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Decision Process Step Guide Strategy.pptx
- 1. Semantics User Input UserEstimates System Output Impact System Input
- 2. Points to answer 1.What are we doing in the tab? 2. Why are we doing it? 3. What is needed to do it? 4. Where/how it will impact in further decision making?
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- 4. Step 1: EnterMarket Growth Market Outlook Case Study Growth Number System calculates market volume based on number While forecasting market share, the forecasted unit is based on this number Instructor Algorithm Note: The number entered by participant for market volume and original market volume will be different as algorithm will compare prices, promotion, products in the market and decide the final market volume.
- 5. 1. What arewe doing? We are estimating the overall industry growth of the three market. 2. Why are we doing? Industry growth estimate will help analyse the upward or downward trajectory of the market. 3. What is needed? To estimate, market growth forecast provided in market outlook is needed. 4. Where it will impact? Estimated market growth help determining market share. The company’s market share estimation is calculated as a percentage of the total estimated market demand/growth.
- 6. Step 2: ProductMix Network coverage Market outlook Select the technology System offers 4 products to select from Selected product will be launched in the market Instructor Algorithm Note: Business starts with one product in each market. With selection of new product company will have to develop, produce, launch and sell the new product in the market. Network coverage overage
- 7. 1. What arewe doing? We are deciding on the product/s to launch in the market. 2. Why are we doing? Launching product according to customers product preference help gaining market share and company focus on product development and new strategy for the new product. 3. What is needed? Previous rounds launched product information, customers preferences from market outlook and network coverage to support the product. 4. Where it will impact? New product launch decision will have impact on the production decision and Market share %.
- 8. Step 3: EnterMarket Share Last round % Total Market demand Estimate share growth % System calculates company’s market share based on number Demand forecast for the round in units Instructor Algorithm Note: The number entered by participant for market share and actual market share will be different as algorithm will compare prices, promotion, products, ESG score with the market standard.
- 9. 1. What arewe doing? We are estimating the company’s market share targeting to capture in the round. 2. Why are we doing? Company’s market share gives the demand forecast in units(K) which needs to be fulfilled for achieving the set market share. Company then can take production decision accordingly. 3. What is needed? To estimate market share, last round market share %, round’s total Market estimated demand and Network coverage. 4. Where it will impact? Estimated market share number will impact production decision.
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- 11. Step 1: In-housemanufacturing and/or Contract manufacturing Estimated Demand Unit Cost of production / outsourcing In-house and/or Contract Manufacturing Output is to use • Only In house production • Only Contract Manufacturing • Mix of both above Instructor Algorithm Note: The decision here rests on understanding production capabilities of the company and doing a cost benefit analysis of the unit costs of producing in-house vs outsourcing. Economies of scale and Learning curve effect helps bring down unit cost of in-house production over rounds. The same benefit is not available under contract manufacturing. Beginning Inventory Planned Ending Inventory Production Capacity Contract Manufacturing Capacity
- 12. 1. What arewe doing? We are planning production in order to meet the estimated demand. 2. Why are we doing? Industry growth estimate will help analyse the upward or downward trajectory of the market. 3. What is needed? Select product line, Allocate Production capacity, refer to the graph. Opt for Contract manufacturing if needed. Select Environment and sustainability factors. 4. Where will it impact? The selection of ESG will attract investors and buyers. Right inventory holding and management cost will improve Financial Statement and make operations sustainable. Production Planning
- 13. Step 2: In-housemanufacturing Estimated Demand Planned Ending Inventory Capacity Allocation – region wise % System calculates number of units to be produced and Unit cost as per capacity allocation Produced Units Instructor Algorithm Note: The capacity allocation number entered results in no. of units being produced by the company. The number of units to be produced is capacity allocation * production capacity Beginning Inventory Production Capacity – region wise Unit Cost Inventory/Sales
