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Copyright 1986 2013 Capsim, Management Simulations, Inc.
ALL RIGHTS RESERVED

1 Introduction 1
1.1 The Industry Conditions Report 1
1.2 Management Tools 1
1.3 Company Departments 2
1.4 Inter-Department Coordination 3
1.5 Practice and Competition Rounds 3
1.6 Company Success 3
2 Industry Conditions 3
2.1 Buying Criteria 3
2.2 Buying Criteria by Segment 5
3 The Customer Survey Score 5
3.1 Buying Criteria and the Customer Survey Score 6
3.2 Estimating the Customer Survey Score 8
3.3 Stock Outs and Sellers Market 9
4 Managing Your Company 9
4.1 Research & Development (R&D) 10
4.2 Marketing 11
4.3 Production 13
4.4 Finance 15
5 The Capstone Courier 17
5.1 Front Page 17
5.2 Stock & Bond Summaries 17
5.3 Financial Statements 17
5.4 Production Analysis 17
5.5 Segment Analysis Reports 18
5.6 Market Share Report 19
5.7 Perceptual Map 19
6 Proformas and Annual Reports 19
6.1 Balance Sheet 19
6.2 Cash Flow Statement 20
6.3 Income Statement 20
7 Situation Analysis 21
8 Forecasting 21
9.1 Basic Forecasting Method 21
9.2 Qualitative Assessment 21
9.3 Forecasts, Proformas and the December 31 Cash Position 22
9.4 Worst Case / Best Case 22
Team Member Guide
Management Tools
1
1 Introduction
0caratulatlcas, ,cu are acw la chare c| a seascr aaau|acturla
ccapaa,. \cur hra was created whea the ceraaeat spllt a
acacpcl, latc ldeatlcal ccapetltcrs. \hea the ccapaa, was a
acacpcl,, cperatla lae|hcleacles aad pccr prcduct c||erlas were
act addressed because.
iacreasla ccsts cculd be passed catc custcaers, aad
Medlccre prcducts wculd sell because custcaers had ac
cther chclces.
\lthcuh last ,ear`s haaaclal results were deceat, ,cur prcducts are
ettla cld, ,cur aarketla e||crts are |allla shcrt, ,cur
prcductlca llaes aeed reaapla aad ,cur haaaclal aaaaeaeat
ls alacst acaexlsteat.
0capetltlca la the pcst-acacpcl, era aeaas ,cu caa ac lcaer
lacre these lssues. i| ,cu dc, ccapetltcrs wlth better prcducts aad/
cr lcwer prlces wlll take ,cur aarket share.

Sensors are everywhere...
Sensors are devices that observe physical conditions. For
example, the average cell phone contains dozens of sensors
that allow it to interpret touch, spatial orientation, and
signal strength.

New sensor businesses are created every day in areas as
diverse as security, aeronautics and biomedical
engineering. You are in a business-to-business market, not a
direct-to-consumer market; the sensors your company
manufactures are incorporated into the products your
customers sell.
1.1 The Industry Conditions Report
lach slaulatlca ladustr, ls ualque. Jhe iadustr, 0cadltlcas 8epcrt
descrlbes, la detall, the buslaess ealrcaaeat speclhc tc ,cur
slaulatlca, lacludla custcaer bu,la crlterla.
To view the Industry Conditions Report, log into your
simulation and click the Reports link.
1.2 Management Tools
uere are the tccls ,cu aeed tc rua ,cur ccapaa,.
1.2.1 The Rehearsal Tutorial
Jhlak c| the 8ehearsal Jutcrlal as a drlla schccl |cr the
slaulatlca. Jhe tutcrlal wlll shcw ,cu wa,s tc steer the ccapaa,,
lacludla hcw tc.
iaeat aad relse prcducts,
Make aarketla declslcas,
:chedule prcductlca aad bu,/sell equlpaeat,
lasure ,cur ccapaa, has the |laaaclal rescurces lt aeeds |cr
the upccala ,ear.
Jhe saaple rescurces used |cr the 8ehearsal, lacludla lts 0apstcae
0curler aad iadustr, 0cadltlcas 8epcrt, alrrcr thcse used la the
actual slaulatlca.
To access the Rehearsal, Log in at the website and go to the
Getting Started area.
1.2.2 The Capstone Courier
\cu aad ,cur ccapetltcrs hae access tc the ladustr, aewspaper, the
0apstcae 0curler. Jhe 0curler, descrlbed la 0hapter 5, ls a ccaplete
,ear-ead repcrt ca the seascr ladustr, lacludla custcaer bu,la
patteras, prcduct pcsltlcala, aaau|acturla capaclt, aad publlc
haaaclal la|craatlca. Kacwlede ls pcwer. i| ,cu hae a questlca
abcut ,cur ccapaa,, ,cur custcaer cr a ccapetltcr, start wlth the
0apstcae 0curler.
Jhe 0curler`s :eaeat \aal,sls paes repcrt 0ustcaer :ure, :ccres
(detalled la 0hapter 3) whlch pla, a lare part la deteralala sales
dlstrlbutlcas. ia eaeral, the hlher the sccre, the reater the sales.
The Courier displays Last Years Results. The Courier
available at the start of Round 1 displays last years results for
Round 0, when all companies were equal just after the
monopolys breakup. The Courier available at the start of
Round 2 will display the results for Round 1. As the simulation
progresses and strategies are implemented, results among
the competing companies will begin to vary.
Company Departments
2
1.3 Company Departments
Jhe 8ehearsal Jutcrlal aad 0hapter + dlscuss ccapaa, actlltles. \cu
hae |cur aala departaeats cr |uactlcaal areas.
8esearch & 0eelcpaeat, cr 8&0
Marketla
lrcductlca
llaaace
0capaales use the 0apstcae :preadsheet tc eater departaeatal
declslcas.
1.3.1 Research & Development (R&D)
\cur 8&0 0epartaeat deslas ,cur prcduct llae. Jhe departaeat
aeeds tc laeat aad relse prcducts that appeal tc ,cur custcaers`
chaala aeeds.
1.3.2 Marketing
\cur Marketla 0epartaeat prlces aad prcactes ,cur prcducts. it
lateracts wlth ,cur custcaers la lts sales |crce aad dlstrlbutlca
s,stea. Marketla ls alsc respcaslble |cr sales |crecasts.
1.3.3 Production
\cur lrcductlca 0epartaeat deteralaes hcw aaa, ualts wlll be
aaau|actured durla the ,ear. it ls alsc respcaslble |cr bu,la aad
sellla prcductlca llaes.
1.3.4 Finance
\cur llaaace 0epartaeat aakes sure ,cur ccapaa, has the
rescurces lt aeeds tc rua thrcuh the ,ear. Jhe departaeat caa ralse
acae, la cae ,ear baak actes cr 10 ,ear bcads.
Jhe departaeat caa alsc lssue stcck dlldeads, bu, back stcck cr
retlre bcads be|cre thelr due dates.
The Courier is available from two locations:
From the Capstone Spreadsheet, click Reports in the
menu bar;
On the website, log into your simulation and click the
Reports link.
1.2.3 The Situation Analysis
0capletla the :ltuatlca \aal,sls wlll eaable ,cu tc uaderstaad
curreat aarket ccadltlcas aad hcw the ladustr, wlll ecle la the
aext |ew ,ears. it wlll asslst ,cu wlth ,cur cperatlcaal plaaala.
Jhe :ltuatlca \aal,sls ccaes la twc erslcas.
uallae lateractle
0cwalcadable l0l (pea aad paper)
To access the Situation Analysis, log into your simulation and
go to the Getting Started area.
1.2.4 Proformas & Annual Reports
lrc|craas aad aaaual repcrts are speclhc tc ,cur ccapaa,.
lrc|craas are !"#$%&'(#)* |cr the upccala ,ear. \aaual repcrts are
the "%*+,'* |rca the prelcus ,ear.
Jhe prc|craas wlll help ,cu ealslca the lapacts c| ,cur peadla
declslcas aad sales |crecasts. Jhe aaaual repcrts wlll help ,cu
aaal,ze last ,ear`s results.
Proformas are only available from the Capstone
Spreadsheets Proformas menu. To access the annual reports:
From the Capstone Spreadsheet, click Reports in the menu
bar; and
On the website, log into your simulation then click the
Reports link.
1.2.5 The Capstone Spreadsheet
Jhe 0apstcae :preadsheet ls the aere ceater c| ,cur ccapaa, where
,cu |craulate aad haallze aaaaeaeat declslcas |cr eer,
departaeat. Jhe spreadsheet ccaes la twc erslcas.
\ \eb \erslca that allcws ,cu tc wcrk la aa, iateraet
brcwser, aad
\a xl: \erslca that ruas la Mlcrcsc|tO lxcelO.
After you log into your simulation, the spreadsheet is
available from the Decisions link.
1.2.6 Just in Time Information
ia the spreadsheet declslca areas, lcck |cr the
1a s,abcl shcwa tc the rlht. 0llckla lt wlll
le ,cu detalled la|craatlca abcut the area ,cu
are lewla.
Team Member Guide
Buying Criteria
3
tc success! 0capaales ccapete |cr up tc elht rcuads, wlth each
rcuad slaulatla cae ,ear la the ll|e c| ,cur ccapaa,.
1.5.1 Decision Audits
Jhe 0eclslca \udlt ls a ccaplete trall c| all teaa declslcas. it wlll
help ,cu ldeatl|, ,cur declslca-aakla streaths aad weakaesses.
The audit is available from two locations:
From the Capstone Spreadsheet, click Help in the menu
bar; and
On the website, log into your simulation then click the
Decision Audit link.
1.6 Company Success
Jhe bcard c| dlrectcrs, sharehclders aad cther stakehclders expect
,cu tc aake the ccapaa, a aarket leader. :uccess|ul aaaaers wlll.
\aal,ze the aarket aad lts ccapetla prcducts,
0reate aad execute a strate,, aad
0ccrdlaate ccapaa, actlltles.
est c| luck la ruaala a prchtable aad sustalaable ccapaa,!
2 Industry Conditions
Jhe la|craatlca repcrted la ,cur iadustr, 0cadltlcas 8epcrt wlll
help ,cu uaderstaad ,cur custcaers.
\cur custcaers |all latc dl||ereat rcups whlch are represeated b,
aarket seaeats. \ aarket seaeat ls a rcup c| custcaers that has
slallar aeeds. Jhe seaeats are aaaed |cr the custcaer`s prlaar,
requlreaeats such as.
Jradltlcaal
lcw lad
ulh lad
ler|craaace
:lze
Jhe iadustr, 0cadltlcas 8epcrt llsts aarket seaeat sales
perceataes aad prcected rcwth rates ualque tc ,cur slaulatlca.
The Industry Conditions Report is available from the website.
Log into your simulation then click the Reports link.
2.1 Buying Criteria
0ustcaers wlthla each aarket seaeat eaplc, dl||ereat staadards
as the, ealuate prcducts. Jhe, ccaslder |cur bu,la crlterla. lrlce,
\e, MJl (Meaa Jlae e|cre lallure) aad lcsltlcala.
1.4 Inter-Department Coordination
1.4.1 R&D and Marketing
8&0 wcrks wlth Marketla tc aake sure ,cur prcduct llae aeets
custcaer expectatlcas.
1.4.2 R&D and Production
8&0 wcrks wlth lrcductlca tc easure asseabl, llaes are purchased
|cr aew prcducts. i| lrcductlca dlsccatlaues a prcduct, lt shculd
actl|, 8&0.
1.4.3 Marketing and Production
Marketla wcrks wlth lrcductlca tc aake sure aaau|acturla
quaatltles are la llae wlth |crecasts. Marketla`s aarket rcwth
prcectlcas alsc help lrcductlca deteralae apprcprlate leels c|
capaclt,. i| Marketla decldes tc dlsccatlaue a prcduct, lt tells
lrcductlca tc sell the prcduct`s prcductlca llae.
1.4.4 Marketing and Finance
Marketla wcrks wlth llaaace tc prcect reeaues |cr each prcduct
aad tc set the \cccuats 8ecelable pcllc,, whlch ls the aacuat c| tlae
custcaers caa take tc pa, |cr thelr purchases.
1.4.5 Finance and Production
lrcductlca tells llaaace l| lt aeeds acae, |cr addltlcaal equlpaeat.
i| llaaace caaact ralse eacuh acae,, lt caa tell lrcductlca tc scale
back lts requests cr perhaps sell ldle capaclt,.
1.4.6 Finance and All Departments
Jhe llaaace 0epartaeat acts as a watchdc cer ccapaa,
expeadltures. llaaace shculd relew Marketla aad lrcductlca
declslcas. llaaace shculd crcsscheck Marketla`s |crecasts aad
prlcla. \re |crecasts tcc hlh cr tcc lcw? \lll custcaers be wlllla
tc pa, the prlces Marketla has set? is lrcductlca aaau|acturla
tcc aaa, cr tcc |ew ualts? 0ces lrcductlca aeed addltlcaal
capaclt,? uas lrcductlca ccasldered lcwerla labcr ccsts b,
purchasla autcaatlca?
1.5 Practice and Competition Rounds
lractlce 8cuads allcw ,cu tc craalze wcrk1cw aaca the aeabers
c| ,cur ccapaa,. \cu wlll bela tc ccapete aalast the cther
ccapaales la ,cur slaulatlca.
Dont confuse the Rehearsal Tutorial with the Practice Rounds!
During the Rehearsal Tutorial, you are shown how to make
decisions in a scripted environment. During the Practice
Rounds, you can experiment with your decisions in a
competitive environment.
