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Facilitator's Handbook (English)

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This document is meant to assist a professor or other facilitator of the Novus Business and IT Training Program. It provides a description of the program, sample calendars for administration, the …

This document is meant to assist a professor or other facilitator of the Novus Business and IT Training Program. It provides a description of the program, sample calendars for administration, the information included in the business simulator (including facilitator notes), and the critical-thinking exercises designed to accompany the 36 lessons.

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  • 1. Novus Business and Information Technology Training Program Trainer’s HandbookNovus is a comprehensive training course designed for small business owners, college and universitystudents, and other interested individuals to acquire skills related to opening and operating a small business,using common computer software programs in a professional setting, and applying the skills and knowledgethrough a series of critical-thinking exercises and an interactive business simulation software program.The Novus Business and IT Training Program was designed and developed by Peace Corps Volunteers inArmenia through a collaboration with USAID and the Gyumri Economic Development Foundation. 1
  • 2. TABLE OF CONTENTSTABLE OF CONTENTS .................................................................................................................................... 2NOVUS BUSINESS AND IT TRAINING PROGRAM OVERVIEW .............................................................. 3SAMPLE CALENDARS FOR COURSE USAGE .............................................................................................. 4OVERVIEW OF BUSINESS SIMULATOR....................................................................................................... 8SIMULATOR SCORING METHODOLOGY ..................................................................................................10 YEAR ONE: MARKET SUMMARY ................................................................................................................................................12 YEAR TWO: MARKET SUMMARY................................................................................................................................................18 YEAR THREE: MARKET SUMMARY ............................................................................................................................................21 YEAR FOUR: MARKET SUMMARY ..............................................................................................................................................25 YEAR FIVE: MARKET SUMMARY ................................................................................................................................................28 YEAR SIX: MARKET SUMMARY...................................................................................................................................................32BUSINESS CURRICULUM.............................................................................................................................. 36 LESSON 1: VISION AND MISSION STATEMENTS .....................................................................................................................36 LESSON 2: MARKET ANALYSIS AND SWOT ............................................................................................................................37 LESSON 3: STARTUP CAPITAL .....................................................................................................................................................38 LESSON 4: ESSENTIAL MICROECONOMIC PRINCIPLES FOR BUSINESS ...............................................................................39 LESSON 5: MARKET RESEARCH .................................................................................................................................................40 LESSON 6: OPERATIONS MANAGEMENT: SIMPLE FORECASTING ......................................................................................41 LESSON 8: PLACEMENT AND PROMOTION ..............................................................................................................................45 LESSON 9: MANAGING PEOPLE.................................................................................................................................................45 LESSON 10: BRANDS.....................................................................................................................................................................46 LESSON 11: BASIC FINANCE: UNDERSTANDING THE PROFIT AND LOSS STATEMENT ..................................................47 LESSON 12: SUPPLY CHAIN MANAGEMENT ............................................................................................................................47 LESSON 13: BASIC FINANCE: UNDERSTANDING THE BALANCE SHEET AND KEY FINANCIAL RATIOS .....................49 LESSON 14: WORKING CAPITAL MANAGEMENT ...................................................................................................................50 LESSON 15: STRATEGIC PLANNING ..........................................................................................................................................51 LESSON 16: CUSTOMER RELATIONSHIP MANAGEMENT ......................................................................................................52 LESSON 17: ETHICS AND CORPORATE SOCIAL RESPONSIBILITY ........................................................................................55 LESSON 18: COMPETITIVE ANALYSIS .......................................................................................................................................56 LESSON 19: ANALYZING CASH FLOW .......................................................................................................................................56 LESSON 20: ECONOMICS: UNDERSTANDING MACROECONOMIC INFLUENCES AND ECONOMIC STRUCTURES .......57 LESSON 21: CORE COMPETENCY AND COMPETITIVE ADVANTAGE .................................................................................59 LESSON 22: PORTERS FIVE FORCES THEORY ........................................................................................................................60 LESSON 23: LEADERSHIP AND TEAMBUILDING .....................................................................................................................60 LESSON 24: BUSINESS PLAN WRITING .....................................................................................................................................61COMPUTER CURRICULUM .......................................................................................................................... 63 LESSON 1: MICROSOFT EXCEL 1: EXCEL BASICS ...................................................................................................................63 LESSON 2: MICROSOFT POWERPOINT 1: POWERPOINT BASICS .........................................................................................63 LESSON 3: MICROSOFT EXCEL 2: DATA ENTRY .....................................................................................................................64 LESSON 4: MICROSOFT WORD 1: WORD BASICS ....................................................................................................................64 LESSON 5: MICROSOFT WORD 2: ADVANCED FORMATTING ..............................................................................................64 LESSON 6: MICROSOFT POWERPOINT 2: SLIDE DESIGN ......................................................................................................67 LESSON 7: MICROSOFT EXCEL 3: DATA ANALYSIS ................................................................................................................67 LESSON 8: MICROSOFT WORD 3: ENHANCING DOCUMENTS .............................................................................................67 LESSON 9: MICROSOFT EXCEL 4: REPORT GENERATION ....................................................................................................68 LESSON 10: MICROSOFT WORD 4: FURTHER FUNCTIONS....................................................................................................68 LESSON 11: MICROSOFT POWERPOINT 3: ADVANCED SLIDE DESIGN .............................................................................68 LESSON 12: ARMENIAN BUSINESS RESOURCES ......................................................................................................................69NOTES AND ACKNOWLEDGMENTS.......................................................................................................... 69 2
  • 3. NOVUS BUSINESS AND IT TRAINING PROGRAM OVERVIEWModern educational theories consistently point to the fact that combining passive education (memorization ofinformation) with experiential learning (application of this knowledge in real-world settings) creates a more stimulatingand rewarding classroom environment. The students begin to see how theories are developed and how theirapplication in the decision-making processes impacts results. The students also become engaged in the learningprocess, advancing beyond the role of listener to that of implementer. Further, the professor transitions from the roleof lecturer to that of facilitator, where he or she poses problems and pushes the students to think critically about howto solve them. The professor expands the boundaries of the students’ creativity, allowing them to experiment, makemistakes, learn from failure, and understand how to properly apply their knowledge in their post-university careers.In Latin, the word ‘novus’ means fresh or novel. The Novus Business and IT Training Program (Novus) is an open-source, multilingual teaching aide, designed to address many of the classroom-environment challenges noted above.Through a dynamic, computer-based program, Novus incorporates the following tools: ● Twenty-four 10-20 minute video-based tutorials on various business topics, designed to focus on starting and operating a small manufacturing business. Example topics included: Strategy, Marketing, Product Development, Customer Service, Finance & Accounting, and Management/HR. The 24 lessons are available in both Armenian and English. ● Twelve 10-20 minute video-based tutorials on the application of Microsoft Office (PowerPoint, Word, Excel) in a business setting, starting from a beginner’s level and progressing to cover intermediate-advanced level topics. The 12 lessons are available in both Armenian and English. ● A decision-based business simulation game, through which students will make strategic decisions for a fictional business to assess the impact of decisions and understand how to apply the various skills taught in the video- based tutorials. ● This facilitator’s guide, which includes a corresponding set of suggested classroom activities to reinforce the topics taught in the program and suggested schedules for optimal usage of the entire program.The application of the Novus tool addresses many of the challenges facing the modern university: ● The video-based lessons augment many topics in the economics and business curriculum that are fundamental for Armenian students, specifically computer literacy and small business skills that are transferable in today’s global economy. ● The modularity of the program allows professors to pick and choose from the video lessons, focusing on topics that they feel are most relevant to their curriculum design. ● The business simulation game allows the students to make decisions regarding their business and assess the results of these decisions. By allowing multiple teams to run the same simulation, the students can benchmark their results against others to identify best and worst case outcomes, and also create an environment of educational competition.The Novus program consists of one CD-ROM containing video-based trainings and a business simulation game aswell as the facilitator’s guidebook. Additionally, these resources are available for free download from the followingwebsites: ● Microsoft’s Learning Gateway Server: [INSERT LINK] ● SourceForce: http://sourceforge.net/projects/novus/ ● Vimeo: https://vimeo.com/novusprogram ● SlideShare: http://www.slideshare.net/NovusProgram 3
  • 4. SAMPLE CALENDARS FOR COURSE USAGEOne of the main advantages of the Novus program is that it is a culmination of short, manageable training modules.Almost all of the 36 training videos are less than 20 minutes in length, which allows the facilitator to easily use specificlessons or combine different lessons about a certain theme, such as marketing. In the Business Curriculum section ofthis Handbook, there is also a classroom activity suggested for use after viewing each lesson. The activities are meant toinspire critical-thinking and teamwork in applying the knowledge acquired in the video lesson. Each is also relativelyshort, such that a particular video and its corresponding activity can be completed in the span of 30 minutes.Each lesson is embedded in the business simulator, but the simulator itself can be used as a tool. The most effectiveuse of the Novus program will be for the course participants to watch the recommended videos, participate in thecorresponding activities, and use the business simulator in parallel. When used simultaneously, course participants willlearn the valuable skills of entrepreneurship, how to use a computer for professional purposes, and apply these abilitiespractically through the business simulator.The modularity of the Novus program allows it to be administered over various timeframes. To help illustrate thispoint, below there are three sample calendars that show how the Novus program could be given over one week, onemonth, or one semester. Recall that the business simulator has six years, or rounds, for the course participants to workthrough. In these sample calendars, one hour is appropriated for each round, during which the teams will read themarket summaries, make the round decisions, and discuss the results. Additional time may be given for the teams toshare their results with one another. The facilitator may ask the following questions to stimulate discussion: • What was your team’s strategy during the last round? • How well did the members in your team cooperate? • Did someone assume the position of the team’s “leader”? • How did your actual results compare to your forecasted results? • What specific areas showed very large differences between your forecasted and actual results? • Is there any decision point you would have approached differently? • Looking at your Balanced Scorecard, what specific areas does your team need to focus on in the next round?In addition to these discussions, the facilitator can also have the participants work on a final project that pushes themto apply the lessons taught in the videos. In the final project, the teams can work together to use Microsoft Office(primarily PowerPoint and Excel) to create a presentation for the class about their team’s results throughout all sixyears of the business simulator. The facilitator can adapt the project to the skill level of the participants, but an exampleof a project is provided below.Final Project Example: After watching the 36 video lessons and playing through all six rounds of the businesssimulator, each team will create a PowerPoint presentation about their strategy and results with the simulator. Twomembers of the team will be elected to use this PowerPoint and give a 10-15 presentation in front of the rest of theclass. The PowerPoint presentation must have at least one slide addressing each of the following points: 1. Title slide 2. Strategy of your team 3. Mission Statement and Values of your team 4. SWOT 5. Market Analysis – customer preferences 6. Market Analysis – market segmentations and growth trends 7. Financing decisions (debt and equity) 8. Equipment purchases 9. Hiring decisions and people management 10. Actual financial results – income statement, balance sheet, cash flow statement 11. Variances between projected results and actual results 12. Results of balanced scorecard 13. Overall assessment of performance throughout the gameOther Requirements: In addition to the PowerPoint slides, each presentation must include at least three charts, threepictures, and two tables developed in Microsoft Excel. 4
  • 5. SAMPLE CALENDAR: NOVUS PROGRAM GIVEN OVER FIVE DAYS DAY 1 DAY 2 DAY 3 DAY 4 DAY 5 Basic Finance: Understanding Porters Five 9:00 Novus Overview Simple Forecasting the Balance Sheet and Key Competitive Analysis Forces Theory Financial Ratios Introduction to Managerial Leadership and 9:30 Vision and Mission Statements Working Capital Management Analyzing Cash Flow Economics Teambuilding Economics: Understanding Business Plan10:00 Market Analysis and SWOT Placement and Promotion Strategic Planning Market Types and Market Writing Influences10:30 Break Break Break Break Break Business Simulator: Year 3 - Business Simulator: Year 5 -11:00 Startup Capital Managing People Teams Read Market Summaries Teams Read Market Summaries Teams Work on and Make Round Decisions and Make Round Decisions Final Project Business Simulator: Year 3 - Business Simulator: Year 5 - Essential Microeconomic11:30 Brands Teams Review Year 3 Results, Teams Review Year 1 Results, Principles for Business Class Discussion Class Discussion12:00 Break Break Break Break Break Microsoft PowerPoint 2: Slide Microsoft Excel 3: Data Microsoft Word 4: Further 1:00 Microsoft Excel 1: Excel Basics Design Analysis Functions Teams Work on Microsoft Excel 4: Report Microsoft PowerPoint 3: 1:30 Microsoft Excel 2: Data Entry Microsoft Word 1: Word Basics Final Project Generation Advanced Slide Design Microsoft PowerPoint 1: Microsoft Word 2: Advanced Microsoft Word 3: Enhancing 2:00 Armenian Business Resources PowerPoint Basics Formatting Documents 2:30 Break Break Break Break Break Business Simulator: Year 2 - Customer Relationship Core Competency and 3:00 Market Research Teams Read Market Summaries Management Competitive Advantage and Make Round Decisions Overview of Business Simulator, Business Simulator: Year 2 - Business Simulator: Year 6 - Group Ethics and Corporate Social 3:30 Watching Explanatory Videos, Teams Review Year 2 Results, Teams Read Market Summaries Presentations Responsibility Break Class Into Teams Class Discussion and Make Round Decisions Business Simulator: Year 1 - Business Simulator: Year 4 - Business Simulator: Year 6 - Basic Finance: Understanding 4:00 Teams Read Market Summaries Teams Read Market Summaries Teams Review Year 1 Results, the Profit and Loss Statement and Make Round Decisions and Make Round Decisions Class Discussion Business Simulator: Year 1 - Business Simulator: Year 4 - Course 4:30 Teams Review Year 1 Results, Supply Chain Management Teams Review Year 1 Results, Introduction of Final Project Conclusion Class Discussion Class Discussion 5
  • 6. SAMPLE CALENDAR: NOVUS PROGRAM GIVEN OVER ONE MONTH DAY 1 DAY 2 DAY 3 • Novus Overview • Microsoft Word 1: Word Basics • Overview of Business Simulator, Watching • Vision and Mission Statements • Microsoft Word 2: Advanced Formatting Explanatory Videos, Break Class Into Teams • Market Analysis and SWOT • Microsoft Word 3: Enhancing Documents • Business Simulator: Year 1 - Teams Read • Startup Capital • Microsoft Word 4: Further Functions Market Summaries, Make Round Decisions,WEEK 1 • Essential Microeconomic Principles for Business Review Year’s Results, and Participate in Class Discussion TOTAL TIME = 120 - 150 minutes TOTAL TIME = 100 - 130 minutes TOTAL TIME = 70 - 100 minutes • Market Research • Microsoft Excel 1: Excel Basics • Brands • Simple Forecasting • Microsoft Excel 2: Data Entry • Basic Finance: Understanding the Profit and • Introduction to Managerial Economics • Business Simulator: Year 2 - Teams Read Market Loss Statement • Placement and Promotion Summaries, Make Round Decisions, Review • Supply Chain ManagementWEEK 2 • Managing People Year’s Results, and Participate in Class • Basic Finance: Understanding the Balance Sheet Discussion and Key Financial Ratios • Working Capital Management TOTAL TIME = 130 - 160 minutes TOTAL TIME = 110 - 140 minutes TOTAL TIME = 130 - 160 minutes • Microsoft Excel 3: Data Analysis • Strategic Planning • Microsoft PowerPoint 1: PowerPoint Basics • Microsoft Excel 4: Report Generation • Customer Relationship Management • Microsoft PowerPoint 2: Slide Design • Business Simulator: Year 3 - Teams Read Market • Ethics and Corporate Social Responsibility • Business Simulator: Year 4 - Teams Read Summaries, Make Round Decisions, Review • Competitive Analysis Market Summaries, Make Round Decisions,WEEK 3 Year’s Results, and Participate in Class • Analyzing Cash Flow Review Year’s Results, and Participate in Class Discussion Discussion TOTAL TIME = 110 - 140 minutes TOTAL TIME = 130 - 160 minutes TOTAL TIME = 110 - 140 minutes • Economics: Understanding Market Types and • Porters Five Forces Theory • Business Simulator: Year 6 - Teams Read Market Influences • Leadership and Teambuilding Market Summaries, Make Round Decisions, • Core Competency and Competitive Advantage • Business Plan Writing Review Year’s Results, and Participate in Class • Business Simulator: Year 5 - Teams Read Market • Microsoft PowerPoint 3: Advanced Slide Design DiscussionWEEK 4 Summaries, Make Round Decisions, Review • Armenian Business Resources Year’s Results, and Participate in Class • Course Conclusion Discussion TOTAL TIME = 110 - 140 minutes TOTAL TIME = 100 - 130 minutes TOTAL TIME = 70 - 100 minutes 6
  • 7. SAMPLE CALENDAR: NOVUS PROGRAM GIVEN OVER ONE SEMESTER WEEK 1 WEEK 2 WEEK 3 WEEK 4 DAY 1 DAY 2 DAY 1 DAY 2 DAY 1 DAY 2 DAY 1 DAY 2 • Novus • Microsoft • Microsoft • Startup Capital Overview Word 3: Word 1: • Overview of • Essential • Simple • Vision and Enhancing • Placement and Word Basics Business Simulator, Microeconomic ForecastingMONTH Mission Business Simulator: Documents Promotion • Microsoft Watching Principles for • Introduction to 1 Statements Year 1 • Microsoft • Managing Word 2: Explanatory Business Managerial • Market Word 4: People Advanced Videos, Break • Market Research Economics Analysis and Further Formatting Class Into Teams SWOT Functions • Supply Chain • Microsoft • Customer • Microsoft • Brands Management Excel 3: Data • Working Relationship Excel 1: Excel Business • Basic Finance: • Basic Finance: Analysis Capital ManagementMONTH Basics Business Simulator: Understanding the Understanding • Microsoft Management • Ethics and 2 • Microsoft Simulator: Year 3 Year 2 Profit and Loss the Balance Sheet Excel 4: • Strategic Corporate Excel 2: Data Statement and Key Financial Report Planning Social Entry Ratios Generation Responsibility • Economics: • Microsoft • Business Plan Understanding • Porters Five • Competitive PowerPoint 1: Writing Business Market Types and Forces Theory BusinessMONTH Analysis PowerPoint Basics Business • Microsoft Simulator: Market Influences • Leadership Simulator: Year 3 • Analyzing • Microsoft Simulator: Year 5 PowerPoint 3: Year 4 • Core Competency and 6 Cash Flow PowerPoint 2: Advanced Slide and Competitive Teambuilding Slide Design Design Advantage • Armenian • Teams • Introduction BusinessMONTH Work on • Teams Work on • Group of Final Resources 4 Project Final Final Project Presentations • Course Project Conclusion*E ACH CLASS IS APPROXIMATELY ONE HOUR IN LENGTH 7
  • 8. OVERVIEW OF BUSINESS SIMULATORThe purpose of the business simulation game is to give students an opportunity to apply the knowledge acquired in theclassroom to a real-world, yet fictional, setting. In the game, a student or team of students will make decisions thatinvolve the founding and operation of a beer brewery. The game will have six rounds, with each round representingone year of business operations. At the beginning of each round, the students will receive a detailed description of themarket environment in which their business is currently operating. For example, the ‘Year 1’ summary would includeitems such as a description of the type of manufacturing business the students are about to start, an overview of themain products and/or services their business can provide, etc.Based on this description, each decision point in the game will require the team to select from a closed-end (multiplechoice) option or make an open-end decision (financial allocation). The core of the game is the ways in which thecollective decision points impact the cumulative performance of each particular business. Each individual decision willbe compared against the predetermined Best Case Scenario decision or allocation. Working individually or as a team, thestudents will input their decisions into the game and will receive a scorecard. The accuracy of a team’s decision relativeto the ideal outcome will result in a series of scores, which will be interrelated and weighted to produce an overallscorecard. The scorecard will produce both quantitative results and qualitative results. This scorecard measures theholistic results of their past decisions on the financial success of the business relative a predetermined Best Case Scenario;the students can further benchmark their unique results with other students or teams on both round-by-round andcumulative to-date bases. For example, if one team’s business’s revenue is significantly higher than another’s, the twoteams are encouraged to ask “Why?” or “What decision did your team make concerning…”There are five main components to the simulator software: 1. The Results Tab: This will show a team’s performance for all of the years completed in the game. This includes income statements, balance sheets, and cash flow statements. These financial reports should be familiar to the participants based on the Novus Business video lessons. The results tab also has a balanced scorecard, which categorically rates a team’s management performance in several key areas, including production, sales, financial health, employee morale, working capital management, and brand strength. All of these scores are combined together and added to previous year’s scores to create the Managerial Effectiveness Score. 2. The Information Tab: The Information Tab includes the market information that a team will use to make decisions, as well as instructional videos on how the key parts of the game work. 3. The Decision Tab: The Decision Tab is where a team actually makes business decisions. There are five decision panels: Equipment Purchases, Financing, Production, Human Resources, and Other Spending. Each of these panels will have the relevant information from the market information reports on the Information Tab, as well as the controls used to enter decisions. 4. The Review Tab: The Review Tab is used to show all of a team’s decisions for the current round. Participants can also review a previous year’s decisions for reference. This is also where a team will submit decisions for the current round. It is very important to make sure to review your decisions prior to submitting. The submission button can only be pressed while the current year’s decision list is selected. 5. The Finance Tab: The Finance Tab is where a team can see the automatically generated Pro Forma Financial Reports for your decisions. These will update as decisions are made, so participants should check them frequently during the decision making process. It is important to note that the Pro Forma reports assume that a team sells 100% of the beer that is planned to be produced for that round.There are five panels on the Decision Tab: EQUIPMENT PURCHASING PANELThe Equipment Purchasing Panel is where a team will make very important decisions regarding the quantity of ale andlager manufacturing assemblies, which packaging equipment a team wants to purchase, and how much finished goodsstorage space a team wants to have. These decisions can only be made in rounds one and four. The manufacturing andpackaging equipment cannot be resold, so it’s critical that participants make good decisions based on the marketinformation provided.For manufacturing equipment, use the drop box to select the type of beer production assembly desired. Alemanufacturing assemblies cost $150,000 apiece, and lager manufacturing assemblies cost $200,000 apiece. Once the 8
