Royal Melbourne Institute of

Technology, Vietnam

ACTT2106 Business Simulation

Lecturer: Ms. Jis Kuruvilla

FINANCE MANAGEMENT REPORT

IDENTIFICATION
COURSE: ACTT2106
GROUP: 8
LECTURER: Jis Kuruvilla
FIRST NAME: Tan
LAST NAME: Vo Thanh
STUDENT NO: s3222072
 Executive Summary
Silver Star company is a newly established company in the jewelry industry. It is
established at the beginning of 2008. After having operated 3 years in the market, even
though all of the managers had tried their best to contribute to the success of the
company, unfortunately the Silver Star ranked the last positioned of the industry.
From Q1 to Q3, Silver Star company stood at the first position. In this time, all of
the departments have manage the company very well and cooperate strongly with each
other. However, in Q4, our company were so unlucky when we lost 25% of the ordered
raw material and began to fall down. From Q4 to Q8, due to some problems with the
pricing, marketing strategies and the product quality, the performance of our company get
worse and we lost the first position and our position were declining each quarter. In Q9,
when our company began to adjust the strategies and were willing to take high risks, we
suffered our biggest business failure and were bankrupted due to some unpredictable
changes of the industry. Our company could not recover any more and from Q10 – Q12,
our company began to drop down and suffered more failure and finally, Silver Star
company ended the Team Game with the last position.
This Management Report has analysed all of the decision in term of Finance
department and its effect on the General Results of the company to find out the reasons
for the collapse of Silver Star company. I, as the finance manager and the CEO of the
company, also did an management reflection to examine how thing works with our team.
After doing these sections, I realized all of my serious mistakes and gained so many
valuable lessons and experiences. Therefore, I have constructed an future plan for short-
term and long-term plan to improve the performance of our company and get back to the
first position.
I strongly believe that my future plan could enable our company to regain what
we has lost and achieve more success in the future.

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 Table of Content
I/ Overview of decisions made in Team Simulation..............................................04
1. Objectives.........................................................................................................04
2. Achievement....................................................................................................04
3. Short-term loan request..................................................................................04
4. Mortgage..........................................................................................................06
II/ General company results...................................................................................08
1. Net income.......................................................................................................08
2. ROA..................................................................................................................10
3. Break even point..............................................................................................11
4. Conclusion........................................................................................................12
III/ Management Reflection...................................................................................13
IV/ Future plans.......................................................................................................15
1. Short-term plan...............................................................................................15
2. Long-term plan................................................................................................16
V/ Conclusion............................................................................................................17
VI/ References..........................................................................................................17
VII/ Appendix...........................................................................................................18

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I. Overview of decisions made in the Team Simulation:

1. Objectives:
a/To reduce gradually the interest expense and omit them since quarter 10.

b/To increase the net income as much as possible to achieve $115000 at the
end of the third year.

2. Achievement:

Unfortunately, due to some mistakes of our strategies and the unpredictable

changes of the industry( I will discuss in details in the upcoming sections), we
could not achieve any objectives.

With objective (a), we could not eliminate interest expense since Q10 whereas
we also suffered a massive amount of emergency loan

With objective (b), we could not achieve as well because our net income at the
end of the third year became negative.

3. Short-term loan request:

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 Overall, the finance departments has made the right decisions in the first three
quarters. It matches with the financial goads of reducing the interest expense gradually
each quarters. Moreover, it also stands below the industry average which is an economic
advantages for our company for the next quarters whereas we ranked number 1 from Q1
to Q3. The reason for this early achievement is the close cooperation between the three

5
departments when I, the finance manager has set up adequate budgets for the marketing
and production and they used it effectively and efficiently. The marketing managers has
done a very good job when our forecasts were very accurate, the promotion campaign
was so successful and the price was very reasonable in the first three quarters. It enables
me to decide an reasonable short-term loan request.