\|ter the ccacluslca c| the lractlce 8cuads, the slaulatlca ls reset
aad the real ccapetltlca belas. \cw lt`s tlae tc drle ,cur ccapaa,
Buying Criteria
4
2.1.5 Market Segment Positions on the
Perceptual Map
0ustcaers wlthla each aarket seaeat hae dl||ereat pcsltlcala
pre|ereaces. lcr exaaple, a seaeat alht be satlshed wlth
laexpeasle prcducts that are slcw per|crala aad lare la slze. Jhat
seaeat wculd waat prcducts that |all laslde the upper le|t set c|
dashed aad sclld clrcles la llure !.!. \ seaeat that waats prcducts
that are |ast per|crala aad saall la slze wculd waat prcducts that
|all wlthla the lcwer rlht set c| dashed aad sclld clrcles.
uer tlae, ,cur custcaers expect prcducts that are saaller aad
|aster. Jhls causes the seaeats tc ace cr -"(.' a llttle each acath.
\s the ,ears prcress the lccatlcas c| the clrcles slalhcaatl, chaae.
Jhe exaaple la llure !.3 shcws the lccatlca c| the aarket seaeats
at the ead c| the |curth ,ear. llure !.+ shcws the seaeats at the ead
c| the elhth ,ear.
2.1.1 Price
lach seaeat has dl||ereat prlce expectatlcas. uae seaeat alht
waat laexpeasle prcducts whlle aacther, seekla adaaced
techaclc,, alht be wlllla tc pa, hlher prlces.
2.1.2 Age
lach seaeat has dl||ereat ae expectatlcas, that ls, the leath c|
tlae slace the prcduct was laeated cr relsed. uae seaeat alht
waat braad aew techaclc, whlle aacther alht pre|er prcea
techaclc, that has beea la the aarket |cr a |ew ,ears.
2.1.3 MTBF (Mean Time Before Failure)
or Reliability
MJl (Meaa Jlae e|cre lallure) ls a ratla c| rellablllt, aeasured
la hcurs. :eaeats hae dl||ereat MJl crlterla. :cae alht pre|er
hlher MJl ratlas whlle cthers are satlshed wlth lcwer ratlas.
2.1.4 Positioning
:eascrs ar, la thelr dlaeaslcas (slze) aad the speed/seasltllt,
wlth whlch the, respcad tc chaaes la ph,slcal ccadltlcas
(per|craaace). 0cablala slze aad per|craaace creates a prcduct
attrlbute called pcsltlcala.
The Perceptual Map
lcsltlcala ls such aa lapcrtaat ccacept that aarketers deelcped a
tccl tc track the pcsltlca c| thelr prcducts aad thcse c| thelr
ccapetltcrs. Jhls tccl ls called a lerceptual Map.
\cte the lerceptual Map la llure !.1. \cu wlll see thls aap qulte
c|tea thrcuh the ccurse c| the slaulatlca.
Jhe aap aeasures slze ca the ertlcal axls aad per|craaace ca the
hcrlzcatal axls. lach axls exteads |rca 0 tc !0 ualts. Jhe arrcw la
llure !.1 pclats tc a prcduct called \ble wlth a per|craaace
aeasureaeat c| 8.0 aad a slze c| 1!.0.
Figure 2.1 The Perceptual Map Used in the
Simulation: The Perceptual Map plots product
size and performance characteristics.
Figure 2.2 Beginning Segment Positions: At
the beginning of the simulation, segment
positions are clustered in the upper left
portion of the perceptual map.
Figure 2.3 Segment Positions at the End
of Year 4: The overlap between the seg-
ments decreases because the Low End
and Traditional segments move at
slower speeds.
Figure 2.4 Segment Positions at the End of
Year 8: The segments have moved to the
lower right; very little overlap remains.
Example! See your Industry Conditions Report for exact segment locations.
A product with a
performance of 8
and a size of 12 is
positioned here
Team Member Guide
Buying Criteria by Segment
5
In the simulation, there are zero customers interested in
products positioned outside of the dashed circles.
\cur 8&0 aad Marketla 0epartaeats hae tc aake sure ,cur
prcducts keep up wlth chaala custcaer pre|ereaces. Jc dc thls,
8&0 aust repcsltlca prcducts, keepla thea wlthla the acla
seaeat clrcles. :ee +.1 8esearch & 0eelcpaeat (8&0) |cr
acre la|craatlca.
2.2 Buying Criteria by Segment
u,ers la each seaeat place a dl||ereat eaphasls upca the |cur
bu,la crlterla. lcr exaaple, scae custcaers are acre laterested la
prlce, whlle cthers are acre laterested la pcsltlcala.
Positioning and price criteria change every year. Age and
MTBF criteria always remain the same.
u,la 0rlterla |cr the prelcus ,ear are repcrted la the 0apstcae
0curler`s :eaeat \aal,sls paes. \s ,cu take cer the ccapaa, tc
aake declslcas |cr 8cuad 1, ,cur repcrts re1ect custcaer
expectatlcas as c| 0eceaber 31, 8cuad 0 (,esterda,). Jhe iadustr,
0cadltlcas 8epcrt dlspla,s the 8cuad 0 bu,la crlterla |cr each
aarket seaeat. uere are twc exaaple seaeats.
lxaaple 1 custcaers seek prcea prcducts at a acdest prlce.
\e, ! ,ears- lapcrtaace. +
lrlce, ;!0.00-;30.00- lapcrtaace. !3
ideal lcsltlca, per|craaace 5.0 slze 15.0- lapcrtaace. !1
MJl, 1+,000-19,000- lapcrtaace. 9
lxaaple ! custcaers seek cuttla-ede techaclc, la slze/
per|craaace aad aew deslas.
ideal lcsltlca, per|craaace 8.9 slze 11.1- lapcrtaace. +3
\e, 0 ,ears- lapcrtaace. !9
MJl, !0,000-!5,000- lapcrtaace. 19
lrlce, ;30.00-;+0.00- lapcrtaace. 9
3 The Customer Survey Score
ia aa, acath, a prcduct`s deaaad ls drlea b, lts acathl, custcaer
sure, sccre. \ssuala lt dces act rua cut c| laeatcr,, a prcduct
wlth a hlher sccre wlll cutsell a prcduct wlth a lcwer sccre.
lach ,ear, scae aarket seaeats deaaad reater laprceaeat
thaa cthers. Jhere|cre seaeats drl|t at dl||ereat rates. :eaeats
deaaadla reater laprceaeat wlll ace |aster aad |arther thaa
cthers. \s tlae ces b,, the cerlap betweea the seaeats
dlalalshes.
Drift rates are published in the Industry Conditions Report.
Market seaeats wlll act ace |aster tc catch up wlth prcducts that
are better thaa custcaer expectatlcas. 0ustcaers wlll re|use tc bu, a
prcduct pcsltlcaed cutslde the clrcles. 0ustcaers are cal, laterested
la prcducts that satls|, thelr aeeds. Jhls lacludes bela wlthla the
clrcles ca the lerceptual Map!
Perceptual Maps Can Be Used for Many
Types of Products...
Perceptual Maps can be used to plot any two product
characteristics. For example, cereal manufacturers could plot
nutrition and taste. The dots in the fgure below represent
sales of breakfast cereals based on ratings of taste and
nutrition. There are few sales in the lower left cornernot
many consumers want products that have poor taste and
poor nutrition.
As they review product sales, marketers would notice three
distinct clusters. The cluster to the upper left indicates a
group of customers that is more interested in nutrition than
taste. The cluster to the lower right indicates a group that is
more interested in taste than nutrition. The cluster to the
upper right indicates a group that wants both good taste and
good nutrition.
The clusters, or market segments, could then be named
Taste, Nutrition and Taste/Nutrition. The simulation uses
a similar positioning method to name its market segments.
Buying Criteria and the Customer Survey Score
6
3.1.1 Positioning Score
Marketers aust uaderstaad bcth what custcaers waat aad thelr
bcuadarles. ia teras c| a prcduct`s slze aad per|craaace (as
dlscussed la :ectlca !.1.5), the lerceptual Map lllustrates these
ldeas wlth clrcles. lach seaeat ls descrlbed wlth a dashed cuter
clrcle, a sclld laaer clrcle aad a dct we call the ldeal spct.
Rough Cut Circle
Jhe dashed cuter clrcle dehaes the cuter llalt c| the seaeat.
0ustcaers are sa,la, i wlll \uJ purchase a prcduct cutslde thls
bcuadar,. \e call the dashed clrcle the rcuh cut because aa,
prcduct cutslde c| lt |alls the rcuh cut aad ls drcpped |rca
ccaslderatlca. 8cuh cut clrcles hae a radlus c| +.0 ualts.
Fine Cut Circle
Jhe sclld laaer clrcle dehaes the heart c| the seaeat. 0ustcaers
pre|er prcducts wlthla thls clrcle. \e call the laaer clrcle the hae cut
because prcducts wlthla lt aake the hae cut. llae cut clrcles hae a
radlus c| !.5 ualts.
Ideal Spot
Jhe ldeal spct ls that pclat la the heart c| the seaeat where, all cther
thlas bela equal, deaaad ls hlhest.
Segment Movement
lach seaeat aces acrcss the lerceptual Map a llttle each acath.
ia a per|ect wcrld ,cur prcduct wculd be pcsltlcaed la |rcat c| the
ldeal spct la }aauar,, ca tcp c| the ldeal spct la }uae aad trall the
Customer survey scores are calculated 12 times a year. The
December customer survey scores are reported in the
Capstone Couriers Segment Analysis pages.
\ custcaer sure, sccre re1ects hcw well a prcduct aeets lts
seaeat`s bu,la crlterla. 0capaa, prcactlca, sales aad acccuats
recelable pcllcles alsc a||ect the sure, sccre.
:ccres are calculated cace each acath because a prcduct`s ae aad
pcsltlcala chaae a llttle each acath. i| durla the ,ear a prcduct ls
relsed b, 8esearch aad 0eelcpaeat, the prcduct`s ae, pcsltlcala
aad MJl characterlstlcs caa chaae qulte a blt. \s a result, lt ls
pcsslble |cr a prcduct wlth a er, ccd 0eceaber custcaer sure,
sccre tc hae had a auch pccrer sccre - aad there|cre pccrer sales
- la the acaths prlcr tc aa 8&0 relslca.
lrlces, set b, Marketla at the belaala c| the ,ear, wlll act chaae
durla the ,ear.
3.1 Buying Criteria and the Customer
Survey Score
Jhe custcaer sure, starts b, ealuatla each prcduct aalast the
bu,la crlterla. \ext, these assessaeats are welhted b, the crlterla`s
leel c| lapcrtaace. lcr exaaple, scae seaeats assla a hlher
lapcrtaace tc pcsltlcala thaa cthers. \ well-pcsltlcaed prcduct la a
seaeat where pcsltlcala ls lapcrtaat wlll hae a reater cerall
lapact ca lts sure, sccre thaa a well-pcsltlcaed prcduct la a
seaeat where pcsltlcala ls act lapcrtaat.
The Industry Conditions Report and the Couriers Market
Segment Analysis pages break down each segments criteria
in order of importance.
\ per|ect custcaer sure, sccre c| 100 requlres that the prcduct. e
pcsltlcaed at the ldeal spct (the seaeat drl|ts each acath, sc thls
caa cccur cal, cae acath per ,ear), be prlced at the bcttca c| the
expected raae, hae the ldeal ae |cr that seaeat (ualess the, are
relsed, prcducts rcw clder each acath, sc thls caa cccur cal, cae
acath per ,ear), aad hae aa MJl speclhcatlca at the tcp c| the
expected raae.
Your customers want perfection, but it is impractical to
have perfect products. In many cases you will have to
settle for great products, but the better the products, the
higher the costs. Your task is to give customers great
products while still making a proft. Your competitors face
the same dilemma.
Figure 3.1 Positioning Scores: The outer edge of the orange rough cut measures
4.0 units from the center of the circle; the edge of the green fne cut measures
2.5 units from the center. Segment ideal spots are represented by the black dots.

The example on the left displays a positioning score for a segment that prefers
products with slower performance and larger size. The example on the right
displays a score for a segment that demands cutting edge products with high
performance and small size. The orange areas represent the segment rough cuts,
where scores rapidly decrease towards zero.
Example!
See your Industry Conditions Report for exact information.
Team Member Guide
Buying Criteria and the Customer Survey Score
7
ldeal spct la 0eceaber. ia 0eceaber lt wculd ccaplete aa 8&0
prcect tc uap la |rcat c| the ldeal spct |cr aext ,ear.
Positioning Rough Cut
lrcducts laslde the rcuh cut but cutslde c| the hae cut (craae
areas, llure 3.1) are badl, pcsltlcaed. Jhe, are betweea !.5 aad +.0
ualts |rca the ceater c| the clrcle. 0ustcaers wlll ccaslder thea but
the, are at a slalhcaat dlsadaatae tc prcducts laslde the hae cut.
:peclhcall,, prcducts la the rcuh cut hae reduced custcaer sure,
sccres. Jhelr sccre drcps la a llaear |ashlca. }ust be,cad the hae cut
the sccre drcps 1. ual|wa, betweea the hae aad rcuh cut the sccre
drcps 50. Jhe custcaer sure, sccre drcps 99 |cr prcducts that
are ust laslde the rcuh cut.
Sensors that are about to enter the rough cut can be revised
by Research & Development (see 4.1.1 Changing
Performance, Size and MTBF).

The location of each segments rough cut and fne cut circles
as of December 31 of the previous year appears on page 11 of
the Courier.
