Application of Strategic Decision Making for PPG - use of Decision Analysis as a framework to structure complex management initiatives.

1. PPG: Strategic Decision Making
proposed to overcome
challenges in its paint
products. Pittsburgh, PA
Mar 26, 2017
By: Daniel Espinoza
CMU - Tepper

2. Motivation
• Present a rounded framework of analysis (making an exercise) to study
carefully the strategic options available for PPG regarding to its paint
products, in order to make the best decision today considering the
information up to the moment.
• Use of simulated data to test the method and understand possible
ramifications in this business challenge.
• Synthesize the course of action and apply stress tests over the results
achieved.
• Important note: not to take the conclusions as a recommended course
of action. The present results are consequence of assumptions that
must be refined and challenged with real data from the field.

3. AGENDA
• Objectives
• Possible Strategies
• Deterministic considerations
• Probabilistic Analysis
• Stress Tests of Strategies
• Conclusions

4. Objectives
Main Objective:
• Use of the Decision Analysis framework to study carefully the strategic options
for PPG regarding to its paint products, in order to make the best business
decision today with the available information.
Secondary Objectives:
• Take advantage of operational and market opportunities to boost paint products
of PPG and explore possible ramifications in this business challenge.
• Make an exercise with simulated data to test the methodology which will be the
main strategic tool to be used to improve significantly the market share and
sales in the current business scenario.

5. Possible strategies
DESCRIPCION STRATEGIES
1 2 3
Number of Strategy
Name of Strategy Beauty aware practicals Protective beauty
DESCRIPTION VALUE IN USENAME STRATEGIES
1 1 2 3
Consumer Focus Beauty Fans Market Beauty Fans No protection facnsBeauty and protection fans
Production Technology Variety Technology Variety Volume Variety
Commercial Channels Retail Sales Retail Wholesales Retail
Geographies Latam Countries Latam EMEA US-Canada
• After exploring several alternatives that were presented in previous ppt
deliveries, we define 3 strategies: (1) Beauty aware: set of consumer that
prefer a product with good surface finish. (2) Practical: only want a bulk
product without considering quality or protection. (3) Protective & Beauty:
people that want to obtain these features in one single product.
• There are strategic options regarding to market, technology (volume -
variety), sales (retail – wholesale) and geographies (Latam-EMEA-US-Canada).
This list is not exhaustive and can be modified or increased.

6. Possible strategies (metrics of uncertainty)
DESCRIPTION Strategy 1 Strategy 2 Strategy 3 INDEX NOMBRE UNIT OF
Low Median High Low Median High Low Median High INDEX MEASURE
Income
Size of the Market 550 650 730 630 700 790 810 1000 1100 2 Size USD Mill.
Incremental Market Share 0.7% 1.5% 1.6% 1.0% 2.0% 2.1% 1.5% 2.5% 2.6% 2 IncMark %
Costs
Production Cost 55% 60% 65% 50% 55% 65% 45% 50% 55% 2 CostProd %
Administrative Costs 13% 14% 18% 8% 10% 12% 10% 12% 14% 2 CostAdm %
Commercial Costs 10% 12% 14% 13% 14% 17% 17% 18% 23% 2 CostCom %
Investments
CAPEX 5 6 8 8 9 11 9 10 12 2 InvCapex US$/TM
Workcap 0.5 1 3 1 3 4 1 4 5 2 cost_perfvolUS$/TM
• Along to the strategies were defined metrics for every Strategy. We used a
high level financial model with the following variables: Size of the Market,
Incremental Market Share, Production Cost, Administrative Cost, Commercial
Cost, Capex, and Working capital. (The values above are assumptions).

7. Results of the Financial Model (Strategy 3)
• After making the financial calculations, we obtained the results for the NPV
for the Strategies 1, 2, and 3. Above are presented the results for Strategy 3
 NPV = 9.66 $Mill.
DESCRIPTION US$ 0 1 2 3 4 5 6 7 8 9 10
Inflow 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00
Cost of Production 12.50 12.50 12.50 12.50 12.50 12.50 12.50 12.50 12.50 12.50
Administrative Expenses 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
Commercialization Expenses 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50
Taxes 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40
Total Outflow 21.40 21.40 21.40 21.40 21.40 21.40 21.40 21.40 21.40 21.40
Operational Cash Flow 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60
Flow of Investments
Investment in machinery & Equipment -10 0 0 0 0 0 0 0 0 0 0
Variation of Working Capital -4 0 0 0 0 0 0 0 0 0 4
ECONOMIC CASH FLOW -14 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 7.60
NET FINANCING CASH 0 0 0 0 0 0 0 0 0 0 0
FINANCIAL CASH FLOW -14 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 7.60
NPV
$9.66