  • 9. desired assemblies have been selected, click the “purchase” check box to buy the selected equipment. Teams can seethe total cost of your purchases at the bottom.There are three packaging options: kegs, bottles, and cans. Each packaging option requires its own equipmentassembly. The keg packaging equipment costs $30,000, while the bottling and canning packaging equipment cost$40,000 apiece. If teams do not buy a particular packaging assembly, they will not be able to produce that product.After brewing and packaging the beer, teams must have a place to store it until shipment to customers. This FinishedGoods Storage Space is measured as a percentage of the maximum total brewing output. If teams select too little space,they will not be able to properly store all of you finished product, and some of it will go bad or be misplaced. If teamsselect too much space, they will be paying more rental costs than are necessary. FINANCING PANELMoney is an essential resource of business. A business will need money to cover the starting costs of purchasingequipment and covering overhead costs while it becomes operational. During the first year of business, teams will havethe option of raising money from equity sources. This money comes from investors who will own a portion of thebusiness commensurate with their investment and the particular agreement the owner, or proprietor, has made withthem. Equity financing, unlike debt financing, does not require interest to be paid on the amount of money received, orpay it back. While some mature businesses may issue dividends to shareholders, it is not usually expected of smallbusinesses.Long Term Debt will be available in rounds one and four. This financing option will require teams to pay interest onthe amount borrowed, and pay the money back over a period of years. The interest rate and payback period increasewith the amount borrowed. Teams should be sure to check the impact on their pro forma income statement’s interestexpense and pro forma balance sheet’s liabilities section.Starting in Year 3, teams will have the option of using short-term financing. The amount a team may borrow is basedon their company’s Accounts Receivables, Inventory, and Total Fixed Assets. This financing option is a line of credit,meaning that they will be able to borrow up to a limit, but will have to pay interest on the amount borrowed. Theinterest rate will be 3% - 6.5%. Teams should use this option to ensure that their business will have adequate workingcapital for the year.Should a team’s business run out of cash, they will be forced to borrow from an emergency line of credit at veryexpensive rates. It is crucial that teams spend adequate time analyzing their high and low sales estimates to ensure thattheir company has adequate liquidity in a worst-case scenario. PRODUCTIONThe Production panel is where teams will make decisions about how much beer to produce, how much of each beertype is divided between their selected packaging options, the ingredient quality of their products, and the prices of theirproducts.Teams won’t actually start producing beer until Year 2. At the top of the production panel, they will select the numberof production cycles for each production machine. Each cycle will produce 100,000 liters. Ale machines will be able toproduce up to 15 cycles in a year (1.5 million liters), and lager machines will be able to produce up to 9 cycles in a year(900,000 liters). Teams can see the total output at the bottom of the panel.Teams can select the percentage of output desired for each packaging option in the Packaging section. Only packagingoptions that were purchased by a team can be selected. The fields directly below the packaging control options willautomatically display how many actual units of each product will be produced based on the current Production Cyclesand Packaging decisions.Starting in Year 5, a team will have to make decisions about product ingredient quality and price. Ingredient quality isthe most important determinant of the cost of goods sold. High-quality ingredients will cost more than low-qualityingredients, resulting in a lower margin with everything else held constant. However, higher quality products sell for a 9
  • 10. premium price. Teams should be sure to carefully read the market information to determine what level of qualityconsumers are looking for.Pricing is a critical decision point. If the price of a product is too high, customers will purchase competitors’ beers. Ifthe price of a product is too low, the beer will be sold but teams will lose money from not having priced appropriately.It is critical that teams spend the time to make good pricing decisions based on the market information provided. HUMAN RESOURCESAs a business grows, it will have to bring on additional employees and specialists. Each of these workers increasesoperating expenses, but understaffing can have a very detrimental effect on a business’s ability to produce and sell beer.The number of people in each position is driven by different factors, including projected sales and output. A generalguideline for hiring is provided in the market information report. Use the quantity selection boxes to choose thenumber of employees for each section. Teams will see the per-person expense and the total expense for each position.The starting value of each position is carried over from the previous year. OTHER SPENDINGThe Other Spending Panel is where teams will make decisions about key discretionary spending, including marketing,product development, promotional activities, and community development. These spending amounts are determinedas a percentage of forecasted revenue. The total forecasted revenue and projected amount for each category ofspending are included in the drop down selection box. Use the provided market information to make the best decisionfor the current round.SIMULATOR SCORING METHODOLOGYAs noted above, after each round the teams will receive their actual financial results as well as a balanced scorecard.This scorecard reflects how close a team’s decisions were compared to the Best Case Scenario decisions. There aremultiple areas over which the teams are scored. The best possible score for each category is 100. The further awayfrom 100, the worse the team’s decisions were compared to the Best Case Scenario. The purpose of this scorecard is tohighlight areas or decisions that a team should review and focus on more during the next round. A basic description ofhow each score is calculated is provided below: • Production Efficiency Score – The Production Efficiency Score is the proportion of what you actually produced compared to what you planned to produce. The primary factor that determines your production efficiency is having sufficient staff. If you have too few workers, you will not be able to produce the planned amount of beer. If you have too many workers, you will be able to meet your production targets, but you will have unnecessarily high expenses related to salary and wages. • Sales Performance Score – The Sales Performance Score compares your actual sales to your planned sales, as well as your actual sales to the Best Case Scenario sales. It is important to remember that you cannot perform better than the Best Case Scenario, so use them as a gauge to see if your market demand forecast is too high or too low. • Financial Health Score – Using your actual financial results, the Financial Health Score uses five key ratios that measure financial health, and compares your results to actual industry averages. If your business’s financial ratios are worse than the industry averages, your scores will drop. If your business’s financial ratios are better than the industry averages, you will have high scores. The scores will be low for the first few rounds as your business works to enter the market and become profitable. If you are doing a good job of managing your business, the overall Financial Health Score should be above 80 by the third or fourth year. • Employee Morale Score – Employee Morale is governed by two things: your company’s actual sales performance and staffing decisions. Falling short of planned sales goals is bad for morale and will cause the score to decrease. If you don’t have adequate staffing, your workers will have to work overtime, causing the score to decrease. • Working Capital Management Score – The Working Capital Management Score is related to having enough cash to run your business. The only time that this score will drop is if the business runs out of cash and has to draw from the Emergency Line of Credit. The larger the draw, the lower your score will be. To avoid this, it is very important that you make sure that your business will have enough cash if you do not meet your sales projections. You should plan for the best case, but financially plan for the worst case. 10
  • 11. • Brand Strength Score – Managing your company’s brand is very important. The Brand Strength Score is a measure of your overall brand management and is comprised of your discretionary spending, packaging, price to quality, and brand consistency scores. - Discretionary (Other) Spending – Spending less than the Best Case Scenario will cause the Discretionary (Other) Spending Score to decrease. It also has an adverse effect on sales. Spending more than the Best Case Scenario will not hurt your score, but you will have to pay higher, unnecessary expenses. - Packaging – This score is calculated by comparing your packaging allocation decisions to the Best Case Scenario. Significant deviations from the Best Case Scenario will cause this score to drop, which will negatively impact your sales. - Price to Quality – Your pricing should correspond to the quality of your product. For example, selling a low- quality product at a premium price will cause this score to decrease. Correct pricing is very important. Pricing too low will sacrifice potential sales, while high prices will decrease demand for your products. - Brand Consistency – Strong brands are derived from consistency. Having a similar product from year to year means maintaining roughly consistent prices, ingredient qualities, and packaging decisions between years. • Managerial Effectiveness Score – The Managerial Effectiveness Score is a composite of all the other scores, as well as the Managerial Effectiveness Scores from previous years. This means that you must make consistently good decisions to maintain a high Managerial Effectiveness Score. ____________________________In the pages that follow, you will find a list of what decision points are to be made by the team in each round, therecommended training courses to be given to the students before starting the round, the market information (theinformation included in the business simulator to inform the various decisions), and an explanation of how theinformation ties to the Best Case Scenario outcome. The users of the business simulation program should not beallowed to view the following explanations, as it will outline the correct decisions and remove the opportunity for themto make strategic decisions as a team. However, these explanations are useful for the facilitator of this course as it givesyou a prescient perspective as to what particular decisions might have impacted a team’s performance.The information is divided into six sections, as there are six rounds (years) in the business simulator. Text related to theinterpretation of the market information will be marked as a “Facilitator’s Note” in a gray box. This has been done asfrequently as possible to allow the facilitator to work with the students and help coach them through the game.After each round of the game, facilitator’s are encouraged to give the students an opportunity to present what decisionstheir team made and what their overall strategy is for their business. This can be accomplished informally through asimple classroom discussion or more formally by having each team prepare PowerPoint presentations and practicetheir public speaking skills in front of the rest of the class. The easiest way to facilitate these reviews is go through eachdecision point in the most recent round (which are listed in the pages that follow) and have each team describe howthey approached the problem. The facilitator may also ask questions about how the team worked together and whatkind of group dynamics the students are observing amongst themselves. 11
  • 12. YEAR ONE: MARKET SUMMARYDecision Points To Be Completed In This Round: • Machinery Acquisition: number and type of “brewing machine sets” to purchase (maximum of 5; ale and/or lager choices) • Packaging Acquisition: type of packaging machinery to purchase (keg, bottle, and/or can) • Finished Goods Storage: investment in inventory storage area based on a percentage of annual output • Financing: how much debt and/or equity will be used to finance the companySuggested Training Courses To Include: • Vision and Mission Statements • Market Analysis and SWOT • Startup Capital • Essential Microeconomic Principles • Microsoft Excel 1: Excel Basics • Microsoft PowerPoint 1: PowerPoint BasicsMarket Information Included in Business Simulator and Facilitator Notes:Welcome to Megapolis, a community of business opportunity and growth! With a population of 400,000, Megapolis isneither large nor small. However, being located within 20 kilometers of other medium-sized communities makes it acentral location for regional trade and commerce. The city’s main industries are food and personal services firms,though there are very few goods produced locally. The city also has a handful of growing technology services firmsthat attract young professionals from around the region and also a small aluminum ore mining operation on theoutskirts of the community. Of the food and personal services firms, there are 20 local restaurants serving varioustypes of cuisines, 45 markets of varying sizes (including 4 large chain supermarkets), and 5 hotels. With a per capitaincome of $30,000, the residents of Megapolis have a comfortable standard of living, often visiting restaurants 3-5times a month and frequently hosting parties for friends and family. Thanks to local tourist attractions, the hotels in thecommunity serve large groups of foreigners every season of the year.The local city government has become increasingly interested in developing Megapoliss tourism offerings. Thisdevelopment plan includes large infrastructure projects, investment and subsidy opportunities for additional restaurantand hotel businesses, and the construction of a large sports/entertainment venue in the coming ten years. IncreasingMegapoliss international reputation and attracting visitors from around the world is the primary goal of the program,but secondary and tertiary goals are local SME economic development and job creation. The various elements of theplan will be fully implemented in the next ten years, with various projects being completed in a phased manner over thecourse of that time as the local government adjusts its budgetary priorities. Facilitator’s Note - The key pieces of information to consider are: • The city’s population • Major industries and types of business • Plans for future development of the cityAfter reviewing the opportunities in your community, you have decided to open your own business. You’ve been doingsome market research on the demand for locally brewed beer in your community and the broader region. You haveconducted interviews with various restaurant owners and beverage distributors, reading market reports from beverageindustry associations, and doing research on the internet. Based on the information you’ve gathered, you have come upwith a general understanding for the beer market in your community and region. Given the number of restaurants, theaverage per capita income, and the diversity of competitors, you have decided to open a beer brewery.Before make any decisions about the size and scope of your brewery, you need to understand a bit more about beer ingeneral. Most beer is brewed using the same process and similar ingredients. The four main ingredients are water, astarch source (such as malted barley), yeast, and a flavoring (such as hops) – the purpose of each is listed below: 1. Water undergoes a multi-stage filtration process to assure purity, quality, and consistency. 2. Malted barley provides the fermentable sugars that add the sweetness to beer. Soaking barley kernels in water, germinating the seeds, drying them in a kiln, and sometimes even roasting them make the malt. There 12
  • 13. are many different types of malts that produce different tasting beers depending on the roasting process and temperature. 3. These two yeast strains also affect the flavor of the brew by imparting a unique fermentation character. Ale yeasts ferment at warmer temperatures and typically ferment faster with a fruity fermentation character. By contrast, lager yeasts ferment at cooler temperatures for a longer period of time and impart savory and complex flavor. 4. A hop is a flower that looks like a little soft pinecone and grows on a long vine. These flowers are almost exclusively used for beer. Hops are to beer what grapes are to wine.The brewing process for most beers follows the same sequence of actions. The main steps of the brewing process aremalting, milling, mashing, lautering, boiling, fermenting, conditioning, filtering, and packaging: 1. Malting - Malting is the process where the barley grain is made ready for brewing. The malting process consists of three stages: steeping, germination and brewing. Together this step takes about seven days to complete. 1. Milling - This is when the grains that are going to be used in a batch of beer are cracked. This step typically takes one day. 2. Mashing is the next step in the process. This process converts the starches released during the malting stage, into sugars that can be fermented. The milled grain is mixed with hot water in a large vessel known as a “mash tun”. In this vessel, the grain and water are mixed together to create a cereal mash. Mashing usually takes half of a day to finish. 3. Lautering - The result of the mashing process is a sugar rich liquid or "wort" (pronounced wert), which is then strained through the bottom of the mash tun. Lautering can be finished in a half-day. 4. Boiling - The wort is moved into a large tank known as a "copper" or kettle where it is boiled with hops and sometimes other ingredients such as herbs or sugars. This stage is where many chemical and technical reactions take place, and where important decisions about the flavor, color, and aroma of the beer are made. The boiling takes about half of a day to complete. At the end of the boil, the hopped wort settles to clarify in a vessel called a "whirlpool", where the more solid particles in the wort are separated out. After the whirlpool, the wort then begins the process of cooling. This is when the wort is transferred rapidly from the whirlpool or brew kettle to a heat exchanger to be cooled. After the wort goes through the heat exchanger, the cooled wort goes into a fermentation tank. 5. Fermenting - When the yeast is added to the wort, the fermenting process begins, where the sugars turn into alcohol, carbon dioxide and other components. Fermentation normally takes about 5 days. 6. Conditioning – This is the process in which the beer ages and the flavor becomes smoother. After conditioning for a week to several months, the beer enters the finishing stage. This is the step with the greatest variability in completion time. You have found that most ales take about three weeks to condition whereas lagers take about 35 days. 7. Filtering - Filtration also helps to stabilize the flavor of the beer. After the beer is filtered, it undergoes carbonation, and is then moved to a holding tank until bottling. These steps usually take one day to complete. 8. Packaging – Once the beer has completed its filtration, it awaits transfer to bottles or kegs, which can be done in half a day.You’ve found that most people in Megapolis consume 80 liters of beer per capita on an annual basis. The populationof Megapolis is 400,000, which translates into total consumer demand of 32 million liters annually for all types of beer.There are three general types of beer consumed in Megapolis: ales, lagers, and stouts. Ales account for the majority ofdemand. In the past five years, revenues from ales have accounted for 85-92% of the total market for beer. Using theestimated beer demand figure of 32,000,000 liters, this would result in 27.2 – 29.44 million liters of ale consumed peryear. The remaining two categories – lagers and stouts – have been about equal in their share of the remainder of themarket. However, you also noticed that the actual selling price (ASP) for lagers and stouts tends to be higher than ales,since both are considered a “premium” product.While there seem to be many reasons for the popularity of ales, interviews with local restaurant and store owners haveinformed you that one of the reasons ales have historically been popular has been the lack of availability for other typesof beer. These business owners seemed to be interested in diversifying their products, but were unsure how consumerswould react. During your research, you held many conversations with friends and family about their attitudes andpreferences towards to beer. Further, many of the market reports you’ve read had interesting statistics from consumer 13
  • 14. surveys and studies. One statistic noted that 90% of beer consumers were very interested in trying new types of beer.Another showed that 50% of consumers are satisfied with the current beer options in the community.Your friends and family affirmed many of the assertions of these market reports, though believed that many peoplewould strongly value beer that was produced locally, regardless of type. Given the size of the ale market, there aremany different producers, though there is no clear market leader and the competition is quite fragmented. Only a fewbreweries, on the other hand, produce lagers and stouts, and their products need to be imported to Megapolis. Overall,your brewery will be a new entrant to the market and it may be difficult to take market share away from marketsegments where there are many existing beer producers. Industry resources have suggested that in highly competitivemarkets, such as that for ale, a new entrant may never control more than 5-8% of the market. However, for burgeoningmarkets where a new or existing product category is growing rapidly and there are few competitors, an aggressive andsavvy producer may build up a much larger share. Facilitator’s Note - The key pieces of information to consider are: • Ales currently dominate the market, though various sources indicate that this might not be to consumer preference but rather due to the lack of supply. • Lagers and stouts are viewed as premium products and are typically sold at higher prices. • Consumers value products that are made locally. • Ales are a highly saturated market, while lager remains undeveloped. There is a greater opportunity for growth in this segment as there is less competition.A number of these market reports also forecast future trends for the beer industry, including growth and marketsegmentation. While much of this analysis is speculative, it is the only information you have about where the beermarket is headed in the next five years. While all the reports agree that, overall, there will not be much growth for thebeer industry in Megapolis, the analysts have very different opinions about how the market segmentation will shift inthe coming years. You found the following graphs in each of the reports: Each report has a different perspective on the direction of the beer market. It appears that lagers and stouts will grow as market categories, though each report’s rate and timeframe differ. Each report defends its conclusions and cites all the assumptions used in creating these forecasts. Since you do not currently have the time or resources to do a market study of your own, you decide to check the credibility of each report source so that you can use the most educated and unbiased data to make your decisions. You find that Company B is actually funded by the National Association of Ale Brewers, which leads you to believe that the opinion of the report might be a little skewed. CompanyC’s report is the most recent, but it only forecasts the market for the next three years. Company A’s report is one yearolder than Company C’s, but was conducted by a regional university’s marketing department to assess consumerpreferences in the beer market. 14
  • 15. The capacity for a microbrewery is typically measured in the annual capacity of liters produced. You have only foundone company that sells beer-brewing equipment, but there is a very limited selection. They have two types ofequipment: one for brewing ales and one for brewing lagers. The maximum amount that can be brewed in a singlebatch with this equipment is 100,000 liters. Based on the differences in the brewing process, you have estimated thetotal time to process a single batch is different for ales and lagers: ales take 37 days and lagers take 51 days (plus oneextra day for cleaning the machines after each cycle). However, since the different steps in the brewing process usedifferent equipment, you are able to start a new batch before the second one is fully finished. Using cycle time analysis,you figure out that an ale machine could produce 15 batches of beer annually (1,500,000 liters) and a lager machinecould produce 9 batches annually (900,000 liters). Using the total demand figure for beer of 32 million liters, one alemachine’s maximum output would account for 4.7% of total beer demand, whereas one lager machine’s output wouldaccount for 2.8% of the total beer demand. However, note that ales and lagers account for vastly different shares of thebeer market. In your calculations, remember that the maximum potential market share captured by an ale machine inthe ale segment or a lager machine in the lager market will be quite different. The total cost for one ale-brewingmachine (including all the necessary equipment) is $150,000; the total cost for a lager-brewing machine is $200,000.You have decided to purchase somewhere between one and five brewing machines. Before you make your purchasingdecision, you should think about what information you have gained from your market reports and what trends youexpect in the coming years. You might not have the opportunity to purchase additional machines for 3-4 years, so it isimportant you that you make a well-informed decision now. Facilitator’s Note - The key pieces of information to consider are: • The students should focus on the biases of the three companies that produced the market reports. • The maximum potential market share captured by an ale or lager machine is calculated as follows: Total Potential Output / Total Demand for the Corresponding Market Segment • In deciding how many machines to purchase, the students should consider 1) how a change in the demand for a particular type of beer would affect the calculation above (market trends), 2) what percentage of demand (market share) a new brewery could reasonably be expected to capture, and 3) the teams will not have an opportunity to purchase additional machinery for a few years so the future of the brewery should be discussed.Now that you have made your brewing machinery purchasing decision, you have to think about what types ofpackaging equipment you need to buy. Based on market reports and personal observation, you have noted that about70% of beer consumption happens in public places, such as restaurants and bars. The remaining 30% occurs privatelyin people’s homes. Public places, like restaurants, tend to purchase beer in the form of kegs and bottles. A keg contains64 liters of beer per unit. A bottle contains ½ liter per unit. Stores, however, do not sell kegs; they only sell bottles andcans. A can contains 1/3 liter per unit. You have noted that different beer vendors usually sell their product in at leasttwo of the three packaging options (kegs, bottles, and cans). Regardless of whether consumers are drinking at arestaurant or purchasing beer at a store, there seems to be a fairly even split between the packaging options available.The same vendor that sold you the brewing machinery has the necessary equipment for each of the three packagingoptions. The keg-packaging equipment costs $30,000, but the equipment for both bottle and can packaging costs$40,000 for either option. You need to decide what packaging options to invest in. Facilitator’s Note - The key pieces of information to consider are: • Restaurants purchase kegs and bottles, whereas stores purchase bottles and cans. Typically, consumers prefer kegs equally to bottles when dining at restaurants and bottles equally to cans when shopping at stores. All three packaging options are important pieces of consumer demand and preference.Now that you know how much machinery you are purchasing, you can decide what size warehouse you will need toproduce your beer. You found one nice location in an industrial part of town. The total available space is more thanenough to accommodate any beer brewery, but the landlord has agreed to rent you only as much space as you need ifyou sign a 10-year lease. You decide this is a great option because it allows you additional space to grow if you purchasemore brewing equipment in the future. The owner of the property has some experience with brewing and has givenyou information on how much space you will need. In order to calculate the total number of square footage necessary,he has broken down your operation into four aspects: general office space, storage of raw materials (the ingredients for 15
