INTRODUCTION
A pedagogical simulation model in LEADERSHIP and BUSINESS MANAGEMENT can never truly correspond to reality.
The pedagogical outline of Roos Technologies neglects certain factors and expands the effects of others that are judged more important. The emphasis is made on certain variables that have been considered important for our particular company. The fact that the model is theoretical and consequently not as flexible as the student/decision-maker is should also be taken into consideration.
Taking these reservations into account it is indisputable that simulation has many advantages in management and business in comparison with most other pedagogical materials. o
It shows the company system from a dynamic point of view as it allows quick evaluations due to the limited time available and quickly shows the consequences of decisions. o
It accepts, as well as produces, variations of the decisions depending on different strategies. o
It is possible to learn from mistakes and incorrect decisions. In fact, this has a positive effect. o
There is not one single solution but various comparable solutions.
Advice to participants
1. Always remember that a simulation is simply a tool, a back-up technique, which can help us by giving us a dynamic type of management and business training. The important thing is to manage the company in a long-term perspective by means of goals and strategies documented in a constantly changing business plan.
2. Do not try to discuss the model that is being used and do not try to prove that it would have been different in real life.
3. Do not try to prove yourself better than the computer software or the other groups.
4. Use all opportunities o to contribute your knowledge o to try to understand why you are making decisions o to note in what way you are working within the group o to try to get to know other people better o to learn something new
5. The way in which you work is as important as the results you achieve.
6. As in everyday life, it is not possible to analyze everything and have all the facts at your fingertips.
You have to make certain choices.
7. As in the real world, you do not have access to all the facts when given a new task, you are not always certain of all the rules . . . you will find out as you go along and often you will learn from your mistakes.

COMPUTER SIMULATION
The Simbiz model is very complicated, although it gives you a picture of a real situation in a simple way, considering how difficult it is to run a company.
CASE STUDY
Simbiz Ltd with subsidiary Roos Technologies.
A few years ago, John Roos, a young engineer, finished his studies in electronics and IT. His main interest was new implementations for microcomputers within documented information in IT-networks.
He had just finished his studies when he discovered a new process that could improve both the speed and quality of work, better than traditional copiers. The concept also meant that communication with other IT systems was possible for a comprehensive solution. Furthermore, the machine could also produce and copy
CDs and DVDs and sort, staple, bind, send and receive files. A quick look at the market indicated that his new product would be put in a market segment that was still in its early stages.
He called his new machine XB7.
He enthusiastically started production and marketing of the XB7 with family money and great confidence in his product after having applied for the necessary patents. He started a partnership with a friend with a background in business administration and some capital.
John Roos started a limited company that he called Roos Technologies (RT). He owned most of the shares and began producing his network copier on a small scale.
The company had problems expanding due to its financial limitations and John Roos hesitated about expanding production, as he could not decide whether to establish a small number of sales offices or to sell his products through retailers.
The products were high quality and at the time there was no competition. RT managed to sell about 200 machines within a few years, clearly also thanks to the enthusiasm of its employees.

