career development and lifestyle planning · web viewbu.610.620.xx – simulation and strategic...

BU.610.620.XX – Simulation and Strategic Options – Instructor Name – of 18

Simulation and Strategic Options2 credits

BU.610.625.XX[NOTE: Each section must have a separate syllabus.]

[Day & Time / ex: Monday, 6pm-9pm][Start & End Date / ex: 3/24/15-5/12/15]

[Semester / ex: Fall 2016][Location / ex: Washington, DC]

Instructor[Full Name]

Contact Information[Phone Number, (###) ###-####][Email Address]

Office Hours[Day(s)/Times]

Required Texts & Learning Materials Materials and Readings Available Through Blackboard

1. Chambers, C.G. Introduction to Simulation: Random Variables and Modeling, 2010.2. Chambers, C.G. More Advanced Decision Models & Applications, 2010.

Materials & Readings Available Through JHU Library eReserves3. DeSantiago, R. Decision Tools to Keep You on the Right Path, IESE Insight, 2013.4. Hertz, DB. Investment Policies that Pay Off, Harvard Business Review, 1968.5. Hammond, JS, Better Decisions with Preference Theory, Harvard Business Review, 19676. Clemen, RT and T Reilly, Chapter 13: Real Options in Making Hard Decisions Using

Decision Tools, 3rd Edition, 2012.7. Ferreira, N, J Kar and L Trigeorgis. Option Games, Harvard Business Review, 2009.8. Bazerman, MH and JJ Gillespie. Betting on the Future: The Virtues of Contingent Contracts,

Harvard Business Review, 1999.9. Baucells, M and M Weber, Mind Your Mind Traps, IESE Insight, 2009.

Cases & Readings Available Through Study.net10. Introduction of the Differential Global Positioning System11. IEC In Sports12. Enron Corporation’s Weather Derivatives13. Games of Strategy: An Introduction14. Airbus and Boeing15. Applichem

Course DescriptionThis course covers aspects of spreadsheet models, Monte Carlo Simulation, contingent claims analysis, and scenario planning to formalize the concept of real options as a framework for thinking


through contingencies and strategic decisions made in the presence of risk. It uses the logic of options pricing, decision trees, and decision analysis to position the manager to deal with risks embedded in the use of real assets. Emphasis will be placed on taking advantage of the up-side of risks, and the application of rigorous approaches to thinking through “optionality” in the real world.

Prerequisite(s)(BU.231.620 OR BU.910.611) AND (BU.520.601 OR BU.913.610)

Learning Objectives The learning objectives specific to this course are:

1. Begin to see how to structure a decision that incorporates options to change course or direction after receiving new information about risky outcomes

2. Understand and practice generating competing scenarios that account for differing outcomes that can result

3. Use options pricing tools and methodologies to consider complex settings not perfectly captured in capital markets

4. Develop strategies that are adaptable to changing environments 5. Present material in written and oral formats which includes treatment of both quantitative

and qualitative elements of risk management

To view the complete list of Carey Business School’s general learning goals and objectives, visit the Teaching & Learning@Carey website.

Attendance and ParticipationThe ability to “think on your feet” and succinctly articulate your point of view about a decision to be made is critical to any general manager. Our classroom will provide a safe place for you to develop and hone these skills. Please note that the quality of what you contribute to class discussions (whether a thoughtful question, some astute analysis, or some other meaningful contribution) will count far more than the quantity of your remarks.

Assignments & Rubrics

Assignment Learning Objectives WeightParticipation 1 – 5 15%Homework #1 1 – 5 9%Homework #2 1 – 5 9%Homework #3 1 – 5 9%Homework #4 1 – 5 9%Homework #5 1 – 5 9%Group Project 1 – 5 15%Final Exam 1 – 5 25%Total 100%

Participation – Participation includes cooperation in the class discussions, lectures, and/or presentations. We reserve the right to randomly call on students to make sure everyone is on the same page.

http://carey.jhu.edu/faculty-research/learning-at-carey/accreditation/


Homework – The course includes four individual submissions and one group submission as homework assignments based on the cases discussed in session 2-6. Submission of homework problems is to be done via Blackboard. Each student or group should submit at least one file for each assignment. The first will be a PDF file containing the related written responses. Some assignments will also involve creation of a simulation model. When this is needed, it should be submitted as a separate Excel file.

