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ADMS 3900 (2)
Final

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Department
Administrative Studies
Course
ADMS 3900
Professor
Randy Hoffman
Semester
Fall

Description
A. STRATEGIC DECISIONS Year 1 Highlights The decision to be a 4 star resort was a good decision because we believed we would be the only resort willing to take this risk to be this star. It was important to the management team to build all the facilities. We felt that being a 4 star luxury resort would attract more customers. More importantly, the purpose was to eliminate additional construction expenses in future years. Therefore, constructing the facilities after year 1 would create additional expenses of 50%. Maple Pines allocated $300,000 to both maintenance and the marketing department. It was critical to allocate funds to marketing in order to promote the resort. The maintenance of the hotel was important for us to be recognized as a clean hotel and to increase the quality of service and facilities. The variable cost of restaurant and bar were 54% and 50%, respectively. The sales of restaurant and bar totaled $1,285,980.08 and 360,750.97. There was no over time costs. Lowlights The first year of operations was very difficult and experimental in many respects. We overestimated the power of advertising. Maple Pines allocated $425,000 to advertising and in return had an effective advertising of $276,250. The advertising resulted in making poor decision in year 2 that assisted in an alternate market occurring. Again, the capacity for year 2 was not adequate to meet demand. This was in part to the fact that not enough rooms were constructed. The effective advertising may have been greater if more than 25 rooms were constructed in year 1. This lead to an excess of marginal capacity needed of 1, 703. There was uncommitted cash of $283, 371 that Maple Pines may have invested into either investment A or B. What We Learned The first thing Maples Pines learned was to not leave any money in uncommitted cash at the beginning of the year. We learned that we have to increase the number of rooms. We also learned that we should increase the price per night. This would allow us to maximize our profit. Year 2 Highlights We have learnt from our mistake in year 1 simulation and made the decision to increase the number of room as well as the average price per room. This was a good decision, since it gave us a profit of $1, 019, 054.97 which we expected. Lowlights There is several lowlights we have in year 2. First, we build only 5 more rooms; but its still way too far to satisfy the high demand of customers. Second, we spent too much on advertising to attract more customers even we did not have rooms for them. Eventually, this resulted in great escape taking our extra capacity. If they had more rooms they would have made a larger profit that year. This made our problems such as room capacity and advertising became even worse because our decision were out of control. What we learned In year 2, although we tried to avoid the same mistake we made in year 1, we didn’t succeed. We need to consider all factors at same time, take control and balance them in the simulation analysis. For example, consider the room capacity with advertising expenses. In addition, we need to do as much scenarios as we can to predict any possible outcomes, so our decision could be accurate. Year 3 Highlights In year 3, we continued to make a good decision for our uncommitted cash, investing it in Investment A. This allowed us to gain 3.92049% on our investment. This was a great decision, as we saw that both of our competitors lost money by investing in Investment B. Another highlight was effective advertising in which we outperformed our competitors. We lowered our advertising expenditure almost by half from previous year, which also lowered down our advertising expense. Lowlights In year 3, we had one of our most traumatic lowlights, when we suffered a loss in net income of (618,411.43) due to our expenses being higher than our gross margin. This was caused by several of our poor decision. We increased our number of staff, which produced a very high personnel overhead in our operating expenses. We increased the number of rooms by 13, which created unnecessary upgrade expense. Number of rooms sold was very low, due to our decision to charge the highest price possible ($300). Our loss in income caused our market price per share to drop significantly from $5.10 in year 2, to $2.35 in year 3. Also our market capitalization went down from $5,102,743.00 to $2,469,845.00. We should have issued 250,000 shares because our market price was highest after year 2. What we learned: We learned that one poor decision can cause a chain effect of bad outcomes. We also saw that by being in a luxury market it is not necessarily beneficial to charge the highest price and spend a lot on upgrading and advertisement, since it causes low sales and high expenses, which in turn lowers down net income. Year 4 Highlights: We are pleased that our decision to invest into investment A was correct, especially when cash is an important asset/resource to make the simulation a success. Also another highlight would be continuance in a luxury hotel segment; it allowed us to charge more than our competitors. We had the opportunity to increase our revenue without as much constraints because we had the highest quality in a hotel which justified our rights to charge a premium on the rooms we sold in the hotel. We issued dividends to increase market capitalization. We increased the number of rooms that allowed us to minimize the amount of capacity needed compared to previous years. Lowlights: The lowlights of our strategic decision consisted of many factors. One of the mistakes our group feels was that we did not establish enough rooms during beginning years of the simulation. Great Escape took advantage of this weakness twice and distanced themselves with a higher market capitalization, in terms of market price and market penetration/share. Another lowlight would be that our group did not understand how we were generating excess demand. Our group allocated a lot of cash into advertising expenses and marketing budget during years 1 to 3, not knowing we were generating unnecessary demand. What was learned: Our group learned in year 4 that our major weakness was a shortage in the number of rooms and generating demand. We lowered our budgetary allocations to advertising expense and marketing during year 4 and still had the same amount of room sales. We generated the excess demand by pumping capital into advertising expense created an alternate market for our competitors to capitalize. We understood that we needed to consider balancing the numbers of rooms, the amount of budgetary allocations and prices of the rooms to create efficiency. Year 5 Highlights At the end of year four