Decision-Making Guide Automobile

30/08/2022, 18:41 Decision-making guide
Decision-making guide
Copyright© Cesim Oy 2000-2022
1. Simulation platform introduction

1.1. General user interface options
1.2. Home
1.3. Decision checklist
1.4. Decisions
1.5. Results
1.6. Schedule
1.7. Teams
1.8. Readings
1.9. Forums
2. Decisions
2.1. Main Objective & Winning Criteria
2.2. Successful decision-making flow
2.3. Best practices for good teamwork
3. Market outlook
4. Demand
4.1. Total market and company market share
4.2. Market shares
5. Production
5.1. Production costs
5.2. Inventory
5.3. Investments
5.4. Procurement
5.5. Environmental impact
6. Human resources
6.1. Training priorities
6.2. Labor policies
7. Research & development
8. Marketing
8.1. Data collection
9. Logistics
10. Taxation
11. Finance
11.1. Suggestion for capital structure decisions in case you have accumulated
excess cash
12. Projections
12.1. Income statement
12.2. Balance sheet
13. Calculation of key financial ratios
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1. Simulation platform introduction
1.1. General user interface options
1. Profile - Here you can change your email, password and add a personal
picture to be displayed on various parts of the user interface. You can also
change your account's language and time zone, and determine the
automated email notifications you wish to receive. Please enter a valid
email address to avoid missing out on important information from your
instructor or teammates. You will also need it should you require the
"Forgot my password" feature.
2. Help - Here you can reach the Cesim Support team if you run into
problems or issues relating to in-game functionality. For any content-
related questions, contact your instructor.
3. Logout - Use this button to log out.
1.2. Home
1. Results summary - These graphs show your performance in relation to the

competition. You will see this after the completion of Round 1 (or Practice
round 1, if present).
2. Activity - This section shows you recent activities, including the history of
decisions submitted and the rounds' deadlines.
3. Tasks - If your instructor has assigned a quiz or a peer evaluation to your
course, you will find it here. Should you be required to submit
document(s) to the platform, the link will be shown in this section.
4. Messages - Forum posts will be shown here.
1.3. Decision checklist

The Decision checklist displays all decisions made in the game. It shows
both a Team Decision Area and the individual Student Decision Areas. Each
team member has a decision-making area, where they can input any figures
and see the effects they have on the projected results. By default, the
students always start with their own Student Decision Area when logging in
to the game. When the deadline passes, the round results will be calculated
based only on the Team Decision Area.
The Decision checklist offers several tools to manage the decision-making

process:
1. Round-based drop-down menu - Use the drop-down menu to select the

desired round. You may select previous rounds in order to review the
decisions made during those rounds, although modifications will be
disabled.
2. Legend - The different colours of the cells will help you to identify the
active decision area and whether a change has been made to the decisions.
3. Go - This button allows a player to view another teammate’s Student
Decision Area, or the Team Decision Area. Any modifications will be
automatically recorded in their respective area. Any modifications made in
the Team Decision Area will be used as final decisions when the round
ends, should no further actions be taken. Be careful about relying on direct
modifications to the Team Decision Area. If any team member overwrites
(copy as team’s decisions) existing decisions in the Team Decision Area
with their own, there is no backup for the overwritten decisions. Making
plans on your personal Student Decision Area ensures the decisions are
safe, as your teammates cannot overwrite decisions in your own area with
a single click.
4. Copy as team's decisions - This button copies a player’s decisions from
the Student Decision area to the Team Decision Area. Once copied, the
previous set of decisions cannot be recovered. Decisions can be copied
from the Student Decision Area to the Team Decision Area as many times
as needed prior to the round deadline. If decisions are made directly into
the Team Decision Area, then no additional steps need to be taken, as they
will be automatically used to calculate the results when the round ends.
5. Import - This button transfers the decisions made in a Team- or other
player’s Student Decision Area to the importing player’s own Student
Decision Area. Once imported, the original decisions of the importing
player cannot be recovered.
1.4. Decisions
The Decisions are split into sub-categories (e.g. Demand, Production, etc.).
Some areas should be filled in first, as they affect other areas.
There are two general types of input fields:
1. Decision cells - The decision cells can appear as input cells, drop-down
menus, checkboxes or buttons.
2. Estimation cells - Estimation cells are where you can enter sales estimates,
personnel turnover, etc. These estimations act as a basis for the budgets
shown in the system.
The system automatically updates the budgets and calculations as you make
decisions and/or estimations.
1.5. Results
The round results are calculated as the deadline passes, using the decision
sets in each team’s decision area. The results from previous rounds,
including possible practice rounds, are accessible and you may also
download the results as presented in an Excel file or as a slideshow of main
indicators.
1. Universe-based drop-down menu - This allows you to choose any universe

