KALYPSO Simulation

BUDAPEST BUSINESS SCHOOL UNIVERSITÉ DU HAVRE
FACULTY OF COMMERCE, CATERING AND TOURISM IUT GEA

Department of Commerce, Budapest/Hungary Le Havre/France
ARKHÉ Kalypso
An Educational Module of Management and Strategy Perfection
ENTERPRENEUR’S HANDBOOK
Made by
Mr. Csaba Sólyom
Senior lecturer of the BBS
Educational simulation of company management,

Distributed exclusively by ARKHÉ International.
All rights reserved.
© Copyright ARKHÉ international 1995.
Research Centre in Pedagogy of Management

580, Cours de la Libération - 33400 Talence
Telephone: 56 37 29 38 - Fax: 56 04 01 20
ARKHÉ Kalypso - Enterpreneurs Handbook
This Textbook has been published

By the
Budapest Business School, Faculty of Commerce Catering and Tourism Budapest/Hungary
And by the
Université du Havre, IUT Le Havre/France
For their full time courses “Commerce”, “Tourism and Hotel Management” and “IBIS”
In English language!
Written by:
Mr. Csaba Sólyom

Senior lecturer of the BBS FCCT
Lector:
Mr. Georges Cadiou

Senior lecturer of the IUT Université du Havre,
Senior lecturer Honoris Causa of the BBS FCCT
Identification Code: FKA-08-01
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CONTENTS
PREFACE ......................................................................................................................................................................... 5
INTRODUCTION ............................................................................................................................................................ 7
THE FEATURES OF A SIMULATION ........................................................................................................................ 7
RUNNING A SIMULATION ........................................................................................................................................ 7
LEVELS OF KALYPSO BUSINESS SIMULATION GAME..................................................................................... 10
THE NATURE OF THE DECISIONS ......................................................................................................................... 11
THE FREQUENCY OF THE DECISIONS.................................................................................................................. 16
COMPANY PRESENTATION.................................................................................................................................... 17
1. THE MODEL AND THE MARKET........................................................................................................................ 19
1.0. THE MODEL OF THE KALYPSO BUSINESS GAME ....................................................................................... 19
1.1. PRODUCTS .......................................................................................................................................................... 20
1.1.1. Boat A ............................................................................................................................................................. 20
1.1.2. Boat B ............................................................................................................................................................. 20
1.1.3. Boat C ............................................................................................................................................................. 20
1.2. CUSTOMERS ....................................................................................................................................................... 21
1.3. COMPETITION ON THE MARKET.................................................................................................................... 21
1.3.1. Direct competition .......................................................................................................................................... 21
1.3.2. Indirect competition........................................................................................................................................ 22
2. PRODUCTION........................................................................................................................................................... 23
2.1. RAW MATERIALS .............................................................................................................................................. 23
2.1.1. Raw material supplies .................................................................................................................................... 23
2.1.2. Raw material needs of a boat unit .................................................................................................................. 24
2.2. PRODUCTION PROCESS.................................................................................................................................... 24
2.2.1. Technical characteristics................................................................................................................................ 24
2.2.2. Production capacity........................................................................................................................................ 25
2.2.3. Modifications in production capacity ............................................................................................................. 25
2.2.4. Proportional direct costs in production ......................................................................................................... 25
2.2.5. Structural (fixed) costs linked to production .................................................................................................. 26
2.3. OTHER COSTS..................................................................................................................................................... 26
2.3.1. Distribution and advertisement costs ............................................................................................................. 26
2.3.2. Administrative costs........................................................................................................................................ 26
2.3.3. Interest charges .............................................................................................................................................. 26
2.3.4. Depreciation ................................................................................................................................................... 26
2.3.5. Other items (costs, taxes)................................................................................................................................ 27
3. DISTRIBUTION......................................................................................................................................................... 29
3.1. CUSTOMERS ....................................................................................................................................................... 29
3.1.1. Market sales through distributors .................................................................................................................. 29
3.1.2. Tendering – as a special sales activity ........................................................................................................... 29
3.1.3. Co-operation with other competitor companies ............................................................................................. 31
3.2. SALES FORCES ................................................................................................................................................... 31
3.3. COMMUNICATION............................................................................................................................................. 31
4. FURTHER BUSINESS PARTNERS........................................................................................................................ 33
4.1. SERVICE PROVIDERS........................................................................................................................................ 33
4.1.1. LA PETIT ECONOMISTE: the economic newspaper .................................................................................... 33
4.1.2. MARKINFORM, the Market Research Company........................................................................................... 33
4.1.3. COMPTASERVICE: chartered accountants .................................................................................................. 33
4.1.4. European Credit Bank .................................................................................................................................... 33
4.1.5. The “ASSURER” insurance company ............................................................................................................ 35
"TRADE LOSS" insurance policy............................................................................................................................. 35
"CIVIL LIABILITY" Insurance Policy ...................................................................................................................... 36
"KEY MAN" Insurance policy .................................................................................................................................. 37
"DAMAGE TO PROPERTY" Insurance policy ........................................................................................................ 38
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4.2. STATE................................................................................................................................................................... 39
4.2.1. Corporation tax .............................................................................................................................................. 39
4.2.2. Value added tax .............................................................................................................................................. 39
4.3. OTHER PARTNERS............................................................................................................................................. 40
5. PRACTICAL ASPECTS OF THE SIMULATION ................................................................................................ 41
5.1. INITIAL DATA AND PARAMETERS ................................................................................................................ 42
5.1.1. The model parameters .................................................................................................................................... 42
5.1.2. Initial parameters ........................................................................................................................................... 42
5.1.3. The initial balance sheet of the company ....................................................................................................... 44
5.1.4. Constant accounting parameters.................................................................................................................... 44
5.1.5. Monthly seasonal parameters......................................................................................................................... 45
5.1.6. Production parameters ................................................................................................................................... 45
5.1.7. Variable accounting parameters .................................................................................................................... 45
5.1.8. Boat sales prices of the game supervisor ....................................................................................................... 46
5.2. MARKET INFORMATION (MARKINFORM STUDIES).................................................................................. 46
5.2.1. THE "POTENTIAL MARKET" STUDY.......................................................................................................... 46
5.2.2. THE "PRICING EFFECT" STUDY................................................................................................................ 47
5.2.3. THE "ADVERTISING EFFECT" STUDY ...................................................................................................... 49
5.2.4. THE "TERMS OF PAYMENT" STUDY.......................................................................................................... 50
5.2.5. THE "SALES FORCE" STUDY ...................................................................................................................... 50
5.3. DECISION SHEETS ............................................................................................................................................. 51
5.3.1. Decision sheet (Financial or Commercial Expert Level) ............................................................................... 52
5.3.2. Decision sheet inputted into the computer...................................................................................................... 54
5.4. INFORMATIONS FROM THE SIMULATION ................................................................................................... 54
5.4.1. Permanent free of charge information tables ................................................................................................. 54
5.4.1.1. Business results of the company .................................................................................................................. 55
5.4.1.2. Monthly balance sheet of the company........................................................................................................ 55
5.4.1.3. Monthly income statement ........................................................................................................................... 56
5.4.1.4. Monthly cash-flow table .............................................................................................................................. 57
5.4.2. Information tables to be bought from the game supervisor............................................................................ 57
5.4.2.1. Comparison of sales volumes ...................................................................................................................... 58
5.4.2.2. MARKINFORM trade development tables .................................................................................................. 58
5.4.2.3. COMPTASERVICE Ltd financial and accounting informations ................................................................. 59
5.4.2.4. Information of the production engineer....................................................................................................... 61
5.4.2.5. European Credit Bank ................................................................................................................................. 62
5.5. AN ALGORITHM OF THE DECISION MAKING PROCESS............................................................................ 64
QUESTIONS:............................................................................................................................................................... 66
6. ASSESSMENT ON KALYPSO ................................................................................................................................ 67
6.1. GROUP A ................................................................................................................................................................ 67
6.2. GROUP B................................................................................................................................................................. 68
7. CRITERIA FOR THE ANNUAL REPORT............................................................................................................ 71
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Preface
Higher education has to face new challenges in the recent years. Colleges have to concentrate their efforts
to satisfy new needs in their education programmes as:
• improvement of students’ management knowledge,
• constant improvement of practical skills, especially soft skills and competencies,
• Development of students’ abilities to synthesize various methods they have studied in the former
semesters (e.g. statistics, accounting, operations research, economics etc.).
The implementation of the problem based learning concept has got more and more emphasis in the curricula
of higher education courses. Case studies and business games play an increasing role in the last semesters
of the student’s main study program. In the business games students simulate the management of a firm.
They learn how to run it, how to make company decisions, how to be successful in business life. They learn
to analyze their business position, to define the objectives of the enterprise, formulate company strategy.
They have to recognize by own experiences how business risk looks like in practical situation, and how to try
to handle and minimize it. They should try to identify the problems of adapting strategy to the ever changing
circumstances of the environment. They have to get practice also in tactical decision-making while focusing
on strategic objectives at the same time.
In this learning procedure the use of simulation games improve student’s skills how to collect, handle and
use information for decision-making. They recognize how to treat information as an important resource of the
company management. They learn to calculate the costs of information processing, as well as the time
needed to get the necessary information.
This handbook is devoted to help students in understanding KALYPSO simulation game rules, the simulation
environment, the market behaviour and the information they might need for their decision-making. This book
is therefore not a textbook giving them new teaching material, but rather a handbook of practical decision-
making.
The introductory chapter of this book gives you general information on the simulation. The further chapters
1-4 describe the scenario and the rules of the KALYPSO simulation model.
Chapter 5 contains the practical information, e.g. parameter data, initial balance sheet, decision sheets and
examples of information tables the management of the firms always need to start the simulation, and those
they obtain from the game supervisor. It also contains various studies on market behaviour, effect of prices,
advertisement, terms of payment and the number of sales representatives on consumer demand.
Finally this chapter also includes examples of all those information tables; the participants of the business
game can buy from the game supervisor during the simulation.
Budapest, November 24th 2005.
Mr. Csaba Sólyom
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INTRODUCTION
THE FEATURES OF A SIMULATION

A management simulation is based on a business (economic) model allowing you to run the business game
Business models always simplify real life situations, but simulations greatly accelerate time, as
participants of the game are making decisions for a month or a quarter of a year, and the
consequences of their decisions are immediately calculated by the computer programme of the
simulation game.
Simplifications in the model are mainly achieved through the reduction of decision variables reflecting
various interrelations, as for instance the reduction of the assortment of product items produced and/or
merchandised by the firm, or the reduction of the number of raw materials needed for the above products
etc. Another simplification of interrelations is reached through the time treatment in the model. The smallest
time unit is usually one week, or one month in the model.
The acceleration of business processes in time is quite high in the simulation. Only a few hours or a few
days are given the teams (firm) to make their decisions for a month or for a quarter of a business year, by
filling in the simulation decision sheets. During these few days of the business game, events of several
months or one or two years are simulated in the game. So we simulate a sequence of real life events
happening in a whole business year within a couple of days.
Participants are making their decisions in the simulation parallel to each other, and the can not know
anything of the decision of their competitor. The simulation and the evaluation process of these decisions by
the computer can only take place, when all the teams have made their decisions, and submitted them to the
game supervisor. This nature of the simulation model is different from real life situations, where no such
parallelism of decisions is necessary. Usually in real business life no such central evaluation process of the
decisions is running - except a few examples, like tendering for big purchases. Under real business
circumstances decisions are made overlapped in time, feedbacks and the evaluation of the decisions are
also continuously done on the market. Decision makers can often follow competitor’s actions and market
behaviour before taking their own decisions.
Simulation procedures reduce the widespread complexity of real business life to some extent, but they
emphasize the basic features, and complexity of real business situations.
Business game is not only a game, but a competition of business strategies in a form of a game.
Each team in the simulation game is running his enterprise. In the KALYPSO game this is a limited
company. Team members play the role of the managing board and their positions, like general manager,
commercial, production or financial director etc.
The teams (companies) are competing against each other on the simulated market. There is a strong
interdependence between their actions and the behaviour of the market environment. Companies are
competing and co-operating partners of each other at the same time. The relationships among them and
their other partners in the business life, like clients, suppliers, service companies, banks and state are
therefore living relations among living organizations, where the hazards of real life and the personal
dimensions of the actors have to find their own place.
RUNNING A SIMULATION
During simulation the student’s teams represent the company management, and they are competing with
each other. It is not possible to create a new company during simulation, neither is it allowed to fuse the
companies into one firm. All the firms already exist at the beginning of the simulation, and have some
background. You can suppose this is one business year. All firms are equipped with the same resources and
facilities at the start of the simulation, so they have practically equal chances for survive, and make their
successful fortune. Every company is independent and responsible only for its own decisions. The
competing firms may consult each other; they could and might co-operate with their competitor when finding
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common interests. They can specialize themselves to produce only one or two boat types, and supply the
competitor within the frame of a co-operation agreement. They might establish a co-operation in
merchandising to utilize quantity dependent price discounts (reduced prices) of the boat supplier. For
instance the first team is buying boats not only for itself, but for the co-operating company, utilizing the
quantity dependent higher price discount granted by the game supervisor, and sell one part of it to his
partner on a negotiated price, sharing price advantage among them.
Partners can exchange information on the business situation, they might discuss on sales prices, but every
company is an independent identity of the market in the simulation, and will make its decision completely for
its own sake.
THE PARTICIPANTS OF THE GAME

Besides competing teams, the game supervisor plays an important role in the simulation. The game
supervisor is representing:
• raw material suppliers, providing raw materials for the boat producers;
• outstanding boat suppliers, who supply competitors with boats on a contract basis;
• the service companies like MARKINFORM market research institute, and the COMPTASERVICE
accounting service company, providing participant firms marketing and accounting information partly free
of charge. For some additional information tables the enterprises have to pay for,
• the European Credit Bank is running the bank accounts of the participants, and financing their activities
by granting them various kinds of loans if necessary;
• the National Tax Authority checking VAT declaration of firms, taking corporation tax too:
• The ASSURER insurance company, where insurance contracts can be signed against losses and
decreasing business risk of the participant firms.
PLAYING THE GAME

The companies take their turns making their successive decisions, according to the established timetable set
by the game supervisor for the whole time of the game. This could mean monthly decisions or decisions for
a quarter of a year broken down into three month in each turn...
Just at the very beginning of the simulation, teams have to make a decision for the first month (January) of
the first quarter of the first business year on the base of their initial data. The initial situation of the
companies is defined by the initial balance sheet, and the parameter tables described in Chapter 5.
Depending from the complexity level of the game, teams have to study the appropriate parameter tables and
the initial balance sheet of their company showing the whole asset structure, the company is managing at
the start of the game.
WE PLAY THE FINANCIAL EXPERT LEVEL OF KALYPSO!
Participants can see from the initial balance sheet, how many fixed assets, inventory on raw materials and
products they have, what kind of values their accounts receivable, and accounts payable have to be taken
into account in their calculations at the start position, and how much is the initial book value and net worth of
their company. To prepare good decisions it is important to analyze the initial balance sheet, to study the
assets and liabilities of the company. On the assets side of the initial balance sheet the value of fixed assets,
customer depths, cash, bonds, stocks of raw materials and finished product should be analyzed carefully.
On the liability side of the initial balance sheet, the short and long term depth, like liabilities against supplier,
loans, VAT should be mentioned. All teams have identical initial resources and facilities at the start of
the simulation, ensuring them equal chances for success.
Time is an integer non continuous variable of the simulation game and this imposes some precision in the
decision making and evaluating process, requiring also a certain discipline from the teams and from the
game supervisor as well. Though all teams start from the same initial position and information basis for their
decision making, they will have quite different positions just after the first month’ results.
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Teams have to know at the beginning of the simulation how long they will play it, and how long the decision
time horizon is look like. The most preferred periods for the simulation are 12 or 24 month, the usual
decision time horizons are either one month or a quarter decisions (three-month) broken down into three
monthly decision.
WE PLAY 24 MONTH AND TAKE THREE MONTH DECISIONS!
When decision time horizon is set to a quarter, participants have to make decisions for three month
subsequently in one decision-making procedure. For the first month’s decision they can rely on the
simulation results of the previous month. Unfortunately in the second and the third month they cannot follow
this way, as they have to make decisions before knowing the simulation result of the first month. They have
to suppose something for the most likely result of the first and second month simulation. This type of
decision making is much more complex and has a considerably higher level of uncertainty, then the one-
month decision.
The above features of the actual simulation are well known for all students at the start of the game.
The decision making process can be subdivided into four phases.
• Preparation of the decision means to get the information e.g. the results of the previous month, the
information given by "The Economist's Newsletter". Also, the companies can meet their business
partners in the Business Club, whose representation is carried out by the game supervisors.
• In the preparation phase teams have to analyze their actual market position taking into account
their price settings, their advertisement policy and their terms of payment granted their customers
etc.
• They have to make calculations using spreadsheets and/or mathematical or statistical methods for
demand and sales forecasting, estimating the results of possible decision alternatives considered.
• They may consult game supervisor or some advisors,
• They can make co-operation agreements with each other before taking their decisions.
• The decision making is the process in which teams choose the appropriate value of the decision
variable and write it on the decision sheets.
• The computer simulation process is running as follows: The content of the decision sheets will be
inputted into the computer simulation program. The computer program is simulating the decisions month
by month. It takes the decision’s input data of all companies. It is comparing them calculating the
average price, the average advertisement expenditure, and the average of terms of payments and the
average number of sales representatives from the team decisions. It calculates the market demand for
the actual month taking into account the basic demand, the trend and seasonal indexes of the demand,
the quantity of products offered for sale. It simulates the market behaviour and calculates the sales
values of each firm in the competition. On the basis of simulation rules and parameter values the
computer program calculates costs, revenues, gross margin value, profit value, cash flow, customer
depths etc. for each participant company.
When the firms not only merchandise but also produce boats, the program calculates how many boats
can be produced on the basis of the production objectives set by the decision maker. It calculates
working hour needs and row material requirements determined by production objectives and production
demand coefficient parameters, and then checks them against working hour capacity, and raw material
stock availability constraints. The actual production from a boat may be lower than the production
objective set by the decision-maker. This may occur when raw material stocks cannot fulfil the material
requirement of the production objective or the capacity is less than needed upon the production
objective.
The simulation software is automatically calculating the results of the financial processes taking VAT into
account. It also automatically pays off the capital and interests of automatic loans, and the interests of
negotiated loans and VAT to the tax office. Simulation program automatically pays sales representative’s
wages and provisions and other costs too.
• Computer program produce calculation and evaluation of the simulation results (revenue, cash
flow, accountancy documents). Some of these documents are automatically given to the teams free of
charge; others have to be ordered by the competing firms from the simulation indicating it in the decision
sheet. They are charged as services of the MARKINFORM or the COMPTASERVICE accounting
company.
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PARAMETER SETTINGS OF BUSINESS SIMULATIONS

