student manual odyssey

BizCafe The Business Essentials Simulation

Stuart W. James, Interpretive Simulations Michael Deighan, Interpretive Simulations

Charlottesville, Virginia, USA

COPYRIGHT NOTICE This manual and the simulation described in it are copyrighted with all rights reserved by Interpretive Software, Inc. Under the copyright laws, neither this manual nor the software may be copied, in whole or in part, without written consent of the authors, except in the normal use of the simulation for educational purposes, and then only by those with a valid license for use. The same proprietary and copyright notices must be affixed to any permitted copies as were affixed to the original. This exception does not allow copies to be made for others, whether or not sold. Under the law, copying includes translating into another language or format. Purchasing the simulation experience gives the owner the right to participate in a unique learning event. Each student or participant must purchase the simulation to take part in the event or the institution sponsoring the event must purchase for the entire group participating in the event. Limited Warranty on Media and Manuals In no event, will Interpretive Software, Inc. be liable for direct, indirect, special, incidental, or consequential damages resulting from any defect in the software or its documentation, even if advised of the possibility of such damages. In particular, the authors shall have no liability for any programs or data stored in or used with the computer products, including the cost of recovering such programs or data. This simulation experience is sold, "as is," and you, the purchaser, are assuming the entire risk as to its quality and performance. The warranty and remedies set forth above are exclusive and in lieu of all other, oral or written, express or implied. For more information about other products from Interpretive Software, please contact: Interpretive Simulations 1421 Sachem Place, Suite 2 Charlottesville, VA 22901 Phone: (434) 979-0245 Fax: (434) 979-2454 Website: http://www.interpretive.com Discover a Better Way to Learn. Active Learning through Business Simulations. Copyright © 2007–2012 Interpretive Software, Inc.; Illustrations Copyright © BigStockPhoto.com. All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner whatsoever without written permission of Interpretive Software, Inc. Graphic images used in manuals and incident videos © BigStockPhotos, iStockPhotos, and GettyImages. Footage used in incident videos © GettyImages and iStockPhotos.

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TABLE OF CONTENTS INTRODUCTION ....................................................................................................................................... 1

Overview of BizCafe ............................................................................................................................. 1Getting Started ...................................................................................................................................... 2Running BizCafe Each Period .............................................................................................................. 3Team Organization ................................................................................................................................ 4Peer Evaluation ..................................................................................................................................... 4The BizCafe Manual ............................................................................................................................. 5

SECTION 1: BUSINESS ESSENTIALS .................................................................................................. 7Management .......................................................................................................................................... 8Marketing .............................................................................................................................................. 9Operations ........................................................................................................................................... 11Accounting .......................................................................................................................................... 12Planning and Integration ..................................................................................................................... 13

SECTION 2: THE BIZCAFE CASE ..................................................................................................... 15Location and Retail Space Layout ...................................................................................................... 15Market Potential .................................................................................................................................. 16Staffing and Operations ....................................................................................................................... 17Accounting and Your Electronic Checkbook ...................................................................................... 17Starting Situation and Start-up Decisions ........................................................................................... 18Weekly Decisions ............................................................................................................................... 20

SECTION 3: BIZCAFE OPERATIONS GUIDE ................................................................................. 23Simulation Navigation ........................................................................................................................ 23Menu Overview ................................................................................................................................... 24Detail of Menu Choices ...................................................................................................................... 24

Startup ......................................................................................................................................... 25Decisions ..................................................................................................................................... 27Environment ............................................................................................................................... 48Simulation ................................................................................................................................... 51

APPENDIX ................................................................................................................................................ 53Using BizCafe In a Group ................................................................................................................... 53Glossary .............................................................................................................................................. 54

INDEX ........................................................................................................................................................ 57

Print Revision 11/10/2011

ABOUT THE AUTHORS

Stu James is the founder of Interpretive Simulations, one of the leading publishers and developers of business simulations worldwide. Interpretive’s simulations are an integral part of the curriculum at many of the world’s top business schools in the areas of marketing, strategy, management, and international business. To date, over 100,000 people have experienced one of Interpretive’s simulations, and many rave about how the simulation was one of the best learning tools they have ever used. On the academic front, Stu is currently Visiting Lecturer at the University of Michigan (EMBA and EP programs), and at the Colgate-Darden Graduate School of Business at the University of Virginia (MBA Core Marketing and Custom Executive Programs). In addition, Stu has served at the Allen Center for Executive Education at the Kellogg School of Business, the China Europe International Business School (CEIBS), and the Cheung Kong Graduate School of Business (CKGSB). Along with his academic work at the above business schools, Stu has also worked with American Honda, CIGNA, The Davidson Institute, General Electric, Genworth Financial, Harvard Business School, Navy Federal Credit Union, Pearson Prentice Hall, and McKinsey & Company. He is co-author of a number of leading simulation products including StratSimManagement, StratSimMarketing, StratSimChina, CountryManager, PharmaSim, HRSimSelection, MarketShare, BizCafe, and ServiceSim, all used at leading universities worldwide. Stu has extensive experience in facilitating simulation events, having directly worked with thousands of executive and MBA participants over the past 20 years. Management by the Numbers, Inc. (MBTN), a new venture that Stu has co-founded with Paul Farris of the Darden School of Business, will launch in 2010. The focus of this project is providing a self-paced, on-line environment where students and executives can master the numbers side of marketing. The goal of MBTN is to improve marketing acumen of mid-level managers to ultimately enhance the financial performance of businesses worldwide. Stu and his family reside in Afton, Virginia at the foot of the Blue Ridge Mountains. In his spare time, Stu enjoys playing Irish and old-time traditional music and competing in triathlons. Michael Deighan joined Interpretive Simulations in 1989 as lead software developer, and is now Chief Technology Officer. He is co-author of a number of Interpretive's simulations: Airline, AutoSim, BizCafe, CountryManager, Entrepreneur, HRManagement, MarketShare, PharmaSim, ServiceSim, StratSimChina, StratSimManagement, and StratSimMarketing. In addition to developing software, he has been teaching computer programming classes at Piedmont Virginia Community College, in Charlottesville, Virginia, since 1990. Michael received his B.A. in German and Economics from Washington and Lee University, and an M.A. in German from the University of Virginia.

