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REINVENTING A BUSINESS SIMULATION TO INCORPORATE RISKS ASSESSMENT IN AN INTERCONNECTED WORLD. Robert Boehner, JD Thomas Pray, Ph.D . Gregory VanLaeken, MBA. Bob Boehner.

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reinventing a business simulation to incorporate risks assessment in an interconnected world

REINVENTING A BUSINESS SIMULATION TO INCORPORATERISKS ASSESSMENT IN AN INTERCONNECTED WORLD

Robert Boehner, JD

Thomas Pray, Ph.D.

Gregory VanLaeken, MBA

Bob Boehner

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The PaperThe 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
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
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
Three Parts to the Reinvention

A Business Case

Simulation Software

Excel Spreadsheets

the scenario
The Scenario
  • 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
decisions
Decisions

How much capital will be spend to manufacturer the product?

Where will we manufacturer the product?

Estimate how many will be purchased?

R&D and SGA allocations

Quality training overseas

Hourly wage

What price will we charge?

Terms for AR and AP

Overseas manufacturing – estimate WAAC and exchange rate projection

risks
Risks
  • RISKS
    • Market acceptance and forecast error with Bass Function
    • Over or under capitalization
    • Production setup and capacity conversion issues
    • Consumer reaction to AR terms
    • Supplier reaction to AP terms
    • Exchange rate
    • WAAC rate changes
    • Downtime and Waste variability
    • Inadequate quality focus
risk assessment forecasting demand
Risk Assessment:Forecasting Demand

Forecasting Sales – The Bass Diffusion Model

risk assessment build overseas or in the us
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?