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

The Paper
The focus is on “modeling” a business simulation scenario whereby a firm may enter into a new and riskier foreign market with a rapidly changing hightech product and a short time horizon

• Many business simulation have the participants manage a business in a relatively stable market
• CAPSTONE/CAPSIM has the team “turn” around a 100 million dollar business, which has average products and may have from 5 -8 years to do it

• Web-DECIDE simulation has each team picking a deliberate strategy and attempting to implement that strategy over 2 -3 years in a purely domestic market

A Business Case
Excel
Spreadsheets
Simulation
Software


In terms of Web-DECIDE simulation – after 2 years of play we introduce this new opportunity:
 Produce a high-tech product – Smart LED Light
Bulbs – and sell in a new foreign market –
Indonesia
 Restricted to a maximum of two year horizon

1.
How much capital will be spend to manufacturer the product?
2.
Where will we manufacturer the product?
3.
Estimate how many will be purchased?
4.
R&D and SGA allocations
5.
Quality training overseas
6.
Hourly wage
7.
What price will we charge?
8.
Terms for AR and AP
9.
Overseas manufacturing – estimate WAAC and exchange rate projection

1.
RISKS
1.
Market acceptance and forecast error with Bass Function
2.
Over or under capitalization
3.
Production setup and capacity conversion issues
4.
Consumer reaction to AR terms
5.
Supplier reaction to AP terms
6.
Exchange rate
7.
WAAC rate changes
8.
Downtime and Waste variability
9.
Inadequate quality focus

Forecasting Sales – The Bass Diffusion Model
Market Penetration - Various Values innovators (p) and Imitators (q)
100%
90%
80%
70%
60%
Market Penetration 50%
40%
30% p=.0112 q=0.5
p=.001 q=.3
20%
10%
0%
Time
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 p=.5 q= .001

• What is an appropriate discount rate that properly captures non-quantifiable risks?
• Should capital come from an internal parent-tosubsidiary loan, from a domestic capital market, or from a foreign source?
• How do the country tax rates impact the discounted cash flow?
• Is the local currency freely convertible and if profits are allowed to be repatriated will they be taxed?

FROM
Bob, Tom and Greg