Unfortunately, we lost 25% of the raw material in Q4 which made our company
leave the first position and lose the momentum since this quarter. The market also
changed and became more difficult to foresee. As a result, the forecasts were no longer
accurate, the promotion was ineffective and we did not have enough raw material to
produce which made my decisions- the short-term loan - fluctuate from Q4 to Q8.
Consequently, our company suffered the emergency loan in Q6 and Q7. These were the
burden for our company in the next quarters due to my bad decisions
In quarter 9, we began to realize that our strategies, the low-cost leadership was
not suitable in this industry and we needed to adapt with the changes of the industry in
order to survive and compete. Therefore, we started to adjust our strategies by investing
heavily on advertising in terms of all three channels and raising the product quality
significantly. Thus, we had to take so much risks and I decided to maximize the amount
of short-term loan request. Unfortunately, due to some changes in the industry (which
will be discussed in details in the next sections), we went bankrupted this quarter and
suffered emergency loan although having borrowed the maximum. In the final three
quarters, we had no choice but to take more risks and maximize the short-term loan
request so as to regain what we had lost. Consequently, we lost again and suffered
emergency loan again. Besides, our warehouse cost climbed sharply as well which made
our cash inflows decrease considerably. Now I understand that my decisions from Q9 to
Q12 were so bad which made our company rank the last.

As compared to the Business plan, I just followed the Plan in the first three
quarters which is an crucial factors enables our company to rank the first position.
However, because of the shortage of raw materials in Q4, the changes of the industry and

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my mistakes which I has stated above and I will discuss more in the next parts, I had to
change the decisions but it did not work effectively.
4. Mortgage:

In the business plan, I just intended to borrow 100000 of mortgage but in the
Team Game, there is a big difference. After dealing with the lack of raw material in Q4, I
made a decision to borrow 150000 in Q5 to buy more plan capacity to increase the
amount of products so as to earn more profit and return to the top three. This could be a
good decision if our company could handle efficiently with the added plan capacity.
Unfortunately, due to some mistakes in the forecasts, the administrative expense and
setting the product quality too low, we could not obtain so much profit from Q5 to Q8.
Since quarter 9, due to unsuccessful strategies, our company collapsed and each quarter
we suffered a huge amount of emergency loan, above 1000000, so our company’s
financial situation is so unstable and vulnerable and we were not allowed to borrow
mortgage anymore.

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II. General Company Results:
1. Net income:

It can be seen from the chart that from Q1 to Q3, the net income of our
company was higher than the industry average. As I mentioned above, the finance
department has made very good decisions about short-term loan at that time. After
establishing reasonable short-term loan requests, I had discussions with two other
departments to allocate it to them suitably. With that budget, the marketing departments
invested efficiently on advertising expense and set the price acceptably while the
production departments spent it effectively on product quality and HRD. As a result,
Silver Star company has attained an significant achievement in the first three quarters by
using the short-term loan – my decision – successfully. Therefore, I can conclude that my
decision from Q1 to Q3 has made a positive effect on the overall results of our company.

However, in quarter 4, we encountered an huge obstacle when we lost 25% of

the ordered raw material. Therefore, our net income went down dramatically. This is the
start point of our collapse because the industry began to changes unpredictably. As a

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result, our forecasts were totally inaccurate and our product quality was not consistent
with the price. Therefore, this lead to my bad decisions of short-term loan from Q4 to Q8.
Consequently, our income increased slowly while the warehouse cost increase steadily
from Q4 to Q8. Thus, my bad decisions has negatively influence on the overall company
results because we suffered emergency loan in Q6 and Q7. In addition, I also borrow
150000 of mortgage in Q5 to purchase more plant capacity. However, our company did
not work effectively with this additional capacity. Thus, this decisions also did not make
a good impact on the performance of the company.

