FORAD Multinational Business Finance Simulation
Corporate Learning
Tower46 LLC
Tower46 LLC
www.tower46.comwww.tower46.com
 Executive summary
 The FORAD simulation:





FORAD company structure and details
Decisions process
Performance measures
Simulation process
Reporting
 Learning points
 Benefits for the corporation
 Logistics and sample schedule
2
Tower46 LLC
www.tower46.com
EXPERIENCE:
The FORAD business finance simulation is a computer-based game designed to
help players, usually in teams of 3 to 5, understand what it takes to manage
the financial and operational challenges of a multinational corporation.
FORAD is typically structured as a competition between 5-10 teams.
LEARNING POINTS:
During the course of the competition, the players gain complex corporate
finance knowledge and practice crucial managerial and leadership skills. A
successful FORAD team demonstrates competencies in Operational Planning,
Capital Structure, Hedging, Derivatives, Debt & Cash Management, F/X, Tax
Optimization, and Intercompany/Transfer Pricing Strategies.
PLAYERS:
While pre-existing knowledge is helpful, it is not a requirement. The Players
Manual details how to play FORAD, and the model generates all reporting
automatically. Additionally, the players can use the application to test
concepts and ideas and examine the effects real time.
BENEFITS:
The FORAD competition enhances employees’ professional knowledge,
increases engagement and motivation, and reveals employee talent.
3
Tower46 LLC
www.tower46.com
Shareholders:
Equity;
Dividends
IC loans
and
dividends
Clients:
Domestic sales;
International sales
IC: Inter-company
ST: Short-term
LT: Long-term
Banks:
LT/ST loans;
FX hedging
instruments
U.S. Holding
Company
Japan
Operational
Subsidiary
Consolidated
FORAD
Company
IC trade
Banks:
LT/ST loans;
FX hedging instruments
IC loans
and
dividends
Germany
Operational
Subsidiary
Clients:
Domestic sales;
International sales
Banks:
LT/ST loans;
FX hedging instruments
4
Tower46 LLC
www.tower46.com
Multiple steps, but no formal flow or limit for the desired iterations
Preparation - analyze company’s results, study competitors’ results; forecast the
market data; set goals and plan the current period
Operations – decide capacity and production levels, looks for ways to improve
revenues and profitability
Financing and investing – review the company needs or excess resources; borrow
or repay debt, decide on maturity and currency, issue equity or buyback shares
Tax management – search for opportunities to lower corporate tax rate –
via IC loans, transfer pricing, IC dividends
FX management – review the exposures and decide on the hedging approach
Review – examine expected results, stress test for unexpected market data, think
for ways to increase EPS and/or PE score, adjust the decisions
Tower46 LLC
www.tower46.com
Share Price = Annualized Earnings per Share x current PE score
PE score elements, description and weights:
Credit worthiness
Debt/Assets ratio; debt maturity;
credit rating; interest expense
Currency hedging
FX gain or loss compared to
conservative hedging approach
Planning skills
Ability to predict market data and
company's results
Tax management
Effective tax rate for the
consolidated company
Dividend management
Corporate dividend compared to
earnings; consistency
Quality of earnings
Size of non-core earnings; total
earnings volatility; dilution effect
Quality of
earnings, 10%
Dividend
management,
10%
Credit
worthiness,
30%
Tax
management,
20%
Planning skills,
10%
6
Currency
hedging, 20%
Tower46 LLC
www.tower46.com
Team 1
Decision
Team 2
Decision
Team N
Decision
The teams submit their decision files to the
Administrator
During the simulation, the teams predictions for
market data are replaced with the market
actuals and teams’ results are recalculated
SIMULATION
Team 1
Results
Team 2
Results
Industry
summary
The teams receive their final results with
complete detailed reporting package and can
proceed with the next period decisions
Team N
Results
The teams also receive companies’ rankings,
selected data for the competitors and economic
commentary forecast for the next period
Next period
forecast
7
Tower46 LLC
www.tower46.com
The model generates all reports the users need:
PE scores by team by period
For the competitors and the industry:
• Share prices, EPS, PE scores by company
• Operations and production highlights
• Consolidated financials of the competitors
• Market data and forecasts
18.00
T1
15.00
T2
12.00
T3
T4
9.00
T5
6.00
P1
Individual teams’ detailed results
• Financial statements by subsidiary in local
currency and in USD
• All current and historical decisions and results by
position – FX exposures and results, borrowings
and investments, productions data, tax
management
• All reports are Excel compatible
8
P2
P3
P4
T6
Share prices by team by period
$200
T1
T2
$150
T3
$100
T4
T5
$50
P1
P2
P3
P4
T6
Tower46 LLC
www.tower46.com
The FORAD simulation allows the users to build skills in multiple areas of corporate
finance – essential for any well rounded finance professional, and therefore, crucial for
success at the work place
Risk management



