Planning Business Simulations
The motif shows several dark blocks to show how exploring, comparing and discussing several "What-If" options progress toward the creation of a plan that meets business needs.
Planning Simulations differ from most business simulations as instead of moving progressively period-to-period. Rather, they involve making business plans that the learner's progressively improve before explaining during the review why their plan is best.
These consist of short computer aided exercises that can be used:
Currently these planning simulations are available:
KEY LEARNING: As described above each simulation covers different learning objectives.
TARGET AUDIENCE: The exercises are designed to be used by all levels of management and functional specialists.
METHOD: After a short briefing the training group is divided into several teams of three to five participants. These teams consider the problem facing them and then make a series of plans that are fed, by the team, into their own microcomputer that simulates their effect. The results are printed for the team to analyse and discuss before modifying their plan. This cycle should be repeated for six to ten times. At the end of the simulation phase the teams reunite to discuss and compare results.
The planning models are designed and calibrated so there is no right answer. This ensures the maximum of discussion and argument, both during planning and during the review. Further, these exercises serve to complement traditional lectures. By using the computer to do the calculations, they ensure that participants make effective use of practice time. .
The business simulations may be used with any number of teams.
AVAILABILITY: With the exception of the Entrepreneurial Startup simulation, these simulations are available off-the-shelf
and a comprehensive Trainer's Pack is provided allowing trainers
with little or no experience with simulations to run the
FINANCIAL ANALYSIS places participants in the role of financial consultants creating an annual plan. In doing this they will refresh and test their knowledge of final accounts (Profit & Loss and Balance Sheet), key business measures (of Profitability, Financial Strength and Business Type) and, most importantly, how management actions influence these.
DURATION: About four hours. This duration allows the simulations to fit into most course time-tables.
The exercise explores how managerial actions influence financial performance. It involves the participants deciding which of a range of business options should be implemented. For example, participants will need to decide whether to increase prices, reduce stock availability or launch a new product. Each option has a different effect on the Profit and Loss Account and Balance Sheet and so influences the key financial ratios in different ways.
PROFIT & LOSS ACCOUNT/INCOME STATEMENT
The exercise presents a standard Profit & Loss Account (Income Statement) and so builds participants awareness of the structure of this and, importantly, how managerial actions influence each part of the Profit & Loss Account.
As for the Profit & Loss Account, participants build their knowledge of the make-up of the Balance Sheet and how managerial actions influence it. Additionally, participants gain an understanding of how funds are used (Assets) and who supplies them (Equity and Liabilities).
KEY FINANCIAL MEASURES
Besides providing a report that suggests a list of measures to highlight financial performance, the exercise provides three other reports that investigate performance from the viewpoints of Profitability, Financial Strength and Business Type.
PROFITABILITY & LIQUIDITY
The standard version of the simulation starts from the situation where the company is insufficiently profitable but reasonably liquid. So, initially teams must chose options that increase profitability. But, a plan that just focuses on increasing profitability, does so at the expense of liquidity. So, next, teams must incorporate into the plan options that increase liquidity. Until, eventually, teams produce the best plan. Then, during the review, they must justify their best plan to the other teams. (The exercise is especially calibrated so that, usually, each team's best plan is different.)
INFLUENCING FINANCIAL RESULTS
The exercise focuses on how managerial actions influence results. The standard simulation involves a list of twenty-seven different options each of which influence the Profit & Loss Account and Balance Sheet in a different way and to a different extent. As part of the process, participants must initially investigate these separately and identify their financial strengths and weaknesses. But, as described above, a selection of these must be combined (so that the weaknesses of one option are more than compensated for by the strengths of the others).
Besides the standard version, Financial Analysis can be tailored for a nominal fee to match your financial terminology, reporting structures and, even, the issues facing your business.
MARKET STRATEGY involves participants in analysing the financial aspects of a five-year market diversification plan. This involves finding strategies that are feasible in terms of cash flow and profitability.
Before deciding the best strategy, they must decide objectives (in terms of profitability, growth and survival).
To prepare the plan, participants must decide which market or markets are the most attractive and what mix of price, promotion, product performance, inventory availability and debtor (receivables) policy is best.
The markets are export (involving either direct selling using own staff, non-exclusive agents or dealers) and launching a new product to a new domestic market.
Here, participants investigate the relationship between marketing actions and business success, discounted cash flow and financial measures.
THE PLANNING PROCESS
Participants are involved in preparing the financial aspects of a five-year market diversification plan. This involves finding strategies that are feasible in terms of cash flow and profitability. Then, before deciding the best strategy, they must decide objectives. To prepare their plan, participants must decide which market or markets are the most attractive and what mix of price, promotion, product performance, inventory availability and debtor (receivables) policy is best. The markets are export (involving either direct selling using own staff, non-exclusive agents or dealers) and launching a new product to a new domestic market.