Late assignments will not be accepted without prior arrangement with the course instructor. Such arrangements are reasonable for medical reasons and other emergencies. However, students should understand that the general policy is that late submissions will not be graded. Also, any submission made after the assignment is discussed in class is clearly inadmissible and cannot be considered.

Group Project – Students will form teams of 3-4 people and develop a complete analysis of a business case focused on using simulation and/or scenario development to address issues in risk management. Each team will explain its analysis in a 15-minute presentation to the rest of the class and deal with questions from other students and/or faculty.

Final Exam – Session 8 is set aside for an in-class exam. Exam questions will be drawn from class notes, cases covered, homework problems, and/or a case distributed in advance of the exam time. Exam format will include multiple choice and short-answer questions. All responses will be correct or incorrect. Consequently, no Rubric is provided.


Rubric for Class ParticipationAssessment

CriteriaNot Good Enough

(0≤ score <6)Good

(6≤ score <9)Very Good

(9≤ score ≤10) Score

Criterion 1 Preparation

Students does not show evidence of consideration of assigned readings/cases

Student shows knowledge of the content of assigned readings as well as methods/results of assigned work

Student shows application of key concepts from background work to the discussion at hand

Criterion 2 Engagement

Students only contributed when forced to do so or chooses not to be involved in discussion

Student is engaged and involved in discussion in every session

Students leads discussions forward on a consistent basis whether prompted by instructor or not

Criterion 3 Listening

Student input does not show consideration of other statements or class input

Participation shows awareness and understanding of what is presented by both instructor and other students

Shows how insights presented by others expands understanding of critical content

Criterion 4 Pedagogical value

Comments are rare and/or do not add to the understanding of relevant material

Participations moves discussion forward and/or presents ideas beyond statement of facts or information

Synthesis of concepts is displayed in a fashion that enlightens the group

Total Score


Rubric for Homework SubmissionsAssessment


(0≤ score <6)Good



Criterion 1 Demonstrates how to translate problem description to a consistent construct

Does not convey problem setting as a model with internal consistency

Presents decision setting clearly, concisely, and completely

Shows how nuances of course material lead to model and decisions which expand upon introductory concepts

Criterion 2 Presents analysis in a way that produces useful insights

Submission does not show evidence of underlying logic and/or does not does not relate to decision setting

Work shows how a good decision follows from analysis

Demonstrates methodology of general applicability across problem domains

Criterion 3 Captures important aspects of problem setting and supports decision making

Includes information not relevant to the problem and/or omits major elements of significance

Includes relevant information and excludes distracting content

Explains why some input is used and why other content is omitted in a way that adds clarity and leads to a consistent way to evaluate complex problem settings

Criterion 4 Presents work in a way that reflects professionalism and care for client needs

Work is hard to follow and/or read. Work does not show the logic behind the analysis

Presentation is clear, neat, and complete

Presentation shows that client or decision makers characteristics are incorporated into all work.

Total Score


Rubric for Written Submission on Learning Experience from Team ProjectAssessment


(0≤ score <6)Good



Criterion 1 Demonstrates appreciation of multiple perspectives and experiences

Does not recognize perspectives of others, and/or dismisses them as having no value

Recognizes multiple perspectives and can explain how they added to the quality of the team’s work

Explains how exposure to new perspectives evidenced during project served to change personalities or improve working environment.

Criterion 2 Explains how new perspective helped team and added to student experience

Cannot recall instances in which other perspectives of ideas made a positive impression or contribution

Can identify at 2 perspectives and explain how each added to the learning experience

Can highlight specific experiences with new perspectives that altered student’s consciousness regarding how to deal with others on future projects and work tasks.