In the majority of simulation games game supervisor can set various parameters controlling the simulation
process.
• The majority of simulation models are furnished with numerous parameter setting
possibilities for tailoring the game to the specific objectives, the game supervisor would like to
set in his actual training course. This facility is also available in the KALYPSO.
• In the Chapters 1-4 of this handbook we give values as examples, which are not necessarily
valid for the actual simulation game type the supervisor determined to use.
• Therefore you have to look in Chapter 5 for the actual parameter values of the particular
simulation level.
• Supervisors may wish to modify parameter values, in this case they have to give teams the
modified parameter values or price settings in a printed form in advance and in due time.
This should be true also for modifications during the simulation period.
CLOSING THE GAME

After each period of the simulation, computer is evaluating teams’ performance in cash, production,
commercial management and achievements in profitability. Teams have to analyze and evaluate their own
performance in their company’s annual report.
LEVELS OF KALYPSO BUSINESS SIMULATION GAME

In the KALYPSO business simulation game there are six complexity levels. These levels are different from
each other mainly in the scenario of the game.
In the simple levels of the simulation competitors only merchandise boats, and do not produce them at all.
(Commercial discovery & professional levels).
In the more sophisticated levels of the game (industrial discovery and professional levels) the main
emphasis is laid on the management of own production procedure ensuring raw materials for production and
the optimum utilization of capacities.
Some levels may be different from each other in other aspects too. In one specific level you are allowed and
encouraged to co-operate with your competitors, while this is not really supported in the other level.
Game complexity differences may also occur in the different time horizon of the decisions as well. In the
simple levels teams are making monthly decisions only, while in the more complex levels decisions are
made for a quarter of a business year comprising three-month decision period and it’s monthly breakdown
too. In these situations teams have to forecast the probable situation for the second and third month.
The particular simulation levels of KALYPSO in their higher complexity order with their main features are as
follows.
• Commercial discovery level: Participants merchandise the boats without producing them. They
make only monthly decisions, and co-operation is not allowed for them. They run the firm usually for
9-12 month. This is a really beginner’s level.
• Commercial professional level: This level is identical with the previous one, except co-operation
among competing firms is permitted. The period covered by the simulation is usually one year.
Students are making monthly decisions. This simulation level is devoted to students, who should get
appropriate skills in starting a merchandising firm on the market.
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• Industrial discovery level: Participants can merchandise only those boats produced in their own
factory. They make monthly decisions and run the company for usually 12 month, but no co-
operation with competitors are allowed in the game.
• Industrial professional level: This level is similar to the previous one, except co-operation among
competing firms is supported in the game. This level of simulation is mainly devoted to students who
should get skills for starting an industrial, merchandising and service firm on the market. They have
to take into account market trends, seasonally waves in consumer demand. They can specialise
their firm activity for the production of the most profitable product if they want to. They have to
produce at least one type of boat.
• Financial expert level: Participants face the challenges of industrial professional level, but they
have to make decisions for a quarter and they have to run their company at least for two years. This
way they will have to pay corporate tax after the profit they have earned in the first business year.
At the beginning of this simulation scenario the company size is relatively small. It is under-
capitalized; it has a low level of resources. The management must plan and realize an upswing of
the company. Initial parameters are usually set on such a way, that participants should make
investments and ensure their own financing. They can use profit retaining or bank loan for financing
the growth of the firm, or they can try to increase the paid in capital of the company. They may also
capitalize or distribute net profit after corporate tax.
In this level participants have to focus their attention on the problems of the company development
process. They must try to achieve as high level of profit as possible, and also must avoid big
financial depth, because this could lead to the loss of control over their company. They should see
that in such cases, when financing problems occur, banks can withdraw the credits granted a few
month ago, and can force the firm to convert these depths into shares of the company. This way the
original owners may loose their majority in the firm’s equity and also their control over their company.
• Commercial expert level Technically speaking participants face the challenges of finance expert
level. But the scenario is different as the main issue for participants is to recognize the structural
changes in the market behaviour, and manage the structural change of their firm to fit themselves to
the changes of the environment.
The structural changes are present in the quick changes of consumer demand. Demand for boat “A”
will decrease, and for boat “C” increase rapidly. In order to fit the company to this market
development you have to implement another marketing policy. You have to boost the market growth
of boat “C” to compensate the fallout of boat “A”.
You have to restructure Your production capacity, because the production of boat “A“ needed only
small amount of raw material and capacity, the production of boat “C” needs big raw material stock
and high capacity, or a high level of co-operation of the firms.
The third problem is the capital requirement of this restructuring task and the financing of these
processes. Participants have to elaborate a strategy of restructuring the profile of the firm and
finance it. It is important not only to set the goals but break down the steps of the implementation.
Financing all these actions the company requires a considerable amount of capital. There are
alternative ways of financing this capital needs besides bank loans, as to sell the production
overcapacity and stocks over the necessary value. Capacities and stocks sold may cause an
immediate fall back in revenue, but is improving liquidity of the company.
Using bank loans may cause financial depth, and the company has to handle it in similar ways as
mentioned in financial expert level.
THE NATURE OF THE DECISIONS

The management decisions in the business simulation are response values of the decision variables in the
simulation set by the decision maker. Decision makers have to answer systematically the same questions
from one simulation period to the next (month within a quarterly made decision or a monthly decision). These
questions are formulated on the decision sheet. For the various game levels various decision sheets can be
used. You see our decision sheet in Chapter 5.3. The main groups of questions on the decision sheets are
the following ones:
• Questions concerning marketing (commerce) decisions of the company for the decision period,
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• Questions for financing the business activity of the firm

• Questions for production, purchase of raw materials and co-operation with partners in the game
• Questions about ordering services from the service companies (from MARKINFORM,
COMPTASERVICE and ASSURER)
Any data entry on the decision sheet, which is not filled in or is incorrectly filled, crossed out,
deleted, unreadable, incomprehensive... the value of 0 (zero) will be given.
MARKETING (COMMERCE) DECISION MIX FOR A QUARTER / MONTH

The components of the marketing decision mix are made for the whole decision period (three months at the
quarterly, and one month at the monthly decisions. They are given for all the month, and there is no
possibility to modify or adjust them within this period.
Setting unit sales price of boats

The sales prices of the boats are given as net prices – so Value Added Tax (VAT) is not included in the
price. Decision maker has to set the same sales prices for each customer on the market. Teams cannot give
first class prices for the best group of customers, and another price for the second customer group etc. This
is a simplification in the business model compared to real business life, where customer oriented pricing is
an often used marketing policy. Decision maker can modify sales prices from decision period to decision
period (e.g. from quarter to quarter at quarterly decisions, or from month to month at monthly decisions).
Advertisement expenditures (monthly)
The monthly advertisement budget of the company has to be divided for product types (boats) and should be
given for each boat type on the decision sheet. Product advertisement expenditures always refer to a certain
product on one month, irrespectively of the fact, whether monthly or quarterly decisions are made in this
particular game. The advertisement value given in the decision sheet will be true for the subsequent months
of the quarter. Advertisement values can be modified from decision period to decision period. Advertisement
figures don’t include VAT.
Setting terms of payment for customers / distributors

Terms of payment are given in days and mean the payment deadline date granted for customers/distributors
of the firm after the delivery date of the products sold. Participants of the KALYPSO simulation can only set
one terms of payment figure for all customers and for all product types. This is also a simplification of real life
situations in the business model of this game. Terms of payment can be modified from decision period to
decision period, but not within the period itself. It is supposed in the KALYPSO model that all customers are
paying the bills of their supplier in due time. Therefore customers’ bad depths are excluded from the model,
which means a considerable simplification from real business life too. In the three month decisions, teams
set terms of payment for a quarter and can modify it only in the next quarter.
Sales forces
The number of sales forces is important for the management of the competing company. The more sales
representatives of the firm are working on the market, the better are the chances for the company to sell
more boats. More sales representatives can able to cover the overall market with higher intensity. Teams
can only increase (+) or decrease (-) the number of sales forces. Deciding any modification of the sales
forces the teams should take into account two contradicting effect of sales force modification:
• Increasing the number of sales representatives, the monthly costs of wages in the company are growing
by 6000 EUR/month for each sales representative. Sales representatives get provisions (usually 10 per
cent of the net sales value). The additional efficiency and profitability of further sales representatives’
work is gradually decreasing; so decision-maker has not to go far above the maximum number of sales
representatives indicated in the parameter table, unless competition makes him to do so.
• When dismissing sales representatives companies have to pay compensation by the law. The actual
value of compensation is set in the parameter table (it is usually 40 000 EUR for each person). This type
of cost has to be taken into account when sales forces reductions are considered in decision making.
Sales forces modifications in quarterly decisions are always valid only in the first month of the quarter.
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Market demand against the boats of the company

The demand of boats on the market in influenced by several factors: First of all it depends on:
• the basic demand on the product, which is written in the model parameter table of the company
• the number of firms playing the game
• the trend of the demand of this product set in the parameter table,
• The seasonal coefficients of demand for the particular month.
These factors determine the overall demand of the market from the particular product.
The actual demand from the products of the company depends on two types of factor groups.
• The first factor group is the effect of the present marketing decision the company management has
made on price, advertisement, terms of payment and sales forces, after measuring the relative position
of the company to the average of its competitors.
• The second factor group is past path the company has covered up to now through his previous
decisions to the present relative position of the company.
Strong positions to the average of these factors mean increasing sales ratio from the overall demand on the
market, and weak positions indicate decreasing sales ratio. It is always easy for the firms to loose and
weaken their market shares and positions and it is very hard to improve and strengthen them.
Participants need creativity in finding new initiatives to improve their market positions. There is also the „last
go quicker ahead” effect and nobody can defend its market positions without new ideas. For detailed
information on market behaviour please see Chapter 5.2.
FINANCIAL DECISIONS
The company management has to make financial decisions for every month, to adapt themselves to the
changing situations they have to face to. Even in the case of quarterly decisions, they have to determine
monthly financing means if necessary. The main types of financial decisions are:
Short or long term loans (automatically granted or negotiated loans)

European Credit Bank (ECB) grants all type of loans financing the competing companies in the simulation.
European Credit Bank is also running the bank accounts of the companies. Basically the bank issues short
and long term credits. Long-term loans are mostly granted for investment objectives e.g. increasing
production capacity, installing new machines in the workshops. Short-term loans are financing marketing
strategy or tactics, the improvement of liquidity of the firm, or other objectives.
Usually all banks in business life support certain well-defined projects of the customers by granting term
loans. These definitions describe:
the project goals;
the project overall budget, and the own financial contribution and its percentage part to the overall
project expenditures;
the loan amount asked from the bank, and the security offered by the borrower, assuring the bank, he
will pay back the loan amount in due time;
The maturity (the repayment time) of the loan, and the demanded payoff moratorium for capital payoff.
Maturity times for short-term loans comprise 6-24 month, for long term loans 24-60 month payoff
duration;
The annual interest rates of the loan vary usually from 6 -12 per cent/year.
Short and long term loans may be automatically granted term loans, or negotiated loans. Asking for the
first one, you simply have to fill in your decision sheet, but the usual loan limit of 200 000.00 EUR cannot be
exceeded, as it is the upper limit set for automatic loans. The most frequently used annual interest rates for
automatic loans are 8-12 per cent.
Negotiated term loans may also be short or long term loans. Companies asking for them have to formulate
a written credit application form to the bank. In this application they have to describe the objectives of the
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loan, the maturity duration and the annual interest rate they propose, the parts of business plan to convince
the bank, that the money credited, will be utilized effectively, and paid back in due time to the bank.
There are no previously fixed upper loan limits set for negotiated term loans. Borrowers must therefore offer
security to the bank, for the case they are unable to pay-off the loan in due time. Banks usually accept
grounds, buildings, fixed assets of the company for credit security measures. Shares or bonds bought by the
company may be accepted too. In practical business life some banks accept product or raw material
inventory for credit security, but in this case the crediting bank introduces a close checking procedure over
the sales and inventory management of the firm.
In the negotiated loan application form borrower may ask for a delay in the credited capital pay-off. In this
case if you take a term loan with a maturity of 5 years, a capital repayment delay of 6 month and an annual
interest rate of 6 per cent in February 2005, you will get the loan in February, You have to pay only interest
until August, and credit principal and interest pay-off begins only in August lasting until the end of January
2010.
Simulation software manages the interest pay-off of term loans automatically. The credited principal amount
(the credited capital) pay-off is also automatically managed by the software for automatic term loans.
Negotiated loan principal amount pay-off control however is the responsibility of the decision maker team.
Only the interest pay-offs are settled automatically by the simulation software, the capital pay-off should be
controlled by the team, and indicated on the decision sheet. The use of negotiated loans offer higher
flexibility in the application for term loans, in controlling pay-offs, but require also higher responsibility from
the decision makers, who may even try to propose the modification of the loan agreement if they see it
necessary. They can also pay-off the term loan earlier, when they think so. Negotiated loans principal pay-off
is done on the basis of a pay-off timetable the bank is giving the borrower.
Bank overdrafts
Bank overdraft occurs, when companies have to pay more from their bank account, then their cash amount
on their bank account would allow them. Bank overdraft is a special loan of the bank helping firms to
maintain their capability to pay their current liabilities. This special loan should be paid off to the bank as
soon as the company gets money on its bank account. It reveals the weakness of cash management of the
enterprise. Bank overdraft credits are charged by a higher annual interest rate, determined by the game
supervisor. Bank overdraft annual interest rate may rise to even 32 per cent.
RAW MATERIALS
Decisions on merchandising raw materials are only taken, when the teams manufacture boats
and not only merchandise them.
In the KALYPSO simulation model the production of boats requires two types of raw materials: plastics and
wood. All boat types need both components of raw material, but in a different combination. The raw material
consumption coefficients for all type of boats are described in more detail in Chapter 2. To optimize raw
material inventory management, teams have to calculate necessary material stocks for the production, order
new raw materials if necessary, or sell overstocks. Only one single supplier may be chosen for each raw
material type in the quarter. During merchandising actions of raw materials, participants can make the
following decisions:
Raw materials supply contract for a quarter decision period

Decision-makers have to sign a raw material delivery contract with the supplier for a whole quarter of the
year determining the unit prices and terms of payment conditions for the deliveries. These prices and terms
of payment conditions agreed and signed in the contract with the supplier are valid for each month in the
whole quarter. The raw material quantity delivered in each month within the frame of the contract may be
different. The supply process with respect to the terms of payment is shown in Chapter 5.1.7. When monthly
decisions are made in the simulation, the supply contract for raw materials is also set for a month.
Normal purchase of raw materials from the suppliers
In the normal raw material purchase process the firm determines the quantities (t or m3) ordered for the
month. The order placed will be automatically delivered at the beginning of the next month and invoiced at
the current catalogue price. The orders placed at the beginning of month m, will be delivered and so
available at the beginning of the month m+1. Payment is due according to terms of payment after delivery.
Orders are not entered on the balance sheet of the firm at the end of month m, because the order has only
14
been placed in this month. Let’s demonstrate the normal purchase process on an example. When you place
an order for 10 tons of plastic in January, it will be delivered in February, and if the supply contract with the
supplier set the terms of payment for 60 days after delivery, it will be paid in April.
Immediate cash purchases of raw materials

In certain cases firms may need an immediate delivery of raw material for the month the decision was made.
In this case companies will buy raw materials from the game supervisor or from another competitor firm as
well. The delivery is made immediately and payment will also follow it at once. In this immediate cash
purchase the delivery and payment should be made in the same month of the order placed. This immediate
cash purchase is treated in the KALYPSO model as a co-operation between competitors and the game
supervisor. Unit price of the raw material is a freely negotiated unit purchase price of the partners involved.
When the supervisor will be the supplier of the raw material, his prices are shown in Chapter 5.1.7. Decision
maker has to indicate supplier name, quantity (t or m3) and the negotiated unit purchase price (EUR/t or
EUR/m3) of the material on the decision sheet.
Immediate cash sales of raw materials

This is the opposite of the immediate cash purchases of raw materials and it is also treated as a co-
operation between participants of the game. They have to indicate the quantity (t or m3) and the negotiated
unit sales price (EUR/t or EUR/m3) of the material. Customer of the immediate cash sales of the particular
raw material should be identified by his name on the decision sheet of the supplier company. Game
supervisor is usually not obliged to buy back any raw materials. Delivery and payment of the sales is done in
the same month.
Immediate cash sales and purchases are co-operations between the teams, and are very often useful for
getting better prices.
PRODUCTS
Relating products (boats) the teams have two basic options to choose:
• They produce and sell boats, or
• They only merchandise boats (purchase and sell them)
In the industrial discovery and professional game levels and in the expert levels teams have to produce at
least one type of boats. Besides the production of the teams, game supervisor represent a big boat-
manufacturing company who can also supply competitors with boats. Game supervisor may limit his supply
capability, or can increase his product prices, realizing that teams do not produce enough boats.
Production targets
Teams have to determine their production targets for each of the three boat types for each month in the
decision sheet, when they intend to produce them. Production target is the scheduled production volume
from the boat type the company would like to manufacture in the month. The actual production volume
however depends on capacity and raw material stock availability.
CASH PURCHASES OR SALES OF BOATS

