PFEW Management Simulation Orientation Have A Plan Know Your - - PowerPoint PPT Presentation

PFEW Management Simulation Orientation

Have A Plan Know Your Competition Earn A P R O F I T

4 VERY important pages you should refer to in your backpack after this presentation

Your Business Plan Industry Letter Company No. Your Key Strategy _____________________________________________________________________________________________ _____________________________________________________________________________________________ ___________________________________________________________________________ Your Company Mission (Why are you in business, in addition to making a profit)? _____________________________________________________________________________________________ _____________________________________________________________________________________________ ___________________________________________________________________________ The Vision for your Company (Where do you want your business to be in 3 or 5 years)? _____________________________________________________________________________________________ _________________________________________________________________________________ _______________________________________________________________________________________ What pricing strategy have you chosen? Why? _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ First Year Goal or Objective (What would you like to achieve in the first 4 quarters of the simulation?) _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ Second Year Goal or Objective: _____________________________________________________________________________________________ _____________________________________________________________________________________________ ___________________________________________________________________________ Secondary Goal or Objective: _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ How are you going to organize your management team to accomplish your objectives? (1) _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ (1) For example: “Jill will analyze market research each quarter to track our competition. John will analyze our production costs and make recommendations concerning this area. Ruth will .....”

FOUR KEY STRATEGIES Here are some strategies to consider. However, there are others that may be just as effective. THE MASS MERCHANT: Cost Leadership You want to sell as much product as you possibly can. You sacrifice some profits in order to increase market share. Your price is lower than average, and you budget more than do your competitors in the area of marketing. Your plant growth is rapid, as you have to fill all the orders coming in. There is a limited number of products to be sold, meaning that every one you sell is one your competitors cannot. An Important Ratio: Market Share (Your Unit Sales/Total Units Sold = Market Share %) THE LUXURY MARKETER: A Differentiated Product This strategy is based on the philosophy that no one NEEDS your product. Therefore, one might as well sell a luxury product, something people buy because they can afford it. With proper marketing, you can convince them that they only want the best. Price is usually not an issue, because customers feel that they get what you pay for. Your price is always higher than the competition, and your marketing budgets tend to be above average. Product Development is important, as you create the perception of being on the cutting edge of technology. Your production is lower, because you squeeze all the profit you can from each unit sold. An Important Ratio: Profit per Unit (Net Profit/Units Sold = Profit/Unit). AN ANALYTIC APPROACH: Cost Focus Strategy When you talk about your product with a retail price in the $27 - $41 range, the quality difference can't be that great. You take the approach that in the end, all firms are selling about the same product. In order to make this company profitable, you have to squeeze every dollar of profit you can. You have to drive your cost per unit down by investing in Quality

• Management. You have to keep your plant operating at optimum capacity (between 85% and 95%), and keep inventories

as low as possible. Your price should be right in the middle of your competitors, and you should be wary of burning up money with costly marketing campaigns. Marketing is important, but you should spend as much as they do, not more. The same strategy goes for your product development budget. An Important Ratio: Net Margin (Profit Before Tax/Gross Sales = Net Margin %) THE OPPORTUNIST: Emergent Strategy Change your strategy to meet the changing markets you face. Buy all the market research you can, and attempt to capitalize on the weaknesses of competitors. If prices are rising, you lower yours to capture sales. If industry marketing is

• n the rise, drop price and capture their sales. If prices are low, raise yours and market heavily. If the economic forecast is

good, invest in inventory in case your competitors stock out. Reduce your costs as much as possible, and have cash available in reserve for investments in inventory, marketing, etc. As to dividends, remember the investors only make money if the company makes money. This strategy is more risky but can be more rewarding, if implemented flawlessly. An Important Ratio: An Opportunist watches all ratios carefully, to calculate the odds.

FOUR KEY STRATEGIES Here are some strategies to consider. However, there are others that may be just as effective. THE MASS MERCHANT: Cost Leadership You want to sell as much product as you possibly can. You sacrifice some profits in order to increase market share. Your price is lower than average, and you budget more than do your competitors in the area of marketing. Your plant growth is rapid, as you have to fill all the orders coming in. There is a limited number of products to be sold, meaning that every one you sell is one your competitors cannot. An Important Ratio: Market Share (Your Unit Sales/Total Units Sold = Market Share %) THE LUXURY MARKETER: A Differentiated Product This strategy is based on the philosophy that no one NEEDS your product. Therefore, one might as well sell a luxury product, something people buy because they can afford it. With proper marketing, you can convince them that they only want the best. Price is usually not an issue, because customers feel that they get what you pay for. Your price is always higher than the competition, and your marketing budgets tend to be above average. Product Development is important, as you create the perception of being on the cutting edge of technology. Your production is lower, because you squeeze all the profit you can from each unit sold. An Important Ratio: Profit per Unit (Net Profit/Units Sold = Profit/Unit). AN ANALYTIC APPROACH: Cost Focus Strategy When you talk about your product with a retail price in the $27 - $41 range, the quality difference can't be that great. You take the approach that in the end, all firms are selling about the same product. In order to make this company profitable, you have to squeeze every dollar of profit you can. You have to drive your cost per unit down by investing in Quality

• Management. You have to keep your plant operating at optimum capacity (between 85% and 95%), and keep inventories

as low as possible. Your price should be right in the middle of your competitors, and you should be wary of burning up money with costly marketing campaigns. Marketing is important, but you should spend as much as they do, not more. The same strategy goes for your product development budget. An Important Ratio: Net Margin (Profit Before Tax/Gross Sales = Net Margin %) THE OPPORTUNIST: Emergent Strategy Change your strategy to meet the changing markets you face. Buy all the market research you can, and attempt to capitalize on the weaknesses of competitors. If prices are rising, you lower yours to capture sales. If industry marketing is

• n the rise, drop price and capture their sales. If prices are low, raise yours and market heavily. If the economic forecast is

good, invest in inventory in case your competitors stock out. Reduce your costs as much as possible, and have cash available in reserve for investments in inventory, marketing, etc. As to dividends, remember the investors only make money if the company makes money. This strategy is more risky but can be more rewarding, if implemented flawlessly. An Important Ratio: An Opportunist watches all ratios carefully, to calculate the odds.

