Financial decision-making OR Making the most of things Option 1: Financial Decision Making A sneaker manufacturer is considering the purchase of one of two machines. The first machine (Machine A) requires an initial investment of 5,000,

Q1. Decision-making in the business simulation game

In this question, you are asked to provide details about your company (Section A), evaluate thedecisionstaken in the game (Section B), and reflect on the decision-makingapproachused by you and your team (Section C)

A) Company Details

Provide the name of your company in the business simulation.
State your chosen generic competitive strategy.
State your chosen market segment(s).
Name your distributor(s).
Record your company figures for rounds 2 and 8 using the template provided on the module blackboard page. Present the tables side by side.

B) Decision Evaluation(400 words)

Using decision-making concepts taught in the module, discuss one or two decisions you made during the game. Your answer should refer to the figures provided in part A, and include:

A clear summary of the initial problem, the potential solutions considered, and the decisions made.
The rationale for your decision, including calculations and results.
An assessment of whether the decisions addressed the problem, supported by analysis and figures.

C) Reflection(200 words)

Using specific examples from the simulation game, reflect ononeof the following themes:

The pros and cons of group and individual decision-making.
Group decision-making strategies and approaches
The use of rational and other decision-making approaches.
How to be a good team member.

Notes

You will be assessed on your ability to explain and evaluate your decisions using concepts taught in the module, rather than on whether you made the right decisions.
For parts A and B, the relevant concepts are cost-volume-profit analysis and investment appraisal.
For part C, the relevant concepts are group decision making and decision-making approaches.

Assessment criteria

Ability to apply knowledge and skills to new situations – 15 marks
Ability to reflect on decision-making choices 10 marks

Q2. Dealing with uncertainty and managing risk

Four students in the module Management Decision Making – Anton, Khalid, James and Samira – have set up a company in the Simulation Game and named it Sneakers4Westminster. The students have different attitudes to risk. Anton is very optimistic and likes taking risks. By contrast, James and Samira are risk averse they rather prepare for the worst, and hope for the best. Khalid considers himself neither an optimist nor a pessimist, but a rational decision-maker.

The four students are considering investing in a marketing campaign to increase sales. The increase in the level of sales will naturally depend on the state of the economy and based on what they have read in the news, they think that there are three possible scenarios: high growth, medium growth, and low growth. They have made some estimates of the increase in sales they may expect under the different scenarios and calculated the contribution to profit or contribution margin corresponding to each level of sales. Their estimated payoffs are shown in the table below.

	Payoffs in 000
States of nature	High growth	Medium growth	Low growth
Campaign A	150	25	-100
Campaign B	45	45	0
Campaign C	-10	10	50

A) In this module, we discussed three criteria for making decisions under conditions of uncertainty. Use these criteria to identify the best option for Sneakers4Westminster. Then, calculate the best option using probabilities, assuming a 20% probability for high growth and a 20% probability for medium growth. Include tables and calculations.
B) Using the answers from part A, explain the preferred choices of the four students and discuss your own attitude towards risk, providing examples from decisions made in the business simulation game.
C) A well-known consulting firm, A Consultancy Ltd., has offered to provide more accurate information on the probabilities of economic growth They would produce a report with detailed information and a new set of probabilities for 50,000 A Consultancy Ltd is known to have access to sources in government and industry that enable them to predict states of nature with considerable accuracy. Samira thinks that they should go ahead with the offer, but Khalid is totally opposed to the idea. Can you explain why Khalid is opposed to the idea? Do you agree with them? Explain why and show your calculations.

Assessment criteria

Grasp of concepts 12 marks
Presentation 3 marks

Q3. Financial decision-making OR Making the most of things

Option 1: Financial Decision Making

A sneaker manufacturer is considering the purchase of one of two machines. The first machine (Machine A) requires an initial investment of 5,000, while the second machine (Machine B) costs 6,400. Both machines are operative for 5 years. The expected payoffs, in , are indicated in the table below.