Similar to cash purchases or sales of raw materials firms can co-operate in boat cash purchases and sales
too. The cash purchases or sales of boats are also co-operation transactions which have to be delivered and
paid in the same month. The quantity and their unit price without VAT of the boat are freely negotiated
between the companies who register their sales or purchase transactions on the decision sheet.
WORKSHOPS
All boat types are produced in two workshops: in the moulding and in the finishing workshop. The initial
numbers of machines within the workshops are indicated in Chapter 5.1.2. Teams can increase or reduce
the number of machines during simulation by buying new, or selling old ones. The first decision means
investment into manufacturing capacity, and costs an amount of money indicated in Chapter 5.1.4.
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Reduction of machines means selling them. In this case company has to account a loss in its fixed assets
net value, and a cash income of machines sales price indicated in Chapter 5.1.4. No investment time are
calculated in the simulation model, so practically no time is needed to realize the decision to increase the
number of machines.
SERVICE COSTS AND FEES

Various services supporting management work (e.g.: market research information, accounting services,
insurance etc.) can be used during the simulation game. Participants have to calculate their service costs
using the service fee informations, and the service level or volume they need in the decision period. Some of
the services are delivered free of charge; others have to be paid by the companies. You can find examples
for the content of these information tables in Chapter 5.
Companies have to describe the services demanded for the decision period on the decision sheet, indicating
the details (description) of the service cost paid, and enter their total value on the decision sheet.
OTHER INCOMES / OTHER EXPENSES

These items are partly entered on the decision sheet by the game supervisor following various negotiations,
equipment purchasing, or specific incomes / losses. The companies have no items to enter in these
columns.
THE FREQUENCY OF THE DECISIONS

FREQUENCY OF DECISIONS
Depending from the level of the game, monthly or quarterly (broken down monthly) decisions have been
made. The decisions are to be taken for each quarter
The companies prepare their decisions for the coming decision period, which is usually a quarter. They pass
the game supervisor their decision sheets of the coming quarter on the 1st day of each quarter. Having made
the simulation run on the computer, game supervisor gives them back the monthly business results of their
firms, the accountancy results including monthly income statement, the balance sheet and the monthly cash
flow table of their company.
MONTHLY BUSINESS RESULTS OF THE COMPANY

The monthly business results of the companies include their production and sales, the results of product and
raw material purchasing and stock control.
Monthly production and sales volumes of the boats
• Production of boats Monthly production targets from the specified boat types.
Actual monthly production quantities from the specified boat
Production gap between production target (objectives) and reality
Raw material stock changes from initial stock to final stock volume
Utilization of machines in the workshops
• Boat sales Initial stock of boats in the month
Sub-contracted purchase volumes (co-operation)
Market sales
Sub contracted sales volumes (co-operation)
Stock volume at the end of the month
Production capacity and information on the month's raw material stocks
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• Production capacity Machine purchases

Machine sales
Machine losses (destruction)
Number of machines in operation
Production capacity (machine hours) (machines x monthly working hours)
• Raw material stocks Cash purchases (co-operations)
Cash sales (co-operation)
End of month stock
Quantities ordered to be delivered on the 1st of the next month
Stocks available for production at the beginning of the next month
st
(Taking into account the orders delivered on the 1 )
Financial status Initial cash availability/overdraft (surplus/shortage)
Final cash availability/overdraft (surplus/shortage)
ACCOUNTANCY RESULTS
The companies get their monthly income statement, balance sheet and cash flow table free of charge from
the game supervisor. Enterprises wishing more detailed accountancy result data have to make a prior
request on the decision sheet for receiving the synthesis of their accountancy documents at the end of the
month or quarter.
This process is renewed for each month or quarter.
COMPANY PRESENTATION
The companies in the simulation are public limited companies founded with an initial capital of 800 000,00 €
and an additional reserved capital of 943 998,00 €. Both have been used in the company’ business activity.
Firms are specialized for manufacturing hulls for fishing and pleasure boats.
Your production is limited to the plastic boat hulls, the fittings, the superstructure and the wooden finishing.
The boats can be equipped with out-board motors.
Three different types of boat are built in a single production process.
Boat "A"
Boat "B"
Boat "C"
Distribution is organized by local distributors who receive frequent visits from the company sales
representatives
The end-users of the boats are basically found in collective organizations and in the private sectors.
Consequently, the market is extremely various and the market potential is wide.
The company is in a position to support sales through personal advertising addressed to the end-user.
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18
1. THE MODEL AND THE MARKET
1.0. THE MODEL OF THE KALYPSO BUSINESS GAME
BUSINESS PROCESSES (Material/Product-flow, Cash-flow, Information-flow)

Cash Materials Products Sales Cash
Purchase Boat A Market behavior of the

Plastics
processes Customers
Material purchases Boat B Basic demand of boats
Normal, Monthly growth of demand
Co-operation, urgent Wood Seasonal indexes
Boat C Sensitivity on prices
Product purchases
Co-operation, urgent Sensitivity on advertisements
Production
Constraints: Stock availability Marketing tools
Work capacity hours
Production objectives < – >
• Unit price of boats
Actual production • Advertisement budget on each boat types
• Terms of payment set for customers
Capacities • Sales representatives

New machine investments
• Co-operation with other companies
Capacity reduction through
machie sales
Capacity losses by accidents
Merchandising of boats, co-operations with the other firms
Sales incomes – costs = gross margin, revenues, Cash-flow, loans
Purchase of raw materials from the supplier:

Normal purchase = Delivery is done in the next month, payment due to contract. Terms of payment are
calculated from date of delivery.
Cash purchase (immediate) = delivery and payment is made in the same month.
Purchase of boats from the game supervisor

Principally all of them are cash purchases and should be paid in the same month.
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1.1. PRODUCTS
The company produces three models of boats from three kinds of hulls. They are designated as Boat "A",
Boat "B", Boat "C".
1.1.1. Boat A
This is the simplest model. Boat A has very few fittings and is especially targeted the fishing market.
The fittings are quite simple and consist of three wooden benches.
It is generally sold as a fishing boat for assiduous but non-professional fishermen. In fact its use is quite
loosely described. It is often used as a fishing boat, but it is also used as a pleasure boat, and even, in
certain cases, as a means of transport in the marshes, thanks to its very small draught.
Characteristics:
• Length 4 m,
• Weight 250 Kg,
• Fittings: 3 wooden benches,
• Possibility to add a small motor,
• Means of traction: oars scull or motor.
From marketing point of view this product is in the declining phase of its life cycle. Demand is quite high
against this product, but it is slightly decreasing. The product is not expensive, but only a small gross margin
can be achieved by merchandising this product. Consumer demand of this product is highly price sensitive.
1.1.2. Boat B
Boat B is more specialized and targets the pleasure boat market for sea, estuary, or canals. It has the great
advantage that it can easily be transported at land too. It is designed for longer excursions and is equipped
with a cabin for two people; it has also the possibility to be fitted with a simple kitchen.
The aft is fitted out with two wooden benches and a platform.
Characteristics:
• Length 5.50 m,
• Weight 500 Kg,
• Fittings: cabin for two people, with the possibility of being fitted with a simple kitchen, the aft
incorporates a solarium.
• Necessity to add an out board motor.
From marketing point of view this product is in the second phase of its life cycle. The product is well-
known on the market its demand is quite high, and still increasing. However the demand’s increasing speed
is low it is growing only by 1-2 per cent monthly. Based on the high volume of the demand, this product can
or should be treated as a strategic product of the company, as its price and gross margin is at medium level.
The sales of this product can efficiently supported by appropriate marketing policy as product is less price
sensitive, and higher advertisement sensitive then boat A.
1.1.3. Boat C
The latest in the line, this product targets, almost exclusively, pleasure cruising at sea or on lakes. It also
offers the possibility of fishing at deep sea.
As it is difficult to transport this boat at land, except with special transport lorries, usually berth this boat
berthed in a port.
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Most of the customers of this cruising boat are wealthy people who prefer larger and more luxurious boats,
equipped with the following features:
1. a fore cabin for two people,
2. a central cabin for two people equipped with kitchen or lounge,
3. the pilot's cabin at the aft with two benches,
4. A solarium at the fore and also on the roof of the central cabin.
Characteristics:
• Length 8 m,
• Weight 1300 Kg,
• Fittings: two cabins
• The boat can be equipped with two powerful sea going motors
From marketing point of view this product is in the first phase of its life cycle. Technically spoken boat “C”
is a high level product but it has not yet been fully introduced on the market. Its demand is therefore quite
low at the start of the simulation, but it is increasing rapidly by 15-20 per cent monthly. Based on the high
speed growing demand this product can or should be a strategic product of the company in the future, but
you cannot expect too high incomes from this product in the first year. Its sales price and gross margin is
quite high, making this boat to a very attractive product for the company. The sales volumes of this product
depend strongly on the appropriate marketing policy of the firm, as this product is low price sensitive, and
highly advertisement sensitive.
The products offered by the companies are very similar, and they are directly competing against each other.
Every company is trying to distinguish its products in some detail from the competitor’s, and target their
customers through the distribution network. No noticeable difference can therefore be detected in the
production processes or in the raw materials used by them.
1.2. CUSTOMERS
The variety of products gives the company access to a large number of customers – to the end-users - with
very different motivations.
• Boat "A" is targeted collective organizations and the private sector. The extremely adaptive character of
the product gives the possibility to be used for many different activities: pleasure, fishing, transport...
• Boat "B"; the typical kind of customer for this product is the individual owner, who is essentially looking for
leisure activities.
• Boat "C", the baby of the line, is developing in the private customer sector that is hooked on coastal
navigation. Fishing on deep sea could offer an original outlet for this product.
1.3. COMPETITION ON THE MARKET

Two levels of competition are easily to identify on the market:
1.3.1. Direct competition

All of the companies, representing identical strength try to exploit the three products on the market. The
direct production costs are relatively stiff, given the specifications of the production processes.
Therefore, competition, on a commercial level, occurs essentially through:
• The distribution network,
• Commercial action
• The price
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1.3.2. Indirect competition

Either in France or from abroad, indirect competition comes from companies manufacturing closely linked
products of similar design or substitution products such as Zodiacs out boats or even yachts.
22
2. PRODUCTION
2.1. RAW MATERIALS

In the boat manufacturing processes several raw materials are needed: plastic, wood and various minor
parts (screws nuts and bolts, rivets, iron fittings, products for treating the wood...).
The minor parts used in manufacturing are the units very inexpensive and are included in the price of the
wood.
2.1.1. Raw material supplies
2.1.1.1. Normal supply

The simulation model supposes that there are always two big suppliers who are able to supply all of the
competing companies with an unconstrained amount of raw material. Participants therefore do not need to
calculate purchase constraints in raw materials.
Game supervisor may constraint raw material supply in vis major cases but he has to inform teams before.
Here is an example for the purchase conditions. The purchase conditions relating to the actual level of the
simulation are described in the Chapter 5.1.7. The unit prices of raw materials can be changed during
simulation by the game supervisor, but he has to announce his new prices in a written form at least one
quarter before introducing them. This obligation is defined by the law, because he is the main supplier of raw
materials, and his actions influence the raw material prices at the market.
Table 1 - PURCHASE CONDITIONS FOR RAW MATERIALS IN A QUARTER

MATERIALS SUPPLIER COND. UNIT PRICE TERMS OF PAYMENT
Plastic Prompt cash 3 000.00 EUR/ton VAT excluded At end of the month (delivery)
30 days 3 100,00 EUR/ton VAT excluded 30 days after end of month
Wood Prompt cash 1 000.00 EUR/ton VAT excluded At end of the month (delivery)
Even though the quality features of the raw materials (plastic and wood) proposed by suppliers are identical
(their strength, lifetime, solidity easiness to work...), it is impossible to change supplier of your raw materials
from month to month within a quarter of the year. On the other hand you may change suppliers from one
quarter to the next.
The commercial conditions of ordering raw material in this branch the firms have to respect are the following:
Table 2 -RAW MATERIAL ORDERING CONDITIONS

Suppliers are insisting to sign delivery contracts for a quarter of the year, which is valid from the first month of each quarter,
Orders should be placed on the first day of the month,
Delivery time is the first day of the month following the order placement,
Terms of payment should be calculated from the delivery date.
2.1.1.2. Immediate cash purchases

If raw material shortage occurs for production in the month the decision should be taken, teams can
overcome this difficulty by immediate cash purchases. The game supervisor or one of the competitor
partners can supply the company with the necessary amount of raw material. This is called immediate cash
purchase or co-operation purchase, when partners are supplying the raw material. The basic conditions for
this contract are fixed as seen in Table 3. Delivery details are freely negotiated between supplier and the
customer.
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Table 3 - CONDITIONS OF RAW MATERIAL CASH PURCHASES
Unit purchase price Freely negotiated between supplier and customer
Delivery date The first day of the month for which decision is made
Terms of payment Immediate cash payment
2.1.1.3. Immediate cash sales

Companies may sell raw materials from their materials on stock. They can sell them to their competitor
companies helping them immediately, when they need it. Sometimes companies have bought to big
amounts of raw material and would like to get rid of their unnecessary stocks. Perhaps game supervisor may
also buy raw material. The general conditions for immediate cash sales are shown in Table 4. Actual delivery
conditions within the frame are freely negotiated between supplier and the customer.
Table 4 - CONDITIONS OF RAW MATERIAL CASH SALES

Unit sales price Freely negotiated between supplier and customer
Delivery delay In the first days of the month for which decision is made
Terms of payment Immediate cash payment
2.1.2. Raw material needs of a boat unit

The consumption of raw materials needed in the manufacturing of each boat hull is constant during
simulation and fixed in the parameter table in Chapter 5.1.6. Here you can see an example of it:
Table 5 – RAW MATERIAL CONSUMPTION PER BOAT

Boat A Boat B Boat C
Plastic 0,20 ton 0,40 ton 1,00 ton
Wood 0,10 m³ 0,20 m³ 0,50 m³
2.2. PRODUCTION PROCESS

The business model of KALYPSO supposes that the boat manufacturing processes are highly organized,
rationalized and optimized. It is also supposed that the production process having already been started in
this month will be finished in the same month, and can be sold within this month too.
In the model it is also supposed that all the three types of boats must pass through the two types of
workshops in the construction process.
• The plastic hulls of the boats are made in the moulding workshop, where the operation is highly
automated,
• All the fittings and the different finishing works are done in the finishing workshops.
These features allow decision maker not to calculate with unfinished products at the end of a month.
2.2.1. Technical characteristics

Manufacturing time in the workshops is measured in machine hours. The consumption of machine hours
depends on the specific operation done and the complexity of the boat.
Table 6 - MACHINE HOURS NEEDS FOR A BOAT UNIT

Moulding 8,00 machine hours 12,00 machine hours 28,00 machine hours
Finishing 10,00 machine hours 14,00 machine hours 28,00 machine hours
Thanks to the available boat manufacturing technology, the production process has recently been perfected
and has now reached an optimum level. In consequence no productivity benefits can be expected in the
years to come.
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The workshops are specialized to their jobs and they can by no means be converted into posts making other
phase of manufacturing. The manufacturing technology is also optimized in that sense, that it is impossible
to expect technological or organizational modifications to reduce machine hours during the simulation period.
2.2.2. Production capacity

Each workshop, moulding or finishing is subdivided into work posts (machines). The work post comprises
the equipment and the corresponding workers. The monthly production capacity of a machine is measured in
machine hours.
st
For the 31 December year zero the production capacities for each workshop for the industrial professional
levels are as follows
Table 7 - MONTHLY PRODUCTION CAPACITY IN MACHINE HOURS

Workshop Number of machines at the end Monthly capacity/ machine Monthly capacity/machine
of the year n-1
Moulding 4 180 machine hours 720 machine hours
Finishing 5 200 machine hours 1 000 machine hours
2.2.3. Modifications in production capacity

The manufacturing process, which has been progressively set up, is at an optimal level at this time.
Consequently no further improvement in production can be expected in short or medium-term.
The number of machines can be increased or decreased. The technical staffs are composed partly of full
time workers and partly of temporary workers. The use of temporary staff allows the company to adjust the
work force to the production in an almost permanent way.
Consequently the modifications in production capacity are determined exclusively by installing or
demounting machines, which is done by an investment, or the sales of machines.
Investments
The installation of a new work post implies the purchasing of machines at a unit value of 75 000 EUR not
including VAT, with a linear depreciation over 20 years, giving an annual depreciation rate of 5 per cent.
There is no time delay calculated in the delivery and installation of a machine.
However an investment decision can only be taken on the first day of the quarter, the delivery and the
installation of the machine in speech may be programmed for the first, second or third month of the quarter.
Consequently the new machine is ready for operation as soon as it is delivered. Its production capacity is
identical to the machines the company is already equipped with.
The payment is made during the month of the installation.
It is supposed in the model, that no second hand machines can be bought and installed.
Reductions and sales of machines

The machines can be bought back by the supplier at a fixed unit sales price of 20 000 EUR + VAT. Since
the first January 1990, the sales of these fixed assets are subject to VAT.
The net value of a machine in the balance sheet of the company on the 31 December of year 0 is equal to
70 % of the purchase price. After this it diminishes by 1/60th of the purchase price per month. The KALYPSO
simulation model assumes that machines sold are always the eldest ones.
The corresponding cut back in manufacturing is immediate and its results in the financial and accountancy
situation occur in the same month. Machines cannot be sold between the companies.
2.2.4. Proportional direct costs in production

The boat manufacturing process needs utilization of machines. This work is measured in machine hours.
Only the actual machine hours worked are considered as direct costs in production.
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Table 8 - UNIT COST OF MACHINE HOURS WORKED
MOULDING FINISHING
Unit cost of machine hour 25,00 EUR/machine hour 35,00 EUR/machine hour
2.2.5. Structural (fixed) costs linked to production

As well as their running costs, the machines bring about other fixed costs in production, which are essentially
made up of everyday keep up and maintenance costs.
Table 9 - FIXED MONTHLY PRODUCTION COSTS

MOULDING FINISHING
Monthly fixed expenses for operation and maintenance of 3 000,00 EUR/machine/month 600,00 EUR/machine/month
machines
2.3. OTHER COSTS