FOUR KEY STRATEGIES Here are some strategies to consider. However, there are others that may be just as effective. THE MASS MERCHANT: Cost Leadership You want to sell as much product as you possibly can. You sacrifice some profits in order to increase market share. Your price is lower than average, and you budget more than do your competitors in the area of marketing. Your plant growth is rapid, as you have to fill all the orders coming in. There is a limited number of products to be sold, meaning that every one you sell is one your competitors cannot. An Important Ratio: Market Share (Your Unit Sales/Total Units Sold = Market Share %) THE LUXURY MARKETER: A Differentiated Product This strategy is based on the philosophy that no one NEEDS your product. Therefore, one might as well sell a luxury product, something people buy because they can afford it. With proper marketing, you can convince them that they only want the best. Price is usually not an issue, because customers feel that they get what you pay for. Your price is always higher than the competition, and your marketing budgets tend to be above average. Product Development is important, as you create the perception of being on the cutting edge of technology. Your production is lower, because you squeeze all the profit you can from each unit sold. An Important Ratio: Profit per Unit (Net Profit/Units Sold = Profit/Unit). AN ANALYTIC APPROACH: Cost Focus Strategy When you talk about your product with a retail price in the $27 - $41 range, the quality difference can't be that great. You take the approach that in the end, all firms are selling about the same product. In order to make this company profitable, you have to squeeze every dollar of profit you can. You have to drive your cost per unit down by investing in Quality

• Management. You have to keep your plant operating at optimum capacity (between 85% and 95%), and keep inventories

as low as possible. Your price should be right in the middle of your competitors, and you should be wary of burning up money with costly marketing campaigns. Marketing is important, but you should spend as much as they do, not more. The same strategy goes for your product development budget. An Important Ratio: Net Margin (Profit Before Tax/Gross Sales = Net Margin %) THE OPPORTUNIST: Emergent Strategy Change your strategy to meet the changing markets you face. Buy all the market research you can, and attempt to capitalize on the weaknesses of competitors. If prices are rising, you lower yours to capture sales. If industry marketing is

• n the rise, drop price and capture their sales. If prices are low, raise yours and market heavily. If the economic forecast is

good, invest in inventory in case your competitors stock out. Reduce your costs as much as possible, and have cash available in reserve for investments in inventory, marketing, etc. As to dividends, remember the investors only make money if the company makes money. This strategy is more risky but can be more rewarding, if implemented flawlessly. An Important Ratio: An Opportunist watches all ratios carefully, to calculate the odds.

FOUR KEY STRATEGIES Here are some strategies to consider. However, there are others that may be just as effective. THE MASS MERCHANT: Cost Leadership You want to sell as much product as you possibly can. You sacrifice some profits in order to increase market share. Your price is lower than average, and you budget more than do your competitors in the area of marketing. Your plant growth is rapid, as you have to fill all the orders coming in. There is a limited number of products to be sold, meaning that every one you sell is one your competitors cannot. An Important Ratio: Market Share (Your Unit Sales/Total Units Sold = Market Share %) THE LUXURY MARKETER: A Differentiated Product This strategy is based on the philosophy that no one NEEDS your product. Therefore, one might as well sell a luxury product, something people buy because they can afford it. With proper marketing, you can convince them that they only want the best. Price is usually not an issue, because customers feel that they get what you pay for. Your price is always higher than the competition, and your marketing budgets tend to be above average. Product Development is important, as you create the perception of being on the cutting edge of technology. Your production is lower, because you squeeze all the profit you can from each unit sold. An Important Ratio: Profit per Unit (Net Profit/Units Sold = Profit/Unit). AN ANALYTIC APPROACH: Cost Focus Strategy When you talk about your product with a retail price in the $27 - $41 range, the quality difference can't be that great. You take the approach that in the end, all firms are selling about the same product. In order to make this company profitable, you have to squeeze every dollar of profit you can. You have to drive your cost per unit down by investing in Quality

• Management. You have to keep your plant operating at optimum capacity (between 85% and 95%), and keep inventories

as low as possible. Your price should be right in the middle of your competitors, and you should be wary of burning up money with costly marketing campaigns. Marketing is important, but you should spend as much as they do, not more. The same strategy goes for your product development budget. An Important Ratio: Net Margin (Profit Before Tax/Gross Sales = Net Margin %) THE OPPORTUNIST: Emergent Strategy Change your strategy to meet the changing markets you face. Buy all the market research you can, and attempt to capitalize on the weaknesses of competitors. If prices are rising, you lower yours to capture sales. If industry marketing is

• n the rise, drop price and capture their sales. If prices are low, raise yours and market heavily. If the economic forecast is

good, invest in inventory in case your competitors stock out. Reduce your costs as much as possible, and have cash available in reserve for investments in inventory, marketing, etc. As to dividends, remember the investors only make money if the company makes money. This strategy is more risky but can be more rewarding, if implemented flawlessly. An Important Ratio: An Opportunist watches all ratios carefully, to calculate the odds.