THE FINANCIAL IMPACT OF MARKETING DECISIONS
The markets and decisions are chosen to show how marketing decisions link to financial results. Price, promotion and product performance impact the Profit and Loss Account (Income Statement) and, through their effect on sales volume, the assets in the Balance Sheet. In contrast, the prime impact of inventory availability and debtor policy is on Current Assets and through their effect on sales volume the Profit and Loss Account.
FINANCIAL & MARKETING MEASURES
The simulation model takes a comprehensive range of marketing mix decisions and uses them to calculate for each year several key measures (sales revenue, unit market share, cash market share, profit contribution, profit to sales %, capital employed, cumulative cash flow, return on investment and residual income (value added)).
The simulation model summarises the five year plan in terms of total sales revenue, average unit share, average cash share, average profit to sales %, total profit contribution, average capital employed, worst cash position, internal rate of return and net present value.
When deciding feasible strategies, participants are concerned with cash flow and funding availability. When investigating these strategies, participants must consider profitability (profit to sales %, return on investment and internal rate of return); growth (sales revenue, profit contribution and market share) and value added (residual income and net present value).
The internal rate of return and net present value introduce the concept of discounted cash flow and show how this relates to marketing planning.
Participants are free to decide which of the measures should be used and use these when finding the best strategy. This freedom ensures that participants discuss the relative merits of each measure. Then, as they attempt to reach these objectives, they discover how their marketing decisions influence these.
The Strategic Exploration of Entrepreneurial Directions (S.E.E.D) was developed in partnership with Imperial College of Science, Technology and Medicine. It involves participants in the exploration and strategic analysis and planning of a new enterprise.
Before planning the enterprise participants must appraise and research several entrepreneurial opportunities.
To prepare the plan, participants must decide financial, marketing and operational strategies.
Because this simulation incorporates a detailed tax model it is not appropriate for use outside the UK.
BUSINESS PURPOSE & POLICY
During the simulation, participants will be concerned with planning a profitable, growing business that survives. They will develop an understanding of business purpose, how this is influenced by managerial actions, and how the objectives, actions and measures interact.
Participants without management experience (especially those with an academic, scientific or engineering background) are likely be especially challenged by the need to deal with ambiguity and make decisions without perfect or complete information. However, the simulation includes a support system to provide essential business knowledge.
THE PLANNING PROCESS
The simulation introduces the participants to planning on a stage by stage basis. Initially, teams research the market. Next, they move to assessing market opportunities and deciding which to focus on. Next they refine their marketing strategy and decide resourcing and working capital strategy. Finally, funding needs and sources are investigated and the plan is ratified.
RESEARCHING ENTREPRENEURIAL OPPORTUNITIES
Participants investigate the opportunities provided by an intelligent soft toy. A product that might be sold to parents to help with early learning (the Cuddl-Etoy), the elderly as a companion (the Cuddl-Epet) or to the parents of Autistic children to help the children socialise and communicate (the Cuddl-Epal). These opportunities must be researched in terms of market potentials, customer needs, marketing channels, profit opportunity and cash need etc.
MARKETING - MARKET SELECTION, PRICING, PROMOTION & OFFERING
Participants must select which market to concentrate on; whether to market via retail outlets or the web or both; what prices to charge, how many types of Cuddl-E to offer and how they will promote the company (advertising, PR, direct selling etc.). In planning their marketing mix participants consider the financial and operational consequences of their decisions and their business needs.
FINANCING - MEASURES, WORKING CAPITAL & FUNDING
The simulation introduces participants to basic financial aspects (costing, Profit & Loss Account, the Balance Sheet, Cash Flow and key ratios). Participants investigate how working capital (debtors, inventories and creditors) policies are influenced by market choice, sales channels, resourcing, etc. Once they have defined cash needs participants must then assemble a funding package involving venture capital and debt.
RESOURCING - HUMAN, PHYSICAL & CAPITAL INVESTMENT
Participants must determine and decide the best mix of human (production, administrative, accounting and sales) and physical (accommodation, equipment, furniture & transportation) resources taking into account cost and capital needs.
One, perhaps the key resource, is the time available to the entrepreneur and so this will be both a major decision area and limitation. Participants must balance the direction of effort towards planning and thoughtfully improving the plan against being fast to market.
Optionally, at the end of the simulation, participants may be asked for make a formal presentation covering their plan and venture funding needs.
(KNOWLEDGE NEEDS ASSESSMENT)
Optionally, during and at the end of the simulation participants can be encouraged to assess and consider their future learning needs so as to help them prepare fully for their business start-up.