our share price was far behind that of the leaders. Using the figures from our best case scenario, we successfully concluded that issuing dividends of 15% to be optimal solution. By issuing a smaller percentage of dividends we were able to generate the greatest contribution to retained earnings in our economy. In year five, a major factor is assisting the hotel generate a great cash flow, was the sales from the bar and restaurant. Our variable costs were not much higher than that of our competitors yet we managed to generate double the income than that generated by both of our competitors. Another highlight for year five lied in the fact that we were able to increase our level of assets by two million dollars. By upgrading the size of Maple Pines Resort, we have made our facilities more luxurious and have a greater value on our balance sheet. The major highlight of year five was the perpetual fact that we generated the highest contribution to net income in our economy. Our growth was also partially attributed to increasing capital by issuing an additional 250,000 shares. Lowlights In year five of the simulation we anticipated a sales capacity of 24,455 rooms. However, our actual sales were only 20,805 rooms. To adjust for this factor, we should have either lowered the price of our rooms, or decreased the number of rooms we had built this year. With the residual income we would have saved by not upgrading with as money rooms or the money we would have earned by lowering our price we could have allocated more money into the investment. Moreover, we made the mistake of not allocating enough to advertising. Had we increased the funding of advertising then we would have experienced a greater level of room sales. Another mistake we made is year five was not testing out the effects of a downgrade. The possible scenarios were not taken into consideration until year six of the simulation. Perhaps if we had been greater risk takers we may have been able to catch out competitors. What we learned I believe the main lesson to be taken away from this year was that it is important to analyze different scenarios more accurately. Like previous years in the simulation, we failed to reach 100% room capacity. Our level of income has a great impact on maximizing the number of rooms that are sold. We also learned that risks are sometimes not a bad thing, as they can have positive outcomes. However, as a group we wanted to maintain our position in the simulation and we therefore did not take any risks, although we did learn that risks are not necessarily a bad thing. Moreover, at the beginning of year five, we felt we had grasped the simple laissez faire and heavy investment approach used by the leaders in our economy. Year 6 Highlights We invested all of our cash in investment B. We gained a high return rate at year 6. In addition, since we decide to stay in 4-star resort this year. We think it was a good decision not to downgrade, since by staying in 4-star it gave us the highest profit in the final year. Lowlights There’s several lowlights we have in year 6. First, we were too conservative to add rooms at year 6. Our maximum sales capacity is 24,455 rooms, but our advance bookings prediction is 27,784, it’s so far to satisfy the demand of customers. Second, we spent too much on advertising even though we did not have enough rooms. Finally, we spent less marketing and maintenance expenditure. There are very close our competitors’ on economy. It is too low to attract more customers. What we learned We have learnt that we should thoroughly think about all possible actions our competitors may take, and we should analyze the conditions on what would happen if our resort downgrades to 2-star or 3-star. We thought about what 1-star would do in our point of view and because we were still focused on increasing our market capitalization by generating higher net income we did not realize that 1-star’s interest may not be here. Because they have a lot more capital than us, their focus does not have to remain on maximizing their net income since they will win. But 2-star still focuses on the highest net income, because their market capitalization is lower than us. We need to analyze different condition for different competitors. We also have learnt the strategy to emphasize on high quality. B. STRATEGIC PLANNING PROCESS Year 1 Highlights We anticipated that the other groups would be a 2 star and a 3 star resort. Maple Pines decided to be a 4 star resort because we felt it would be considered to risky by the other resorts and based on the personality of the presidents and key group members. It was difficult for the 3 star resort to compete with us in the luxury segment. The 3 star ended up downgrading to a 2 star resort in year 3. This resulted in a net loss for us in year 3 due to poor scenario analysis. However, we managed to recover in the following years. Focused on providing a quality hotel allowed us to charge a higher price per night and capitalize on restaurant and bar sales (approximately $1,600,000). We avoided borrowing funds. We felt that if we waited until we can start issuing shares in year 3 it would be a better way to raise capital and expand. This also allowed us to increase our market capitalization. There was no over time cost. We calculated the personnel based on calculations in the resort manual. Lowlights Maximum gain strategy was the way we believed we can make the most money. It did not turn out that way for the majority of the years. We did not understand where to start and what to do in the first year. We could have increased the price to maximize our profits. We did not understand market size demand. Maple Pines failed at planning for year 2 as a result of the lack of understanding and weak analysis of trends. Our investment decisions were not sufficient to maximize profit. As a result, we failed to invest all uncommitted cash. It was believed that for the decision tree and alternate market that using the worst case scenario should be used. The group had all members working on scenarios and did not properly divide work and responsibilities. Members were not placed in positions that reflected their true abilities. Some non-formal changes occurred within the group to allow it to function more efficiently. What we learned We learned that we need to initialize the file to the resort loader. We learned that we must begin with scenarios. We learned that we have to divide work and reassign responsibilities. This allowed us to stop wasting time having 7 group members work on the same work. The scenario analysis was left to the analyst and the managers and president work on the remaining work. Some members’ positions evolved and changed. We learned that we must only keep $1 in uncommitted cash. We had to spend more time understanding the capabilities of competitors with envi
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