in the course. A universe is a group of competing teams affecting each
other’s results.
2. Round-based drop-down menu - This allows you to choose the desired
round results.
3. Excel - Here you can download an Excel file showing the results of the
chosen round.
4. Print - This button allows you to print the results of the round.
5. Slideshow - This button will allow you to view a slideshow of the key
indicators of the round.
1.6. Schedule
The Schedule page displays a timetable of the rounds’ deadlines. The results
are calculated as soon as the deadline of the round passes. Unless otherwise
restricted, decisions can be made on each round as soon as the previous
round’s deadline passes.
An instructor can choose to have up to three practice rounds for a course.

Once the practice round(s) are over, the game will reset to the initial market
situation. The initial decisions for the first actual game round are imported
from the first practice round. Other than that, the practice rounds have no
effect on the results of the actual game rounds.
1.7. Teams
The Teams page contains the teams' compositions across all the universes of
the course. On this page, you may also edit your own team’s information,
such as the team name, slogan and/or team description.
At the start, when no deadlines have passed, you can join any team that has
an empty slot. Simply click the Join Team button. After the first deadline
has passed, only the instructor can move participants between teams.
1.8. Readings
This section contains documentation that participants need to read and

comprehend in order to enjoy the game. The generic reading materials
include this decision-making guide and a case description. Instructors can
also upload additional materials here.
The case description gives information regarding the business case that is
being played on the course. It gives a general understanding of the
company, industry, trends and challenges.
1.9. Forums
The forums are a great place for players to contact their instructors or fellow
players, especially in situations where face-to-face time is limited.
There is a Team Forum, a Universe Forum and a Course Forum. The Team
Forum allows your team members to see posts and reply to them. The
Universe forum only exists if multiple universes feature on the course, and
can be seen by all players in the respective universes. The Course Forum is
available for every player registered on the course.
Instructors can view and reply to forum posts in the three sections. As such,
the Course Forum is a good place to ask questions that everyone on the
course can benefit from, while the Team Forum is the ideal place to discuss
sensitive team-related issues.
Players will be notified by email whenever something is posted on their

team forum area (unless they choose to disable this function in the Profile
section).
2. Decisions
2.1. Main Objective & Winning Criteria

The main objective for the teams is to deliver sustainable, profitable growth.
Typically this is measured by a ratio called “cumulative total return to the
shareholders”, which combines share price development and dividends paid
to show the total return to the shareholders. The instructor may, at his/her
discretion, choose to use other criteria to measure the performance of the
teams. For example, market shares, accumulated profits, and revenue
growth can be used if so decided. We recommend cumulative total return to
shareholders due to its comprehensiveness. The teams may try to
manipulate their profits, revenues, and market share in the short run, but
share price will punish any short sighted decisions sooner rather than later.
2.2. Successful decision-making flow

These instructions will help you as you go through the decision-making tool
for the first time. When you are more familiar with the model, you can make
decisions as you prefer.
2.3. Best practices for good teamwork
For each round, appoint a "CEO" who is ultimately responsible for

coordinating the team effort and submitting the final decisions. Circulate
the CEO role from one round to another.
Pay special attention to timing. Each team member can work
independently, but be sure to coordinate efforts for maximum synergy.
Use the Team Forum to exchange ideas about strategy and decision-
making. The forum will store your correspondence so that you can refer to
it later on while deciding how to implement your strategy.
Agree on an internal deadline for each round, by which time each team
member will have made his/her own decisions and suggestions. This
deadline should leave enough time for the team to select the optimal
decision prior to the actual deadline.
Use the Decision checklist to inspect and select the final team decisions.
Here you can see all team-members' decisions side-by-side. You can also
access each team-member's Student Decision Area. You can use a team-
member's decisions set as the starting point for the team decisions, and
then make the necessary adjustments. You can also directly edit team
decisions in the Team Decision Area.
3. Market outlook
1. It is essential to read the “Market outlook” before you start to make

decisions. They contain important information on current market trends
and possible future developments.
2. At the top of the page you'll find the “Projections” button. Here you can
find your projected results with regards to projections (balance sheets and
income statements), main ratios and the simulation's parameters. These
parameters (costs, exchange rates, tax rates, etc.) are presented for the
current round and the previous one. You can take advantage of this
information e.g. when planning for taxes, logistics and investments.
Note
Quantitative parameters, such as tax rates, are forecasts for the