  • 16. your beer), floor-space for brewing, and storage of finished goods (packaged kegs, bottles, and cans ready for sale). Theprice per square foot is $5.00. This price will be adjusted annually for inflation.You and the landlord have estimated that you will need 1,000 square feet for office space. For storage of raw materials,the landlord tells you that your storage space will depend on how many liters of beer you could potentially producewith the machines you purchased. The more you can produce, the more space you will need to store ingredients. Interms of floor space for flooring, the equipment vendor said that you would need 1,750 square foot for every brewingmachine purchased. This will be enough for the brewing and packaging of the beer. The landlord and you agree onthis point.The last decision for your warehouse will be how much space you need for storing finished goods. You and thelandlord cannot agree on a specific amount, so you decide to look at how much space your competitors typically use.Much like the logic for how much raw materials storage space is needed, this calculation will depend on how muchbeer you could potentially produce. However, the space needed will also depend on how quickly you can sell anddistribute your beer after it has been packaged. By reviewing the financial statements of other breweries, you decidethat the best way to come up with a decision is to compare the Finished Goods Inventory on their balance sheets totheir production levels. You find that it can range from 2-10%, but that most breweries have 5-8% storage capacity.You need to decide what percentage of your maximum potential production you will use to set the rental fee for thisaspect of your brewery. You do not want to have too little space, because you might have to stop production if youthere is not enough space to store your goods. On the other hand, if you have too much you will be paying for floorspace you don’t need. Facilitator’s Note - The key pieces of information to consider are: • Rent will increase depending on how many brewing machines are purchased and what type they are, since rent is partially tied to maximum potential output and an ale machine can produce more than a lager machine. • For finished goods storage space, the students should focus on the average range of most other breweries.Now that you have decided how much you are investing in machinery and your estimated annual rental cost, youshould start thinking about how much financial capital you will need to get your brewery started.In addition to the capital investment and rental expense, there are other costs and factors to consider. First, you shouldconsider that most new businesses do not make a financial profit for the first few years of operation. In other words,your business will probably be cash flow negative in the near future. Second, there are additional costs that yourbusiness will incur. During the next year, you will be focused on constructing the brewery and ensuring that all themachinery is functional. You have determined that you can do all this work yourself, so yours will be the only salaryexpense during the first year. You do not expect to produce or sell any beer in the first year. However, you will beginproduction next year, which will require you to build up a full-time staff as your production volume grows. There arealso other expenses that will be minimal in the first year, but will grow as time passes and you begin production. Theseinclude utilities (gas, electricity, water, phone, internet), fuel expense (for distributing the finished beer to yourcustomers), marketing expense, product development expense, promotional activities expenses, and communitydevelopment expense. You also plan to invest $50,000 this year in general office equipment such as computers andfurniture. Facilitator’s Note - The key pieces of information to consider are: • Students should determine the amount of financing needed by taking the sum of 1) total cost of brewing machines, 2) total cost of packaging machinery, 3) annual rental expense (for at least two years), 4) an estimate of other general operating expenses (for at least two years), and 5) the $50,000 being used for general office equipment. • As the brewery will not be operational in the first year, the students should consider the impact of no cash flow from sales until the second year of the game. It is common for a new business to have a net operating loss for the first few years of operation, which should also be considered in the decision-making process.Now you must decide how much and what mix of debt and equity financing you will pursue to fund your brewery untilyou begin making a profit. You have spoken to your local bank about debt financing options. The bank has agreed to 16
  • 17. let you borrow up to $2,000,000 in the form of a long-term loan. However, the amount borrowed will affect theinterest rate and how quickly you must pay back the loan. As the amount increases, there is more risk to the bank thatyou and your business might not be able to pay back the loan. The interest rate for your long-term loan may rangeanywhere from 8-14%, depending on the amount you decide to borrow. Additionally, since you have significant ties tothe community and personal assets to serve as collateral, the bank has agreed to supply you with a line of credit. Thisline of credit has much higher interest rates (up to 22%) so you decide that this will be your emergency source offunding in the event that you run out of money from other sources.In addition to these debt options, you have gathered the financial support of your friends and family. Along with yourpersonal savings, you have been able to gather commitments to invest up to $1,500,000 in your business. While there isno interest expense for this type of equity financing, you give up some control of your business by having manyinvestors. Investors expect to have a vote in the direction of your business since it was their money that helped start it.Since these investors are mostly close friends and family, you don’t expect there to be too much trouble but it issomething you should be aware of.First, you need to estimate your total financing need. It is always nice to have extra cash around, but there can also beproblems with raising too much capital for a new business. If you take on too much debt, you will be paying moreinterest expense that you need to. If you take on too much equity, you might have people trying to manage yourbusiness or take it in a different strategic direction. However, no business can succeed without financial resources, soyou also want to make sure you have enough cash to get you through the next few years until you will hopefully bemaking a financial profit.After you have figured out how much cash you need, the next step is think about what mix of debt and equity you aregoing to use. You decide to analyze the financial statements of other breweries to see what their financing strategy hasbeen. By looking at their balance sheets, you can see how much debt financing each brewery has compared to howmuch equity financing they have used. Using the relationship of debt financing to equity financing in the most recentyear, you find that, on average, most brewers have about $0.50 of debt for every $1.00 of equity financing. For eachbrewery you analyzed, you also decide to look at their past financial records (last five years) to see if this same ratio wasfollowed. You have found that for every $1.00 of equity capital, other breweries have had anywhere from $0.30 - $0.80of debt financing. While there seems to be some variability, looking at the trends of your competitors helps give you anidea of what financing strategy you should use for your brewery. You decide that you should use a mix of debt andequity capital to fund your brewery, but need to decide how much of each is the appropriate amount. Facilitator’s Note - The key pieces of information to consider are: • Based on the amount of financing necessary for each team (see previous Facilitator’s Note), the teams have the opportunity to use a combination of a long-term loan (maximum amount of $2,000,000) and equity (maximum amount of $1,500,000). • Teams should consider the debt-to-equity ratio of the peer group in deciding how much debt and equity to use for their businesses. • While it might seem like the best option to take the maximum amount of debt and/or equity, excessive financing places undue strain on the business. Extra debt will need to be paid back and, if it was never used, the teams will still have paid interest for its use. Extra equity will reduce Earnings Per Share, which is a measurement of how much each investor receives for contributing capital to the business. • There is an emergency line of credit that has very high interest rates and is only used in circumstances where a team’s business has a negative cash balance. The students cannot elect to use this line of credit on their own and it should be viewed as a penalty for failing to properly forecast the cash needs of the business. 17
  • 18. YEAR TWO: MARKET SUMMARYDecision Points To Be Completed In This Round: • Production Capacity: total cycles run for each brewing machine • Packaging Allocation: amount of output packaged as kegs, bottles, and/or cans • Amount spent on Marketing, Product Development, Promotional Activities, and Community DevelopmentSuggested Training Courses To Include: • Market Research • Simple Forecasting • Introduction to Managerial Economics • Placement and Promotion • Microsoft Excel 2: Data Entry • Microsoft Word 1: Word BasicsMarket Information Included in Business Simulator and Facilitator Notes:For the past year, you have been very busy purchasing and installing equipment, getting the necessary licenses andcertifications to operate a brewery, and fine-tuning the brewing process. With everything in place, you are now ready tostart producing and selling your beer. Entering the beer market as a new competitor will require a very sound strategicplan. There are many variables to consider and decisions to make, including pricing levels, staffing, production volume,and many others. For this year, many of your friends have offered to be your staff and you have agreed to pay themmarket rates in return for their service. Since many first-year businesses face considerably volatility, having your friendsserve as your scalable work force seems like a smart option.You first decide that your strategy should be focused on understanding your competitors. You decide to create twocompetitor matrices: one for the ale market and one for the lager market. You take into account the selling price ofcompetitors’ beer, the relative quality, and their total sales in each particular segments (based on their financialstatements for the previous year). In the graphs below, each circle represents a different competitor. The size of thecircle represents each competitors’ revenues from the previous year relative the rest of the competition; larger circlesrepresent companies with more sales than the others. The vertical axis represents the relative price of the beer; thelower the circle, the lower the actual selling price of that company’s product. The horizontal axis represents the relativequality of the beer; the circles towards the left of the chart are considered low quality, whereas those to the right areconsidered high quality. In developing your strategy for entering the market, you should focus on a combination ofprice and quality that does not strongly overlap with any particular competitor. Based on these charts, it appears thatthere would be an opportunity for a medium-quality, medium-priced ale and either a high-quality, medium-priced lager. Competitive Matrix: Ale Market Competitive Matrix: Lager Market Facilitator’s Note - The key pieces of information to consider are: • The charts above are meant to draw attention to the best points market entry for a new brewer. In the ale category, the best strategy is to brew a medium-quality, medium-priced ale. In the lager category, the best strategy is a high-quality, medium-priced lager. These are the best strategies due to the lack of primary competition for similar products, as illustrated in the charts above.You also did some research on the relative price ranges for ales and lagers across the three packaging types (kegs, cans,and bottles). Note that these prices reflect the amount paid by restaurants, bars, stores, and supermarkets to beer 18
  • 19. producers. Recall that a keg holds 64 liters of beer, a bottle holds one half of a liter, and a can holds one third. Since it would be hard to compare the price of a keg to that of a can, you decide to look at the price range for each category on a per-liter basis. Kegs seem to have the lowest per- liter selling price, which seems reasonable since purchasers of kegs naturally pay for a higher quantity of beer. Cans have the most expensive price per liter. Further, it appears that most lagers sell at a premium to ales and have a slightly wider pricerange. Last year, 32 million liters of beer were consumed in Megapolis. Given the prices and quantities noted above,you estimate that the total market for beer was $30.0 - $57.6 million last year, depending on what mix of kegs, bottles,and cans were sold and at what price point for each.Of the 32 million liters of beer consumed last year, sources indicate that 90% were ales, 5% were lagers, and 5% werestouts. If these sources are correct, then 28.8 million liters of ale, 1.6 million liters of lager, and 1.6 million liters ofstout were purchased and consumed last year. You remember that the market reports you purchased last yearsuggested that the market would begin to shift towards the consumption of lagers and stouts, but at what rate and overwhat length of time you do not know. However, you can be fairly confident that there will be less than 28.8 millionliters of ale consumed this year, with the difference leading to an increase in the lager and stout market segments.As you get ready to enter the market, perhaps one of the most important things to do is prepare a production forecast.This implies determining how many liters of beer you are going to produce, which is determined by how many cyclesper machine will be run during the year. In order to develop your production forecast, you decide to create best-caseand worst-case scenarios in terms of market share for a new brewer. The two factors you focus on the most are theamount of competition and the overall growth prospects for each market category. You have found that there aremany competing producers of ale, which can be expected given the fact that ales have dominated the beer market formany years. While there are many competitors, there is no clear leader; the largest producer controls only 20% of themarket. You consider this to be positive, since it would be much more difficult to penetrate the market if onecompetitor controlled upwards of 50% of the total supply. However, market forecasts suggest there is little room forgrowth in the ale market (beyond the inflation rate). In fact, all the reports suggested a decline in ale consumption overthe next ten years. Conversely, the lager market is much less competition and higher prospects for growth.Each one of your beer machines can brew 100,000 liters per cycle. If demand for beer in the coming year were toremain at 32 million liters, 100,000 liters would represent 0.3% of the market. After running some different forecastmodels, you believe that you could expect to capture 2-6% of the ale market and 5-11% of the lager market. However,your penetration rate will depend on how skillful you are marketing and promoting your product, how well youforecast consumer preference for packaging, and the way the overall beer market goes with respect to ales, lagers, andstouts. You need to decide which machines you are going to run this year and how many cycles would need to bebrewed to represent a reasonable market share for your products. Facilitator’s Note - The key pieces of information to consider are: • Ales accounted for 90% of consumer demand last year, but are going to shrink overall in the coming year. Lagers are going to continue to grow as a market category. • When teams decide how many cycles to run for each machine, they should consider how much of the market would be captured by producing that much beer. For example, if a team produces 3,000,000 liters of ale, this might equate to over 10% of the market. It is highly unlikely that a new brewery could capture that much of the market in the first year of operations. The information states that a new brewer could expect to capture 2-6% of the ale market and 5-11% of the lager market, depending on how accurate other decisions are made. Teams should use this market-based approach towards their production planning. 19
  • 20. Once you have determined how much beer will be produced in the coming year, it is time to decide on the split between packaging options. Your local Chamber of Commerce recently reported that citizens of Megapolis continue to enjoy a reasonably high standard of living and tend to eat out at restaurants and bars frequently. As you were doing some research on the internet, you came across the following chart that illustrates the breakdown of consumer purchasing patterns depending on where they consumed beer. Though it is a few years old, the report seems to be from a good source and you have no reason to believe that there have been any dramatic changes in consumer behavior since then.From your own experience as a consumer, your preferences run similar to the chart above with one exception: youtend to prefer lagers from a keg or bottle, rather than a can. You read in a beer trade magazine that the aluminum incan packaging does not keep lager’s freshness as well as kegs and bottles. As a result, lager from cans tends to taste verydifferent than the same lager from kegs or bottles. There is no discernable difference in the taste of ales between kegs,cans, and bottles, though. This leads you to believe that the chart above might serve as a good starting point fordeciding on how to package your beer.One aspect you need to consider is that you are a new competitor in the market and consumers will not be familiarwith your beer. You need to think of every way possible to increase the amount of exposure to your product. Whilesupermarkets and stores do have customer at all hours of the day, not all of them will pass by the beer section. Theirstaffs are also unlikely to promote your product themselves since they do not benefit by doing so. Further, most peoplego to supermarkets already knowing what it is they are going to purchase, which reduces the probability of thempurchasing a product they are not familiar with. Aside from supermarkets and stores, the other large purchasing groupsfor beer are restaurants and bars. If you were to sell your product to restaurants and kegs at a slightly reduced price, ordiscount, the managers and staff might try harder to sell your product to patrons. Based on the data above, you need todecide how you will divide your beer output between kegs, bottles, and/or cans. Facilitator’s Note - The key pieces of information to consider are: • Overall, the chart shows that keg packaging accounts for 47% of consumer demand, bottles account for 41%, and cans account for 12%. Note that this is for the beer market in general and that the preferences for ales or lagers will differ. However, since ales have dominated the market over the past few years, the chart is an accurate depiction of ale preferences. • Consumers typically prefer to drink lagers out of a keg or bottle, rather than a can.While certain expenses, such as rent and staffing, are dependent on how much beer you are producing, there are otherexpense categories that are at your discretion. These include Marketing, Product Development, Promotional Activities,and Community Development. Marketing expense and Promotion Activities includes actions related to advertisingyour product, including website development, print advertisements, television commercials, etc. as well as specialevents, contests, and prizes that provide incentives for customers to try your product. For a new beer competitor,marketing is very important since it aids consumer awareness for your product.Product Development expense determines how much you spend on experimenting with the brewing process todevelop a better-tasting beer. It may happen that consumers do not like the exact type of beer you brew, due to thetypes of levels of ingredients used. An investment in Product Development will help tailor your beer to suit customers’preferences and ensure the highest-quality beer relative your capabilities. Since you do not have any direct consumerfeedback yet as it is your first year brewing, you think this might be an important expense.Community Development expense is related to how much you give back to the citizens of Megapolis throughcommunity improvement projects and donations to local charitable organizations. It is important to help yourcommunity and it also serves to create a positive reputation for your business as being socially responsible. 20
  • 21. Since these expenses should be set at a level that corresponds with the size of your business, you think each expensecategory should be tied to the forecasted revenue for the coming year. You need to decide the percentage of forecastedsales you will spend in each of these four areas. Facilitator’s Note - The key pieces of information to consider are: • In a brewery’s first year of operations, Marketing, Product Development, and Promotional Activities are all very important to increase awareness about the business and improve the product. • Community Development is important, but more substantial contributions can be made once a brewery has starting producing net operating profits on a consistent basis, typically a few years in the future. YEAR THREE: MARKET SUMMARYDecision Points To Be Completed In This Round: • Production Capacity: total cycles run for each brewing machine • Packaging Allocation: amount of output packaged as kegs, bottles, and/or cans • Amount spent on Marketing, Product Development, Promotional Activities, and Community Development • Human Resources Management: staffing levels for each position • Asset-Based Financing: amount borrowed through a short-term debt optionSuggested Training Courses To Include: • Managing People • Brands • Basic Finance: Understanding the Profit and Loss Statement • Supply Chain Management • Microsoft Word 2: Advanced Formatting • Microsoft PowerPoint 2: Slide DesignMarket Information Included in Business Simulator and Facilitator Notes:As part of your annual production planning process, you need to look at how your brewery’s performance last yearfared relative your expectations. If there were wide variances between your forecast and your actual results, were theyrelated to a particular category, packaging type, or something else? To better hone the accuracy of your forecast thisyear, you decide to focus on two things: your estimated market share versus your competition and changes in marketsegmentation. With respect to the market share you captured in your first year of operations, being a new competitor inthe market had as many benefits as it did challenges. From a competitive standpoint, other brewers had not anticipatedyour entrance into the market and had no defensive tactics prepared to market their products against yours. From aconsumer’s standpoint, it is always exciting to try something new. However, the future will be much more challenging:competitors, many of whom are larger and have more resources, are ready to compete against you directly and thenovelty of your products for consumers is probably starting to wane. Because of these factors, it will be morechallenging to capture additional market share in the coming years. However, if your production forecast accuratelyand your packaging decisions effectively match consumer preference, it might be possible to increase your marketshare by 30 – 50% over last year since you are a small, fast-growing brewery. Facilitator’s Note - The key pieces of information to consider are: • Students should be encouraged to study their Balanced Scorecard and compare major differences between their planned production and their actual results. • Year 2 was the first year of product sales. Students should not expect that sales would continue to increase at the same pace.You recently purchased a new research report, which gave you some good information about consumer trends overthe last two years. The following chart shows that lagers and stouts accounted for 17% of consumer demand last year,which was a 70% increase over the previous year. The report gave a number of potential reasons for the significantdecrease in ale consumption, including a growing change in consumer preferences, a series of bad weather that ruinedthe crops for ale ingredients, and a significant merger between the two largest ale manufacturers that may have led toan interruption in supply. It is unclear how these factors might influence next year’s demand, or which factoraccounted for the bulk of the change. This report also highlighted the fact that the citizens of Megapolis are starting to 21
  • 22. consume more beer and drinking less wine. This has led to an increase in annual per capita consumption of beer from80 liters to 82 liters. With a population of 400,000, this would lead to total forecasted demand for beer of around 32.8million liters in the coming year. Facilitator’s Note - The key pieces of information to consider are: • Lagers and Stouts increased their market share by 5.0% and 2.0%, respectively. • Growth in lagers should be paid attention to. • Population growth will lead to increased consumption of beer.You have begun to notice certain changes around Megapolis, including the construction of many new houses andincreased traffic around the parts of town where thetechnology companies are located. This is usually asign that developers are expecting an influx of newresidents. As people come to tour the area, theyoften stop at restaurants and bars for a break. Youbelieve that this might lead to increasedconsumption of kegs to meet the growing consumerdemand. Based on your internal forecasting, you feelthe following chart might be a good representationof consumer packaging preference for the comingyear. However, there may be slight differencesbetween ales and lagers. Based on this data, youneed to decide how you will divide your beer outputbetween kegs, bottles, and/or cans. Facilitator’s Note - The key pieces of information to consider are: • Consumer preference for kegs is increasing due to increased travel to restaurants and bars. • Community population is poised for growth.As your brewery expends its operations and production volume grows, it is time to start thinking about what kind ofstaff you will need. In general, the types of roles necessary to operate a small brewery can be divided into threecategories: executive management, sales and marketing, and the brewing staff.The only potential addition to the executive management team would be a Chief Financial Officer (CFO). Theresponsibilities of the Chief Financial Officer include: developing the annual financial plan, providing internal andexternal financial reporting, preparing and filing tax reports, general office accounting, and providing the ChiefExecutive Officer with general advice about the financial health of the business. Typically, a CFO is hired when abrewery’s operations grow to a point where it is too difficult for the Chief Executive Officer to operate both the 22