ACKNOWLEDGMENTS The author would like to thank many people for their support in the development of this simulation. Mike Deighan, Payton James-Amberg, Karen Kelly, Kristen Knecht, Tony Naidu, Anne Louque, Michael Mische, and Clayton Shumate were all part of the development and testing team and the simulation is significantly better due to their efforts and suggestions. Interpretive especially appreciates the early users of the simulation who provided invaluable feedback. In particular, Jackie Shemko and her classes at Durham College provided a number of helpful suggestions. Thanks also to Tony Naidu and Sue Overton for the design and content of the cover.

Stuart W. James

July 2007

Introduction—Page 1

INTRODUCTION In BizCafe, you will have a "hands on" experience of managing a small business in a dynamic setting.

Computer-based simulations are a popular and useful tool for learning and applying business concepts. Simulations offer students the opportunity to experience much of the realism of making business decisions in a low-risk, experiential learning environment. BizCafe is a great way to learn about running a business. It is designed to help you learn about the challenges and rewards of making good decisions in a small, service-based business. You will learn about management, operations, marketing, and accounting by running your own coffee shop for up to 16 simulated weeks. Overview of BizCafe In BizCafe, you will typically be making decisions as part of a student management team. Teamwork is increasingly important in business today, and a valuable part of the BizCafe experience is learning how to make the best decisions when confronted with several different opinions. Your group will have to decide how to sort out your priorities and objectives in the context of a limited checkbook and a changing environment. Competing in the BizCafe environment will be a new experience for most of you, and this may well be the first time you use a simulation in the context of education. Therefore, take some time to familiarize yourself with the program and manual before beginning the exercise. While working through the simulation, you will find it helpful to refer to the manual for information and tips. Important: There are two versions of BizCafe, a benchmark competition version and a direct competition version. In the benchmark competition version, you operate in your own environment and set your own pace, whereas in the direct competition version, your decisions will interact with other student decisions in the class, however, and the simulation will be advanced according to the schedule your instructor has set.

—BizCafe Student Manual

Getting Started in BizCafe

To get the most out of the BizCafe experience, we recommend the following approach: Section 1 (Business Essentials) of the BizCafe manual provides a brief overview of the basic parts to running a business. You may have already covered some of this material in your textbook, but this section will provide a simple review and a good context for the simulation. Section 2 (The BizCafe Case) of this manual presents a description of the coffee shop business and the decisions you will be making as a manager of this business. A thorough understanding of your café's situation will help you make better decisions. Section 3 (Operations Guide) provides information on how to use the simulation software, as well as a detailed description of each menu option. While reading this section, it is best to login to the simulation to become familiar with the menu structure and options, and to learn how to operate the program.

Learn How to Operate the Software

Read Section 2: The BizCafe Case

Read Section 1: Business Essentials


Running BizCafe Each Period

Here is the general process to follow each period: After reviewing information about your business (case in the first period, reports after that), decide on management, marketing, and operations decisions. Remember to check special decisions and watch for changes in the complexity of decisions (such as multiple beverage sizes or weekend hours). This should be a team process! Once you are satisfied with your decisions, use the advance option under the simulation menu to move to the next week. If you are using the directly competitive version rather than the benchmark competitive version, the simulation will be advanced at a specified time according to your course schedule so that everyone competing in the industry will have a chance to enter their decisions. Review your results by using the various reports available in BizCafe. The simulation does not specifically tell which decisions worked and which did not. Instead, you must analyze current results in order to evaluate your success. Repeat the decision-making process for each simulated week until you have completed the assigned number of periods. At the end of the simulation, you will be able to see how your café performed for up to 16 weeks of operations.

NOTE: You may find it helpful to print out some reports and step back from the computer from time to time. Analyzing information and determining an integrated strategic plan is a complex task. It is important to take time and reflect on the information, especially when working in groups.

In the competitive version, competing firms will be following their own strategies and reacting to your decisions. The simulation always starts from the same position, but each game will proceed on a unique course depending on the strategy that each team chooses. This will allow competitive comparisons and illustrate how businesses can evolve differently.

Enter Decisions

Advance to the Next Period

Review Results

Repeat


Team Organization

Getting off to a good start is critically important in managing a firm or participating in a simulation. Your team should be organized as soon as it is formed. Specific duties should be assigned with each person to be held accountable for his/her responsibilities. It is recommended that you assign a "lead" person to head up the team, perhaps with the title of Owner or CEO. This position could be assigned on a rotating basis to give everyone an opportunity to take a leadership role. If you do decide to operate as a self-managed work team, you should consult your course textbook or other resources in order to learn how to make it work. Picture your team functioning as a team, rather than as a "group"—can you visualize the difference? Peer Evaluation Your instructor may ask you to complete a written or online peer evaluation either at mid-term and/or at the end of the semester. When duties have been clearly assigned at the beginning, a peer (performance) evaluation will be easy to accomplish. This evaluation is to be completed without consultation with other team members. You should be very honest in evaluating the performance of your team, as your instructor will have insights from observing your team processes.