round and they tend to be fairly accurate. Market development, on
the other hand, can differ from Market outlook, since markets are
influenced by the actions of competitors. Therefore, market growth
may not materialize exactly as predicted.
4. Demand
1. It is advised to start the decision-making process by estimating the total

market growth for each market area. The information on the "Market
outlook" page will help you make these estimations.
2. After estimating the market growth, you can choose which products you
want to sell in each area. Each area has two product slots. At the start,
your company does not have all the technologies for production and sales.
As you go further into the game, it becomes possible to research and
manufacture more sophisticated technologies. (See the chapter on
“Research and Development” for more information about new product
development.)
3. Now that you have chosen which technologies to sell, the next task is to
estimate the market shares you expect for each product. These forecasts
are used by the model to calculate your company's projected income
statements and budgeted production figures. The “Last round” column
shows the market shares that the company had in the previous round. Total
market shares for the current and last round for all three regions can be
seen below the table.
4. Once you have estimated the total market growth and your market shares,
you can see the expected demand for each area here. Keep in mind that
these are only estimations; the actual results depend on the success of your
decisions relative to the competitors.
5. These graphs give projections of advancements in planned
infrastructure/network coverage for all four technologies. The
infrastructure for each technology is a prerequisite for demand; a
technology will not have any sales unless its infrastructure is in place.
Higher coverage indicates a higher potential for demand. Network
coverage is an important factor in determining the demand for products
using new technologies.
Demand for a team is determined in three steps:
1. The total market size for each market area is calculated based on the
parameters.
2. The total market demand is then divided into different technologies.
3. The market shares for each company are determined. The factors affecting
the market shares are: the number of offered features; selling prices;
promotion; the previous round’s market share; and the attractiveness of the
technology on the market.
The attractiveness of each technology may vary a lot depending on the
market area. New technologies tend to be more attractive than older ones
and thus generate more demand. However, sometimes a new technology
may flop in some market areas, but be a huge success in others. The market
outlook can give more insight into the expected attractiveness of new
technologies.
The division of demand between technologies is also strongly affected by:
Price level (a new technology is usually priced higher than an older one)
The number of companies offering products using that technology
Marketing efforts
4.1. Total market and company market share

1. Factors affecting the total market size:

Economic conditions
Average price level
Average promotional budget
Technological evolution
2. Factors affecting a technology's share of the market:
Price level of the technology
Promotion of the technology
Number of companies offering the technology
Network coverage
Attractiveness of the technology
3. Factors affecting a company’s market share for the technology:
Price
Promotion
Number of offered features
Previous round’s market share
Number of companies offering the technology
Public image from ESG
4.2. Market shares

Everyone starts with the same market share, but as soon as you start making
decisions, the market shares start to change. The picture below illustrates an
imaginary situation with four different teams.
1. Team Yellow, 30%

2. Team Purple, 15%
3. Team Blue, 22%
4. Team Green, 33%
Team Green's market share consists of two products
5. Team Green's Combustion has a 25% share of the total market area
6. Team Green's Hybrid has an 8% share of the total market area
By combining the market shares of these two technologies we get the
company’s total market share of 33%. Remember: when estimating demand
percentages for your products, the percentage estimate refers to the whole
market area, not the demand for that specific technology.
5. Production
Global allocation of production is an important success factor in this
simulation. There are two production areas from which you can supply the
three market areas.
1. Here you can allocate technologies to each production line, and production
line capacity to each product. With two production areas and two
production lines in each area, you can select any combination for the four
technologies. In this example, production lines 1 and 2 are used for both
production areas.
2. The simulation automatically calculates the unit cost (see “Production
costs” section). The Scrap (%) depends on the maturity of each technology
in production. Scrap (%) is taken into account in the unit cost.
3. Here you can set the ratio of your energy utilization (between renewable
energy and fossil-based energy). Renewable energy will have a higher
cost, but will also improve your public image.
The table shows the different environmental attributes for each technology
you are producing. The lower these values are, the more environmentally
friendly you will appear for the general public. Also note that Energy and
Water consumption will also directly affect your unit production costs.
4. Here you can improve your production process. Each improvement will
have long-term cumulative benefits (e.g. energy consumption reduction),
but also short-term drawbacks (e.g. production capacity reduction). Every
time you initiate an improvement, it will also incur an investment cost for
each plant. The temporary capacity reductions can substantially limit your
total output for the round, so pay attention to your demand and supply
estimates. The company mandates the same level of production quality
from its contract manufacturers, and these process improvements will also
affect your contract manufacturers' production.
5. Here you can decide how much production is contract manufactured. You
can only allocate technologies which are chosen for production at your
own production lines. There is a limit as to how much you can contract
manufacture during each round. The cost of contract manufacturing is also
given here, and it varies according to the manufacturing amount. In this
example, production is allocated to contract manufacturers in USA but not
in China.
Food for thought
The cost of excess capacity allocation consists of inventory

management costs, the cost of capital tied into the inventory,
potentially excessive production unit costs and the risks associated
with having excess inventory of old products.
5.1. Production costs

