Managerial Decision Analysis

Case Study - Akron Zoological Park
During the late 1980s, the decline in Akron’s tire industry, inflation, and changes in governmental priorities almost resulted in the permanent closing of the Akron Children’s Zoo. Lagging attendance and a low level of memberships did not help matters. Faced with uncertain prospects of continuing, the city of Akron opted out of the zoo business. In response, the Akron Zoological Park was organized as a corporation to contract with the city to operate the zoo. The Akron Zoological Park is an independent organization that manages the Akron Children’s Zoo for the city. To be successful, the zoo must maintain its image as a high-quality place for its visitors to spend their time. Its animal exhibits are clean and neat. The animals, birds, and reptiles look well cared for. As resources become available for construction and continuing operations, the zoo keeps adding new exhibits and activities. Efforts seem to be working, because attendance increased from 53,353 in 1989 to an all-time record of 133,762 in 1994. Due to its northern climate, the zoo conducts its open season from mid-April until midOctober. It reopens for 1 week at Halloween and for the month of December. Zoo attendance depends largely on the weather. For example, attendance was down during the month of December 1995, which established many local records for the coldest temperature and the most snow. Variations in weather also affect crop yields and prices of fresh animal foods, thereby influencing the costs of animal maintenance. In normal circumstances, the zoo may be able to achieve its target goal and attract an annual attendance equal to 40% of its community. Akron has not grown appreciably during the past decade. But the zoo became known as an innovative community resource, and as indicated in the table, annual paid attendance has doubled. Approximately 35% of all visitors are adults. Children accounted for one-half of the paid attendance. Group admissions remain a constant 15% of zoo attendance. The zoo does not have an advertising budget. To gain exposure in its market, then, the zoo depends on public service announcements, the zoo’s public television series, and local press coverage of its activities and social happenings. Many of these activities are but a few years old. They are a strong reason that annual zoo attendance has increased. Although the zoo is a nonprofit organization, it must ensure that its sources of income equal or exceed its operating and physical plant costs. Its continued existence remains totally dependent on its ability to generate revenues and to reduce its expenses.

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Managerial Decision Analysis

Source: Professor F. Bruce Simmons III, University of Akron. ADMISSION FEE ($) YEAR ATTENDANCE ADULT CHILD GROUP 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 117,874 125,363 126,853 108,363 133,762 95,504 63,034 63,853 61,417 53,353 4.00 3.00 3.00 2.50 2.50 2.00 1.50 1.50 1.50 1.50 2.50 2.00 2.00 1.50 1.50 1.00 0.75 0.75 0.75 0.75 1.50 1.00 1.50 1.00 1.00 0.50 0.50 0.50 0.50 0.50

Answer the following questions.

1. The president of the Akron Zoo asked you to calculate the expected gate admittance figures and revenues for both 1999 and 2000. You can use at least three forecasting methods to estimate the forecast values and compare the results. Recommend the best method to the president of Akron Zoo. 2. What factors other than admission price influence annual attendance and thus should be considered in the forecast?

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Managerial Decision Analysis

ANSWERS 1. Based on what I've learnt on Quantitative Analysis class I suggest two Quantitative and Qualitative Methods. Quantitative Methods:  Moving average or weighted moving average are probably the best approaches to predicting attendance. I've made these choices base on KISS principle, which is an abbreviation of "Keep It Simple Stupid" meaning the simple answer is usually the best. Forecast using weighted-moving average:

Year 1999: [(3*117874) + (2*125,363) + 126853)] /6 Year 2000 [(3*121866) + (2*117874) + 125363] /6

= 121866

= 121118

Moving Averages
Year 1995 1996 1997 1998 1999 2000 TOTAL PERSONS Sales (adults) Sales(children) Sales (groups) TOTAL SALES 108,363 126,853 125,363 117,874 119,613 $ 167,459 $ 149,517 $ 26,913 $ 343,888 122,426 $ 171,396 $ 153,032 $ 27,546 $ 351,974

 Simple linear regression analysis would be suitable if we were given by the management team or we could develop independent variables as like the number of new animals, number of active exhibits and etc. For example, we could use weather to predict attendance, but we would have to find a prediction of the weather to use in our prediction model. The
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Managerial Decision Analysis
Independent variable chosen for simple linear regression would have to form a straight line.  Trend analysis could be used. Here, as with moving average and weighed moving average, we are using past historical data to predict future values of attendance.  If multiple regression was used with the independent variables that I mentioned before, we would still have to determine the future values of the independent variables. We would need to develop methods of estimating our independent variables in order to predict Annual Attendance. As with simple linear regression, we are using other variable to predict annual attendance. We would have to meet many assumptions in order to proceed with a multiple regression analysis. To see how I calculated and figured out the number please go to Appendix 1, 2, 3, and 4.
years 1994 1995 1996 1997 1998 SUM 5 x y b a=y-bx x 1 2 3 4 5 15 y 133,762 108,363 126,853 125,363 117,874 612,215 y*y 1 4 9 16 25 55 xy 133,762 216,726 380,559 501,452 589,370 1,821,869

3 122,443 -1,478 126,876 y=126,875.8+1,477.6*x

GATES ATTENDANCE 1999 2000 135,741 137,219

Adults Children Groups TOTAL

SALES 1999 2000 $190,038 $192,107 $169,677 $171,524 $30,542 $30,874 $390,257 $394,505


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Managerial Decision Analysis

Qualitative Methods: Another method could be qualitative methods where we can ask people what they think. We can use Comment cards, Surveys, Questionnaires for data gathering. From our fundamental economic studies, we know that if we increase the entry fees we would experience a decline of people attending the zoo. We would need to determine how much of the variation in attendance is caused by variation in fees. Using the methods above can help us finding the right answer and evaluate past predictions and determine which approach was previously the most accurate.

2. Other factors that may influence the annual attendance and worth to be considered are as bellow:

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Managerial Decision Analysis
 Marketing plan focusing on online advertising and providing online resources, maps, and pictures about the zoo.  Tour guides (to give background information on animals)  Number of new animals  Number of active exhibits  Discount rates for groups and promotional events  Coverage on local and online news (for instance the announcement of new born animals or new arrivals or events)  Cleanliness and facilities  The weather and climate  Renovations on older exhibits  Advertising - public service advertising  area population shifts, Area’s birth rate  Quality of service  Zoo Working hours  employment trends  Gasoline price  Rate of tourism growth in the area

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