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REINVENTING A BUSINESS SIMULATION TO INCORPORATE RISKS ASSESSMENT IN AN INTERCONNECTED WORLD. Robert Boehner, JD Thomas Pray, Ph.D . Gregory VanLaeken, MBA. Bob Boehner.
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REINVENTING A BUSINESS SIMULATION TO INCORPORATERISKS ASSESSMENT IN AN INTERCONNECTED WORLD Robert Boehner, JD Thomas Pray, Ph.D. Gregory VanLaeken, MBA Bob Boehner
The PaperThe focus is on “modeling” a business simulation scenario whereby a firm may enter into a new and riskier foreign market with a rapidly changing high-tech product and a short time horizon
Business Simulations • 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
Business Simulation Revisited • 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
Three Parts to the Reinvention A Business Case Simulation Software Excel Spreadsheets
The Scenario • 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
Decisions How much capital will be spend to manufacturer the product? Where will we manufacturer the product? Estimate how many will be purchased? R&D and SGA allocations Quality training overseas Hourly wage What price will we charge? Terms for AR and AP Overseas manufacturing – estimate WAAC and exchange rate projection
Risks • RISKS • Market acceptance and forecast error with Bass Function • Over or under capitalization • Production setup and capacity conversion issues • Consumer reaction to AR terms • Supplier reaction to AP terms • Exchange rate • WAAC rate changes • Downtime and Waste variability • Inadequate quality focus
Risk Assessment:Forecasting Demand Forecasting Sales – The Bass Diffusion Model
Risk Assessment:Build Overseas or in the US? • What is an appropriate discount rate that properly captures non-quantifiable risks? • Should capital come from an internal parent-to-subsidiary 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?
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