FOUR KEY STRATEGIES Here are some strategies to consider. However, there are others that may be just as effective. THE MASS MERCHANT: Cost Leadership You want to sell as much product as you possibly can. You sacrifice some profits in order to increase market share. Your price is lower than average, and you budget more than do your competitors in the area of marketing. Your plant growth is rapid, as you have to fill all the orders coming in. There is a limited number of products to be sold, meaning that every one you sell is one your competitors cannot. An Important Ratio: Market Share (Your Unit Sales/Total Units Sold = Market Share %) THE LUXURY MARKETER: A Differentiated Product This strategy is based on the philosophy that no one NEEDS your product. Therefore, one might as well sell a luxury product, something people buy because they can afford it. With proper marketing, you can convince them that they only want the best. Price is usually not an issue, because customers feel that they get what you pay for. Your price is always higher than the competition, and your marketing budgets tend to be above average. Product Development is important, as you create the perception of being on the cutting edge of technology. Your production is lower, because you squeeze all the profit you can from each unit sold. An Important Ratio: Profit per Unit (Net Profit/Units Sold = Profit/Unit). AN ANALYTIC APPROACH: Cost Focus Strategy When you talk about your product with a retail price in the $27 - $41 range, the quality difference can't be that great. You take the approach that in the end, all firms are selling about the same product. In order to make this company profitable, you have to squeeze every dollar of profit you can. You have to drive your cost per unit down by investing in Quality

• Management. You have to keep your plant operating at optimum capacity (between 85% and 95%), and keep inventories

as low as possible. Your price should be right in the middle of your competitors, and you should be wary of burning up money with costly marketing campaigns. Marketing is important, but you should spend as much as they do, not more. The same strategy goes for your product development budget. An Important Ratio: Net Margin (Profit Before Tax/Gross Sales = Net Margin %) THE OPPORTUNIST: Emergent Strategy Change your strategy to meet the changing markets you face. Buy all the market research you can, and attempt to capitalize on the weaknesses of competitors. If prices are rising, you lower yours to capture sales. If industry marketing is

• n the rise, drop price and capture their sales. If prices are low, raise yours and market heavily. If the economic forecast is

good, invest in inventory in case your competitors stock out. Reduce your costs as much as possible, and have cash available in reserve for investments in inventory, marketing, etc. As to dividends, remember the investors only make money if the company makes money. This strategy is more risky but can be more rewarding, if implemented flawlessly. An Important Ratio: An Opportunist watches all ratios carefully, to calculate the odds.

"HOW TO" GUIDE How do I reduce the cost of producing a unit? * Operate your plant at its full capacity. * Increase the size of your plant. * Spend money on research. How do I increase the number of units I sell? * Set a lower price. * Spend money on marketing. * Spend money on research. How do I make a profit? * Set a price which pays all your costs, including production, transportation, marketing, etc. * If you get more orders than your plant can fill, your either set a price that is too low or spent too much on marketing. How do I go broke? * Never anticipate your competitor's moves. * Never plan ahead. * Don't think about your decisions - just guess! * Never proofread your decision form.

Overview of the Simulation

Teams make a set of business decisions for a simulated period of three months, or one quarter (3 months = a quarter) and these are evaluated against decisions made by their competitors. The program acts as the purchaser of the product, compares the relative merit of the decisions made by all teams, and computes the sales for each firm in each industry.

Overview of the Simulation

The program then prints a quarterly report for each team which is distributed to the leader of each team. The teams analyze their results and prepare the next set of decisions. This is continued for 12 business quarters, or three years.

Objectives

Teamwork: Communication Competition Cooperation Learning to Manage A Company: Business Strategy Production Sales Planning Budgeting

Managing Your Company

Your Firm is involved in the highly competitive world of manufacturing & selling a consumer product. Your industry is composed of a few large brand name manufacturers as well as smaller firms, such as your own.

Your Market

Your firm sells its product directly to consumers, utilizing various marketing methods, as well as to outlets who add a mark‐up and then retail the product.

Manufacturer Retailer Consumer Consumer Manufacturer

Cash Flow

$ALES

$100,000

Cash Flow

Manufacturing Plant

Plant and Equipment: $2,100,000 Plant Capacity: 35,000 units

Cash Flow

Overhead and Fixed Expenses

(Based on Capacity) The cost increases at a fixed rate of $25,000 per 10,000 units added. 0 – 35,000 Units $175,000 35,001 – 45,000 Units $200,000 45,001 – 55,000 Units $225,000

Cash Flow

Inventory Expense

$15,000 + $2 per unit, per quarter (based on current quarter)

Cash Flow

Quality Management

Cash Flow

QM

Cash Flow

QM

Cash Flow

QM

Market Research

1. Total Industry Sales, Economic Index Forecast 2. Product Prices in your Industry 3.

• Est. Avg. Advertising, Quality &

Product Development Budgets, Total Number of Salespersons 4. Quality Perceptions in Your Industry $1,000 $2,000 $4,000 $8,000 $15,000

Not Enough Cash?

Cash Flow

Banking Decisions

1. Maximum Loan Addition Next Quarter 2. Interest Payment 3. Loan Payment

Cash Flow

Taxes Dividends

Break

It’s about time!!!

Computer Printout

Inventory & Production Analysis Income and Expense Analysis Balance Sheet Cash Flow Analysis Market Research Studies Messages, Industry Report, And Incident Response

In 000’s In 000’s In Units

(Report for Quarter 0 – Your Starting Position for Quarter 1)

• BizSim

Quarter 0 Industry Co.