The other costs are essentially distribution and advertisement costs, administrative costs, staff and
management, financial expenses and depreciation.
2.3.1. Distribution and advertisement costs

These costs are depending from the size of the sales force and the marketing communication policy of the
company. All of the necessary elements towards their understanding are given later.
2.3.2. Administrative costs

The administrative costs consist of secretary and management charges, telecommunication costs and the
inherent costs of management.
The companies are running within a structure, which has recently been reorganized. Consequently they
cannot modify their administrative structure in short term without upsetting the means of running its normal
everyday management.
These administrative and structural fixed costs amount have to be calculated to a total of 25 000 EUR in
every month.
2.3.3. Interest charges

Interest charges depend on the means of external financing – loan terms - that the company uses and the
corresponding bank conditions that have been obtained.
2.3.4. Depreciation
The depreciation costs of the company’s fixed assets are calculated with linear depreciation based on the
average lifetime of the assets. Depreciation is included in the monthly income statement calculation,
according to the principle of monthly inscription, i.e. 1/12th of the yearly depreciation amount.
The annual depreciation rates for tangible assets are calculated on the gross value of the fixed assets:
• Buildings 5%
• Technical equipment 20 %
• other fixed assets 15 %
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2.3.5. Other items (costs, taxes)

Costs and charges of various natures can affect the companies' revenues at times when unexpected events
(fires...) or company decisions (fees for exterior services...) arrive. The companies are subject to corporation
tax under the conditions of common business law.
Note: to make up the table of intermediary management balance, it must be noted that the "running costs"
are broken down as follows:
• Intermediary consumption: 50 %
• Taxes: 5%
• Staff charges: 45 %
27
28
3. DISTRIBUTION
3.1. CUSTOMERS
Companies sell their production, through their sales representatives, directly to collective organizations or by
the intermediary of local distributors.
3.1.1. Market sales through distributors

Sales to distributors and by extension to collective organizations are made in the framework of a quarterly
contract, according to the following terms of payment:
Table 10 - TERMS OF PAYMENT ACCORDED TO THE DISTRIBUTOR CUSTOMERS

TERM OF PAYMENT DEADLINE FOR PAYMENT
Prompt cash payment Customer pays during the current month
Payment after 30 days The value of the goods sold is in the accounts receivable at the end of the current month, Customer
pays in the next month (m+1)
Payment after 30/60 days The value of the goods sold is in the accounts receivable at the end of the current month, Customer
pays 50 % in the next month (m+1) and 50 % in the second (m+2)
pays in the second month (m+2)
pays in the third month (m+3)
The terms of payment the company grants to its customers / distributors are the same for all customers and
do not change within the three months of the quarter.
Given the value of the stocks that the distributors need, they are obviously sensitive about the terms of
payment that the companies offer them.
3.1.2. Tendering – as a special sales activity

Besides market sales game supervisor usually organize a tender for the demonstration of tendering rules
imbedded into the frame of the business simulation. The other idea for organizing a tender in the simulation
is to give students an opportunity to improve their sales volumes on this way too.
Tendering is a kind of concentrated market for offers, when the buyer would like to buy a greater amount of
boats and is looking for the best offers. This means that tenders are special sales deals, so prices and
conditions of a tender are independent from the market prices and conditions set by the teams. In the tender
call on the next page you see the tender call of the last year. In the tendering process the organization
issuing the tender call, have to define the exact procedure how offers will be evaluated, what are his
conditions and preferences on the supplier and the delivery of the goods ordered.
Winner of the tender will have to deliver the products according to the tender conditions, and will be paid in
the same month, like in a co-operation transaction. The winner of a tender signs the contract with his
customer directly, so he has not to pay commission to his sales representatives after the tender delivery.
29
FEDERATION OF WATERSPORT CLUBS

Avenue Irlande
Center Parks
CALL FOR TENDER

The Federation of Water sport Clubs (FWC) has decided to renew the fleet of water sport boats at it’s clubs in France.
Therefore it is issuing a tender call to all manufacturers and merchandisers of boats to submit offers for selling boats to
the FWC. FWC intends to buy two types of boats:
1. „B” type boats 300 units delivered in March 2007
2. „C” type boats 150 units delivered in February 2007.
st
Participants of the tender have to pay 900 EUR participation fee in advance by October 1 2006.
Tender participation conditions:

1. Participants must submit a price calculation of the boats for excluding dumping prices.
2. Participants must have an approved logo.
3. Participants must have be represented by their sales representatives throughout France and have at least 7 sales
representatives.
4. Participant must be well known companies with a good reputation. This can be proved by giving their annual
advertisement costs in the business year 2006 for
B type boats exceeding 60 000 EUR, C type boats exceeding 100 000 EUR.
5. The Purchasing Board have set the following upper limit for unit sales prices for the boats:
B type boat 7 000 EUR C type boat 12 000 EUR
Tender offers must be submitted in a letter addressed to the Purchasing Board of the FWC in a closed envelope by
Wednesday 12.00. Offers submitted after this deadline cannot be accepted. Offers of participants must contain answers
and approved data on all the above issues.
The Purchasing Board has the right to check all the data presented at the evaluation of the offer by checking the
accountancy document of the applicant (income statement and cumulated income statement of the company).
The Purchasing Board of the FWC has the right to evaluate offers separately to B and C boats and sign contracts with
different firms who are found to be the best supplier for B type boat and for C type boat. Applicants have to submit an
offer for both boat types irrespective whether they would proceed with only one type.
TENDER EVALUATION PROCEDURE

Purchasing Board is obliged to evaluate tender offers in the following way:
1. The Purchasing Board must exclude offers when they do not give answers to all question set in the tender call.
Tender must be declared successful when at least two competitor’s offers are accepted.
2. The Purchasing Board has the right to evaluate offers separately for B and C boats and sign a contract with different
firms who are found to be the best supplier for B type boat and for C type boat.
3. Purchasing Board has to set up a ranking order for the applicants from all four aspects stated in the tender call. The
participant reaching the first place will be awarded 5 points, second 3 points, third 2 points and fourth 1 point
respectively.
4. Overall points of the participants are calculated as weighted sum of the points received from the individual aspects.
The weighting for the different aspects accepted are:
Price 10 times
Logo 7 times
Annual advertisement cost 6 times
Number of sales representatives 5 times
Calculation of overall points are demonstrated in the following example: Firm X has won 3 point for its prices, 5 points for
its logo, 1 point for its advertisement, and 5 points for its sales representatives by evaluating its offer on B boats. The
overall points of the company are: 3 x 10 + 5 x 7 + 1 x 6 + 5 x 5 = 90 points.
Tender offers will be evaluated at the open meeting of the participants. The Purchasing Board must to declare winners or
declare the tender as unsuccessful. Contracts with the winners of the tender have to be signed immediately under the
conditions of the submitted offer of the winner.
th
Center Parks, January 10 2006. Mr. Francois the Unknown
President of the PB
30
3.1.3. Co-operation with other competitor companies

To get rid of their surplus stock, especially at the end of the season, companies can get in touch with
discount centres or with their competitors who would buy the boats at a negotiated price to resell them
afterwards on the market. These actions are immediate cash sales of boats and are called co-operations.
The companies can also purchase products from their competitors, playing the role of a subcontractor and
getting better purchase prices.
In both cases the delivery conditions shown in Table 11 are the basis for negotiation between the
companies. In the case of co-operation business no commission is paid to the sales representatives.
These sales are carried out in the framework of a "one off" contract under the following conditions:
Table 11 – CO-OPERATION SALES AND PURCHASE CONDITIONS

Contract date First day of the current month
Unit price of the product/material Freely negotiated price between the customer and the supplier
Delivery date Immediate delivery within the current month
Term of payment Prompt cash payment
3.2. SALES FORCES

The company sales representatives visit the distributors and collective organizations to present the different
kinds of boats to the customers who, according to their specialization, customers, the attractiveness of the
conditions, will reference the whole or a part of the range.
The costs of the sales force are broken down by:
• salary costs (net salary + staff and employer's charges),
• travelling + living expenses of sales representatives.
Table 12 - COST OF SALES FORCES

Monthly fixed costs of a sales representative 6 000,00 EUR.
Commission rate on sales without tax on sales volume 10,00 %
As co-operation sales are directly concluded between the management, sales forces do not receive any
commission on this kind of business.
The sales force staffs at the end of the precedent year were equal to four representatives per company.
Any representatives who are newly hired are immediately in operation.
The companies can take on or fire representatives according to their needs.
The contracts of employment for the sales representatives:
• are established or rejected with the first day of the first month of each quarter,
• take effect from the first day of the first month of the quarter,
• are valid for the whole of the quarter.
If the company terminates the contract, the company has to pay compensation on dismissal to the sales
representatives. This costs are usually 40 000,00 EUR per person.
3.3. COMMUNICATION
In order to strengthen their communications effort, the companies put a part of their sales income to
advertisements.
31
This commercial action takes the form of advertising space in magazines, radio or television spots... The
effectiveness of the advertisement campaign is directly related to the allocated budget.
The budget given to advertising by each of the companies is monthly determined and specified to each
product types. The budget is carried in an identical and systematic fashion for each of the three months of
the quarter.
32
4. FURTHER BUSINESS PARTNERS
4.1. SERVICE PROVIDERS

Companies are in permanent relationship with their direct partners: suppliers and customers. They also meet
representatives of specialized organizations at the Business Club. To ensure fluent business life they need
the activities of service providers.
4.1.1. LA PETIT ECONOMISTE: the economic newspaper

This paper, to which the companies may subscribe, gives information on the boat manufacturing sector
through the publication of business news, articles. Well informed, it brings information on competitors, prices,
and commercial success etc.
4.1.2. MARKINFORM, the Market Research Company

Markinform has been working in close co-operation with public and semi-public statistics organizations for
many years. Analyses and studies are drawn up from the data taken from the entire market.
A good deal of data has been brought together following surveys conducted with the professionals and the
consumers. The first conclusions are the results of historic analysis of the market for the three products.
Through these surveys, the market research centre has also tried to define the consumer behaviour when
facing the different kinds of proposed products.
The studies carried out are conducted from global economic data and surveys designed to quantify the
market and to find out the consumer behaviour and motivation.
Certain "standard market survey studies" have already been worked out by MARKINFORM. These studies
involve the pleasure boat construction sector, and are really appreciated by the companies, who can better
understand the market and hence are able to exploit it much better. You can find these market survey
studies in the Chapter 5.2 of this textbook.
Moreover MARKINFORM can estimate on request, and reply to the companies' enquiries to the best
possible deadlines.
4.1.3. COMPTASERVICE: chartered accountants

After a formal and prior request, against a fee, COMPTASERVICE offers the companies a full service in
accounting and a synthesis of accounting results like balance sheet, income statement, cash flow table at
the end of a decision period. The services offered by COMPTASERVICE, under no circumstances relinquish
the obligations of control or the responsibilities, falling on the company.
4.1.4. European Credit Bank

The European Credit Bank is the bank of the participant companies in the simulation. Companies have their
bank accounts in this bank. This bank is also financing the business activities of the companies in the
simulation. Therefore the bank has developed two basic forms of loan offers for its clients: the automatic and
the negotiated loans.
Automatic loans are short or long term loans of the bank with a monthly limited value of 150 000,- EUR.
Companies simply apply for this loan by filling in the appropriate item in the monthly decision sheet. This
loan will be automatically given to the firms by an annual interest rate of 6-8 per cent. The capital pay-off is
automatically managed by the simulation software together with the interest pay-off.
• Automatic medium-term loans for 2-5 years periods:
• funds available on the first day of the month,
• 24-60 equal monthly payoff amounts,
• by standing order from the month following the transfer of capital,
33
• annual interest rates: 8,00-10,00 per cent,

• Monthly direct debits on interest at the end of month.
• Earlier or later capital payoff is not possible.
• Automatic short term loans for 0,5-2 years periods:
• funds available on the 1st of the month,
• 6-24 equal monthly payoff amounts,
• by standing order from the month following the transfer of capital,
• annual interest rates: 6,00-8,00 per cent,
• Monthly direct debits on interest at the end of month.
• Earlier or later capital payoff is not possible.
Negotiated loans are more flexible but they have to be negotiated with the bank.
Companies applying negotiated loan have to fill in the “Loan Agreement” form in the Chapter 5.4.2.5. of
this textbook. The maximum amount of the loan can reach 5 000 000,- EUR. Companies have to define
the project to which they would like to use the money applied for, and have to give the project total cost
they planned, and show the ratio of their own contribution to the total cost of the project. They also
should define the preferred duration of the negotiated loan. In case of emergency the Loan agreement
can also be modified.
Companies have to define the loan security assets they offer the bank in case of being unable to payoff
capital and interest. Security assets can be fixed assets, or bonds of the firm. The credited amount of
the loan delivered is depending on the security offered by the applicant.
Companies have to liquidate (pay-off) previous negotiated loans at the application for a new one. This
means they can only have one living loan agreement at the same time.
Annual interest rates of negotiated loans are subjects of negotiations. They may vary from 5-9 per cent
annually.
There is a much higher flexibility of payoff at the negotiated loans. Negotiated loans may contain a
negotiated capital payoff delay for some month. The capital payoff of negotiated loans is not automatic
but is controlled and managed by the participant company. Earlier payoff for decreasing company
indebtedness is possible with negotiated loans, but impossible with automatic loans.
Interest payments are always managed by the simulation.
Negotiated short or long term loans
Advantages of negotiated loans versus automatic loans from the applicant‘s point of view:
• The maximum values of negotiated loans granted, are usually higher than that of automatic loans. The
maximum value granted is limited by the security the applicant offers to the bank. Usually banks may
accept for security stable value fixed assets, like buildings, high value machines, technical installations,
which cannot be sold very quickly. The upper limit value for negotiated loans set by the bank is very
often the net value of the fixed assets of the applicant company.
• Annual interest rates of the negotiated loans are in general a little bit smaller than those of the automatic
loans (5-8 per cent).
• Applicants have the opportunity to negotiate a capital payoff delay for a maximum of 6 month in the case
of negotiated loans. During this period only the interests have to be paid to the bank. Interest costs are
automatically drawn from the bank account of the company. .
• The company can manage the capital payoff procedure; it can accelerate capital payoff to reduce
indebtedness, or can apply for modification of the loan agreement if necessary.
• The capital payoff of negotiated loans on the decision sheet is done by filling in the „Negotiated loan
increase (+) or repayment (-)” field with the monthly capital payoff value of the loan. If this amount is
negative, it indicates capital payoff value of the negotiated loan. A positive value in this filed indicates the
issue of a new negotiated loan. Applicants get from the European Credit Bank the loan depreciation
table indicating the capital payoff timetable.
Bank overdraft as a special loan with extra high interest rate
In certain cases European Credit Bank accepts authorized bank overdrafts of the companies. Bank
overdraft is a special loan granted by the bank in order to maintain the capability of the company to pay its
obligations (accounts payable), allowing them payments over the money they have on their bank account.
34
Naturally the bank counts for this special loan an extra high annual interest rate – usually 32 per cent -
covering the bank’s extremely high risk on this special loan. The direct debits of these interests on bank
overdraft are taken off the month following the entry of the overdraft.
4.1.5. The “ASSURER” insurance company

The ASSURER insurance company is specialized for covering risks of medium and large companies, and
offers typical insurance policies to the companies in the sector.
"TRADE LOSS" insurance policy

By means of indemnification, trade loss insurance is designed to put your company back into the same
financial position it would have had, if the accident had not happened.
RISKS COVERED
The insurer guarantees the indemnification corresponding to trade loss during the period of indemnification:
• The fall back in sales value due to the reduction or interruption in the company's activities.
• Additional operating costs spent on the re-starting operations, occurring as direct business results of
material damages caused by incidents, which are covered in the insurance contract.
EXCLUDED RISKS
This contract does not cover, as examples, trade losses resulting from:
• physical injury,
• intentional damages caused or provoked by the insured party or by his compliance or that of his agents,
• the payment of fines,
• acts of terrorism or sabotage,
• Trade losses caused incidentally or intended by the assured party to the assured party.
DAMAGE ESTIMATION
The damages covered by the insurance are calculated as follows:
• Concerning the loss in turnover, the damages are calculated after the loss in gross margin determined
by the difference between the gross margin that would have been achieved, if the accident had not
happened during the period of indemnification and the actual gross margin achieved in the same period.
• Concerning additional operating running costs, the insurance covers all the costs involved in avoiding or
limiting trade loss that have been mutually agreed by both parties (insurance company and insured
company).
• Any amounts in charges on the gross margin that the company ceases to undertake due to the accident
are to be deducted from the total of the loss in gross margin and additional operating costs.
CALCULATION OF GROSS MARGIN

The insurance cannot become a source of profit for the insured party and the indemnification can only have
references to the actual damages.
The gross margin of the company in the period is calculated as the difference between:
• The turnover due to product sales,
• The consumption of raw materials.
The total calculated indemnification might be reduced in the following cases:
• When the assured party's damage declaration is not complete, or necessary data are missing for a
comprehensive damage calculation,
• There is insufficient coverage for the material damages.
35
Any intentional false statement renders the contract null and void.
INSURANCE VALUE, INSURANCE PREMIUM

The insurance value is the maximum value of the insurance covering losses of the insured party. ASSURER
Co. limited the maximum insurance value contracted for “TRADE LOSS” insurance to 200 000 EUR. The
value of the monthly insurance premium for “TRADE LOSS” is 0.5 per cent of the insurance value. Insurance
contract is valid for a quarter of a year. Insurance premium for each quarter is payable by the insured party
at the beginning of the period.
CONTRACT RENEWAL
The insurance contract is effective from the moment the two parties agreed on the terms of it. The contract is
concluded for the period. The insurance covers the period and is dependent on the payment of the premium.
The contract is renewed uniquely by the insured party by the payment of the insured party at the beginning
of the period in mentioning it on the decision form.
"CIVIL LIABILITY" Insurance Policy

"CIVIL LIABILITY" insurance covers the liabilities of the company, its managers and staff.
OPERATING CIVIL LIABILITY INSURANCE

