Transcript Management Challenge an exploration of business

Service Challenge
an exploration of business
This computer simulation gives you and the
others:
• an opportunity to manage a “real” business
for several simulated years
• making decisions as part of a small team
covering:
– Marketing
– Operations
– Finance
• your objective, while competing against the
other teams, is to make your business a
success
The Simulation
The simulation consists of three stages:
• Preparation
• Decision-making
• Review
Preparation
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Familiarization
Organization
Consider objectives
Consider strategies
Decision-making
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Submit Decisions
Simulate
Analyze Results
Replan
Review
– Discuss & Compare Results
The Situation
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The company is a subsidiary
has been operating for several years
provides three services (Level 1, 2 & 3)
involving two resources (A & B)
companies are in direct competition
You will run this business for several periods,
each of which represents one trading year
The Services
Level 1 (the best and most recent)
Level 2
Level 3 (most basic and oldest)
Each service is bought by a different group of customers
and there is no interaction between the groups.
Also, each service makes different use of resources, has
different potential and different marketing needs.
When selling your service you must ensure you service
existing customers and attract new customers.
Each customer will purchase several days service from
you each year.
Marketing
Your marketing decisions affect the number of customers
who stay with you, the number of new customers and
the amount of service they buy from you and these are
influenced by:
– prices
– promotion
– quality of service
– resource availability
– market trends
– the actions of the other teams
The two types of customer (Existing and New) are
influenced differently.
Resources
The resources consist of a combination of people and
machines and involve:
Resource A
Resource B
Staff Costs
$4000
$2000
Asset Costs
$15000
$5000
Each service utilises the resources differently thus:
Level 1
Level 2
Level 3
Resource A
1.0
0.5
0.0
Resource B
0.0
0.5
1.0
Other Resource Data
• A unit of resource provides a maximum of 200 days
service each year
• Currently there are:
– Resource A – 25 Units
– Resource B – 30 Units
• If resources are short Resource A can be used in place
of Resource B but not visa versa
• Depreciation - 20% /year
• Resource quality (but not productivity) can be
improved by investment and this investment is split
equally between:
– Training staff (cost)
– Improving assets (capital investment)
Financial Data
• interest paid on overdrafts - 20% per year
• interest paid on loans – 16% per year
• interest earned on cash - 10% per year
• mandatory dividend - 10% of Equity
If Financial Leverage exceeds 50% then the
interest paid may increase substantially
• taxation is 50% and paid the following year
• general overheads – $50,000/year
• promotion costs - decided by you
Decisions
For each service separately
• price
• promotion
For each resource separately
• number of new resources
• investment in Quality Improvement
And in general
• new bank loans
Use the decision form supplied and complete it carefully
and legibly and hand to the simulation controller at the
specified times.
Results
Results are returned to you in three stages:
Preliminary Results
– demand (days) & sales income for each service
– sales income, operating profit & cash/overdraft
Company Reports
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Client Summary
Resource Summary
Profit & Loss
Balance Sheet
Key Ratios
Business Research
– Market News (prices & market shares)
– Company Reports
– Company News
Observations
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it takes time to understand
but the business still has to be run
therefore your decisions will not be perfect
time will be a constraint
• by the end you should (just) be in charge of your
business
• your business skills will be challenged
• remember the purpose is to learn!
(rather than just to win!)
• so, take time to reflect & review
• and have fun!
Final Year Result
Team Name
Sales Income
Net Profit
Earnings
Total Equity
Cash/Overdraft
Income Growth %
Return on Assets
Return on Equity
Capital Gearing
Final Year - Market Position
Team Name
Level 1
Price
Market Share
Contribution
Level 2
Price
Market Share
Contribution
Level 3
Price
Market Share
Contribution
Cumulative Results
Team Name
Sales Income
Net Profit
Earnings
Income Growth %
Return on Assets
Return on Equity
Worst Gearing
Efficiency Losses
Team Name
Excess Promotion
Sales Losses
Gearing Losses
Idle Resource Cost
Resource Transfer Cost
Disposal Loss
Total Losses
Operating Profit
Potential Profit