• ** INVENTORY AND PRODUCTION ANALYSIS in units**

Beginning Inventory 4,000 Beginning Plant Capacity 35,082 + Units Produced 35,000 + Added Capacity 1,000 = Total Units Available 39,000 Capacity Avail in Qtr 0 36,082 – Sales 35,000 – Depreciation 1,082 = Ending Inventory Qtr 0 4,000 Plant Capacity in Qtr 1 35,000

• **INCOME & EXPENSE ANALYSIS in 000s**

**BALANCE SHEET in 000s** Sales: 35,000 @ $34.00 1,190 Cash 100 Cost of Goods Sold 595 Inventory 68 Gross Margin= 595 Plant & Equipment 2,100 Interest Income

• Accum Depreciatn

Total Income= 595 Net Plant/Equipment 2,100 Quality Management 10 TOTAL ASSETS 2,268 Inventory Expense 23 Advertising & Promotion 50 Liabilities:Bank Loan 1,100 Sales Force (2) Cost 30 Equity: Product Development 50 Common Stock 1,000 Market Research 15 Retained Earnings 168 Other Expenses TOTAL LIABILITIES+EQUITY 2,268 Interest Expense 28

• Overhead Expense

200 Total Expenses= 406 Shares of Stock Issued: 40,000 Less Depreciation 65 Earnings Per Share: 1.85 PROFIT BEFORE TAX= 124 Economic Index this Qtr: 100 Less Taxes 50 Maximum Loan Available $000s 500 NET PROFIT AFTER TAX 74 Mgmt Skill Score-Max 100 74 Less Dividends 5 PROFITS RETAINED= 69

• **CASH FLOW ANALYSIS in 000s **

Beginning Cash $ 26 Expenses+Cost of Goods Sold $1,001 Sales & Interest Income 1,190 Taxes and Dividends 55 New Bank Loan Change in Inventory Value Overdraft Loan Loan Repayment Cost of Plant Addition 60 Total Cash Inflow 1,216 Total Cash Outflow 1,116 NET CASH FLOW (This quarter's ending cash) $100

• MARKET RESEARCH STUDIES: Your Market Share: 33.3%

Your Stock Price: 25.00 Industry Sales (units) 105,000 Economic Forecast next 4 Qtrs: 1xx 1xx 1xx 1xx Prices: 34 34 34 Avg Advertising: $50,000 Avg Product Development: $50,000 Total Industry Salespersons: 6 Avg Quality Budget: $10,000 Product Perception (How customers view each firm’s product 0-100): 28 28 28

• MESSAGES TO YOUR FIRM, INDUSTRY REPORT, AND INCIDENT RESPONSE:

Production Cost-per unit $17.00 Your Product Perception 89 Lost Sales 0 Stock Prices (rounded) Co 1 to 3: 25 25 25

• ----- NEWS MESSAGE ------

New management has been hired for several firms in the industry. The management teams are all geared up and ready to put spark into the firms. The business index looks positive so sales should increase in the immediate future.

(Report for Quarter 0 – Your Starting Position for Quarter 1)

• BizSim Quarter 0

Industry Co.

• ** INVENTORY AND PRODUCTION ANALYSIS in units**

Beginning Inventory 4,000 Beginning Plant Capacity 35,082 + Units Produced 35,000 + Added Capacity 1,000 = Total Units Available 39,000 Capacity Avail in Qtr 0 36,082 – Sales 35,000 – Depreciation 1,082 = Ending Inventory Qtr 0 4,000 Plant Capacity in Qtr 1 35,000

• **INCOME & EXPENSE ANALYSIS in 000s**

**BALANCE SHEET in 000s** Sales: 35,000 @ $34.00 1,190 Cash 100 Cost of Goods Sold 595 Inventory 68 Gross Margin= 595 Plant & Equipment 2,100 Interest Income

• Accum Depreciatn

Total Income= 595 Net Plant/Equipment 2,100 Quality Management 10 TOTAL ASSETS 2,268 Inventory Expense 23 Advertising & Promotion 50 Liabilities:Bank Loan 1,100 Sales Force (2) Cost 30 Equity: Product Development 50 Common Stock 1,000 Market Research 15 Retained Earnings 168 Other Expenses TOTAL LIABILITIES+EQUITY 2,268 Interest Expense 28

• Overhead Expense

200 Total Expenses= 406 Shares of Stock Issued: 40,000 Less Depreciation 65 Earnings Per Share: 1.85 PROFIT BEFORE TAX= 124 Economic Index this Qtr: 100 Less Taxes 50 Maximum Loan Available $000s 500 NET PROFIT AFTER TAX 74 Mgmt Skill Score-Max 100 74 Less Dividends 5 PROFITS RETAINED= 69

(Report for Quarter 0 – Your Starting Position for Quarter 1)

• BizSim Quarter 0

Industry Co.

• ** INVENTORY AND PRODUCTION ANALYSIS in units**

Beginning Inventory 4,000 Beginning Plant Capacity 35,082 + Units Produced 35,000 + Added Capacity 1,000 = Total Units Available 39,000 Capacity Avail in Qtr 0 36,082 – Sales 35,000 – Depreciation 1,082 = Ending Inventory Qtr 0 4,000 Plant Capacity in Qtr 1 35,000

• **INCOME & EXPENSE ANALYSIS in 000s**

**BALANCE SHEET in 000s** Sales: 35,000 @ $34.00 1,190 Cash 100 Cost of Goods Sold 595 Inventory 68 Gross Margin= 595 Plant & Equipment 2,100 Interest Income

• Accum Depreciatn

Total Income= 595 Net Plant/Equipment 2,100 Quality Management 10 TOTAL ASSETS 2,268 Inventory Expense 23 Advertising & Promotion 50 Liabilities:Bank Loan 1,100 Sales Force (2) Cost 30 Equity: Product Development 50 Common Stock 1,000 Market Research 15 Retained Earnings 168 Other Expenses TOTAL LIABILITIES+EQUITY 2,268 Interest Expense 28

• Overhead Expense

200 Total Expenses= 406 Shares of Stock Issued: 40,000 Less Depreciation 65 Earnings Per Share: 1.85 PROFIT BEFORE TAX= 124 Economic Index this Qtr: 100 Less Taxes 50 Maximum Loan Available $000s 500 NET PROFIT AFTER TAX 74 Mgmt Skill Score-Max 100 74 Less Dividends 5 PROFITS RETAINED= 69

(Report for Quarter 0 – Your Starting Position for Quarter 1)

• BizSim Quarter 0

Industry Co.

