A. STRATEGIC DECISIONS
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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
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
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