- 14. Step 3: Contractmanufacturing Estimated Demand Planned Ending Inventory No. of units to be outsourced – region wise System calculates number of units to be produced and Unit cost as per capacity allocation Produced Units Instructor Algorithm Note: The maximum number of units which can be outsourced is function of the company’s financial strength. Stronger the financials over rounds, the more contract manufacturing capacity is available. Beginning Inventory Contract Capacity - region wise Unit cost Inventory/Sales
- 15. Step 4: RenewableEnergy & Process - Sustainability Market Outlook Energy Utilization,% The plant capacity, unit cost is calculated as per the selected option. The plant becomes environment friendly Depreciation Cost – P&L Instructor Algorithm Note: The investment in sustainability is tradeoff between the cost vs demand. The environmentally friendly initiatives impact consumers. It also impacts capacity of plant temporarily due to change in process. Information of process Production capacity reduction % Reduction % Production Unit Cost Process Reduction Investment Cost Assets – Balance Sheet Unit cost of products Demand factor - sustainability
- 16. Step 5: InventoryManagement Change in Planning The system calculates the unsatisfied demand and capital cost which is represented in the inventory page based on planning Inventory Management Cost - holding Instructor Algorithm Note: If actual demand is greater than forecasted demand then buffer stock will be helpful. That said, huge buffer stock will have higher inventory management cost. In the same case if there is no buffer stock then lost sales opportunity occurs. The notional loss is greater than inventory cost. If actual demand is lesser than forecasted demand, then depending on inventory the cost varies. Planned Ending Inventory Inventory Management Cost Variable - Parameter Inventory Management Cost Fixed - Parameter Sales Opportunity Cost Cost tradeoff – Product wise Inventory – Balance Sheet
- 17. 1. What arewe doing? We are looking at the planning of the inventory 2. Why are we doing? This will help us to manage inventory and understand the cost vs sales trade-off 3. What is needed? Planning of inventory carefully keeping future rounds in concern 4. Where will it impact? Sales opportunity loss, Inventory management cost, holding cost Inventory
- 18. Step 6: InvestmentProduction Plant Inventory management costs Investment/Disinvestment System will calculate the cost of plant/sales value. The payment schedule will be visible along with the increase in capacity schedule Increase/decrease in production capacity in future Instructor Algorithm Note: The instructor can change disinvestment value, schedule of new plant operation, and payment schedule to make the decision-making complex/simpler in nature. Estimated total demand for multiple rounds for products New plant production Capacity Plant Investment Cost Plant Selling Cost & depreciation Region wise sales - forecast Transportation & Tariff Cost Increase/decrease in cash flow Assets – Balance sheet Depreciation – P&L New plant operations schedule
- 19. 1. What arewe doing? We are deciding on future production capacity 2. Why are we doing? To accommodate the future capacity needs with the demand 3. What is needed? To access the production capacity of plant and associated costs. 4. Where will it impact? Production Capacity, cash flow, balance sheet, P&L Investments
- 20. Step 7: Procurement Systemcalculates the unit cost of procurement incurred by choosing various supplier. It also calculates the average score among ethics and sustainability. Cost added into production – P&L Instructor Algorithm Note: The order a study option available in the page indicates the future cost of supplier with help of arrows. The ethics and sustainability plays an role in forming an image of the company. Supplier Minimum supplier needed Cost of choosing new supplier Ethics rating Sustainability rating Unit Cost – Procuring material Demand Impact – Ethics & Sustainability Penalty cost – in case of less suppliers
- 21. 1. What arewe doing? Procuring the raw material from the supplier 2. Why are we doing? To produce the products as per needs in the market 3. What is needed? Analysing the information of supplier cost, number of supplier, rating across ethics & sustainability 4. Where will it impact? Demand, cost of the product, company image. Environment impact
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- 23. Step 1 Determinethe number of staffs Recruitment Cost Layoff Cost Number of Employees System calculates the table which shows the Human resource cost of the staff you will need in R&D section Number of person days available in R&D department to allocate. Instructor Algorithm Note: The turnover rate is an estimation, while the actual turnover rate may differ depending on the allocation of resources, workload, salary and training budget. Man-days required to develop technology or features Turnover Rate %