• ** INVENTORY AND PRODUCTION ANALYSIS in units**

Beginning Inventory 4,000 Beginning Plant Capacity 35,082 + Units Produced 35,000 + Added Capacity 1,000 = Total Units Available 39,000 Capacity Avail in Qtr 0 36,082 – Sales 35,000 – Depreciation 1,082 = Ending Inventory Qtr 0 4,000 Plant Capacity in Qtr 1 35,000

• **INCOME & EXPENSE ANALYSIS in 000s**

**BALANCE SHEET in 000s** Sales: 35,000 @ $34.00 1,190 Cash 100 Cost of Goods Sold 595 Inventory 68 Gross Margin= 595 Plant & Equipment 2,100 Interest Income

• Accum Depreciatn

Total Income= 595 Net Plant/Equipment 2,100 Quality Management 10 TOTAL ASSETS 2,268 Inventory Expense 23 Advertising & Promotion 50 Liabilities:Bank Loan 1,100 Sales Force (2) Cost 30 Equity: Product Development 50 Common Stock 1,000 Market Research 15 Retained Earnings 168 Other Expenses TOTAL LIABILITIES+EQUITY 2,268 Interest Expense 28

• Overhead Expense

200 Total Expenses= 406 Shares of Stock Issued: 40,000 Less Depreciation 65 Earnings Per Share: 1.85 PROFIT BEFORE TAX= 124 Economic Index this Qtr: 100 Less Taxes 50 Maximum Loan Available $000s 500 NET PROFIT AFTER TAX 74 Mgmt Skill Score-Max 100 74 Less Dividends 5 PROFITS RETAINED= 69

(Report for Quarter 0 – Your Starting Position for Quarter 1)

• BizSim Quarter 0

Industry Co.

• ** INVENTORY AND PRODUCTION ANALYSIS in units**

Beginning Inventory 4,000 Beginning Plant Capacity 35,082 + Units Produced 35,000 + Added Capacity 1,000 = Total Units Available 39,000 Capacity Avail in Qtr 0 36,082 – Sales 35,000 – Depreciation 1,082 = Ending Inventory Qtr 0 4,000 Plant Capacity in Qtr 1 35,000

• **INCOME & EXPENSE ANALYSIS in 000s**

**BALANCE SHEET in 000s** Sales: 35,000 @ $34.00 1,190 Cash 100 Cost of Goods Sold 595 Inventory 68 Gross Margin= 595 Plant & Equipment 2,100 Interest Income

• Accum Depreciatn

Total Income= 595 Net Plant/Equipment 2,100 Quality Management 10 TOTAL ASSETS 2,268 Inventory Expense 23 Advertising & Promotion 50 Liabilities:Bank Loan 1,100 Sales Force (2) Cost 30 Equity: Product Development 50 Common Stock 1,000 Market Research 15 Retained Earnings 168 Other Expenses TOTAL LIABILITIES+EQUITY 2,268 Interest Expense 28

• Overhead Expense

200 Total Expenses= 406 Shares of Stock Issued: 40,000 Less Depreciation 65 Earnings Per Share: 1.85 PROFIT BEFORE TAX= 124 Economic Index this Qtr: 100 Less Taxes 50 Maximum Loan Available $000s 500 NET PROFIT AFTER TAX 74 Mgmt Skill Score-Max 100 74 Less Dividends 5 PROFITS RETAINED= 69

• **CASH FLOW ANALYSIS in 000s **

Beginning Cash $ 26 Expenses+Cost of Goods Sold $1,001 Sales & Interest Income 1,190 Taxes and Dividends 55 New Bank Loan Change in Inventory Value Overdraft Loan Loan Repayment Cost of Plant Addition 60 Total Cash Inflow 1,216 Total Cash Outflow 1,116 NET CASH FLOW (This quarter's ending cash) $100

• MARKET RESEARCH STUDIES: Your Market Share: 33.3%

Your Stock Price: 25.00 Industry Sales (units) 105,000 Economic Forecast next 4 Qtrs: 1xx 1xx 1xx 1xx Prices: 34 34 34 Avg Advertising: $50,000 Avg Product Development: $50,000 Total Industry Salespersons: 6 Avg Quality Budget: $10,000 Product Perception (How customers view each firm’s product 0-100): 28 28 28

• MESSAGES TO YOUR FIRM, INDUSTRY REPORT, AND INCIDENT RESPONSE:

Production Cost-per unit $17.00 Your Product Perception 89 Lost Sales 0 Stock Prices (rounded) Co 1 to 3: 25 25 25

• ----- NEWS MESSAGE ------

New management has been hired for several firms in the industry. The management teams are all geared up and ready to put spark into the firms. The business index looks positive so sales should increase in the immediate future.