The company is liable for physical, material and immaterial damages caused to others (third party and
clients) by its managers, staff, installations (buildings, material - including which is rented or stocked), goods
and animals.
PRODUCT CIVIL LIABILITY INSURANCE

The manufacturer seller is liable for the damages due to its products.
The insurer undertakes to cover the consecutive damages due to one of the following causes:
• the inherent vice of the product, for instance a conception or manufacturing fault which makes the
product dangerous to use,
• a packaging error,
• Not error free or insufficient recommendations on the use of the product.
EXCLUDED RISKS
Damages due to accidents occurring before the starting date of the policy and products manufactured or
delivered before this date are not covered by the policy.
VALUE OF THE INSURANCE

The value of the insurance is limited to 500 000 EUR annually per accident. The franchise for the insured
party is 300 EUR per accident.
• there is an error in the assured party's declaration,
• There is no sufficient coverage for the material damages.
DURATION OF THE INSURANCE

The insurance covers damages occurring during the running time of the contract, including the products
manufactured during this period.
INSURANCE PREMIUM
The insurance premium is to be paid each month or each quarter and is payable by the insured party at the
beginning of the period. Monthly insurance premium is 1 per cent of the insurance value.
36
CONTRACT RENEWAL
The insurance contract is effective from the moment the two parties agree on the terms. The contract is
"KEY MAN" Insurance policy

The running of a company may be compromised by the death of one of its managers or agents. Their
disappearance could bring about serious difficulties to the working order of the company.
The "KEY MAN" insurance procures liquid assets to the company at a time when it is undergoing
reorganization due to a death and at the same time reassures creditors on its strength.
CONTRACTING PARTY AND BENEFICIARY

The company takes out the insurance, which is the only possible beneficiary of the present contract.
ASSURED PARTIES
The insurance can cover one or several "key men". They must be individually identified:
NAME Position in the company
.........................................................................................................................................................................................................................
.........................................................................................................................................................................................................................
.......................................................................................................................................................................................................
INSURANCE VALUE
In case of death of a "KEY MAN", the policyholder, the company, is covered by a sum of 200 000 EUR for
each deceased person.
• there is a default in the assured party's declaration,
EXCLUDED RISKS
The insurance contract does not cover death consecutive to causes anterior to the subscription date.
INSURANCE DURATION
The insurance covers damages occurring during the running time of the contract.
INSURANCE PREMIUM
The insurance premium or for the KEY MAN insurance is monthly 300 EUR for each insured person. It is to
be paid each month or each quarter and is payable by the insured party at the beginning of the period.
CONTRACT RENEWAL
The insurance contract is effective from the moment the two parties agree to the terms. The contract is
37
"DAMAGE TO PROPERTY" Insurance policy

The "DAMAGE TO PROPERTY" insurance covers direct material damages caused to buildings, materials,
raw materials and finished products.
CIVIL OPERATING INSURANCE

The insurance covers the incurred risks:
In the buildings and their contents:
• fire and annex incidents: lightning, explosions, electrical damages, plane crashes, bomb attacks,
vandalism;
• gales, hailstone, weight of snow on roof, natural catastrophes;
• flooding, costs for finding leaks, blocked drains;
• theft;
• Broken glass and signs.
By the machines:
• internal causes: conception errors, construction vices;
• external causes: perforation, falling or crashing of foreign bodies;
• operating incidents: vibration, loosening of parts, overheating, failure of safety equipment;
• fire: fire or internal explosion;
• Damages due to the electricity supply, lightning.
• human causes: clumsiness, negligence or malevolence, terrorist acts or sabotage, strikes, riots;
• Natural causes: gales, hurricanes, cyclones, frost.
PRODUCT CIVIL LIABILITY INSURANCE

The manufacturer seller is liable for the damages due to its products. The insurer undertakes to cover the
consecutive damages due to one of the following causes:
• the inherent vice of the product, for instance a conception or manufacturing fault which makes the
product dangerous to use,
• packaging error,
• Errors or insufficient recommendations on the use of the product.
EXCLUDED RISKS
Damages due to accidents occurring before the starting date of the policy and products manufactured or
delivered before this date are not covered by the policy.
ESTIMATION OF DAMAGES
• Buildings: reconstruction value less dilapidation.
• Material: replacement value less dilapidation.
• Raw materials: purchasing price determined by the last price preceding the accident.
• Finished products or products being manufactured: production costs (raw materials + undertaken
manufacturing charges).
INSURANCE VALUE
The maximum value of the insurance is limited to 1 million EUR.
• there is a default in the assured party's declaration,
38
INSURANCE PREMIUM
The insurance premium is to be paid each month or each quarter and is payable by the insured party at the
beginning of the period. Insurance premium depends on the insurance value. The monthly insurance
premium is 0.5 per cent of the insurance value.
CONTRACT RENEWAL
The insurance covers damages occurring during the running time of the contract, including the products
manufactured during the period. The insurance contract is effective from the moment the two partners agree
to the terms. The contract is concluded for the period. The insurance covers for the period and is dependent
on the payment of the premium. The contract is renewed uniquely by the insured party by the payment of the
insured party at the beginning of the period in mentioning it on the decision sheet.
4.2. STATE
4.2.1. Corporation tax

The companies are liable to corporation tax (IS) according to the current rates. Corporation tax is paid in
April after the precedent year on the basis of the net profit earned by the company in the precedent year.
Companies have to pay ratios of the current year’s corporation tax in advance during the current year on the
basis of the precedent year’s net profit. After the end of the year balance sheet of the company corporation
tax will be actualized and when an overpayment occurred during the year tax office pass it back. When the
annual corporation tax is bigger than the sum of the advanced payments the difference will be paid to the tax
office in the next April.
Deadlines for partial payments are:
• 1st payment in March: 25 % of the corporation tax of the precedent year,
• 2nd payment in June: 25 % of the corporation tax of the precedent year,
• 3rd payment in September: 25 % of the corporation tax of the precedent year,
th
• 4 payment in December: 25 % of the corporation tax of the precedent year,
4.2.2. Value added tax

The companies are liable to value added tax on the following items under the respective rates:
Table 13 - VAT RATES
VAT. Rates on: Finished products 19,60 %
Raw materials 19,60 %
Fixed assets 19,60 %
Operating expenses: 19,60 %
• administrative fixed costs
• production fixed costs
• variable production costs
• fixed fees for representatives
• variable fees for representatives
• advertisement costs
• provisions of services
Not all the costs are subject to VAT, in order to simplify things it is supposed that only 50,00 % of these costs
are liable to VAT. The current rate of VAT is given in "The Economist's Newsletter".
The conditions of determining and paying the taxes due are carried out under the common regime.
39
4.3. OTHER PARTNERS

Companies may wish to contact other partners like lawyers, communication councils, fiscal advisors, and
juridical advisors, the Ministry of Industry or the Ministry of Finance etc.
These relationships may be useful, however the companies are advised not to do too much effort and time
for maintaining these contacts and leave not enough time to concentrate to important, relevant activities.
40
5. PRACTICAL ASPECTS OF THE SIMULATION

In this chapter the information, decision tables and the studies relating the behaviour of market are
presented. These informations are inevitably necessary for making good decisions. You should use it like a
handbook of the game. Special attention should be paid the parameter values in the parameter tables,
because they are informing you about the actual values used by the computer software.
The following list contains the information tables the firms can require from the game supervisor and the
sales prices without VAT the providers will charge you. Automatic information are provided free of charge.
You may look at the Court of Commerce into the cumulated income statement and into the balance sheet of
every company for two minutes. All further information is charged you with the price indicated in the following
list. All charged information needs of the firms should be indicated on the decision sheet.
Summary of the most important documents

• Initial data and parameter tables (see Chapter 5.1.)
• The model parameters
• The initial parameters
• The initial balance sheet of the company
• The constant accounting parameters
• The production parameters
• The variable accounting parameters
• The boat sales prices of the product supplier represented by the game supervisor
• Market research studies (MARKINFORM studies (see Chapter 5.2.)

• The “potential market” study
• The “pricing effect” study
• The “advertisement effect” study
• The “terms of payment“ study
• The “sales forces” study
• Decision sheet (see Chapter 5.3.)

• Decision sheet of a quarter (Financial expert and Commercial expert levels)
• Decisions inputted into the computer
• Free of charge information tables delivered at every decision by the game supervisor
• Business results of the company (production, sales, purchase, stock volumes)
• Monthly sheet
• Monthly income statement
• Monthly cash-flow table
INFORMATION TABLES TO BE ORDERED FROM THE GAME SUPERVISOR.
• Information tables on sales and marketing activities (MARKINFORM tables)
• Development of potential market and real sales 750 EUR/month
• Actual market shares of the companies in per cent 900 EUR/month
• Development of prices on the market of the company 750 EUR/month
• Development of advertisement costs on the market 750 EUR/month
• Development of payment terms on the market 750 EUR/month
• Development of sales forces on the market 750 EUR/month
• Financial and accounting information tables from the COMPTASERVICE Ltd

• Monthly balance free of charge, automatic
• Monthly income statement free of charge, automatic
• Monthly cash-flow table free of charge, automatic
• Detailed monthly income statement 1,300 EUR/month
• Cumulated income statement 1,200 EUR/month
• Details of the cash incomes and accounts receivable 1,200 EUR/month
• VAT declaration (referring to the previous month) 1,500 EUR/month
• Information tables on inventories

• Development of raw material stocks 700 EUR/month
• Development of product stocks 700 EUR/month
• Information tables for the product engineer

• Consumption of raw materials 600 EUR/month
41
• Utilization of workshop capacity 600 EUR/month
• European Credit Bank

• Calculation of credit conditions for negotiated loans 300 EUR/loan
• Court of Commerce
• Balance sheets of the companies free of charge
• Cumulated income statement of the companies free of charge
• Fees on insurances
• The "TRADING LOSS" insurance monthly fee is 0.5 % of the insured value
• The "CIVIL LIABILITY" insurance monthly fee is 1 % of the insured value
• The “KEY MAN” insurance monthly fee is 300 EUR per person per month
• The "DAMAGE TO PROPERTY" insurance monthly fee is 0.5 % of the insured value
• The „Le Petit Economist” monthly journal of economics

• Price for one month 800 EUR
• Subscription price for a quarter or for a year 2,000 EUR or 8000 EUR
5.1. INITIAL DATA AND PARAMETERS

Participants of the game have to take into account the following parameter values shown in the various
tables for the various levels of the game. In these tables the most likely values of parameters and data are
shown. Participants looking for actual parameter data should look at the appropriate table for the applied
value. Game supervisor however can modify these parameter values for his special education purposes
causing modifications in the market behaviour, in the conditions of the production, financial conditions etc. If
he want to do modifications, he has to give written information to all companies about these differences in
due time. He is unable to modify the structure of the model, or the parameters used.
5.1.1. The model parameters

Financial expert level
Sensitivity of sales forces in %: 30.00
Minimum number of sales forces: 0
Optimum number of sales forces: 7
Maximum number of sales forces: 12
PRODUCT BOAT A BOAT B BOAT C
Market’s monthly growth rate in % -2.00 +2.50 +15.00
Normal sales price per unit (EUR) 3 000.00 6 000.00 12 000.00
Excessive price per unit (EUR) 5 000.00 10 000.00 20 000.00
Rejected price per unit (EUR) 8 000.00 15 000.00 25 000.00
Demand sensitivity on sales price in % +20.00 +10.00 +4.00
Demand sensitivity on advertisement in % +10.00 +15.00 +25.00
Demand sensitivity on payment term: immediate cash in % -20.00 -20.00 -20.00
Demand sensitivity on payment term: 30 days in % -10.00 -10.00 -10.00
Demand sensitivity on payment term: 30/60 days in % +0.00 +0.00 +0.00
Demand sensitivity on payment term: 60 days in % +10.00 +10.00 +10.00
Demand sensitivity on payment term: 90 day in % +25.00 +25.00 +25.00
5.1.2. Initial parameters

Number of sales representatives 5
WORKSHOP MOULDING FINISHING
Number of work posts (machines) 4 5
RAW MATERIALS Plastic (t) Wood (m3)
Amount ordered (not yet delivered) 75.00 40.00
Unit purchase price 3 100.00 1 050.00
Terms of payment set by supplier 30 days 30 days
Amount of raw material in stock 100.00 50.00
Unit value of raw materials (EUR/unit) 3 100.00 1 050.00
PRODUCTS BOAT A BOAT B BOAT C
Previous advertisement costs (prior month) 5 000.00 5 000.00 10 000.00
Basic monthly demand (in pieces) 60.00 70.00 10.00
Finished products in stock (pieces) 60 70 10
Unit value of finished products in stock (EUR) 1 800.00 2 200.00 5 000.00
42
Remark: Number of machines and data for raw material are only greater than zero, when production is proposed in the particular game
level.
43
5.1.3. The initial balance sheet of the company
Assets
Intangible fixed assets 15 000.00
GROSS VALUE DEPRECIATION NET VALUE
Buildings 800 000.00 400 000.00 400 000.00
Technical installations (equipment) 675 000.00 202 500.00 472 500.00
Other fixed assets 150 000.00 50 000.00 100 000.00
PRODUCT STOCKS BOAT A BOAT B BOAT C TOTAL
Product stocks 108 000.00 154 000.00 50 000.00 312 000.00
MATERIAL STOCKS Plastic(t) Wood(m3) TOTAL
Raw material stocks 310 000.00 52 500.00 362 500.00
ACCOUNTS RECEIVABLE (PROD) BOAT A BOAT B BOAT C TOTAL
Customers 30 days 80 730.00 251 160.00 138 130.00 470 020.00
Customers 60 days 35 880.00 209 300.00 98 670.00 343 850.00
Customers 90 days 0.00 0.00 0.00 0.00
Stocks, shares, bonds 670 000.00
Corporation tax 0.00
VAT paid on fixed assets 0.00
VAT paid on goods and services 42 560.00
Cash at hand 11 570.00
TOTAL ASSETS: 3 200 000.00
Liabilities
CAPITAL (paid in) 800 000.00
Capital reserves 943 998.00
Revenue from the previous years -5 000.00
Revenue of the current year 0.00
Net Worth 1 738 998.00
ACCOUNTS PAYABLE (DEBTS) GROSS NET
Long term debts (loans) 1 200 000.00 1 020 000.00
Short term debts (loans) 0.00 0.00
Bank overdraft 0.00 0.00
ACCOUNTS PAYABLE (SUPPLIERS) Plastic (t) Wood (m3) TOTAL
Suppliers 30 days 278 070.00 50 232.00 328 302.00
Suppliers 60 days 0.00 0.00 0.00
Other debts 0.00
Corporation tax 0.00
Collected VAT 112 700.00
TOTAL LIABILITIES: 3 200 000.00
Remarks:
1. No depreciation is calculated here for intangible assets, therefore gross and net values are the same. For the real life this is not
true. Depreciation is calculated for all fixed assets except grounds and sculptures, pictures having unique values.
2. For the equality of success chance all participants have identical initial balance values.
5.1.4. Constant accounting parameters

Work posts mean in the next tables always production machines in the two workshops. Investments of new
machines or the reduction and sales of them are only reasonable if companies in the game are at least partly
producing the products they sell. Therefore these values are used in commercial discovery and professional
levels. Loan repayment times are usually longer in the industrial discovery and professional levels of the
model, where production is involved.
Duration of long and middle term loans 60 Month
Duration of short term loans 6 Month
Depreciation rate machines 20.00 %
Depreciation rate buildings 5.00 %
Depreciation rate of other fixed assets 15.00 %
Acquisition value of a workshop post 75 000.00 EUR
st
Cumulated depreciation of work posts on January 1 30.00 %
Sales price of a workshop post 25 000.00 EUR
44
5.1.5. Monthly seasonal parameters

PRODUCTS BOAT A BOAT B BOAT C
January 0.30 0.80 0.70
February 0.30 0.40 0.80
March 0.80 0.40 0.90
April 1.40 1.50 1.00
May 1.60 1.90 1.50
June 2.00 3.00 1.00
July 2.20 2.00 1.00
August 1.00 0.30 0.80
September 1.00 0.30 1.50
October 0.50 0.20 0.70
November 0.50 0.20 0.60
December 0.40 1.00 1.50
TOTAL 12..00 12.00 12.00
Remark: The monthly seasonal coefficients of demand play the following role: Let suppose we sell 1200 pieces of boats annually. This
means that the average demand per month is 100 boats per month. When the seasonal coefficient for the Boat “A” in the month January
would be 0.60, we could sell 60 boats in January. The calculation algorithm of overall market demand for boat „A” in February should
take into account the basic demand, the trend of demand, and the number of companies in the following way:
Let us suppose that the basic demand for boat B are 70 pieces, the trend of the market growth is 1.5 per-cent increasing, and the
seasonal coefficient is 0.90, and five companies (teams are competing in the game. The overall demand of the market in February is 5 x
70 x 1.015 x 0.90 = 320 pieces. Each company will cut his market share from this market volume.
5.1.6. Production parameters

This table is only used when boats are produced in the appropriate game level. The first part of the table
shows the material consumption coefficients representing the need of materials for one product. The second
part shows the work hour needs of one boat at the various capacities. In the third part monthly production
capacity hours are given for a machine in the workshop. The overall capacity of the workshop is equal with
the number of machines in the workshop multiplied by the monthly working hours of machines in the
workshop.
Material requirement/unit – plastic (in tons) 0.20 0.40 1.00
Material requirement/unit – wood (in m3 0.10 0.20 0.50
Number of machine hours/unit – for moulding 8.00 12.00 28.00
Number of machine hours/unit – for finishing 10.00 14.00 28.00
Monthly production capacity of a work post (work hours) 180 200
5.1.7. Variable accounting parameters