The production costs are affected by the following factors:
Basic cost level in the production area

Production cost function (U-shaped curve)
Learning curve effect
Energy and water consumption
The basic cost level indicates the cost of producing the first unit of the new
technology. For example, if the initial employee skill level/efficiency is
lower in China, the basic cost will be higher in China than in the USA.
An example of a U-shaped production cost function can be seen below. The

cost multiplier is used to multiply the basic cost level.
1. Cost multiplier
2. Capacity utilization
The learning curve effect is a significant factor regarding production costs.
The X-axis represents the cumulative GLOBAL production of a certain
technology. In our example, you could prioritize production in USA before
moving production to China when the learning curve reaches a certain level.
The example below illustrates the logic.
1. Unit cost, USD

2. Global cumulative production per technology
Energy and water consumption will increase production costs. Utilization of
renewable energy will increase the cost of energy even further. Both of
these types of consumption can be decreased by improving the quality of

your processes.
5.2. Inventory
In this page, you will find detailed information regarding your company’s
inventory planning. You can access the inventory holding cost information
by selecting “Parameters” in the “Projections”. Inventory management costs
are based on the average inventory of the previous and current round.
Capital costs are the implied costs of having capital tied into inventory.
The beginning and ending inventory figures are also presented on the
“Logistics” page. Inventory planning is managed by production volume
decisions in relation to sales volumes and does not require any active input
from the participant on this page.
USA and China production facilities have their own inventories and
products are never shipped between the areas unless there is market
demand. All products in inventory are carried at their original production
cost. Oldest products are sold first (FIFO principle) and there is no
depreciation of inventory.
5.3. Investments
1. Here you can estimate the global demand for the next two rounds.
Demand for the current year is based on estimates made on the “Demand”
page. Future projections are important for more accurate capacity
planning. You can check the “Capacity planning” graph to see when
capacity will become available.
2. Based on your future growth expectations, you can decide whether to
invest into new production facilities in USA and/or China. In addition to
future capacity needs, you need to pay attention to cash flow needs in each
area.
It is possible to divest existing production plants from both areas. You can
divest a production plant by entering a negative value into the relevant
decision field.
3. This graph contains information on the projected evolution of your
demand and capacity. It is a useful tool for visualizing the relationship
between your estimated demand and capacity.
Initiating certain process quality improvements will temporarily reduce
your capacity for the ongoing round. Bear in mind, however, that the lost
capacity will return after you have finished the improvements.
Food for thought
When you make a plant investment, you are committing a

substantial amount of money into a long-term investment. You need
to be sure that you can pay for the investment with the revenue that
you make from it.
For example: the price of the plant is 1200 M USD and plant
capacity is 200 k units. You can sell your products in the future at
about the same price as you are currently managing in the US,
about 20000 USD. Furthermore, your average operating profit
before depreciation is about 10%. When you multiply the annual
plant production capacity (assuming that you use the plant at an
average of 80% utilization rate) by the expected margin per
product, you get about 320 M USD operating profit before
depreciation (200 k units x 80% x 20000 USD x 10%). This needs
to cover the depreciation and the costs of financing the plant. Here
depreciation is calculated as 15% based on declining balance. This
gives you a depreciation of 180 M USD (1200 M USD x 15%)
during the first year of operations. (Declining balance emphasizes
the first years over the last ones, which is reasonable in this kind of
high-technology business environment). After depreciation, you
have 140 M USD (320 M USD - 180 M USD) left to cover
financing and investor risk.
Return on investment (ROI) in this example is 11.7%. That is

calculated by dividing Operating profit (EBIT) by the cost of the
investment (140 M USD/1200 M USD).
5.4. Procurement
On the “Procurement” page, you can decide which component suppliers you
want to order from, and you also have the option of ordering a study on any
of the suppliers.
You have two types of decisions to make in the “Procurement” section:
1. Deciding which suppliers to contract. The minimum number of suppliers

needed is shown at the top of the page. Contracting a new supplier induces
a small setup cost.
2. Ordering a study on the conditions at a supplier’s facilities. Conducting an
objective study reveals the future direction of the unit costs and social
responsibility standards. Results of the study become available one round
after being ordered, and the results reveal information for the following
two rounds.
There is some information available for each supplier to