Positioning Fine Cut
lrcducts laslde the hae cut (reea areas, llure 3.1,) are wlthla !.5
ualts c| the ceater c| the clrcle. ideal spcts |cr each seaeat are
lllustrated b, the black dcts. Jhe exaaple ca the le|t lllustrates a
seaeat that pre|ers prcea, laexpeasle techaclc,. Jhe ldeal spct ls
tc the upper le|t c| the seaeat ceater, where aaterlal ccsts are
lcwer. Jhe exaaple ca the rlht lllustrates a seaeat that pre|ers
cuttla-ede techaclc,. Jhe ldeal spct ls tc the lcwer rlht c| the
seaeat ceater, where aaterlal ccsts are hlher (see llure +.1 |cr
aa lllustratlca c| aaterlal pcsltlcala ccsts).
Participants often ask, Why are some ideal spots ahead of
the segment centers? The segments are moving. From a
customers perspective, if they buy a product at the ideal
spot, it will still be a cutting edge product when it wears out.
For contrast, if they buy a product at the trailing edge, it will
not be inside the segment when it wears out.
\ prcduct`s pcsltlcala sccre chaaes each acath because
seaeats aad ldeal spcts drl|t a llttle each acath. llacla a
prcduct la the path c| the ldeal spct wlll retura the reatest beaeht
thrcuh the ccurse c| a ,ear.
3.1.2 Price Score
ler, seaeat has a ;10.00 prlce raae. lrlce raaes la all
seaeats drcp ;0.50 per ,ear.
Figure 3.3 Mean Time Before Failure
(MTBF) Score: As MTBF increases the
score increases. Customers are
indifferent to MTBFs above the
segment range.
Figure 3.2 Classic Price/Demand
Curve (Green Bow): As price drops
demand (price score) rises. Scores drop
above the price range (orange line).
:eaeat prlce expectatlcas ccrrelate wlth the seaeat`s pcsltlca ca
the lerceptual Map. :eaeats that deaaad hlher per|craaace aad
saaller slzes are wlllla tc pa, hlher prlces.
Price ranges for Round 0 (the year prior to Round 1) are
published in the Industry Conditions Report and the Segment
Analysis pages of the Capstone Courier.
Price Rough Cut
:eascrs prlced ;5.00 abce the seaeat uldellaes wlll act be
ccasldered |cr purchase. Jhcse prcducts |all the prlce rcuh cut.
:eascrs prlced ;1.00 abce cr belcw the seaeat uldellaes lcse
abcut !0 c| thelr custcaer sure, sccre (craae llae, llure 3.!).
:eascrs ccatlaue tc lcse apprcxlaatel, !0 c| thelr custcaer sure,
sccre |cr each dcllar abce the uldellae, ca up tc ;+.99, where the
sccre ls reduced b, apprcxlaatel, 99. \t ;5.00 abce the raae,
deaaad |cr the prcduct ls zerc.
Price Fine Cut
\lthla each seaeat`s prlce raae, prlce sccres |cllcw a classlc
eccacalc deaaad cure (reea cure, llure 3.!). \s prlce ces
dcwa, the prlce sccre ces up.
3.1.3 MTBF Score
lach seaeat sets a 5,000 hcur raae |cr MJl (Meaa Jlae e|cre
lallure), the auaber c| hcurs a prcduct ls expected tc cperate be|cre
lt aal|uactlcas.
MTBF Rough Cut
0eaaad sccres |all rapldl, |cr prcducts wlth MJls beaeath the
seaeat`s uldellaes. lrcducts wlth aa MJl 1,000 hcurs belcw the
Estimating the Customer Survey Score
8
!0 aad ,cur ccapetltcrs` sccres are !, 19, !1 aad 3, thea ,cur
prcduct`s \prll deaaad ls.
20/(20+27+19+21+3) = 22
\ssuala ,cu had eacuh laeatcr, tc aeet deaaad, ,cu wculd
recele !! c| seaeat sales |cr \prll.
\hat eaerates the sccre ltsel|? Marketers speak c| the + l`s -
prlce, prcduct, prcactlca aad place. lrlce aad prcduct are |cuad la
the bu,la crlterla. Jcether the, preseat a prlce-alue relatlcashlp.
\cur prcactlca budet bullds awareaess, the auaber c| custcaers
whc kacw abcut ,cur prcduct be|cre scurcla. \cur sales budet
(place) bullds accesslblllt,, the ease wlth whlch custcaers caa
wcrk wlth ,cu a|ter the, bela scurcla. Jc the + l`s we caa add twc
addltlcaal eleaeats- credlt teras aad aallablllt,. 0redlt teras are
expressed b, ,cur acccuats recelable (\/8) pcllc,. \allablllt,
addresses laeatcr, shcrtaes.
3.2.1 Base Scores
Jc estlaate the custcaer sure, sccre, bela wlth the bu,la crlterla
aallable la the 0curler`s :eaeat \aal,sls repcrts. lcr exaaple,
suppcse the bu,la crlterla are.
\e, ! ,ears- lapcrtaace. +
lrlce, ;!0.00-;30.00- lapcrtaace. !3
ideal lcsltlca, per|craaace 5.0 slze 15.0- lapcrtaace. !1
MJl, 1+,000-19,000- lapcrtaace. 9
\ per|ect sccre c| 100 requlres that the prcduct hae aa ae c| !.0
,ears, a prlce c| ;!0.00, a pcsltlca at the ldeal spct (5.0 aad 15.0) aad
aa MJl c| 19,000 hcurs.
Jhe seaeat welhs the crlterla at. \e +, lrlce !3, lcsltlcala
!1 aad MJl 9. \cu caa ccaert these perceataes latc pclats
thea use these auabers tc estlaate a base sccre |cr ,cur prcduct. lcr
exaaple, prlce ls wcrth !3 pclats. Jhe per|ect 8cuad 0 prlce c|
;!0.00 wculd et !3 pclats, but at the cppcslte ead c| the prlce raae,
a prlce c| ;30.00 wculd cal, et cae pclat.
You can use the age and positioning charts in your
Industry Conditions Report to estimate average points for
those criteria.
ucweer, the base sccre caa |all because c| pccr awareaess
(prcactlca), accesslblllt, (place) cr the credlt teras ,cu extead tc
,cur custcaers.
3.2.2 Accounts Receivable
\ ccapaa,`s acccuats recelable pcllc, sets the aacuat c| tlae
custcaers hae tc pa, |cr thelr purchases. \t 90 da,s there ls ac
reductlca tc the base sccre. \t o0 da,s the sccre ls reduced 0.. \t
30 da,s the sccre ls reduced . u||erla ac credlt teras (0 da,s)
reduces the sccre b, +0 (see +.+.5 0redlt lcllc,).
seaeat uldellae lcse !0 c| thelr custcaer sure, sccre. lrcducts
ccatlaue tc lcse apprcxlaatel, !0 c| thelr custcaer sure, sccre
|cr eer, 1,000 hcurs belcw the uldellae, ca dcwa tc +,999 hcurs,
where the custcaer sure, sccre ls reduced b, apprcxlaatel, 99.
\t 5,000 hcurs belcw the raae, deaaad |cr the prcduct |alls tc zerc.
MTBF Fine Cut
\lthla the seaeat`s MJl raae, the custcaer sure, sccre
laprces as MJl lacreases (llure 3.3). ucweer, aaterlal ccsts
lacrease ;0.30 |cr eer, addltlcaal 1000 hcurs c| rellablllt,.
0ustcaers lacre rellablllt, abce the expected raae- deaaad
plateaus at the tcp c| the raae.
3.1.4 Age Score
Jhe ae crlterla dces act hae a rcuh cut, a prcduct wlll aeer be tcc
,cua cr tcc cld tc be ccasldered |cr purchase.
0ustcaers deaaadla cuttla-ede techaclc, pre|er aewer
prcducts. Jhe ldeal aes |cr these aarket seaeats are eaerall, cae
aad a hal| ,ears cr less. uther seaeats pre|er prcea techaclc,.
Jhese seaeats seek clder deslas.
lach acath, custcaers assess a prcduct`s ae aad award a sccre
based upca thelr pre|ereaces. lxaaples c| ae pre|ereaces are
lllustrated la llure 3.+.
Age preferences for each segment are published in the
Industry Conditions Report and the Segment Analysis pages
of the Capstone Courier.
3.2 Estimating the Customer Survey Score
Jhe custcaer sure, sccre drles deaaad |cr ,cur prcduct la a
seaeat. \cur deaaad la aa, lea acath ls ,cur sccre dllded b,
the sua c| the sccres. lcr exaaple, l| ,cur prcduct`s sccre la \prll ls
Figure 3.4 Age Scores: The example on the left displays an age score for a
segment that prefers products that have an age of one year. The example on the
right displays a score for a segment that prefers products that are two years old.
Example!
See your Industry Conditions Report for exact information.
Team Member Guide
Stock Outs and Sellers Market
9
prlce raaes |all b, ;0.50 each rcuad. 0eaaad |cr the
prcduct beccaes zerc. Jhe, shculd hae prlced ;+.+9 abce
last ,ear`s raae.
!. \ ccapaa, dlsreards prcducts that are la the pcsltlcala rcuh
cut. Jhese prcducts acraall, caa be lacred because the, hae
lcw custcaer sure, sccres. ucweer, whea the ccapaa,
lacreases the prlce, the custcaer sure, sccre |alls belcw the
prcducts la the rcuh cut areas, whlch are suddeal, acre
attractle thaa thelr prcduct.
3. Jhe ccapaa, |alls tc add capaclt, |cr the aext rcuad. \ seller`s
aarket scaetlaes appears because a ccapetltcr
uaexpectedl, exlts a seaeat. Jhls creates a wlad|all
cppcrtualt, |cr the reaalala ccapaales. (ucweer, a
well-rua ccapaa, wlll alwa,s hae eacuh capaclt, tc aeet
deaaad |rca lts custcaers.)
ucw caa ,cu be sure c| a seller`s aarket? \cu caa`t, ualess ,cu are
certala that ladustr, capaclt,, lacludla a seccad shl|t, caaact aeet
deaaad |cr the seaeat. ia that case, eea er, pccr prcducts wlll
stcck cut as custcaers search |cr aa,thla that wlll aeet thelr aeeds.
Consider the question, What happens to price if every
competitor has just enough capacity to meet demand from
its customers?
4 Managing Your Company
it`s tlae tc ualcck the dccrs aad tura ca the llhts. \elccae tc ,cur
ccapaa,. Jhe 8ehearsal Jutcrlal (descrlbed la :ectlca 1.!.1) shcws
,cu the aechaalcs c| the ccapaa, departaeats descrlbed belcw.
8eaeaber, eaterla declslcas ls the eas, part, deteralala what
declslcas tc eater requlres scae thcuht. Jhls chapter aad the
8ehearsal Jutcrlal wlll help ,cu et started.
ler, ccapaa, starts the slaulatlca wlth he prcducts. \cur
ccapaa, has cae prcduct |cr each seaeat. \cu hae cae asseabl,
llae per prcduct. lrcducts caa be teralaated cr added. \cur
ccapaa, aust hae at least cae prcduct aad caaact hae acre thaa
elht. \cur declslcas, aade eer, ,ear ca }aauar, 1, are carrled cut
b, ,cur eaplc,ees thrcuhcut the ,ear.
3.2.3 Awareness and Accessibility
\|ter ,cur prcduct leaes the |actcr, aad eaters the aarketplace, the
calculatlcas |cr lts sccre beccae less exact. Jhe sccre wlll be
a||ected b, the leel c| the prcduct`s awareaess (the perceatae c|
pecple whc kacw abcut ,cur prcduct) aad lts seaeat`s
accesslblllt, (the auaber c| custcaers whc caa easll, lateract wlth
,cur ccapaa,).
\wareaess ls bullt cer tlae b, the prcduct`s prcactlca budet.
lrcactlca budets |uad adertlsla aad publlc relatlcas caapalas.
\ccesslblllt, ls bullt cer tlae b, the prcduct`s sales budet. :ales
budets |uad salespecple aad dlstrlbutlca s,steas tc serlce
custcaers wlthla the prcduct`s aarket seaeat.
:lallar prcducts wlth hlher awareaess aad accesslblllt, wlll sccre
better thaa thcse wlth lcwer perceataes (see +.! Marketla |cr
acre la|craatlca ca awareaess aad accesslblllt,).
3.3 Stock Outs and Sellers Market
\hat happeas whea a prcduct eaerates hlh deaaad but ruas cut c|
laeatcr, (stccks cut)? Jhe ccapaa, lcses sales as custcaers tura tc
lts ccapetltcrs. Jhls caa happea la aa, acath.
The Market Share Report of the Capstone Courier (page 10)
can help you diagnose stock outs and their impacts.
|suall,, a prcduct wlth a lcw custcaer sure, sccre has lcw sales.
ucweer, l| a seaeat`s deaaad exceeds the suppl, c| prcducts
aallable |cr sale, a seller`s aarket eaeres. ia a seller`s aarket,
custcaers wlll accept lcw sccrla prcducts as lca as the, |all wlthla
the seaeat`s rcuh cut llalts. lcr exaaple, desperate custcaers
wlth ac better alteraatles wlll bu,.
\ prcduct pcsltlcaed ust laslde the rcuh cut clrcle ca
the lerceptual Map- cutslde the clrcle the, sa, ac tc
the prcduct,
\ prcduct prlced ;+.99 abce the prlce raae- at ;5.00
custcaers reach thelr tcleraace llalt aad re|use tc bu,
the prcduct,
\ prcduct wlth aa MJl +,999 hcurs belcw the
raae- at 5,000 hcurs belcw the raae custcaers re|use
tc bu, the prcduct.
