REINVENTING A BUSINESS SIMULATION TO INCORPORATE RISKS ASSESSMENT IN AN INTERCONNECTED WORLD Robert Boehner, JD Thomas Pray, Ph.D. Gregory VanLaeken, MBA Bob Boehner
Dec 24, 2015
REINVENTING A BUSINESS SIMULATION TO INCORPORATE
RISKS ASSESSMENT IN AN INTERCONNECTED WORLD
Robert Boehner, JDThomas Pray, Ph.D.
Gregory VanLaeken, MBA
Bob Boehner
The Paper
The focus is on “modeling” a business simulation scenario
whereby a firm may enter into a new and riskier foreign market with a rapidly changing high-tech product and a short time
horizon
Business Simulations
• Many business simulation have the participants manage a business in a relatively stable market
• CAPSTONE/CAPSIM has the team “turn” around a 100 million dollar business, which has average products and may have from 5 -8 years to do it
Business Simulation Revisited
• Web-DECIDE simulation has each team picking a deliberate strategy and attempting to implement that strategy over 2 -3 years in a purely domestic market
Three Parts to the Reinvention
Simulation Software
Excel Spreadsheets
A Business Case
In terms of Web-DECIDE simulation – after 2 years of play we introduce this new opportunity:Produce a high-tech product – Smart LED
Light Bulbs – and sell in a new foreign market – Indonesia
Restricted to a maximum of two year horizon
The Scenario
1.How much capital will be spend to manufacturer the product?
2.Where will we manufacturer the product?3.Estimate how many will be purchased?4.R&D and SGA allocations5.Quality training overseas6.Hourly wage7.What price will we charge?8.Terms for AR and AP9.Overseas manufacturing – estimate WAAC and
exchange rate projection
Decisions
1.RISKS1.Market acceptance and forecast error with Bass Function2.Over or under capitalization3.Production setup and capacity conversion issues4.Consumer reaction to AR terms5.Supplier reaction to AP terms6.Exchange rate7.WAAC rate changes8.Downtime and Waste variability9.Inadequate quality focus
Risks
Risk Assessment:Forecasting Demand
Forecasting Sales – The Bass Diffusion Model
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 240%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Market Penetration - Various Values innovators (p) and Imitators (q)
p=.0112 q=0.5 p=.5 q= .001
p=.001 q=.3Market Penetration
Time
Risk Assessment:Build Overseas or in the US?
• What is an appropriate discount rate that properly captures non-quantifiable risks?
• Should capital come from an internal parent-to-subsidiary loan, from a domestic capital market, or from a foreign source?
• How do the country tax rates impact the discounted cash flow?
• Is the local currency freely convertible and if profits are allowed to be repatriated will they be taxed?
THANK YOU FOR COMING AND LISTENING
FROMBob, Tom and Greg
QUESTIONS