At this point, John Roos broke with his business partner. Not long thereafter, the company ran into difficulties managing on its own.
The company had difficulties marketing its products, the stock grew and being without funds, John Roos had to agree to being taken over by a group specialising in documented information. The group called itself
Si mbiz Ltd and was interested in John’s product in order to enter new markets. Thus, RT became a subsidiary of Simbiz Ltd, kept its name and MD, but also gained access to new financing and accounting systems. This meant the result and other data could be better analysed and from then on, the company finally had the statistics and other data it had previously lacked.
Roos Technologies began to develop and expand, supported by the marketing department of Simbiz Ltd.
Market research constituted the basis for a 5-year marketing plan. The total number of machines in use in 5 years was estimated to be between 1,200
– 1,500 in the market segment within which RT operated.
John Roos did not feel comfortable as MD and, in all after 6 years, eventually resigned. He became head of
R&D at Simbiz Ltd instead, including product development for Roos Technologies.
The Simbiz Group was anxious to establish itself in the market in the right way, and knew that competitors would eventually materialise within this specialised area. They organised a new MANAGEMENT TEAM that was to face this challenge, to secure as large a market share as possible and reach a sustainable financial result.
Task
With themselves as the starting point, the participants now have to organise this new MANAGEMENT
TEAM. Firstly, an analysis of the background of the company and present situation using the last three years’ accounts should be used as a basis and a business plan should subsequently be drawn up. Once this has been passed by the board, the participants proceed to the first year and should transform the business plan into operational decisions. The business plan is updated continually as new information becomes available.
Decision
Sales price per machine (3)
Publicity, exhibitions, SP (annual outlay) (4)
Production equipment order (quantity)
Number of salesmen
Number of visits (10)
Training of salesmen (11)
Number of technicians
Number of visits (10)
Training of technicians
(17)
LMT-loan taken:
Increased/decreased capital:
Group Contribution +/-
792
3
250
472
0
0
0
1
3 472
1 278
50
3
250
1 056
3
250
472
0
0
0
Period
2
3 472
3
3 472
1 333
45
4
250
1 889
140
8
250
2 111
3
250
472
0
0
0
4
0
0
0

Simbiz News Period 4
Market:
Finance:
Strong growth, customer satisfaction on average
No inflation
Social climate: Social climate - calm, personnel satisfaction on average
Product: XB 7 is alone in the market, highest quality, no development is necessary.
Market
1. Market change in % of total acc. population
2. Annual replacement rate in % of total acc. population
3. Competitors' sales price *
4. Advertising, exhibitions, SP etc – market average rate in % of turnover *
5. Sales price of consumable supplies per machine in service
6. Service contract annual selling price
Sales
7. Quantity sold annualy per salesman, average
8. Gross annual salary of a salesman
9. Commission in % of total sales
10. Standard number of visits per year; salesmen & technicians *
11. Sales training, % av total wage cost *
12. Travelling expenses (sales & service)
Service
13. Gross annual salary of an a.s.s. technician
14. Commission service personnel, % of base salary
15. Planned maintenance visits per machine per year
16. Unplanned maintenance visits per machine per year
17. Technician training, % av total wage cost *
Material
18. Purchase price consumables per sold machine
Manufacturing
19. Purchase price/produced unit
20. Supply costs
21. External service in % of purchase and personnel expenses
22. Cost of an investment portion (production)
Period 2 Period 3 Period 4
16
16
38
16
45
16
3 472 3 472 3 472
0,8 0,8 0,8
1 444 1 444 1 444
472 472 472
Period 2 Period 3 Period 4
17 17 17
26 389 26 389 26 389
5
255
5
255
5
255
1
28
1
28
1
28
Period 2 Period 3 Period 4
15 667 15 667 15 667
0 0 5
2
1
1
2
1
1
2
1
1
Period 2 Period 3 Period 4
918 918 918
Period 2 Period 3 Period 4
220 220 220
69
70
69
70
69
70
138 889 138 889 138 889

23. Production equipment redemption period
24. Production capacity per invested portion
25. Personnel cost per output unit
26.
Commission produktion personnel, % of personnel cost per produced machine
7
200
7
200
7
200
275 275 275
0 0 5
Overhead inc. recruitment, product development costs etc
Period 2 Period 3 Period 4
27. Cost of hired portion (sales + service)
28. Overhead in % of costs (production - sales och service)
29. Product development in % of costs (production - sales och service)
30.
Other expenditures inc recruitment/settlement costs in % of contribution
(sales + service)
31. Persons per hired portion of premises (sales + service)
8 333 8 333 8 333
20
5
20
5
20
5
5
25
5
25
5
25
Taxes, credits, social charges, sick pay etc
32. Social charges inc sick pay in % of salary
33. Maximum long term loan in % of personal capital
34. LMT Credit period, years
35. Long term loans interest rate %
36. Short term loan interest rate in %
37. Supplier's credit period in months
38. Customer credit period in months
39. Tax rate on profit in %
Dividends
40. Dividends in % av share-capital
Limitations
41. Limitation for stock value, percent av new machine price
42.
Allowed variation from standard in % (not applicable to decision 9, 14, 26,
29, 37, 38, 40)
Period 2 Period 3 Period 4
41
80
5
16
20
1
3
50
41
80
5
16
20
1
3
50
41
80
5
6
11
2
3
50
Period 2 Period 3 Period 4
0 0 11
Period 2 Period 3 Period 4
50 50 50
35 35 40
Production Capacity (Period: 3)
Purchase
Period
Start
Operating Until
Period
4
Investment Economic
Lifetime
138 889 7
Production
Capacity
200
Personnel cost per output unit
Personnel cost per output unit: 275