  • 23. strategic and financial sides of the business. This usually occurs when annual sales of a brewery reach somewherebetween $1,000,000 – $1,500,000.The sales and marketing staff will consist of a Head of Marketing, a Customer Service Manager, and salesrepresentatives. Similar to the CFO position, a Head of Marketing and Customer Service Manager are typically hiredonce the business grows to a certain size. To maintain positive sales growth, marketing activities need to be conductedeffectively and intelligently. Both of these positions report to the Chief Executive Officer. Often, increased sales leadto a larger customer base, which requires more direct interaction and attention from the company. The Head ofMarketing is usually hired around the same time as a CFO, while a Customer Service Manager is hired once annualsales reach $3,500,000 - $5,000,000. Sales representatives are needed to build and maintain good relationships with your Facilitator’s Note - The key pieces of information to consider are: • Many hiring decisions are tied to the size and growth of a business. Each hiring decision in the game has specific metrics that should help the teams make their hiring decisions. Teams should use their forecasted operating results to make hiring decisions. • Key Factor for a Chief Financial Officer (CFO): Forecasted Sales • Key Factor for a Customer Service Manager: Forecasted Sales • Key Factor for Sales Representatives: Forecasted Salescustomers. The sales force will increase as the brewery grows. Most experienced sales representatives can handle clientrelationships with a total annual purchasing power to lead to $2,500,000 - $4,000,000 in revenues for the brewery.The brewing staff is the largest portion of your workforce and includes seven types of positions: brewing managers,assistant brewing managers, a Quality Control Specialist, beer brewers, beer packagers, truck drivers for beerdistribution, and a cleaning staff. As opposed to the other parts of the staff, the main driver for these positions is thequantity of beer produced annually. For the beer brewers, packagers, drivers, and cleaners, an easy way to approximatehiring needs is to look at how many cycles of beer you plan to produce. These are collectively called the generallaborers. The number of managers and assistant managers will depend on how many general laborers you have. It isimportant to note that managers often have all the skills necessary to be a brewer, packager, or cleaner and can assist inthese roles when needed if production volume is not high enough to warrant the hiring someone for one of thesespecific positions.On average, brewers and packagers work a maximum of 1,000 hours per year. In order to estimate the number ofbrewers and packagers needed, you must look at the brewing process flow chart to figure out how much labor isnecessary to brew one batch of beer. The second step is to convert the number of days into hours, assuming that eachday equates to eight hours of work. Recall that your managers will have likely been trained as brewers and at lowerproduction volumes can handle the brewing process themselves. However, packaging is a necessary step that requiressomeone to perform the function whether you brew one batch or a hundred. The necessity for drivers is related to theannual distribution capacity of a truck. On average, a truck can handle 30 deliveries per month and is able to transport5,000 liters of packaged beer per trip. You need at least one driver for each truck. Cleaners are responsible forsanitizing the brewing equipment after each cycle, though the brewers themselves can sometimes complete thisfunction. Once annual cycles reach 25-30, it is probably time to hire a separate cleaner. Facilitator’s Note - The key pieces of information to consider are: • For gathering key information for the brewing staff positions, teams should go back to the information related to the beer brewing process included in Year 1. Each step in the brewing process takes a certain number of days. There are eight work hours in one day, so the teams should take the total number of days and multiply it by eight to calculate how many hours of work are needed to brew one cycle. • Key Factor for a Brewer: Total Hours of Work Relative Number of Cycles Run (Hint: A Manager can perform this function for a small brewery) • Key Factor for a Packager: Total Hours of Work Relative Number of Cycles Run (Hint: Teams need at least one once production begins) • Key Factor for a Driver: Total Liters Produced Relative Capacity of One Truck (Hint: Teams need at least one once production begins) • Key Factor for a Cleaner: Total Cycles Run 23
  • 24. The number of managers and assistant managers will depend on how many brewers, packagers, drivers, and cleanersyou decide to hire. One manager is often capable of overseeing 4 - 7 employees. One assistant manager is often neededonce the number of general laborers reaches 9 – 12 so that they can help the manager with the administrative Facilitator’s Note - The key pieces of information to consider are: • Key Factor for a Manager: Size of Brewing Staff (Total Number of Brewers, Packagers, Drivers, and Cleaners) • Key Factor for an Assistant Manager: Size of Brewing Staff (Total Number of Brewers, Packagers, Drivers, and Cleaners)workload. A Quality Control Specialist does not manage any people, but is responsible for ensuring that the brewingprocess meets industry standards, uses quality ingredients, and that each batch is consistent in terms of taste. Once theproduction level reaches a point where a brewer needs to be hired, it is probably prudent to hire a Quality ControlSpecialist. Each year after you’ve completed your production forecast, you need to decide how many people to hireacross these 11 positions.Similar to the previous year, Marketing, Product Development, Promotional Activities, and Community Developmentare all discretionary expenses for your business. You should consider a few factors that may impact your business inthe coming year before deciding how much to spend in these categories. First, you will likely face increasedcompetition from other breweries. Second, if there are more people eating out at restaurants and bars, there is anincreased opportunity to raise awareness about your product. Third, depending on how well your brewery performedlast year, consumers may be content with your beer quality, though improvements are always welcomed. Finally,community development will never cease to be important; to the extent that other categories are changed, any cashsavings could be redeployed to serving Megapolis.Your bank has approached you to discuss short-term financing options to help your brewery grow. Now that you haveone year of successful production and sales, you have proved to the bank that you operate a sustainable business. Thebank has offered you an asset-based line of credit to help with short-term financing needs. With positive sales, you nowhave assets such as Accounts Receivable, Finished Goods Inventory, and Equipment. The bank will use these assets ascollateral for your line of credit, if you decide to use it. Like many lines of credit, the bank sets the limit you mayborrow under the line of credit by looking at the discounted value of these assets from your latest financial statements. Facilitator’s Note - The key pieces of information to consider are: • Marketing and Promotional Activities are very important. • Product Development is less important than Marketing and Promotional Activities. • Community Development is less important than Product Development, but should be increased every year.The bank discounts their book value to protect itself in the case that it must sell off these assets to pay back its loan inthe event that your business fails. Because this financing is considered short-term and is collateralized by specific assets,the interest rates are relatively low. If you borrow less than 50% of the maximum amount, the annual interest rate is3.50%; if you borrow more, the rate is 6.50%. The bank has told you that it will keep this line of credit open for yourbusiness for the next five years at these rates. You need to decide if you are going to use this financing option this yearand, if so, how much you will borrow. Facilitator’s Note - The key pieces of information to consider are: • The asset-based line of credit is a cheaper financing option than the emergency line of credit outlined in Year 1, since its amount is based on a discounted value of each team’s operating assets: Accounts Receivable, Inventory, and Property, Plant, and Equipment. This can be viewed as a short-term financing options for the teams in the case that additional cash is needed. 24
  • 25. YEAR FOUR: MARKET SUMMARYDecision Points To Be Completed In This Round: • Machinery Acquisition: number and type of “brewing machine sets” to purchase (if less than 5 purchased in Year 1) • Packaging Acquisition: type of packaging machinery to purchase (keg, bottle, and/or can) (if not purchased in Year 1) • Finished Goods Storage: investment in inventory storage area based on a percentage of annual output • Production Capacity: total cycles run for each brewing machine • Packaging Allocation: amount of output packaged as kegs, bottles, and/or cans • Amount spent on Marketing, Product Development, Promotional Activities, and Community Development • Human Resources Management: staffing levels for each position • Asset-Based Financing: amount borrowed through a short-term debt option • Financing: amount borrowed through long-term debtSuggested Training Courses To Include: • Understanding the Balance Sheet and Key Financial Ratios • Working Capital Management • Strategic Planning • Customer Relationship Management • Microsoft Excel 3: Data Analysis • Microsoft Word 3: Enhancing DocumentsMarket Information Included in Business Simulator and Facilitator Notes:Last year, 32.8 million liters of beer were consumed in Megapolis. Lagers and stouts accounted for 33% of the totalconsumption, with ales accounting for 67%. While one ale machine run at full capacity (1.5 million liters) couldaccount for up to 5.2% of the total demand three years ago (28.8 million liters of ale consumed), due to the changes inconsumer demand this same capacity would have accounted for 6.8% last year (22 million liters of ale consumed).More drastically, a lager machines maximum production capacity (900,000 liters per year) would have accounted forover 56% of total demand three years ago (1.6 million liters of lager consumed), but only 12% last year (7.5 millionliters of lager consumed). The following graphs illustrate these differences:As your business continues to grow, you are considering purchasing additional brewing and packaging equipment. Inyour current warehouse, you have the space to hold up to five brewing machines. You have approached the samevendor that you did three years ago and have been told that a large quantity of both ale and lager brewing equipmentsare available. Since you are a repeat customer, the vendor is offering you the same price per machine: $100,000. Thecapacity of each machine is the same: 100,000 liters per cycle. If you have the capacity to purchase additional machines,you should again consider the current demand levels for lagers and ales and the overall annual beer consumption.Before deciding if and what machines to purchase, you should read the information included in the ProductionVolume section. Note that an increase in machinery will also lead to an increase in rent, since you will have to pay forthe additional floor space. In addition to brewing equipment, the vendor has also asked about your packagingequipment. If you are not already packaging kegs, bottles, and cans, you have the opportunity now to purchase thenecessary equipment. The prices are the same as they were in Year 1. 25
  • 26. Megapolis is continuing to change for the better. You have heard that the community is predicted to become atechnological center for the region. Further, the city hall recently approved a three-year project to create a new andlarger highway to make it easier for people to commute to Megapolis for work and to increase trade in the region. Withthis momentum, the newspaper recently wrote an article suggested that the population of Megapolis could grow 5 –8% over the next few years and continued increase in per capita income. This would lead to overall growth in the beermarket, which could lead to increased sales for all breweries even if market shares remained constant.While the beer market may be growing overall, there are some interesting changes in the market segmentation. In Year3, lagers grew to account for 23% of the beer market. For the most recent two-year period, this represents over 350%growth for this market segment. Stouts have also continued to grow, though at a more tempered pace than lagers.Reporters have begun to ask probing questions of ale brewers about the unexpected growth in demand for these twocategories. Some ale producers call it only a temporary change and that consumers will soon revert back to aleconsumption. Other ale producers are building out lager brewing capacity to expand their product lines, indicating along-term belief in lagers as a significant revenue opportunity. Facilitator’s Note - The key pieces of information to consider are: • Students should focus on how the maximum potential market share captured by an ale or lager machine has changed since Year 1. As a reminder, the calculation is as follows: Total Potential Output / Total Demand for the Corresponding Market Segment • Students have an opportunity to purchase additional brewing and packaging machinery. There is a maximum of five brewing machines (students elect whether these are ale or lager) and three potential packaging options. Students should be encouraged to think about how their business might grow over the next three years and if the capacity of their brewery can meet consumer demand. • Population growth will lead to an increase in beer consumption. • Lager is a rapidly growing market category that is quickly displacing ales. • Competitors are beginning to expand their capabilities to brew lagers, which further signals potential future growth in the lager category.At the request of your staff, you purchased three new market reports from the same companies you had when youstarted your brewery. While none of the companies predict the market segmentation returning to historic levels, theydo not agree on how quickly the segments willcontinue to shift. Company A forecasts anotherlarge increase for lagers, while Company BandCompany C suggest more modest changes in thecoming year. The following chart illustrates theirforecasts.Regardless of how quickly the lager market grows,the shrinking ale market means that all the existingale producers will be fiercely competitive tomaintain their share of the market. Given itsfragmentation, existing ale brewers can expect tohold 5-8% of the market. Further, there will beincreased competition in the lager market, as otherbreweries expand their capacities to include lager brewing. Market sources suggest that breweries that have alreadybeen producing lager for a few years will be much better situated to continue capturing market share. Depending onyour position in the market during the previous year, you may be able to capture up to 14% of the market. Taking intoaccount this information and your decision regarding new machinery purchasing, you need to prepare your productionforecast for this year. Facilitator’s Note - The key pieces of information to consider are: • The students should refer back to the information in Year 1 and think about the sources of information for the three company’s supplying information for the chart above. In reviewing the charts in Year 1, which of the three companies predictions were closest to what actually occurred? 26
  • 27. As the technology companies have begun to thrive, many of their employees have experienced pay raises. This has ledto an increased tendency to dine out at restaurants and bars, which is also leading to the construction of newrestaurants and bars in anticipation of continued demand. While this shifts the overall location of beer consumption,trends noted in previous years concerning packaging type relative type of beer are remaining somewhat static. Usingthe data below to predict consumer preference in the coming year – and keeping in mind the preference to drink lagersfrom a keg or bottle rather than a can – you need to decide on how you will package your produced beer this year.When you notified your landlord of the possibility of purchasing additional machinery, he brought up the possibility ofadjusted your Finished Goods Storage Space. Recall that this is based on a percentage of your maximum annual output.You can decide to leave the percentage the same as your initial decision or adjust if you feel you have too much or toolittle space. Facilitator’s Note - The key pieces of information to consider are: • Beer consumption is increasingly occurring in restaurants and bars, making kegs and bottles the more typical packaging option. • If students experienced any Inventory Spoilage in Years 1 – 3, they should evaluate whether they have sufficient finished goods storage space.You continue to have the option to utilize your short-term, asset-based line of credit that the bank offered you lastyear. If you decide not to use the line of credit this year, you will have to pay back whatever you used last year.However, you will not have to pay any interest expense. On the other hand, if you foresee some financing needs foryour business, this line of credit is a relatively cheap way of funding new opportunities.As you are considering a capital investment, you have also approached your bank again about taking on additionallong-term debt. Based on the success of your brewery over the past few years, they have again given you the change toborrow up to $2,000,000. The interest rate on the loan will depend on two factors: the amount withdrawn and howmuch your brewery has had to rely on the emergency line of credit the bank provided you when you first opened yourbrewery. The lowest available interest rate is 5.00%, with premiums added depending on these two factors. You needto decide if you would like to take on additional long-term debt and, if so, the amount. Facilitator’s Note - The key pieces of information to consider are: • In addition to the asset-based line of credit, students can elect to take out another long-term loan from the bank (maximum of $2,000,000). This might be a good option if a team needs to purchase significant amounts of new machinery in this round.Given the rapidly changing market segmentation and the increased likelihood of heightened competition from otherbreweries, activities that help raise awareness about your product will help to retain your existing customer base andalso serve to attract new customers. At this point in your business’s life cycle, Product Development is still important,but it is secondary to marketing and promotional activities. Community Development should always be a focus for an 27
  • 28. organization, especially once the business is profitable. As your business grows, so will your staff. Please review theinformation included in Year 3 to make your staffing decisions for this year. Facilitator’s Note - The key pieces of information to consider are: • Marketing and Promotional Activities should remain high. • Any decreases in Product Development should be offset by increases in Community Development. • Students should refer to the information in Year 3 to make this round’s hiring decisions. YEAR FIVE: MARKET SUMMARYDecision Points To Be Completed In This Round: • Production Capacity: total cycles run for each brewing machine • Packaging Allocation: amount of output packaged as kegs, bottles, and/or cans • Pricing: select the actual selling price for what products are manufactured • Ingredient Quality: the quality of ingredients used in what products are manufactured (low, medium, or high) • Asset-Based Financing: amount borrowed through a short-term debt option • Amount spent on Marketing, Product Development, Promotional Activities, and Community Development • Human Resources Management: staffing levels for each positionSuggested Training Courses To Include: • Ethics and Corporate Social Responsibility • Competitive Analysis • Analyzing Cash Flow • Economics: Understanding Market Types and Market Influences • Microsoft Excel 4: Report Generation • Microsoft Word 4: Further FunctionsMarket Information Included in Business Simulator and Facilitator Notes:The population of Megapolis grew 5.00% last year, bringing the total number of inhabitants to 420,000. Further, giventhe rising prominence of the technological firms, per capita income increased. This led to an increase in beer demand:35,280,000 liters of beer were consumed last year. The market has continued to tilt in favor of lagers and stouts. Lastyear, one in three beer purchases was a lager, with almost 12 million liters consumed. Stout demand topped 3 millionliters, while ale demand reduced by 1.8 million liters to 20.1 million liters.For the past four years, the average annual growth rate for lagers has been 98%, meaning that the lager market hasnearly doubled every year. The ale market,conversely, have shrunk at an average rate of 11%every year. The market for stouts has been mixed,increasing in most years but declining last year.There is longer denying the strength of the lagermarket and the fact that there has been, and maycontinue to be, a significant change in consumerpreference. Over the next two years, lagers areexpected to continue to grow, though it isimpossible that the category would continue todouble its size every year. Most research reportshave stated that the Stouts category will remainmostly flat, but that ales and lagers could evenchange places as the leading market segment.Based on last year’s demand levels, an ale machine run at full capacity would have accounted for 7.5% of the ale marketdemand. Similarly, a lager machine run at full capacity would have accounted for 7.5% of lager demand. These are starkdifferences from what one ale or lager machine would have accounted for in the market environment just a few yearsago. If lager demand continues to increase and ale demand decrease, what percentage of demand these machines couldaccount for will continue to shift. If lager demand were to increase by just 15%, the maximum capacity of one lager 28
  • 29. machine would equate to 6.5% of total demand, rather than 7.5%. Assuming this increase came at the expense of aledemand, one ale machine could potentially capture 8.2% of the total demand.Depending on how well your pricing and packaging strategies match consumer demand, it is possible that you couldincrease your market share in the lager category by 2-5%. However, as the ale market is shrinking and existingbreweries are becoming increasingly competitive, you may not have much room to grow in this category. Given theheightened competition, pricing will be a very important factor to consider. Facilitator’s Note - The key pieces of information to consider are: • Population growth leads to increased beer consumption. • Lager should be considered a high-growth market category that could become the dominant segment. • During the production planning process, students should consider what percentage of consumer demand would be captured according to their forecasts. Using this percentage (total liters produced / total liters of demand), the students should evaluate the feasibility of their forecast.In terms of packaging preference, there are two important facts to consider. One, with an increasing per capita income,many residents of Megapolis are tending to eat out more often, thus pushing up demand from restaurants and bars.Two, residents of Megapolis are becoming more conscience of how they treat the environment. People are recyclingmore, which led to the opening of an aluminum recycling plant on the edge of town. Aluminum is the main input forbeer can packaging. Since aluminum can now be easily recycled, patrons of supermarkets are started to purchase morecans than bottles. This awareness for protecting the environment is also spreading to restaurants and bars, which haveshown the ecological benefits of drinking beer from a keg rather than a bottle, since it reduces the overall amount ofgarbage. The consumer preference trends can be observed in the following charts.In the coming year, you have decided to take a closer inspection of the pricing of your products and the quality ofingredients used in your manufacturing process. Based on the competitive matrix in Year 2, you decided that amedium-priced ale with medium-quality ingredients and a medium-priced lager with high-quality ingredients were thebest products to ensure maximum market penetration. Facilitator’s Note - The key pieces of information to consider are: • Due to increased beer consumption at restaurants and the opening of an aluminum recycling plant, kegs and cans are becoming the preferred packaging options. • Prior to this round of the game, medium-quality ingredients were used in manufacturing ales and high-quality ingredients were used for lagers. The students will have the option to change the ingredient quality in this round, but should consider the potential negative impacts a change in product quality might have on sales.The charts below illustrate the price points for your various products relative the industry price range. For the pastdecade, inflation has been a constant 3.00%, which is reflected in the annual increases in the general price ranges.Recall that lagers tend to sell at a higher price point than ale of the same quality. The dollar values indicate your pricepoint. The blue columns represent the industry price range. The black lines within the blue bars reflect the mediumprice. Remember to pay attention to the values of the axes. While you may not have sold all of these products duringthe past three years, you had prepared a pricing plan in case you had opted to manufacture them all. 29
  • 30. 30
  • 31. Facilitator’s Note - The key pieces of information to consider are: • Students should carefully analyze the data in the charts above related to the historical pricing levels. By comparing the actual price used to the minimum, average, and maximum prices, the students should look for trends and general price ranges for each of the six products.In the early years of your brewery’s operation, you realized that focusing on restaurants and bars would increaseconsumer exposure to your product, which is important for new entrants in the market. In order to motivaterestaurants and bars to promote your product, you discounted the selling price of bottles and kegs. Stores andsupermarkets did not warrant receiving the same discount, since their personnel are not motivated to promote yourproduct over anything else - since most consumers shop without the assistance of store personnel. Given that kegsdominated the market, you decided to set a higher discount on this type of packaging. The discount equated to 6% lessthan the typical price of one keg. While there was still a discount on bottles and cans, it was set at 3.00%.Seeing how these discounts helped expand your customer base and improve customer awareness, you decided tocontinue them to a lesser degree in Year 3. You stepped back the discounts on kegs to 3.00% and removed thediscount on bottles and cans. The decision to continue discounting keg products was also driven by the fact that kegpackaging dominated the market. Moving into Year 4, market trends suggested that consumers were eating out moredue to increasing per capita income. As a result, restaurant and bar owners were keen to take advantage of beerproducers since demand for kegs was high and competition was heavy. To motivate restaurants and bars to continuepromoting your product, you were forced to increase the discount on kegs. However, the increasing per capita incomealso led to decreases in price sensitivity, meaning that customers would likely pay a little more for the same productsince their income has grown. The increased discounts on keg packaging in Year 4 were offset by slight increase tobottle and can prices, compared to the previous year.This year, you will need to decide on the price points for all of your products and the quality of ingredients used formanufacturing. There are a number of factors you should consider when making these decisions. First, lagers areviewed as premium products and will always sell at a premium to ales of similar quality. Second, the pricing strategy forcans and bottles of lagers did not result in any market share loss and it seems that customers are willing to pay slightlymore for a high-quality lager; thus, slight increases in price for lager products might be sustainable. Third, as the alemarket continues to shrink, competitors are using price reductions to maintain market share. For example, you recentlynoticed that a keg that used to sell for $70 is now being sold for $67.35. As a result of this price pressure, ale producerscontinue to undercut one another, which is forcing you to also cut your price so as to avoid being driven out of themarket. In order to maintain what market share you have accumulated, you will have to sell your ales at progressivelylower prices. Fourth, you may decide to change the quality of ingredients used in your products. Lower-qualityingredients are cheaper inputs, but low-quality products would need to be sold at lower prices; conversely, higher-quality ingredients could lead to the ability to sell at a higher price. However, changes in product quality may surpriseconsumers, resulting in market share loss. Finally, remember that inflation will lead to an overall rise in the price range,which should also be considered in your pricing decisions. Inflation this year is expected to be 3.00% again. Facilitator’s Note - The key pieces of information to consider are: • Lagers are viewed as premium products and can be sold at higher prices. The pricing strategy used in the previous year should be considered as a good starting point for the students in this year. • Due to the declining market for ales, the prices of ale products are falling as brewers compete to maintain market share. • Students should remember that inflation leads to increased prices for all products.Using market informationfrom the previous year, theexpected inflation rate in thecoming year, and expectedprice trends across multiplesegments, you have created thefollowing matrix to guide yourpricing decisions. 31