\atch cut |cr three ccaaca tactlcal alstakes la a seller`s aarket.
1. \|ter ccapletla a capaclt, aaal,sls, a ccapaa, decldes that
ladustr, deaaad exceeds suppl,. Jhe, prlce thelr prcduct
;+.99 abce last rcuad`s publlshed prlce raae, |crettla that
Research & Development (R&D)
10
Reliability (MTBF) Costs
Jhe rellablllt, ratla, cr MJl, |cr exlstla prcducts caa be adusted
up cr dcwa. lach 1,000 hcurs c| rellablllt, (MJl) adds ;0.30 tc the
aaterlal ccst. \ prcduct wlth !0,000 hcurs rellablllt, lacludes ;o.00
la rellablllt, ccsts.
($0.30 20,000) / 1,000 = $6.00
\cur custcaers asscclate MJl acrcss ,cur prcduct llae. Jhere|cre,
a lcw MJl ratla |cr cae prcduct wlll a||ect the perceptlca c| cther
prcducts. \ prcduct`s e||ectle MJl ls 80 c| lts MJl plus !0 c|
the lcwest MJl la the prcduct llae. i| a prcduct has aa MJl c|
!!,000 hcurs, aad the lcwest MJl la the prcduct llae ls 1+,000
hcurs, the e||ectle MJl |cr the hrst prcduct wlll be !0,+00 hcurs.
(22,000 0.8) + (1+,000 0.2) = 20,+00
iaprcla pcsltlcala aad rellablllt, wlll aake a prcduct acre
appealla tc custcaers, but dcla sc lacreases aaterlal ccsts.
Material costs displayed in the spreadsheet and reports are
the combined positioning and reliability (MTBF) costs.
4.1 Research & Development (R&D)
Jhe 8esearch aad 0eelcpaeat (8&0) departaeat cersees
laeatlca aad redesla. it deelcps the laacatlcas aeeded tc keep
the ccapaa, ahead c| the ccapetltlca. 8&0 ls respcaslble |cr the
prcduct pcrtlca c| the + l`s c| Marketla (prcduct, prlce, place
aad prcactlca). Jhls aakes 8&0 aa esseatlal part c| aa,
aarketla prccess.
\cur 8&0 0epartaeat laeats aew prcducts aad chaaes
speclhcatlcas |cr exlstla prcducts. 0haala slze aad/cr
per|craaace repcsltlcas a prcduct ca the lerceptual Map.
iaprcla per|craaace aad shrlakla slze aces the prcduct
tcwards the lcwer rlht ca the aap (see !.1.+ lcsltlcala).
\cur 8&0 declslcas are |uadaaeatal tc ,cur Marketla aad
lrcductlca plaas. ia Marketla, 8&0 addresses.
Jhe pcsltlcala c| each prcduct laslde a aarket seaeat ca
the lerceptual Map
Jhe auaber c| prcducts la each seaeat
Jhe ae c| ,cur prcducts
Jhe rellablllt, (MJl ratla) c| each prcduct
ia lrcductlca, 8&0 a||ects cr ls a||ected b,.
Jhe ccst c| aaterlal
Jhe purchase c| aew |acllltles tc bulld aew prcducts
\utcaatlca leels (Jhe hlher the autcaatlca leel, the
lcaer lt takes tc ccaplete aa 8&0 prcect.)
\ll 8&0 prcects bela ca }aauar, 1. i| a prcduct dces act hae a
prcect alread, uaderwa,, ,cu caa lauach a aew prcect |cr that
prcduct. ucweer, l| a prcect beua la a prelcus ,ear has act
halshed b, 0eceaber 31 c| last ,ear, ,cu wlll act be able tc lauach a
aew prcect |cr that prcduct (the declslca eatr, cells la the 8&0 area
c| the 0apstcae :preadsheet wlll be lccked).
4.1.1 Changing Performance, Size and MTBF
\ repcsltlcala prcect aces aa exlstla prcduct |rca cae lccatlca
ca the lerceptual Map tc a aew lccatlca, eaerall, (but act alwa,s)
dcwa aad tc the rlht. 8epcsltlcala requlres a aew slze attrlbute
aad/cr a aew per|craaace attrlbute. Jc keep up wlth seaeat drl|t, a
prcduct aust be aade saaller (that ls, decrease lts slze) aad better
per|crala (that ls, lacrease lts per|craaace).
Positioning Costs
lcsltlcala a||ects aaterlal ccsts (llure +.1). Jhe acre adaaced
the pcsltlcala, the hlher the ccst. \t the belaala c| the
slaulatlca, the trallla ede c| the lcw lad hae cut has the lcwest
pcsltlcala ccst c| apprcxlaatel, ;1.00, the leadla ede c| the ulh
lad hae cut has the hlhest pcsltlcala ccst c| apprcxlaatel, ;10.00.
Figure 4.1 Approximate Material Positioning Costs: Material costs
are driven by two factors, reliability (MTBF) and positioning.

Positioning costs vary depending on the products location on the
Perceptual Map. Products placed at the trailing edge of the seg-
ments have a positioning cost of approximately $1.00; products
placed on the arc of the leading edge have a positioning cost of
approximately $10.00. Products placed on the arc halfway between
the trailing and leading edges have a positioning material cost of
approximately $5.50.

While the segments will drift apart, and the distance between the
leading and trailing edges will increase, the positioning cost range
will not change. The leading edge will always be approximately
$10.00, the trailing edge will always be approximately $1.00 and
the midpoint will always be approximately $5.50.
$
1
0
.
0
0
$
1
.
0
0
$
5
.
5
0
Team Member Guide
Marketing
11
ccaslder breakla aa 18 acath prcect latc twc separate prcects,
wlth the hrst stae eadla ust be|cre the ead c| the curreat ,ear aad
the seccad eadla hal|wa, thrcuh the |cllcwla ,ear.
4.1.3 A Sensors Age
it ls pcsslble |cr a prcduct tc c |rca aa ae c| + ,ears tc ! ,ears. ucw
caa that be? \hea a prcduct ls aced ca the lerceptual Map,
custcaers percele the repcsltlcaed prcduct as aewer aad laprced,
but act braad aew. \s a ccaprcalse, custcaers cut the ae la hal|. i|
the prcduct`s ae ls + ,ears cld, ca the da, lt ls repcsltlcaed, lts ae
beccaes ! ,ears cld. Jhere|cre, ,cu caa aaaae the ae c| a prcduct
b, repcsltlcala the prcduct. it dces act aatter hcw |ar the prcduct
aces. \la ccaaeaces |rca the relslca date.
Changing MTBF alone will not affect a products age.
\e crlterla ar, |rca seaeat tc seaeat. lcr exaaple, l| a seaeat
pre|ers aa ae c| twc ,ears aad the prcduct`s ae apprcaches 3 ,ears,
custcaers wlll lcse laterest (see llure 3.+). 8epcsltlcala the
prcduct drcps the ae |rca 3 tc 1.5 ,ears aad custcaers wlll beccae
laterested aala.
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Research & Development. To change a products
performance, enter a number in the New Pfmn cell; to change
its size, enter a number in the New Size cell. To change the
reliability rating, enter a number in the MTBF cell. As you vary
the specifcations, observe the effect upon the revision date,
project cost, material cost and age.
The Rehearsal Tutorials R&D Tactics show you how to run the
department. Log in at the website and go to Getting Started
for information about the Rehearsal.
4.2 Marketing
Marketla |uactlcas ar, wldel, depeadla ca the ladustr, aad
ccapaa,. ia eaeral, the departaeat -"+0* +! laterest la the
ccapaa,`s prcducts cr serlces thrcuh a alx c| actlltles.
Jhese caa laclude adertlsla, publlc relatlcas aad ccd cld
|ashlcaed salesaaashlp.
\cur Marketla 0epartaeat ls ccaceraed wlth the reaalala l`s
(be,cad 8&0`s prcduct). lrlce, place aad prcactlca. \cur
Marketla 0epartaeat ls alsc la chare c| sales |crecastla.
4.2.1 Pricing Sensors
lrlce was dlscussed la 3.1.!. Jc relew, appeal |alls tc zerc whea
prlces c ;5.00 abce cr belcw the expected prlce raae. lrlce drles
Inventing Sensors
\ew prcducts are asslaed a aaae (cllck la the hrst cell that reads \\
la the aaae ccluaa), per|craaace, slze aad MJl. u| ccurse, these
speclhcatlcas shculd cca|cra tc the crlterla c| the lateaded aarket
seaeat. Jhe aaae c| all aew prcducts aust hae the saae hrst letter
c| the ccapaa, aaae.
Jhe lrcductlca 0epartaeat aust crder prcductlca capaclt, tc bulld
the aew prcduct cae ,ear la adaace. iaeatlca prcects take at least
cae ,ear tc ccaplete.
All new products require capacity and automation, which
should be purchased by the Production Department in the
year prior to the products revision (release) date. If you dont
buy the assembly line the year prior to its introduction, you
cannot manufacture your new product!
it ls act pcsslble tc prcduce aew prcducts prlcr tc the relslca date. \
aew prcduct wlth a relslca date c| }ul, 1 wlll be prcduced la the
seccad hal| c| the ,ear. Jhe capaclt, aad autcaatlca wlll staad ldle
|cr the hrst hal| c| the ,ear.
4.1.2 Project Management
:eaeat clrcles ca the lerceptual Map ace at speeds raala |rca
0. tc 1.3 ualts each ,ear. \cu aust plaa tc ace ,cur prcducts (cr
retlre thea) as the slaulatlca prcresses. 0eaerall,, the lcaer the
ace ca the lerceptual Map, the lcaer lt takes the 8&0 0epartaeat
tc ccaplete the prcect.
lrcect leaths caa be as shcrt as three acaths cr as lca as three
,ears. lrcect leaths wlll lacrease whea the ccapaa, puts twc cr
acre prcducts latc 8&0 at the saae tlae. \hea thls happeas each
8&0 prcect takes lcaer. \sseabl, llae autcaatlca leels alsc a||ect
prcect leaths. 8&0 prcect ccsts are drlea b, the aacuat c| tlae
the, take tc ccaplete. \ slx-acath prcect ccsts ;500,000, a cae-,ear
prcect ccsts ;1,000,000.
:eascrs wlll ccatlaue tc prcduce aad sell at the cld per|craaace, slze
aad MJl speclhcatlcas up uatll the da, the prcect ccapletes,
shcwa ca the spreadsheet as the relslca date. |ascld ualts bullt
prlcr tc the relslca date are rewcrked |ree c| chare tc aatch the
aew speclhcatlcas.
If the project length takes more than a year, the revision date
will be reported in the next Capstone Courier. However, the
new performance, size and MTBF will not appear; old product
attributes are reported prior to project completion.
\hea prcducts are created cr aced clcse tc exlstla prcducts, 8&0
ccapletlca tlaes dlalalsh. Jhls ls because ,cur 8&0 0epartaeat
caa take adaatae c| exlstla techaclc,. it ls lapcrtaat tc erl|,
ccapletlca dates a|ter all declslcas hae beea eatered. |suall, ,cu
waat repcsltlcala prcects tc halsh la less thaa a ,ear. lcr exaaple,
Marketing
12
prcduct`s prcactlca budet tc arcuad ;1,+00,000. Jhls wlll aalatala
100 awareaess ,ear a|ter ,ear.
The Couriers Segment Analysis reports (pages 5-9)
publish awareness.
\ew prcducts are aewswcrth, eeats. Jhe buzz creates !5
awareaess at ac ccst. Jhe !5 ls added tc aa, addltlcaal awareaess
,cu create wlth ,cur prcactlca budet.
Sales
lach prcduct`s sales budet ccatrlbutes tc seaeat accesslblllt,. \
seaeat`s accesslblllt, perceatae ladlcates the auaber c|
custcaers whc caa easll, lateract wlth ,cur ccapaa, la
salespecple, custcaer suppcrt, deller,, etc. llke awareaess, l| ,cur
sales budets drcp tc zerc, ,cu lcse cae thlrd c| ,cur accesslblllt,
each ,ear. |allke awareaess, accesslblllt, applles tc the seaeat, act
the prcduct. i| ,cur prcduct exlts a seaeat, lt leaes the cld
accesslblllt, behlad. \hea lt eaters a dl||ereat seaeat, lt ets that
seaeat`s accesslblllt,.
i| ,cu hae twc cr acre prcducts that aeet a seaeat`s hae cut
crlterla, the sales budet |cr each prcduct ccatrlbutes tc that
seaeat`s accesslblllt,. Jhe acre prcducts ,cu hae la the seaeat`s
hae cut, the strcaer ,cur dlstrlbutlca chaaaels, suppcrt s,steas,
etc. Jhls ls because each prcduct`s sales budet ccatrlbutes tc the
seaeat`s accesslblllt,.
i| ,cu hae cae prcduct la a seaeat, there ls ac addltlcaal beaeht tc
speadla acre thaa ;3,000,000. i| ,cu hae twc cr acre prcducts la
a seaeat, there ls ac addltlcaal beaeht tc speadla acre thaa a
;+,500,000 spllt betweea the prcducts, |cr exaaple, twc prcducts
wlth sales budets c| ;!,!50,000 each (see llure +.3).
the prcduct`s ccatrlbutlca tc prcht aarla. 0rcppla the prlce
lacreases appeal but reduces prcht per ualt.