Grades and Statistics (Period: 3)
Customer Satisfaction Index
Product quality
Price
Quality of after sales service
Supplier Satisfaction Index
Shareholder Satisfaction Index
Sales personnel Satisfaction Index
Advertising
Training
Working conditions
Service personnel Satisfaction Index
Training
Working conditions
Production Personnel Satisfaction Index
Working conditions
Sales statistics
New sales
Replacement sales/machines
Total
Installed machines
Other information
Quantity in stock
Production capacity
95
40
135
345
10
200
Long term loan
Period
4
5
6
Financial costs
0
0
0
Repayments
0
0
0

Income statement (Period: 3)
Returns
Machine sales
Consumable supplies sales
Service contract sales
Total
Charges
468 750
498 333
162 917
1 130 000
Consumable supplies purchase
Raw material purchase machines
External services
Production
Sales and service
316 538
30 839
48 578
103 138
Total
Personnel costs
Production
Sales
Service
Overhead costs
Production
Product development
Sales and service
Financial costs/depreciation
Financial costs LMT
ST Financial cost
Depreciation allowance
Balance Sheet Allocations
Stock variation
Group Contribution +/-
499 092
38 558
330 714
66 270
27 563
6 891
123 487
2 925
0
19 841
3 886
0
Operating profit/loss
Tax on profit
Net profit
18 545
0
18 545

Charges (Period: 3)
Production costs
Raw material purchase
External services
Personnel costs
Overhead costs
Product development
Financial costs LMT
Depreciation allowance
Total
Produced quantity
Cost/Unit *
30 839
48 578
38 558
27 563
6 891
2 925
19 841
175 196
140
1 251
Sales and service
Other expenditures
Rent (premises)
Advertising
Transport/distribution
Visits
Training
Other expenditures
Personnel costs
Sales
Service
Overhead costs
* This cost is used in valuation of stock. Stock valuation cannot exceed a fraction of the machine sales price (see Budget
Conditions for the percentage). Stock variation between periods is shown on the Income Statement under Balance Sheet
Allocations.
Total
Balance sheet (Period: 3)
Assets
Plant assets
Depreciation allowance
Plant assets (Total)
Operating assets
Realizable assets
Available assets/overdraft
Sum
Debts
138 889
- 119 048
= 19 841
12 514
117 188
0
149 543
Nominal capital
Reserves
Personal capital
LMT Loan
Operating supplier debts
Overdraft
Sum
8 333
1 889
9 375
74 783
2 583
6 174
330 714
66 270
123 487
623 608
138 889
- 5 362
= 133 526
0
2 570
13 447
149 543

Footnote
Dividends in % av share-capital
Dividends
0
0
Preliminary calculations (Period: 3)
Net profit
+Depreciation allowance
= Self-financing capacity
18 545
19 841
38 386
Operating assets
+ Realizable assets
- Operating supplier debts
= NWC(needs in working capital)
- NWC previous period
= NWC variation
Resources and employment (Period: 3)
Fixed assets
LMT repayment
Dividends
NWC variation(+)
Employment
0
18 284
0
60 302
78 586
Self-financing capacity
Change nominal capital
LMT Loan
NWC variation(-)
Total
Resources
Total
Finances
Period variation
Available assets (or overdraft) of previous period
- 40 200
26 753
- 13 447 Available assets (or overdraft) of period
INFORMATION
SUPPLIERS
Purchasing Raw Material - Machinery
The cost of raw materials for production of the machines currently amounts to USD 220 per produced unit.
The supplier rating (see below) affects the quantity of raw material actually delivered during the next period as follows:
Rating Delivered Quantity
3 stars or more 100% of ordered/prognosticated quantity
12 514
117 188
2 570
127 132
66 829
60 302
38 386
0
0
0
38 386