• **CASH FLOW ANALYSIS in 000s **

Beginning Cash $ 26 Expenses+Cost of Goods Sold $1,001 Sales & Interest Income 1,190 Taxes and Dividends 55 New Bank Loan Change in Inventory Value Overdraft Loan Loan Repayment Cost of Plant Addition 60 Total Cash Inflow 1,216 Total Cash Outflow 1,116 NET CASH FLOW (This quarter's ending cash) $100

• MARKET RESEARCH STUDIES: Your Market Share: 33.3%

Your Stock Price: 25.00 Industry Sales (units) 105,000 Economic Forecast next 4 Qtrs: 1xx 1xx 1xx 1xx Prices: 34 34 34 Avg Advertising: $50,000 Avg Product Development: $50,000 Total Industry Salespersons: 6 Avg Quality Budget: $10,000 Product Perception (How customers view each firm’s product 0-100): 28 28 28

• MESSAGES TO YOUR FIRM, INDUSTRY REPORT, AND INCIDENT RESPONSE:

Production Cost-per unit $17.00 Your Product Perception 89 Lost Sales 0 Stock Prices (rounded) Co 1 to 3: 25 25 25

• ----- NEWS MESSAGE ------

New management has been hired for several firms in the industry. The management teams are all geared up and ready to put spark into the firms. The business index looks positive so sales should increase in the immediate future.

• **CASH FLOW ANALYSIS in 000s **

Beginning Cash $ 26 Expenses+Cost of Goods Sold $1,001 Sales & Interest Income 1,190 Taxes and Dividends 55 New Bank Loan Change in Inventory Value Overdraft Loan Loan Repayment Cost of Plant Addition 60 Total Cash Inflow 1,216 Total Cash Outflow 1,116 NET CASH FLOW (This quarter's ending cash) $100

• MARKET RESEARCH STUDIES: Your Market Share: 33.3%

Your Stock Price: 25.00 Industry Sales (units) 105,000 Economic Forecast next 4 Qtrs: 1xx 1xx 1xx 1xx Prices: 34 34 34 Avg Advertising: $50,000 Avg Product Development: $50,000 Total Industry Salespersons: 6 Avg Quality Budget: $10,000 Product Perception (How customers view each firm’s product 0-100): 28 28 28

• MESSAGES TO YOUR FIRM, INDUSTRY REPORT, AND INCIDENT RESPONSE:

Production Cost-per unit $17.00 Your Product Perception 89 Lost Sales 0 Stock Prices (rounded) Co 1 to 3: 25 25 25

• ----- NEWS MESSAGE ------

New management has been hired for several firms in the industry. The management teams are all geared up and ready to put spark into the firms. The business index looks positive so sales should increase in the immediate future.

Cash Inflow

Beginning Cash Sales Revenue Interest Income Loan

CASH ANALYSIS FORECAST Industry Letter Company No. Quarter No. This form will aid in planning your cash for next quarter. Cash Inflow: Column entries are in thousands of dollars (000’s) Beginning Cash (last quarter’s ending cash) ,000 Estimate of Revenue: units sold @ $ per unit ,000 Estimate of Total Cash Inflow ,000 Cash Outflow: Production: units produced @ $ per unit ,000 Addition to Production Plant units @ $60 per unit ,000 Advertising and Sales Promotion ($0-$200) ,000 Total Salespeople @ $15 (thousand) each ,000 (Don’t forget those added or fired this quarter) Product development ($0-$200) ,000 Total Quality Management ($0-$200) ,000 Market Research ($0-$15) ,000 Dividends Paid ,000

(Cannot be greater than last quarter’s “net profit after tax,” not allowed at all if retained earnings are negative)

Loan Repayment (if any) ,000 Overhead at total capacity of units ,000 Estimate of Inventory Expense ,000 $15 (thousand) plus $2 per unit in ending inventory Estimate of Interest Expense ,000 Estimate of Taxes ,000 Estimate of Total Cash Outflow ,000 ESTIMATED NET CASH FLOW ,000 New Loan (if taken and within limit) , 000 ESTIMATED CASH BALANCE THIS QTR. ,000

Cash Outflow

Plant Production Advertising & Sales Promotion Product Development Quality Management Market Research Inventory

Cash Outflow

Dividends Taxes Interest Expense Loan Payment Other Expenses

CASH ANALYSIS FORECAST Industry Letter Company No. Quarter No. This form will aid in planning your cash for next quarter. Cash Inflow: Column entries are in thousands of dollars (000’s) Beginning Cash (last quarter’s ending cash) ,000 Estimate of Revenue: units sold @ $ per unit ,000 Estimate of Total Cash Inflow ,000 Cash Outflow: Production: units produced @ $ per unit ,000 Addition to Production Plant units @ $60 per unit ,000 Advertising and Sales Promotion ($0-$200) ,000 Total Salespeople @ $15 (thousand) each ,000 (Don’t forget those added or fired this quarter) Product development ($0-$200) ,000 Total Quality Management ($0-$200) ,000 Market Research ($0-$15) ,000 Dividends Paid ,000

(Cannot be greater than last quarter’s “net profit after tax,” not allowed at all if retained earnings are negative)

Loan Repayment (if any) ,000 Overhead at total capacity of units ,000 Estimate of Inventory Expense ,000 $15 (thousand) plus $2 per unit in ending inventory Estimate of Interest Expense ,000 Estimate of Taxes ,000 Estimate of Total Cash Outflow ,000 ESTIMATED NET CASH FLOW ,000 New Loan (if taken and within limit) , 000 ESTIMATED CASH BALANCE THIS QTR. ,000

CASH ANALYSIS FORECAST Industry Letter Company No. Quarter No. This form will aid in planning your cash for next quarter. Cash Inflow: Column entries are in thousands of dollars (000’s) Beginning Cash (last quarter’s ending cash) ,000 Estimate of Revenue: units sold @ $ per unit ,000 Estimate of Total Cash Inflow ,000 Cash Outflow: Production: units produced @ $ per unit ,000 Addition to Production Plant units @ $60 per unit ,000 Advertising and Sales Promotion ($0-$200) ,000 Total Salespeople @ $15 (thousand) each ,000 (Don’t forget those added or fired this quarter) Product development ($0-$200) ,000 Total Quality Management ($0-$200) ,000 Market Research ($0-$15) ,000 Dividends Paid ,000