Criterion 3 Demonstrates recognition of value of teamwork

Undermines team dynamics or only focuses on how team structure hindered student efforts

Can identify at least 2 instances of how teamwork improved the work product and/or explains how student improved team dynamics to help the project progress

Explains how student showed leadership in managing team dynamics in a way that created lessons that the entire team may benefit from in all future endeavors

Criterion 4 Explains insight related to teamwork gained through experience with class project

Found no insight from experience or cannot express it an a coherent fashion

Can explain at least 2 lessons learned about teamwork that will be of value to student in future endeavors

Explains new insight related to teamwork that is not borrowed from course readings or instructions. Shows how this insight will help team members in future jobs/endeavors.

Total Score


Rubric for Written Submission on Case DiscussionsAssessment


(0≤ score <6)Good



Criterion 1 Demonstrates appreciation of multiple perspectives and experiences

Does not recognize perspectives of others, and/or dismisses them as having no value

Recognizes multiple perspectives and can explain how they added to the quality of the discussion

Explains how exposure to new perspectives evidenced during discussions served to change personalities or improve working environment.

Criterion 2 Explains how new perspective helped improve learning experience

Cannot recall instances in which other perspectives or ideas made a positive impression or contribution

Can identify at least 2 perspectives and explain how each added to the learning experience

Can highlight specific experiences that altered student’s consciousness regarding how to deal with others on future projects and work tasks.

Criterion 3 Demonstrates recognition of value of group discussion

Undermines classroom dynamics or only focuses on how group discussion hindered student efforts to get attention

Can identify at least 2 instances of how information provided in class discussion improved under-standing of difficult topic and/or explains how student improved classroom dynamics to help the discussion progress

Explains how student showed leadership in improving classroom dynamics in a way that created lessons that the entire class may benefit from in all future endeavors

Criterion 4 Explains insight related to business gained through experience in class discussions

Found no insight from experience or cannot express it an a coherent fashion

Can explain at least 2 lessons learned about business from discussions that will be of value to student in future endeavors

Explains new insight that is not borrowed from course readings or instructions. Shows how this insight will help student in future jobs/endeavors.

Total Score


RUBRIC FOR PRESENTATION PORTION OF COURSE PROJECT

Analysis1. Was the analysis of the case complete? Max 10 pts. _________

2. Does the analysis properly incorporate the relevant tools? 10 pts. _________ 3. Does the analysis show the relationships among important 10 pts _________

factors in the situation?

Recommended Actions1. Is the action plan specific and complete? 10 pts. _________

2. Is the action plan practical (i.e., something that can be done _________reasonably)? 5 pts.

3. Does the action plan recognize the importance of timing _________(short-term and long-term)? 5 pts.

4. Is the plan of action integrated in a logical way and linked _________to the analysis? 5 pts

Case Presentation1. Did the case discussion stimulate interest among class _________

participants? 5 pts.

2. How effectively did the presenting team lead the discussion? 5 pts _________

3. How good was the timing of the case presentation? 5 pts. _________

Class Handouts1. Were the class handouts effective in communicating _________

information? 5 pts.

2. Did they help to clarify some of the detailed points of _________the case analysis? 5 pts.

Overall Criteria1. How well organized was the presentation? 10 pts. _________

2. What was the level of clarity and cogency of presented _________arguments? 10 pts.


RUBRIC FOR WRITTEN PORTION OF APPLICHEM ASSIGNMENT

Analysis1. Does the paper contain analyses of the major issues? 10 pts. _________

2. Does the analysis properly incorporate the relevant tools? 10 pts. _________

3. Does the analysis show the relationships among important _________factors in the situation? 5 pts

4. Are assumptions made in the analysis stated explicitly? 5 pts _________

5. Does the analysis isolate the fundamental causes of problems _________in the case? 5 pts.

Recommended Actions1. Are the criteria for selecting recommendations stated? 5 pts. _________

2. Is the plan of action integrated in a logical way and linked _________to the analysis? 5 pts.

3. Does the action plan recognize the importance of timing _________(short-term and long-term)? 5 pts.

4. Is the action plan specific and complete? 5 pts. _________

5. Is the action plan practical (i.e., something that can be done _________reasonably)? 5 pts.

6. Is the action plan effective (i.e., does it resolve the problems _________and achieve the desired results)? 5 pts.

7. Is the action plan efficient (i.e., does it make good use of _________the available resources)? 5 pts.

Exhibits1. Are analyses in the exhibits done correctly? 10 pts _________

2. Do the key exhibits support and add to the text on key points? 10 pts. _________

Overall Criteria1. Is the paper logically consistent and effectively structured _________

so it sells its recommendations? 10 pts.