2 stars 90% of ordered/prognosticated quantity
1 star 75% of ordered/prognosticated quantity
This does not apply to the prognosis.
Purchasing Consumables - Customers
Every machine sold by the company results in sales of consumables. Purchasing costs for this material amounts to USD 918 per machine and year. The material is paid for in cash.
The supplier rating (see below) affects the quantity of material for consumables actually delivered during the next period as follows:
Rating Delivered Quantity
3 stars or more 100% of ordered/prognosticated quantity
2 stars 90% of ordered/prognosticated quantity
1 star 75% of ordered/prognosticated quantity
This does not apply to the prognosis.
Supplier Costs
The credit terms are 2 month(s) from the supplier of raw material. Purchase of customer consumables are paid in cash.
Supplier Rating
The supplier rating of Roos Technologies is based on the following criteria, each of which each is weighted equally:

Normal purchase price according to Budget Conditions no. 17 and 18, Navigator 5, gives a rating of
3 stars. Every 10 % increase or decrease of the purchase price changes the rating by one star.

Normal suppler credit according to Budget Conditions no. 35, Navigator 5, is 2 month(s) which gives a rating of 3 stars. Each month more or less credit changes the rating by one star.

The purchase volume of raw material for the machines and consumables. Increasing or decreasing the purchase volume by 10 % is equivalent to changing the supplier rating by one star per supplier.
A total supplier rating of one star or less increases the risk of delivery problems.
EXTERNAL COSTS
Sales and service, 5% of overheads. Production, 70% of purchasing and personnel costs. (See also "Other costs".)
FLOATING CAPITAL REQUIREMENT
The floating capital requirement refers to the need for capital in order to finance a life cycle here and constitutes the difference between income and expenditure in the books.
SELF-FINANCING
The self-financing capacity is the capital generated by the operation with adjustments. To get the actual capital generated by the operation, adjustments must be made for variations in the floating capital.
PRODUCTION CAPACITY
Production capacity on the assembly lines is 200 machines. Additional capacity automatically increases in increments of 200 machines on investment in new production lines. In certain circumstances it may be possible to increase the production capacity of existing production lines.
Producerad volym
The rating/motivation of the production personnel affects the manufactured quantity for the next period as follows:

Rating Produced Quantity
4 stars or more 100% of ordered/prognosticated quantity
3 stars
2 stars
90% of ordered/prognosticated quantity
80% of ordered/prognosticated quantity
1 star 70% of ordered/prognosticated quantity
This does not apply to the prognosis.
Production Personnel Rating
The rating given by the production personnel depends on the production volume, base salary and commission according to the following:

Increasing or decreasing the utilization of the production lines by ca 30% increases or decreases the rating by one star. 100% utilization gives a rating of four stars.

Increasing or decreasing the base salary of the production personnel (personnel cost per produced machine) by ca 40% compared to standard changes the rating by one star.

Increasing or decreasing the commission of the production personnel (% of personnel cost per produced machine) by ca 40% compared to standard changes the rating by one star.
THE AUTHORISED SHARE-CAPITAL
The share-capital amounts to the sum the shareholders have made available to the company.
OVERHEADS AND PRODUCT DEVELOPMENT
The cost covers e.g. costs for product development, administrative personnel, directors’ fees, etc.
Part of the cost has been included in “other costs” as VAT has been paid.
Overheads are 20% of the sum of the following costs, product development costs are 5% of the same costs.
Production