assist you in your decision-making:
3. Social responsibility values are shown in the form of star ratings for each
component supplier. “Ethics” refers to how well suppliers treat their
employees and “Sustainability” indicates their environmental
responsibility. Using socially conscious suppliers is part of your
company’s social responsibility and will affect both your public image and
the demand for your products.
4. Each supplier has a unique unit cost i.e. how much you pay for each
product manufactured. As the component procurement is outsourced, your
production efficiency will not affect the unit cost. If you are using multiple
suppliers, it is assumed that the component orders are split evenly between
the selected suppliers i.e. you will be paying an average unit cost based on
the unit costs of the selected suppliers.
5. Study results - Arrows indicate an increase or decrease in value since the
previous round. An icon showing small arrows up and down mean no
change has occurred.
Failure to select the necessary amount of suppliers will lead to an
insufficient amount of components. Consequently, you will have to make
last minute arrangements to satisfy production demand, resulting in
additional costs.
Food for thought
In order to manage your socially responsible image effectively, you

should follow a strategy that best suits your situation. The options
are either to aim at cost leadership, or to thrive as a leader in social
responsibility.
5.5. Environmental impact
This page compiles the environmental impacts generated by your sold units.
This includes CO2 emissions, energy consumption and water consumption.
6. Human resources
On this page, you will be able to hire personnel to handle your in-house
Research & Development.
Your management of human resources requires three decisions to be made:

how many employees you require for this round, along with budgets for
monthly salary and training. You can choose the workforce as you wish,
assuming your salary level is sufficient. You can also lay off as many
employees as you wish. (You can hire or lay off employees by changing the
"Personnel this round" decision from its prior value.) Employee turnover is
updated automatically, and the amount of laid-off employees will be
reduced by the amount of employees leaving the company of their own
accord.
Salary, other associated employment costs, training, recruitment, layoffs and

other R&D costs are included in “R&D” on the Income Statements. You can
find more information about costs by selecting “Parameters” in the
“Projections”.
Key drivers to consider with regards to human resources include employee

turnover and efficiency. Employee turnover refers to employees leaving the
company of their own accord (i.e. without being laid-off). Salary, training,
company performance and the efficient use of employees' time affect the
employee turnover rate. Higher salaries, cumulative training expenditures
and low turnover all support a higher level of employee efficiency. The
more efficient your workforce, the easier it gets to develop more advanced
technologies and product features. Efficiency is measured as a multiplier; an
efficiency multiplier of 1.2 means that your R&D personnel is 20% more
efficient than a team that has a value of 1.
In addition to internal personnel efficiency, these matters also affect the

public ESG image of your company. Your image will improve if you pay
your employees a competitive salary while also maintaining sufficient

training processes. But there are diminishing returns, and if you increase
them too high, you will only introduce more costs.
6.1. Training priorities
In addition to deciding on the training budget, you can prioritize different

aspects of training. Each option will have different impacts on R&D
efficiency, personnel turnover and public image. You can mix and match
multiple prioritizations, but the more you select, the less effective each
option will be.
6.2. Labor policies
In addition to deciding on R&D staffing, you can set company-wide labor

policies. Each of these decisions can improve your public image and
product demand, or even your status as an employer, but there are always
drawbacks.
7. Research & development

There are two ways of improving your company's technological
capabilities: in-house development and license purchasing. In-house
development has a one-round delay before the technologies and features
researched become available for production, while license purchases make
them immediately available for production.
Both methods are substitutable and complementary ways of building

competence, which means that you can first develop features thanks to your
own R&D before deciding to buy a license and improve the technology
further, again with your in-house R&D. You can use any combination of the
two methods to reach the desired level of technologies and features.
The required amount of person-days for in-house development varies based

on your level of employee efficiency. The ultimate cost of development also
depends on your salary and other HR decisions. This means that you have to
synchronize your product development decisions with your human
resources decisions.
It is important to note that in-house development doesn’t reduce costs for

technology and design licensing. For example, if Team Green decides to
start to research a new technology using in-house development, but fails to
invest enough to complete the development, whereas Team Red proceeds
without any investment on the same round, the licensing cost for the
unfinished development on the following round is the same for both teams.
1. These graphs show the development progress and the number of features
available for each technology.
2. Here you can make decisions about your own R&D investments for each
technology. The platform indicates how much investment is required in
order to make a new technology available or add a new feature for an
existing technology. Keep in mind that all research from your own R&D
investments are available with a delay of one round.
Food for thought
R&D investments are very strategic in nature and it is difficult to