MATERIALS Plastic (t) Wood (m3)
Unit purchase price at immediate cash payment 3 000.00 1 000.00
Unit purchase price at 30 days payment 3 100.00 1 050.00
Unit purchase price at 60 days payment 3 200.00 1 100.00
WORKSHOP Moulding Finishing
Proportional unit cost of a man+machine hour (EUR) 25.00 35.00
Monthly maintenance cost of a work post (machine) 3 000.00 600.00
Sales representatives commission rate on sales value 10.00 %
Monthly unit cost of sales representatives (salary) 6 000.00
Severance cost of a sales representative 40 000.00
Overhead costs/month 25 000.00
Annual interest rate on short term loan 8.00 %
Annual interest rate on long term loan 6.00 %
Annual interest rate on cash overdraft 20.00 %
Corporation tax rate 33.33 %
VAT rate on finished products 19.60 %
VAT rate on raw materials purchased 19.60 %
VAT rate on external services 19.60 %
Percentage of operating cost liable to VAT 50.00 %
VAT rate on fixed assets transactions 19.60 %
45
5.1.8. Boat sales prices of the game supervisor

In all higher level games participants may decide to specialize themselves to the production of some boat
type and buy the others from the competing companies or from the game supervisor representing a big boat-
producing corporation. It is supposed that this supplier has an unlimited capacity.
Pieces sold Boat A Boat B Boat C

1-10 pieces/month 4,000.- EUR 8,000.- EUR 15,000.- EUR
11-60 pieces/month 3,400.- EUR 6,800.- EUR 13,000.- EUR
61-200 pieces /month 2,800.- EUR 5,800.- EUR 11,300.- EUR
201- pieces /month 2,400.- EUR 5,200.- EUR 9,800.- EUR
5.2. MARKET INFORMATION (MARKINFORM STUDIES)
5.2.1. THE "POTENTIAL MARKET" STUDY

THE POTENTIAL MARKET
The theoretical potential market is the maximum quantity, expressed in production units (pieces), which
could be sold:
• to a group of consumers,
• during a period of one year,
• In an "ideal" socio-economic environment.
The maximum feasible potential market takes into account the influence of the environment.
The actual maximum potential market represents, in an actual, real environment, the whole of the
possible sales to "satisfied" consumers (or those in a position to contemplate the purchase) of this kind of
product.
Global demand comprises the whole of the effective sales, possibly increased by the orders that have not
yet been fulfilled, in the sector.
The demand to the company is made up of the total sales and orders, which have not been delivered due
to the company (breakdown, stock-out...).
The company's market share is the ratio of effective sales volumes and/or sales values by this company to
the total sales realized by all the companies in the sector.
Market ...
Maximum theoretical potential market
Maximum feasible potential market
Actual maximum potential market
Global demand
Market share
46
The market study carried out during year 0, proposes an evaluation, in volume, of the actual maximum
potential market, for year 1, in the zone covered by all the companies, for all the products.
Annual actual maximum potential market in number of boats (example)

Potential Market 7776 15725 3802
SEASONAL VARIATIONS
Given the highly pronounced seasonal changes in the boat building business, the related sectors undergo
substantial monthly variations.
An observation of sales in the boat building industry during the last ten years has allowed us to establish the
following seasonal coefficients:
Monthly seasonal coefficients / type of boat:
MARKET DEVELOPMENT TRENDS

Apart from the seasonal variations that have been repeating themselves over the past years, it can be
noticed that each type of boat has undergone its own specific development.
The foreseeable development for the next five years is shown in the following detailed table
Average monthly market development per boat. (Example)
Monthly evolution -1.00 % 1.50 % 15.00 %
An effect of depreciation could take place within the coming months.
This development and variation of market potential described in the above studies cannot be at all
guaranteed. In effect, the validity of these observations and forecasts in time depends on the
appropriateness between the offer and the demand in a given environment.
5.2.2. THE "PRICING EFFECT" STUDY

The observation of purchasing behaviour shows a direct influence of pricing in the process of purchasing
intention. It can be noticed that the amplitude of this effect differs according to the product.
It is obvious that the customer, composed of distributors and professionals, confronted with similar
commercial propositions not including the pricing factor, will go for the cheapest offer. It is in the best
interests of the company to know the revenues or losses in the turnover brought about by an increase or
drop in price in order to be able to evaluate the effects of this policy in terms of market share, group margin,
global margin...
EXPECTED EFFECT OF PRICE

The first perception of a price, being more or less expensive, comes from a comparison with substitute
products. Thus it is obvious, that boats built in fibreglass are more expensive than those in wood or plastic in
comparison to other boats of type A, B or C, or again, in comparison to other leisure products substituting
them. These global comparisons lead to a conscious or unconscious "objectively" perceived price, or to put it
simply, a reasonable price. The preconception of someone looking to buy a boat is that this kind of boat is
worth this amount of money.
The frequency of the replies obtained during the interviews with the questionnaire is represented in the
probability curve below:
47
Number of replies Number of replies
Price Price
Excessive price Excessive price

Reasonable price Reasonable price
Case1 Case2
In the first case almost all the customers indicate the same price, they have a converging idea on the price of
the product (the dispersion is small).
In the second case, the customers suggest diverging opinions with a large dispersion.
Principle: The more the product tends towards the first case, the more the company has a vested interest in
finding out the reasonable price and, to price the product according to commercial data rather than financing
data or costing (left hand graph).
Pricing: The survey on the spontaneous price estimation for each type of boat, from a representative
sample of customer, has given the following results:
Question: "This is boat "X", how much do you think it costs?"
Expected price (example)
Average price 3 000,00 6 000,00 12 000,00
High price 5 000,00 10 000,00 20 000,00
Average price: 50% of the replies are inferior to the average price and 50% higher.
High price: 90% of the replies give a lower price than the high price.
Perceived price effect

The perception of cost also results from the direct comparison with similar products: price of make X's
product in comparison to price of the same product of make Y.
The price will seem high if the customer sees that the same product is less expensive elsewhere. The crux
of the matter knows how sensitive the client is to the difference in price of a product that he considers to be
similar, slightly, average or very much.
The price elasticity is as strong as the market is competitive.
This sensitivity to the relative price level depends also on the targeted customer category (customer
segment).
Principle: Prices are raised up to the point where the "profit margin increase" has not been offset by the
"lost customers" effect.
Data: A survey has been carried out to determine the possibilities of orders according to two given price
propositions, the other elements of the commercial proposition were the same:
• the first price corresponds to the average market price,
• The second price corresponds to the lowest market price.
The effect of the price difference is more or less considerable according to the type of boat.
"Perceived price" effect measure (example)

Boat a Boat B Boat C
Variation in purchasing 40.00 20.00 8.00 intentions
PRICING AND MIX EFFECT

A high price does not necessarily penalize an "up-market" or "Hi-Tech" product... It can even help towards
giving the product standing. In this kind of market, the raw materials are so expensive that there is no risk of
selling at a bottom price, which would send the product down market.
48
A high price can be justified or compensated by appropriate commercial policy: advertisement, sales force,
customer credit...
Principle: Knowing that pricing is not an essential variable of the mix leads to ask what the other
determining elements are: quality objectives, advertising campaigns, sales force...
The pricing effect can have different effects at different levels:
1
Global
demand
Market
share
1. Exterior competition: expected price effect.

Offering a lower price than that expected by the customer could bring in new customers and extend the
global market.
2. Local competition: perceived price effect.
Offering a lower price than the competition allows you to increase your market share to the detriment of the
other companies.
5.2.3. THE "ADVERTISING EFFECT" STUDY

The effect that advertisement campaigns have on the purchasing behaviour of the customer is particularly
delicate and must be studied very carefully. However the different observations and studies in the sector
bring us to the following conclusions.
Given that the final demand has its repercussions on the distributor's orders to the constructors, the
advertisement made by boat builders develops sales directly to the end-user. What is more, on-going
advertising helps the representative's job with the resellers who see this campaign as a direct support to
their own sales.
For an advertisement campaign to be efficient it has to go on for several months, apparently, after three
months of continual action, a campaign produces its full effect.
When the yields of an increased advertisement are not noticed immediately, this does not mean that a brief
cut or reduction of the advertisement budget makes the consumer immediately forget the message. It still
lingers in their minds, and the company can make use of this for a while to come.
It is difficult to give advice on the budget for a typical advertisement campaign. Up to now, yacht builders
have consecrated an "appropriate" budget to advertising. The images of the particular make revenues a lot
of "proximity" and "prestige" if the company invests more in its advertisement budget than its competitors.
So, the more the company belongs to the group of „big advertisers" in its sector, the more the advertisement
is effective.
Boats A and B are basically targeting professional customers whose more rational purchase behaviour
differs from those of boat C. The customers of boat C are less sensitive to price, more sensitive to the image
and consequently, more sensitive to advertisements.
The following table compares the sales forecasts for two companies:
• one of them with a high budget in comparison to the competition,
• The other with a low budget in comparison to the competition.
Measure of the advertising effect (example)
Sales variations 20.00 30.00 50.00
Advertising must be a part of a coherent marketing strategy if it is to achieve its full impact.
49
5.2.4. THE "TERMS OF PAYMENT" STUDY

FROM THE FINANCIAL POINT OF VIEW
Every company has an obvious interest in collecting the sum of its sales as quickly as possible. Thus, their
accounts are funded and in turn, they are able to pay their suppliers without delay. This also avoids
expensive bank loans and ease to maintain liquidity. Financially, the prompt collection of bills improves the
profitability of the company.
FROM A COMMERCIAL POINT OF VIEW
The terms of payment accorded to customers however are an important element in the commercial policy of
the company. In effect, a study carried out with the customer’s shows that they prefer to pay for their
purchases as late as possible in order to organize or balance their accounts.
The terms of payment offered are the same for all the customers and all of the proposed products.
Thus, in comparison to what the distributors consider a normal term of payment, a longer period increases
sales whereas a shorter period decreases sales.
Measure of the terms of payment effect customers / resellers (example)
Terms of payment customers / resellers Sales index
Cash 80
30 days 95
Half 30 days / half 60 days 100
60 days 105
90 days 120
Of course, to be fully attractive, the effort consented to a term of payment should be laid out in a coherent
global commercial policy.
5.2.5. THE "SALES FORCE" STUDY

The representatives visit the direct customers of the company, resellers and distributors, as often as
possible, proposing the company's catalogue featuring all the merchandised products.
These representatives can also be a source for gathering relevant information allowing the wishes of the
resellers to be taken into account. The resellers, themselves pass on what the end-user is looking for in the
product.
The recruited representatives are very competent and so the effectiveness of the sales force depends
uniquely on how many agents are working at the market.
A greater number of representatives bring various advantages:
• the market territory is better covered,
• the customers of the company are dealt better,
• prospecting new markets...
The conclusions of the studies clearly show the sensitivity of the boat building sector to the action of the
sales force. In this way each additional salesman - assumed to be competent - can increase the sales of his
company through prospecting.
Above a certain number of representatives the frequency of visits is more than sufficient, and the
effectiveness does not increase more according to the growing number of agents. The market is no longer
sensitive to the increase in the sales force
Number of representatives Sales index

Up to 0 No sales possible
5 Index 100 %
7 Index 140 %
12 Index 150 %
Above 12 Very hypothetical gains
Of course, the strengthening of the sales force can only produce its maximum effectiveness if the company
also offers a coherent commercial proposition.
50
5.3. DECISION SHEETS

Participants make their decisions by filling in the decision sheets. The various levels of simulations need
various decision sheets:
• On Commercial discovery or professional levels teams are making monthly decisions. Their decision sheets are the simplest
ones, because they only merchandise products. On the discovery level co-operation is not allowed among participants so they
leave the second part of decision sheet empty.
• On the Industrial discovery or professional levels participants make also monthly decisions, but they produce their own boats
for sales. On the discovery level co-operation is not allowed so the leave grey marked fields of the decision sheet empty. Co-
operational purchases and sales of products and raw material are only done on the professional level.
Data input fields allow for one product or one material type only one co-operation partner in each relation (purchase or sales). .
• On the Financial expert or the Commercial expert level participants make decisions for a quarter,
breaking down it for monthly items. The decision sheets are the same.
Though the content of decision sheets are different on the different levels the structure of the sheets are the
same. The main groups of decision variables are:
• The first part of the decision sheet comprises sales marketing decisions like sales prices,
advertisement cost per month, terms of payment, changes in the number of sales forces by giving the
plus or minus sign before the number of persons.
• The second part of the sheet is the delivery contract for raw materials indicating the payment
conditions for raw material normal supply. Participant may assume in the model, that the delivery
capacity of raw material supplier is unconstrained.
• Production and investment decisions are maid in the third part of the sheet. Teams decide the
production objective (production programme) which will be checked from the computer software for
feasibility. Production objectives can only be fulfilled, if both raw material stocks are available on the
basis of initial stocks + normal purchases + immediate purchases, and work hour capacity requirements
of the two production phases (moulding and finishing) are met by the capacity available. Otherwise the
simulation program reduces production volumes to the feasible level. No work in progress is calculated
in the simulation model.
• Co-operation decisions are made inn the fourth part of the sheet. Both raw material and finished
product co-operations are possible. Delivery and payment is done immediately within this month. In the
co-operation of boats no commission is calculated for sales forces. Participants have to indicate co-
operating partner name, quantity and negotiated price in the sheet. If this data are mission co-operation
is invalid for both partners.
• Services required from MARKINFORM, COMPTASERVICE, ASSURER etc. should also be indicated
in the decision sheets. If there is not enough space within the filed please use the bottom or backside of
the sheet. Chapter 5.4.2. Contains the information you can require.
Important remarks!
• Only the content of the decision sheet can be input into the computer.
• Fields left out are treated as zero.
• Data, which are not to be read, are also treated as zeroes.
51
5.3.1. Decision sheet (Financial or Commercial Expert Level)
Company number, name: ___ ………………………………….. Quarter: ___ Year: ___

Name of responsible person: …………………………………..
MARKETING DECISION FOR A QUARTER Boat A Boat B Boat C

Sales unit price (EUR): _______,__ _________,__ ________,__
Monthly advertisement (EUR) _________,__ ___________,__ __________,__
Terms of payment (for each month) 00 days 30 days 45 days 60 days 90 days …….. days
Change in sales forces (+ increase, - decrease) …….. person
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DELIVERY CONTRACT FOR THE QUARTER Plastic (t) Wood (m3)
Terms of payment ( 00, 30, 60 days) ____ days ____ days
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SERVICES REQUIRED service name value
MARKINFORM ……………………………………… _________,__ EUR
COMPTASERVICE ……………………………………… _________,__ EUR
ASSURER ……………………………………… _________,__ EUR
Other services ……………………………………… _________,__ EUR
. TOTAL _________,__ EUR
DECISION FOR THE 1. MONTH

FINANCIAL DECISION Notes of the Bank:
Middle and long term loan ………………………… _________,__ EUR
Short term loan ………………………… _________,__ EUR
Shares/bonds purchase (+) or sales (-) _________,__ EUR
Annual interset rate of shares/bonds __,__ %
Negotiated loan increase (+) or repayment (-) …………………. _________,__ EUR
Annual interest rate of negotiated loan __,__ %
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RAW MATERIALS Plastic(t) Wood(m3)
Ordered quantity from the supplier (normal order) _____ _____
IMMEDIATE PURCHASE name of supplier ……………………….. …………………………..
Immediate purchased quantity _____ _____
Immediate purchased unit price (EUR): _______,__ ________,__
IMMEDIATE SALES name of customer ……………………….. …………………………..
Immediate sales quantity _____ _____
Immediate sales unit price (EUR): _______,__ ________,__
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PRODUCTS Boat A Boat B Boat C
PRODUCTION OBJECTIVES _____ ____ _____
BOAT PURCHASE name of supplier ………………. ………………… ..………………..
Purchased quantity: _____ ____ _____
Purchased unit price (EUR): _______,__ EUR _______,__ EUR ________,__ EUR
BOAT SALES name of customer ………………. ………………… ..………………..
Sales quantity: _____ ____ _____
Sales unit price (EUR): _______,__ EUR _______,__ EUR ________,__ EUR
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Machine investment (+) or sales (-): _____ ____
52
Decision sheet (Financial or Commercial Expert Level) (Continued)

Company number, name: ___ ………………………………….. Quarter: ___ Year: ___
Name of responsible person: …………………………………..

