Transcript MgtSim-3 - University of Alaska system

M A N A G E M E N T
S I M U LA T I ON
Performance Mgt &
Assessment
M A N A G E M E N T
Situation/SWOT
Analysis
S I M U LA T I ON
The Big Picture
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Growth
&
Competitive
Strategies
Functional
Integration
Function
al
Integrati
Marketin
on
g
R&D
Producti
on
HR
Finance
Performance
Assessment
 Profits
 Mrkt Share
 ROA
 ROS
 ROE
 Asset T/O
 Stock
 Mrkt Cap
Diff Strategies Play into
Different Success Measures
Profit
BCL
X
L=2-3
MS
X
SP &
MC
ROE
pf/e
X
CostAll Segments= more sales & thus enable
Niche &
greater
PLC
X
L=1.5-2
NichePLCDiff
X
X
AT
s/a
X
X
X
X
ROA
pf/a
X
Cum. profit & overall market share
B-Diff
ROS
pf/s
X
X
X
X
M A N A G E M E N T
Success Measures
S I M U LA T I ON
•
•
•
•
•
•
•
•
Cumulative Profits
Ending Market Share
ROS
Asset Turnover
ROA
ROE
Ending Stock Price
Market Cap.
Performance Measures- Defined
Performance Measures-Dynamics
NET PROFITS $$
•Year 1 $6 million
•Year 2 $8 million
•Year 3 $10 million
•Year 4 $12 million
•Year 5 $16 million
•Year 6 $21 million
•Year 7 $27 million
•Year 8 $35 million

CUM PROFIT
Typical Range: $20
to $100 M
M A N A G E M E N T
S I M U LA T I ON
It is important to look at the
means used to achieve
outcomes …. not just focus on
the outcomes themselves
• To only focus on
traditional financial
accounting measures
(such as ROI, ROE, EPS)
…..does not give
mgt the whole
picture….
Performance
needs to be
judged thru
mix of both
financial &
non-financial
measures….
M A N A G E M E N T
Will Make $$$ - if sell
product
S I M U LA T I ON
As - nonfinancial
measures are
drivers of
financial
outcomes
Will sell product if consumer
wants, knows about , can get, &
LIKES product
To achieve “above’ everyone must
effectively do their job
To effectively do job must
know what to do
M A N A G E M E N T
Strategic Thinking- the ten big ideas
S I M U LA T I ON
9 9. Metrics that matter
Balanced score card- a system that
attempts to balance financial
performance w/ consideration of
customer's perspective, learning &
growth perspective, & internal
business process perspective
M A N A G E M E N T
S I M U LA T I ON
M A N A G E M E N T
S I M U LA T I ON
M A N A G E M E N T
S I M U LA T I ON
Today …
~ 70% of Fortune
1,000 companies
utilize a Balanced
Scorecard to help
manage
performance—
because…..
What is measured
gets noticed
What is noticed
gets acted on
What
is acted on
gets improved
M A N A G E M E N T
S I M U LA T I ON
M A N A G E M E N T
S I M U LA T I ON
Balanced Scorecard
Puts Mission- VisionValues & Strategy
At Top
of Assessment System
M A N A G E M E N T
S I M U LA T I ON
M A N A G E M E N T
S I M U LA T I ON
M A N A G E M E N T
S I M U LA T I ON
M A N A G E M E N T
For Each Perspective:
S I M U LA T I ON
Financial
Objectives Measures Targets Initiatives Responsibility Budget
1.
2.
3.
Customer… Business processes… Learning
Objectives Measures Targets Initiatives Responsibility Budget
1.
2.
3.
M A N A G E M E N T
Basic Scorecard Terminology
(Southwest Airlines Example)
S I M U LA T I ON
Strategy Map
Strategic Theme:
Operating Efficiency
Profits and
RONA
Financial
Grow
Revenues
Customer
Fewer planes
Objectives:
What the
strategy is
trying to
achieve
Measures
Targets
Initiatives
How
performance
is measured
against
objectives
The level of
performance
or rate of
improvemen
t needed
Key action
programs
required to
achieve
targets
Attract &
Retain More
Customers
On-time
Service
Lowest
prices
Internal
Fast ground
turnaround
Learning
Ground crew
alignment
Objectives
Measures
• Fast ground
• On Ground
turnaround
Time
• On-Time
Departure
Targets
Initiatives
• 30 Minutes • Cycle time
• 90%
optimization
M A N A G E M E N T
A Complete Scorecard
is a Program for Action
S I M U LA T I ON
Strategic
Theme:
Strategic Theme:
Operations
OperatingExcellence
Efficiency
Profits and
RONA
Financial
Grow
Revenues
Customer
Fewer planes
Attract &
Retain More
Customers
On-time
Service
Lowest
prices
Internal
Fast ground
turnaround
Objectives
• Profitability
• Grow
Revenues
turnaround
alignment
Ground crew
alignment
Targets
Initiatives
• 30% +/yr
• 20%
• 5%
• Fewer planes
• # Customers
• More
Customers
• FAA On Time
Arrival Rating
• Flight is on time
• Market Survey
• Lowest prices
• Fast ground • On Ground
• Ground crew
Learning
Measures
•
Time
On-Time
Departure
• 12% growth •Customer
• Ranked #1 loyalty
• Ranked #1 program
• Quality
management
• 30 Minutes • Cycle time
• 90%
optimization
• % Ground crew • yr. 1
trained
• % Ground crew
stockholders
70%
yr. 3 90%
yr. 5 100%
• Ground crew
training
• ESOP
M A N A G E M E N T
S I M U LA T I ON
Capstone's Balanced Scorecard
Manager's Guide: Balanced Scorecard
M A N A G E M E N T
S I M U LA T I ON
Additional Tools/Techniques for
Managing & Assessing Your
Performance:
1. Accurate Sales
Forecasting
2. MarketingEvaluation
Checklist
3. Round Analysis &
Analyst Report
•Tutorials: Forecasting &
Developing a Unit Sales
Forecast
• Guidelines Re: Sales
Forecasting
Sales Forecasting
1. Quick N’ Dirty
2. Consumer Pref’s
3. Best / Worst Case
Estimate Your
FAIR SHARE
Answer 2 Q’s:
1.What will average
product sell in this
segment next round?
2.To what degree is your
product above or below
average- on consumers'’
buying criteria?
Fair Share - Sales Forecast
1
2
3
4
Determine industry demand next round.
Take last year’s total demand -- multiply by (1 + Growth Rate).
Estimate # products that will be in segment.
Divide total industry demand by the number of products.
Your product’s demand will typically be between one half
and twice the average product’s demand.
Compare your product with competing products.
Factors include design, awareness, accessibility, and
planned mid-year revisions.
Examine industry capacities, and the capacities of
the “best” products.
Can products meet the demand they generate?
#2 Forecast by Consumer
Pref’s
Forecast off Customer
Survey Scores