apply any exact investment calculation method to them. At best,
such calculations require heavy assumptions and uncertainty.
Nevertheless, when considering investments into new technologies,
you should think how many products you must sell in order to
recover the money that you spent on the development. Following
your competitor may not be the best alternative, since they can also
make poor investments.
8. Marketing
On the Marketing page, you decide upon the number of features proposed
for each product and also your marketing mix i.e. product, price and
promotion. These decisions need to be made for each product and market
area. It is important to keep in mind that the success of your marketing mix
will be determined by the markets. Customers will be comparing different
alternatives and make their purchase decisions accordingly.
1. The first decision you make is to decide upon the number of features
offered. More features cover more of the various customer preferences,
but also incur more costs.
2. Decisions regarding price and promotion are set here. Pricing decisions
are always made in the currency of the area, while promotion is always
given in USD. Promotion has a long-term effect.
3. Here you will decide upon a focus for your marketing strategy. You can
alter this focus on a round-to-round basis, separately for each market and
product slot. The marketing focus decision should be in line with your
other decisions.
Balanced – No focus or extra effort. No additional
gain/loss.
Low price – The product pricing has an amplified effect.
Consequently, if you set the price lower than the market
average, you gain more demand than without the focus. On
the other hand, if you set your focus as Low price but don’t
deliver, you will lose more demand than without the focus.
Features – The feature selection has an amplified effect. If
you set your focus as Features and deliver more than the
market average, you gain extra demand. And if you deliver
less than the average, you lose demand.
Sustainability - The sustainability aspects have an
amplified effect. This includes environmental impacts,
social matters and your company governance policies, in
general. This applies to your own company, as well as any
of your affiliates. If you handle your sustainability issues to
a higher degree than your competitors, you gain more
demand. If you dismiss those aspects, you lose demand.
Brand – Sustain and promote your company image through
external means, by improving your social media presence
and building brand awareness. This will give a small fixed
gain for demand, but there is no downside.
4. As soon as you have decided upon product, pricing and promotion, you
can see your budgeted financial outcome here.
5. Here you can view the amount of products available and the potential
unsatisfied demand or ending inventory.
The implementation of different product features leads to costs. You can
implement one to ten features for your products, with each feature carrying
an additional cost. Features can only be implemented if your company has
reached the respective technology competence level, by either using in-
house development or buying technology and design licenses. Feature costs
can be calculated by multiplying the number of features by the feature cost.
You can find more information about the feature cost by selecting
“Parameters” in the “Projections”.
Food for thought
When you make your decision regarding promotion, you should

analyse the sales margin that you can generate with that product in
the specific market. However, in the medium term you must be able
to pay for all the product’s promotion with the sales margin that the
product brings in. A useful rule of thumb is to allocate
approximately 10% of the sales margin, depending on the effect of
the promotion in the market. You should expect to spend a further
amount during the launch of a new product.
8.1. Data collection
Part of the marketing strategy involves the companies setting policies for
collecting and handling data. These decisions can improve your public
image and product demand. There are always drawbacks, however, in the
form of increased costs.
9. Logistics
1. Here you can choose the order in which you will satisfy demand in the
different markets, both for production areas and all the relevant
technologies. E.g. For Combustion production, which will take place in
the USA, you may prioritize the USA followed by China and finally
Europe. This decision is only relevant if your global supply is insufficient
to fully satisfy your global demand. If that should happen, supplies will
first be cut from the third market (Europe), then from the second market
(China) and lastly from the first market (USA).
2. Here you can see where your products are made and expected to be sold.
The total cost of transporting products is the actual transportation cost +
tariff. You can find more information about the transportation costs and
tariffs by selecting “Parameters” in the “Projections”. There is no
transportation cost for products that are sold in the same area they are
produced in. There are two types of tariffs: flat and ad valorem. Flat tariffs
are charged as a fixed fee per product imported, while ad valorem tariffs
are based on the value of the product defined by the transfer price and the
feature costs. Both tariff types may be in use simultaneously.
3. The chart will demonstrate the amount of CO2 emissions that are
generated by your transportation.
Food for thought
When you set the priorities for delivery, you should attempt to
maximize your total margin from the products. This can be
achieved by prioritizing those markets where unit margins are the
highest. In other words, if you run out of supply, you want to make
sure that it happens in the market where your unit margin is the
lowest.
10. Taxation
1. Here you can adjust your profits between different units and you can make
other business units participate in R&D and other fixed costs. Transfer
pricing can also be used to benefit from different tax rates between
countries. The multipliers must be between 1 and 2. The transfer price is
thus 1 to 2 times the product’s direct unit cost.
2. This chart shows taxable profits and effective tax rates, for all regions and
the company as a whole.
3. This table details how the effective income taxes are calculated and
divided among the regions, and how transfer pricing decisions affect the
total amount of payable income taxes. Taxes are always paid locally. The
statutory tax rates are applied to taxable profits, meaning that losses from
previous rounds (called loss carry forward) reduce the amount of taxes
that have to be paid in the current round and consequently lead to effective
tax rates that are lower than the statutory rates. Moreover, transfer pricing
can be used to shift profits between the regions so that more profits are
reported in low tax regions, thus reducing the effective tax rate of the
whole company.
11. Finance
Financing decisions are typically the final set of decisions that you make.
All financial market transactions are managed through the parent company
(USA). You decide upon:
increases (+) and decreases (-) in long-term debt