8. Deterministic considerations: Comparative results of
the Strategies measured by the NPV(10%)
• The valuation of the alternatives are showed above. Strategy 3 is the
preferred under deterministic analysis in the base case.
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
Strategy 1 Strategy 2 Strategy 3
$0.13
$2.83
$9.66
PPG Project: PROFITABILITY OF THE STRATEGIES
IN THE BASE CASE

9. Deterministic considerations: Strategy 1: Beauty aware
• Following this strategy, the main variables that generate variability in the
results are: Production Cost, followed by Capital Expenditure and
Administrative Cost. These variables explain 77.6% of the variations of the
NPV which is 0.1 $Mill.
Base
Value
0.6
6
0.14
0.12
1
650
0.015
% Swing
Explained
48.0
17.6
12.0
7.7
7.5
7.2
0.0
Production Cost
Capital Expenditure
Administrative Cost
Commercial Cost
Working Capital
Size of Market
Incremental Market Share
Value
–2.0 –1.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0
Base Value: 0.1
0.65 0.55
8 5
0.18 0.13
0.14 0.10
3 0.5
550 730
0.016 0.007

10. Deterministic considerations: Strategy 2: Practical
• This Strategy 2 shows that the main variables that generate variability in the
results are: Production Cost, Market, and Capital expenditure. These
variables explain 86.1% of the variations of the NPV which is 2.8 $Mill.
Base
Value
0.55
700
9
0.10
0.14
3
0.02
% Swing
Explained
72.9
7.5
5.7
5.2
5.2
3.5
0.0
Production Cost
Size of Market
Capital Expenditure
Administrative Cost
Commercial Cost
Working Capital
Incremental Market Share
Value
–3.0 –2.1 –1.2 –0.3 0.6 1.5 2.4 3.3 4.2 5.1 6.0
Base Value: 2.8
0.65 0.50
630 790
11 8
0.12 0.08
0.17 0.13
4 1
0.021 0.01

11. Base
Value
0.5
0.18
1000
0.12
4
10
0.025
% Swing
Explained
50.7
18.2
17.1
8.1
3.1
2.8
0.0
Production Cost
Commercial Cost
Size of Market
Administrative Cost
Working Capital
Capital Expenditure
Incremental Market Share
Value
4 5 6 7 8 10 11 12 13 14 15
Base Value: 10
0.55 0.45
0.23 0.17
810 1100
0.14 0.10
5 1
12 9
0.026 0.015
Deterministic considerations: Strategy 3: Beauty & protection
• This analysis under deterministic considerations indicates that the variability
of the NPV for the Strategy 3 is influenced by: Production Cost, Commercial
Cost, and Size of the Market. These variables explain 86.0% of the variations
of the NPV = 10 $Mill.

12. Value
Cumulative
Probability
0
.1
.2
.3
.4
.5
.6
.7
.8
.9
1.0
–20 –16 –12 –8 –4 0 4 8 12 16 20
1;EV=0 2;EV=–1
3;EV=1
• This is the core result of all the method applied regarding to the strategic
options available for PPG (paints). This graph means that Strategy 3
maximizes statistically the probability of success for PPG (paints).
(green line at the right)
Probabilistic Analysis:

13. Stress Tests of Strategies
Probability
Value
–3.0
–2.5
–2.0
–1.5
–1.0
–0.5
0.0
0.5
1.0
1.5
2.0
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0
1 2
3
• If the assumptions regarding to the Production Costs change, the Strategy 3
continue being the preferred. (green line above)
• This means that the Strategy 3 is robust to provide expected profits and
accomplish the PPG objective which are to increase market share & sales,
although the market is risky.

14. Conclusions
• We demonstrated that the Decision Analysis framework can be used to study
carefully the strategic options for PPG regarding to its paint products. Also, to
deal with opened questions (quantitative and qualitative) to be answered in a
quantitative way.
• There are opportunities at operational and market level to boost the paint
products in PPG. These opportunities require to be systematically structured to
explore ramifications in this business challenge.
• It is recommendable to make today critical strategic decisions in a prospective
way with high level existent tools. This will improve significantly the probability
of success related to market share and sales and build a desired business
scenario for PPG.

15. Thanks.