Expected payoffs,

Period	Machine A	Machine B
Year 1	1,350	1,800
Year 2	1,400	5,000
Year 3	1,850	400
Year 4	2,000	400
Year 5	2,100	400

Complete the following tasks

Calculate the payback period for the two machines. In your answer, include a table in the same format as that provided in the lecture. If the company has a rule of only accepting projects with a 2-year payback, which project should they choose?
Calculate the NPV for the two investments, assuming that the cost of borrowing is 5%. In your answer, use theexactdiscount factors provided on Blackboard, and present your calculations using the same format that was used in the lecture. If the company uses the NPV criteria to choose between the two projects, which one should they choose and why?
What would be your advice if the company decided to use the internal rate of return appraisal method instead? (as a second interest rate use 20%). Please include the IRR formula provided in the module, and the excel tables with all the calculations.
Now the manufacturer has realised their initial information about machine A was not entirely correct. Machine A has a longer lifetime, 6 years instead of 3, but it requires a 570 overhaul in year 4. The operating costs are much higher than anticipated, and the payoffs start on year 3 only. The new estimate for the payoffs are 1,500, 2,500, 1,200, and 1,000. Based on this information, prepare a new payoff table and compare the two investments using an investment evaluation technique that considers the time value of money.

Assessment criteria

Grasp of concepts 16 marks
Presentation 4 marks

Option 2: Linear programming

A sneaker manufacturer makes two different types of leather trainers, one for runners and the other a fashion trainer for everyday wear. Manufacturing the trainers comprises three key processes: vulcanisation, assembling, and stitching. Trainers also need to be put in boxes before they can be distributed. This is also done mechanically.

The table below shows the number of minutes required for vulcanisation, assembling, stitching and packaging for each pair of sneakers.

	Minutes per trainer		Minutes available in the machines
Product	Running trainers	Fashion trainers
Vulcanisation	12	18	240
Stitching	30	45	450
Assembling	20	60	480
Packaging	40	30	480

The unit contribution margin for running sneakers is 4, and for fashion sneakers is 5.

The companys objective is to maximise profit, and they want to know how many trainers of each type they should make each day.

A) Formulate the problem as a linear programming model using A to refer to the number of running trainers, and B to refer to the number of fashion trainers.
B) Solve the problem graphically, indicate the binding constraints in the graph and explain, in your own words, how did you identify the binding constraint using the graph.
C) Confirm the solution using simultaneous equations.
D) Assume that the shadow price for one constraint is 0.05 and for another constraint is 0.001. Are these constraints binding or non-binding? Explain your reasoning.

Assessment criteria

Grasp of concepts 16 marks
Presentation 4 marks

Q4. Decision trees OR sensitivity analysis

Answer ONE of the following two questions:

Option 1 Decision trees

The company Westminster Sneakers manufactures trainers for marathon runners. It is a small market, but shoes need to be extremely good quality. New companies are entering the market, and Westminster Sneakers has decided it needs to invest more in R &D. There are three possible projects option A, option B, and option C. They have different costs and duration, and the payoffs will depend on the wider economic context. The table below shows the potential returns from each investment (in terms of increased revenue), given three different scenarios related to the state of the economy over the next five years.

Pay-off table: increased revenue (,000s)

	Economic growth
Decision	High	Low	Zero
Option A	200	50	50
Option B	90	50	0
Option C	-10	10	50

A)Westminster Sneakers has hired a consulting firm to estimate the probabilities for each state of nature, and based on this information, they want to identify the best option. Given a 20% probability of high growth, and a 60% probability of low growth, determine the best option. Show your calculations.
B)Based on your calculations above, draw a decision tree (you can draw it on paper, take a picture, and add the image to your script. Please ensure that the image is visible to the marker).
C)One of the managers has suggested that if the decision to invest in option A is taken, and if economic growth stagnates, the company should consider a marketing campaign to try to boost sales. The estimated cost of the campaign is 40,000. If successful, the campaign would lead to an increased revenue of 150,000. Still, there is only a 50% chance of this happening. If unsuccessful, the revenue would increase by 50,00.

Using the new information, draw a new decision tree and determine the best option for Westminster.

Assessment criteria

Grasp of decision-making concepts 12 marks
Presentation 3 marks

Trees and tables should be presented in the same format as that used in the lecture slides.