  • 32. Facilitator’s Note - The key pieces of information to consider are: • Students should use the chart above when making their pricing decisions in this round.You continue to have the option to utilize your short-term, asset-based line of credit.Marketing and promotional activities will always be important for a business, but in some cases businesses will try toincrease their earnings by decreasing the annual spend on these segments; however, this may have the undesirableeffect of consumer awareness about your product actually decreasing. In terms of Product Development, it is stillimportant that your product fits consumer demand, but at this stage of the brewery’s life cycle, the brewing processshould be well understood, assuming the same ingredients continue to be used. Community Development will beimportant regardless of the stage in your brewery’s life cycle, especially given the recent interest of beer consumers intaking care of their environment.As your business grows, so will your staff. Please review the information included in Year 3 to make your staffingdecisions for this year. Facilitator’s Note - The key pieces of information to consider are: • Marketing and Promotional Activities should remain high, but can be slightly reduced in this year. • Any decreases in Product Development should be offset by increases in Community Development. • Students should refer to the information in Year 3 to make this round’s hiring decisions. YEAR SIX: MARKET SUMMARYDecision Points To Be Completed In This Round: • Production Capacity: total cycles run for each brewing machine • Packaging Allocation: amount of output packaged as kegs, bottles, and/or cans • Pricing: select the actual selling price for what products are manufactured • Ingredient Quality: the quality of ingredients used in what products are manufactured (low, medium, or high) • Asset-Based Financing: amount borrowed through a short-term debt option • Amount spent on Marketing, Product Development, Promotional Activities, and Community Development • Human Resources Management: staffing levels for each positionSuggested Training Courses To Include: • Core Competency and Competitive Advantage • Porters Five Forces Theory • Leadership and Teambuilding • Business Plan Writing • Microsoft PowerPoint 3: Advanced Slide Design • Armenian Business ResourcesMarket Information Included in Business Simulator and Facilitator Notes:The population of Megapolis grew another 2.5%, bringing the total number of people to 430,500 and the total amountof beer consumed to 36.2 million liters. The mayor’s office expects a population increase of 1-2% in the coming year,which would again increase the amount of beer consumed. Last year, lagers continued to grow at the expense of ales,with stouts remaining mostly static. Lager demand increased by 24% to 14.8 million liters; stout demand grew by 14%to 3.6 million liters; and ale demand decreased by 12% to 17.7 million liters. Using these latest figures, the maximumoutput for an ale machine (1,500,000 liters) would have accounted for 8.5% of ale demand, whereas the maximumoutput for a lager machine (900,000 liters) would have accounted for 6.1% of the demand for that particular marketsegment. The following graphs illustrate the changes in the beer market over the past five years. 32
  • 33. Heading into the sixth year of your brewery’s operations, you expect that lagers will continue to command a significantportion of the market. The latest research analysts have been questioning the large ale producers about theirexpectations for the coming year. Those who have begun producing lagers believe that their sales will likely decrease by15-20% as it will take a few years for their lager brewing operations to ramp up. Those who have decided not to entereither the lager or stout categories forecast annual sales decreases of up to 35% and have begun laying off employees inan effort to reduce costs. By translating these percentages into volume of liters, you extrapolate that ale volume coulddecrease by anywhere from 2.6 – 6.2 million liters. However, this estimate does not consider that sales decreases mightalso be driven by year-over-year decreases in the selling price of ale products. Regardless, it appears that most brewersbelieve that the lager market will grow and the ale market will shrink in the coming year.As always, you should also consider what percentage of each market segment’s market share you could expect tocapture during the year. As the overall market for ales is expected to shrink, it is unlikely that you could increase yourmarket share. Further, as many competitors are continuing to use price discounts as a competitive tactic, you should Facilitator’s Note - The key pieces of information to consider are: • Lager demand grew significantly in Year 5 and is expected to grow again in Year 6. • Students should consider the trends illustrated in the charts above during the production planning process. • Students should consider the percentage (total liters produced / total liters of demand) for both the lager and ale categories when creating their production plans for Year 6.ensure that your production and pricing strategies exceed the threshold needed to break even on ale sales. Conversely,the lager market is expected to grow, which could lead to increased market share in that category. If the production andpricing strategies are aligned with consumer preference, you might be able to increase your market share by 3-5%.Residents of Megapolis are continuing to eat out more, which has been an observable trend for many years. Over thepast five years, the percentage of beer consumed at restaurants has increased from 36% to 43%, while purchases fromstores and supermarkets have decreased from 29% to 23%. Demand attributed to bars has remained fairly constant.More striking, though, has been consumers’ movement away from bottle packaging, preferring to drink from kegs andcans. Five years ago, keg, bottle, and can packaging accounted for 47%, 41%, and 12%, respectively. Last year, thesethree packaging types accounted for 65%, 18%, and 17%, respectively. The combination of consumers eating out moreand the recent opening of the recycling plant have led to an acceleration in the divergence towards keg and canpackaging preference. Since these two trends have been stronger in recent years, the following charts examine thepreference changes in the past two years. It is probable that the consumer preferences in the coming year will besimilar to the changes observed last year versus the previous year. 33
  • 34. Facilitator’s Note - The key pieces of information to consider are: • Students should use the charts above to estimate the consumer preference for keg, bottle, and can packaging over the previous two years. The students should consider the change from Year 4 and Year 5 and consider what the most probable breakdowns would be in Year 6 if these trends continued.Overall, the price range for beer products increased by 3.00% due to inflation; this is expected to occur again in thecoming year. This year, you will again need to decide on the price points for all of your products and the quality ofingredients used for manufacturing. In the previous year, there were a number of factors to consider in your pricingstrategy. You have further clarified and prioritized these trends.In terms of the ale category, last year the range of prices for kegs, bottles, and cans of ale were $60-70 (kegs), $0.49-0.60 (bottles), and $0.44-0.52 (cans). However, diminishing demand has placed further price pressure on all the alebrewers. The expected 3.00% inflation will likely increase the price ranges uniformly, but this pressure is actuallycausing the actual selling prices of ale products to drop by 6-8%, offsetting the increase due to inflation. For example,if ale demand were as strong as it was just a few years ago, an average-priced keg of ale would likely be priced at $67 inthe current market. With ale demand decreasing, this same competitor might sell the same keg at $63-64.Similarly, lager prices are also expected to increase in general by 3.00%. Last year, the range of prices for kegs, bottles,and cans of lager were $75-87 (kegs), $0.61-0.76 (bottles), and $0.55-0.66 (cans). Your strategy with respect to lagershas always been to brew a high-quality product that sells at an average price. In essence, your customers have gottenmore than they have paid for, which has strengthened your brand recognition and reputation. Further, you have foundthat charging slightly more than your standard price has not resulted in decreased demand. Increased per capitaincome, strong brand building, and a history of selling premium products at reasonable prices have led to significantconsumer loyalty. Thus, while you may have to decrease the prices of your ale products, you may able to subsidizethese losses by increasing the price of lager products. Using market information from the previous year, the expectedinflation rate in the comingyear, and expected price trendsacross multiple segments, youhave created the followingmatrix to guide your pricingdecisions. Facilitator’s Note - The key pieces of information to consider are: • With respect to lagers, the historical pricing strategy has been to sell a high-quality product at an average price. Due to successful spending on marketing and promotional activities, it may be possible to increase the price of lagers in Year 6. • The decline in the ale market segment is leading many brewers to decrease the price of their products to retain as many customers as possible. 34
  • 35. You continue to have the option to utilize your short-term, asset-based line of credit.Marketing, product development, and promotional activities will always be important for a business, but in some casesbusinesses will try to increase their earnings by decreasing the annual spend on these segments. CommunityDevelopment will be important regardless of the stage in your brewery’s life cycle, since it creates a positive reputationfor your business.As your business grows, so will your staff. Please review the information included in Year 3 to make your staffingdecisions for this year. 35
  • 36. BUSINESS CURRICULUMThe Business Curriculum is a compilation of 24 lessons that each explain a focused topic relevant to small businessowners and university students. As a whole, the entirety of the video curriculum has been designed to provide acomplete set of resources to help a new or existing business owner understand the many facets of operating a smallbusiness. In the pages that follow, you will find a brief description of each lesson, the suggested activity to be used withcourse participants after viewing the video, and an answer key for the course facilitator. LESSON 1: VISION AND MISSION STATEMENTSOverview: This lesson introduces two important business tools: the Vision and Mission Statements. After watchingthis video, you will know how to properly create these tools, what common mistakes to avoid, and how you can mosteffectively use them to guide your organization.Exercise: Provide the following vision and mission statements to the students. Discuss in small groups (3 or 4students) why the statement is good or bad. For the statements that seem to be bad, the groups should rewrite them toprovide a better example. The professor will then ask each group what they have discussed. Each group will share itsnew statements with the rest of the class. The whole class can then discuss the improved statements and how theembody the teachings of this lesson.Visions: • Construction Company: Be the world leader in profit. • Bus Service: To be the safest, most customer-focused and successful transportation company in the world. • Beer Company: We want to be the world’s best beer company. Being the best does not mean being the biggest company. Instead, it means great customer service and the best products. We must continue to work to achieve our vision. • Computer Company: A computer in the hands of all people.Missions: • Neighborhood Cafe: To serve our customers delicious organic products in a store that is so clean and friendly it is considered a second home. • Chocolate Company: Be number one in the market. • Car Company: We are a global family with a proud tradition, strongly committed to providing personal mobility for people around the world. • Clothing Store: We are focused on the market. We are organized by our main ideas. We develop unique solutions for our customers. We continuously perform better than our competitors. We create profit for our owners.Answer Key / Discussion Guide:Visions: • Construction Company: This vision is bad because it does not mention anything specific to the company. • Bus Service: This vision is good because it is forward-thinking, ambitious, and is specific to the company. • Beer Company: This vision is bad because it is much too long. Also, it’s not clear. • Computer Company: This vision is good because it is forward-thinking, ambitious, and is specific to the company.Missions: • Neighborhood Cafe: This mission is good because it explains why they exist and discusses their values. • Chocolate Company: This mission is terrible for many reasons. It does not explain the company’s purpose. It doesn’t mention their customers or products. It says nothing about their uniqueness. It is actually closer to a vision statement, but it would be a bad vision statement. • Car Company: This mission is good because it explains why they exist, who they serve, and is short enough to remember. • Clothing Store: This mission is bad because it uses general, meaningless words. It also does not mention anything unique about the company or what the company actually does. 36
  • 37. LESSON 2: MARKET ANALYSIS AND SWOTOverview: The goal of this lesson is to introduce a number of concepts related to analyzing the market for a new orsmall business. The majority of the lesson provides a detailed explanation of the purpose of and how to undertake aSWOT analysis.Exercise: Star Clothing is a young women’s clothing store in a medium-sized town. Lately, its business has beendeclining, mainly because of increasing competition from a larger store that is part of a national chain and sells brandnames. As it plans for the coming year, you are asked to prepare a SWOT analysis. Using the following list, classifythem for the purpose of the analysis as Strengths, Weaknesses, Opportunities and Threats: • We get to know our customers, one by one and can order sizes that may not be in the usual range. • Higher inflation is reducing the demand for brand name clothing. • We’ve been in our town forever. We have the loyalty of customers and vendors. We are local. • The competitor has international brands that are very fashionable right now and we can’t risk carrying inventory that may go out of style soon. • As our target market needs more service (such as clothing alterations), our competitors are less likely than ever to provide it. Their business model doesn’t include service, just selling clothes. • When the competing store has seasonal sales at low prices, our customers think we are not giving them good value. • Our main competitor has stores all over the country, but we are more familiar with what women in this town like to wear. • The national university is opening a local branch near our store so more people will be passing by our store between the bus stop and the school. • Because they buy for all of their stores at once, the competing store can get their inventory more cheaply. By renting a bigger store than us, they can pay less per square meter. • The new mayor is corrupt and is rumored to be related to the family that owns the competitor. He may charge high an annual fee to operate the store. • We have recently hired a manager who worked in a successful shop in another town. • We do all of our recordkeeping by hand although computer programs are available that we could use.Answer Key / Discussion Guide:Strengths • Our main competitor has stores all over the country, but we are more familiar with what women in this town like to wear. • We get to know our customers, one by one and can order sizes that may not be in the usual range. • We’ve been in our town forever. We have the loyalty of customers and vendors. We are local. • We have recently hired a manager who worked in a successful shop in another town.Weaknesses • Because they buy for all of their stores at once, the competing store can get their inventory more cheaply. By renting a bigger store than us, they can pay less per square meter. • The competitor has international brands that are very fashionable right now and we can’t risk carrying inventory that may go out of style soon. • We do all of our recordkeeping by hand although computer programs are available that we could use.Opportunities • The national university is opening a local branch near our store so more people will be passing by our store between the bus stop and the school. • As our target market needs more service (such as clothing alterations), our competitors are less likely than ever to provide it. Their business model doesn’t include service, just selling clothes. • Higher inflation is reducing the demand for brand name clothingThreats • The new mayor is corrupt and is rumored to be related to the family that owns the competitor. He may charge high an annual fee to operate the store. • When the competing store has seasonal sales at low prices, our customers think we are not giving them good value. 37
  • 38. LESSON 3: STARTUP CAPITALOverview: The goal of this lesson is to provide an overview of the most common methods for financing a newbusiness or organization: debt and equity. The lesson begins with an overview of why businesses need externalfinancing and what types of resources are most often needed for a new business. The pros and cons of debt and equityare then introduced, as are the most common features of each. The lesson then applies these same concepts to anexisting business from a new project perspective, incorporating the idea of self-generated capital as an additionalfinancing option.Exercise: The facilitator can elect to have the participants answer the following questions individually or in smallgroups. 1. For the following expenses, determine whether they would be classified as one-time expenses or recurring expenses: a. Purchasing desks, couches, and other furniture for an accounting services office. b. Interest on a five-year loan from a bank. c. Automobile insurance for your business’s delivery vehicle. d. Wages paid to construction workers to remodel your café. e. Taxes paid to your local municipality. f. Purchase of a new tractor. g. Fuel needed to operate the new tractor. h. Cost of ingredients to prepare and sell food at a café. 2. Why is debt considered to be a cheaper form of capital than equity? 3. What is the most important risk to consider when taking out a loan? 4. Calculate the annual interest payments for the following loans: AMOUNT $250,000 $500,000 $750,000 PAYBACK PERIOD 30 MONTHS 42 MONTHS 56 MONTHS ANNUAL INTEREST RATE 4.00% 6.00% 8.00%Answer Key / Discussion Guide: 1. For the following expenses, determine whether they would be classified as one-time expenses or recurring expenses: a. Purchasing desks, couches, and other furniture for an accounting services office. (One-Time) b. Interest on a five-year loan from a bank. (Recurring) c. Automobile insurance for your business’s delivery vehicle. (Recurring) d. Wages paid to construction workers to remodel your café. (One-Time) e. Taxes paid to your local municipality. (Recurring) f. Purchase of a new tractor. (One-Time) g. Fuel needed to operate the new tractor. (Recurring) h. Cost of ingredients to prepare and sell food at a café. (Recurring) 2. Debt is considered cheaper than equity because most investors require a share of a business’s profits as well as some influence about the strategic management of the business. The cost of debt does not change if a business is very successful and there is no ongoing obligation once the debt has been paid back. Equity investors will take a percentage of the business’s profits, whether the business is very successful or not. 3. Most banks will require some collateral for their loan. This collateral might be the assets owned by the business or, in some cases, the personal assets of the business’s manager. If the business fails to make one of the required interest or principal payments on the loan, the bank may take the specific assets away from the business or manager and sell them. The bank may also have the option to force the business to declare bankruptcy. However, even without declaring bankruptcy, it may be difficult for a business to continue operating if a bank takes away the business’s assets. 4. Calculate the annual interest payments for the following loans: YEAR 1 $10,000 $30,000 $60,000 YEAR 2 $10,000 $30,000 $60,000 YEAR 3 $5,000 $30,000 $60,000 YEAR 4 $0 $10,000 $60,000 YEAR 5 $0 $0 $10,000 38
  • 39. LESSON 4: ESSENTIAL MICROECONOMIC PRINCIPLES FOR BUSINESSOverview: This lesson will explain some of the basic economic concepts that a business owner needs to understand.These concepts apply both to large-scale situations (also known as macroeconomics) and to individual situations(known as microeconomics). While those topics are discussed in more detail in other lessons, this one provides afoundation.Exercise: The facilitator can elect to have the participants answer the following questions individually or in smallgroups. 1. The current price for bread in your community is $1. If the following changes happen in the market, indicate whether the equilibrium price is likely to increase or decrease. a. A new bakery is planned to open, increasing the amount of bread available by 20% b. One of the three bakeries closes and the two remaining bakeries cannot increase how much bread they make. c. A local factory closes, resulting in many families moving to another community. d. A holiday is approaching and people will be eating more bread than usual. 2. Create a supply and demand curve diagram showing each of the cases above. 3. Consider and list events that could change the following in a community: a. The price of gas to be used in cars b. The price of vegetables c. The salary paid to nurses in a hospital d. The rent for a building that can be used for a café.Answer Key / Discussion Guide: 1. The answers below assume no other changes at the same time as the ones mentioned in the question since they could offset one another (that is, a decrease in supply because one business closes may correspond to a decline in the population which decreases demand): a. The price is likely to decrease since the supply is increasing with no change in demand b. The price is likely to increase since the supply is decreasing with no change in demand. c. The price is likely to decrease since the demand is decreasing with no change in supply. d. The price it likely to increase temporarily since the demand is higher at that time of year and there is no change in supply. 2. The different lines in the graph below illustrate the general effects of each scenario: 39
  • 40. 3. Many variables could cause changes to these items. The following are not a complete list but should be considered as the question is discussed. a. Car makers begin to sell inexpensive cars that require less gas to operate (likely to reduce the price as demand would decline); closure of a pipeline reduces the amount of gas reaching an area (likely to increase the price as the supply would be reduced); b. Bad weather destroys fields in a large part of the area (likely to increase prices as supply would decrease); a large harvest in a nearby area causes farmers to enter your market to sell their vegetables (likely to reduce prices as the supply would be increased); c. The average age of the population increases as people live longer (likely to increase salaries as the need for health care is expected to increase in the future); new nursing schools open (likely to decrease salaries as the number of trained nurses increases). d. There are many new buildings under construction (like to reduce rent as the supply of space increases). The main factory in a town closes (likely to reduce rent as demand for cafes decreases with fewer people working nearby). LESSON 5: MARKET RESEARCHOverview: This lesson begins with a discussion of the difference between goods and services. It then goes into anoverview of market research as it relates to deciding what goods or services a business should provide. It describes thedifference between primary research and secondary research while providing the most common examples of bothtypes. It concludes with a general description of the importance of using market research to guide a business’s strategyand how to apply it to increase the chance of success.Exercise: In teams of 3 – 5, the participants should choose one of the following three scenarios. The facilitator mayask each team to present their answers to the rest of the class or repeat the same exercise using a different scenario. 1. Hair Salon: You are thinking about opening a hair salon in your community. You want to understand the preferences of your customers to help you decide what kinds of services you will provide, how many staff members you would need, and how much customers are willing to pay for various services. 2. Construction Supply Store: Seven years ago, you opened a construction supply store in your city. In the past two years, you have noticed that your store’s sales have been declining. However, construction activities have actually increased in your city. A number of other construction supply stores have opened and you think your customers might be purchasing their supplies at these new stores instead of yours. You want to understand what goods or services your competitors are providing compared to your store as well as any other factors that might explain why your sales are decreasing. 3. Livestock Farmer: You live in a rural village about 25 kilometers outside of your country’s capital city. Your business is raising and selling cows, sheep, and pigs to butchers in the city. You recently sold all of your sheep to your uncle for a significant profit. You want to decide whether you should use your profit to purchase additional cows or pigs. Since all of your income usually comes from the capital city, you want to understand the industry trends in the city to help you make the decision that will lead to the highest potential profits in the future.After the teams have selected and read the scenarios, they should work together to answer the following questions: 1. Was your scenario focused on clarifying information about customers, competitors, a specific industry, or a combination of the three? 2. In your scenario, what specific types of primary or secondary research could be most helpful to provide you with useful information? 3. If you were to design a survey, who would the target customer segment be? 4. Come up with two questions that you would use in the survey.Answer Key / Discussion Guide: 1. Was your scenario focused on clarifying information about customers, competitors, a specific industry, or a combination of the three? a. Hair Salon: Customers (people that would go to a hair salon) b. Construction Supply Store: Competitors (other construction supply stores in the city) c. Livestock Farmer: Customers and Industry (businesses that purchase the meat as well as the overall trends for meat consumption in the capital city) 40
