Company Game: Business Simulation - Coursework Example

Name: Course: Tutor: Date: Company Game: Business Simulation Introduction Organizational systems can be viewed as a number of processes that are interconnected. In this respect, in order to improve the level of performance of an organization it is important to study the design of the various processes involved within the organization as well as the resources that the various processes consume. Simulation offers an excellent way of experimenting with a given model (that is a simplified presentation) in an organization setting. The process of simulation enables the management of the organization to understand the behaviour of the organization under many different conditions. The design of the model is therefore made such that it provides decision makers with well detailed information on how the various processes within an organization behave (Greasley 2). The understanding of the various processes within an organization in turn assists in making decisions that are instrumental in increasing the performance of the organization while also minimizing the problems that may arise from unforeseen negative effects of change. Simulation has been used for a long period in the manufacturing industry as a component of the toolkit of industrial engineers and has also been applied in many other business operations (Greasley 3; Natale 312). Simulation has been vital in business contexts in which global competitive pressures have forced manufacturers as well as other business players to develop increasingly effective and efficient process models. With the advent of various approaches to change for example the business process re-engineering (BPR), the idea of any process perspective to design in various services application has become widespread (Greasley 2). Today there are many sophisticated software used for business simulation. They incorporate interaction as well as animation effects that create a potential for simulation modelling as an important tool for improving various processes within organizations. The major obstacle to achievement of this objective is however lack of variety of skills needed in terms of managing projects, collecting data, statistical analysis, and development of appropriate models that can be useful for the decision making process (Natale 312). In business use, simulation models are used as attempts to imitate the reality of any given business. This is in much the same way a flight simulator is used to imitate the flight of an aircraft. A business simulation thus allows the business conditions to be investigated under a wide range of scenarios. For instance, managers may take the decisions arrived at in a simulation exercise that is conducted over a few number of hours to determine how a particular aspect of the business will be run for a number of years to come (Curwen and Slater 602). Simulation can be very effective and quick in addressing the “what if” kind of questions while at the same time incorporating other factors such as competitors’ reaction techniques towards the organization’s moves and or step functions (Curwen and Slater 602; Greasley 2; Natale 312). In view of the above features of simulation, this paper seeks to create a business simulation model that will serve as an important decision making tool for the organization that will be used as a case study. The model will be based on analysis of a particular organization’s periodical financial information. Definition of simulation modelling Simulation is a term that is used to mean various things. These range from physical prototypes to video games. In this paper, the term “simulation” will be used to mean the use of a model to study the behaviour of any given business system. For example, the use of a computer to mimic the operation of a given business means that operations of the business can be extended over a certain period and be observed. Hence, the analysts involved can easily and quickly tell the performance of the business under different scenarios (Greasley 2). The simulation method that is employed in many cases refers to the process of building a model as well as the conducting of experiments based on that model. An experiment as a rule consists of repeatedly running the simulation for a given period in order to collect data that can be used for statistical analysis. The experiment is usually conducted in order to provide an understanding of the behaviour of the model that is being employed as well as to evaluate the impact of different input levels on given performance measures (Natale 312). Some of the characteristics of simulation are that the process is dynamic- that is about behaviour that constantly changes over time. The second feature is that simulation is interactive. This is because the process consists of a number of elements that interrelate in different ways. The third point is that the process is complicated. Simulation models consist of many interacting as well as dynamic objects (Greasley 3; Natale 312). Most organizational systems have the above characteristics and as such, simulation would be looked at as an ideal tool that can be used for providing information on the behaviour of an organization. In real practice simulation is extensively used and is relevant for applications that involve queuing – that is of people, material or information. In this paper simulation will be based on queuing of information that was available over different periods (Natale 312). By basically defining simulation in the timing of arrival to the queue of the information as well as the availability of the information that is being queued for, then simulation can be used to provide good performance statistics based on the average time in queue as well as the average queue size for the particular system or organization (Greasley 3; Natale 312). For instance, one would need to determine the performance of given supermarket’s checkout system. Based on the information given on customer arrival frequency, as well checkout simulation of checkout times, one would be able to report the supermarket’s performance measures such as mean customer queue times, as well as the utilization of the checkout system or resource within the supermarket (Greasley 3; Natale 312). There are several forms of queuing systems and these include raw material that is waiting for processing in a given manufacturing plant, vehicles