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The BizCafe Manual The remainder of this manual is divided into three sections: Section 1: Business Essentials This section provides a brief introduction to business: what it is, why it is important, and what concepts will be used in the simulation. In addition, each of the basic functional areas covered in BizCafe will be discussed. Section 2: The BizCafe Case This section outlines the presents the information on your coffee shop in a form similar to a business school case. This will also serve as an introduction to the situation at the start of the simulation. Section 3: BizCafe Operations Guide This section outlines the operational aspects of using BizCafe, including how to get started, the menu and help systems, and a detailed description of each report and decision screen. Appendix The Appendix includes a section titled Using BizCafe In a Group, a glossary of terms used in the simulation, and an index.

Business Essentials—Page 7

SECTION 1: BUSINESS ESSENTIALS Why study business? To start with, all of us interact with businesses every day. Many of us will spend much of our lives working at a business. As consumers of products and services, we decide on a daily basis whether to purchase a product or service and which particular one to choose. Some of us may decide to study business because it is a fascinating and dynamic activity that offers us good career opportunities. Others may study business because it helps us better understand how the economy operates and how our actions and decisions may affect those around us. No matter what your particular reason for choosing to study business, you will find that businesses share many common traits. These issues are common whether the business is small or large, for profit or non-profit, or provides a product or service. Businesses need to consider what they want to accomplish (objectives), whom they serve (markets and other stakeholders), and how to create and deliver value for these markets and stakeholders. Within this general framework there are many variations, but keep these simple ideas in mind as you further explore topics in business. BizCafe is an opportunity to explore business through the use of a dynamic computer simulation. In the simulation you will open and manage a coffee shop in a university town for up to 16 weeks. During this exploration you will learn about different aspects of running a business at a fundamental level and gain insights into questions such as:

• Whom should I hire? What should I pay them? • What price should I charge? How do people find out about me? • What should I purchase? What equipment do I need? • How do I keep track of money – my revenues and expenses?

Using business terminology, we might translate these questions into the different functional areas of a business at a fundamental level as follows:

• Management = Whom should I hire? What should I pay them? • Marketing = What price should I charge? How do people learn about my business? • Operations = What should I purchase? What equipment do I need? • Accounting = How do I keep track of money?

In no way do the questions reflect the full range of issues in each of these functional areas, but they do represent a good place to start and that is the purpose of BizCafe – to allow you to experience some of the issues in running a business before your paycheck depends on it! Before we go into more detail on these functional areas, we should talk about general organizational approaches used in companies. For instance, in a traditional functional organization, all of these functional managers would typically report to a President or CEO of the company. Thus, there would be a human resource manager (or Vice President), a marketing


manager, an operations manager, etc. all of whom would report to the President of the company. However, there are alternatives to this approach, such as organizing by product or service, or by geographic area, for example. With BizCafe, we will focus on the more traditional functional approach, but realize that one of the most important decisions for a company is deciding how best to be organized. The remainder of this section provides a brief description of each of these different functional areas of running a business. Your textbook and instructor will likely provide much more detail and examples, but for purposes of BizCafe, this general introduction to each of these basic functional areas will provide a helpful framework. Management Though management could encompass running the entire business (e.g. managing the business), in the context of BizCafe, as well as many business courses, management often refers to the more narrow definition of human resource management, or managing people. However, even with this more narrow definition, management is one of the most challenging, complex and important areas of running a business. Let’s consider some of the key areas that (human resource) management encompasses. These include, but are not limited to, job analysis, recruitment and selection, compensation and benefits, training, and employee motivation and morale. There are many other important aspects to management, but these are common to almost all organizations, large or small. Let’s take a few moments to better define each of these in a broad sense. First, within the organizational structure, what jobs need to be done? Someone must define both what general roles are necessary within the company as well as the specific tasks to be done by the employee in that role. Generally, this would be considered job analysis and would result in a series of job descriptions and job specifications. Once these are determined, the company will also need to understand how many employees will need to be provided in order to perform these functions. The expected level of work that needs to be done should drive the overall staffing level; however, determining that expected level of work is not a simple matter. Typically, a manager would look at expected sales and estimate the support necessary for that level of sales based on historical data or industry norms. It is important to remember that service quality and profitability objectives should also play a role in determining appropriate staffing levels. Once the jobs and staffing levels have been decided, the next issue for management is how to recruit and select the best employees for the jobs. Recruiting would include on-campus recruiting, internet sites, newspaper ads, job fairs, television advertising, as well as developing supporting materials such as brochures and other materials and scheduling on-site visits.


Selection would encompass all the different ways of matching the best candidates for the jobs. This would include, for example candidate testing and interviewing procedures to sift out which candidates are best qualified for the job (and who are likely to accept and be retained). This brings us to the next aspect of management, which relates to compensation and benefits. This would include deciding on appropriate salaries for different positions and candidates as well as choosing different benefit options for your employees. Compensation would also include incentive compensation and bonuses. All of these decisions will impact your ability to recruit, motivate, and retain employees. Employees also need to be trained. This is especially important when they start, but training and education should be part of an on-going process of developing employees to maximize their potential. Employees are one of a corporation’s most important assets. To not develop their skills is not only poor motivation for the employee but also often a poor investment decision. Finally, related to training and compensation is motivation and company morale. Training and compensation are two ways to provide motivation, but obviously there are many other considerations for how to improve employee job satisfaction and morale. This topic begins to bring in behavior theory, company culture, managerial styles and leadership, all of which are topics in their own right. The bottom line is that there are many factors that will impact an employee’s performance. As a manager, one must take all of these into account to the best of one’s abilities to bring out the best in an employee as well as meet company objectives. As you may imagine, it is a daunting task to do well. In BizCafe, management is simplified to two decisions that represent all of the above issues at a very basic level. The first decision is hiring the right amount of servers to keep your café running smoothly and keeping customers and staff satisfied. Second is determining the right amount to pay your staff (servers and managers) to motivate them and meet your financial objectives. Though simple, these two decisions will impact the performance of your business. Marketing Marketing also encompasses a wide range of activities within an organization. At its most fundamental level, marketing is the process by which a company creates and distributes something of value to its customers. Let’s break this down into more manageable chunks. Create – the creative aspect of marketing is what turns ideas into products and services that customers want. This would basically be the product (or service) development process. It could be something as simple as creating a new flavor of ice cream, or as complex as managing the release of a new car model. How this process occurs varies considerably. Some companies just


