April executive business simulation

April

TRAINING

EXECUTIVE

Faculty of Business & Law

The Graduate Business School

De Montfort University

Semester 1 2017/18

Accounting for Managers (ACFI 5020)

Corporate Performance Management (ACFI 5017)

Evaluation of Management Accounting (ACFI5006)

Business Simulation Module

Briefing Paper

(October 2017)

The Executive Simulation –

Driving the Learning Experience

Facilitator

Executive Briefing and Guide

Phil Wilson

34

1

CONTENTS Page No

1. INTRODUCTION TO THE BUSINESS SIMULATION MODULE 1

2. BUSINESS SIMULATION PARAMETERS 1

3. TIMETABLE OF EVENTS 3

4. KEY MILESTONES, SIMULATION REPORTING REQUIREMENTS AND PERFORMANCE ASSESSMENT 4

5. THE SIMULATION EXERCISE 6

6. GUIDE TO MAKING DECISIONS IN EXECUTIVE 8

7. INSTRUCTIONS FOR USING EXECUTIVE 14

APPENDICES

APPENDIX I - COMPANY MANAGEMENT TEAM APPOINTMENTS 17

APPENDIX II - SUMMARY MANAGEMENT REPORT TEMPLATE 20

APPENDIX III - KEY PERFORMANCE INDICATORS 21

APPENDIX IV – COST & DATA SHEET FOR YEAR 1 22

APPENDIX V – DECISION FORM 24

APPENDIX VI – RESEARCH AND DEVELOPMENT TIMES 26

APPENDIX VII – MARKET RESEARCH ON PROMOTION/ADVERTISING 27

APPENDIX VIII - TYPICAL MANAGEMENT AND FINANCIAL REPORT 31

APPENDIX IX - SUMMARY OF FINANCIAL RATIOS 38

APPENDIX X - FREQUENTLY ASKED QUESTIONS 39

Executive Briefing and Guide

INTRODUCTION TO THE BUSINESS SIMULATION MODULE

The purpose of this briefing paper is to prepare you for your participation in a business simulation that is being used in your postgraduate programmes and which supports four modules:

· Accounting for Managers (ACFI5020)

· Corporate Performance Management (ACFI5017)

· Evaluation of Management Accounting (ACFI5006)

Briefing on the modules will be given at a mandatory introductory session that will be held in the Hugh Aston Lecture Theatre 0.10 on Friday 6th October 2017 commencing at 5.00 p.m. and lasting for around 1.5 hours. You are also strongly advised to read through this document ahead of the business start up sessions.

The purpose of the briefing will be to formally introduce you to the simulation and to discuss what you might expect to encounter along the way. You will also be given a demonstration of how the simulation works and an explanation of the decisions that you will be required to make each trading year. The group requirements will also be explained in this session and you will have an opportunity to ask questions about the simulation and can then try it out in your teams.

There will be approximately 300 students participating in the simulation activity, divided into 54 teams. Six different "worlds" will be established and nine teams will compete in each world. Each world will have a unique name and each team will be allocated a unique team number in the range 1 to 9.

The details of each world are:

World No.

World Name

1

Mars

2

Mercury

3

Neptune

4

Saturn

5

Uranus

6

Venus

Note: if you have any questions about the simulation paperwork, the making of your decisions or your business results please send them by email to pwilson@dmu.ac.uk and I will endeavor to respond within 24 hours. Please do not send multiple emails from the same teams and in the ‘Subject area’ please identify your World and Team number (e.g. Simulation Neptune 3).

BUSINESS SIMULATION PARAMETERS

The business simulation to be used is Executive, which is based on a simplified model of the European automobile industry. The simulation is as realistic and current as possible. Teams of 5-6 students will compete in an interactive marketplace, competing against each other and the background market competition that represents leading manufacturers, e.g. BMW, Ford, VW.

You will work as part of a cross-functional management team who collectively has the opportunity to establish and manage a design, engineering, manufacturing and sales distribution business that competes in the European passenger car market. Each team/company will name its own enterprise and design its logo and business strap line (e.g. TESCO’s is Every Little Helps). Each team member will assume specific management roles within the company (see Appendix I for a list of the roles available).