Grading – The grade of A is reserved for those who demonstrate extraordinarily excellent performance. The grade of A- is awarded only for excellent performance. The grade for good performance in this course is a B+/B. The grades of D+, D, and D- are not awarded at the graduate level.

Please refer to the Carey Business School’s Student Handbook for grade appeal information.

Tentative Course Calendar**The instructor reserves the right to alter course content or adjust the pace to accommodate class progress.

Week Content Reading DueSession 1 Simulation & Trees Readings 1, 2 & 3 HW #0

Session 2 Risk Profiles Readings 4 & 5 HW #1

Session 3 Real Options Reading 6 HW #2

Session 4 Option Bundles Reading 7, 13 HW #3

Session 5 Scenario Planning Reading 8 HW #4

Session 6 Options and Strategy Reading 9 HW #5

Session 7 Group Presentations Group Report & Presentation

Session 8 Final Exam N/A

http://carey.jhu.edu/students/student-handbook-and-academic-catalog/


Carey Business School Policies and General Information

Blackboard SiteA Blackboard course site is set up for this course. Each student is expected to check the site throughout the semester as Blackboard will be the primary venue for outside classroom communications between the instructors and the students. Students can access the course site at https://blackboard.jhu.edu. Support for Blackboard is available at 1-866-669-6138.

Course EvaluationAs a research and learning community, the Carey Business School is committed to continuous improvement. The faculty strongly encourages students to provide complete and honest feedback for this course. Please take this activity seriously; we depend on your feedback to help us improve. Information on how to complete the evaluation will be provided toward the end of the course.

Disability ServicesJohns Hopkins University and the Carey Business School are committed to making all academic programs, support services, and facilities accessible. To determine eligibility for accommodations, please contact the Disability Services Office at time of admission and allow at least four weeks prior to the beginning of the first class meeting. Students should contact Priscilla Mint in the Disability Services Office by phone at 410-234-9243, by fax at 443-529-1552, or by email.

Honor Code/Code of ConductAll students are expected to view the Carey Business School Honor Code/Code of Conduct tutorial and submit their pledge online. Students who fail to complete and submit the pledge will have a registrar’s hold on their account. Please contact the student services office via email if you have any questions.

Students are not allowed to use any electronic devices during in-class tests. Calculators will be provided if the instructor requires them for test taking. Students must seek permission from the instructor to leave the classroom during an in-class test. Test scripts must not be removed from the classroom during the test.

Other Important Academic Policies and ServicesStudents are strongly encouraged to consult the Carey Business School’s Student Handbook and Academic Catalog and Student Resources for information regarding the following items:

Statement of Diversity and Inclusion Student Success Center Inclement Weather Policy

Copyright StatementUnless explicitly allowed by the instructor, course materials, class discussions, and examinations are created for and expected to be used by class participants only. The recording and rebroadcasting of such material, by any means, is forbidden. Violations are subject to sanctions under the Honor Code.

http://carey.jhu.edu/students/student-resources/

http://carey.jhu.edu/students/student-handbook-and-academic-catalog

http://carey.jhu.edu/students/student-handbook-and-academic-catalog

mailto:[email protected]

http://carey.jhu.edu/students/student-resources/honor-code/honor-code-pledge/

http://carey.jhu.edu/students/student-resources/honor-code/

mailto:[email protected]

http://carey.jhu.edu/students/student-resources/disability-services/

https://blackboard.jhu.edu/


Detailed Schedule

Instructors reserve the right to alter course content or adjust the pace to accommodate class progress. Note (BB), (ER), & (HBSP) refer to Blackboard, e-Reserves, and the coursepak at Harvard Business School Publishing respectively.

SESSION 1: SIMULATION & TREES

In this session we review material covered on simulations from the Decision Models course, work through examples in class, and use the tool to address a simple case.