come up with ideas and market them; others follow a very deliberate product development process. A company must balance financial risks and rewards when deciding on appropriate product development processes. However, in addition to financial trade-offs, one must also consider the company culture and management style. Distribute – Another aspect of marketing focuses on how to best deliver a product or service to a customer. For instance, could the item be purchased electronically, say on a website? Or does the product need to be consumed in person (such as an ice cream cone)? Distribution covers all the issues around where a product or service is purchased and potentially consumed. Value – Value refers to the relationship between the benefits of a product or service and the cost of that product or service. The benefits include not only the functionality of the product/service, but also the emotional benefits. For instance, does someone derive more emotional benefit from wearing a certain brand of clothing vs. another even if they both have the same functionality? The cost of the product or service is most often associated with the price of it, but there are other costs to consider as well such as the time it might take to consumer or shop for the product. Pricing is a complex issue as well. For instance, a company might only be able to set the price to a distributor and not the ultimate price a customer pays for a product (indirect vs. direct marketing). Consider what influence the company has over the ultimate price in this situation and how the company can adjust its policies to achieve its goals. Customers – By definition, a customer is someone who purchases a company’s product or service. But a company must think about which potential, or target, customers to seek. Who should they target in their advertising? What would be appealing to this potential customer? Customers are different and a company must take into consideration a potential customer’s needs during the product development process, their behaviors and preferences when designing promotion and distribution options, and their likelihood to pay a particular price when deciding on how much to charge for a product or service. For example, a company that produces women’s running shoes wouldn’t target high school football players in their advertisements and ask those football players about possible product improvements! Often people in marketing refer to the 4Ps of marketing – Product, Price, Promotion, and Place (distribution). You will find these concepts sprinkled about in the above paragraphs. These tend to be the focus of decisions in the marketing area, but remember that marketing is ultimately about creating something of value for a target customer. Whoever does this best is likely to have a successful business. Those who don’t provide this value often fail. In BizCafe, marketing is simplified to two decisions that represent all of the above issues at a very basic level. The first decision is the price to charge for your beverage. How much are your potential customers willing to spend to experience a cup of your coffee? How will the price


impact demand for your product? How do difference price points impact the profitability of your business? The second decision is how much to spend on advertising and promotion. How will people learn about your café? How can you entice them to buy from your café instead of the one down the street? These choices will also have a great impact on the success of your business. Operations In a more traditional product-based business, operations would typically encompass the areas of manufacturing (capacity and production), quality control, purchasing and materials management, and storage and distribution of the product to the channel or customer in a timely manner. This process is often referred to as “supply chain management” – the overall process beginning with demand forecasting and ending with delivery of product to the customer. As more of the economy moves toward service-based businesses, we have to expand our view of what operations means. For instance, what would be considered operations in an organization such as a university or a hospital? When we think of service operations, the line between management and operations becomes all the more fuzzy. At this introductory level, we’ll focus more on the physical plant (the café itself) and purchasing, but realize that operations management is a vast and increasingly important area of business. In order to have an effective operation or business, a business must be designed to meet a certain level of demand. This would include answering the fundamental operations question, “if our organization expects some level of sales, how will we be able to fulfill it with the quality and timeliness our customers expect?” Thus, operations management begins with having a good understanding of expected demand. This is not a simple question. For instance, marketing may provide a sales forecast for the next year. That is a good starting point, but how accurate are those sales forecasts? More importantly, for operations, it may not be the annual demand that is the issue, but instead, other time segments such as months, days, or even hours. Perhaps the issue is more peak demand (capacity) such as is the case for a utility company. These are the types of issues that keep operations managers up at night. Once demand has been considered, this must be translated into the different operational aspects necessary to meet demand such as the physical plant and equipment, amounts and timing of purchases, systems, quality considerations, employees, training, etc. Often, very complex information systems and statistical processes go into both the planning process and the day-to-day operations. In BizCafe, operational decisions are simplified to a few basic issues that will give you a glimpse into the challenges of operations. One set of issues centers on the café and equipment. For instance, what hours will you open? What furniture will you purchase? Which espresso machine is the appropriate choice? The second set of issues is around demand forecasting,