The decisions you will make during this exercise cover a wide range of business skill areas from finance to marketing, business strategy, risk management, human resources, effective interpretation of information, presentation/communication skills.

There is the opportunity to explore, experiment and then evaluate your knowledge, judgment and decision-making before submitting a set of business decisions for processing through the master simulation. Your company will make, distribute and sell cars into the European market. Responsibilities include decisions on a wide variety of aspects, for example:

· the sector of the market to be targeted;

· the type and quality of product to be produced;

· its price and how it will be promoted to the market;

· the size of the workforce and the level of productivity;

· the investment in manufacturing facilities and research and development;

· the financial parameters, e.g. the level of borrowing and payment terms for customers and suppliers, and investment plan

Prior to the start of the simulation you will be asked to determine the type of passenger car company you want to establish and prepare a brief summary of your outline business strategy and plan (to be submitted by 31st October 2017). Your outline strategy and plan will contain your business values, a note of the key stakeholders and their needs, the market(s) you plan to operate in, the types of products you intend to produce and sell and a note of some of the risks and threats you expect to face during the activity.

The simulation will run for 5 years with each trading period (50 weeks) representing a full calendar financial year. The annual financial year runs from 1st October to 30th September and you will commence trading in financial year 2017/18. The final year of trading will be financial year 2021/22.

The simulation will operate over the internet and any communication to you will come via the Blackboard facility and you will be required to submit your annual business decisions electronically to a timetable for processing. A set of financial statements and business reports will be produced by the simulation and be available to you within a few days. You will then review these statements and reports and, for the first 4 trading years, prepare an annual management report considering your results and describing your achievements and challenges (this is for your own use). You will have to submit a Summary Management Report on 26th January 2018. A standard template for this report is shown in Appendix II and is available on Blackboard. You will also be asked to review how your team is working on the business simulation activity and to note your learning experiences. We shall provide you with a pack that will facilitate this review activity.

A guide to the decisions to be made is given in Section 5 of this document and comprehensive help screens are providing within the simulation. Answers to the most commonly asked questions are given in Appendix X, page 39

TIMETABLE OF EVENTS

Here is a summary of the key dates and events that you will experience during the simulation.

Date

Event

Time

Location

Commentary

Friday,

6th Oct

Week 1

Student Briefing Session

5 – 6 pm

Hugh Aston Lecture Theatre 0.10

You will be introduced to the simulation (and your team); receive a presentation about the basic parameters and what your contribution to it is going to be. You will also be shown a live demonstration of the simulation software

Friday, 6th to Weds, 11th Oct

Weeks 1 and 2

Pilot Run of the Simulation.

Decisions to be

submitted by noon 11th Oct

We are providing you with the opportunity to make some decisions before the simulation starts. You will be able to access the simulation model for 5 days and then submit your decisions by Noon on the 11th October. These decisions will be processed on the 11th and your pilot set of results will be available to you in your team file from 7 p.m. that evening. The team files will be reset at 9 a.m. on Tuesday, 17th October for the first decision making period

Tuesday, 17th Oct

Week 3

Formulate Team Business Strategy & Plan

Your team will be required to create their business plan – you should all contribute to this process.

Business Plan to be submitted, through Turnitin, on Tuesday, 31st October

Saturday, 28th Oct Week 4

Business decisions for Trading Period (TP) 1 due in

6pm

You are required to submit your business decisions for the first year of trading by this deadline. You cannot start to make these until Tuesday 17th October

Monday, 30th Oct

Week 5

Results for TP 1 will be published

+ submission of Business Strategy and Plan (by Tuesday 31st October, 11.59pm.)

6pm

You will receive an email notification that your results are available in your team simulation file.

You should contemplate your performance in preparation for the Summary Management Report (due on 26th January 2018).

Saturday, 11th Nov

Week 6

Business decisions for TP 2 due in

6pm

You are required to submit your business decisions for the second year of trading by this deadline.

Monday, 13th Nov Week 7

Results for TP 2 will be published

6pm

You will receive an email notification that your results are available. You should continue to contemplate your performance in preparation for the Summary Management Report.

Saturday,

18th Nov

Week 7

Business decisions for TP 3 due in

6pm

You are required to submit your business decisions for the third year of trading by this deadline.