Loan Repayment (if any) ,000 Overhead at total capacity of units ,000 Estimate of Inventory Expense ,000 $15 (thousand) plus $2 per unit in ending inventory Estimate of Interest Expense ,000 Estimate of Taxes ,000 Estimate of Total Cash Outflow ,000 ESTIMATED NET CASH FLOW ,000 New Loan (if taken and within limit) , 000 ESTIMATED CASH BALANCE THIS QTR. ,000

Negative Cash Position Increase Loan Reduce Spending Or Take your Chances

Input Decisions

Production Marketing Management Financial

Oh boy…

Production Decisions

Units to be produced the next quarter ‐From Quarter 0: 35,000 units Addition to size of production plant ‐Multiples of 1,000 units @$60 each

DECISION INPUT FORM Industry Letter Company No. Quarter No. Production Decisions 1. Production (0-99, Remember!! Enter units, not dollars) ,000

(You may not produce more than current plant capacity plus any additional units added this quarter)

2. Addition to Size of Production Plant (0-10, Enter units again, not dollars) ,000

(May not exceed 10 thousand units per quarter. Units become available immediately)

Marketing Decisions 3. Price ($27-28-29, 33-34-35, 39-40-41) $ .00

(Entry must be one of the above)

4. Advertising and Sales Promotion ($0-$200) $ ,000 5. Number of Salespeople Added this Quarter (-4 to 4)

(Use negative value to lay off salespersons)

Management Decisions 6. Product Development/Enhancement Budget ($0-$200) $ ,000 7. Total Quality Management ($0-$200) $ ,000 8. Market Research Studies ($0-$15) $ ,000 Financial Decisions 9. Dividends $ ,000

(Cannot be greater than last quarter’s “net profit after tax,” may not ever exceed $50,000, not allowed at all if retained earnings are negative)

10. Loan Addition or Payment ($-999 to $999 as limited) $ ,000

(Use negative value to make a loan payment)

Verification Total

(Add only the handwritten numbers)

Verification Total: Enter a 0 in any item from 1 to 11 that is not used. Add all numbers from items 1 through 11 and place the total in the verification box. Add only the numbers YOU entered, not the preprinted 000' s. Subtract any negative numbers. The verification total is used by the person entering your decision value numbers to ensure that data entry is correct; the verification total has nothing to do with your decision results. You may receive a fine if this is not entered or entered incorrectly.

Marketing Decisions

Product price

Three price strategies (whole numbers only) ‐$27‐29 ‐$33‐35 ‐$39‐41 Current Price: $34 Current Production Cost: $17

Marketing Decisions

Beginning Production Costs (Per Unit):

Low Pricing Strategy: $13.50‐$14.00‐$14.50 Medium Pricing Strategy: $16.50‐$17.00‐$17.50 High Pricing Strategy: $19.50‐$20.00‐$20.50 Production costs can be raised or lowered based on expenditures in Quality Management

Marketing Decisions

Advertising and Sales Promotion

‐From Quarter 0: $50,000

Number of Salespeople hired/fired

‐Staff From Quarter 0: 2 @ $15,000 each ‐Severance pay: $6,000 each

DECISION INPUT FORM Industry Letter Company No. Quarter No. Production Decisions 1. Production (0-99, Remember!! Enter units, not dollars) ,000

2. Addition to Size of Production Plant (0-10, Enter units again, not dollars) ,000

Marketing Decisions 3. Price ($27-28-29, 33-34-35, 39-40-41) $ .00

4. Advertising and Sales Promotion ($0-$200) $ ,000 5. Number of Salespeople Added this Quarter (-4 to 4)

Management Decisions 6. Product Development/Enhancement Budget ($0-$200) $ ,000 7. Total Quality Management ($0-$200) $ ,000 8. Market Research Studies ($0-$15) $ ,000 Financial Decisions 9. Dividends $ ,000

• 10. Loan Addition or Payment ($-999 to $999 as limited)

$ ,000

Verification Total

Verification Total: Enter a 0 in any item from 1 to 11 that is not used. Add all numbers from items 1 through 11 and place the total in the verification box. Add only the numbers YOU entered, not the preprinted 000' s. Subtract any negative numbers. The verification total is used by the person entering your decision value numbers to ensure that data entry is correct; the verification total has nothing to do with your decision results. You may receive a fine if this is not entered or entered incorrectly.

Management Decisions

Product Development

‐From Quarter 0: $50,000

Total Quality Management

‐From Quarter 0: $10,000

Marketing Research Studies

‐Industry sales/business forecast: $1,000 ‐Competitors’ pricing: $2,000 ‐Avg. of Advertising/Development/ Quality; Salespeople: $4,000 ‐Product Perception study: $8,000

DECISION INPUT FORM Industry Letter Company No. Quarter No. Production Decisions 1. Production (0-99, Remember!! Enter units, not dollars) ,000

(You may not produce more than current plant capacity plus any additional units added this quarter)

2. Addition to Size of Production Plant (0-10, Enter units again, not dollars) ,000

(May not exceed 10 thousand units per quarter. Units become available immediately)

Marketing Decisions 3. Price ($27-28-29, 33-34-35, 39-40-41) $ .00

(Entry must be one of the above)

4. Advertising and Sales Promotion ($0-$200) $ ,000 5. Number of Salespeople Added this Quarter (-4 to 4)

(Use negative value to lay off salespersons)

Management Decisions 6. Product Development/Enhancement Budget ($0-$200) $ ,000 7. Total Quality Management ($0-$200) $ ,000 8. Market Research Studies ($0-$15) $ ,000 Financial Decisions 9. Dividends $ ,000

(Cannot be greater than last quarter’s “net profit after tax,” may not ever exceed $50,000, not allowed at all if retained earnings are negative)

10. Loan Addition or Payment ($-999 to $999 as limited) $ ,000

(Use negative value to make a loan payment)

Verification Total

(Add only the handwritten numbers)

Verification Total: Enter a 0 in any item from 1 to 11 that is not used. Add all numbers from items 1 through 11 and place the total in the verification box. Add only the numbers YOU entered, not the preprinted 000' s. Subtract any negative numbers. The verification total is used by the person entering your decision value numbers to ensure that data entry is correct; the verification total has nothing to do with your decision results. You may receive a fine if this is not entered or entered incorrectly.