:eaeat prlce raaes |all at a rate c| ;0.50 per ,ear. lcr exaaple, l| la
8cuad 0, Jradltlcaal custcaers expect a prlce betweea ;!0.00 aad
;30.00, thea la 8cuad 1, the Jradltlcaal prlce raae wlll be ;19.50-
;!9.50, 8cuad !, ;19.00-;!9.00, etc. Jhls puts pressure ca
ccapaales tc laprce thelr ccst structures.
4.2.2 Promotion and Sales Budgets
lrcactlca aad sales budets a||ect prcduct appeal. :ee 3.!
lstlaatla the 0ustcaer :ure, :ccre |cr acre la|craatlca.
Promotion
lach prcduct`s prcactlca budet deteralaes lts leel c| awareaess. \
prcduct`s awareaess perceatae re1ects the auaber c| custcaers
whc kacw abcut the prcduct. \a awareaess c| 50 ladlcates hal| c|
the pcteatlal custcaers kacw lt exlsts. lrca cae ,ear tc the aext, a
thlrd (33) c| thcse whc kaew abcut a prcduct |cret abcut lt.
last ear`s iwareness - (33 last ear`s iwareness) =
Starting iwareness
i| a prcduct eaded last ,ear wlth aa awareaess c| 50, thls ,ear lt wlll
start wlth aa awareaess c| apprcxlaatel, 33. Jhls ,ear`s prcactlca
budet wculd bulld |rca a startla awareaess c| apprcxlaatel, 33.
Starting iwareness + idditional iwareness lro ligure +.2 =
Sew iwareness
llure +.! ladlcates a ;1,500,000 prcactlca budet wculd add
3o tc the startla awareaess, |cr a tctal awareaess c| o9 (33 +
3o = o9).
llure +.! ladlcates a ;3,000,000 budet wculd add ust uader 50
tc the startla awareaess, rcuhl, 1+ acre thaa the ;1,500,000
expeadlture (33 + 50 = 83). Jhls ls because |urther expeadltures
tead tc reach custcaers whc alread, kacw abcut the prcduct. uace
,cur prcduct achlees 100 awareaess, ,cu caa scale back the
Figure 4.2 Promotion Budget: Increases in promotion budgets
have diminishing returns. The frst $1,500,000 buys 36% aware-
ness; spending another $1,500,000 (for a total of $3,000,000)
buys just under 50%. The second $1,500,000 buys less than
14% more awareness.
Figure 4.3 Sales Budget: For budgets above $3,000,000, the dotted red line indicates there
are no additional returns for companies that have only one product in a segment and the
dashed red line indicates returns for companies with two or more products in a segment.
Increases in sales budgets have diminishing returns. The frst $2,000,000 buys 22% acces-
sibility. For companies with two or more products in a segment, spending $4,000,000 buys
just under 35%. The second $2,000,000 buys less than 13% additional accessibility.
Team Member Guide
Production
13
demand. The Your Sales Forecast column overrides the
Computer Prediction with your own prediction (see 1
Introduction). Until you provide a sales forecast, the
computer uses its mediocre Computer Prediction to predict
your proforma fnancial statements. Always override the
Computer Prediction with your own forecast.
The remaining cells display the fnancial impacts of your
decisions:
Gross Revenue Forecast (Price multiplied by either the
Computer Prediction or, if entered, Your Sales Forecast.)
Variable Costs (Labor, Material and Inventory Carrying
costs subtracted from the Gross Revenue Forecast.)
Contribution Margin Forecast (Gross Revenue minus
variable costs.)
Less Promotion and Sales (Contribution Margin Forecast
minus the products Promotion Budget and Sales Budget.)
The Rehearsal Tutorials Marketing Tactics show you how to
run the department. Log in at the website and go to Getting
Started for information about the Rehearsal.
4.3 Production
lcr aaau|acturers, prcductlca llterall, puts eer,thla tcether. Jhe
departaeat cccrdlaates aad plaas aaau|acturla ruas, aakla sure
that prcducts et cut the dccr.
ia ,cur lrcductlca 0epartaeat, each prcduct has lts cwa asseabl,
llae. \cu caaact ace a prcduct |rca cae llae tc aacther because
autcaatlca leels ar, aad each prcduct requlres speclal tcclla.
\s lt deteralaes the auaber c| ualts tc prcduce |cr the upccala
,ear, lrcductlca aeeds tc ccaslder the sales |crecasts deelcped b,
Marketla alaus aa, laeatcr, le|t uascld |rca the prelcus ,ear.
4.3.1 Capacity
llrst shl|t capaclt, ls dehaed as the auaber c| ualts that caa be
prcduced ca aa asseabl, llae la a slale ,ear wlth a dall, elht hcur
shl|t. \a asseabl, llae caa prcduce up tc twlce lts hrst shl|t capaclt,
wlth a seccad shl|t. \a asseabl, llae wlth a capaclt, c| !,000,000
ualts per ,ear cculd prcduce +,000,000 ualts wlth a seccad shl|t.
ucweer, seccad shl|t labcr ccsts are 50 hlher thaa the hrst shl|t.
lach aew ualt c| capaclt, ccsts ;o.00 |cr the 1ccr space plus ;+.00
aultlplled b, the autcaatlca ratla. Jhe lrcductlca spreadsheet wlll
calculate the ccst aad dlspla, lt |cr ,cu. iacreases la capaclt, requlre
a |ull ,ear tc take e||ect- lacrease lt thls ,ear, use lt aext ,ear.
0apaclt, caa be scld at the belaala c| the ,ear |cr ;0.o5 ca the
dcllar alue c| the crllaal laestaeat. \cu caa replace the capaclt,
la later ,ears, but ,cu hae tc pa, |ull prlce. i| ,cu sell capaclt, |cr
Sales budgets are less effective when products are not
completely positioned in the fne cut circle, when prices rise
above segment guidelines or when MTBFs fall below segment
guidelines.
\chlela 100 accesslblllt, ls dl|hcult. \cu aust hae twc cr
acre prcducts la the seaeat`s hae cut. uace 100 ls reached,
,cu caa scale back the ccablaed budets tc arcuad ;3,500,000 tc
aalatala 100.
The Couriers Segment Analysis reports (pages 5-9)
publish accessibility.
Awareness and Accessibility
Jhlak c| awareaess aad accesslblllt, as be|cre aad a|ter the sale.
Jhe prcactlca budet drles awareaess, whlch persuades the
custcaer tc lcck at ,cur prcduct. Jhe sales budet drles
accesslblllt,, whlch ceras eer,thla durla aad a|ter the sale. Jhe
prcactlca budet ls speat ca adertlsla aad publlc relatlcas. Jhe
sales budet ls speat ca dlstrlbutlca, crder eatr,, custcaer serlce,
etc. \wareaess aad accesslblllt, c haad aad haad la aakla the
sale. Jhe |craer ls abcut eaccurala the custcaer tc chccse ,cur
prcduct, the latter ls abcut clcsla the deal la ,cur salespecple aad
dlstrlbutlca chaaaels.
4.2.3 Sales Forecasting
\ccurate sales |crecastla ls a ke, eleaeat tc ccapaa, success.
Maau|acturla tcc aaa, ualts results la hlher laeatcr, carr,la
ccsts. Maau|acturla tcc |ew ualts results la stcck cuts aad lcst sales
cppcrtualtles, whlch caa ccst eea acre (see 9 lcrecastla).
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Marketing. Use this area to determine each
products Price, Promotion Budget, Sales Budget and Sales
Forecast. Whats the difference between the Computer
Prediction and Your Sales Forecast? The Computer Prediction
cannot consider what your competitors are actually doing. It
does not know. Instead, it assumes each of your competitors
will offer one mediocre product (with a customer survey
score of 20) in each segment. It benchmarks how your
product would do against this mediocre playing feld.
The Computer Prediction, expressed as units demanded,
changes as you make decisions about your product.
You use the Computer Prediction to evaluate the impact your
decisions will have upon your products appeal. For example,
you can estimate the impact a price change will have upon
Production
14
Labor costs increase each year because of the Annual Raise in
labors contract.
0esplte lts attractleaess, twc |actcrs shculd be ccasldered be|cre
ralsla autcaatlca.
1. \utcaatlca ls expeasle. \t ;+.00 per pclat c| autcaatlca,
ralsla autcaatlca |rca 1.0 tc 10.0 ccsts ;3o.00 per ualt
c| capaclt,,
!. \s ,cu ralse autcaatlca, lt beccaes lacreaslal, dl|hcult |cr
8&0 tc repcsltlca prcducts shcrt dlstaaces ca the lerceptual
Map. lcr exaaple, a prcect that aces a prcduct 1.0 ca the aap
takes slalhcaatl, lcaer at aa autcaatlca leel c| 8.0 thaa at
5.0 (llure +.+). lca aces are less a||ected. \cu caa ace a
prcduct a lca dlstaace at aa, autcaatlca leel, but the prcect
wlll take betweea !.5 aad 3.0 ,ears tc ccaplete.
Changing Automation
lcr each pclat c| chaae la autcaatlca, up cr dcwa, the ccapaa, ls
chared ;+.00 per ualt c| capaclt,. lcr exaaple, l| a llae has a
capaclt, c| 1,000,000 ualts, the ccst c| chaala the autcaatlca leel
|rca 5.0 tc o.0 wculd be ;+,000,000.
8educla autcaatlca ccsts acae,. i| ,cu reduce autcaatlca, ,cu wlll
be bllled |cr a retcclla ccst. Jhe aet result ls ,cu wlll be speadla
acae, tc aake ,cur plaat ,%** e|hcleat. \hlle reduced autcaatlca
wlll speed 8&0 redeslas, b, aad lare lt ls act wlse tc reduce aa
autcaatlca leel.
0haaes la autcaatlca requlre a |ull ,ear tc take e||ect- chaae lt
thls ,ear, use lt aext ,ear.
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Production. Use this area to enter for each
product:
A Production Schedule
Increases in frst shift capacity (Put a positive number in
Buy/Sell Capacity.)
Decreases in frst shift capacity (Put a negative number in
Buy/Sell Capacity.)
Changes in automation level (Enter a number in New
Automation Rating.)
The Rehearsal Tutorials Production Tactics show you how to
run the department. Log in at the website and go to Getting
Started for information about the Rehearsal.

less thaa lts depreclated alue, ,cu lcse acae,, whlch ls re1ected as a
wrlte-c|| ca ,cur laccae stateaeat. i| ,cu sell capaclt, |cr acre thaa
lts depreclated alue, ,cu aake a ala ca the sale. Jhls wlll be
re1ected as a aeatle wrlte-c|| ca the laccae stateaeat (see o.3
iaccae :tateaeat).
The dollar value limit of capacity and automation purchases
is largely determined by the maximum amount of capital
that can be raised through bond issues plus excess
working capital The spreadsheet will display the exact
amount available.
4.3.2 Discontinuing A Sensor
i| ,cu sell all the capaclt, ca aa asseabl, llae, 0apstcae laterprets
thls as a llquldatlca lastructlca aad wlll sell ,cur reaalala
laeatcr, |cr hal| the aerae ccst c| prcductlca. 0apstcae wrltes c||
the lcss ca ,cur laccae stateaeat. i| ,cu waat tc sell ,cur laeatcr,
at |ull prlce, sell all but !00 ualts c| capaclt,.
4.3.3 Automation
\cur prcductlca llaes are partlall, laterated. Jhere|cre lcw
autcaatlca ca cae llae wlll hlader autcaatlca ca aacther. \ llae`s
e||ectle autcaatlca ls 50 c| lts autcaatlca ratla plus 50 c| the
lcwest autcaatlca c| all prcductlca llaes. i| a prcductlca llae has aa
autcaatlca c| 8.0, aad the lcwest autcaatlca c| all the llaes ls +.0, the
hrst prcductlca llae wlll hae aa e||ectle autcaatlca c| o.0.
(8.0 0.5) + (+.0 0.5) = 6.0
Jhe lcwest pcsslble autcaatlca ratla ls 1.0, the hlhest pcsslble
ratla ls 10.0. \s autcaatlca leels lacrease, the auaber c| labcr
hcurs requlred tc prcduce each ualt |alls.
\t aa autcaatlca ratla c| 1.0, labcr ccsts are hlhest. lach
addltlcaal pclat c| autcaatlca decreases labcr ccsts apprcxlaatel,
10. \t a ratla c| 10.0, labcr ccsts |all abcut 90.
Figure 4.4 Time Required to Move a Sensor on the Perceptual Map
1.0 Unit at Automation Levels 1 Through 10
Team Member Guide
Finance
15
As a general rule, companies fund short term assets like
accounts receivable and inventory with current debt offered
by banks.
aakers wlll lcaa curreat debt up tc abcut 5 c| ,cur acccuats
recelable (|cuad ca last ,ear`s balaace sheet) aad 50 c| thls ,ear`s
laeatcr,. Jhe, estlaate ,cur laeatcr, |cr the upccala ,ear b,
exaalala last ,ear`s laccae stateaeat. aakers assuae ,cur wcrst
case sceaarlc wlll leae a three tc |cur acath laeatcr, aad the, wlll
lcaa ,cu up tc 50 c| that aacuat. Jhls wcrks cut tc be abcut 15 c|
the ccablaed alue c| last ,ear`s tctal dlrect labcr aad tctal dlrect
aaterlal, whlch dlspla, ca the laccae stateaeat.
aakers alsc reallze ,cur ccapaa, ls rcwla, sc as a haal step
baakers lacrease ,cur bcrrcwla llalt b, !0 tc prclde ,cu wlth
rcca |cr expaaslca la laeatcr, aad acccuats recelable.