Monday, 20th Nov

Week 8

Results for TP 3 will be published

6pm

You will receive an email notification that your results are available. You should continue to contemplate your performance in preparation for the Summary Management Report.

Saturday, 2nd Dec

Week 9

Business decisions for TP 4 due in

6pm

You are required to submit your business decisions for the fourth year of trading by this deadline.

Monday, 4th Dec

Week 10

Results for TP 4 will be published

6pm

You will receive an email notification that your results are available. You should continue to contemplate your performance in preparation for the Summary Management Report

Saturday, 9th Dec

Week 10

Business decisions for TP 5 due in

6pm

You are required to submit your business decisions for the fifth year of trading by this deadline.

Monday, 11th Dec

Week 11

Results for TP 5 will be published

6pm

You will receive an email notification that your results are available. Begin to prepare your Presentation (for 25th January 2018) + Summary Management Report - due in on Friday, 26th January 2018.

Tuesday and Wednesday, 23rd & 24th Jan

Week 17

Team Presentation Event and submit Summary Management Report (submit report on 26th)

All day

HU4.13

Each team will be required to prepare and make a 10-minute presentation to a panel to a brief. Details of this presentation will be issued nearer the time together with a timetable

Tuesday, 6th Feb

Week 19

Simulation Awards

5pm

HU3.03

Winning teams for each world will be announced by the panel and awards made to them

KEY MILESTONES, SIMULATION REPORTING REQUIREMENTS AND PERFORMANCE ASSESSMENT

4.1 Student Briefing Session – Friday, 6th October 2017

Time: 5.00 – 6.00 p.m.

Location: Hugh Aston Lecture Theatre 0.10

4.2 Business Strategy and Plan Outline – due by Tuesday, 31st October 2017

You are required to prepare and submit a written outline of your business strategy and plan (not more than 8 PowerPoint slides plus a header page) and it should address the following:

· the name of your company, its logo and strap line

· list of your management team and their Executive roles (see Appendix I for details of the available roles)

· your mission statement

· a list of the key stakeholders (those who have an interest in your success) and their primary needs

· an indication of the market sectors you intend to compete in initially and the type of products you intend to offer into those markets (you are required to launch two in year 1)

· a summary of the potential internal (team) and external (market) risks, challenges and threats that you expect to face during the simulation activity

· your financial plans – borrowing and investment

· 3 team learning goals that you would like to achieve from the simulation module and a statement of what success will look like for your team

A standard PowerPoint template will be available on Blackboard to enable you to prepare and submit your business strategy and plan outline.

4.3 Access to the Simulation File

Each team will receive an email notification of its unique password that will give access to their particular simulation file. Please make sure you keep this safe as you are responsible for the security of your files. Any team who is found to have accessed another team’s files will face severe consequences.

There will be an opportunity to make a pilot set of decisions during the sessions between Friday, 6th and Wednesday, 11th October to enable you to become familiar with the simulation decision-making process and to gain experience of how the simulation works. This will be a limited time option and will be clearly explained to you during the business simulation briefing workshop.

4.4 Summary Management Report – due by Friday, 26th January 2018

Each team will be required to prepare and submit a Summary Management report, after the final results of the decisions are known. This report should be produced to a standard template (see Appendix II) and will cover the following aspects:

· Business results for current and prior year covering:

· No. of employees

· Sales – volume and value

· Gross profit £

· Operating profit £

· Cash at bank

· Outstanding level of debt

· Value of unsold stock at year end £

· Share price

· Key financial ratios

· Gross profit margin %

· Sales margin %

· Return on shareholders funds %

· Return on capital employed %

· Current ratio

· Gearing ratio

· Market value

· Earnings Per Share (EPS)

In order to encourage group ownership of your decisions you should also provide a brief commentary on performance, note of any particular challenges that the company faces and your priorities for the following trading period. This will inform your following year's decisions.

There is a sample set of management and financial reports included in Appendix VIII. A summary of the main financial ratios we shall be expecting you to work and become familiar with during the simulation activity are provided in Appendix IX.

As an appendix to the report you will also be required to attach details of your group meetings throughout the semester. This should detail (for each meeting) :

· Date

· Location

· Agenda

· A list of group members present

· Brief minutes of the meeting

There will also be an element of peer assessment within the group work and group members will be required to provide feedback as part of the appendices to the report. The relevant form for the assessment will be distributed at an appropriate time.