the issuing of shares
share buybacks
dividend payments
treasury management (transferring funds between group companies)
The issuing and buybacks of shares are made according to the market
valuation at the start of the round. The number of shares issued
(repurchased) affects the issue (buyback) price.
You can also transfer funds between different countries using internal loans
(International Treasury Management). You may want to use internal loans if
you have accumulated substantial cash reserves in China or Europe that can
be repatriated and distributed to the owners, or if you need to finance some
plant investments in China.
For each year, there is a minimum end-of-year cash requirement. If cash

falls below the required level, the financial department automatically fills
that gap with short-term debt. Short-term debt is automatically paid when
possible and it is usually more expensive than long-term debt. You can find
more information about the minimum end-of-year cash requirement and the
difference between interest rates for short- and long-term debt (Premium for
Short-Term Debt) by selecting “Parameters” in the “Projections”.
Try to keep in mind that the idea is not to minimize the cost of debt, but to
maximize the return on equity. The winner of the game is determined by the
total shareholder return, which measures the return that the team is able to
generate for the shareholders during the simulation rounds.
1. Here you can decide upon:

increases (+) and decreases (-) in long-term debt
the issuing of shares
share buybacks
dividend payments
2. In this graph, you can view the capital structure of the company. Try to
avoid an extreme imbalance between debt and equity.
3. Here you can transfer funds between different countries. It is usually
recommended to finance Chinese and European operations via the parent
company in the USA.
All finance decisions are made for the parent company (USA). While
making these decisions, it is useful to observe the parent company's cash
flow statement on the right.
11.1. Suggestion for capital structure decisions in case

you have accumulated excess cash
After financing group activities in the three areas, check the cash situation
in the USA. If you have excess cash, you can consider the following logic:
1. Check the capital structure. As a rule of thumb, you should try to keep the
equity ratio (equity divided by total assets) within the range of 40-60%. If
it is less than 40%, it is more beneficial to repay debt than to pay a
dividend. If it is more than 60%, you are probably not fully benefiting
from the tax shield effect (related to Weighted Average Cost of Capital,
WACC).
2. Decide upon the amount of cash and/or short-term debt required as a
"safety buffer" for your operations. The more uncertainty you have in your
sales estimations, projections and budgets, the higher your cash buffer
should be. The short-term debt premium should be compared to the
difference between the interest of both cash and long-term debt.
3. Pay dividends according to your dividend policy.
4. If you still have excess cash, pay it out to the owners. You have two
complementary alternatives:
Buying back shares - If you buyback shares, you improve
the earnings per share (repurchased shares are immediately
cancelled). Note that you should buy back shares over a
long time period. If you attempt to buy a large amount at
once, you will create demand in the market and the average
buyback price rises.
Pay extra dividends - Dividend payment will be taken into
account as part of the total shareholder return. (I.e. Money
is transferred from the company cash-box into the
shareholder's cash-box.)
The weight between share buy-backs and extra dividends is mainly driven
by taxation. Since we only consider corporate tax in the simulation, the
recommendation is that you set a dividend policy that is in line with your
long-term profitability.
Of course, timing is a key factor. The old investor rule of "buy low, sell
high" applies in corporate equity transactions as well.
Food for thought
The reason why you should maintain an approximately equal