- 24. Step 2 DetermineWage /Salary Budgeting - Projections Salary System calculates Efficiency and turnover Cost – Income statement Wage from previous year Turnover % - Human resource report Efficiency % – Human resource report Employer Stature Personnel Turn Over from Last Round R&D Personnel Efficiency from last Round
- 25. Step 3 Determinethe Training Budget Number of employee Training Budget System calculates Training Costs, Efficiency, and Turnover rate Cost – Income statement Budget - Projections Efficiency – Human resource report Turnover – Human resource report Training Priorities Employer Stature Personnel Turn Over from Last Round R&D Personnel Efficiency from last Round
- 26. Step 4 Estimatethe Voluntary Turnover Ratio Salary & Training budget Turnover Ratio System calculates the number of staff in the company Number of man-days available in R&D section Instructor Algorithm Note: : The turnover rate consist of voluntary and involuntary parts. The voluntary is out of control of decision maker while involuntary part depends on salary, training budget, and allocation of work in R&D section. Average Turnover %
- 27. Step 5 DetermineTraining Priorities Man-days require to develop technology in R&D page changes Training Budget Training Priorities Instructor Algorithm Note: If all trainings are provided the efficiency of employee will reduce, the max number of training to be done in any time should be less than three. Training information System calculates the efficiency R&D Personnel Efficiency from last Round
- 28. Step 6 LaborPolicies Market Outlook - Sustainability Labor policies information Labor Policies System calculates the social impact of the policies Demand factor ESG Score, in specific Social Score Instructor Algorithm Note: The social impact is shown in sustainability page in the reports in Social part. It directly affects consumer perception about the company Employer Stature
- 29. 1. What arewe doing? • We are hiring people to work in the in- house R&D department 2. Why are we doing? • The development of technology via in- house R&D is cost efficient in nature and can be patented 3. What is needed? • Analyse the requirement of R&D section and take decision of staffing, training and policies 4. Where it will impact? • On the overall cost of employee, speed of development of technology
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- 31. Step 1: Buying/In-houseManufacturing Buying/in-house manufacturing Buying Instructor Algorithm Note: Buying or In-house is a decision based on cost vs speed of development. It is moreover a decision of team based on objective. Time of development Cost of development Product launch Resources required for development Combination of both In-house Development in parts & parcel
- 32. Step 2: In-housedevelopment of technology Developing new- technology in house by allocation of man-days The system calculates the man-days of new technology development and make it available to launch as per schedule R&D Cost – P&L Instructor Algorithm Note: Developing in-house technology takes time though it is cost effective as you hire your R&D department. The technology can be made in parts at own speed and will be available for licensing to other teams. Time of development Cost of in-house resource Product launch Technology and feature – Previous round Product launch with delay of 1 round Technology developed as parts & parcel R&D man-days Training budgets - efficiency Licensing in market
- 33. Step 3: BuyingTechnology Buying of new technology or addition of features to previous The system calculates the cost of new technology development and make it available to launch as per schedule R&D Cost – P&L Instructor Algorithm Note: Buying a technology hold no patent though its speedy and technology can be launched immediately in market. This allows the team to have a first mover advantage. Time of development Cost of development Product launch Technology and feature – Previous round Immediate Product Launch Whole technology available at once
- 34. 1. What arewe doing? We aim to upgrade the existing technology or acquire a new technology. 2. Why are we doing? The market demand keeps changing and to meet them a team needs to be first mover or follower. 3. What is needed? Refer to the network coverage graph, market outlook, analyse cost vs time, and understand pros and cons of being first mover or follower. 4. Where will it impact? It will impact R&D cost in P&L, cash flow, launch of product, and licensing ability R&D