Readings 1. Introduction to Simulation: Random Variables and Modeling (BB)

2. Chambers, C.G. More Advanced Decision Models & Applications, 2010. (BB)

3. Decision Tools to Keep You on the Right Path (ER)

Discussion Questions 1. Create a model of the Newsvendor setting described in Example 1 but use demand levels of 0,1,2,3, and 4. What is the optimal order quantity for this case?

Introduction of Global Positioning System (HBSP)

This exercise introduces a powerful concept using a very simple analytical tool that students were introduced to in prior Managerial Economics coursework.

Discussion Questions 1. What do you think of Waser’s analysis in Exhibit 6? Does it appropriately evaluate the project’s attractiveness? If not, what specific characteristics of the project does it ignore?

2. Why would Crossair apply a discount rate of 15% to projects such as this? What does this discount rate reflect?

3. How would the value of the project be affected if the competitive damage may be anywhere from 2.5 and 10 M SFr? How would the value be affected if there was a possibility of quality problems with the SNS system, causing additional maintenance costs after installation?


SESSION 2: RISK PROFILES

In this session we look at using spreadsheet models to explore value and use of managerial flexibility as a strategy for managing risks.

Required Readings 1. Investment Policies that Pay Off (ER)2. Better Decisions With Preference Theory (ER)

Submission Due 1. Answers to questions 1 - 3 below

IEC In Sports (HBSP)

This case is useful in exploring issues in probability, expected monetary value, risk management, and simulation.

Discussion questions 1. Describe the uncertainties in this problem.

2. Calculate Expected Values of key outcomes and show them in the form of a decision tree.

3. Explain whether these calculations (i.e. multiplying probabilities by revenues, etc.) are sufficient to address the key managerial concern in this problem?

4. What is simulation? Why would simulation be helpful in working out this problem?

5. Is it a good idea to carry out best and worst case simulations in this case?


SESSION 3: TREES, SIMULATION & REAL OPTIONS

In this session we continue our exploration of issues involved when decisions can be adjusted in response to real events.

Required Readings 1. Real Options (ER)

Submission Due Respond to question 1 for both cases.

Case APPSHOP (ER)

Discussion Questions **1. Appraise the risk alternatives, and use your simulation of the problem setting to recommend what Eric Clark should choose. Submit your written response as well as your simulation model.

Case Enron Corporation’s Weather Derivatives A & B (HBSP)

Discussion Questions 1. What are the pros and cons of weather protection from PNW’s perspective?

2. What is Enron’s role in this market and why would they expect this to be a profitable business?

3. Which, if any, of the available contracts would you be willing to accept?

4. Which is the best contract for you?

5. If you could design your own contract to reduce your exposure to the greatest extent what would it be?


SESSION 4: OPTIONS BUNDLES AND STRATEGIC RISKS

This session deals with categories of risk that most managers ignore when making large deals. Proper analysis involves multiple methodologies and proper management involves extending beyond the obvious choices.

Required Readings 1. Games of Strategy (HBSP)2. Option Games (ER)

Submission Due Response to questions 1 - 3 shown below. Your submission should include your written portion AND your simulation model.

Airbus and Boeing (HBSP) – this case focuses on the strategic response of one major player to the actions of the other. Case analysis combines elements of game theory, subjective probability assessments, decision trees, and simulation.

Discussion questions 1. Create a payoff matrix for Boeing’s choices to Develop Now (D) or Never Develop (N).

2. Create a payoff matrix for Airbus’ choices to be “In development of an offering for” (I) or “stay Out of” the superjumbo market.

3. Should Airbus introduce a superjumbo jet?

4. Assuming that Airbus is in development of an offering for the superjumbo market draw the decision diagram for Boeing including alternatives Airbus has to improve its situation.

5. What should Boeing’s strategy be?

6. The GFB analyst has asked for your help in preparing his report to a large institutional investor. This investor is concerned about the significant difference in superjumbo market forecasts by the two companies as treated in the model, and in particular, about the effect this difference may have on the value added by the superjumbo market to each company’s business. This investor believes it is equally likely that the initial orders will follow either the analyst’s model based on Boeing’s view or the analyst’s model based on Airbus’s view. Incorporating this belief into your analysis, write a paragraph for the analyst’s report to the investor about the value added to Airbus by the superjumbo market relative to the value added to Boeing by the superjumbo market.