amount of equity and debt on your balance sheet is that by doing
this, you minimize your cost of capital. The smaller the cost of
capital, the higher the net present value of all your company's
future cash flows, thus the higher the market value of your
company. In other words, the lower the cost of capital, the more
investment opportunities that exceed the cost of capital (i.e. more
business).
12. Projections
The projections are easily accessible from any decision making page by
simply selecting the button in the top-right corner of the page. They update
continuously as you make decisions or estimations. They form the projected
results for the round, hence the name “Projections”. The actual results
calculated at the deadline will differ due to the estimations never being
entirely accurate.
12.1. Income statement
Here you can follow the group's projected profitability, both as a whole and
for each individual area.
In this simulation all R&D and promotion costs are expensed on the income
statement for the round the investments are made. As a consequence, profit
for the year may fluctuate depending on the intensiveness of decisions
relating to R&D and Promotion.
R&D is considered to take place in the area(s) where you have production
plants. E.g. if you only have production plants in the USA, your entire R&D
expenses will appear in the USA income statement. When you have
production in China as well, R&D will be split proportionally between USA
and China according to the number of production plants in each of them.
Note that you can also use the transfer prices to roll R&D costs to other
areas (e.g. China, Europe).
Administration costs include the company's overhead costs i.e. the

company's fixed costs, which are not allocated to the different products.
Administration costs include the basic cost per market area and an extra cost
for service and maintenance of the production plants. This cost is dependent
on the number of plants - the higher the number of plants in an area, the
lower the cost per plant.
Any losses from previous rounds are carried forward as per the "loss
carryforward" principle. Thus, even heavy losses may be evened out during
later rounds, as future incomes incur lower taxation. Deferred taxes do not
expire, e.g. potential losses made during the first round will continue to be
deducted from taxes until the losses are covered.
12.2. Balance sheet
Receivables and payables are automatically calculated as a percentage of

sales and production costs.
Additional paid-in capital indicates the difference between share

issue/buyback price and the face value of the share.
Short-term debts are taken automatically if the company does not have
enough liquidity to run the operations.
Food for thought
Your goal in the simulation is to maximize the shareholder value.

With this in mind, you should aim to run the company with as small
a balance sheet as possible, without jeopardizing current profits and
future growth opportunities. If you can generate the same profit
with a lighter balance sheet, you have utilized your assets more
effectively and thus need less money from investors.
13. Calculation of key financial ratios

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30/08/2022, 18:41 Decision-making guide

Copyright© Cesim Oy 2000-2022

1. Simulation platform introduction

1. Simulation platform introduction

1.1. General user interface options

1. Results summary - These graphs show your performance in relation to the

1.3. Decision checklist

The Decision checklist offers several tools to manage the decision-making

1. Round-based drop-down menu - Use the drop-down menu to select the

There are two general types of input fields:

1. Universe-based drop-down menu - This allows you to choose any universe

An instructor can choose to have up to three practice rounds for a course.

This section contains documentation that participants need to read and

Players will be notified by email whenever something is posted on their

2.1. Main Objective & Winning Criteria

2.2. Successful decision-making flow

2.3. Best practices for good teamwork

For each round, appoint a "CEO" who is ultimately responsible for

1. It is essential to read the “Market outlook” before you start to make

Quantitative parameters, such as tax rates, are forecasts for the

1. It is advised to start the decision-making process by estimating the total

The division of demand between technologies is also strongly affected by:

4.1. Total market and company market share

1. Factors affecting the total market size:

4.2. Market shares

1. Team Yellow, 30%

Food for thought

The cost of excess capacity allocation consists of inventory

5.1. Production costs

Basic cost level in the production area

An example of a U-shaped production cost function can be seen below. The

1. Unit cost, USD

these types of consumption can be decreased by improving the quality of

Food for thought

When you make a plant investment, you are committing a

Return on investment (ROI) in this example is 11.7%. That is

You have two types of decisions to make in the “Procurement” section:

1. Deciding which suppliers to contract. The minimum number of suppliers

There is some information available for each supplier to

Food for thought

In order to manage your socially responsible image effectively, you

5.5. Environmental impact

Your management of human resources requires three decisions to be made:

Salary, other associated employment costs, training, recruitment, layoffs and

Key drivers to consider with regards to human resources include employee

In addition to internal personnel efficiency, these matters also affect the

your employees a competitive salary while also maintaining sufficient

6.1. Training priorities

In addition to deciding on the training budget, you can prioritize different

6.2. Labor policies

In addition to deciding on R&D staffing, you can set company-wide labor

7. Research & development

Both methods are substitutable and complementary ways of building

The required amount of person-days for in-house development varies based

It is important to note that in-house development doesn’t reduce costs for

Food for thought

R&D investments are very strategic in nature and it is difficult to

Food for thought

When you make your decision regarding promotion, you should

8.1. Data collection

Food for thought

increases (+) and decreases (-) in long-term debt

For each year, there is a minimum end-of-year cash requirement. If cash