4.4.2 Bonds
\ll bcads are tea ,ear actes. \cur ccapaa, pa,s a 5 brckerae |ee
|cr lssula bcads. Jhe hrst three dllts c| the bcad, the serles
auaber, re1ect the laterest rate. Jhe last |cur dllts ladlcate the
,ear la whlch the bcad ls due. Jhe auabers are separated b, the
letter : whlch staads |cr serles. lcr exaaple, a bcad wlth the
auaber 1!.o:!01+ has aa laterest rate c| 1!.o aad ls due
0eceaber 31, !01+.
As a general rule, bond issues are used to fund long term
investments in capacity and automation.
cadhclders wlll lead tctal aacuats up tc 80 c| the alue c| ,cur
plaat aad equlpaeat (the lrcductlca 0epartaeat`s capaclt, aad
autcaatlca). lach bcad lssue pa,s a ccupca, the aaaual laterest
pa,aeat, tc laestcrs. i| the |ace aacuat cr prlaclpal c| bcad
1!.o:!01+ were ;1,000,000, thea the hclder c| the bcad wculd
recele a pa,aeat c| ;1!o,000 eer, ,ear |cr tea ,ears. Jhe hclder
wculd alsc recele the ;1,000,000 prlaclpal at the ead c| the teath
,ear. lach ,ear ,cur ccapaa, ls lea a credlt ratla that raaes |rca
\\\ (best) tc 0 (wcrst). ia 0apstcae, ratlas are ealuated b,
ccaparla curreat debt laterest rates wlth the prlae rate.
\hea lssula aew bcads, the laterest rate wlll be 1.+ cer the
curreat debt laterest rates. i| ,cur curreat debt laterest rate ls
1!.1, thea the bcad rate wlll be 13.5.
\cu caa bu, back cutstaadla bcads be|cre thelr due date. \ 1.5
brckerae |ee applles. Jhese bcads are repurchased at thelr aarket
alue cr street prlce ca }aauar, 1 c| the curreat ,ear. Jhe street prlce
ls deteralaed b, the aacuat c| laterest the bcad pa,s aad ,cur credlt
wcrthlaess. it ls there|cre dl||ereat |rca the |ace aacuat c| the bcad.
i| ,cu bu, back bcads wlth a street prlce that ls less thaa lts |ace
aacuat, ,cu aake a ala ca the repurchase. Jhls wlll be re1ected as
a aeatle wrlte-c|| ca the laccae stateaeat (see o.3 iaccae
:tateaeat).
4.4 Finance
0crpcrate haaace |uactlcas dl||er |rca ccapaa, tc ccapaa,. 0utles
caa laclude aaaala haaaclal rlsk, deteralala bcrrcwla leels
cr eea slaple check wrltla. ia eaeral, the departaeat acaltcrs
the ccapaa,`s 1cw c| acae,, the ll|e blccd c| aa, buslaess.
\cur llaaace 0epartaeat ls prlaarll, ccaceraed wlth he lssues.
1. \cqulrla the capltal aeeded tc expaad assets, partlcularl, plaat
aad equlpaeat. 0apltal caa be acqulred thrcuh.
0urreat 0ebt
cad issues (lca Jera 0ebt)
lrc|lts
!. lstabllshla a dlldead pcllc, that aaxlalzes the retura tc
sharehclders.
3. :ettla acccuats pa,able pcllc, (whlch caa alsc be eatered la
the lrcductlca aad Marketla areas) aad acccuats recelable
pcllc, (whlch caa alsc be eatered la the Marketla area).
+. 0rlla the haaaclal structure c| the hra aad lts relatlcashlp
betweea debt aad eqult,.
5. :electla aad acaltcrla per|craaace aeasures that suppcrt
,cur strate,.
llaaace declslcas shculd be aade a|ter all cther departaeats eater
thelr declslcas. \|ter the aaaaeaeat teaa decldes what rescurces
the ccapaa, aeeds, the llaaace 0epartaeat addresses |uadla
lssues aad haaaclal structure.
uae c| the llaaace 0epartaeat`s hduclar, dutles ls tc erl|, that sales
|crecasts aad prlces are reallstlc. |areallstlc prlces aad |crecasts
wlll predlct uareallstlc cash 1cws la the prc|craas. llaaace caa
deteralae a raae c| pcsslble cutccaes |cr the ,ear b, chaala (but
act sala) Marketla`s |crecasts thea recheckla the prc|craas.
lcwerla |crecasts decreases reeaue aad lacreases laeatcr, (wcrst
case), ralsla |crecasts lacreases reeaue aad decreases laeatcr,
(best case).
Finance can print the worst case and best case proformas,
then compare them to next years annual reports.
4.4.1 Current Debt
\cur baak lssues curreat debt la cae ,ear actes. Jhe llaaace area la
the 0apstcae :preadsheet dlspla,s the aacuat c| curreat debt due
|rca the prelcus ,ear. last ,ear`s curreat debt ls alwa,s pald c|| ca
}aauar, 1. Jhe ccapaa, caa rcll that debt b, slapl, bcrrcwla the
saae aacuat aala. Jhere are ac brckerae |ees |cr curreat debt.
iaterest rates are a |uactlca c| ,cur debt leel. Jhe acre debt ,cu
hae relatle tc ,cur assets, the acre rlsk ,cu preseat tc debt hclders
aad the hlher the curreat debt rates.
Finance
16
ac exteraal laestaeat cppcrtualtles. i| ,cu caaact use prchts tc
rcw the ccapaa,, ldle assets wlll accuaulate. 0apstcae ls deslaed
such that la later rcuads ,cur ccapaa, ls llkel, tc beccae a &1*2
&#3, splaala c|| excess cash. ucw ,cu aaaae that spla c|| ls aa
lapcrtaat ccaslderatlca la the ead aae aad dlldeads are aa
lapcrtaat tccl at ,cur dlspcsal.
Your company cannot issue stock.
\cu caa retlre stcck. Jhe aacuat caaact exceed the lesser c| elther.
5 c| ,cur cutstaadla shares, llsted ca pae ! c| last ,ear`s
0curler, cr
\cur tctal eqult, llsted ca pae 3 c| last ,ear`s 0curler.
\cu are chared a 1.5 brckerae |ee tc retlre stcck.
4.4.4 Emergency Loans
llaaaclal traasactlcas are carrled ca thrcuhcut the ,ear dlrectl,
|rca ,cur cash acccuat. i| ,cu aaaae ,cur cash pcsltlca pccrl,
aad rua cut c| cash, the slaulatlca wlll le ,cu aa eaereac, lcaa
tc ccer the shcrt|all. Jhe lcaa ccaes |rca a eatleaaa aaaed l
\l, whc arrles at ,cur dccr wlth a checkbcck aad a salle. l \l
leads ,cu the exact aacuat c| ,cur shcrt|all. \cu pa, cae ,ear`s
wcrth c| curreat debt laterest ca the lcaa aad l \l adds a .5
peaalt, |ee ca tcp tc aake lt wcrth hls whlle.
lcr exaaple, suppcse the curreat debt laterest rate ls 10 aad ,cu
are shcrt ;10,000,000 ca 0eceaber 31. \cu pa, cae ,ear`s wcrth c|
laterest ca the ;10,000,000 (;1,000,000) plus aa addltlcaal .5 cr
;50,000 peaalt,.
\cu dc act aeed tc dc aa,thla speclal tc repa, aa eaereac, lcaa.
ucweer, ,cu aeed tc declde what tc dc wlth the curreat debt (pa, lt
c||, re-bcrrcw lt, etc.). Jhe laterest peaalt, cal, applles tc the ,ear la
whlch the eaereac, lcaa ls takea, act tc |uture ,ears.
laereac, lcaas are ccablaed wlth aa, curreat debt |rca last
,ear. Jhe tctal aacuat dlspla,s la the 0ue Jhls \ear cell uader
0urreat 0ebt.
laereac, lcaas depress stcck prlces, eea whea ,cu are prchtable.
:tcckhclders take a dla lew c| ,cur per|craaace whea the, wltaess
a llquldlt, crlsls.
Emergency loans are often encountered when last years
sales forecasts were higher than actual sales or when the
Finance Department fails to raise funds needed for
expenditures like capacity and automation purchases.
cads are retlred la the crder the, were lssued. Jhe cldest bcads
retlre hrst. Jhere are ac brckerae |ees |cr bcads that are allcwed tc
aature tc thelr due date.
i| a bcad reaalas ca 0eceaber 31 c| the ,ear lt beccaes due, ,cur
baaker leads ,cu curreat debt tc pa, c|| the bcad prlaclpal. Jhls, la
e||ect, ccaerts the bcad tc curreat debt. Jhls aacuat ls ccablaed
wlth aa, cther curreat debt due at the belaala c| the aext ,ear.
When Bonds Are Retired Early
\ bcad wlth a |ace aacuat c| ;10,000,000 cculd ccst ;11,000,000 tc
repurchase because c| 1uctuatlcas la laterest rates aad ,cur credlt
wcrthlaess. \ 1.5 brckerae |ee applles. Jhe dl||ereace betweea the
|ace alue aad the repurchase prlce wlll re1ect as a ala cr lcss la the
laccae stateaeat`s |ees aad wrlte-c||s.
When Bonds Come Due
\ssuae the |ace aacuat c| bcad 1!.o:!01+ ls ;1,000,000. Jhe
;1,000,000 repa,aeat ls ackacwleded la ,cur repcrts aad
spreadsheets la the |cllcwla aaaaer. \cur aaaual repcrts |rca
0eceaber 31, !01+ wculd re1ect aa lacrease la curreat debt c|
;1,000,000 c||set b, a decrease la lca tera debt c| ;1,000,000. Jhe
!01+ spreadsheet wlll llst the bcad because ,cu are aakla declslcas
ca }aauar, 1, !01+, whea the bcad stlll exlsts. \cur !015 spreadsheet
wculd shcw a ;1,000,000 lacrease la curreat debt aad the bcad ac
lcaer appears.
Bond Ratings
i| ,cur ccapaa, has ac debt at all, ,cur ccapaa, ls awarded a \\\
bcad ratla. \s ,cur debt-tc-assets ratlc lacreases, ,cur curreat debt
laterest rates lacrease. \cur bcad ratla sllps cae catecr, |cr each
addltlcaal 0.5 la curreat debt laterest. lcr exaaple, l| the prlae
rate ls 10 aad ,cur curreat debt laterest rate ls 10.5, thea ,cu
wculd be lea a \\ bcad ratla lastead c| a \\\ ratla.
4.4.3 Stock
:tcck prlce ls drlea b, bcck alue, the last twc ,ears` earalas per
share (ll:) aad the last twc ,ears` aaaual dlldead.
cck alue ls eqult, dllded b, shares cutstaadla. lqult, equals the
ccaaca stcck aad retalaed earalas alues llsted ca the balaace
sheet. :hares cutstaadla ls the auaber c| shares that hae beea
lssued. lcr exaaple, l| eqult, ls ;50,000,000 aad there are !,000,000
shares cutstaadla, bcck alue ls ;!5.00 per share.
ll: ls calculated b, dlldla aet prcht b, shares cutstaadla.
Jhe dlldead ls the aacuat c| acae, pald per share tc stcckhclders
each ,ear. :tcckhclders dc act respcad tc dlldeads be,cad the ll:,
the, ccaslder thea uasustalaable. lcr exaaple, l| ,cur ll: ls ;1.50
per share aad ,cur dlldead ls ;!.00 per share, stcckhclders wculd
lacre aa,thla abce ;1.50 per share as a drler c| stcck prlce. ia
eaeral, dlldeads hae llttle e||ect upca stcck prlce. ucweer,
0apstcae ls uallke the real wcrld la cae lapcrtaat aspect- there are
Team Member Guide
Production Analysis
17
4.4.5 Credit Policy
\cur ccapaa, deteralaes the auaber c| da,s betweea traasactlcas
aad pa,aeats. lcr exaaple, ,cur ccapaa, cculd le custcaers 30
da,s tc pa, thelr bllls (acccuats recelable) whlle hcldla up
pa,aeat tc suppllers |cr o0 da,s (acccuats pa,able).
:hcrteala \/8 (acccuats recelable) la |rca 30 tc 15 da,s la
e||ect reccers a lcaa aade tc custcaers. :lallarl,, exteadla the
\/l (acccuats pa,able) la |rca 30 tc +5 da,s extracts a lcaa |rca
,cur suppllers.
Jhe acccuats recelable la lapacts the custcaer sure, sccre. \t 90
da,s there ls ac reductlca tc the base sccre. \t o0 da,s the sccre ls
reduced 0.. \t 30 da,s the sccre ls reduced . u||erla ac credlt
teras (0 da,s) reduces the sccre b, +0.
Jhe acccuats pa,able la has lapllcatlcas |cr prcductlca. :uppllers
beccae ccaceraed as the la rcws aad the, start tc wlthhcld
aaterlal |cr prcductlca. \t 30 da,s, the, wlthhcld 1. \t o0 da,s, the,
wlthhcld 8. \t 90 da,s, the, wlthhcld !o. \t 1!0 da,s, the,
wlthhcld o3. \t 150 da,s, the, wlthhcld all aaterlal. \lthhcldla
aaterlal creates shcrtaes ca the asseabl, llae. \s a result, wcrkers
staad ldle aad per-ualt labcr ccsts rlse.
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Finance. Use this area to raise money:
Current Debt (These are one year loans.)
Long Term Debt (These are 10 year bonds.)
Stock issues are not permitted.
As resources permit, companies can:
Retire Stock
Retire Bonds
Issue a Dividend
Finance also establishes Accounts Receivable (A/R) and
Accounts Payable (A/P) policies.