Opening rounds crucial- can
establish competitive advantage
(that can be sustained for many yearseven thru-out entire sim.)


Initial round demand can vary
+/- 25%
Later rounds best case/worst
case vary ~~~~ 10-15%
For Example-in Traditional
segment everyone begins w/ 13%
market share
After 1st Year/RoundCan see demand spread
R#1 Dec
Survey score
Baker
43
19%
Predicted
sales R#2
1827 units
Able
40
18%
1731
1598
Fast
36
16%
1339
1560
Eat
36
16%
1539
1492
Cake
42
19%
1827
1339
Daze
26
12%
1154
1045
Total=223
% of 223
Actual
Sales R#2
1758 units
R#2
2
1
R#1
Survey
score
43
40
36
36
42
26

Worst Case:

BIG INVENTORY/
little cash

Best case:

Lots of CASH /
little Inventory
In order to:
• Avoid “Big
AL” & a
Liquidity
Crisis-
•
Need to:
Maintain
Adequate
working capital
& cash reserves
•Enter WORSE case- in “your
sales forecast” on marketing
spreadsheet
•Enter BEST case- in
“production schedule” on
production spreadsheet
•Spread show up as inventory
on proforma BALANCE SHEET
In WORSE
CASE: You
have lots of
Inventory
& little or no
Cash.
$0.00
In WORSE
CASE: You
have lots of
Inventory
& thus need to
drive your cash
position to the
black…
$0.00
To adjust your cash
position -
If you are cash poor,
issue Stock /Bonds - or
consider a short term
loan
 If you are cash rich,
pay dividends and/or
buy back stock.
Important Considerations
re: BEST-WORST Scenario Analyses
By adjusting your CASH
POSITION according to your
WORST CASE estimate– NOT ONLY
will avoid … BiG AL
Also Avoid Stock-Outs!
By adjusting production
according to BEST CASE
estimate– will minimize loss of
profit due to Stock-outs


Fixed costs (marketing, R&D, interest
or depreciation) already covered
Thus, any additional sales would
only incur variable (production)
costs
For example,
1.
2.
3.
If your annual sales were
$120M, in one month
you’d sell $10M.
If a months material &
labor costs = $7M, you
missed contributing $3M
to Net Margin.
This would be taxed in
the simulation at 35%, so
your opportunity cost is a
missed $2M in profit.
How Big is your
Slinky?

Worst Case:

BIG INVENTORY/ no
cash– risk seeing Big Al

Best case:

Lots of CASH / no
Inventory -you risk stockout
Determining A
Reasonable Spread


Want to avoid generating an ultra
Conservative-- Worst case scenario
…matched w/ an ultra Optimistic-- Best
case scenario
Should be able to sell excess
inventory in ~betw. 6 & 16
weeks
How to measure your slinky slack--
Take your
total
inventory
costs
$23,900M
& Divide by total
variable costs of
inventory sold:
$23,900M/$131,119M
=.18
52weeks *.18 = 9
Risk ~9weeks of
Inventory to avoid
stockout
Additional Tools/Techniques for
Managing & Assessing Your
Performance:
1. Accurate Sales
Forecasting
2. MarketingEvaluation
Checklist
3. Round Analysis &
Analyst Report
M A N A G E M E N T
S I M U LA T I ON
Evaluating Product
Success
M A N A G E M E N T
S I M U LA T I ON
Simulation
Scoring System
M A N A G E M E N T
S I M U LA T I ON
Round analysis
-example
M A N A G E M E N T
S I M U LA T I ON
One more thing to think about:
The Relationship
between Your
Strategy & Success
Measures
Diff Strategies Play into
Different Success Measures
Profit
BCL
L=2-3
X
MS
X
SP & MC ROE
pf/e
X
Cost- Niche
NichePLCDiff
X
X
AT
s/a
X
X
X
ROA
pf/a
X
All
Segments= more sales & thus
X enable X
& PLC
greater Cum. profit & overall market share
B-Diff
L=1.5-2
ROS
pf/s
X
X
X
X
M A R KE T I N G
M A N A G E M E N T
• Select Success Measures
& Determine Relative
Weightings
• Need to enter weightings –
prior to round-1
This week’s assignment:
1) Draft- Financial
Objectives & Tactics
2) Draft- Mission & Vision
Statements