Option 2: sensitivity analysis

A sneaker manufacturer operating in Southeast Asia produces shoes for men and women. The production process for both models uses leather, textiles and rubber, but different quantities of each, as shown in the table below.

	Mens trainers (X)	Womens trainers (Y)
Leather	1	1
Textiles	4	3
Rubber	1	2

There are supply issues for the three components, and daily usage of leather is limited to 50 m, textiles 150 m, and rubber 70 kg. The contribution to profits for mens shoes is 2.5, for women 3.5.

The manufacturer wants to know how many shoes of each type to make, and remembers a technique called linear programming, which they learned at the Management Decision Making module while studying at Westminster University. They have organised the information as a linear programming model, as shown below, but cannot identify the optimum production levels.

Let x be the number of Mens shoes produced each day and y the number of womens shoes produced each day.

Max 2.5 x +3.5 Y

Subject to

X + Y <= 50 (leather constraint)

4x + 3Y <= 150 (textiles constraint)

X + 2 Y <= 70 (rubber constraint)

x, Y>= 0

A) Produce an excel solver sensitivity report. Copy and paste the report into the word document with all your answers.
B) Based on the report you have produced, answer the questions below:

How many shoes should the company produce to maximise its profit?
Would this solution hold if the unit profit for x increases by 3?
What is the shadow price of the constraints?
Would it be worth increasing any of the resources used in the manufacturing of the sneakers, and if so, why?

Assessment criteria

Grasp of decision-making concepts 12 marks

Presentation 3 marks

Q5. Sustainability in the sneaker sector (15 marks)

The sneaker sector (500 words)

Discuss the carbon footprint of the sneaker sector (include the following points: overall contribution, what are the main sources of carbon, how can carbon emissions in the sector be reduced). Include the information provided in the module. You should include sources.

Choose ONE of the two options below:

Option 1 – Sneaker companies (250 words)

Provide examples of what sneaker companies (in the real word) are currently doing to be theircarbonemissions. Indicate your sources.

Option 2 – The Business Simulation (250 words)

Discuss the issue ofsustainabilityin the context of the business simulation game. You will not be evaluated on whether you included sustainability considerations in your business plan, but on whether you can provide a logical explanation of what were the benefits and challenge of doing so in the game. This sectiondoes not requirereferences, as the information is from your own company.

Your answers to parts A and B should include qualitative and numerical information.

Assessment criteria

Ability to evaluate sustainability issues in an organisational context

Participation in Game 10 marks

A list with points per company will be posted on Blackboard after the end of the game. Please indicate the name of your city market, your company, and how many marks you were awarded based on the ranking of your company in the business simulation game.

LEARNING OUTCOMES ADDRESSED:

L3. Articulate different approaches to decision-making, including rational, behavioural, individual and group decision-making.

L4. Select and apply appropriate quantitative and qualitative techniques in framing, analysing, solving, and evaluating short- and long-term management decisions.

L5. Evaluate environmental and social sustainability challenges relevant to businesses, and incorporate sustainability considerations in decision making.

L6. Appreciate the difficulties that imperfect information, risk, uncertainty, and complexity impose upon decision makers and determine how these difficulties may best be mitigated.

ASSESSMENT CRITERIA

The assessment criteria and weightings show you what is important in the assessment and how marks are shared across each criterion. When you are completing your assessment remember you need to fulfil the brief and the assessment criteria below.

	Weighting
Grasp of decision-making concepts and techniques	35%
Ability to apply knowledge and skills to new situations	25%
Ability to evaluate sustainability issues in an organisational context	15%
Ability to reflect on decision choices while cognisant of different decision-making approaches	10%
Ability to present analysis and recommendations in a clear and well-structured format	15%

The University has arrangements for marking, internal moderation, and external scrutiny. Further information can be found inSection 12of the Handbook of Academic Regulations,westminster.ac.uk/study/current-students/resources/academic-regulations

Grading form MDM 2024-25 assessment 2

Q1 Evaluation of decisions in the simulation game (25 marks)

Marking criteria:Ability to apply knowledge and skills to new situations, and to reflect on decision choices.