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- 36. Step 1: FeatureProduct Wise Features launched in previous round System calculates the unit cost of the product in a region while adding feature cost Feature Cost – P&L Instructor Algorithm Note: The feature of product can act as differentiation in the market for company. The tradeoff is between cost vs demand. The market average feature helps where a company stands. Number of Features R&D development of feature – Product wise Cost per feature – region wise Average features launched in market previous round Demand of product Value of product – Consumer perception
- 37. Step 2: Promotions Systemuses the promotion cost to arrive at projected operating margin Promotion Cost – P&L Product Offered Instructor Algorithm Note: The promotion increase awareness but have a cumulative effect. The graph of promotion becomes flat after certain point showing the marginal increase in awareness is lesser than cost incurred. Features Offered Price, feature & promotion of previous round - competitors Promotion of previous round Average promotion in the market Promotion Demand of product Awareness & Sales
- 38. Step 3: Price Systemcalculates the the projected revenue and operating margin. Revenue – Region Wise Number of features Advertisement cost per unit Instructor Algorithm Note: Pricing decisions are always made in the currency of the market and a margin calculation is available to understand the impact. Unit Cost (production + feature) Transportation Cost per unit Price in previous round Average price in market – previous round Selling Price Product offered Margins – Region Wise Demand of product Value of product – Consumer perception Competitor offering product – previous round (promotion + feature) Exchange rate – outside home market
- 39. Step 4: ProductMarketing Focus System uses the entered strategy by the user and compare how it related with other marketing mix decisions taken by competitors Demand of Product Product Offered Instructor Algorithm Note: The product marketing focus delivers various options though they are only effective when the focus and marketing mix goes together. For example, feature is the focus strategy than offered features should be higher than market average. Features, Price & Promotion Offered Price, feature & promotion of previous round - competitors Product marketing – previous round Product marketing – competitor previous round Product Marketing Focus Product Perception
- 40. Step 5: DataCollection System calculates the cost of data collection along with its impact on the consumer side Assets – Balance Sheet Instructor Algorithm Note: These decisions can improve your public image and product demand. The trade-off is the cost associated with it. Cost of Initial Investment Data Collection Policy Market Outlook Annual Maintenance Penalty for non- compliance Data Collection Information Annual maintenance – P&L Demand Impact - Sustainability Public Image
- 41. Step 6: SustainabilityCertificate System calculates the cost of certificate and publish it in the public space Cost – P&L + Cash flow Instructor Algorithm Note: These decisions can improve your public image and product demand. The trade-off is the cost associated with it. Cost of Certificate Certificate Publication Certificate Information Certificate – Previous round Cumulative ESG Score - Investment Demand Impact - Sustainability Public Image
- 42. 1. What arewe doing? Applying our marketing strategy to sell the product/s in all 3 markets by determining the price, features, promotion and marketing focus. 2. Why are we doing? To sell the product at the right price in order to achieve higher revenue while capturing forecasted market share 3. What is needed? Creating the marketing mix in line with demand forecast, production, value addition. Comparison of offering from previous rounds. 4. Where will it impact? This will determine your sales revenue and market penetration. Marketing
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- 44. Step : EnterPriorities Markets demand (units) Transportation cost & tariff per product* Set market priorities in numbers System set priorities for demand fulfillment Demands will be fulfilled as per set priorities. Instructor Algorithm Note: Set Logistic priorities wise market demands will be fulfilled. The units produced will move sequence wise fulfilling the demand, after 1st priority, remaining units will move to priority 2 and 3. # Results - Market report * Projection Parameters Last round highest profit making or volume market #
- 45. 1. What arewe doing? We are setting the priorities for the market to fulfil the generated demand. 2. Why are we doing? Production plant are available in only two market and hence whatever units are produced needs to be transported to all the three market for demand fulfilment. 3. What is needed? Market understanding, which market is volume, and which has margin from previous round market report. Transportation cost from parameters. 4. Where it will impact? Actual demand and sales.