Meanwhile, in quarter 9, we decided to change our strategies by spending

more on advertising and improving the product quality. We were willing to take high
risks to earn more profit. Unfortunately, in this quarter, one of our competitors began to
raise their product quality rapidly, investing a massive amount of cash on advertising
whereas charging a quite low price to expand their market share. Thus, our products
could not compete with them because both their product quality and advertising expense
was much higher than us and our sales went down considerably. Therefore, we lost more
than 500000 of our income, this was more than the total income that we have earned
before. This was our biggest failure in the whole team game.

Since Q10 to Q12, we are left with no choice. We had to take more risks by
investing more on adverting and product quality and charging a relatively low price.
However, we were unsuccessful again when our products could not compete with other
competitors and we suffered more huge amount of negative income. Moreover, the
warehouse costs also went up dramatically which increase the cash payments. Thus, our
company went bankrupted.

From Q9 to Q12, when we took risks, I had no choice but to maximize the
short-term loan request. Unfortunately, due to the strategies of our competitors, we still
faced emergency loan and I were unable to do anything to prevent this problem because
the short-term loan is limited and our company was in a very vulnerable situation.

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 In addition, another big mistakes of our company is not to buy the Market
Research. Therefore, we are lack of information about the strategies of our rival and was
unable to adapt and cope with the changes our competitors’ strategies.

2. ROA:

This graph clearly illustrate the trends I have mentioned above: our company
had a really good performance in the first three quarters before falling down gradually
from Q4 to Q8 and finally, went bankrupted in the last four quarters. This trend can be
explained because our ROA was really high compared to the industry average from Q1 to

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Q3 and from Q4 to Q5, it is a little lower compared to the industry and from Q9 to Q12, it
is really very low.

In the last four quarters, our ROA was very low which means that we did not
use our assets effectively to generate sales. The reasons are we did not have any cash on
hands at this time and we did not have so many account receivable to collect. Therefore,
our assets is very low compared to the net sales. Moreover, my decisions to maximize the
short-term loans could not help us to cover all the costs and the huge amount of
emergency loan made our company run out of cash on hand.

3. Break Even Point:

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 Bracelet:Actual SalesvsBEP

20000
18000
16000
14000
12000
10000 Sales
8000 Break even point
6000
Quarter
4000
2000
0
1 2 3 4 5 6 7 8 9 10 11 12

As I mentioned above, our strategy was Low-cost leadership. In addition, we also

focused on product 1 and a considerable portion of our profit has been contributed from
sales of product 1 (necklace) With product 1, it can be seen from the graph that we
obtained BEP in the first eight quarters. However, the vertical distance between the sales
and BEP was not so large which means that we did not earn so much profit. Thus, it just
enabled us to rank the first position from Q1 to Q3 before falling down from Q4 to Q8. In
Q9, we began to raise the product quality considerably. Hence, the cost of production
became higher and the BEP also increased. However, due to the unpredictable strategies
of our rival when they dumped their product, our sales dropped rapidly and we could not
achieve BEP any more since then. Therefore, my decision of short-term loan request
could not assist our company when we received a huge amount of emergency loan.

With product 2 (bracelet), we did not focus too much. Therefore, we set the
product quality really low – the lowest in the industry. As a result, we easily achieved
BEP in the whole 3 years. However, the profit we got from product 2 was so little and it
could not save our company from being bankrupted. This is also a mistake of our
strategies because we did not pay attention too much to product 2 although is had a great
potential to enable our company to accomplish economic successes.

4. Conclusion:

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 Overall, our company did not perform very well as compared to the other rivals
because we ranked the last. Therefore, we know that we did not do a very good jobs after
3 years but at least, we also had some achievements when we ranked the first from Q1 to
Q3. Our company did had a good performance at that time before beginning to collapse
due to some reasons I have discussed.. However, we believe that the investors should put
the investments on our company because after completing the Team Game Simulation,
we had learnt a lot of valuable lessons and practical experiences. Now we know that our
mistake was the inflexibily when dealing with the shortage of raw materials and unable to
adapt with the adjustment of our competitors’ strategies. In the future, we will apply the
Contingency theory ( Morgan, 1998) to adapt with any irregular changes of the industry.
We also prepared the short-term and long-term plans to recover our company and get
back to compete. We strongly believe that we could manage the company better and
assist the investors to get more profit in the future.