Purchasing raw material

External services

Personnel costs

Depreciation
Sales and services

Other costs excluding external costs

Personnel
Product development for Roos Technologies is taken care of centrally within the Simbiz concern. Ex MD
John Roos, who started Roos Technologies, is in charge of this work. The management team within Roos
Technologies has great influence on product development. Johan Roos leads even other development projects within the Simbiz concern.
COST PER MACHINE
The cost per machine corresponds to the total production cost divided by the number of machines produced.
Cost per machine can never be higher than the limitation imposed by the percent of sales price for new machines for the period in which the stock change occurs (see Navigator 4, Limitation for stock value.
CHEQUE ACCOUNT

Cash shortages arise when income is lower than expenditure. The cash shortage is carried over to the following year and is called “Cheque account overdraft.”
DEPRECIATION
Assets purchased for the production of machinery are written off over seven years. The distribution of depreciation over time takes the technical development and wear-and-tear on assets into account.
The normal lifespan of the machinery is also seven years.
LONG-TERM AND SHORT-TERM LOANS
Long term loans are only intended for the purchase of production lines. Long term loans are paid off by installments over a period of 5 years. Short term loans are paid off as the cash account shows positive results.
PERSONNEL COSTS
The gross salary for a sales person is USD 26 389 per year, plus a 5% commission on machine sales. The gross salary for a technician is USD 15 667 per year. National insurance contributions of 41% are paid by the company. The personnel costs in production is USD 275 per unit produced (incl. National Insurance contributions).
PERSONNEL TURNOVER
Personnel turnover is dependent on a combination of the company's reputation and internal atmosphere. For example it can be difficult to recruit in the required tempo if the reputation is damaged. The opposite situation can arise if the internal atmosphere is good, when reductions in personnel strength are required.
If the personnel rating for working conditions is four stars or better, personnel turnover will be low or nonexistent during the next period. Otherwise personnel turnover will depend upon competitiveness and business cycle.
FINANCIAL COSTS
The bank charges interest on long-term loans and on the cheque account overdraft. Interest is paid in the following period. For the current interest rates see the Navigator 5, Budget Conditions.
PLANT ASSETS
Each part of production capacity (production line) costs USD 138 889. These purchases are paid in cash.
TAX ON PROFIT
The tax on gross margin profits is 50% (reduced by any loss from the previous period).
GRADING OF DECISIONS
This marking scale is based on interlinking all the input-factors in the system. 5 stars = Excellent, 1 star =
Very bad. The different grades are related to each other and to historical results.
NUMBER OF VISITS
The standard number of visits a year for a salesman or technician is 255. The number of preventive maintenance services is 2 per year and machine with a contract.
Added to these are the visits caused by machine failure. The probability that a machine will fail during one year is 0.7
–1. The number of machine failures depends on the competence of the technician and the quality of the maintenance work.
QUALITY OF SERVICE

Clearly the service technician steps in and prioritises when a customer’s machine breaks down.
The number of machine failures per year is not defined and these “risks” decrease or increase depending on how often the machines are maintained and the quality of the service carried out.
The technicians spend the remaining time on preventive maintenance services.
OTHER COSTS
All purchases of external services are included under this heading, including recruiting and lay-off costs.
(See also "External costs".)
Production:

Makes up 70% of the personnel costs and material purchases
Sales and Services:

Premises necessary for sales, services and administration are rented for USD 8 333 a

 year per 25 sales staff and technicians.
The amount spent on marketing etc. is set by the management team.
Delivery of equipment to a customer costs USD 69 per unit.

Travel expenses depend on the actual number of visits carried out by sales staff and technicians. The cost for a journey is USD 28.

Training costs for sales staff and technicians are set by the management team. One percent of salary costs is equivalent to approx. 5 % of work hours.

Recruitment and settlement costs.
QUANTITY PRODUCED
This corresponds to the quantity of material ordered for production. (Decision)
QUANTITY SOLD
A salesman can sell on average 17 machines per year (new customers and replacement machines combined).
The quantity that has been sold depends on the reputation of the brand and the price in relation to the competitors' prices.
The machine’s image can depend on the following: follow-up among the customers on the behalf of sales staff, their professional knowledge, the competence and efficiency of the technicians when visiting the customers, perceived product quality, etc.
This image is supported by marketing, SP, trade fairs etc.
RESERVES
The profit is put into company reserves.
VALUE ADDED
This represents the difference between sales income and costs subject to VAT.
END OF YEAR RESULT
Profit occurs when income is greater than expenditure. Profit is carried over to the following year.
CURRENT ASSETS
Stock value at the end of the period.