Should it be discovered that certain group members are reluctant to make a worthwhile contribution then the team should contact Phil Wilson (pwilson@dmu.ac.uk). Note that any group members who do not contribute to the best of their ability will be failed on this aspect of their modules. Please remember that in order to pass modules ACFI5017, ACFI5020 or ACFI5006 it is necessary to achieve 50% overall but also 40% within each element. Therefore, a minimum of 40% is needed on the simulation as well as on your individual examination/coursework.

4.5 Panel Presentation – Thursday, 25th January 2018

Each team will be required to prepare and make a 10-minute presentation to a panel of that will cover these areas:

· Original strategy and plan

· Summary of financial and business results achieved and the principal reasons for them

· A brief overview on how the dynamics of the market the external macro environment impacted the performance of the business

· Strategic overview of the future plans for the business

· Summary of your learning experiences

We will issue a PowerPoint template to enable you formulate the presentation

4.6 Presentation and Awards Event – Tuesday, 6th February 2018

Time: 5.00 to 6.00 pm

Location: HU3.03

We will assemble to announce the results and the winning teams will receive their awards. The winning teams will be decided on business performance within the simulation and not on academic performance.

4.7 Simulation Assessment Criteria

We will assess each team’s academic performance according to the generic postgraduate grade descriptors and the work will be weighted as follows:

This simulation accounts for 30% of your overall module grade (AFM, CPM, EMA) as follows:

1. Business Strategy and Plan Outline - 10 %

2. Summary Reports - 10 %

3. Final Presentation - 10 %

In assessing the financial and general business performance of the groups (for the presentation evening) we shall take into account the following principal performance criteria :

· Return on Capital Employed calculated as Operating Profit/Total Capital Employed. Capital Employed is defined as the total sum of shareholders equity and long-term debt – 20 % weighting

· Overall market share expressed as a % of the total available market – 20% weighting

· Productivity index as published by the simulation – 10 % weighting

· Gross profit margin expressed as a % of sales revenue – 10% weighting

· Earnings per share – profit after tax divided by the number of shares in issue – 15% weighting

· Market value of equity – 25% weighting

THE SIMULATION EXERCISE

5.1 BACKGROUND TO THE EUROPEAN MARKETPLACE

In 2008 and 2009, Europe was the world's largest passenger car market in terms of sales, taking over from the USA where the market was falling. However, from 2007 to 2013 sales in Europe shrank year on year and the low levels experienced in 2013 were last seen in 1993. China became the largest car market in the world in 2010 and has experienced rapid growth since then with sales of 27.8m in 2016, however, there are signs that the rate of growth is slowing slightly. Europe maintained second position for 2010 and 2011 but in 2012 the American market began a slow recovery and replaced Europe in second place, a trend that has continued to date. The gap between the US and Europe narrowed slightly in 2014 with sales of 16.4m in the US and just over 13m in Europe and this margin has continued to date, figures for 2015 were 17.4m in the US and 14.2m in Europe and in 2016 were 17.6m in the US and 15.1m in Europe.

However, despite increasing sales, the European automotive marketplace remains an extremely competitive arena with few companies managing to post a consistent pattern of profitability within their European operations.

5.2 The Financial and Economic Environment

Austerity measures have eased but most of the major European Governments are still trying to reduce debt, therefore, cuts are still being made in government spending and although consumer confidence is returning there is still an element of caution throughout. Unemployment figures are, in general, falling in most economies but levels are still high, especially amongst the young. There is optimism that economic growth and the trend of lower unemployment will continue but progress is likely to be slow and there will continue to be large cross country differences in the near future. The UK's decision to leave the EU is also raising concerns for economic stability over the next couple of years, at the moment this is proving unfounded but that could change, only time will tell.

5.3 The European Car Market

[For the purposes of the simulation, the European marketplace comprises the European Union (26-28 countries as in some cases no data is available from Cyprus and Malta) + the EFTA countries (Iceland, Norway and Switzerland). Figures do not include the European countries that are not part of the EU. Please note that some sources will report the EU15 figures only, some will include the EU15 + EFTA and some will include the whole of Europe, therefore figures quoted could be different to the ones provided in this document.]