  • 41. 2. In your scenario, what specific types of primary or secondary research could be most helpful to provide you with useful information? a. Hair Salon: surveys, focus groups, interviews b. Construction Supply Store: visits to competitors’ stores, discussions with construction sites to observe what materials or services are being used c. Livestock Farmer: surveys and interviews of butchers, newspaper or internet articles about meat consumption in the capital city and dining trends 3. If you were to design a survey, who would the target customer segment be? a. Hair Salon: people that would go to a hair salon, preferably a specific demographic (older women, young men, etc.) b. Construction Supply Store: contractors that have experience purchasing materials or services from different construction supply stores in the town c. Livestock Farmer: butchers in the capital city that account for the majority of the purchases 4. Come up with two questions that you would use in the survey. d. Hair Salon: How many times per year do you get a haircut at a hair salon? How many times per year do you get your hair colored at a hair salon? e. Construction Supply Store: On a scale of 1 – 10 (1 = least variety, 10 = most variety) Rate each of the following stores in terms of their variety of construction supplies (list of your business and your competitors businesses)? On a scale of 1 – 5 (1 = not important, 5 = very important), how important is it for a construction supply store to also have skilled craftsmen that can help use or install the supplies purchased? f. Livestock Farmer: For the past three years, what volume of pig meat have you purchased (in kilograms)? For the past three years, what volume of cow meat have you purchased (in kilograms)? LESSON 6: OPERATIONS MANAGEMENT: SIMPLE FORECASTINGOverview: This lesson will introduce the principles of forecasting, including gathering data, simple statistics, seasonaladjustments, common forecasting methods, and practical application.Exercise: The facilitator can elect to have the participants answer the following questions individually or in smallgroups. 1. Find the mean, median, and mode of the following data sets: a. {0, 2, 2, 4, 6, 9, 12} b. {11, 21, 24, 39, 50, 52, 58, 74} c. {1023, 2045, 5092, 6221, 9000} 2. Find the high and low forecast estimates for the following forecasts and errors of margin: a. $100,000 with a 10% margin of error b. $2,500,000 with a 5% margin of error 3. Use the following quarterly sales data to find seasonal adjustment ratios: a. Quarter 1 – $170,000 b. Quarter 2 – $200,000 c. Quarter 3 – $250,000 d. Quarter 4 – $150,000 4. Use the seasonal adjustment ratios from Exercise 3 to find seasonal forecasts for the next year if the annual sales forecast is $840,000. Insert A: Bill’s Burgers – Historical Sales BILLS BURGERS - HISTORICAL SALES YEAR ANNUAL SALES 2005 $150,000 2006 $145,000 2007 $152,000 2008 $160,000 2009 $167,000 2010 $175,000 2011 $189,000 41
  • 42. 5. Use Insert A to find the year-to-year change in sales. Find the average change in year-to-year sales, and use it to forecast 2012 sales. 6. Use Insert A to find the following moving weighted averages for as many years as allowed by the data set. “n-1” represents the most recent year, “n-2” the second most recent year, etc. a. 3 Year Moving Average, n-1 = 60%, n-2 = 30%, n-3 = 10% b. 5 Year Moving Average, n-1 = 40%, n-2 = 30%, n-3 = 15%, n-4 = 10%, n-5 = 5% Insert B: Bill’s Burgers – Income Statement BILLS BURGERS - INCOME STATEMENT 2011 2010 2009 Sales $189,000 $175,000 $167,000 Cost of Goods Sold $56,700 $49,000 $43,420 Gross Income $132,300 $126,000 $123,580 Wages & Salary $34,020 $31,500 $30,060 Utilities $13,230 $14,000 $15,030 Total Operating Expenses $47,250 $45,500 $45,090 Operating Income $85,050 $80,500 $78,490 Taxes $17,861 $16,905 $16,483 Net Income $67,190 $63,595 $62,007 7. Using Insert B, common size the income statements for all three years, and identify the common trends. 8. Using the trends discovered in Exercise 7, create a pro-forma income statement. The 2012 sales forecast is $200,000. 9. You have recently learned that there will be an increase in the minimum wage payment, which will increase your Wages and Salary expenses by approximately 10%. Revise your pro-forma income statement from Exercise 8.Answer Key / Discussion Guide: 1. The measures of average for the data sets are as follows: a. {0, 2, 2, 4, 6, 9, 12} i. Mean = 5 ii. Median = 4 iii. Mode = 2 b. {11, 21, 24, 39, 50, 52, 58, 74} i. Mean = 41.125 ii. Median = 44.5 iii. Mode = No Mode as there are no repeating data points c. {1023, 2045, 5092, 6221, 9000} i. Mean = 4676.2 ii. Median = 5092 iii. Mode = No Mode as there are no repeating data points 2. See below: a. $100,000 * 0.10 = $10,000 => $100,000 +/- $10,000 = $110,000 and $90,000 b. $2,500,000 * 0.5 = $125,000 => $2,500,000 +/- $125,000 = $2,625,000 and $2,375,000 3. See Chart: Q1 Q2 Q3 Q4 AV ERAGE SALES $170,000 $200,000 $250,000 $150,000 $192,500 SEASONAL ADJUSTMENT RATIO 0.88 1.04 1.30 0.78 4. First, find the average seasonal sales. This would be $840,000 / 4, or $210,000. Next, we multiply $210,000 by each of the seasonal adjustment ratios. This provides the following seasonally adjusted forecasts: a. Q1 – $185,455 b. Q2 – $218,182 c. Q3 – $272,727 42
  • 43. d. Q4 – $163,6365. The average year-to-year change is $6,500, and the 2012 sales forecast would be $195,500. BILLS BURGERS - HISTORICAL SALES Year Annual Sales Delta 2005 $150,000 - 2006 $145,000 -$5,000 2007 $152,000 $7,000 2008 $160,000 $8,000 2009 $167,000 $7,000 2010 $175,000 $8,000 2011 $189,000 $14,000 Average Delta $6,500 2012 Forecast $195,5006. Use the moving average model to find the estimated year-to-year change for all years possible. Then add those to the previous year’s sales to calculate the forecasted sales for the coming year. MOVING AVERAGE SALES CHANGE FORECAST 3 YEAR 5 YEAR 2009 $6,400 - 2010 $7,300 - 2011 $7,700 $6,950 2012 $11,500 $10,200 MOVING AVERAGE SALES FORECAST 3 YEAR 5 YEAR 2009 $166,400 - 2010 $174,300 - 2011 $182,700 $181,950 2012 $200,500 $199,2007. Cost of Goods Sold has been increasing by 2% annually. Wages and Salary have been steady at 18% of sales for all three years. The Utilities expense has been dropping at 1% per year. BILLS BURGERS - INCOME STATEMENT 2011 2010 2009 Sales $189,000 100% $175,000 100% $167,000 100% Cost of Goods Sold $56,700 30% $49,000 28% $43,420 26% Gross Income $132,300 70% $126,000 72% $123,580 74% Wages & Salary $34,020 18% $31,500 18% $30,060 18% Utilities $13,230 7% $14,000 8% $15,030 9% Total Operating Expenses $47,250 25% $45,500 26% $45,090 27% Operating Income $85,050 45% $80,500 46% $78,490 47% Taxes $17,861 9% $16,905 10% $16,483 10% Net Income $67,190 36% $63,595 36% $62,007 37%8. Apply the trends discovered in Exercise 7 to create the 2012 Pro-Forma Income Statement. BILLS BURGERS - 2012 PRO-FORMA INCOME STATEMENT 2012 Sales $200,000 100% Cost of Goods Sold $64,000 32% Gross Income $136,000 68% 43
  • 44. Wages & Salary $36,000 18% Utilities $12,000 6% Total Operating Expenses $48,000 24% Operating Income $88,000 44% Taxes $18,480 9% Net Income $69,520 35% LESSON 7: INTRODUCTION TO MANAGERIAL ECONOMICSOverview: This lesson gives students an overview of Managerial Economics and how it can be applied to a smallbusiness. It focused on examining two managerial economic principles: demand analysis and the production decision.It describes ways that a business can affect its demand curve and how competitive analysis can help a manager makeone of the most important decisions: pricing of goods and services. It then moves to the production decision, focusingon the different types of expenses, total cost vs. average total cost vs. marginal cost, and how to find the break-evenpoint for a good or service.Exercise: The facilitator can have the class answer the following individually or as a group: 1. Describe ways that a demand analysis can be performed for a clothing shop. List factors other than the price charged by competitors that the business owner would need to consider. 2. Describe reasons why a business that has higher prices than its competitors may be more successful (that is, selling more of his product or service, even at a higher price). 3. Calculate the average total cost of each unit sold by a tea producing business using the following facts: Rent $500 Heat and electricity – fixed amount $50 Extra electricity per package $1 Salaries $200 Cost of tea per package $2Calculate the average cost per package if 100 packages are sold, if 500 packages are sold and if 1,000 packages are sold.Answer Key / Discussion Guide: 1. Demand can be analyzed with the following methods, among others: a. Being familiar with clothing trends in the community and knowing what customers might buy and those that they will not. b. Evaluating your location by understanding if many people pass by, if it is an area people would avoid, if it is easily reachable on foot or by public transportation, if people would need to be made aware that the shop is there, etc. c. Surveying potential customers about how often they buy clothes and whether higher or lower prices would affect their decisions. 2. A business with higher prices may sell more than his competitors for many reasons, including: a. His location is more convenient – if people do not have to walk out of their way or pay for transportation to get there, they may be willing to spend more for the convenience. b. His hours are more convenient – if he is open 24 hours, customers may be willing to pay more for that convenience. c. He delivers his product at no charge – the extra price represents the additional service d. His place of business or employees are considered better by customers and they will pay extra for that. 3. Rent, heat and electricity, and salaries are fixed costs totaling $750. Extra electricity and the cost of tea are variable costs. a. For 100 packages: $750 of fixed costs + $300 of variable costs ($1 + $2 x 100) = $1,050 total cost. Average cost per package: $1,050/100 = $10.50 44
  • 45. e. For 500 packages: $750 of fixed costs + $1,500 of variable costs ($1 + $2 x 500) = $2,250 total cost. Average cost per package: $2,250/500 = $4.50 f. For 1000 packages: $750 of fixed costs + $3,000 of variable costs ($1 + $2 x 1,000) = $3,750 total cost. Average cost per package: $3,750/100 = $3.75 LESSON 8: PLACEMENT AND PROMOTIONOverview: This lesson will introduce the marketing mix, and introduce the concepts of Placement & Promotion ascritical decisions in how to sell products or services.  Exercise: The facilitator can have the class answer the following individually or as a group: 1. Talk about where you would put the following products or stores and why: a. Quick / cheap coffee stand b. Expensive women’s scarf c. Cheap toy elephant 2. Come up with promotion strategies for the following businesses, and discuss why you developed your particular strategy. Create fliers for the businesses as well. Talk about why you made the fliers the way you did. a. Big Fun Sports is a sporting goods store. They sell their products primarily to active, younger people who have a medium-level income. These customers value Big Fun Sports because of the wide selection of goods. These customers tend to read a lot of magazines, and are very responsive to discounts. b. Greg’s Diner is a small town restaurant. Most of the customers are truck drivers and locals who like the diner for its quick, cheap meals. Truck drivers like to listen to the radio.Answer Key / Discussion Guide: 1. I would put... a. A quick, fast service coffee stand in a highly visible location near a busy road. This would make it easy for drivers to notice and access the business. b. An expensive women’s scarf would go well in an up-scale boutique or department store. These locations are where women would typically shop for an expensive accessory. c. A cheap toy elephant would be sold in a low-end toy store. This is where children and their parents would go to buy inexpensive toys. 2. Messages and Fliers: a. For Big Fun Sports, it would be logical to take out an advertisement in a magazine favored by the customers. This could be a magazine about health, sports, or outdoor activities. It would also make sense to include some sort of a discount, because the customers are responsive to that type of promotion. Possible Magazine Advertisement: Check out our large selection of quality sporting goods at Big Fun Sports! We have everything you’re looking for at a great price! And, for a limited time only, we’re offing 10% off any purchase over $50. b. For Greg’s Diner, a radio advertisement might work best, since truck drivers listen to the radio. Possible Radio Advertisement: When was the last time you had a good meal that was both convenient and delicious? Pull on over to Greg’s Diner for great food at great prices. LESSON 9: MANAGING PEOPLEOverview: The goal of this lesson is to introduce the purpose and importance of human resource management. Thelesson provides a brief overview of the staff development process, from attracting and choosing the right employees tocultivating a positive organizational culture.Exercise: Divide the class into three groups: • Group 1 is the recruitment team. Their task is to write questions they are going to ask candidates in an interview for a fictional job. • Group 2 will consist of the candidates - they must write a short letter of application (no more than 100 words) for the post. • Group 3 will be observing the work of the three groups for feedback discussion. 45
  • 46. Group 1 will interview each of the candidates separately. Then, Group 1 will decide to whom they would offer the jobto and why. The group should also give some feedback to the rest of the unsuccessful candidates. Group 3 will offertheir views on the process in a discussion session following the activity. LESSON 10: BRANDSOverview: The goal of this lesson is to provide an overview of what a brand is and how it enhances the value of abusiness. It describes the various benefits of having a strong brand, using a well-known example to illustrate the effecta brand can have on customers. It then goes through the key considerations in understanding your current brand anddeveloping a strategy for what kind of brand would be ideal for your business. The lesson provides examples ofcommon tools used to develop a corporate identity and how a brand strategy is much broader than a marketingstrategy.Exercise: The facilitator may choose to have the participants do this activity individually, in small groups, or as a class.The facilitator should ask the participants the following questions, then give them 5-7 minutes to come up with theiranswers. If time permits, the facilitator can have the participants present their answers. 1. Write down the last three products you purchased that had a specific label or brand (ex. bottle of Coca-Cola, a Snickers bar, etc.). 2. Was it the first time you had purchased those products? If not, how long have you been purchasing them? 3. Would you recommend these products to a friend who had never tried them? Why? 4. In one sentence, describe each one of these products (be sure to use three adjectives). 5. Pick one of these products and state why you purchased that particular product rather than a similar, competing product. 6. Do any of the three products have memorable mottos or slogans? 7. Do any of the three products have a logo? If so, describe it.Answer Key / Discussion Guide: 1. Write down the last three products you purchased that had a specific label or brand (ex. bottle of Coca-Cola, a Snickers bar, etc.). a. Examples: Colgate toothpaste, Snickers bar, Orbit “Professional White” gum 2. Was it the first time you had purchased those products? If not, how long have you been purchasing them? a. Example: No – have been using Colgate, Safeguard, and Orbit for many years. 3. Would you recommend these products to a friend who had never tried them? Why? a. Participants should be able to recommend the products. Example: Colgate – Yes. I am very happy with the results of using Colgate. I have not had any toothaches or cavities since using Colgate to brush my teeth twice a day. 4. In one sentence, describe each one of these products (be sure to use three adjectives). a. In describing Colgate toothpaste, students might use words like healthy, minty, fresh, white, etc. 5. Pick one of these products and state why you purchased that particular product rather than a similar, competing product. a. Example: I use Colgate toothpaste because I have had great results and always have a clean feeling in my mouth. Other toothpastes might be just as good, but I trust Colgate and am loyal to the product. 6. Do any of the three products have memorable mottos or slogans? a. Orbit – “For a good, clean feeling no matter what.” b. Snickers – “Hungry? Grab a Snickers!” 7. Do any of the three products have a logo? a. Example: Snickers – The word “Snickers” in bold, blue, capital letters surrounded by a red line on a brown background. 46
  • 47. LESSON 11: BASIC FINANCE: UNDERSTANDING THE PROFIT AND LOSS STATEMENTOverview: This lesson introduces the Income Statement (aka Profit & Loss Statement.) Understanding this commonfinancial statement is essential to understanding how business works. The lesson covers the basic structure of thereport, and introduces the key elements of the income statement.Exercise: The facilitator may choose to have the participants do this activity individually, in small groups, or as a class.Using the following information, create an Income Statement for The Big Rug Store for the year ending December 31,2011. • In 2010, the owner bought 125 red rugs for 100 dollars each and 10 blue rugs for 80 dollars each. • She paid an additional 5 dollars per rug for delivery. • In 2011 she sold 100 red rugs for 200 dollars each and 1 blue rug for 220 dollars. • Her only expenses, apart from the purchase of the rugs, were 30 dollars per month for the rent of her store and 20 dollars per month that she paid to her sales assistant who worked 1 hour a day while Anna ate her lunch. • Anna received 150 dollars when she sold a computer her business wasn’t using anymore to her neighbor. • Anna must pay a 10% tax on her Pre Tax Income.Answer Key / Discussion Guide: Annas Rug Store Income Statement Year Ending December 31, 2011 Sales 2,022,000 (100 x 20,000) + (1 x 22,000) Cost of Goods Sold 1,058,500 (100 x 10,000) + (1 x 8,000)+(101*500) Gross Profit 963,500 Selling General and Administrative Expenses 60,000 (12 x 3000) + (12 x 2000) Operating Income 903,500 Other Income and Expenses 15,000 Pre Tax Income 918,500 Taxes 91,850 Net Income 826,650 LESSON 12: SUPPLY CHAIN MANAGEMENTOverview: This lesson will discuss the supply chain, which is a system by which resources move from their point oforigin through the creation of products and services and onward to the customer. It will also address how to make itmore efficient for a business owner with respect to time and cost.Exercise: The facilitator may choose to have the participants do this activity individually, in small groups, or as a class.Assume that you are the owner of a small business that provides transportation of produce from local farms to thecentral market in the regional town. Recall that a supply chain includes all the people and organizations that turn rawmaterials into a product or service that customers purchase. Looking at all the pieces in your particular supply chain,you decide that there are five main stakeholder groups: the seed suppliers, the farmers, your business, the centralmarket, and the end customers that purchase and eat the food. Here are a few facts about the supply chain today: • Farmers tend to purchase their seeds from many small businesses or friends. Some purchase them in the regional town and others purchase them from other villages. • You own two trucks that make daily trips between the farmers’ houses and the central market. You drive one truck and your son drives the other. 47
  • 48. • Besides the central market in the regional town, there are two other towns that are a bit further but also have large markets for produce. You currently sell very little product there because the central market nearest you purchases the majority of your products.You would like to make your business more efficient and profitable and start a project to manage the supply chain inyour area. Consider the following issues and make note of questions you would ask the people you work with and ideasyou might suggest to improve the supply chain or otherwise improve your business. • Scenario 1: After several years of drought, the weather in the region has improved and a much larger harvest is expected this year. • Scenario 2: A new business has been started in the regional town that provides a centralized seed supply. • Scenario 3: The price of fuel is increasing.For each scenario, think about the following: 1. Would this affect supply and/or demand? 2. What stakeholder groups would be most affected by this change? 3. What opportunities or challenges are most likely for your business? 4. Are there any methods to improve your supply chain that might lead to increased sales or decreased expenses for your business?Answer Key / Discussion Guide:Scenario 1: This will affect supply of produce and may affect demand if prices decrease. The larger harvest will affectthe farmers, your business, the central market and the end customers. You will probably want to discuss the expectedsupply increase with your customers at the regional market and find out if they would be able to sell the additionalproduce. The additional supply would likely reduce prices and some may not be interested in selling things that theymay not make a profit on. You should also consider whether your vehicles are adequate to handle the additional goodsor whether you may need more trucks. You may also want to explore whether another regional market may want anysurplus produce and discuss with your suppliers that there may be additional places to sell their produce. This could bean opportunity to expand your business, although you should remember that harvests are not predictable and youshould understand the costs and risks of expanding.Scenario 2: This will probably not affect supply or demand of seeds. While the farmers will be affected because it willbe easier to buy seeds, the seed supplier will be the most affected. You will want to find out if the seed business hasdelivery or if its customers are required to pick up their purchases. If your farm suppliers become customers of theseed business, there may be an opportunity for you to deliver the seeds, thereby using your vehicles more andincreasing your revenue.Scenario 3: This will affect the demand of fuel and your business will be the most affected. Increasing fuel costs willlikely reduce your profits unless you can increase the rates you charge. If you cannot increase rates, you will probablywant to investigate ways to make your deliveries more efficient by scheduling pick-ups so that you only need to go toeach area once. One way to do this would be to create “collection points” for the farmers, which would be centralizedlocations where many farmers could bring their crops for you to pick up, rather than you driving to each farmer’shouse. If the farmers require a lot of machinery, the increase in fuel costs could also affect them. If they are unable toincrease prices to cover the additional cost, they may seek lower transportation costs from you or look for othertransportation. If the farmers are able to increase prices, the central market and end customers would also be affectedand demand could decrease. Each of those results could lead to challenges and opportunities throughout the supplychain. 48
  • 49. LESSON 13: BASIC FINANCE: UNDERSTANDING THE BALANCE SHEET AND KEY FINANCIAL RATIOSOverview: This lesson introduces two important topics in business finance: the balance sheet and financial ratios. Thebalance sheet shows all of the assets, liabilities, and equity of a company at a point in time. Using the information onthe balance sheet and the income statement, we can calculate several financial ratios that help us understand how abusiness is performing.Exercise: The facilitator may choose to have the participants do this activity individually, in small groups, or as a class. 1. Here is a simplified Balance Sheet For Super Rug Store. How much should be shown as Retained Earnings for 2011? Super Rug Store Balance Sheet 31-Dec-11 31-Dec-10 Assets Cash 10,000 9,000 Inventory 35,000 34,300 Accounts Receivable 15,000 5,000 Property, Plant and Equipment 22,000 22,000 Total Assets 82,000 70,300 Liabilities Accounts Payable 14,000 10,300 Long-term Debt 33,500 35,000 Total Liabilities 47,500 45,300 Shareholders Equity Paid-In Capital 25,000 25,000 Retained Earnings 0 Total Shareholders Equity 34,500 25,000 2. Super Rug Store has $14,000 in Accounts Payable. What does that number represent? 3. If Super Rug Store owns a delivery truck, where on the Balance Sheet would that be included? 4. Super Rug store had $9,000 in cash on December 31, 2010 and $10,000 in cash on December 31, 2011. How much cash did the company have on June 30, 2011? 5. The uncle of Super’s owner says he will lend the company $50,000 and that he expects to be repaid $65,000 at the end of 8 years. Where on the Balance Sheet, would that loan be shown?Answer Key / Discussion Guide: 1. $9,500. Total Equity must equal $34,500. Paid In Capital is $25,000. The difference comes from Retained Earnings. 2. The $14,000 in Accounts Payable represents money that Super Rug Store owes. In this example, it is likely that Super Rug Store received a shipment of rugs from the manufacturer and has a period of time before the payment for them is due. 3. A delivery truck would be considered part of Property, Plant and Equipment. 4. We cannot answer the question with information given. The Balance Sheet shows only values as of a particular day. It does not tell us anything about the values between the Balance Sheet dates. 5. A five-year loan would be considered a Long-Term liability. 49
  • 50. LESSON 14: WORKING CAPITAL MANAGEMENTOverview: Working Capital Management is a very important of managing a business. By properly managing your liquidassets, you can ensure that your business can pay off its obligations and take advantage of special opportunities. Thelesson also introduces the common financial ratios used to evaluate working capital management: the current ratio, thequick ratio, and the cash ratio.Exercise: The facilitator may choose to have the participants do this activity individually, in small groups, or as a class. 1. Given the Balance Sheet and Income Statement for Super Rug Store above, calculate: a. Working Capital b. Current Ratio c. Quick Ratio d. Inventory Turnover (in days) e. Collection Period (in days) 2. How does the Quick Ratio differ from the Current Ratio? 3. Why is this difference important? 4. What would it mean if Super Rug Store has a policy of giving its customers 7 days to pay and its Collection period is 15 days? What are some things Super Rug Store might do? 50
  • 51. Answer Key / Discussion Guide: 1. 2. The Quick Ratio uses assets that can be converted cash quickly. It excludes the value of Inventories held by the company. 3. Inventory is less liquid than the other current assets. That is it is harder to turn into cash. If the company needed cash right away, the inventory of rugs would not be very helpful. 4. If Super Rug Store has a policy of giving its customers 7 days to pay and its Collection period is 15 days, it means that its customers are not acting according to the policy and are taking more time than they should to pay Super Rug Store. Super could a. start a cash-only policy b. start charging its customers a fee for late payments c. offer discounts for early or on-time payments d. screen its customers and only offer credit to those that are likely to pay on time LESSON 15: STRATEGIC PLANNINGOverview: The goal of this lesson is do explain the purpose of having a strategy and developing a strategic plan. Thelesson provides an overview of the prerequisites of having a strategic plan, then provides an explanation of each of thefour phases of the strategic planning process: Situational Analysis, Setting Goals, Creating a Path Forward, and Usingthe Strategic Plan.Exercise: The following goals are written for a small clothing store. Students must decide whether each goal is goodor not. They must explain why or why not the goal is good. For poor goals, students must rewrite the goal to make itgood. Participants should discuss the answers as a group. Then, have the participants create action plans that wouldhelp achieve the goals.Superior Clothing Store’s Goals: 1. Improve by 12% by 2014. 2. Increase sales of women’s clothing by summer 2013. 3. Sell $100,000 of books before the end of 2015. 4. Gain 1,000 new members in our discount club by spring 2014. 5. Increase dress sales by 5% soon. 6. Open 32 new stores within one year.Answer Key / Discussion Guide:Goals: 1. Poor. It is not specific. Improve what? Because the goal is not specific, we also do not know if it is attainable or relevant. 51