TRADE DEBTS
Customers have a 3-month credit.
STOCK VARIATIONS
The difference in the value of the stock at the end of the year and the stock at the beginning of the next period. The stock at the beginning of the year corresponds to the stock at the end of the previous year. The value of stock is equivalent to production costs for the machines, up to a maximum of a fraction of the sales price (see Budget Conditions for the percentage).
SALES
Previous years stars for product quality, price and quality of after sales service effects sales of consumable supplies and service contract as below.
9 stars or greater= 100% sales
6-8 stars = 90% sales
3-5 stars = 75% sales
The competitors effect sales if they have an accumulated market share that is 35% or less. Further sales of consumable supplies to competitors customers are effected by the previous years stars for product quality, price and quality of after sales service as below.
12 stars or greater= 10% increased sales
14 stars = 20% increased sales
Consumables
Each machine sold by the company results in sales of consumables at a value of USD 1 444 per machine and year.
Machines
A salesman can sell 17 machines per year on average.
Service contracts
Each machine with a service contract brings in USD 472 per machine and year. Other services are not included in this contract.
GROUP CONTRIBUTION
Group contribution can be positive or negative. It is shown on the Income Statement under Balance Sheet
Allocations. Only the course management can decide and approve of group contribution.
SHARE CAPITAL
Share capital is the amount that the shareholders have made available for the company's disposal.
SHAREHOLDERS
The shareholders rating is calculated on the following factors:
 profit margin before tax, the shareholders expectations are approx. 10%

 market growth, the shareholders long term expectations are 70% percent of market share dividends, the shareholders expectations are 5% over the interest rates for long term loans

The Board of Directors and the Course Management make a proposal to the Annual General Meeting, which approves the payment of dividends to the shareholders. In exceptional cases the local management can approve of the payment of dividends for pedagogical reasons.
EQUITY CAPITAL
The sum of share-capital and reserves.
The most important goal is of course to make sure that the company survives on a long term basis. In order to achieve this, we have set a number of operative goals for you.
They are to be obtained at latest period 8. In conclusion this means, that we will look at the figures after year number eight in the simulation. The goals to achieve are as follows:
1. Costumer satisfaction: 12 stars total (based on the statistics in the simulation at that time)
2. Personnel motivation: 4 stars average (based on the statistics in the simulation at that time)
3. Total market share after period 8: 80 %
4. Market share new sales after period 8: 80 %
5. Solidity after period 8: 35 % (Total capital : Total assets)
6. Return on assets after period 8: 25%
7. Gross profit margin after period 8: 20%
8. Positive cash flow in period 8
(Gross profit : Total assets)
(Gross profit : Total turnover)
Apart from the goals we want you to be prepared to make a contribution to the share holders. This contribution is estimated to be 1.000.000 SEK. This contribution will not affect the key-figures above. After the contribution the share holders capital must not be used. If so, you have to subtract 10 % of the total percentage sum below. In order to calculate your actual result you can do like this:
Each of the goals 1-7 can be achieved in a proportion of the total. For example, if you reach 9 stars in customer satisfaction that is 75% of the total for this goal. It is possible to reach a number higher than 100%.
When you have calculated the percentage on each goal (1-7) you can make a summary like this:
Add the percentages of goal number 1, 2, 3, 4, 6 and 7.
Then you add the whole percentage of goal 5 up to 100%, and if you reach a higher number you add half of what is left (above 100%).
Finally you divide the total sum with 7
This gives you your total percentage sum.
If you do not reach goal 8 (positive cash flow in year 8) you then subtract 10% from your total percentage sum.

If you have not made your decisions, simulated period 8 and done your analysis after that, then you subtract 10 % from your total percentage sum.
You than have your final score