queuing in particular transportation systems, documents waiting to be processed in a given workflow system, patients waiting to be seen by their doctor in hospital, and many more (Greasley 3; Natale 312). By studying the trends of the queues in various systems over given periods of time (that is creating simulation models), analysts can determine the behaviour of the same in the future. Simulation case study As mentioned earlier, the kind of simulation that will be used in this paper will be based on analysis of queue information, that is analysis of an organization’s accounts over a given period to explain its performance over that period and probably in future. Simulation usually covers a large area of interest and in order to elucidate the particular area of interest in this paper, explanation is given of the terms that are commonly used in dealing with simulation models. Simulation may refer to a wide range of types of models including spreadsheets, systems dynamic simulations, as well as discrete event simulation (Greasley 3). Analysis of accounts, similar to spreadsheet modelling, is the main area of interest of this paper. Why should simulation be used? Simulation modelling is used as an important tool to help in decision making by providing a design that enables the current behaviour of a given system or organization to be known, analyzed and understood. With simulation modelling, an organization is also able to predict its own performance under a number of conditions that are determined by the organization’s decision makers. Simulation modelling is therefore useful in providing the following assistance with respect to improving the process effort in an organization. Advantages of using simulation modelling The first one is that as it will be seen in case study, simulation modelling allows prediction. The process is important in forecasting the performance of any kind of business under different conditions (Greasley 5; Anderson 174). The second point is that simulation modelling stimulates creativity. This is because the process aids in inventiveness by allowing different decision making options to be tried and implemented quickly and cheaply (Greasley 5; Natale 314; Curwen and Slater 602). The third point is that simulation modelling helps avoid disruption in any given system or organization. The practice of simulation modelling allows an evaluation of decision making options (both viable and non-viable) without necessarily having to cause disruption within an organization or disruption in the use of any given real system (Greasley 5; Anderson 174). The fourth point is that simulation modelling helps reduce the risks that a particular organization or system is faced with. This is because the process allows an assessment of a number of possible event outcomes, thus permitting contingencies to be formulated for the potential outcomes. As such, this reduces the potential risk of failure (Greasley 5; Natale 314; Curwen and Slater 602). The fifth point is that simulation modelling provides measures of performance. This is by way of integrating various performance measurement systems in order to provide effective organizational performance measures as well as relevant estimates of costs (Greasley 5; Anderson 174). The sixth point is that simulation modelling is an important tool for communication. In this context, the results obtained from analysis of a particular set of information as well as computer animation can be used to provide a good forum for understanding the system in question in terms of its behaviour. Therefore, the dynamics of a given system can be visualized over a given period of time, facilitating in the understanding of various interactions in the system as well as how the interaction affects the performance and position of an organization (Greasley 5; Anderson 174). The seventh point about simulation modelling is that it assists in acceptance of change. With the results of simulation modelling, individuals can predict the effects of change. This therefore enables them to accept as well as understand change and come up with measures to improve confidence towards implementation of the change. This also means that an organization gets prepared for any probable outcomes of the predicted change and therefore adjusts accordingly to deal with any eventuality (Greasley 5; Anderson 174). The seventh point about simulation modelling is that it encourages effective collection of data. The systematic collection of data from a wide range of sources that is necessary to build the simulation model, is in itself or can in itself be an incentive to new viewpoints on the operations of a given system or organization, even before the model has been built or the experimentation process has begun. The eighth point about simulation modelling is that it allows for the process of over viewing the process performance. This is because using simulation to design processes across departmental boundaries permits improvement of the whole process as opposed to the optimization of local activities, which will ultimately happen at the expense of an organization’s or system’s overall performance. Thee ninth point is that business simulation modelling acts as a training tool. This is because the process allows an organization’s personnel to be trained or offers an opportunity for a demonstration of process behaviour without necessarily having to incur possible cost or to cause disruption in the existing system. Lastly but not least, the process of business simulation modelling acts as an aid to design. The idea here is that business simulation modelling allows processes to be realized or observed and hence optimized at an early stage during the exercise of design effort. This not only saves time for an organization but also enables it to set a firm foundation for its various processes as well as how to review those processes. Disadvantages of simulation modelling Even though simulation can be applied to a large extent in the organization setting, any model that is developed for a non trivial problem will result in consumption of a significant amount of time as well as resources in terms of the personnel’s time. Therefore, both time and cost of the elements involved have to be considered. For this reason, when designing the simulation model, a method must be used to assess the costs to be incurred versus the potential benefits of engaging in the process (Greasley 5; Natale 314). As with many other investment decisions, nonetheless, the costs to be incurred are usually substantially easier to estimate than the probable benefits. This is because the potential benefits may be more intangible in nature, such as the benefit of having greater staff knowledge which may lead to increased productivity that cannot be physically quantified. In the same way, an increase in personnel’s remuneration may increase an organization’s productivity in terms of motivation, which may however not be easy to quantify (Greasley 5). Another disadvantage of business simulation modelling is that more resources are required in statistical analysis of things such as spreadsheets. This may require knowledge of technical aspects of business such as linear programming as well as queuing theory. In cases where quick analysis is required but the requisite technical capacity is not available, it is very likely that the analysis will be inaccurate, resulting into the design or creation of an ineffective business simulation model (Greasley 5; Natale 314; Curwen and Slater 602). Another problem associated with business simulation modelling is the study of complex systems. Such systems require many sophisticated analytical techniques, something that cannot be done by just anyone in an organization. This means that application of the process of business simulation modelling may be limited to systems that are not very intricate or whose systems are not highly unpredictable (Greasley 5; Natale 314). Sample business simulation model for company XYZ In this paper, the business simulation model will be based on the principle of designing the same as discussed by Curwen and Slater. Curwen and Slater note that the business simulation is based on a wide array of factors. These include the input variables, the parameters, and identification of the status as well as variables that form the mathematical models or simulation model (Curwen and Slater 604). From the model come the output variables that ca be used for decision making in an organization as shown in figure 1. Figure1: Attributes of the business simulation model Source: Curwen and Slater, p. 604 The business simulation model that will be designed is based on an analysis of various financial records provided as detailed for Vapourseal Company. The analysis will be based on items such as manufacturing costs, advertising costs, and other overhead cost that Vapourseal Company incurred over different periods as indicated in the records. The analysis also includes cash statement details such as opening cash balance, previous period’s debtors, current cash sales, cash available to pay out, manufacturing costs, and closing balances. On the non-manufacturing overhead expenses there are details of training salesmen, advertising costs, market intelligence, administration, storage costs, interests and penalties, as well as controllers. The records were indicated for seven periods - that is from period 1 to period 7. Comparison of the various quarters The following are the statistics for period 1 (figures in £): Computer decisions Agricultural Horticultural Period No. 1 Units ordered: ordinary 8080 695 Units available 11000 2000 Units sold: ordinary 8080 695 Units remaining 2920 1305 Units rectified 1650 300 Team decision details Agricultural Horticultural Others Selling price per unit 39 45 Trained salesmen 2 % discount offered 0 5 Trainee salesmen Units of advertising 1 1 Process development units Units purchased 11000 2000 For next period: unite ordered 11000 2000 Profit statement Sales revenue details Sales revenue 345614 Paid this period Payable next period Less manufacturing cost of all products sold 254285 Agricultural 0 31512 Gross profit 91329 Horticultural 14586 1563 Less other overheads 120175 Special 0 Net profit -28826 Total sales revenue 345614 Less dividend 0 Retained profit for period -28826 Balance sheet Manufacturing costs Assets owned Agricultural Horticultural Fixed assets Materials purchased 132000 30000 Plant 2000000 Labor: first shift 55000 12000 Less cum dep 50000 1950000 Second shift 0 Current assets Rectification 132000 2400 Stock/ inventory 126315 Not utilized 0 0 Debtors/ accrued rec 330758 Manufacturing overheads 67692 12308 Cash at finish 64081 521154 Process development 5077 923 Current liabilities Sub total: lab + o/hs 140969 27632 Overdraft used 0 Depreciation 42308 7692 Creditors/ acc pay 0 0 Sub total: periods Total assets owned 2471154 Manufacturing costs 315277 65323 Owners funds Add last periods closing stock value 0 0 Initial capital 2500000 Total manufacturing cost of products for sale 315277 65323 Retained profit Apportioned to: manufacturing costs Former cumulative 0 Plus this period -28846 Total owners funds The statistics for periods 2 to 7 tabulated as highlighted above for period 1 will be elaborated in this section. It can be seen that in period 1, Vapourseal Company set its selling price at £ 39 and £ 45 per unit for its agricultural and horticultural products respectively. In the same period, the company offered no discount for the agricultural products but offered a 5% discount for the horticultural goods and had only 2 trained salesmen. At the end of the period, the company registered a net loss of £ 28826. In period 2, the selling price per unit was £ 40 and £ 42 for agricultural and horticultural products respectively. It offered discounts of 2.5% on both agricultural and horticultural products. During this period, the company raised the number its trained salesmen to 25. The result is that Vapourseal Company ended up having a retained profit of £ 89555 in period 2. In period 3, Vapourseal Company set its prices at £ 41 and £ 50 per unit of its agricultural and horticultural products respectively. The company maintained the number of trained salesmen at 25. At the end of the second period, the company realized a retained profit of £ 48732. In the fourth period, Vapourseal Company set its prices at £ 42 and £ 46 per unit of its agricultural and horticultural products respectively. It still maintained 25 trained salesmen for sales activities. It offered a discount of 2.5 % percent on both agricultural and horticultural products during that period. At the end of period 4, Vapourseal Company recorded a net loss of £ 7035. During period 5, the company set the prices of its units at £ 43 and £ 48 for the agricultural and horticultural commodities