III. Management Reflection

In our company, I am not only responsible for the finance department but also
the CEO of Silver Star. As a team leader, I realize that I did not manage my team very
well. At first, we all agreed that we would have a meeting outside the classrooms before
the process of each quarter to discuss closely about our strategies. However, we could not
attend all of the meetings because all of us also studied another subjects and had a lot of
assignments and exercises to do. Thus, in some quarters, we did not have sufficient time
to think about the decisions. This is also one of the reasons which caused our business
failure. I am the leader of my team, so I understand this is my responsibility. McShane
and Travaglione (2007, p.416) claims that motivation is the ability of the leaders to gain
power in order to persuade their members to achieve the common objectives that. I
realize that I had failed to motivate and build impetus for my team members. I think at
that time I should encourage them to attend all of the meetings to have more discussions
about the strategies.

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 In addition, our team also had few conflicts. For instance, that was the conflict
between the marketing and production departments. After doing a very good jobs from
Q1 to Q3, the conflict began to appear in our team. The marketing managers wanted to
increase price while the production managers would like to keep the product quality low
to apply the low-cost leadership. The problem was the price was not consistent with the
quality. Therefore, they had arguments and began to have conflicts. As a role of the team
leader, I applied the conflict management style named “withdrawing” of McShane and
Travaglione (2007, p.389) when I tent to be the outsiders and let them to handle it.
Consequently, they could not handle it and our decisions were not consistent. Thus, our
company began to fall down and go bankrupted.. At present, I recognize that I did not do
a good job in managing the conflict. I believe that at that time, instead of applying the
“withdrawing” style, I should apply the “compromising” style ( McShane & Travaglione
2007, p.393). I should get involved in the arguments and try to reach a deal that satisfies
and benefits all of them. For example, we could make a agreement to raise the price a
little and increase the product a little bit so that they were consistent with each other. It
would be better for our team.

Moreover, another problem with our team was one of my partners did not have
so much contribution in the final quarters. However, I ignored that problem and tried to
work with the remaining member to do the Team Game Simulation. McShane and
Travaglione (2007, p.114) indicates that a leader should use emotional intelligence to
deal with the problems in teamwork. However, at that time I did not do that. Therefore, I
currently understand my mistake. I should apply the theory of “emotional intelligence” to
examine the situation of my teammate to find out what were happened with him and try
to help him.

In short, I have applied the theory of “Task-oriented behaviours” (McShane &

Travaglione 2007) of leadership to manage my teams. I just focused on the teamwork and
tried to do the best works without considering the emotions of my team members. Now I
know that I applied the wrong theories. If I had a change to manage our team again, I will

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choose the “people-orientated behaviours” style (McShane & Travaglione 2007). I will
focus more on building the trust between us and understand the emotions of my team
members to adjust my behaviour so as to achieve the best results.

After completing the Team Game Simulation, I have gained some precious
experiences about managing a company. Now I realize that as a leader of a team, I should
be more passionate and decisive. Moreover, I also need to learn more about the
“emotional intelligence” to match with the changes of the team and build the trust and
respect between team members. I also learned more about how to manage conflict in a
team by using the “compromising style”.