Annual interest rate of shares/bonds __,__ %
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Ordered quantity from the supplier _____ _____
Purchased quantity _____ _____
Purchased unit price (EUR): _______,__ ________,__
Sales quantity _____ _____
Sales unit price (EUR): _______,__ ________,__
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sales unit price EUR: _______,__ EUR _______,__ EUR ________,__ EUR
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Annual interest rate of shares/bonds __,__ %
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Ordered quantity from the supplier _____ _____
Purchased quantity _____ _____
Purchased unit price (EUR): _______,__ ________,__
Sales quantity _____ _____
Sales unit price (EUR): _______,__ ________,__
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sales unit price EUR: _______,__ EUR _______,__ EUR ________,__ EUR
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
53
5.3.2. Decision sheet inputted into the computer

Month: 6 Quarter: 2 Year: 1 Company 1 Kalypso 1 555
DECISIONS
COMMERCIAL-FINANCIAL DECISIONS
MARKETING MIX
Sales prices per unit (EUR) 3 300.00 6 000.00 12 000.00
Advertisement cost per month (EUR) 5 000.00 6 000.00 9 000.00
Customer’s term of payment 30/60 days
Take on(+) or dismiss(-) sales representatives 0
FINANCE
Middle or long term loanl 0.00
Short term loan 0.00
Variation on stocks and shares: purchase(+) or sales(-) 100 000.00
Yearly yield of stock and shares (%) 10.00
Negotiated loans (+) or repayment (-) 10 000.00
Annual interest rate of negotiated loans (%) 12.00
Increase of capital 0.00
Form of capital increase Incorporation of reserves
PRODUCTION
RAW MATERIALS Plastic Wood
Payment terms granted by supplier 60 days 60 days
Ouantity of normal order from supplier 55 20
Cash purchase: quantity 0 3
Cash purchase: unit price 0.00 600.00
Cash sales: quantity 2 0
Cash sales: unit price 3 000.00 0.00
Production targets (pieces) 0 100 15
Cash purchase (co-operation): quantity 160 0 0
Cash purchase (co-operation): unit price 2 400.00 0.00 0.00
Cash sales: (co-operation): quantity 60 0 0
Cash sales: (co-operation) unit price 2 400.00 0.00 0.00
Machine investment (+) or salest(-) 0 0
SUNDRIES AND EVENTS

SUNDRIES
Service costs 0.00
Other operating incomes 1 000.00
Other operating expenditures 600.00
Other financial income 500.00
Other financial expenditures 200.00
Other exceptional income 1 800.00
Other exceptional losses 1 300.00
VAT rate on other operating income 10.00
VAT rate on other operating expenditures 10.00
EVENTS
RAW MATERIALS Plastic (t) Wood (m2)
Inventory differences 1.00 0.00
Inventory differences 1 0 0
Machine losses (pieces) 0 0
5.4. INFORMATIONS FROM THE SIMULATION

Having finished computer simulation runs teams get some information documents free of charge and they
can buy others. A summary of all available documents has been already given at the beginning of Chapter 5.
Here we describe the detailed data content and the structure of all documents available for the participants.
5.4.1. Permanent free of charge information tables

• Business results of the company
• Monthly balance sheet
• Monthly income statement
• Monthly cash-flow table
54
5.4.1.1. Business results of the company

BUSINESS RESULTS OF THE COMPANY

MONTHLY PRODUCTION AND SALES VOLUME
Products Production objective Quantity produced Production gap Stock out W. post saturation
Boat B 100 98 2 Finishing
Boat C 15 14 1 Finishing
Sales
Stock at Boat Market Other Stocks at
begin of month purchases Sales sales End of month
Boat A 0 160 99 60 0
Boat B 3 0 101 0 0
Boat C 0 0 14 0 0
PRODUCTION CAPACITY AND STOCK INFORMATION

Workshops W.post aquired W. posts sold W. post deestroyed W. post in action Work hour capacity
Moulding 0 0 0 9 1620
Finishing 0 0 0 9 1620
Raw materials Immediate cash Immediate cash Stocks at the end Quantities ordered Stock available for
purchases sales of the month next month
Műanyag 0 2 17.40 55 72.40
Fa 3 0 18.70 20 38.70
CASH FINANCES OF THE COMPANY

Initial overdraft 18 489.40
Final cash value 129 610.07
5.4.1.2. Monthly balance sheet of the company

Month: 6 Quarter: 2 Year: 2 Company 3 Alcyons 311
BALANCE SHEET
Assets
Intangible Assets 15 000.00
Fixed Assets
Buildings 800 000.00 460 000.00 340 000.00
Technical equipment 1 800 000.00 536 250.00 1 263 750.00
Other fixed assets 150 000.00 83 750.00 66 250.00
Stocks and unfinished products
Plastic 179 839,92
Wood 17 157,17
Boat A 0.00
Boat B 0.00
Boat C 0.00
Accounts receivable
Customers 7 195 255.60
Stocks shares, bonds 60 000.00
Corporation tax 244 865,50
VAT paid on fixed assets 0.00
VAT paid on goods and services 124 713,82
Cash at hand 0,00
TOTAL ASSETS 9 384 399,26
Liabilities
Capital (paid in) 3 300 000.00
Capital reserves 0.00
Revenue from the previous year 1 923 611,46
Revenue of the current year 1 590 233,25
NET WORTH 6 813 844.71
Middle and long term loans 905 000.00
Short term loans 0.00
Negotiated loans 0.00
Bank overdraft 1 023 801,30
Accounts payable (suppliers) 473 616,00
VAT collected from sales 290 570.00
TOTAL LIABILITIES: 9 384 399.26
55
5.4.1.3. Monthly income statement

Month: 6 Quarter: 2 Year: 2 Company 3 Alcyons 311
MONTHLY INCOME STATEMENT

CURRET TRADE REVENUE
OPERATING INCOME
Net sales value (products+raw materials) 1 482 500.00
Product stocks differences (final-initial)l -487 617.35
Other sales value (co-operation sales) 0.00
OPERATING COSTS
Raw material purchases 396 000.00
Raw matrerial stocks differences (final-initial) -192 005.01
Finished product purchases 0.00
Direct operating costs 480 590.00
Other operating costs 0.00
Depreciation costs of fixed assets 35 208.33
CURRENT TRADE REVENUE 275 089.33
RESULTS OF FINANCIAL ACTIVITIES

YIELDS OF FINANCIAL TRANSACTIONS
Interests of shares and bonds 250.00
Other financial incomes 0.00
COSTS OF FINANCIAL TRANSACTIONS
Bank loan interests paid 4 650.00
Other interests paid 0.00
Other financial costs 0.00
Bank overdraft charges 14 086.67
RESULTS OF FINANCIAL ACTIVITIES -18 486.67
CURRENT REVENUE 256 602.66
EXCEPTIONAL REVENUES/LOSSES
EXCEPTIONAL INCOMES
Other exceptional incomes 0.00
EXCEPTIONAL LOSSES
Other exceptional losses 0.00
EXCEPTIONAL REVENUES/LOSSES 0.00
NET REVENUE BEFORE CORPORATION TAX 256 602.66
56
5.4.1.4. Monthly cash-flow table

MONTHLY CASH-FLOW TABLE

CASH INCOMES ON SALES (including VAT)
Cash income on market sales 1 090 512.80
Co-operation sales 0.00
Raw material sales 0.00
CASH INCOMES ON OTHER PRODUCTS
Operating income 0.00
Yields in capital 250.00
Exceptional cash incomes 0.00
LOANS AND OTHER INCOMES
Short term loans 0.00
Middle and long term loans 0.00
Negotiated loans 0.00
Share and bond sales 0.00
TOTAL CASH INCOME 1 090 762.80
PAYMENTS ON PURCHASES
Raw material purchases (including VAT) 204 516,00
Product purchases (including VAT) 0.00
VAT owed or paid from previous month 89 257.42
PAYMENTS ON OTHER COSTS
Operating costs 527 687,82
Financial costs (interests and fees) 18 736.67
Exceptional losses 0.00
Account corporation tax 0,00
Corporation tax set off 0,00
DEBT PAYOFFS (REPAYMENTS)
Short term loan payoffs 0.00
Long term loan payoffs 25 000.00
Investments in fixed assets 0.00
Negotiated loan payoffs 0.00
Account corporation tax 122 432,75
TOTAL CASH PAYMENTS 987 630.66
CASH FLOW 103 132.14
INITIAL CASH (OVERDRAFT) 1 126 933.44
FINAL CASH (OVERDRAFT) 1 023 801.30
5.4.2. Information tables to be bought from the game supervisor

• Comparison of companie’s sales volumes from products breakdown to market and co-operation
sales 750 EUR/month
• Informations provided by the MARKINFORM Ltd
• Development of potential market and real sales 750 EUR/month
• Actual market shares of the companies in per cent 900 EUR/month
• Development of prices on the market of the company 750 EUR/month
• Development of advertisement costs on the market 750 EUR/month
• Development of payment terms on the market 750 EUR/month
• Development of sales forces on the market 750 EUR/month
• COMPTASERVICE Ltd financial and accounting informations

• Detailed monthly income statement 1,300 EUR/month
• Cumulated income statement 1,200 EUR/month
• Details of the cash incomes and accounts receivable 1,200 EUR/month
• VAT declaration (referring to the previous month) 1,500 EUR/month
• Development of raw material stocks 700 EUR/month
• Development of product stocks 700 EUR/month
• Information for the product engineer

• Consumption of raw materials 600 EUR/month
• Utilization of workshop capacity 600 EUR/month
• European Credit Bank

• Calculation of credit conditions for negotiated loans 300 EUR/loan
• Insurances
57
• The "TRADING LOSS" insurance monthly fee is 0.5 % of the insured value
• The "CIVIL LIABILITY" insurance monthly fee is 1 % of the insured value
• The “KEY MAN” insurance monthly fee is 300 EUR per person per month
• The "DAMAGE TO PROPERTY" insurance monthly fee is 0.5 % of the insured value
• The „Le Petit Economiste” monthly journal of economics

• Price for one month 800 EUR
• Subscription price for a quarter or for a year 2,000 EUR or 8000 EUR
5.4.2.1. Comparison of sales volumes

BOAT A BOAT B BOAT C
Number Company name at market Co-operation At market Co-operation At market Co-operation
1 Kalypso 1 555 99 60 101 0 14 0
2 Kalypso 2 556 81 0 259 0 16 0
5.4.2.2. MARKINFORM trade development tables

Development of potential market and real sales (pieces)
BOAT A BOAT B BOAT C
Month Potential Real sales Potential Real sales Potential Real sales
market market market
1 141 102 447 311 64 36
2 139 100 259 148 83 47
3 368 163 259 155 105 55
4 639 432 259 517 129 71
5 723 236 259 522 214 102
6 894 297 259 701 155 46
Market shares of the companies (in per cent)

Company Name of company Market for BOAT A Market for BOAT B Market for BOAT C Total
1 Kalypso 1 555 31.45 14.82 33.09 19.30
2 Kalypso 2 556 29.36 34.56 34.29 33.73
3 Kalypso 3 558 16.72 40.78 22.53 35.16
4 Kalypso 4 560 22.47 9.84 10.09 10.09
Market share data are given in percentages of the whole market.
Development of prices on the market of the company

BOAT A
Month Minimum Average Maximum Price of the company
1 2 500.00 3 156.25 3 650.00 3 600.00
2 2 500.00 3 156.25 3 650.00 3 600.00
BOAT B
1 5 800.00 6 305.00 7 350.00 6 350.00
2 5 800.00 6 305.00 7 350.00 6 350.00
BOAT C
1 16 000.00 16 250.00 17 500.00 17 000.00
2 16 000.00 16 250.00 17 500.00 16 900.00
Development of advertisement costs on the market of the company
Development of payment terms on the market
Development of sales forces on the market

All three tables have the same structure as for the price development, showing the development of the
actual parameter value for each boat types.
58
5.4.2.3. COMPTASERVICE Ltd financial and accounting informations
Detailed monthly income statement

The content of the detailed monthly income statement is the same as the monthly income statement, but the
sales quantities and values are broken down for boat types and raw material types. Similarly the costs are
shown in detail making evaluation of results easier.
Cumulated income statement

This type of income statement shows the items of the monthly income statement for the whole year. An
important advantage of this calculation is to explain annual revenue shown in the balance.
VAT declaration (for the previous month)

In this table the collected and paid VAT is calculated in detail for the previous month. Hence companies are
obliged to declare VAT monthly or for a quarter of the year it is an useful information to support your own
calculations.
Month: 6 Quarter: 2 Year: 1 Company 1 Waterline
VAT DECLARATION (to be submitted in the following month)

COLLECTED VAT.
Basis of VAT VAT rate VAT value
Market sales Boat A 314 979,00
Market sales Boat B 1 664 955,00
Market sales Boat C 824 989,00
Co-operation sales Boat A
Co-operation sales Boat B
Co-operation sales Boat C
TOTAL SALES 2 804 923,00 25,00 701 230,75
Other productions VAT 25,00
Raw material sales Plastic

Raw material sales Wood
TOTAL RAW MATERIAL SALES 25,00
Sales of fixed assets 25,00
TOTAL COLLECTED VAT 701 230,75
DEDUCTIBLE VAT ON FIXED ASSETS PURCHASES

Quantity Basis of VAT value VAT rate VAT value
Moulding 400 000.00 25,00
Finishing 400 000,00 25,00
TOTAL VAT PAYED ON FIXED ASSETS PURCHASES
DEDUCTIBLE VAT ON GOODS AND SERVICES PURCHASED

% of amount Basis of VAT value VAT rate VAT value
Raw Materials purchased 100,00 25,00
Other purchases 100,00 12,00
Finished product purchases 100,00 25,00
Fixed administrative costs
Maintenance costs
Production costs 2 804 923,00 25,00 701 230,75
Sales representatives fixed costs
Sales representatives proportional costs
Sales representatives dismissal costs
Advertisement costs 25 %
Purchased goods and services 25 %
VAT OF PRODUCTION AND MERCHANDISING COSTS 25,00
VAT PAID ON GOODS AND SERVICES PURCHASED. 701 230,75
59
VAT DECLARATION
TOTAL COLLECTED VAT 701 230,75
TOTAL VAT PAID ON FIXED ASSET PURCHASES
TOTAL VAT PAID ON GOODS AND SERVICES PURCHASED
VAT DECLARATION 701 230,75
Development of raw material stocks – raw material stock account

These tables show by materials and products stocks development from initial stock to final stocks of the
month.
RAW MATERIAL STOCK ACCOUNT
PLASTICS
Quantity Unit price Value
INITIAL STOCK 0,60 3 199,74 1 919,84
Quantity ordered 110,00 3 200,00 352 000,00
Immediate purchases (co-operation)
TOTAL STOCK 110,60 3 200,00 353 919,84
Consumption for Boat A 29,00 3 200,00 92 799,96
Consumption for Boat B 0,40 3 200,00 1 280,00
Consumption for Boat C 25,00 3 200,00 79 999,96
Immediate sales (co-operation) 3 200,00
Differences in inventory(+/-) 3 200,00
TOTAL CONSUMPTION 54,40 3 200,00 174 079,92
FINAL STOCK 56,20 3 200,00 179 839,92
Development of finished product stocks – finished product stock account

These tables show by materials and products stocks development from initial stock to final stocks of the
month.
FINISHED PRODUCT STOCK ACCOUNT
BOAT A
Quantity Unit price Value
OPENING STOCK
Production 145,00 1 299,98 188 497,33
Co-operation purchase
TOTAL STOCKS INPUT 145,00 1 299,98 188 497,33
Market sales 145,00 1 299,98 188 497,33
Co-operation sales 1 299,98
Stock differences (+/-) 1 299,98
TOTAL STOCK OUTPUT 145,00 1 299,98 188 497,33
FINISHING STOCK
Detailed cash incomes and accounts receivable
DETAILED CASH INCOMES AND ACCOUNTS RECEIVABLE

INCOMES ACCOUNTS RECEIVABLE
End of month Within 30 days Within 60 days Within 90 days
Market sales Boat A 231 067,20 402 334,40 305 219,20 502 918,00
Market sales Boat B 393 005,60 1 456 728,00 1987 752,00 731 952,00
Market sales Boat C 466 440,00 581 256,00 688 896,00 538 200,00
Co-operation sales Boat A
Co-operation sales Boat B
Co-operation sales Boat C
Immediate cash sales Plastics
Immediate cash sales Wood
TOTAL MONTHLY INCOMES VALUE 1 090 512,80 2 440 318,40 2 981 867,20 1 773 070,00
TOTAL INCOMES+ACCOUNTS RECEIVABLE 1 090 512,80 7 195 255,60
60
5.4.2.4. Information of the production engineer
Raw material consumption

These tables show the consumption of raw materials broken down for products. The also indicate stock
shortages and the actual consumption due to reductions from the production objective.
RAW MATERIAL CONSUMPTION

Raw material consumption on production targets
PLASTIC Production target Unit consumption Total production
consumption
Boat A 65 0,2 13,00
Boat B 60 0,4 24,00
Boat C 12 1,0 12,00
Stock after delivery Stock decline Stock availability Total production Planned stock level
except production needs at the end of the
month
54 0 54 49 +5,00
WOOD Production target Unit consumption Total production

consumption
Boat A 65 0,1 6,50
Boat B 60 0,2 12,00
Boat C 12 0,5 6,00
month
42 0 42 24,5 +17,50
Real consumption of raw materials

PLASTIC Actual production Unit consumption Total production
volume consumption
Boat A 65 0,2 13,00
Boat B 60 0,4 24,00
Boat C 12 1,0 12,00
month
54 0 54 49 +5,00
WOOD Actual production Unit consumption Total production

volume consumption
Boat A 65 0,1 6,50
Boat B 60 0,2 12,00
Boat C 12 0,5 6,00
month
42 0 42 24,5 +17,50
Utilisation of workshop capacities

These tables reveal the work hour consumption per production phase broken down for products. They
indicate capacity shortages and the solutions the computer simulation program found to overcome these
difficulties.
61
Month 9 Quarter 3 Year 1 Company 1 Waterline
WORKSHOP CAPACITY UTILISATION REPORT

Planned utilization of workshop capacity
MOULDING Production target Working hour Total working hours
needs per boat needed
Boat A 65 8 520
Boat B 60 12 720
Boat C 12 28 336
Monthly Capacity Available Total w.hours Capacity
Capacity Losses Capacity needed gap
2000 0 2000 1576 424
FINISHING Production target Working hour Total working hours

needs per boat needed
Boat A 65 10 650
Boat B 60 14 840
Boat C 12 28 336
2000 0 2000 1826 174
Actual utilization of workshop capacity

MOULDING Actual monthly Working hour Total working hours
production needs per boat needed
Boat A 65 8 520
Boat B 60 12 720
Boat C 12 28 336
2000 0 2000 1576 424
FINISHING Actual monthly Working hour Total working hours

production needs per boat needed
Boat A 65 10 650
Boat B 60 14 840
Boat C 12 28 336
2000 0 2000 1826 174
5.4.2.5. European Credit Bank

Calculation of loan conditions (for automatic and negotiated loans)
When companies are in need of a credit, they would like to know what kind of conditions they would be
granted, and what will be the monthly depreciation of this loan. In these cases they may ask for this
calculation at the European Credit Bank. Taking the loan amount granted, the annual interest rate and the
loan length in month, this computer program calculates month by month the capital depreciation value, the
interest paid, the remaining loan capital due to be paid back and the amount of the monthly repayment.
This calculation may prove useful for all type of loans, but it is absolutely necessary for negotiated loans.
At all types of negotiated loans the companies are obliged to manage the repayment of In the loan capital via
decision sheet writing the repayment amount into the field “negotiated loan increase (+) or repayment (-)”.
The management of credit repayment controlled by the company has numerous advantages, as you may
pay back earlier if you want to, as you would like to decrease your depths against the bank. You may ask for
a repayment delay from the bank if you need it, which is not possible for automatic loans. Interests must be
paid in any cases.
62
EUROPEAN CREDIT BANK Contract number:...............