respectively. During period 5, the company offered no discounts for its products and had 25 trained salesmen and 3 trainee salesmen. At the end of the period, Vapourseal Company recorded a net loss of £ 4198. In period 6, the company set the prices of its units at £ 43 and £ 48 for the agricultural and horticultural commodities respectively. In this period the company did not offer any discounts for its products and had 30 trained salesmen and 3 process development units. At the end of period 5, the company recorded a net profit or retained profit of £ 147402. During period 7 the company set the prices of its units at £ 45 and £ 50 for the agricultural and horticultural commodities respectively. In the same period, the company had 30 salesmen and 5 process development units. At the end of period 7, the company recorded a net profit or retained profit of £ 116708. Analysis of the figures It is evident from the figures that offering of discounts does not improve profit margins a great deal. But employing more salesmen does. It can be noted that for those periods in which high discounts were offered there were greater net loss margins – such as in period 4. On the other hand, when no discounts were offered and more sales activities were initiated through more salesmen, there were greater net profit margins, for instance in period 7. Management decisions for Vapourseal Company should therefore be pegged on this trend. The success of Group 3 was probably based on the fact they engaged more salesmen in their sales activities. Questions based in the simulation / trend The following questions are pertinent to the operations of Vapourseal Company: 1. What is the impact of offering discounts on agricultural and horticultural products? 2. What sales promotion activities are necessary for the company to engage in? 3. What new assets/ideas are required by the firm in the foreseeable future to assist in more productivity? Answer the questions Answer to Q1: The impression created about discounts is that discounts are costly to buyers and sellers alike as noted by Heintz and Parry (p.56). To buyers, the impression of discounts is that they are given more time to think about a particular commodity than they would if they were not given that option. On the other hand, net terms are positive and suggest no alternative. In the case study, a situation is presented whereby for every increase in the level of discount offered to customers, there is an increase in the level of loss realized by the company. On the other hand, an increase in the number of salesmen, both trained and trainees led to an increased level of profit. Although it costs £ 2500 for each salesman and £ 1500 to train each salesman, the effort is worth the cause since more profit is realized with more salesmen than with more discounts. In essence, the Vapourseal Company management should invest more in salespersons’ activities than in offering discounts in future. Answer to Q2: There are many options to adding appeal to a given brand without necessarily lowering its price. This may be through better packaging, thorough advertising and promotional activities, better product positioning (strategies to promote business) and so forth (Robinson and Hauri 139). Vapourseal Company thus needs to venture deeply in such activities than dwell in offering discounts, which in real sense do not make a kill. Answer to Q3: Vapourseal Company should invest in areas that target increasing production while keeping the cost of production very low. It can be noted from the various periods that high cost of overheads are part of the causes of the company incurring losses. For instance, the company incurred losses of £ 2.3 per unit and £ 8.52 per unit for agricultural and horticultural products respectively after incurring high overheads of £ 12.55 per unit for both agricultural and horticultural products. On the other hand, the company realized a profit in period 7 after keeping overheads as low as below £ 7. Action plan Based on the analysis and the simulation case study, the following is a proposed action plan for Vapourseal Company. The company should invest more in strategies that create awareness of the existence of its products. These include: Rigorous advertising through the media. Use of salesmen to reach customers in order to enhance a personal touch between them and the company as well as its products. This will create a crop of loyal customers who buy the company’s products no matter what other companies do or offer. Reduce overheads in order to achieve maximum production at the least cost. This will result in more retained profits. Diversify both agricultural and horticultural products. There is more opportunity for growth when products are sold under many brand names as this offers customers more choices and shields the possibility of making loss from the sale of one product. Get consumers’ feedback through product appraisal form as well as interviews in order to produce just what customers want. Conclusion and reflection on lessons from the case study It has been discussed that the operations of organizations consist of complex processes that must be well coordinated. This involves a study of the designs of the various processes as well as the resources that the processes consume. Simulation helps to study and the results can also be implemented for the organization’s success in future. For the case study, an analysis of various company accounts has produced results that suggest that the company is better off engaging more salesmen to promote its products than offering discounts for the products. This is just one of the benefits of simulation or company games. References Anderson, Patrick L. Business Economics and Finance with MATLAB, GIS and Simulation Model. New York: CRC Press, 2005 Curwen, Jon and Slater, Roger. Quantitative Methods for Business Decisions (6th edition). New York: Cengage Learning EMEA, 2008. Greasley, Andrew. Simulation Modelling for Business .London: Ashgate Publishing, Ltd., 2004. Heintz, James A. and Parry, Robert W. College Accounting (19th edition). New York: Cengage Learning, 2007. Natale, Samuel M. Business Education and Training: A Value-Laden Process : New Wine in Old Bottles New York: University Press of America, 2000. Robinson, William A. and Hauri Christine. Promotional Marketing: Ideas & Techniques for Success in Sales Promotion. McGraw-Hill Professional, 1995. Read More