  • 52. 2. Poor. The goal is not measurable. How much should sales be increased? 3. Poor. The goal is not relevant. Why is the clothing store setting a goal of selling books? 4. Good. 5. Poor. The goal is not truly time-bound. We are not exactly sure when soon is. 6. Poor. The goal is not realistic. A small clothing store probably cannot open 32 new stores in such a short timeframe.Action Plans: The students’ answers may vary from the statements below and still be correct. These answers shouldbe used as guidelines. 1. Assuming we change the goal to be specific to something like “Improve sales by 12% by 2014” a. Provide extra customer service training to sales staff by fall 2012. b. Create advertisements to put up at the local university by winter 2012/13. c. Identify the best selling clothes of 2012 during winter 2012/13. 2. Assuming we change the goal to be measurable to something like “Increase sales of women’s clothing 5% by summer 2013.” a. Analyze which dresses were the most popular in spring 2012 and summer 2012. b. Offer discounts on the most popular spring and summer clothing of 2012 during fall 2012. c. Introduce swimwear in early Spring 2013. 3. Assuming we change the goal to be relevant to something like “Sell $100,000 of jeans before the end of 2015.” a. Allow the staff to wear our best selling jeans during 2012. b. Train staff in fitting customers for jeans by the end of 2013. c. Offer special sales on jeans in 2014. 4. Gain 1,000 new members in our discount club by spring 2014. a. Increase the clothing on the discount list by 10% in 2012. b. Use Facebook to advertise the discount club during 2013. c. Create a referral program for club members in winter 2014. 5. Assuming we change the goal to be time-bound to something like “Increase dress sales by 5% by the end of 2013.” a. Change the mannequins at the front of the store from casual wear to dresses in summer 2012. d. Offer double reward points for dress purchases in fall 2012. e. Create a dress advertisement in spring 2013. 6. Assuming we change the goal to be attainable to something like “Open 1 new store within one year.” a. Do market research by the end of the summer. b. Rent real estate by the end of the winter. c. Hire new staff by the end of the spring. LESSON 16: CUSTOMER RELATIONSHIP MANAGEMENTOverview: This lesson discusses customer service and why preserving long-term customer satisfaction is as importantas other business assets and how it can be used as a competitive tool. We will look at strategies to maintain customerrelationships and talk about Customer Lifetime Value (CLV).Exercise: The facilitator may choose to have the participants read through the following scenarios in small groups orpairs and record their thoughts, or read the scenarios in front of the whole class and have a larger group discussion.The following scenario is designed to illustrate how employees can choose to react to business situations wherecustomer service is the critical determinant of success. After the scenario, there is a series of discussion questions thatthe facilitator should ask the participants to think about. Additionally, there will be an introductory example of theimportance of Customer Lifetime Value.Scenario: Part AWhile working one afternoon, the manager of a local sporting goods store received a call from a customer asking if thatstore had a set of punching bags that he could purchase for his boxing gymnasium. Specifically, the customer statedthat he needed two large punching bags and three speed bags and that he needs them by the end of the week. Themanager assures the customer that those items are in stock and that the total cost would be $450: $150 per largepunching bag (2 x $150) and $50 per speed bag (3 x $50). The customer agrees to the price and confirms that he willcome to the store the following day at 12:00 to purchase the punching bags. This is not the first time this customer has 52
  • 53. come to the sporting good store. The customer opened his boxing gym about five years ago and has come back everysummer to refresh his supplies. Typically, he does this in one visit and spends close to $1,000 on bags, gloves, pads,and other equipment.Scenario: Part BThe following afternoon, the customer comes to the sporting goods store. However, the manager decided to leave thestore for 45 minutes to have lunch at a café. The manager arrives back at the store at 12:15 to find the customerwaiting somewhat impatiently. Once inside the store, the manager presents the customer with one large punching bagand four speed bags. The customer, now angry, tells the manager that he wanted two large punching bags and threespeed bags. The manager apologizes for the error, but tells the customer that these are the only punching bags in stockand that it would take two weeks to order additional items. The manager then asks the customer if he would like topurchase the punching bags. While disappointed and angry, the first customer asks how much it would cost for onelarge punching bag and two speed bags. The manager returns to the cash register and tells the customer it would cost$300: $200 for the one large punching bag and $100 for the speed bags (2 x $50). The customer replies that yesterdayon the phone, the manager stated that one large punching bag was only $150. The manager replies that he forgot tocheck yesterday and that the $150 price was related to a promotional discount the store has having the previousweekend.At this point, there are other customers in the store and the manager is clearly distracted and begins ignoring the firstcustomer in order to speak to the others. One of the other customers is the head coach of the region’s soccer team andis friends with the store’s manager. While the coach does not often purchase anything from this sporting goods store,the soccer team purchases new jerseys and equipment every five years. The manager is eager to get the coach’s businessbecause it would be a very large sale. The manager estimates that every five years, the soccer team spends about $8,000on supplies. In an effort to accommodate the coach, the manager tells him that he will give him a 10% discount onanything they purchase.While the manager has been talking to the coach, the boxing gym owner has since left the store since the manager wasignoring him. There is larger sporting goods store in a town 50 kilometers away, so it is likely that the boxing gymowner took his business there.Questions for Discussion: 1. In Part A, what are two things the manager could have done to improve customer satisfaction in the future? 2. In Part B, describe at least three aspects of customer service that the manager did poorly. What approach or tactic could the manager have used to improve his customer relationship management? 3. If you were the owner of the boxing gym, how would you feel about that sporting goods store? Would you go back to purchase other items? Would you recommend it to you gym members? 4. Using the chart below, calculate the Customer Lifetime Value for both the boxing gym owner and the soccer team coach. Do the calculation for a purchasing lifetime of 5 years and 12 years. Some of the boxes have been filled in for you: Boxing Gym Soccer Team Source A Purchasing Lifetime (in years) Assumption B Average Time Between Purchases (in years) 1 5 From Text C Average Amount Spent $1,300 $8,000 From Text D Less: Promotional Discounts 0% 10% From Text E Net Revenue C x (1-D) F Average Gross Profit Margin 75% 75% Assumption G Gross Profit ExF Customer Lifetime Value (A / B) x GAnswer Key / Discussion Guide: 1. When a customer call and inquires about certain products being available, the manager should have first checked to be totally confident that those products were in stock. If they were in stock, the manager could have set them 53
  • 54. aside or marked them so that another customer didn’t come in and purchase them. If they weren’t in stock, the manager should have told the customer when they would arrive if ordered today or referred him to another sporting goods store. Using the same mindset, the manager should have also confirmed the combined prices for the items to avoid any unfortunate surprises the next day.2. Parts B and C illustrate a number of poor customer relationship management areas, including: a. The manager was not at the store at the time the customer had specified about arriving. If a customer states that he or she will come to the store at a certain time, the person speaking with that customer should write a note with the information and leave it in a place where other employees can see it. By doing so, it is unlikely that a customer would come to the store when it was closed, there were no workers, etc. b. The items the customer was expecting were unavailable. As noted above, employees should be very careful about not meeting customers’ expectations. One easy way to lose business is to appear dishonest to your customers. c. Again, the manager should have made more of an effort to confirm the correct price of the goods. Often, if a manager tells a customer that a product or service will cost a certain price, they would still sell that product or service at the quoted price even if the manager was wrong. As noted in the lesson, being able to apologize to customers and accept responsibility for mistakes are signs of a business with good customer service. d. The manager begins to ignore the boxing gym owner. While it may seem appropriate for a manager to be polite and responsive to all the customers, it needs to be done in a way that shows respect to the customer that was there first. In this case, the manager knew that the soccer coach represented a potentially larger sale, which is probably part of the reason he began ignoring the boxing gym owner. An additional factor may have been that the manager realized he had made multiple mistakes with the gym owner and, rather than trying to fix them, thought it might be easier to ignore them.3. From the perspective of the boxing gym owner, it is unlikely that the experience was viewed positive in any respect. On all accounts, the manager of the sporting goods store failed to show that he valued and understood the needs of the gym owner. If this were a true story, the boxing gym owner would probably not ever return to that particular store and would tell his friends and family not to go as well. Since the gym owner had been a repeat customer for five years and would have likely continued to shop at this store had it not been for the poor customer service, the sporting goods store lost a very valuable customer.4. The charts below illustrate how small changes can affect the calculation of Customer Lifetime Value. On a five- year horizon, the CLV of the soccer coach would have been greater than the boxing gym. However, since the soccer team only purchases new products every five years, changing the purchasing lifetime to a longer period can cause the outcome of the CLV to shift in favor of the boxing gym. What is not reflected in these charts is the probability of repeat business. The boxing gym has shopped at this sporting goods store for five years, making it very likely that they would have continued shopping there had it not been for the poor customer service. The soccer team has never purchased goods from this store and an initial purchase does not guarantee that in five years they would purchase goods again from this store. Taking probability into account, the CLV of the boxing gym shows that it is much more valuable as a long-term customer. Boxing Gym Soccer Team Source A Purchasing Lifetime (in years) 5 5 Assumption B Average Time Between Purchases (in years) 1 5 From Text C Average Amount Spent $1,300 $8,000 From Text D Less: Promotional Discounts 0% 10% From Text E Net Revenue $1,300 $7,200 C x (1-D) F Average Gross Profit Margin 75% 75% Assumption G Gross Profit $975 $5,400 ExF Customer Lifetime Value $4,875 $5,400 (A / B) x G Boxing Gym Soccer Team Source A Purchasing Lifetime (in years) 12 12 Assumption B Average Time Between Purchases (in years) 1 5 From Text C Average Amount Spent $1,300 $8,000 From Text 54
  • 55. D Less: Promotional Discounts 0% 10% From Text E Net Revenue $1,300 $7,200 C x (1-D) F Average Gross Profit Margin 75% 75% Assumption G Gross Profit $975 $5,400 ExF Customer Lifetime Value $11,700 $10,800 (A / B) x G LESSON 17: ETHICS AND CORPORATE SOCIAL RESPONSIBILITYOverview: The goal of this lesson is to provide an overview of business ethics and corporate social responsibility. Itdefines both topics, then provides examples of how ethical decisions can impact the way a business interacts with itsvarious constituencies. The lesson provides the case for and against corporate social responsibility, the complexities ofbusiness ethics, and how cultural standards change what is considered ethical for a business.Exercise: Is the behavior described ethical or not? In small groups, participants should discuss the following ethicalscenarios. Then discuss them again as a large group. Remember to consider your local norms, your country’s norms,and global norms in your discussions. 1. You are a salesclerk in a clothing store. Your co-worker, another salesclerk, often leaves work to do personal business. She is a cousin of the store manager. 2. You are a sales director at a large telecommunications provider. You have a meeting in a foreign country where bribes are normal. After you try to sell your product, you are asked for a bribe in exchange for a sale. 3. A mining company recently got permission to destroy a local village’s only water supply in order to expand mining operations. The company will start construction next week. 4. Your dad is the director of a university. You are hired at the university for a job for which you’re not qualified. 5. You work in a factory. The supervisor comes in and tells you to vote for his favorite politician. He threatens to fire you if you don’t. 6. You are responsible to purchase inventory for a store. You select what you believe is the best product for the best price. After, the owner of the supplier gives you a gift as thanks.Answer Key / Discussion Guide:Please note that the subject of ethics varies widely in different cultures, countries, and parts of the world. Thedescriptions below reflect an American perspective and interpretation of the situations above. 1. In Western countries this activity would be considered unethical. It is unethical because the salesclerk can leave work, do personal business, and yet still get paid for that time. Another unethical part is the family relationship between the salesclerk and the store manager. The manager allows his relative to leave work but the other employees are not able to do so. That can be considered a form of nepotism. 2. This example shows the different views on ethics around the world. For the people in the foreign country, the bribe is a normal part of doing business. There is nothing wrong about it. For the visiting sales director, the bribe request seems unethical. If the sales director refuses to bribe his clients, he will probably not make the sale. The sales director must weigh compromising his company’s ethics and his personal ethics against the benefit of winning a sale. He must also keep in mind that he is in their country, not the other way around. There is no clear answer here; it displays one of the many gray areas in ethics. 3. From the perspective of the villagers, this act is very unethical. The village will suffer greatly if the water source is destroyed. From the perspective of the business, this act may not seem unethical. If the owners of the business only care about making money, then they will destroy the river. If they care about people, the environment, and their community, then they will not destroy the river and instead look for an alternative solution. The company, however, may feel it is not unethical if the region is poor and the mine will create jobs. 4. This behavior is unethical. It is an example of nepotism. In this case, you are hired for a job for which you are not qualified simply because you are related to the director. As is the case with most types of unethical behavior, a few people benefit at the cost of many others. Who are the beneficiaries? Your father and you. Who suffers? The university suffers because you will not be able to perform the job well. That affects other workers and potentially students too. Also, the other people who honestly applied for the job are denied an opportunity for work for which they are qualified. 5. This behavior is unethical. You can be fired for not working well, for coming to work late, or many other reasons. But politics are not directly connected with work. Therefore, politics are not an ethical reason to fire 55
  • 56. someone. Also, the boss is abusing his power to get what he wants in his personal life. His abuse of power is also unethical. 6. Receiving a gift for doing business is a big part of business culture in many countries and companies. In America, for example, many companies have specific policies on which gifts can be accepted and which gifts can’t be accepted. In some companies, gifts can’t be accepted at all. In other companies, gifts can be accepted if they are under $25 in value. In other companies, any kind of gift can be accepted. There is a gray area in this example. Refer to your company’s policies to see what to do. As usual, if it doesn’t feel right to accept the gift, then you probably shouldn’t. Also, will the gift affect the way you purchase in the future? Will the supplier expect something from you? LESSON 18: COMPETITIVE ANALYSISOverview: The goal of this lesson is to provide tools to determine the strengths and weaknesses of potentialcompetitors in order to compete in various markets. The lesson begins with an overview of the importance ofcompetitor analysis and its primary importance. A framework to analyze various competitors is then introduced. Thelesson then uses the framework to analyze the key aspects of a competitor.Exercise: In pairs, the participants should answer the following questions. As a café owner, you are interested incompleting a competitor analysis for the main competitors in your town. 1. What are at least 3 ways you can gather data about your competitors? 2. What are 2 external factors which may affect your competitors? 3. What are at least 5 benchmarks that you compare yourself versus your industry competitors? 4. What are 3 ways you could look at decreasing your costs? 5. What are 2 pros and 2 cons of using higher quality food at your café?Answer Key / Discussion Guide: 1. What are at least 3 ways you can gather data about your competitors? a. Personally attending competitor’s café. b. Gathering documentation on customer reviews/personally interviewing customers c. Review public reports 2. What are 2 external factors that may affect your competitors? a. The economy is down and has forced many individuals to eat at home b. A new group of people have moved into town who have specific tastes and food requirements 3. What are at least 5 benchmarks that you compare yourself versus your industry competitors? a. Cost of labor b. Cost of advertising c. Amount of customers per day d. Percent of returns e. Price of food/drinks 4. What are 3 ways you could look at decreasing your costs? a. Decrease amount of workers or their hours b. Research and find lower wholesale food dealers c. Analyze location to determine if other areas might allow for more business with lower rent 5. If you find your competitors are beginning to cater to a more business, upscale customer what opportunities do you see for your customer base? a. An opportunity to increase your market for less expensive café b. An opportunity to increase your market for families or children LESSON 19: ANALYZING CASH FLOWOverview: This lesson is focused on understanding the structure and importance of a Cash Flow Statement. Thelesson covers the three main sections of a Cash Flow Statement: Operational, Financing, and Investing. Thedifferences between the Cash Flow Statement and other financial statements are discussed, as are the relationships.Exercise: The facilitator may choose to have the participants do this activity individually, in small groups, or as a class.Below are actions connected with Lion Bread Company. Determine if there was a cash inflow, a cash outflow or no 56
  • 57. cash flow. Then indicate if the action was an operating, investing, or financing transaction. Use the following grid toanswer each question: Inflow Outflow No Cash Flow Operating Investing Financing 1. Lion bought Zebra Bread Shop which is located in a neighboring town for $98,000. 2. Lion paid a designer$1,200 to create a new logo. 3. Lion agreed to buy $16,000 worth of flour next year. 4. Employee salaries of $4,000 were paid this month. 5. Lion received a loan of $30,000 and used it to buy a new truck to make deliveries. 6. $14,500 of Accounts Receivable was collected. 7. Lion sold $44,000 worth of bread. 8. Lion sold its old delivery truck for $18,000. 9. Lion paid its shareholders a dividend of $1 per share. 10. Lion’s inventory increased by $18,000.Answer Key / Discussion Guide: 1. Mergers and acquisitions are Investing Cash Flows. Cash left the company to buy Zebra so it in an outflow. Inflow Outflow No Cash Flow Operating Investing Financing X X 2. This is a marketing expense, which is an operating cash flow. Inflow Outflow No Cash Flow Operating Investing Financing X X 3. No money has flowed yet. It will be an operating cash flow when they pay for the flour. Inflow Outflow No Cash Flow Operating Investing Financing X 4. Salaries are operating cash flows. Inflow Outflow No Cash Flow Operating Investing Financing X X 5. This loan received is a financing cash inflow and the use of the money is an investing cash outflow. Inflow Outflow No Cash Flow Operating Investing Financing X X X X 6. This is an operating cash inflow. Inflow Outflow No Cash Flow Operating Investing Financing X X 7. Revenues are operating cash inflows. Inflow Outflow No Cash Flow Operating Investing Financing X X 8. The sale of an asset creates an investing inflow. Inflow Outflow No Cash Flow Operating Investing Financing X X 9. Dividends are financing cash flows. Since money leaves the company, it is an outflow. Inflow Outflow No Cash Flow Operating Investing Financing X X 10. Cash left the company, so it is an outflow. Buying inventory is an operating expense, so it is an operation cash outflow. Inflow Outflow No Cash Flow Operating Investing Financing X X LESSON 20: ECONOMICS: UNDERSTANDING MACROECONOMIC INFLUENCES AND ECONOMIC STRUCTURES 57
  • 58. Overview: The lesson introduces some of the basic metrics macroeconomics uses to assess the overall efficiency of aneconomy, including national output, inflation, and unemployment. The second part of the lessons addresses the threemain types of economic structures - free (market), command (planned), and mixed - and their basic laws that governtheir behavior.Exercise: The facilitator can choose to have the participants discuss the following questions in small groups or as aclass. For each of the scenarios below, the participants should think about the following two questions. Please note thatthe participants’ answers should assume that these events take place in a mixed economy that incorporates more of afree economy rather than a command one. 1. Would the following events impact inflation, unemployment, or neither? 2. If so, which factor would be most affected?Scenarios: • The central bank of a country decides to increase the money supply, meaning that more of the country’s currency is in circulation. • There is a small town with a large manufacturing facility that produces soccer balls. Approximately 60% of the town’s population works at the factory, mostly on assembly lines. The factory closes, leaving most of the workers without a job. There is another manufacturing facility in a smaller town, roughly 10 kilometers away. The factory is planned to open next month and management is currently recruiting potential employees. It will be much larger than the soccer ball facility and will produce toys. • Using the same scenario as #2, assume that the soccer ball facility is closing, but that there is no new facility being constructed nearby. • A season of poor weather causes the seasonal output of tomatoes to fall by 25%. • A country decides to increase its minimum wage laws, requiring that employers pay people under 21 years of age 10% more than they previously had done.Answer Key / Discussion Guide: • An increase in the money supply of a country typically leads to increased inflation. An increase in money in circulation means that buyers and sellers have more financial resources with which to buy goods and services. As noted in previous lessons, the law of demand states than an increase in demand leads to an increase in price. When the prices of goods and services rise, there is inflation. • The closure of the soccer ball facility would lead to unemployment, since the majority of the town’s population is employed there. However, a different manufacturing facility is expected to open soon within a reasonable distance. Two additional important facts are that the population of the town where the new facility will be located in a town with a smaller population but will be larger than the soccer ball facility. Thus, it is probable that the majority of the soccer ball workers could find new work once the facility is opened, which makes this an example of frictional unemployment. • Without other opportunities for employment, the unemployment of the former workers of the soccer ball factory is likely to persist for a longer time. Manufacturing skills do not transfer well to other industries, meaning that a factory worker might have a hard time getting an accounting job or becoming a waitress. Since the unemployment would persist, it is likely that this would be an example of structural unemployment. In this example, prolonged unemployment may lead to deflation in the particular town’s economy. Since 60% of the population is now unemployed, their purchasing power is decreased, meaning that they have less money to purchase goods and services. Business owners would need to lower price in order to capture demand. Lowering prices of goods and services is known as deflation. • A seasonal change in the price of a good or service would lead to a change in price of that good or service and perhaps related goods and services. However, a change in the price of a single or select group of goods or services does not equate to inflation. Further, since the price change of tomatoes was caused by a seasonal event (poor weather), it is likely that next year’s harvest would be closer to historical norms and stabilize the price of tomatoes. As a result, there is probably minimal impact to either inflation or unemployment. • Changes in minimum wages can lead to either inflation or unemployment, depending on the circumstances. In some cases, an increase in a business’s expenses can be offset by an increase in the prices they charge customers for their goods or services. In this case, prices in general would likely increase and lead to inflation. Conversely, if businesses could not pass on the increased prices without leading to decreased demand, the businesses might elect to fire some of their employees to reduce costs. If enough people in an economy lose their job, unemployment 58
  • 59. will rise and the prices of goods and services will decrease, leading to deflation. There is no simple answer to macroeconomic questions such as this, which is why different nations have different economic structures and decide on their own monetary and fiscal policies. LESSON 21: CORE COMPETENCY AND COMPETITIVE ADVANTAGEOverview: The goal of this lesson is to provide participants with the tools to identify how to utilize core assets orstrengths within their company. Participants should have a clear understanding of the importance of distinguishing inwhich things they excel and structuring their strategy around these areas. Using these identified strengths, participantswill be provided two frequently used strategies to gain a competitive advantage within their market.Exercise: Split the class into four different groups. Each group should be assigned one of the following companies: 1. A small coffee café 2. A large clothing department 3. A local restaurant 4. A local barIn their groups, the participants should answer the following questions. They may make up any missing informationthat is not previously listed as long as it is rational (for example: a restaurant has an asset of 2 chefs, central location,etc.) • What are your assets? Please list 5-7. • Select 2 of your top assets. What are ways to develop or improve these assets? • Determine whether any of these assets can be a core competency using the criteria below. Explain why or why not. o Does it provide benefits to the customer? o Is it hard to imitate? o Does it offer access to a wide variety of markets? • Which one of the two strategies discussed to achieve a competitive advantage does your company have the potential to achieve? Why? How would you go about achieving this?Answer Key / Discussion Guide: • What are your assets? Please list 5-7. o Assets should include both physical and non-physical assets. Below are some examples:  Loan of $1,000 in cash  Local coffee beans  5 workers (i.e. waitresses, chefs, etc.)  Expert knowledge in the coffee industry  Fresh food from a nearby supplier • Select 2 of your top assets. What are ways to develop or improve these assets? o Expert knowledge on the coffee industry – receive extra training on how to best grow the coffee beans. Always have the most up to date information on the best harvesting and coffee producing practices. o Local coffee beans – research ways to expand production of coffee beans or possibly decrease the amount of crop lost. • Determine whether any of these assets can be a core competency using the criteria below. Explain why or why not. o Does it provide benefits to the customer? o Is it hard to imitate? o Does it offer access to a wide variety of markets?  ANSWERS WILL VARY • Which one of the two strategies discussed to achieve a competitive advantage does your company have the potential to achieve? Why? How would you go about achieving this? o Differentiation – Our company has the ability to achieve a competitive advantage by making our coffee beans better than our competitors. This is because we have full control over the harvesting of our crop and have expertise to make the best tasting product. We will complete this by adding different flavors to our coffee beans which none of our competitors have: vanilla, cinnamon, etc. 59