purchasing, and inventory. Here you will make decisions about how much coffee to purchase as well as the quality of the coffee. Since coffee is perishable, forecasting demand as accurately as possible is important, as any unused coffee must be discarded at the end of the week. In addition, you will decide the appropriate approach for purchasing cups. Do you order in bulk at a lower price (with the added benefit of a logo printed on the cup) or purchase them as necessary locally at a slightly higher cost. Accounting Accounting serves two primary purposes. First, all businesses have certain state, local, and national reporting obligations. Examples of these would be yearly corporate income tax returns, as well as state unemployment, Social Security, and Medicare reporting requirements. Without accounting systems, a business could not accurately fulfill these filing requirements. Second, a well-designed accounting system also provides a manager with important information about the state of the business. This information may be in the form of basic financial statements such as an income statement or balance sheet, or they may be more specific in nature such as costing, vendor, or customer analysis reports. Another issue to consider with regard to accounting is whether a system is cash-based or accrual. Cash-based is probably the easier of the two to understand. Money that is received is counted or recognized as income or revenue at the time it is deposited. Money that is spent is counted as an expense when it is spent. An accrual accounting system is somewhat subtler in nature. In an accrual system, the idea is to recognize revenues and expenses when they are used. For instance, if a sale is made, but payment is delayed by 90 days, the sale is still recognized at the time of the sale rather than when payment is received. On the expense side, issues such as depreciation come into play. Depreciation, or expensing a purchase over time, is used for assets (items) such as computers or equipment that have a useful life of more than one year. For example, a computer might cost $1000, but the expense is spread over five years ($200 / year) because it is likely to be used for approximately five years. In BizCafe, accounting is captured in three reports. One is your checkbook. This represents your cash-based accounting system. You start out with cash in the bank from a loan. More cash comes in when coffee is sold. Cash goes out when items are purchased or when employees are paid. You may look at your checkbook at any time and it gives you an up-to-date balance of how much you have in your account, how much money was deposited, and how much was spent. In addition to your checkbook, you also have an accountant who prepares an income statement and balance sheet monthly for your café. Thus, at the end of each month, you will be able to see at a glance your revenues and expenses as well as the balances of key accounts. Though simple, these two views of your financial health will provide you with a great introduction as to why accounting is such an important tool for measuring the performance of a company.


Planning and Integration All of these functional decisions and processes will take place in the simulation. How well your business operates will be determined by the quality of these decisions in relation to the environment (market, competition) and in relation to each other (integration). The overall planning and integration process has two basic steps: (1) analyzing the situation, and (2) choosing a course of action. This process is much more detailed and complex than the two simple steps, but if you remember that everything you are doing in business planning is part of one of these two steps, you should be better able to work through this process. Analyze the Situation: As a business manager, your primary focus when analyzing the situation is to gather information to help you identify opportunities that will help your company be successful. The purpose of this information is to help you make better decisions as a manager. For instance, what information would be helpful to have when deciding about the price to charge? You might want to know how much it costs you to make what you sell (cost of goods sold), how much your competitors charge, and how customers respond to different prices. All of these would go into your decision process leading us to point number two, choosing a course of action. Choosing a Course of Action: To make a good decision, three circumstances must be present. First, as discussed above, one needs to have good information regarding the decision. Second, one must have an objective. With an objective or goal in mind, one can think about how their decision would likely impact their ability to achieve their objective. Third, the person making the decision must be able to understand the information, accept the objective, and be able to discern the likely impacts of different decisions on possible outcomes. This is in no way a simple task. Typically, the person making the decision will not have perfect or complete information, but a decision still must be made. So a decision-maker must also learn how to be comfortable choosing a course of action in the imperfect world of reality while constantly looking for ways to improve their ability to make better decisions. Integration: Finally, a general manager must think about integration of decisions. If we go back to our pricing decision, one element we left out was the likely impact of a change in price on the other functional areas. For instance, if you decided to lower the price by 20%, what impact would that have on demand? On your operations? On your net income? The general manager must make sure that all of these functional decisions are in line with the company's overall objectives and that all of the decisions are integrated. The Next Step… Now that you have some background on the general context of BizCafe, the next section of the manual will introduce you to your new business and the decisions that you will be making in the simulation. Best of luck in running your café!

The BizCafe Case—Page 15

SECTION 2: THE BIZCAFE CASE Jane Valdez was ready for a change after 30 years of 12-15 hour workdays, 6 days a week. Jane had grown up in Collegetown and graduated from the local university there, majoring in engineering with a minor in business. After graduation, she worked at Hewlett-Packard and Apple Computer in the 70s and 80s. But, like many of the technology workers of that era, she soon forged out on her own, starting several companies, failing at two, but hitting on a successful formula with her third venture, handheld computing devices for hospital applications. In 1995, she took her company public and eventually sold the company before the high tech bubble burst. Soon thereafter, she was a founding partner of a successful venture capital firm, but now she is ready to return to her roots and slow down a bit. However, she wants to share her success in a unique way, by helping college students learn about business by operating their own company. Select student teams will receive $25,000 of start-up funds to manage their own coffee shop for a year as an independent study for credit. Location and Retail Space Layout Jane studied various locations and found a good potential storefront on Main Street, not far from the business school, and on the downtown pedestrian mall. There are a number of retail establishments nearby such as restaurants, clothing shops, as well as service businesses.

Map of Proposed Coffee Shop Location in Collegetown


The retail space available contains 1000 sq feet with glass frontage on Main Street and 2nd Street providing good visibility for pedestrian foot traffic (see layout). The space is next door to R.C. Fox Women’s Clothing, an independent retailer catering to more upscale buyers. Across the street is a trendy restaurant, Salamanca, which is primarily a dinner destination. Next to the restaurant is Readerwise Booksellers, an independent bookstore which has been in business over 20 years.

Rent is $24 sq. ft. / year, or $24,000 total for the year. A deposit equal to one month’s rent must be paid in advance and monthly rent of $2000 is due on the first day of each month. In addition to paying rent, the lessee (your company) will also be responsible for paying utilities – water and electricity. These are estimated at approximately $500/month based on historical usage of the restaurant that had previously occupied the location, but may vary based on hours open and traffic. Market Potential Jane expects the coffee shop to be a success because of the good location downtown near retailers and the business school. For instance, businesspeople might stop by on their way to work or for a meeting place, students could go between classes and at night, and local residents would find the shop a great place to meet friends or relax while they are downtown shopping. She expected long-term demand to be primarily a function of the quality of the experience (atmosphere, length of wait, friendliness of the staff, etc.) and the price charged for the coffee.

