs.
Furthermore, we selected those that were available to students as a free download, or a free trial
version. Students were able to analyze the SWs considering the criteria and opportunities presented by
each SW. Below are the main highlighted features of all five SW.

Business-in-a-Box SW according to all its features is intended for beginners in starting independent
businesses in various industries of, manufacturing and service type. There is a possibility of extension
of certain functions, but without access to statistical databases.

PlanMagic Business is designed for start-up projects as well as for business planning growth and
development. There are several developed versions of the software program for individual activities
(restaurants, hotels, retail, etc.). An integral part of the SW is a guide for business planning. It also
includes the ability to analyze the previous operating period (up to 3 years).

PlanWare, with a complete business plan template, is generally a good tool for beginners in planning
and operating independently. Numerous examples of business plans allow users of this SW to select
appropriate content and adapt it to its business purpose, whose economic viability is assessed.

Plan2Biz SW supports development projects of varying complexity, and offers a choice when SW is
activated (classic version, simplified, specific). Templates of these business plans are also very
structured. In fact, they contain all the usual components of a business plan (market analysis,
customers, competitors, SWOT analysis, financial analysis, etc.).

Capital Business Plan is designed for beginners in developing business plans. Specifically, it offers the
possibility of developing a business plan stage by stage, a detailed explanation of the content of each
stage and what the user expects.

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There are differences in the ranking of selected software program for business planning by students in
relation to how the SWs were ranked by professionals. Differences in rankings certainly result from
the level of knowledge and skills of the population of students participating in the survey. Specifically,
the professional knowledge and experience in planning and the skills for using appropriate SW tools
for planning affect user attitudes about the value of individual programs as well as specific solutions
that these planning programs provide.
Involving students in their final year of studies in the analysis of the applicability of certain business
planning programs has demonstrated their ability to apply the acquired theoretical knowledge about
planning and understanding of the process of business planning in the context of using SW for
business plans. We are talking about the population of students who will, after leaving school, be
involved in the world of business. Therefore it is possible to develop a positive attitude towards the
success of these and similar tools for business planning in business processes. It can also be seen as a
positive openness of students toward the use of such tools in the educational process.

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4. CONCLUSION

AHP approach helps decision makers (managers, entrepreneurs, professionals) to rank alternative
business plan software based on the decision maker’s subjective judgments regarding the importance
of the software attributes.

The study was conducted in three steps:

 Different approaches to business planning have been analyzed,

including the formalization of the process of planning and building a business plan as a
document.

 Models of criteria and sub-criteria of choosing the appropriate business plan SW have been
defined and presented.

 Validity of the model for selecting a software program for creating a business plan has been
established.
The importance of selecting a business plan software is related not only to the cost aspect of decision
making (the cost of individual programs on the market), but the acceptability of content and coverage,
and other features of software according to specific business purpose and business plan. The objective
of the evaluation and selection of software for planning is to reduce the cost (not only for the purchase
of SW but for the overall business planning process), and ensure adequate planning tools.

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