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- 47. Step : Entertransfer pricing Corporate tax* Set transfer pricing range System will calculate the transfer price as fixed cost for the set market Fixed cost in a market will be set at transfer pricing Instructor Algorithm Note: Transfer pricing is for accounting purpose for not to pay higher tax on profit in high tax rate market. #Results Financial statement Profit & loss statement * Projection Parameters Last round’s transfer pricing Last round’s tax levied#
- 48. 1. What arewe doing? We are setting each market’s transfer pricing at the time of transporting goods from one place to another. 2. Why are we doing? Transfer pricing is for accounting purpose to save tax on profits. Some market’s tax rate on profit are high and transfer pricing help showing less profit by setting transfer price as fixed cost in the particular market. 3. What is needed? Market’s corporate tax rate from parameters, last round transfer pricing, last round tax levied in different market from result. 4. Where it will impact? Impact will be visible in the company’s financial statement - profit & loss
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- 50. Step 1: Optionsto manage cash & avoid short-term debt Cash flow region wise – projection balance sheet Long Term Debt Use any one or combination of options available to manage cash flow Instructor Algorithm Note: The participants are provided with three options to manage cash flow based on risk appetite and financials measure they can decide one or combinations of options available. The short-term debt is a revolver loan which comes with a premium above long-term debt and has to be paid within one-year. Minimum cash required is USD 2000k in each region. Interest rate of debt – region wise Opportunity cost of capital, % - Capital structure Cash flow statement – based on other decisions Debt & Equity – previous round Internal Loans Equity Risk management
- 51. Step 2: InternalLoan to manage cash Cash available region wise Current cash – projections balance sheet Internal Loan Transfer of cash takes place and parent cash flow statements reflects the same. Cash equivalent component in the balance sheet Instructor Algorithm Note: Internal cash flow is helpful in case one region is generating higher cash flow than other and can be used to finance internal operations. The decision is taken based on projections and not actual hence risk management scenarios have to be built to manage cash efficiently. The extra cash also attracts interest income. Interest rate for cash - parameters Risk management – scenarios + future cash Chances of avoiding short term debt – region wise Interest income on cash
- 52. 1. What arewe doing? We are transferring cash from cash surplus market to cash deficit market 2. Why are we doing? To earn interest on cash or to avoid the short-term debt in the market or to expand future operations. 3. What is needed? Information on the cash availability in each markets 4. Where it will impact? Impact on the financial structure, reflected in the company Cash flow statement, Income statement and Balance sheet under Projections.
- 53. Step 3: Decisionon Long Term Debt Debt of previous round Long Term Debt The projected interest rate for short term and long-term debt is calculated along with debt/equity ratio Long term debt – Balance sheet Liability Instructor Algorithm Note: The actual long-term debt interest rate and projected rate will be different based on the company market position and requirement of the cash. The stronger financial position indicates lower interest rate and vice versa. The decisions of balancing debt/equity ratio also impacts the interest rate. Cash region wise – projected balance sheet Debt to equity ratio & ROCE - projections Parent Cash flow statement – current Opportunity cost of capital – Capital structure Risk management – avoiding short term debt, future cash Long term debt – Interest cost P&L Actual long term debt rate – based on market Chances of avoiding short term debt
- 54. 1. What arewe doing? Taking loans to optimize the opportunity cost of capital and maintain the cash above limits. 2. Why are we doing? To avoid short-term debt and reduce the cost of capital. 3. What is needed? The projected cash flow, interest rate of loans, creation of risk management scenarios, opportunity cost of capital. 4. Where it will impact? Impact on the financial structure, reflected in the company Cash flow statement, Income statement and Balance sheet.
- 55. Step 4: ShareCapital Number of shares outstanding Issue price & Buyback price Issuing/buyback Shares The shares are issued or bought back while impacting cash flow projections of the company. Equity – Balance Sheet Instructor Algorithm Note: The actual share price and projected share price will be different based on projections. The equity is always costlier than debt but less risky. The buyback needs to be issued in case of enough cash available. Parent Cash flow statement – current EPS & ROE - Projections Debt to Equity Ratio Opportunity cost of capital – Capital structure Risk management – avoiding short term debt, future cash Actual share price – based on performance EPS & ROE - Ratios Opportunity cost of capital Chances of avoiding – short term debt
- 56. 1. What arewe doing? Issuing or buying back shares based on the current and required future financial position of the company 2. Why are we doing? To raise capital for operational and investment activities of the company. To avoid short-term debt. 3. What is needed? Issue and buy back price of shares, opportunity cost of capital, projected EPS & ROE 4. Where it will impact? In the current & future share price of the company along with capital structure.
- 57. Step 5: DividendPolicy Parent Cash flow statement – current Dividend Issue The amount is deducted from the cash flow of the company Cash component – balance sheet Instructor Algorithm Note: Dividend payment will be considered as part of the total shareholder return. In case of cash availability and profitability for two to three continuous round the shareholders need to be rewarded with buyback or dividends. Risk management – Future cash EPS & ROE - Projections Shareholder equity – balance sheet EPS & ROE - Ratios Share Price - Ratios
- 58. 1. What arewe doing? To pay back dividends to the shareholders 2. Why are we doing? To reward shareholders investment in the company 3. What is needed? Company’s current & future financial position statements, and its impact on EPS, ROE and raising capital. 4. Where it will impact? Impact on the balance sheet, cash flow, EPS, ROE and share price of the company.