  • 60. LESSON 22: PORTERS FIVE FORCES THEORYOverview: This lesson will discuss Michael Porters economic theory about various forces that can affect the successof a business and the decisions that need to be made before starting a business. It will apply each particular force tosmall businesses to illustrate the core concepts and how small businesses can be impacted by industry competition.Exercise: You are the CEO of a firm that manufactures light bulbs for street lamps. Your light bulbs use an elementkrypton, that other manufacturers do not have and which makes your light bulbs last five times longer. Your lightbulbs cost three times as much as the conventional light bulbs that are currently used by most municipalities in. UsingPorter’s Five Forces framework, identify which of the forces is being described by the following: 1. Your light bulbs fit into streetlights without any needing to modify the streetlights. 2. It is hard to get municipalities to switch to your light bulbs because new suppliers have to undergo a rigorous examination and be approved as a supplier. 3. Three light bulb manufacturers currently control 78% of the municipal street light bulb market. 4. Once a municipality switches, they tend to be your customer for a long time. 5. Municipalities buy large quantities of light bulbs. 6. There are only two suppliers of krypton in the world. 7. A new competitor has developed a light bulb using xenium that lasts four times as long as standard light bulbs but costs half as much as yours do. 8. The competitor’s xenium light bulbs have to be stored in a refrigerated warehouse. 9. A manufacturer of microwave ovens has found a way to use krypton to make microwave ovens more efficient. 10. Your krypton light bulb manufacturing plant could not be used to make anything else.Answer Key / Discussion Guide: 1. There no (or low) switching costs. If streetlamps had to be modified to accept your bulbs, your company would be at a disadvantage. 2. This is a barrier to entry for new competitors. 3. You pose a threat of substitution to standard light bulb manufacturers. There is a high industry concentration, which creates a more competitive environment. The other competitors might lower their prices to keep business. This makes it hard for you to get the price you want for your light bulbs. 4. The tendency of municipalities to maintain a supplier relationship is a barrier to entry for new light bulb manufacturers. 5. This is an example of buyer power. Being large consumers of your product, the municipalities have the power to ask for lower prices. 6. This is supplier power. Limited supplies of krypton give the krypton companies’ power. 7. The competitor is a threat of a substitute to your company. 8. Because the competitor has high storage costs, it may lower prices to sell its product. This might make it necessary for you to lower prices on your lightbulbs. 9. This is supplier power. More consumers of krypton increase the threat from suppliers because they can sell their product to other manufacturers. 10. Having plant and equipment that cannot be used for anything else creates an exit barrier. LESSON 23: LEADERSHIP AND TEAMBUILDINGOverview: This lesson will discuss the concept of teamwork and what makes a team effective. It also discusses therole of a team leader and what makes a leader effective. Finally, it discusses how these two concepts interact inbuilding a well functioning team.Exercise: There are numerous activities that can be fun and useful to illustrate the benefits of working as a team. Thefollowing is an example that is easy to organize: • Activity Name: River Crossing • Materials Needed: Sheets of paper (half as many as people in the group), 2 pieces of rope (or tape) • Preparation: The facilitator should create a river by marking two riverbanks with the rope or tape. Make the river wide enough to be a challenge for the group to get from one side to the other (about 4 – 6 meters). Distribute the sheets of paper – 1 piece for every 2 people. 60
  • 61. • Directions: The object of the activity is to get all members of the group safely across the river. They must go as one big group, not multiple smaller ones. Everyone must be on the river before anyone can get off the river, forcing the entire group to participate at once. Participants cannot touch the water (floor) and therefore must use rafts (paper) to cross. The water is filled with piranhas. Therefore if someone loses their balance and touches a hand in the water it gets eaten (put behind the back). Same goes for a foot. If a person completely comes off the raft they are gone and since this is a team exercise everyone must start over following the motto, "start as a team and end as a team." Rafts must be in contact with a human at all times or they will be swept away with the current. Once the group has started the process, the observer takes away sheets of paper that are “swept away by the current” and to watch for safety issues. The participants will invariably slip up and leave some rafts here or there with no one contacting them, those you should steal. When the first group members get to the other side immediately start to encourage them to hurry and get off the river. Nearly every time the first few people will rush off the rafts leaving them unattended for you to steal and stranding some of their team-mates. Discuss this after the exercise, that when working with a team you cant forget about your mates - just because you have made it to the finish line someone else may not have.Answer Key / Discussion Guide: Usually, the team will start to cross the “river” and find that there are not enough“rafts” to reach the other side. The best solution is for the “rafts” at the back to be passed forward as the last teammember steps off (as it will no longer be needed) and the people at the front can use them to continue crossing. Byworking together, the entire team can cross safely. After the participants have completed the exercise, the facilitatorshould ask them the following questions. 1. What happened during the process? What worked? What didn’t or what hindered the process? 2. What leadership was demonstrated during the process? How so? What did you observe? 3. What were the individual roles people played? Were members comfortable with their roles? 4. Who knew what the process for crossing was? Who didn’t? How did you communicate the plans to group members? 5. What might the different aspects of the exercise represent in your group: the squares, the river, the loss of squares, the facilitator, etc? 6. When the first people rushed off the river and stranded some of you how did that feel? LESSON 24: BUSINESS PLAN WRITINGOverview: This lesson is the final chapter in the Novus Business Curriculum. It describes the purpose of a businessplan and its core elements. The lesson provides an overview of what type of information should be included in eachpart of a business plan, key questions to ask yourself as the business plan is prepared, and what other Novus lessonscan be reviewed in order to effectively write each section.Exercise: This activity can be done individually or in small groups. Ask the participants to answer the followingquestions and be able to explain their answers to the rest of the class: 1. Using the skills you have now, what kind of business would you start if your family would lend you $30,000 to get it started? 2. For your business, how would you answer the following questions in your business plan? a. What is the general industry you would operate in? What is the smaller target market your business would serve? b. Who are your main competitors? c. What are some of the characteristics or demographics of your target customers? d. What specific goods or services would you provide? Would you sell the same products three years in the future? If not, what else would you provide? e. Who would be the most important staff members? What skills do you possess that would allow you to excel in the target market? f. What marketing and advertising methods would be most effective in reaching your target customers? g. What specific equipment or assets would you need to purchase in order to operate your business?Answer Key / Discussion Guide: 1. The answers to this question will vary widely as will how the participants respond to the other questions. By way of example, this assumes that the type of business would be a clothing store focused on selling high-quality, handmade, fashionable dresses. 61
  • 62. 2. For your business, how would you answer the following questions in your business plan? a. The general industry is women’s clothing. The target market is women seeking to purchase high quality dresses in the latest fashions. b. This answer will depend on the size and location of the store as well as the size of the target market. If the dress store’s target market was a city, competitors would include any other dress stores in the community. If the target market was a whole region or country, the competition would include any other dress makers that could also serve that market. c. For example, the target customers for fashionable dress store could be females that are 18-38 years old. The women purchasing the dresses typically come to the store with their close friends and other female relatives. They use their personal savings to purchase the dresses. d. The store might provide only dresses in the beginning, though it might also provide ancillary goods and services such as dress tailoring, high heel shoes, and jewelry that match the dress selections. The store could initially plan to sell only dresses, but have a strategy to offer these other goods and services within three years. e. The most important staff members would depend on who is making the dresses. If the dresses are made in the store, then some of the most important people will be those who make and fit the dresses. If the store is reselling dresses, the most important staff members might be the sales representatives and others who attract and interact with customers. f. Again, the community in which the store would operate will affect this answer. If you found that the target customers almost all had televisions and regularly watched the local news, creating a commercial with the local station might be very effective. If most of the target customers typically shop online, a website or Facebook page might be useful. g. The dress store would need to rent or purchase a physical retail location, a set of initial dresses to sell, a cash register, etc. 62
  • 63. COMPUTER CURRICULUMWith computers playing an ever-increasing role in the business environment, knowing how to navigate and use themost common programs is a requirement. While knowing the most advanced tools and techniques are not necessary,having a solid understanding of the program basics is important. The computer lessons in the Novus Program providea foundation of skill in using the worlds most popular office productivity suite, Microsoft Office. The first elevenlessons provide instruction in Word, Excel, and PowerPoint, from basic usage to advanced tools. Each lesson buildsupon what was learned in the previous lesson; therefore it is important that students grasp all of the concepts coveredin the lesson. The twelfth and final lesson is more of a capstone for the entire Novus Program as it provides anoverview of the Armenian business environment and lists organizations to contact for further assistance.The lessons are presented through a combination of static slides and screen cast videos. The videos provide step-by-step instruction on how to perform certain Microsoft Office functions, making it easier to grasp difficult concepts. Theincluded activities strive to reinforce the topics covered in the lesson, as well as incorporate aspects of the Novusbusiness training topics and business simulator activities.Facilitator’s should note that participants may share one computer during these lessons if sufficient resources areunavailable. However, as some of the lessons’ activities incorporate not just results of the business simulator, but alsoprevious lessons’ activities, participants should have a method for saving their work so that they can continue to buildupon it throughout the computer curriculum. LESSON 1: MICROSOFT EXCEL 1: EXCEL BASICSOverview: This lesson provides information on the basics of Excel, Microsoft’s powerful spreadsheet developmenttool. The topics covered include a basic review of the program’s toolbars and options, and an introduction to dataentry and data formatting. The lesson teaches concepts through a combination of image-based slides and videotutorials. The objective of the lesson is for the user to be comfortable with operations such as opening and creatingExcel documents, saving Excel documents, navigating the options and toolbar, entering data into the worksheet, andformatting data color and size.Exercise: 1. Students should create a grey-colored rectangle in the worksheet by selecting cells B2 through E6 and changing their color to grey. 2. In cell E4, students should write the word “rectangle”, and make the font color size 20, bold, underlined, and center-aligned. 3. Next, have students use the copy and paste commands to make the same rectangle appear in cells K7 through Q11. 4. Finally, have the students delete the first rectangle, use the cut command with the second rectangle, and use the paste command to insert the rectangle in its original location. LESSON 2: MICROSOFT POWERPOINT 1: POWERPOINT BASICSOverview: This lesson provides information on the basics of PowerPoint, Microsoft’s powerful presentationdevelopment tool. The topics covered include a basic review of the program’s toolbars and options, and anintroduction to slide creation. The objective of the lesson is for the user to be comfortable with operations likeopening and creating PowerPoint documents, saving PowerPoint documents, navigating the options and toolbar,adding new slides, formatting text, formatting textboxes, using different program views, and starting a presentation.The lesson teaches concepts through a combination of image-based slides and video tutorials.Exercise: 1. Have students create a short presentation presenting their business to investors. Their presentation does not need to have any colors or design, but it must include three slides: • Title Slide – this slide should show the name of your business and the name of the members of your team. • Mission Statement/Vision Slide – this slide should lay out the business’s mission statement using the information they learned in the Novus business lesson. 63
  • 64. • Market Analysis Slide – this slide should present some information about the beer market their business is trying to enter. Make sure students address at least: o Size of the market o Products in the market o Competition o Consumers LESSON 3: MICROSOFT EXCEL 2: DATA ENTRYOverview: This lesson builds upon the concepts that were learned in the previous Excel lesson. The topics coveredinclude formatting of Microsoft Excel worksheets, more advanced data entry, and tools for performing simple analysisof data. The objective of the lesson is for the user to be comfortable with changing a worksheet’s page layout includingpage view, page breaks, and orientation; printing Excel documents; resizing worksheet columns and rows; adding stylesto cells; using basic operator calculations; and analyzing data through sort and filter operations. The lesson teachesconcepts through a combination of image-based slides and video tutorials.Exercise: 1. Have students create a spreadsheet that can be used to track the current month’s beer case sales, and provide customer totals and a sale total using the following information: • Your brewery currently sells three different beers, two lagers and one stout. You sell to four different restaurants (customers), all ordering different amounts. This makes calculations tediously repetitious. Take the data below and enter it into a table to figure out the total sales for the month of April – using the required formulas to make the calculations automatic. Make sure your table clearly displays the different stores, types of beer, totals, and reporting period, use formatting (including borders and cell/font colors) to create a professional looking table. o April Sales Statistics  You sell $300 of Lager1, and $450 of Stout1 to Store #1  You sell $225 of Lager1, $520 of Lager2, and $250 of Stout1 to Store #2.  You sell $500 of Lager2 to Store #3.  You sell $120 of Lager2, and $610 of Stout1 to Store #4. 2. Have students make changes to the sales amount for Store #2 to: $215 of Lager1, $500 of Lager2, and $265 of Stout1. 3. Have students report what the automatically updated totals are? LESSON 4: MICROSOFT WORD 1: WORD BASICSOverview: This lesson provides information on the basics of Word, Microsoft’s powerful word processing tool. Thetopics covered include a basic review of the program’s toolbars and options, an introduction to text entry andformatting, and document setup through orientation and margins. The objective of the lesson is for the user to becomfortable with operations like opening and creating Word documents, saving Word documents, navigating theRibbon options toolbar, using the various program views, text entry and formatting, and setting document margins andorientation. The lesson teaches concepts through a combination of image-based slides and video tutorials.Exercise: 1. Have students prepare a one-page advertisement for their business. This advertisement should be very simple, since they have not learned how to include pictures. But the advertisement should include different size fonts, font colors, alignment, and be in horizontal orientation. Have students work with different sized margins and report on what is the best setting. Make sure the advertisement includes: a. Name of business b. Offered products and prices c. Difference between them and the competition LESSON 5: MICROSOFT WORD 2: ADVANCED FORMATTINGOverview: This lesson builds upon the concepts learned in the previous Word lesson. The topics covered includeadding headers and footers to documents, using lists and tables, and the tab key. The objective of the lesson is for the 64
  • 65. user to be comfortable with opening, editing and formatting text in the header and footer sections of a Worddocument; using the tab key and settings to properly space information; understand the difference between numberedand bulleted lists, and know how to create them; and know how to create a table for information in a Word document.The lesson teaches concepts through a combination of image-based slides and video tutorials.Exercise: 1. Have each student create a resume using the skills they learned in this Word lesson, especially the alignment skills. 2. Use the resume on the next page as an example for the students. 3. Make sure that each resume includes: a. Contact information b. Employment goal or job objective c. Summary of Qualifications d. Work Experience or Work History e. Education f. Military Experience g. Special Skills and Abilities 65
  • 66. SAMPLE RESUME FOR EXERCISE: Richard Andersonyan 1234, West 67 Street, New York, NY 10011 (123)-456 7890ObjectiveTo utilize over nine years of experience in Training, Marketing, and Consultancy as well as MBA degree andextra highly applicable experience to assist your business perform better.Experience Consultant 1998 – Present Boston Consulting Group, New York, NY • Training employees, franchisees, distributors & conducting training requirement analysis. Senior Manager of Marketing & Sales 1996 – 1998 Adobe Software, Boston, MA • Directing the sales team, business development and identification of latest business channels. Assistant Manager of Sales 1995 – 1996 Sheraton Hotel, Syracuse, NY • Examined market competition & its costs to stay ahead of the main players in the market place. • Supervised staff of 5 members who given support to sales as well as marketing. • Assisted in establishing baseline process and report formats to be used in subsequent years.Education Bachelor of Science – Economics, Syracuse University 1988 – 1991 Master of Business Administration – Marketing, Northeastern University 1994 – 1995Technical Skills Software Skills Java, C#, Visual Basic, MS Office Other Skills Team Management, Sales Management, Sales and Customer Care Training, Business Development, Sales and Product Development 66
  • 67. LESSON 6: MICROSOFT POWERPOINT 2: SLIDE DESIGNOverview: This lesson builds upon the concepts that were learned in the previous PowerPoint lesson. The topicscovered include using PowerPoint tools to enhance the design of presentations. The objective of the lesson is for theuser to be comfortable with using PowerPoint themes and changing color schemes and background styles; addingdifferent types of preset PowerPoint slides; adding pictures, movies, and graphs to content slides; adding objects tobasic blank slides; and duplicating slides. The lesson teaches concepts through a combination of image-based slides andvideo tutorials.Exercise: 1. Have students create a presentation for their investors. At this point their business is in the third year and the investors want an update on activities and finances. Have the students use the skills they learned in all of the previous lessons, including Excel and Word, to create a presentation. Allow students to use as many slides as they think is appropriate. Make sure the presentation includes: a. Current market breakdown b. Previous business decisions, and strategy for the future c. Financial data – numbers and graphs d. Multimedia – pictures, videos, clip art e. Consistent design – using a PowerPoint theme, or creating their own color schemes and backgrounds. 2. Have students present their presentations in front of the other class members, treating them as their investors. LESSON 7: MICROSOFT EXCEL 3: DATA ANALYSISOverview: This lesson builds upon the concepts that were learned in the previous Excel lesson. The topics coveredinclude using Excel’s powerful formulas to help perform data analysis on both large and small amounts of data. Theobjective of the lesson is for the user to be comfortable with calculating data variance, making informationalcomments, using advanced filtering techniques, and combining multiple sources of data. The lesson teaches conceptsthrough a combination of image-based slides and video tutorials.Exercise: 1. Students should add the amount sold information for each Product ID to the Inventory worksheet using VLOOKUPs. 2. After adding amount sold, students should remove any #N/As and paste values. 3. Next, students should calculate revenue for each Product ID using formulas. 4. Then, students should filter the data, freeze the panes, and setup a summary row. LESSON 8: MICROSOFT WORD 3: ENHANCING DOCUMENTSOverview: This lesson builds upon the concepts learned in the previous Word lesson. The topics covered includeadding pictures, shapes, diagrams, and themes to documents as a way of enhancing them. The objective of the lesson isfor the user to be comfortable with setting styles and changing themes; inserting various types of graphics; andchanging text, paragraph, and line spacing options to make documents more professional. The lesson teaches conceptsthrough a combination of image-based slides and video tutorials.Exercise: 1. Have students create a document that gives a short update on the status of their business. 2. Content should include your business’s current financial status and how you will use the information from the following lessons to improve your business: a. Managing People b. Sales and Branding c. Strategic Planning 3. Document’s should: a. Contain at least one paragraph in two-column format. b. Use at least two different text styles. c. Include a picture positioned so the text flows around it. d. Include a diagram showing the progress of the business. e. Include a cover page. 67
  • 68. LESSON 9: MICROSOFT EXCEL 4: REPORT GENERATIONOverview: This lesson builds upon the concepts that were learned in the previous Excel lesson. The topic covered inthis training is report generation: using formulas you have already learned and advanced Excel tools to make analysis ofdata and generation of reports easier. The objective of the lesson is for the user to be comfortable with creating basicreports using formatting tools, printing reports, charting, and creating Pivot Tables and Pivot Charts. The lessonteaches concepts through a combination of image-based slides and video tutorials.Exercise: 1. Create a PivotTable that summarizes the clothing store’s sales. It should display a summary of men’s and women’s clothing sales in winter and in summer. 2. After creating the PivotTable, edit the data worksheet. Add a row of sales for Men’s winter clothing for $3000. Now, update the PivotTable to include the new data. LESSON 10: MICROSOFT WORD 4: FURTHER FUNCTIONSOverview: This lesson builds upon the concepts learned in the previous Word lesson. The topics covered includesection breaks, table of contents, footnotes, collaborative editing tools, and mail merge. The objective of the lesson isfor the user to be comfortable with creating different sections in a Word document, adding a table of contents to adocument, and using the Mail Merge feature to personalize a letter. The lesson teaches concepts through acombination of image-based slides and video tutorials.Exercise: 1. Have students take the document created in the previous Word lesson and personalize it for a list of investors. a. The personalization should include: i. Name, title, and address of recipient placed in the top left corner (in correct Western business style) ii. Name placed in the greeting line of the document iii. Name included at least one time in the body of the document 2. This personalization should be completed using the Mail Merge function in Word, and should be done for 10 different recipients. Recipient information: a. Dr. John Waynes, Executive Director, 232 Hamilton Drive, Mason, NJ 07653 b. Mr. Alex Tones, Project Manager, 12 Deltoid Avenue, New York, NY 10012 c. Mr. Thomas Thames, Lawyer, 541 Alexander Road, New York, NY 10022 d. Ms. Lorna James, Lead Doctor, 432 Broadway, New York, NY 10001 e. Mr. Clarke Kitts, Director, 55 Times Road, Newton, NJ 07734 f. Dr. Jennifer Johnson, Surgeon, 91 Trade Road, Newton, NJ 07732 g. Mrs. Jamie Silver, President, 4 Burns Road, Staten Island, NY 13421 h. Mr. Leonard Joas, Writer, 65 Hampton Avenue, Hampton, NY 19912 i. Ms. Alexis Booker, Accountant, 9821 Turner Road, Jackson, NJ 07092 j. Mr. Jack Flynn, Singer, 192 Watson Road, Jamestown, NY 10029 LESSON 11: MICROSOFT POWERPOINT 3: ADVANCED SLIDE DESIGNOverview: This lesson builds upon the concepts that were learned in the previous PowerPoint lesson. The topicscovered include options for printing and saving your presentation, and an overview of animation techniques. Theobjective of the lesson is for the user to be comfortable with saving their PowerPoint presentation in various formats,printing handouts of their presentation, and using animation and timing techniques tot enhance their presentations.The lesson teaches concepts through a combination of image-based slides and video tutorials.Exercise: 1. Have students edit the presentation they created for the last PowerPoint lesson. The presentation should be enhanced using the animation tools learned in this lesson. The new presentation should evenly include each of the following on at least one of the five slides: a. Automatic advance timing b. Slide transitions 68
  • 69. c. Animation using shapes d. Animation using smart graphics 2. Have students give their presentations again, and then discuss how the animation tools enhanced or diminished their presentations. LESSON 12: ARMENIAN BUSINESS RESOURCESOverview: The goal of this lesson is to provide a brief overview of the environment for doing business in Armenia.The three main points of this lesson are to understand what types of businesses can legally registered in Armenia, howinterested individuals can register their businesses, and what organizations or websites you can go to for furtherinformation.Exercise: As this lesson is purely informational in nature, there is no group exercise.NOTES AND ACKNOWLEDGMENTSThe Novus Business and IT Training Program was developed through the dedicated work of many individuals andorganizations, including Peace Corps Armenia, USAID, and the Gyumri Economic Development Foundation.Specifically, a group of Peace Corps Volunteers devoted hundreds of hours to developing the business simulationsoftware, the 36-lesson curriculum, and the development of the video lectures. In particular, we would like to thankKevin Crookshank, Karen Evans, Darryn Glenn, John Kelly, Katie McKillen, Martha Penberthy, Austin Sherwindt,and Gregory Wilson. We also thank the staff of Peace Corps Armenia for their assistance with organizing the fundingand translation of this project into Armenian.   69