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Trade & Commerce. EUE43E ‘Understanding Business’ Robert J. Williams. Introduction to ‘Understanding Business’. Following this session you should understand: What this module is about & how it will operate How you will be assessed Your module timetable

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trade commerce

Trade & Commerce

EUE43E

‘Understanding Business’

Robert J. Williams

introduction to understanding business
Introduction to ‘Understanding Business’

Following this session you should understand:

  • What this module is about & how it will operate
  • How you will be assessed
  • Your module timetable
  • Why we are using a Business Simulation
  • How the Business Simulation operates
  • What you need to do to get started?
understanding business
Using financial information effectively

Understand accounts

Analyse & interpret financial information

Evaluate financial performance

Report on financial matters

Financial planning

Identify sources of finance

Collect, analyse & present financial data

Identify appropriate methods of presentation

‘Understanding Business’
understanding business1
‘Understanding Business’
  • Financial control systems
    • Identify key financial indicators
    • Recommend action
  • Making financial decisions
    • Relate to specific business functions
    • Consult & communicate
    • Appraise financial consequences & make decisions
assessments
Assessments
  • See Handout
  • Assignment 1 – Team Presentation (40%)
  • Assignment 2 – Individual Report (60%)
    • Use Assignment Cover with your details
simulation briefing
Simulation Briefing…
  • £400,000 personal share capital @ £1/share
    • £300,000 invested in “fixed capital” (fixed assets)
      • £180,000 for factory (non depreciating)
      • £120,000 for machinery & equipment

depreciated straight line £4,000 per period

    • £100,000 available for “working capital” to carry out trading activities i.e. run the business
slide14

Raw Material Stocks

Production line 1

Production line 2

Gema

Lucy

Finished Goods Stocks

Finished Goods Stocks

Market Gema

- price

- advertisements

Market Lucy

- price

- advertisements

Customer (debtor) Pays 2 mths later (credit given 1 period)

Customer (debtor) Pays 2 mths later (credit given 1 period)

simulation briefing1
Simulation Briefing
  • Production accounted for over decision periods that equate to 2 months (8 weeks) of trading

i.e. 6 periods per year

  • You & your team set up the company from scratch & play for 6 periods (i.e. 12 months of simulated management of your trading company)
  • Competitive Market Structure:
    • Market 1 - Teams 1 to 5
    • Market 2 - Teams 6 to 10
simulation briefing management s objectives
Maximum share value after 12 months (6 periods) of trading

Factors affecting share value:

Accumulated profits/losses to that date

Market share (%)

Borrowing in excess of £150,000 at that date

(i.e. high gearing/leverage)

Simulation Briefing - Management’s Objectives
slide25

Very important

Period 1

Decision

Business Simulation Production Process

400,000 shares @ £1/share = £400,000 share capital

£300,000 Fixedcapital

£100,000 Working capital

Raw Materials

(plastic granules)

Premium

£360/1000 kg

immediate delivery

immediate payment

no order cost

Basic

£150/£300?/1000 kg

delivery + 2 mths

payment + 2 mths after (credit)

£1,000 order cost

Raw Materials Stocks

simulation briefing products market research
Simulation Briefing –Products & Market Research

Product Wholesale Price Market Forecast

£’s/doll

1 Gema Doll £1.50 50,000 dolls/period

2 Lucy Doll £2.50 30,000 dolls/period

Estimated total market = x the no. of teams in the marketplace.

i.e. x 5 = 250,000 Gema /period

x 5 = 150,000 Lucy /period

  • Unsatisfied demand re-distributed to competitors
simulation briefing materials labour
Simulation Briefing – Materials & Labour

Manufacture up to 2 products (dolls)

Product Material Labour

kgmins

Gema 0.25 8.00

Lucy 0.333 12.00

simulation briefing decision 2 materials
Simulation Briefing –Decision 2: Materials?
  • Premium materials @ £360/tonne, all delivered in period ordered and paid in period received; no order cost… and/or
  • Basic material sourced at start of simulation at £150 - £300/tonne with variable delivery reliability?
  • Basic material ordered 1 period ahead of when needed and paid for 1 period after received; order cost £1,000 per order
  • Basic material costs 2% of average value to store
  • Basic material not received is on back order
simulation briefing labour
Simulation Briefing - Labour
  • Recruited / made redundant 1 period ahead
  • 40 hr working week (max. 10 hrs overtime /week/operator)
  • £4.00/hr & £6.00/hr overtime
  • Labour efficiency @ start 85% (34 effective hours) but…
    • Employing extra reduces efficiency
    • Redundancies reduce efficiency
  • Can only change number of operators by + or – 50% in any period
  • 1 supervisor @ £6.00/hr needed per 10 operators (or part thereof) – do not need to be ordered & no overtime
simulation briefing decision 3 labour
Simulation Briefing – Decision 3: Labour?
  • Operators available in period (ordered previous period) need to be allocated to one or other production line.
  • Other manufacturing ‘overhead’ costs:
    • Machine depreciation: £4,000
    • ‘Other’ production costs: £10,000 + £1/op.hr
  • Other business ‘overhead’ costs:
    • Administration costs: £10,000 + £1,000/supervisor
    • Warehousing costs: 3% average opening & closing

