Service Challenge an exploration of business This computer simulation gives you and the others: an opportunity to manage a “real” business for several simulated years making decisions as part of a small team covering: –Marketing –Operations –Finance your objective, while competing against the other teams, is to make your business a success

The Simulation The simulation consists of three stages: Preparation Decision-making Review Preparation –Familiarisation –Organisation –Consider objectives –Consider strategies Decision-making –Submit Decisions –Simulate –Analyse Results –Replan Review –Discuss & Compare Results

The Situation The company is a subsidiary has been operating for several years provides three services (Level 1, 2 & 3) involving two resources (A & B) all costs & prices are a universal currency companies are in direct competition You will run this business for several periods, each of which represents one trading year

The Services Level 1 (the best and most recent) Level 2 Level 3 (most basic and oldest) Each service is bought by a different group of customers and there is no interaction between the groups. Also, each service makes different use of resources, has different potential and different marketing needs. When selling your service you must ensure you service existing customers and attract new customers. Each customer will purchase several days service from you each year.

Marketing Your marketing decisions affect the number of customers who stay with you, the number of new customers and the amount of service they buy from you and these are influenced by: –prices –promotion –quality of service –resource availability –market trends –the actions of the other teams The two types of customer (Existing and New) are influenced differently.

Resources The resources consist of a combination of people and machines and involve: Resource AResource B Staff Costs4000 AUs2000 AUs Asset Costs15000 AUs5000 AUs Resource AResource B Level Level 20.5 Level Each service utilises the resources differently thus:

Other Resource Data A unit of resource provides a maximum of 200 days service each year Currently there are: –Resource A – 25 Units –Resource B – 30 Units If resources are short Resource A can be used in place of Resource B but not visa versa Depreciation - 20% /year Resource quality (but not productivity) can be improved by investment and this investment is split equally between: –Training staff (cost) –Improving assets (capital investment)

Financial Data interest paid on overdrafts - 20% per year interest paid on loans – 16% per year interest earned on cash - 10% per year mandatory dividend - 10% of Equity If Capital Gearing Exceeds 50% then the interest paid may increase substantially taxation is 50% and paid the following year general overheads – 50,000 AUs/year promotion costs - decided by you

Decisions For each service separately price promotion For each resource separately number of new resources investment in Quality Improvement And in general new bank loans Use the decision form supplied and complete it carefully and legibly and hand to the simulation controller at the specified times.

Results Results are returned to you in three stages: Preliminary Results –demand (days) & sales income for each service –sales income, operating profit & cash/overdraft Company Reports –Client Summary –Resource Summary –Profit & Loss –Balance Sheet –Key Ratios Business Research –Market News (prices & market shares) –Company Reports –Company News

Observations it takes time to understand but the business still has to be run therefore your decisions will not be perfect time will be a constraint by the end you should (just) be in charge of your business your business skills will be challenged remember the purpose is to learn! (rather than just to win!) so, take time to reflect & review and have fun!

Final Year Result Team Name Sales Income Net Profit Earnings Total Equity Cash/Overdraft Income Growth % Return on Assets Return on Equity Capital Gearing

Final Year - Market Position Team Name Level 1 Price Market Share Contribution Level 2 Price Market Share Contribution Level 3 Price Market Share Contribution

Cumulative Results Team Name Sales Income Net Profit Earnings Income Growth % Return on Assets Return on Equity Worst Gearing

Efficiency Losses Team Name Excess Promotion Sales Losses Gearing Losses Idle Resource Cost Resource Transfer Cost Disposal Loss Total Losses Operating Profit Potential Profit