The Rehearsal Tutorials Finance Tactics show you how to run
the department. Log in at the website and go to Getting
Started for information about the Rehearsal.
5 The Capstone Courier
0ustcaer purchases aad seascr ccapaa, haaaclal results are
repcrted la aa ladustr, aewsletter called the 0apstcae 0curler.
The Courier is available from two locations:
On the website, log into your simulation then click the
Reports link;
From the Capstone Spreadsheet, click the Reports menu.
Jhe 0curler dlspla,s last \ear`s 8esults. Jhe 0curler aallable at
the start c| 8cuad 1 dlspla,s last ,ear`s results |cr 8cuad 0, whea all
ccapaales hae equal staadla. Jhe 0curler aallable at the start c|
8cuad ! wlll dlspla, the results |cr 8cuad 1.
Printing the Courier can make it easier to review. From the
Excel spreadsheet, click the printer icon; from the website,
click the Print link under the Couriers Table of Contents.
:uccess|ul ccapaales wlll stud, the 0curler tc uaderstaad the
aarketplace aad had cppcrtualtles. \s the slaulatlca prcresses
aad strateles are lapleaeated, ccapaa, results wlll bela tc ar,.
5.1 Front Page
|se the hrst pae c| the 0curler tc see a saapshct c| last ,ear`s results.
e sure tc ccapare ,cur ccapaa,`s sales, prchts aad cuaulatle
prchts wlth ,cur ccapetltcrs`.
5.2 Stock & Bond Summaries
Jhe :tcck aad cad :uaaarles (pae !) repcrt stcck prlces aad
bcad ratlas |cr all ccapaales. Jhe pae alsc repcrts the prlae
laterest rate |cr the upccala ,ear.
5.3 Financial Statements
llaaaclal :tateaeats (pae 3) sure,s each ccapaa,`s cash 1cw,
balaace sheet aad laccae stateaeats. Jhls wlll le ,cu aa ldea c|
,cur ccapetltcrs` haaaclal health. ia-depth haaaclal repcrts |cr
,cur ccapaa, are alsc aallable (see 0hapter o).
5.4 Production Analysis
Jhe lrcductlca \aal,sls (pae +) repcrts detalled la|craatlca abcut
each prcduct la the aarket, lacludla sales aad laeatcr, leels,
prlce, aaterlal aad labcr ccsts. \re ,cu cr ,cur ccapetltcrs bulldla
excess laeatcr,? lxcess laeatcr, puts pressure ca prchts (see 9
lcrecastla).
Segment Analysis Reports
18
5.5.1 Accessibility, Market Share and Top
Products In Segment
Jhe \ccesslblllt, 0hart rates each ccapaa,`s leel c| accesslblllt,.
\ccesslblllt, ls deteralaed b, the Marketla 0epartaeat`s sales
budet- the hlher the budet, the hlher the accesslblllt,.
\ccesslblllt, ls aeasured b, perceatae, 100 aeaas eer, custcaer
caa easll, lateract wlth ,cur ccapaa,- sales, custcaer suppcrt, etc.
Jhe Market :hare \ctual s. lcteatlal 0hart dlspla,s twc bars per
ccapaa,. Jhe actual bar repcrts the aarket perceatae each
ccapaa, attalaed la the seaeat. Jhe pcteatlal bar ladlcates what
the ccapaa, desered tc sell la the seaeat. i| the pcteatlal bar ls
hlher thaa the actual, the ccapaa, uader prcduced aad alssed
sales cppcrtualtles. i| the pcteatlal ls lcwer thaa the actual, the
ccapaa, plcked up sales because cther ccapaales uader prcduced
aad stccked cut (raa cut c| laeatcr,).
Jhe Jcp lrcducts la :eaeat area repcrts, la crder c| tctal sales.
Market :hare
|alts :cld tc :eaeat
8elslca 0ate
:tcck uut (\hether the prcduct raa cut c| laeatcr,.)
ler|craaace aad :lze cccrdlaates
lrlce
MJl
Jhe prcduct`s \e ca 0eceaber 31
lrcactlca aad sales budets
Jhe lrcductlca \aal,sls alsc repcrts prcduct relslca dates. 0ces a
ccapetltcr hae a prcduct wlth a relslca date la the ,ear a|ter the
,ear c| the repcrt? Jhls ladlcates a lca repcsltlcala prcect that wlll
pcsslbl, put that prcduct latc aacther seaeat.
If a revision date has yet to conclude, the Courier will report
the products current performance, size and MTBF. The new
coordinates and MTBF will not be revealed until after the
completion of the project.
0heck ,cur ccapetltcrs` autcaatlca, capaclt, aad plaat
utlllzatlca. iacreases la autcaatlca reduce labcr ccsts aad thls
cculd ladlcate ccapetltcrs alht drcp prlces |cr thcse
prcducts. 0ld a ccapetltcr reduce capaclt,? :ellla capaclt,
reduces assets. 8uaala the reaalala capaclt, at 150 tc
!00 caa laprce 8etura ca \ssets (8u\).
Jhe lrcductlca \aal,sls wlll repcrt the release date (but act the
cccrdlaates) c| a aew prcduct l|.
lrcductlca capaclt, ls purchased, aad/cr
\ prcactlca budet ls eatered, aad/cr
\ sales budet ls eatered.
Are your competitors investing in capacity and automation?
The Production Analysis reports capacity and automation
ratings for the upcoming round. The Financial Statements
survey reports the cost of plant improvements for all
companies.
5.5 Segment Analysis Reports
Jhe :eaeat \aal,sls repcrts (paes 5 - 9) relew each aarket
seaeat la detall (llure 5.1).
Jhe :tatlstlcs bcx la the upper-le|t ccraer repcrts Jctal iadustr, |alt
0eaaad, \ctual iadustr, |alt :ales, :eaeat lerceat c| Jctal
iadustr, aad \ext \ear`s 0rcwth 8ate. Jhe 0ustcaer u,la 0rlterla
bcx raaks the custcaer crlterla wlthla each seaeat.
ideal lcsltlca. Jhe pre|erred prcduct lccatlca as c|
0eceaber 31 c| the prelcus ,ear (the pre|erred lccatlca ls
alsc called the ldeal spct- ldeal spcts drl|t wlth the
seaeats, acla a llttle each acath),
lrlce. ler, ,ear ca }aauar, 1, prlce raaes drcp b, ;0.50-
thls ls the prlce raae |rca last ,ear,
\e. \e pre|ereaces sta, the saae ,ear a|ter ,ear,
8ellablllt,. MJl requlreaeats sta, the saae ,ear a|ter ,ear.
Are your products meeting your buyers expectations?
Jhe lerceptual Map shcws the pcsltlca c| each prcduct la the
seaeat as c| 0eceaber 31 c| the prelcus ,ear.
Figure 5.1 Market Segment Analysis: Segment Statistics and Buying Criteria
display in the upper-left corner of each segment analysis. Accessibility and
Market Share Actual vs. Potential Charts display to the upper right. Customer
Awareness percentages and December Customer Survey Scores display on
the lower part of the page.
Team Member Guide
Balance Sheet
19
6 Proformas and
Annual Reports
lrc|craas aad aaaual repcrts laclude.
alaace :heet
0ash llcw :tateaeat
iaccae :tateaeat
lrc|craas are prcectlcas c| results |cr the upccala ,ear. \aaual
repcrts are the results |rca the prelcus ,ear. Jhe prc|craas allcw
,cu tc assess the prcected haaaclal cutccaes c| ,cur ccapaa,
declslcas eatered la the 0apstcae :preadsheet.
To access proformas, click the Proformas menu in the
Capstone Spreadsheet. To access the annual reports, click
the Reports menu in the Capstone Spreadsheet or, on the
website, log into your simulation and then click the
Reports link.
The proforma reports are only as accurate as the marketing
sales forecasts. If you enter a forecast that is unrealistically
high, the proformas will take that forecast and project
unrealistic revenue (see 9 Forecasting for more
information).
6.1 Balance Sheet
Jhe balaace sheet llsts the dcllar alue c| what the ccapaa, cwas
(assets), what lt cwes tc credltcrs (llabllltles) aad the aacuat
ccatrlbuted b, laestcrs (eqult,). \ssets alwa,s equal llabllltles
aad eqult,.
issets = liabilities + lquity
\ssets are dllded latc twc catecrles, curreat aad hxed. 0urreat
assets are thcse that caa be qulckl, ccaerted, eaerall, la less thaa
a ,ear. Jhese laclude laeatcr,, acccuats recelable aad cash. llxed
assets are thcse that caaact be easll, ccaerted. ia the slaulatlca,
hxed assets are llalted tc the alue c| the plaat aad equlpaeat, (see
+.3.1 0apaclt, aad +.3.3 \utcaatlca).
llabllltles laclude acccuats pa,able, curreat debt aad lca tera debt.
ia the slaulatlca, curreat debt ls ccaprlsed c| cae ,ear baak actes,
lca tera debt ls ccaprlsed c| 10 ,ear bcad lssues. lqult, ls dllded
latc ccaaca stcck aad retalaed earalas.
Retained earnings are a portion of shareholders equity. They
are not an asset.
\wareaess
\ccesslblllt,
0ustcaer :ure, :ccre
5.5.2 Awareness and the December
Customer Survey Score
0ustcaer \wareaess ls deteralaed b, the Marketla 0epartaeat`s
prcactlca budet- the hlher the budet, the hlher the awareaess.
\wareaess ls aeasured b, perceatae, 100 aeaas eer, custcaer
kaew abcut ,cur prcduct.
Jhe 0eceaber 0ustcaer :ure, :ccre ladlcates hcw custcaers la
the seaeat perceled the prcducts. Jhe sure, ealuates the prcduct
aalast the bu,la crlterla.
lrcduct aes aad dlstaaces |rca ldeal spcts chaae thrcuhcut the
,ear, there|cre sccres chaae acath tc acath.
i| a repcsltlcala prcect ccacludes late la the ,ear, the sure, sccre
|cr 0eceaber cculd be slalhcaatl, hlher thaa the sccres |cr the
prelcus acaths.
Use the customer survey score as a quick comparison tool
when conducting a competitive analysis. Perfect scores
are almost impossible. Scores of 50 or above are
considered good.
5.6 Market Share Report
Jhe Market :hare 8epcrt (pae 10) detalls sales cluae la all
seaeats, repcrtla each prcduct`s actual aad pcteatlal sales. 0ld
,cur ccapaa, uader prcduce? i| the actual perceatae |cr ,cur
prcduct ls less thaa the pcteatlal, ,cu alssed sales cppcrtualtles. i|
,cur actual ls reater thaa ,cur pcteatlal, ,cur ccapetltcrs uader
prcduced aad ,cu plcked up sales that ctherwlse wculd hae cae
tc thea.
5.7 Perceptual Map
Jhe lerceptual Map (pae 11) dlspla,s all the seaeats aad eer,
prcduct la the ladustr,.
Are your products competitively positioned?
Cash Flow Statement
20
Once your decisions are fnal, you can print your proforma
income statement (click the printer icon). When the
simulation advances to the next year, you can compare the
results to your proforma projections.
7 Situation Analysis
Jhe :ltuatlca \aal,sls wlll help ,cur ccapaa, uaderstaad curreat
aarket ccadltlcas aad hcw the ladustr, wlll ecle cer the aext
elht ,ears.
Jhe :ltuatlca \aal,sls has he parts.
lerceptual Map
iadustr, 0eaaad \aal,sls
0apaclt, \aal,sls
Marla \aal,sls
0casuaer 8epcrt
To access the Situation Analysis, log in a and go to the Getting
Started area.
A downloadable PDF version of the Situation Analysis is also
available from the Getting Started area.
8 Forecasting
lcrecastla requlres a llttle aath aad a llttle lclc. lcr exaaple, dces
,cur |crecast predlct ,cur prcduct wlll acqulre hal| a seaeat`s sales
whea there are |cur cr he prcducts la the seaeat? |aless ,cur
prcduct`s pcsltlcala, ae aad MJl are slalhcaatl, superlcr tc the
cther prcducts aad ,cur prlce ls at the lcw ead c| the raae, lt ls act
llkel, that ,cu wlll acqulre hal| the sales. 0ces ,cur |crecast predlct
,cu wlll take cal, cae teath c| the sales whea there are |cur cr he
prcducts la the seaeat? |aless ,cur prcduct`s pcsltlcala, ae aad
MJl are slalhcaatl, la|erlcr aad ,cur prlce ls at the hlh ead c| the
raae cr abce, chaaces are ,cu caa sell acre.
0caaca stcck represeats the acae, receled |rca the sale c|
shares, retalaed earalas ls the pcrtlca c| prchts that was act
dlstrlbuted back tc sharehclders as dlldeads, but was lastead
relaested la the ccapaa,.
Depreciation is an accounting principle that allows
companies to reduce the value of their fxed assets. Each year
some of the value is used up. Depreciation decreases the
frms tax liability by reducing net profts while providing a
more accurate picture of the companys plant and
equipment value.

Depreciation is expensed, product by product, on the income
statement. Total depreciation for the period is refected as a
gain on the cash fow statement. On the balance sheet,
accumulated depreciation is subtracted from the value of the
plant and equipment. The simulation uses a straight line
depreciation method calculated over ffteen years.
6.2 Cash Flow Statement
Jhe cash 1cw stateaeat ladlcates the aceaeat c| cash thrcuh the
craalzatlca, lacludla cperatla, laestla aad haaacla
actlltles. Jhe aaaual repcrt`s cash 1cw stateaeat shcws the chaae
la the aacuat c| cash |rca the prelcus ,ear. Jhe prc|craa cash
1cw stateaeat ladlcates the expected chaae at the ead c| the
upccala ,ear.