SESSION 5: REAL OPTIONS & SCENARIO PLANNING

In this session we introduce several issues involved in the management of Supply Chains. Elements of systems engineering and economics will be used to lay a foundation to understand the dominant behavior of these serial systems in dynamic environments.

Required Readings 1. Betting on the Future: The Virtues of Contingent Contracts (ER)

Submission Due Simulate the variety of outcomes discussed in the case to show expected values linked to the options presented there. Use your simulation to justify your recommended course of action. You are free to perform this analysis in groups of 3-4 students, as the workload from the simulation creation is considerably greater than in most cases.

Applichem (HBSP)

This case provides us with detailed data on costs, material, and labor resources, capacity output rates, and international exchange and inflation rates to compare the performance of 6 plants which manufacture Release-Ease (a chemical additive to molding compounds) in 6 different countries. It introduces us to the problems and opportunities entailed in managing a multi-plant network. It raises the opportunities for coordinating among plants as well as for rationalizing capacity. It helps us to understand the role of operational flexibility in managing in the presence of exchange rate uncertainty.

Discussion questions 1. How would you explain the large differences in the performance of the plants making Release-ease??

2. As Joe Spadaro, what would you do given the current over capacity situation? In doing so approach the problem in two ways: first assume that exchange rates stay as they are when the case is written. Second, include fluctuating exchange rates.


SESSION 6: OPTIONS BUNDLES AND STRATEGIC RISKS

This session deals with categories of risk that most managers ignore when making large deals. Proper analysis involves multiple methodologies and proper management involves extending beyond the obvious choices.

Required Readings 1. Mind Your Mind Traps (ER)

Submission Due Use your simulation to explain your response to question 1 shown below. Submit both your written response to question 1 as well as the simulation model that supports it.

SCOR-eStore.com (HBSP)

A potential investor in a new on-line sheet-music business is ready to deny funding based on simple expected monetary values. Further reflection identifies potential downstream options that have been previously overlooked. Understanding the opportunity fully, requires exploration of each of these options as a portfolio of strategies rather than a simple go-no go decision.

Discussion questions 1. What value does each of the four ideas offered by Lance Bernard’s friends have, over and above the value of the original opportunity?

2. Are there other contingent opportunities that would add value to this business?

3. Should Bernard invest in this business?

4. Perhaps not all the uncertainty is considered in the base model of Exhibit 2. Think about what the addition of more uncertainty would do to the values found in question 1.

5. Does Bernard have reasonable cutoff levels to trigger action on each of the ideas in question 1?


SESSION 7 STUDENT PRESENTATIONS

Session 7: Student PresentationsIn this session student groups will present a complete analysis of a business case that focuses on decision making in an environment that includes high levels of risk in a way that leverages the material covered throughout the course. Each team will select one of the three cases listed below as the focus of their analysis.

Eli Lilly – this case considers the use of flexible production capacity in the face of technical uncertainty. The main uncertainty in place here involves FDA approval for experimental drug based products about the start their life cycle. The required analysis involves extensive use of spreadsheet modeling and Decision trees.

Genentech – this case deals with capacity management decisions for a large Biotech firm that must respond to very high levels of uncertainty when capacity decisions must be made for a longer term and associated capital expenditures are quite large. The required analysis uses spreadsheet modeling and simulation of outcomes.

Nucleon - This case looks at a very small biotechnology company whose first product almost ready to be tested in human beings. The company has been entirely focused on R&D up to this point but must now think strategically about production capabilities, licensing alternatives, and the complexities of contract design under great market and technical uncertainty. The case involves application of the ideas behind Options Pricing and applying that to Real operational problems.

SESSION 8 FINAL EXAMTHE EXAM WILL COVER CLASS DISCUSSIONS, HOMEWORK ASSIGNMENTS, AND MAY INVOLVE A CASE STUDY TO BE HANDED OUT AT THE END OF SESSION 7.

career development and lifestyle planning · web viewbu.610.620.xx – simulation and strategic...

Documents