Financial Decisions

Dividends

‐From Quarter 0: $5,000

Loan addition or payment

DECISION INPUT FORM Industry Letter Company No. Quarter No. Production Decisions 1. Production (0-99, Remember!! Enter units, not dollars) ,000

(You may not produce more than current plant capacity plus any additional units added this quarter)

2. Addition to Size of Production Plant (0-10, Enter units again, not dollars) ,000

(May not exceed 10 thousand units per quarter. Units become available immediately)

Marketing Decisions 3. Price ($27-28-29, 33-34-35, 39-40-41) $ .00

(Entry must be one of the above)

4. Advertising and Sales Promotion ($0-$200) $ ,000 5. Number of Salespeople Added this Quarter (-4 to 4)

(Use negative value to lay off salespersons)

Management Decisions 6. Product Development/Enhancement Budget ($0-$200) $ ,000 7. Total Quality Management ($0-$200) $ ,000 8. Market Research Studies ($0-$15) $ ,000 Financial Decisions 9. Dividends $ ,000

(Cannot be greater than last quarter’s “net profit after tax,” may not ever exceed $50,000, not allowed at all if retained earnings are negative)

• 10. Loan Addition or Payment ($-999 to $999 as limited)

$ ,000

(Use negative value to make a loan payment)

Verification Total

(Add only the handwritten numbers)

Verification Total: Enter a 0 in any item from 1 to 11 that is not used. Add all numbers from items 1 through 11 and place the total in the verification box. Add only the numbers YOU entered, not the preprinted 000's. Subtract any negative numbers. The verification total is used by the person entering your decision value numbers to ensure that data entry is correct; the verification total has nothing to do with your decision results. You may receive a fine if this is not entered or entered incorrectly.

DECISION INPUT FORM Industry Letter Company No. Quarter No. Production Decisions 1. Production (0-99, Remember!! Enter units, not dollars) ,000

2. Addition to Size of Production Plant (0-10, Enter units again, not dollars) ,000

Marketing Decisions 3. Price ($27-28-29, 33-34-35, 39-40-41) $ .00

4. Advertising and Sales Promotion ($0-$200) $ ,000 5. Number of Salespeople Added this Quarter (-4 to 4)

Management Decisions 6. Product Development/Enhancement Budget ($0-$200) $ ,000 7. Total Quality Management ($0-$200) $ ,000 8. Market Research Studies ($0-$15) $ ,000 Financial Decisions 9. Dividends $ ,000

• 10. Loan Addition or Payment ($-999 to $999 as limited)

$ ,000

Verification Total

5 4 7 6 8 3 2 1 9 10 Or 10

DECISION INPUT FORM Industry Letter Company No. Quarter No. Production Decisions 1. Production (0-99, Remember!! Enter units, not dollars) ,000

2. Addition to Size of Production Plant (0-10, Enter units again, not dollars) ,000

Marketing Decisions 3. Price ($27-28-29, 33-34-35, 39-40-41) $ .00

4. Advertising and Sales Promotion ($0-$200) $ ,000 5. Number of Salespeople Added this Quarter (-4 to 4)

Management Decisions 6. Product Development/Enhancement Budget ($0-$200) $ ,000 7. Total Quality Management ($0-$200) $ ,000 8. Market Research Studies ($0-$15) $ ,000 Financial Decisions 9. Dividends $ ,000

• 10. Loan Addition or Payment ($-999 to $999 as limited)

$ ,000

Verification Total

Verification Total: Enter a 0 in any item from 1 to 11 that is not used. Add all numbers from items 1 through 11 and place the total in the verification box. Add only the numbers YOU entered, not the preprinted 000' s. Subtract any negative numbers. The verification total is used by the person entering your decision value numbers to ensure that data entry is correct; the verification total has nothing to do with your decision results. You may receive a fine if this is not entered or entered incorrectly.

IMPORTANT

50 34 35 1 5 15 50 200 10

Quarterly Decision Process

Analyze Results from Previous Quarter Make Estimations and Decisions Using Worksheet Record Final Decisions and Submit

Online Decision Forms

Online Decision Forms

Online Decision Forms

Online Decision Forms

123

Online Decision Forms Or

A Word of Caution!

Decision forms turned in late? Incomplete decision form? Entries Outside of parameters? FINES may be imposed!

Teams are ranked by

• Return on Equity (ROE)
• Management Skill Score
• Advertising Competition
• Stockholders’ Presentation

The Competition

Fortune List A1 SuperGoodCompany 12% B3 BestCompanyEva 16%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Q1 Q2 Q3 Q4

Year 1 ROE ‐ A Industry

A1 A2 A3 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Q1 Q2 Q3 Q4

Year 1 ROE ‐ B Industry

B1 B2 B3

• Each company will

receive a copy

• Also available on the

PFEW Program Page

• n computers in your

classroom.

VERY USEFUL TOOL!

The BizSim Manual

Thank you!

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Pennsylvania Free Enterprise Week

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