6.3 Income Statement
\cur ccapaa, caa use the laccae stateaeat tc dlaacse prcbleas
ca a prcduct b, prcduct basls. :ales |cr each prcduct are repcrted la
dcllars (act the auaber c| prcducts). :ubtractla arlable ccsts |rca
sales deteralaes the ccatrlbutlca aarla. iaeatcr, carr,la ccsts
are drlea b, the auaber c| prcducts la the warehcuse. i| ,cur
ccapaa, has ;0 laeatcr, carr,la ccsts, ,cu stccked cut c| the
prcduct aad acst llkel, alssed sales cppcrtualtles. i| ,cur ccapaa,
has excessle laeatcr,, ,cur carr,la ccsts wlll be hlh. :cuad sales
|crecasts aatched tc reascaable prcductlca schedules wlll result la
acdest laeatcr, carr,la ccsts.
lerlcd ccsts are depreclatlca added tc sales, eaeral aad
adalalstratle (:0&\) ccsts (whlch laclude 8&0, prcactlca, sales
aad adalalstratlca expeases). lerlcd ccsts are subtracted |rca the
ccatrlbutlca aarla tc deteralae the aet aarla. Jhe aet aarla |cr
all prcducts ls tctaled thea subtracted |rca cther expeases, whlch la
the slaulatlca laclude |ees, wrlte-c||s aad, l| lt ls eaabled, JM/
:ustalaablllt, ccsts. Jhls deteralaes earalas be|cre laterest aad
taxes, cr liJ. llaall,, laterest, taxes aad prcht sharla ccsts are
subtracted tc deteralae aet prcht.
Team Member Guide
Forecasts, Proformas and the December 31 Cash Position
21
8.2 Qualitative Assessment
0capare ,cur prcduct tc cthers ccapetla wlthla the seaeat aad
declde whether lt ls better cr wcrse thaa the ccapetltlca. :tart wlth
the 0curler lerceptual Map (pae 11). it shcws where prcducts are
curreatl, placed. Jhe 8elslca 0ates at the bcttca c| the pae reeal
the tlala c| aa, |uture repcsltlcalas. 0catlaue the ccaparlsca
usla the 0curler`s :eaeat \aal,sls paes. Jhese repcrt each
prcduct`s.
\e- dces the prcduct satls|, custcaer ae deaaads?
MJl- ls rellablllt, aear the tcp c| the raae?
lrlce- wlll prlce treads ccatlaue cr wlll aew autcaatlca
(dlspla,ed ca pae + c| the 0curler) |acllltate a prlce
reductlca? (8eaeaber, prlce raaes drcp ;0.50 per ,ear.)
\wareaess aad \ccesslblllt,- are these perceataes leadla,
keepla pace wlth cr |allla behlad cther prcducts?
\ll these eleaeats ccatrlbute tc the acathl, custcaer sure,.
8.2.1 December Customer Survey Score
\lll ,cur prcduct be better cr wcrse thaa aerae? \s aa estlaate,
lcck at the 0eceaber custcaer sure, sccre la the lcwer part c| each
:eaeat \aal,sls. Jhe 0ustcaer :ure, drles deaaad each acath.
lcr exaaple, l| there are |cur prcducts la 0eceaber sccrla 3!, !8,
!! aad 1+ (|cr a tctal c| 9o), thea the tcp prcduct`s 0eceaber
deaaad wculd be 3!/9o cr 33.
1op rroduct in Segent`s Score / Su of ill Scores =
32 / (32 +28 +22 + 1+) = 32 / 96 = 33
\hat acathl, custcaer sure, sccres wlll ,cur prcduct hae durla
the ,ear? Jhe sccre wlll chaae |rca acath tc acath because the
seaeats drl|t, ,cur prcduct aes aad lt alht be relsed. lach
acathl, sccre ls drlea b, hcw well ,cur prcduct satlshes the
seaeat bu,la crlterla, plus lts awareaess aad accesslblllt, leels.
(:ee ucw ls the 0ustcaer :ure, :ccre 0alculated? la the uallae
0ulde`s l\l8epcrts sectlca |cr acre la|craatlca ca assessla ,cur
prcduct.)
Consider whether or not the top products in the segment
can meet customer demand. On the Production Analysis,
examine the top products capacities. Can they
manufacture suffcient units? If not, you could have an
opportunity to exploit.
8.3 Forecasts, Proformas and the
December 31 Cash Position
ua the prc|craa laccae stateaeat, sales reeaue |cr each prcduct ls
based ca lts prlce aultlplled b, the lesser c| elther.
Forecasts are used by the proformas to calculate fnancial
projections (see Chapter 6). If you enter a forecast that is
unrealistically high, the proformas will take that forecast and
project unrealistic revenue.

If you do not enter values in the Your Sales Forecast cells, the
proformas will use the Computer Prediction to project
fnancial results.
8.1 Basic Forecasting Method
last ,ear`s sales caa be a ccd startla pclat |cr thls ,ear`s |crecasts.
lcr exaaple, l| the seaeat rcwth rate |cr the upccala ,ear ls
9.!, ,cu caa sa, all thlas bela equal, we caa expect tc sell 9.!
acre ualts thls ,ear thaa last ,ear.
\ssuae aext ,ear`s rcwth rate |cr Jradltlcaal ls 9.! aad ,cur
Jradltlcaal prcduct scld 1,100,000 ualts last ,ear wlthcut
stcckla cut (ruaala cut c| laeatcr,).
1,100,000 0.092 = 101,200
\ddla 101,!00 tc last ,ear`s sales c| 1,100,000 ualts les ,cu a
startla |crecast |cr the upccala ,ear c| 1,!01,!00 ualts.
The statistic boxes on the Segment Analysis reports (pages 5
- 9 of the Courier) publish last years Industry Unit Demand
and the Growth Rate for the upcoming year. Multiplying last
years demand by the growth rate then adding the result to
last years demand will determine this years demand.
i| ,cur prcduct stccked cut, calculate what lt cculd hae scld b,
aultlpl,la the seaeat deaaad b, the pcteatlal sales perceatae
repcrted ca pae 10 c| the 0curler, the Market :hare 8epcrt. \ext,
aultlpl, that b, the seaeat rcwth rate.
is thls auaber alld? it ls hlhl, uallkel, that the aarket la the
upccala ,ear wlll be ldeatlcal tc the prelcus ,ear. lrlces wlll
adust, relslca prcects wlll ccaplete- the pla,la held wlll chaae.
:tlll, thls auaber caa be a ccd belaala as ,cu assess ,cur prcduct
c||er aad speculate what ,cur ccapetltcrs wlll c||er.
Keep la alad the pcsslblllt, that ,cur prcducts scld because
ccapetltcrs whc ctherwlse wculd hae aade sales uader prcduced
aad stccked cut. lae 10 c| the 0curler dlspla,s actual aad pcteatlal
sales as a perceatae |cr each prcduct. i| ,cur actual sales |ar
exceeded ,cur pcteatlal because ,cur ccapetltcrs uader prcduced,
,cu caaact ccuat ca thea aakla the saae alstake aala.
Any new products about to come to market must have a
plant. Plant purchases are reported on the Production
Analysis (Courier, page 4).
Worst Case / Best Case
22
0ash lcsltlca. Jhe actual results shculd lle scaewhere betweea the
wcrst aad best cases.
Log into the Capstone Spreadsheet and select Marketing
under the Decisions menu. There are two forecasts per
product. The Computer Prediction assumes your
competition has mediocre products and therefore is not
reliable. The Your Sales Forecast column allows you to enter
forecasts of your own.
Jhe \cur :ales lcrecast eatr, (cr, l| acae ls eatered, the
0caputer lredlctlca), cr
Jhe tctal auaber c| ualts aallable |cr sale (that ls, the
lrcductlca :chedule added tc iaeatcr,).
\hea a |crecast ls less thaa the tctal auaber c| ualts aallable |cr
sale, the prc|craa laccae stateaeat wlll dlspla, aa laeatcr,
carr,la ccst. \hea a |crecast ls equal tc cr reater thaa the auaber
c| ualts aallable, whlch predlcts eer, ualt wlll be scld, the carr,la
ccst wlll be zerc.
The simulation charges a 12% inventory carrying cost.
ua the prc|craa balaace sheet, uader curreat assets, laeatcr,
re1ects the dcllar alue c| all uascld ualts. 0ash re1ects the aacuat
le|t a|ter all ccapaa, pa,aeats are subtracted |rca the sua c|.
Jctal sales reeaue repcrted ca the prc|craa
laccae stateaeat,
0urreat debt aad lca tera debt eatrles la the llaaace area.
Jhe prc|craa balaace sheet`s cash pcsltlca alsc dlspla,s as the
llaaace spreadsheet`s 0eceaber 31 0ash lcsltlca. Jhere|cre,
uareallstlcall, hlh |crecasts (cr prlces) wlll create cash predlctlcas
that are act llkel, tc ccae true.
8.4 Worst Case / Best Case
i| ,cu wlsh, ,cu caa eater sales |crecasts aad prcductlca schedules
that deelcp wcrst case / best case sceaarlcs. uere ls aa exaaple.
\cu eaerate a pesslalstlc |crecast c| 1,!00,000 |cr ,cur Jradltlcaal
prcduct, whlch predlcts la the wcrst case acathl, sales c| 100,000
ualts. \s a aatter c| pcllc,, ,cur aaaaeaeat teaa alht declde that
aaau|acturla aa addltlcaal three acaths wcrth c| laeatcr,, cr
300,000 ualts, ls aa acceptable rlsk whea ccapared tc the pcteatlal
reward c| aakla extra sales.
ia the Marketla spreadsheet, eater the wcrst case |crecast c| 1,!00
la the \cur :ales lcrecast cell. ia the lrcductlca spreadsheet, eater
the best case c| 1,500 la the lrcductlca :chedule cell (l| laeatcr,
reaalas |rca the prelcus ,ear, be sure tc subtract that |rca the
1,500). \t the ead c| the ,ear, la the wcrst case ,cu wlll hae scld
1,!00,000 ualts aad hae 300,000 ualts la laeatcr,. ia the best case
,cu wlll hae scld 1,500,000 ualts aad hae zerc laeatcr,.
Jhe spread betweea the pcsltlcas wlll shcw up as laeatcr, ca ,cur
prc|craa balaace sheet. \cur prc|craa laccae stateaeat wlll alsc
re1ect the wcrst case |cr sales. ia the llaaace area, l| the 0eceaber
31 0ash lcsltlca ls aeatle, adust curreat debt, lca tera debt aad
stcck lssue eatrles uatll the 0eceaber 31 0ash lcsltlca beccaes
pcsltle. Jhls wlll help easure aalast aa eaereac, lcaa.
Jc see ,cur best case, retura tc the Marketla spreadsheet aad eater
1,500 la the \cur :ales lcrecast cell thea relew the 0eceaber 31
Team Member Guide

23
Index
A
Accessibility 8, 9, 12, 18,
19
Accounts Payable (A/P) 15,
17
Accounts Receivable 17
Accounts Receivable (A/R)
8, 15, 17
Actual Sales 21
Age 3, 4, 8, 10, 11, 18
Annual Reports 2, 19
Automation 10, 13, 14, 15
Awareness 8, 9, 12, 18,
19
B
Balance Sheet 15, 19
Bonds 15
Book Value 16
Buying Criteria 3, 6, 18,
19
C
Capacity 3, 13, 14, 15
Capstone Courier 1, 17
Capstone Spreadsheet 2
Cash Flow Statement 20
Computer Prediction 13,
22
Create a Sensor 10, 11, 12
Current Debt 15, 16
Customer Survey Score 5,
6, 8, 18, 19
D
December Customer Survey
Score 18
Discontinue a Sensor 3, 14
Dividend 15, 16
Drift 4
E
Earnings Per Share (EPS) 16
Emergency Loans 16
F
Finance 3, 15, 17, 22
Fine Cut
MTBF 8
Positioning 7
Price 7
Forecasting 13, 20
I
Ideal Spot 6, 18
Income Statement 14, 15,
20
Industry Conditions Report
1, 3
Invent a Sensor 10, 11, 12
L
Labor Cost 13, 14, 17,
18, 20
Long Term Debt 15
M
Marketing 2, 3, 5, 11
Market Segment Drift 4
Market Segments 3, 4, 5,
11
Market Share 18
Material Cost 10
MTBF (Mean Time Before
Failure) 3, 4, 7, 8,
10, 18
N
New Sensor 10, 11, 12
P
Perceptual Map 4, 5, 10,
14, 18
Performance
Product Attribute 10
Positioning 3, 4, 7, 18
Potential Sales 18, 21
Practice Rounds 3
Price 3, 4, 7, 18
Production 2, 3, 13, 17
Productivity Index 20
Proformas 2, 19, 22
Promotion Budget 12, 18
R
Rehearsal Tutorial 1
Reliability 3, 4, 7, 8, 10,
18
Research & Development
(R&D) 2, 5, 10, 14
Rough Cut
MTBF 7
Positioning 7
Price 7
S
Sales Budget 12, 18
Sales Forecasting 13, 20
Segment Drift 4
Segments 3, 4, 5, 11
Sellers Market 9
Situation Analysis 20
Size
Product Attribute 10
Stock 16
Stock Outs 9, 21
Survey Score 5, 6, 8, 18,
19
T
Terminate a Sensor 3, 14

24
Team Member Guide

25