Service Challengean 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 SimulationThe simulation consists of three stages:

• Preparation• Decision-making• ReviewPreparation

– Familiarisation– Organisation– Consider objectives– Consider strategies

Decision-making– Submit Decisions– Simulate– Analyse Results– Replan

Review– Discuss & Compare Results

The Situation

• The company is a subsidiary

• has been operating for several years

• provides three services (Level 1, 2 & 3)

• involving two resources (A & B)

• all costs & prices are a universal currency

• 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.

MarketingYour 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.

ResourcesThe resources consist of a combination of people and

machines and involve:

Resource A Resource B

Staff Costs 4000 AUs 2000 AUs

Asset Costs 15000 AUs 5000 AUs

Resource A Resource B

Level 1 1.0 0.0

Level 2 0.5 0.5

Level 3 0.0 1.0

Each service utilises the resources differently thus:

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 Capital Gearing Exceeds 50% then the interest paid may increase substantially

• taxation is 50% and paid the following year

• general overheads – 50,000 AUs/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.

ResultsResults are returned to you in three stages:Preliminary Results

– demand (days) & sales income for each service– sales income, operating profit & cash/overdraft

Company Reports– Client Summary– Resource Summary– Profit & Loss– Balance Sheet– Key Ratios

Business Research– Market News (prices & market shares)– Company Reports– Company News

Observations

• 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 NameLevel 1PriceMarket ShareContribution

Level 2PriceMarket ShareContribution

Level 3PriceMarket ShareContribution

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