Store Layout and Nearby Commercial

Establishments


The students had some sales information on a specialty drink shop that recently closed due to the owner moving to another area. Though not a perfect comparison and incomplete, Jane believed this information would be helpful to the students when trying to calculate the necessary operational capacity for the shop.

Weekly Demand (Cups Ordered) Pat's Coffee and Chocolate Week Starting Daily (M – F) Saturday Sunday Price Jan 1 1000 cups st 750 cups 550 cups $ 3.50 Jan 8 1150 th 720 510 3.50 Jan 15 1070 th 780 530 3.50 Jan 22nd 1045 950 690 3.50

Jane also suggested to the students that the shop could stimulate additional demand through ads in local papers and radio stations, and by offering special promotional deals. In addition, the local weekly circular has a weekly poll on many of the local businesses including two awards given to specialty drink shops. Jane knows the importance of such awards for word-of-mouth and creating a sense of “buzz” around a business. So Jane wanted to be sure her students were aiming to win one of these two awards.

• Best in town specialty drink - ambiance • Best in town specialty drink - satisfaction

Staffing and Operations Jane knew that the easy (and fun) part of running a business is creating the concept and getting everything set-up, but that most retail shop success, especially service oriented ones, is made “in the trenches” – the day to day running of the business. Will her students hire enough quality staff to serve the customers in a friendly and timely manner? Will they have enough supplies and inventory so they don’t run out of what customers want? Will they be able to handle the before class / work rushes? It sounds easy enough, but her students will likely need a cadre of part-time college students to work at the shop. Keeping them organized, attentive, and happy working there won’t be simple. Accounting and Your Electronic Checkbook Each week you can keep track of your expenditures by reviewing your electronic checkbook. Payments are automatically made at the appropriate time based on your decisions. In addition, at the end of each month, your accountant will create a monthly income statement and balance sheet for you. Fortunately, the university was able to find a retired accountant who would provide these services to your student team for free.


You can track your current cash balance at any time by reviewing the checkbook (or monthly on your balance sheet). Your daily cash receipts from sales are taken to the bank’s night deposit and show as an increase to your cash balance the following morning (except Sunday). If you don’t have enough cash, you may be eligible for a small business loan if you provide sufficient rationale to your lenders. Starting Situation and Startup Decisions Jane found some used tables and chairs at a local thrift and antique shop for $2000 as well as a new basic 2-cup espresso maker for $3000. You can purchase these or select from a variety of new boutique sets of tables and chairs as well as a high capacity espresso maker as part of your “start-up” decisions. Both used and new furniture options provide sufficient seating for the shop. The new equipment may improve the operation and perception of your café. Make your selections carefully, as you may not have the opportunity to make changes later. The cost of this equipment will come out of your checking account as of January 1st and be depreciated over five years.

Used Furniture Cost: $2,000 (default) New Modern Cost: $4,000 (optional)

New Green Cost: $4,000 (optional) New Country Cost: $4,000 (optional)


New Elegant Cost: $4,000 (optional)

Espresso Maker Options Your team will also need to purchase new equipment for producing your product (espresso makers or blenders). There was already a counter, sink, and enough room in the storage area for coffee beans, fruit, cups and other items necessary to run either business.

Duo Dual capacity (2 cup) Cost: $3,000 (default)

Auto-Four High capacity (4 cup) Cost: $6,000 The Auto-Four model is potentially 30% faster than the Duo model in addition to the higher capacity.


Weekly Decisions Management Managers: Each store starts with 2 full-time managers to cover Monday - Friday. The first management decision is what to pay your managers. One manager must always be on site from 1 hour before the shop opens until one hour after the shop closes. You are guaranteed to always have 2 managers, but their effectiveness (productivity) will depend upon the wages you pay them and how well you manage the server staff. If you decide to open on weekends, a third manager may be needed (depending on the total hours your are open). You must pay the same weekly amount to all managers. Servers: In addition, students must hire servers and set their wages. Wage rates are competitive with other shops in the simulation. Pay them less than the competition and they might be tempted to change jobs. Plus, a lower wage might not attract the best employees. Workers like to be busy, but not stressed out, so be sure to hire an appropriate number of servers to meet demand. Each server is part-time and works approximately 10 hours per week. Marketing Pricing: Coffee typically comes in three sizes: small, medium and large. A small cup is set at 12 fluid ounces and contains 1 shot of espresso; a medium cup is 16 ounces and contains 2 shots of espresso; and a large cup is 20 ounces and contains 3 shots of espresso. Each week you will need to set a price for each size. Prices must be set to such that the difference between sizes ranges from 10 cents to $1.00 (increasing with size). Jane has also set a minimum of $1.00 per cup and a maximum of $6.00 per cup. Your instructor may restrict the size offerings to only a medium size serving depending on the goals for the course. Be careful about increasing prices as it may frustrate and disappoint customers, but better to have a price that works than one that doesn’t cover your fixed costs. Promotion: Students may choose to advertise on one of the local radio stations or in the local newspapers. There are three print ads that may be chosen – one for general awareness, one for $.50 off (print only), or a 2 for 1 coupon (print only). Newspaper coupons will be available on the paper's website, allowing consumers to print them while online. Optionally, you may create ads that can be uploaded to public sites on the Internet. A link from your uploaded ad can then be inserted into the simulation newsletter (“BizCafe News”) for everyone to view. (See the Creative Design section on the next page for more about this option.) Operations Shop Hours: Students set the days and times the store will be open for business. The shop may open between 7-10am, and close between 8-11pm. The hours M-F must all the same. In addition, if your instructor allows, you will be able to open the store on the weekends and set those hours as well.