Budapest
Váczi út 111.
Loan Agreement
Discussed, agreed and signed today upon the result of a coincidence of views and intends between the
following business partners:
The European Credit Bank as: „Creditor“", and the
............................................................................... (Firm name)

In the following as "Borrower" have agreed on the following content and conditions
Identification data of the Borrower:

- Address : .........................................................
- Tax Code: .........................................................
- Account number of the Borrower at the European Credit Bank:..……..…….........................................
The European Credit Bank as Creditors delivers the Borrower the following loan in the value of
.......................... EUR, .......…………………………….................................................................. EUR

negotiated loan .
Loan objectives of the Borrower: ...........................................................................................................
...............................…………....…….....................................................................................................
...........................................………….............................................................................................…....
Duration of the loan: .......... month Start date of granting loan amount: .................. Month/year
Annual interest rate: ............. % Start date of capital payoff : ................... Month/year
Description of the offered loan security: ………………..............................................................................
............................................................................………..................................................................................
.......................................................................................……….......................................................................
..................................................................................................………............................................................
.............................................................................................................……….................................................
Total value of Loan security assets: ........................................ EUR.

The partners of this agreement declare here, that they have carefully read and understood the text of this
agreement. They confirm with their signature, that they fully agree with the goals, the content and the form of
this agreement.
Budapest, ......................................................
..................................................... ......................................................
Borrower Creditor
63
The management of loan payoff has its disadvantages for the company, e.g. when you forget about
repayment you will be warned by the bank, and when you do not pay regularly, or your credibility is bad the
bank may withdraw the credit.
All clients of the European Credit Bank applying for negotiated loans get this loan depreciation table.
Month 7 Quarter 3 Year 1
LOAN DEPRECIATION TABLE

Initial capital: 200000 EUR, Loan duration (in month): 6 month, Annual interest rate: 10 %
Month Capital depreciation Interest paid Remaining capital due Monthly repayments
7 0.00 0.00 200000.00 0.00
8 33 333,33 1 666,57 166 666,67 35 000,00
9 33 333,33 1 388,89 133 333,33 34 722,22
10 33 333,33 1 111,11 100 000.00 34 444,44
11 33 333,33 833,33 66 666,67 34 166,67
12 33 333,33 555,56 33 333,33. 33 888,89
13 33 333,33 277,78 0,00 33 611,11
5.5. AN ALGORITHM OF THE DECISION MAKING PROCESS

Participant teams of the simulation can choose from various types of decision making methods, and every
team will find its own individual one during the game period. It is of course possible that some teams take
only their „feelings” into consideration, while others set up a systematical approach to decision making
procedure. It is also possible in the first case to make effective decisions, but the probability of this is fairly
low. In the second case success is also not guaranteed, but is highly probable, and the risk of making wrong
decision is low.
Therefore it is desirable to develop a method of decision making, which is
• ensuring effective decisions in due time,
• Based on straightforward analysis and evaluation of information, obtained from the simulation by
reasonable costs. This might help us to choose the appropriate tables from the offer of MARKINFORM
and COMPTASERVICE.
We would like to give you a skeleton of such an algorithm in the following:
1. All decisions should be based upon a throughout analysis. Analysis should cover the following
scopes and directions:
a) Analysis and evaluation of the market position of the company, forecasting market probable
market developments. In this analysis we have to study the potential and effective market
volume, our market share, and the position of our company in the marketing means to the
competitors. Our prices, advertisements, terms of payment and sales forces positions to the
average and to the minimum and maximum are interesting and revealing our strength and
weaknesses, opportunities and threats. We have to see who are our main competitors and what
are they doing. We also have to calculate and estimate the market development from the trends,
seasonal variations etc. On the basis of the overall market estimation can we derive our market
share in the future?
b) Evaluation of the profitability position of the company. At the actual monthly profit of the firm it
is interesting to see what kind of gross margin is realized by the unit prices of the products, what is
the structure of costs the ratio of fixed and proportional costs. What is the minimum mount of sales
ensuring profit for the company?
c) Evaluation of the financial position of the firm including the development of its cash
management (liquidity) and the factors influencing it. When we have troubles with the liquidity
of the firm and we need loan, we have also to consider the future financial needs of the company.
The uncertainty occurring around liquidity should be overcome by calculation of cash-flow forecast,
and calculating some reserve cash amount of one or two hundred thousand EUR.
64
d) Evaluation of direct production costs of boats versus purchase prices. In this analysis we
have to calculate which type of boat should be produced or merchandised besides the sales
prices.
e) Evaluation of raw material and finished product stock account. First of all we try to find out
how much should be the finishing stock avoiding the lack of goods during the period.
2. Preparation of commercial decisions
a) The basis of the analysis and evaluation made in the 1. Step firms have to decide sales prices,
advertisement budget, terms of payments given the customer, and the number of sales
representatives, and to estimate the desired sales volumes and values from the products.
b) Deriving from estimated sales volumes the firms have to decide with certainty the finishing stocks
levels of products at the end of the month, and calculate the production/purchase amount of product
needs enabling sales volumes.
c) On the basis of production capacity and the results of evaluation in step 1.e. teams have to decide
how many products should be produced and/or purchased from each type of boat..
d) Product purchases should be checked against co-operation opportunities with other competitors
and/or the game supervisor. Price discounts of the game supervisor should be utilized in this
decision.
3. Preparation of production and investment decisions
a) Here we have to calculate the capacity and raw material needs of the production volume set in the
step 2.c.
b) If the above needs exceed capacity, we have to reconsider production targets, and increase
purchase amount, not to violate capacity constraints, and go back to step 3.a.
c) We have to calculate total raw material needs for both plastic and wood, and see whether they do
not exceed raw material availability. When raw material stocks exceed needs we can continue on
step 4., otherwise we have to purchase additional raw material with immediate purchases.
d) While deciding over purchase amounts we have to think on the initial stocks of the next months too.
e) In the case of constant capacity shortages, first of all we have to find bottlenecks and perhaps
increase capacities by investments into new machines. The opposite situation may occur when we
have overcapacities. Decreasing capacities have an influence on our profit too. When we sell
capacity, we will have an income in cash improving liquidity, but we have losses in the net value of
fixed assets. Capacity sales therefore may affect profit or losses depending on the net value of the
current fixed assets.
4. Preparation of financial decisions
Preparations of financial decisions mainly need the cash-flow calculation of the month in advance. This
is done on the bases of our expected sales, our initial cash account, the purchases, and the current
costs and the VAT payment of the previous month. We calculate the final cash account expected at the
end of the month. Overdrafts should be avoided either by reduction of costs, or through sales of bonds,
or through the application for loans. We have to bear in mind that big cash account is also
disadvantageous and big overdrafts. The modification of commercial, production and investment
decisions may help to avoid financial problems too. This might lead to iteration in the decision procedure.
65
QUESTIONS:
1. Please explain the main similarities and differences of the decision making and evaluation process in the
simulation game to real business life!
2. Explain the basic differences between automatic and negotiated loans! What kind of advantages and
disadvantages of negotiated loans can you mention?
3. Explain the basic differences of normal purchasing or immediate purchasing of raw materials? Which are
the basic rules for normal purchasing (ordering, shipping, payment)? What kind of conditions can you
specify in the contract with your raw material supplier?
4. What are the common rules for co-operation transaction with products and raw materials?
5. Explain the benefits of co-operation in raw materials and in boats purchases!
6. How do you calculate the overall consumer demand for Boat B for May, and how do you estimate the
demand against your own company?
7. Calculate the gross margin of Boat A, Boat B and Boat C for various sales prices! What kind of criteria
you should consider to decide whether to produce or buy Boat a, Boat B and Boat C!
8. Explain the notion of overdraft!
9. What kind of factors may affect actual production volumes? In which case may it differ from the
production targets?
10. What are the advantages or disadvantages of long terms of payment for customers? What kind of
problems do you have to face?
66
6. Assessment on KALYPSO
6.1. Group A
Choose the right (best) answer(s) for the following questions!
1. You have 10 machines in moulding having a net value of 280 000 EUR. You sell one machine for
20 000 EUR. How does it affect your profitability and liquidity?
A. It does not affect it because I changed my fixed assets to cash
B. It improves my liquidity because I have an increase in cash, and decreases my profitability because I have a
loss (sales price < fixed asset net value) in this transaction.
2. How much is the overall market demand for the Boat B in May, when basic demand is 40,
monthly trend factor is 2 per cent, seasonal index is 85 per cent, 4 companies operate in the
market, and You have 50 units in stock at the end of April?
A. 40 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 0,85 x 4 = 151
B. 40 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 0,85 x 4 = 154
C. 40 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 0,85 x 4 – 50 = 101
3. Which kind of means do you suggest to reduce your bank overdraft, and not affect your sales
opportunities?
A. We apply for automatic or negotiated loans from the European Credit Bank
B. We reduce advertisement expenditures, fire some sales representatives, cut back terms of payments for
customers, apply for loans, and try to sell fixed assets, and products or raw materials in co-operation.
C. We apply for loans and/or try to increase paid in capital of the firm, and/or try to sell unnecessary fixed assets,
products or raw materials in co-operation.
4. What are the main differences between automatic loan and negotiated loans?
A. The loan limit of negotiated loan is higher, and the decision-maker can manage the repayment of the capital, but
not the payment interest. He also can repay capital earlier if he wants to do.
B. The loan limit is higher and there is no other difference
C. There is no difference and the loan limit is the net value of the fixed assets, while it is the security for the bank to
get back the loan.
5. Which kind of advantages and disadvantages do you expect when increasing terms of payment
from 45 days to 60 or 90 days?
A. There is no significant advantage because we have to finance lacking cash incomes.
B. Customers increase their purchases and we have increasing sales and revenues.
C. We have increasing sales, but we have to finance later cash incomes from other sources.
6. Which option would you take, when you need plastic, but you are in shortage of cash? Let us
suppose that unit price for immediate payment is 3000 EUR, and for a 60 days terms of payment
3200 EUR
A. You place a normal order and use 60 days payment term with the supplier. You pay a unit price 3200 EUR/ton
instead of the unit price 3000 EUR/ton for an immediate cash payment.
B. You take a bank loan (automatic or negotiated) with an annual interest rate of 6 percent because the interest
paid for the bank loan is less then the interest paid for the commercial credit of the supplier.
Please, explain in one or two sentences why you have chosen the option you did!
67
6.2. Group B
Choose the right (best) answer(s) for the following questions!
1. What should be the most effective sequence of steps in decision making?

A. First, analyze results, then calculate production on the basis of capacities, then expected sales volumes, define
purchase volumes and calculate cash flow
B. First of all analysis of results, then estimate market and co-operation demand set marketing decisions, estimate
expected sales, calculate production and purchases volumes on the basis of product stocks and capacities,
calculate raw material demand and purchases and finally calculate cash flow and revenue.
C. First of all analysis of results, then calculate cash flow and production on the basis of capacities, then expected
sales volumes, define purchase volumes.
2. How much should You produce from the Boat B in May, when basic demand is 40, the monthly
trend factor is 2 per cent, the seasonal index is 85 per cent, 4 companies operate on the market,
You have 30 pieces on stock at the end of April, and You expect Your market share for 40 per
cent on the market?
A. 40 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 0,85 x 4 = 151
B. (40 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 0,85 x 4) x 0,4 – 30 = 33
C. (40 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 1,02 x 0,85 x 4) x 0,4 – 30 = 34
3. What happens to your cash management evaluation if you have 1 million EUR in your bank
account at the end of the month? How can you avoid this?
A. You cannot avoid this problem
B. You could buy shares, bonds at least for one month to improve your cash management efficiency and get
interests on shares improving your profitability.
C. This is not a real problem, because you have no overdraft.
4. You have 10 machines in moulding having a net value of 190 000 EUR. You sell one machine for
20 000 EUR. How does it affect your profitability and liquidity?
A. It is improving my liquidity and profitability, because I have positive cash-flow and revenues (sales price > fixed
asset net value) in this transaction.
B. It does not affect it because I change my fixed assets to cash
5. You would like to produce 100 of boat type A in April and you do not have enough plastic, but
your capacities in moulding and finishing would enable this production level. How can you
overcome this difficulty for this month in the most effective way?
A. You should make an immediate purchase from the game supervisor or from other companies.
B. You have to reduce production objectives, and buy the products from the game supervisor or from other
companies in a co-operation.
6. What option would you take, when you need wood, but you are in shortage of cash? Let us
suppose that unit price for immediate payment is 2000 EUR, and for 30 days terms of payment
2007 EUR.
A. You place a normal order and use 30 days payment term at the supplier. You pay a unit price 2010 EUR/ton
instead of the unit price 2000 EUR/ton for an immediate cash payment.
B. You take a bank loan (automatic or negotiated) with an annual interest rate of 6 percent because the interest
paid for the bank loan is less then the interest paid for the commercial credit of the supplier.
Please, explain in one or two sentences why you have chosen the option you did!
68
Solution key for Group A

1. B
2. A
3. C
4. A
5. C
6. B
Solution key for Group B

1. B
2. B
3. B
4. A
5. A
6. A
69
70
7. Criteria for the Annual Report

«KALYPSO for the IBIS Students»
The objective of the annual report
The main objective of this report is to evaluate your management activity when running your
company.
First of all the report should summarize Your business strategy - your marketing, production
and cash management policy – describing your main goals in sales values, market shares, trade
revenue and net profit values you would like to achieve during your management period in your
firm. What kind of means you planned to apply in order to reach these objectives.
The second main objective of the report is to analyze and evaluate your decisions and the
results of these decisions during the simulation. You should describe the development of the
company sales volumes and values, as well as commercial performance, profitability (profits and
losses), cash management, and production and stock control on products and raw material.
Special attention should be paid to the investment of machines, capacity changes, financing
problems of your growth like loans, overdrafts, increase of capital of the company.
The third main objective is to evaluate development and your decisions in respect to the main
evaluation criteria of the simulation software (cash management, production and inventory control,
profitability and performance in commerce.
Proposed content of the annual report

I suggest you to structure your report in chapters as follows:
1. Summary of strategy, objectives, and policies as described above.
2. Description of the company activities, which product types are produced, merchandised and
what are the reasons for that decision. How do you evaluate the co-operation among
companies and did co-operation bring you additional profit or improve your capability to pay
your liabilities?
3. Description of marketing policy of the company and marketing actions during the years, such
as development of sales volumes and values, market shares, prices, advertisements payment
terms etc. description of the price policy, the advertisement policy of the company. Include any
application such as the loan application or prospectus of share issue.
4. Description of the profitability of the company. What kind of profits have been earned or not
and what were the main reasons for success or failures.
5. Description of cash management. How did you plan for any foreseeable shortage of cash
available in the first and second year? Have you issued shares to increase your capital?
Please evaluate these issues, how it affected the position of the company. .
6. Description of the management team work. Why do you think the management team was
successful or not? What were the strengths and weaknesses of the team? What kind of
chances and threads had you taken into account?
The annual report should contain at least 14-16 pages. It must be written in Microsoft Word Times
New Roman 12 characters. Diagrams may not exceed 25 per cent of the whole report. The written
report should be submitted to Mme Clare Ramsbottom on diskettes to make it possible to e-mail
them to Budapest and Dublin.
71

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BUDAPEST BUSINESS SCHOOL UNIVERSITÉ DU HAVRE

FACULTY OF COMMERCE, CATERING AND TOURISM IUT GEA

Educational simulation of company management,

Research Centre in Pedagogy of Management

This Textbook has been published

Mr. Csaba Sólyom

Mr. Georges Cadiou

Identification Code: FKA-08-01

Budapest, November 24th 2005.

Mr. Csaba Sólyom

THE FEATURES OF A SIMULATION

THE PARTICIPANTS OF THE GAME

PLAYING THE GAME

WE PLAY THE FINANCIAL EXPERT LEVEL OF KALYPSO!

WE PLAY 24 MONTH AND TAKE THREE MONTH DECISIONS!

PARAMETER SETTINGS OF BUSINESS SIMULATIONS

CLOSING THE GAME

LEVELS OF KALYPSO BUSINESS SIMULATION GAME

THE NATURE OF THE DECISIONS

• Questions for financing the business activity of the firm

MARKETING (COMMERCE) DECISION MIX FOR A QUARTER / MONTH

Setting unit sales price of boats

Setting terms of payment for customers / distributors

Market demand against the boats of the company

Short or long term loans (automatically granted or negotiated loans)

Raw materials supply contract for a quarter decision period

Normal purchase of raw materials from the suppliers

Immediate cash purchases of raw materials

Immediate cash sales of raw materials

CASH PURCHASES OR SALES OF BOATS

SERVICE COSTS AND FEES

OTHER INCOMES / OTHER EXPENSES

THE FREQUENCY OF THE DECISIONS

MONTHLY BUSINESS RESULTS OF THE COMPANY

• Production capacity Machine purchases

1. THE MODEL AND THE MARKET

1.0. THE MODEL OF THE KALYPSO BUSINESS GAME

BUSINESS PROCESSES (Material/Product-flow, Cash-flow, Information-flow)

Purchase Boat A Market behavior of the

• Terms of payment set for customers

Capacities • Sales representatives

Merchandising of boats, co-operations with the other firms

Sales incomes – costs = gross margin, revenues, Cash-flow, loans

Purchase of raw materials from the supplier:

Purchase of boats from the game supervisor

1.3. COMPETITION ON THE MARKET

1.3.1. Direct competition

1.3.2. Indirect competition

2.1. RAW MATERIALS

2.1.1. Raw material supplies

2.1.1.1. Normal supply

Table 1 - PURCHASE CONDITIONS FOR RAW MATERIALS IN A QUARTER

Table 2 -RAW MATERIAL ORDERING CONDITIONS

2.1.1.2. Immediate cash purchases

2.1.1.3. Immediate cash sales

Table 4 - CONDITIONS OF RAW MATERIAL CASH SALES

2.1.2. Raw material needs of a boat unit

Table 5 – RAW MATERIAL CONSUMPTION PER BOAT

2.2. PRODUCTION PROCESS

2.2.1. Technical characteristics

Table 6 - MACHINE HOURS NEEDS FOR A BOAT UNIT

2.2.2. Production capacity

Table 7 - MONTHLY PRODUCTION CAPACITY IN MACHINE HOURS

2.2.3. Modifications in production capacity