1. REINVENTING A BUSINESS SIMULATION TO INCORPORATE RISKS ASSESSMENT IN AN INTERCONNECTED WORLD Robert Boehner, JD Thomas Pray, Ph.D. Gregory VanLaeken, MBA Bob Boehner

2. The Paper The 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

3. 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

4. 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

5. Three Parts to the Reinvention Simulation Software Excel Spreadsheets A Business Case

6.  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 The Scenario

7. 1.How much capital will be spend to manufacturer the product? 2.Where will we manufacturer the product? 3.Estimate how many will be purchased? 4.R&D and SGA allocations 5.Quality training overseas 6.Hourly wage 7.What price will we charge? 8.Terms for AR and AP 9.Overseas manufacturing – estimate WAAC and exchange rate projection Decisions

8. 1.RISKS 1.Market acceptance and forecast error with Bass Function 2.Over or under capitalization 3.Production setup and capacity conversion issues 4.Consumer reaction to AR terms 5.Supplier reaction to AP terms 6.Exchange rate 7.WAAC rate changes 8.Downtime and Waste variability 9.Inadequate quality focus Risks

9. Risk Assessment: Forecasting Demand Forecasting Sales – The Bass Diffusion Model

11. 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?

17. THANK YOU FOR COMING AND LISTENING FROM Bob, Tom and Greg

18. QUESTIONS