Purchases of coffee and cups: Coffee beans are ordered weekly in bulk with any shortages made up with local purchases. Coffee quality must be chosen as well (Good Quality, High Quality, or Organic). Any coffee left at the end of the week is discarded for quality / freshness reasons. Cups with a printed logo can be ordered in bulk on a weekly basis as well. If the logo cups are not ordered, standard cups from a local vendor are available on an as-needed basis, but at a slightly higher cost and without logos. It is estimated that each shot of espresso requires approximately 7 grams of coffee or about 1/64 of a pound, but you may want to allow a bit extra in case your servers spill some. Small cups use 1 shot, medium use 2 shots and large cups use 3 shots. Thus, a large size would use approximately 3/64 of a pound of coffee. Once used, the used coffee grinds are discarded. Creative Design Company Logo / Ad: This option allows you to use your more creative side. For instance, you may create a logo and/or design an ad for your café. This page will embed your café logo and café ad links to a site (such as PhotoBucket, MySpace, or SpaceBook) where you’ve uploaded or saved your café ad or logo. This process may be part of an assignment, or optional. Links to these items will show up in the BizCafe News each week so other teams in your industry can view them. Special Incidents: If your instructor selects this option, each week you will have a mini-case, which is termed an Incident. Your team will need to debate the issues being presented by the Incident and enter the appropriate response here. If you have trouble choosing from the options provided, you must still select the one closest to your opinion. An Incident response is a required decision and is not optional. Incidents represent a "window of opportunity" for you, and due to simulation constraints, an incident will only be available during the quarter in which it is offered. Any costs will be automatically charged and will appear in your company reports.

BizCafe Operations Guide—Page 23

SECTION 3: BIZCAFE OPERATIONS GUIDE

BizCafe is designed to be easy to use and is compatible with most Internet browsers. This chapter contains the information needed to make the decisions for each period and an interpretation of the results found on the analyses and reports. This section will give an overview of the decision-making process of BizCafe. Simulation Navigation Each page of the BizCafe site contains an easy-to-use menu system consisting of three parts: (1) specific menu options and links to decision-making tools and input screens, found on the left side of the BizCafe browser window; (2) green navigation and general control buttons across the top; and (3) pull-down menu to show the current period in the upper right-hand corner.

The navigation and general control buttons found at the top of the simulation screen are: Back, Home, Print, Spreadsheet, Help, and Logout. The Print button applies to the report currently on the screen. For instance, if you click on the Print button when viewing the Balance Sheet, the report will be sent to your default printer. Clicking on the Spreadsheet button will allow you to download data to a spreadsheet. Clicking on the Help button will open the operations guide. The Back button lets you reach the last page you visited and the Home button brings you to the homepage of the simulation.

BizCafe screen display

Menu System (6 categories +

choices)

Navigation buttons Café name and user info


SIMULATION NAVIGATION

The box in the upper right-hand corner of the simulation screen has a

pull-down menu that lets you choose the period you would like to view. It will automatically default to the current period unless you change it. Changing this will show your results for previous quarters once the simulation has been advanced. This can be helpful for reviewing historical information.

ROLE OF TEAM

LEADER Role of Team Leader In Entering Decisions When playing BizCafe as a team, one member will be designated "team leader". The team leader is ultimately responsible for gathering the various decisions made by the team, making sure the decisions are entered correctly and within budget, and advancing the simulation. In addition, the team leader may exercise the option to "lock" out other team members from entering decisions. A sample decision screen showing the "Lock Decisions" button is displayed below.

DETAIL OF

MENU CHOICES NOTE: Until you make your startup decisions, no other menu options will be available.

The BizCafe main menu is divided into six parts: Startup, Decisions, Decision Analysis, Company, Market, and Simulation. Each part includes links that correspond to different reports, decisions, or actions. For example, STARTUP has links for Case, Glossary, and Startup Decision

.

The main menu is expandable and collapsible. For instance, after clicking STARTUP and viewing the corresponding menu items, click STARTUP again, and the sub-menu links will

collapse back into STARTUP. One of the easiest ways to find out more about an option is to simply try it out. If you need more information, use the on-screen HELP button from any simulation screen, or consult the manual.

The Team Leader can opt to lock out other members’ decisions by clicking into the

"Lock Decisions" check box.


STARTUP Analyzing the case will help prepare your team for the simulation.

Case This menu option displays a copy of the BizCafe case from the student manual. This allows you easy access to the background information. Remember that not everything provided in the CASE is immediately available to you. For example, you may not be able to sell three drink sizes unless your instructor has selected that option. Please make sure to carefully read the case before making ANY decisions.

Glossary The Glossary option on the STARTUP menu provides a list of important terms (and their definitions) for learning the principles of marketing and competing in BizCafe. The Glossary also appears in the appendix of the student manual.


STARTUP NOTES: At simulation startup, you are required to create a name, purchase furniture, and equipment for your new café. Take care in selecting a café name, making it compatible with the image you want to project. Sync your café name with your café furniture and equipment selections. Choose either used furniture ($2,000) or from a variety of new boutique furniture ($4,000). Select either a 2-cup espresso maker ($3000) or a 4-cup espresso-maker ($6,000), which can make a shot of espresso up to 30% faster. These decisions must be completed and finalized before you can proceed past the startup menu. Take care as you may not have the opportunity to change them later.