Finished Goods Stock

simulation briefing decision 4 finance
Simulation Briefing – Decision 4: Finance?
  • Economic environment no inflation
  • Overdraft interest rate 2%/period (12% APR) max. £50,000: £5,000 penalty if exceeded
  • Flexible term loan interest rate 2.5%/ period (15% APR) – no restriction on borrowing
  • +ve cash balance needed in bank account at start of period before loan can be repaid
  • Borrowed & repaid in multiples of £10,000
simulation briefing decision 5 marketing
Simulation Briefing – Decision 5: Marketing?
  • Either or both dolls?
  • How many can you expect to sell?
  • What price & what is price elasticity of demand?
  • What advertising & what is advertising sensitivity?
    • 70% period placed & 30% residual
    • effectiveness reduced if price changes
    • effectiveness reduced the more used
  • Unsatisfied demand shared with competitors
simulation briefing decision 6 research information
Simulation Briefing – Decision 6: Research Information?
  • What is the market doing?
  • What are your competitors doing?
  • How well are they doing?
  • Competitors pricing information available free
resources available to you 1
Resources Available to You – 1
  • Module Timetable – will agree decision times (critical)
  • Module Assessment – see handout & online
  • Business Management Simulation Manual (B.M.S.M.)
    • ‘Bosscat Player’s Notes’ Chapter 1 (pages 6 - 12)
    • ‘Financial Accounts’ Chapter 2 (pages 13 - 24)
    • *’The Bosscat Accounts’ Chapter 3 (pages 25 - 38)
    • *Appendix 3 - Example Results Period 3 (pages 44 – 47) *cross referenced
    • Appendices 1 & 2 Decision Sheets
resources available to you 2
Resources Available to You - 2
  • Useful Textbook - McLaney, E. & Atrill, P. 2002. Accounting: An Introduction. 2nd ed. Prentice Hall, Hemel Hempstead.
  • Optional Textbook - Pindyck, R. & Rubinfeld, D. (2009). Microeconomics. 7th Edition. Pearson Education International.
  • Online Business English/Czech translations
  • Decision Sheets Period 1 available as paper copy
  • Decision Sheets for Periods 2 and after(P2+) available electronically online
getting started 1
Getting Started 1

Elect a Team Leader

TeamLeader - responsibility for operational issues for your team:

Give your team a Name? Team Leaders to e-mail these to me at: rjwilliams@plymouth.ac.uk‘Subject’ eg “Team 2? Name is ‘Devine Dollz’”

post e-decision sheets (2 +) on time - as e-mail attachments (see teaching & learning schedule) Late decisions excluded

Results e-mailed back to Team Leader

keep your own e-file of all Decisions (D) & Results(R) for your Team

38

getting started 2
Getting Started 2
  • Now...
    • ‘Business Simulation Complete Budget Sheet’
    • ‘Business Simulation Trend Analysis Data Sheet’
  • At end of simulation...
    • ‘Business Simulation Inter-firm Comparative Analysis Data Sheet’ (but completed with Period 6 Data for all teams in your market)
    • All Team’s in your market’s results for all periods
getting started 3
Getting Started 3

......think about what you can do to develop a “Competitive Advantage” and consider what are likely to be the “Critical Success Factors” that you must get right if you are to be the most successful company?

Set yourselves some:

aims - guiding principles relating to how you want to see your business run (may need to be flexible)

objectives - approximate targets over time relating to achievements

40

getting started 4
Getting Started 4

…get your decision support spreadsheetsorganised as soon as possible… using my basic templates to get you started

Experiment a little to see how the business responds to different tactics?

41

getting started 5
Getting Started 5
  • Make 1st set of decisions (D1) on paper ‘Decision SheetPeriod 1 only’ and get checked out by me before 14.00 in here today?
  • Seek clarification - if needed?
  • Follow guidance in Teaching & Learning Schedule
  • Read the Business Management Simulation Manual – Chapter 1: PLAYERS NOTES
understanding business2

‘Understanding Business’

The End

Robert Williams