IV. Future plans

1. Short-term plan:
a/ Objective for year 4:
Decrease gradually the emergency loan and try to omit it at the end of year 4.
Eliminate all of the negative amount of income ($-1470469) at the end of year
4.
Have a better position in the industry, at least leave the last position.
b/ Strategies for year 4:
Increase the unit produced each quarter to at least 30000 to obtain more
market share and raise total net sales so as to earn more profit and net income.
Invest more on HRD to increase the productivity, about 16000.
Invest cash on advertising appropriately. Because since year 4, our rivals will
not dump their products and invest heavily on advertisements, our company
should invest on advertising suitably, not too low from Q1 to Q8 and not too

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 high from Q9 to Q12 to avoid the law of diminishing returns. We can invest
about 25 – 30 for TV, 30 – 35 for Newspaper and Magazine.
Improve the product quality, about 10 – 15 for product 1 and 8 - 10 for
product 2.
Increase the price to fix with the cost of production, about 68-75 for product
1 and 58-65 for product 2.
Increase cash on hand by reducing the time for collection of Account
Receivable (from 3 months to 2 months).
Increase the budget for production department (add $200000 each quarter
to their budget) to invest more on product quality and hire workers.
Be more careful with the forecast process in order to reduce the risk of
suffering emergency loan.
Find some sources of debtors (banks) with a low interest rate.
Cooperate with other companies (THQ, Adam VN) to buy Market
Research to easily adapt to the change of the industry.
Have more discussion with marketing and production departments to set
up a reasonable and sufficient budget for them each quarter, the maximum will
be about 200000 for Marketing and 400000 for production.
2. Long-term plan:
a/ Objectives:
Get back to top three and regain the first position to dominate the market in
2015.
Expand the market into foreign countries such as Euro, USA, Asia in 2020.
Do charity activities, sponsorships and produce the environmentally friendly
product in 2015.
Obtain 20% of the total market share or get the largest market share in the
industry in 2015.
Raise the income as much as possible to achieve the highest net income in the
long-term, must be more than $600000 in 2015.
Minimize the interest expense and try to omit it in 2015.
b/ Strategies:

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 Apply the Contingency theory (Morgan 1998) to adapt quickly with the
changes of the competitors and the industry.
Adjust the pricing strategies, the product quality, the marketing campaigns to
match with the future circumstance of the market.
Find more sources of suppliers to get environmentally friendly raw material
with a cheaper price to reduce the cost of production and the pollution.
Build strong relationship with foreign partners to expand our market to all
over the world.
Find more opportunities to do the charity activities or sponsorships to
increase the influence of our company and raise the brand awareness and
goodwill.

V. Conclusion:
In summary, our company did not have a very good performance as compared to
other competitors when we ranked the last position. I know that is is our responsibility
when we did not manage the company well and made many serious mistakes. I had
analysed all of my decisions and the general results of the company to find out what is
the actual problems with our company. Moreover, I also did not manage my team well
and did not do a very good job in dealing with some problem in my team. Now I realize
all of my mistakes and have learnt a lot of valuable lessons and experiences to apply them
in my future career. Therefore, I constructed for future plan, for both short-term and long-
term to improve the performance and the position of our company in the industry. I have
a strong belief that if I and my partner had a change to play the Team Game again, we
would do it so much better. I also believe that with my future plan, I can recover our
company and will take back what we have lost.

VI. References

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 1. McShane, SL & Travaglione, TA 2007, Organizational Behaviour on the
Pacific Rim, 2nd Edition, McGraw-Hill, Roseville, pp.114-416
2. Morgan 1998, Images of an organization, 1st edn, , Calif: Berrett-Koehler
Publishers, San Francisco, pp.35-44.

VII. Appendix

The First National Bank

Of
Business Simulations

Mortgage

The Amount Required 150000 When Required

Quarter 5

The Reason for the Loan

The Applicants
Purchase plant capacity
Group Number 8 to increase the production process to improve
the sales
Team Number 2 Team Name Silver Star

Total assets of
Directors the Company 751,610
Name Total Liabilities
Title 357,817

Current
1 VuAmount of Mortgages200000
Duong My Ha Marketing manager
Official Use Only
Ratios
2 Nguyen Trong Tin Production manager 18
Checked
CurrentDocuments
Debt / Equity Checked47.6%
Company Officers ReturnApproved
on Assets 3.53
The
3
Mortgage
Vo Thanh Tan Finance manager
Yes No