Corporate structure
and
capital markets




Identify, understand and manage risk exposures – those resulting from
volatility in the foreign exchange rates, interest rates, commodity pricing
Use economic commentaries to develop market forecasting process
Learn how to develop risk management strategy and use the different
hedging instruments and structures available in the simulation
Define target corporate structure and manage credit worthiness
Choose between multiple sources of capital available – equity capital,
short-term and long-term fixed and floating rate debt
Refine the details – currency, duration, type, risk profile
Learn to evaluate the strategy and how to adjust, if needed
9
Tower46 LLC
www.tower46.com
Financial
planning
and analysis



Use market data to forecast sales and structure company’s operations
accordingly
Manage the company’s budget for long-term assets (capacity) and med-term
assets (inventory)
Understand the long-term effects and how to plan beyond the current period
International
taxation


Learn the differences and specifics of the local tax rules and rates
Test the various tools available to a multinational corporation to achieve
better tax efficiency
Financial
statements
analysis

Learn how to read and explain the numbers after they have been already
generated
Review the historical results and examine the trends
Competitors’
analysis


Learn how to use limited publicly available data for the competitors to
draw conclusions for their strategy and make adjustments to be more
competitive
10
Tower46 LLC
www.tower46.com
The FORAD simulation also allows the users to build skills in areas outside of corporate
finance – to complete the overall training experience
Management
Skills

Organizational
Skills






See the “big picture” about managing a complex organization and how
certain decisions effect multiple areas of corporate finance
Acknowledge and manage trade-offs and learn to prioritize and focus
Learn to evaluate performance, identify mistakes and recover
Accountability – take ownership of the decisions and defend them to the
public, develop and follow internal rules
Time management – deadlines in FORAD are similar to the deadlines in any
real business and require tight organization
Team dynamics – success in FORAD is nearly impossible without effective team
with quality discussions and team commitments
Communication skills – learn to communicate and negotiate within the team,
but also when presenting the company’s decisions and results
11
Tower46 LLC
www.tower46.com
Professional training
Increases the employees’ expertise and may help identify talent early
Build stronger team
Team members build relationships with colleagues from different
functions and levels
Share the knowledge
Team members learn from each other too and get exposure to
various areas of corporate finance, strategy and reporting
Effective format
The game replicates real world experience - easier transition from
academics . The competition element provides extra motivation to learn.
Motivational effect
Increases employees’ motivation; could be a long-term activity and carry
over the positive effect ; could be structured as “fun” activity too
Flexibility
Choice between various game formats to fit corporate’s training needs
and goals. No need for investment in technology or users’ preparation
12
Tower46 LLC
www.tower46.com
Possible game formats:
• Intense short course with a few decisions taken each day
• Extended course with decisions due every couple of days
Teams and users - no fixed requirement for the number of teams or team members. 3 to 5-member
teams offer good balance between work load and efficiency and 5 to 10 teams provide the best
competitive environment.
Length – the simulation could continue between three and 20 periods, ideal results are achieved
between 5 and 8 periods.
Location - the learning experience is most effective when teams discuss their decisions and results
together, but they do not need to be physically at the same location and could work remotely.
Administration – the simulation could be administered in-house (brief training would be needed) or
remotely by Tower46 member. In all cases – interpretation of the results and help with any questions
from the users will be provided by the Tower46 team. No specific technology requirements.
Documentation:
• Manual for the users with all details to play the game; no additional training required
• Manual for the Administrator, if needed
• Ready to use market scenarios with economic commentary packages; customization of the
scenarios is an option
13
Tower46 LLC
www.tower46.com
FORAD simulation course could be executed as short-term intense course:


Users are together at the same location – could be in-house or at remote offsite location
Course instructor is needed – Tower46 team will provide brief training
Suggested schedule:
Prior to the training
Day 1 morning
Day 1 afternoon
Teams work on
period 1 decision
Period 1 results and
commentary
Teams work on
period 2 decision
Day 2 morning
Day 2 afternoon
Day 3 morning
Period 3 results and
commentary
Teams work on
period 4 decision
Final results and
debrief
Form teams,
distribute manual,
install model
Period 2 results and
commentary
Teams work on
period 3 decision
Tower46 team provides interpretation of the results, answer questions, other finance or techincal support
14
Tower46 LLC
www.tower46.com
FORAD simulation course could be executed as long-term activity over a few weeks:


Users do not need to be together at the same location – team discussions could be organized
remotely at users convenience
Course instructor is not a requirement – Tower46 team could administer the training remotely
Suggested schedule:
Prior to the training
Week 1
Week 2
Ongoing….
Teams work on
period 1 decision
Period 1 results and
commentary
Teams work on
period 2 decision
Last week
End of training
Priod period results
and commentary
Teams work on last
period decision
Final results and
debrief
Form teams,
distribute manual,
install model
---------
Tower46 team provides interpretation of the results, answer questions, other finance or techincal support
15
Tower46 LLC
www.tower46.com