Startup Decision At the beginning of the simulation there are three “startup” decisions that must be made before you can proceed past the startup menu. These decisions are naming your café, choosing your furniture, and choosing your espresso maker. Name your café and make your furniture selection carefully, making sure both are compatible with the image you want to project. Naming your café appropriately is important because the café name will be listed on the website results page and the name of your café may impact your performance, if your instructor chooses. In addition, you may also want to think about how your café name may work with a logo. If your instructor chooses, your logo design will also impact simulation results. Used furniture is available from a local cafeteria for $2,000. Alternatively, you may choose from a variety of new boutique furniture for a cost of $4,000. Choosing new furniture may improve your image with certain customers, but it does cost extra. Either option will be depreciated monthly over a five-year period. A two-cup espresso maker is available from a local restaurant supplier for $3000. You may instead choose a four-cup espresso-maker, which also can make a shot of espresso up to 30% faster. The larger capacity espresso maker costs $6,000. The larger espresso maker will improve your capacity and productivity, but it does cost extra. Either piece of equipment chosen will be depreciated monthly over five years. Think carefully about your selection, as you may not have the option to change it in the future.

(Continued on next page . . . )


STARTUP

Startup Decision Input Screen

DECISIONS The Decisions Menu is where you will enter decisions for each simulated week. Generally, you will make your decisions after examining the environment, setting some objectives, considering your competition, and thoroughly analyzing the reports provided in the simulation. There are five main categories of decisions in BizCafe in addition to the startup decisions already covered: management, marketing, operations, creative design, and special. All of these decisions are entered using the links under the DECISIONS menu. You may adjust your decisions as many times as you like before the game is advanced.

IMPORTANT: Only the team leader will be able to finalize your startup decisions. Once you check the [Finalize Decision] box, you will not be able to change these decisions. You will then move on to the next phase of your first period decisions!

Enter your café's name. Select furniture.

Select equipment.

Finalize and then submit your decisions.


DECISIONS NOTES: Two managers are required Monday – Friday. You are guaranteed a minimum of 2 managers on staff at all times. All managers receive the same weekly wage. As you hire servers, keep in mind that they work about 10 hours per week and are assigned the busiest times first, typically in 2 hour blocks. Although adding servers will increase capacity, it will not increase demand. If a server quits, you may need to hire a replacement. Employee efficiency may improve with an increase in hourly wages. Employees like to be kept busy, but not stressed by too much work. Be aware that payroll taxes are 7.50% of wages and are due quarterly.

Management One of your first decisions will be deciding how many servers to hire and what to pay them. In this decision screen, you will also enter or adjust the amount your managers will be paid and in later periods, if desired, you will enter the number of servers to fire. Remember to check the DECISIONS Decision Summary screen at the end of your decision process to make sure all your choices have been entered and saved correctly. Also note that you can change your decisions as often as you like until the simulation is advanced. After the simulation is advanced this screen will display your previous management decisions so that you can easily see what has changed. In addition, there will be a new section at the bottom of this screen labeled “Management Notes”. Be sure to check here (and COMPANY Messages) for helpful hints that relate to last week’s management decisions and café conditions. These will be messages such as “the servers are unhappy”, or “two servers have quit”. It is up to you, as the management team for the café, to analyze the reason for these messages and choose an appropriate action to address the problem. (Continued on next page . . . )


DECISIONS

DECISIONS: Management

Finalize decisions.

Enter Servers to Hire, Fire, and Wages here.

Enter Managers Wages/Week here.

Click here to open the decision entry screen.

Total manager salaries

Total server wages

Total of all employee costs including payroll

taxes

Important messages may appear here.


DECISIONS NOTES: Price per cup must be between $1.00 and $6.00. If your price is too high, sales may suffer. If your price is too low, your bottom line will suffer. Promotion is very beneficial at the beginning of the simulation when introducing your new café. If using coupons, the discount given for redeemed coupons will be deducted from your receipts. Keep in mind that even though all advertising costs are listed here at a daily rate, ads will be run for an entire week, and billed accordingly.

Marketing In this decision screen, you can adjust the price you would like to charge per cup of coffee (or for all three sizes if that option has been selected by your instructor), and decide how much you would like to spend on newspaper and radio advertising. Notice that the main screen provides price quotes based on a per-day (or per-ad-spot) rate, and you are working with a weekly budget. Thus, newspaper advertising that is listed at $200/day will cost $1,400 for the week. Similarly, radio expense is provided on a per-spot basis and you may choose how many spots per day to run (spot = 1 airing of the ad). When you click [OK], the total cost for the week will be calculated in the right-hand column, next to radio. After the simulation is advanced, COMPANY Messages will tell you how many people redeemed coupons and the total cost of those redemptions (one redemption = one customer providing a coupon at time of purchase). In addition there will be a new section at the bottom of this screen labeled “Marketing Notes," displaying similar information.

Set the price for your coffee here.

Select a general ad or a coupon to run in the paper.

Select the number of times per day to run a radio spot.

Click [Submit] to finalize your decisions.


DECISIONS NOTES: While setting café hours, keep in mind, that you only have two managers working each day. They have to be at the café an hour before the store is open, and an hour after it closes. Adjust the number of servers at your café, based on the hours your café will be open. Unused coffee will be disposed of at the end of the week. If you order too little, coffee will be ordered for you, but at a slightly higher cost. Cups not ordered in advance will be purchased without a logo for $0.03 per cup more than the 5000 cup cost.

Operations Select the hours your store will be open, enter the amount of coffee to order, and how many cups to order. In addition to the amount of coffee, you can also choose the quality of coffee – good quality, high quality, or organic, each at a different cost. For cups, you may choose to order large quantities in bulk, with your logo printed on them. During the week, if you run out of either cups or coffee, whatever is needed will be purchased locally for you automatically, though at a higher cost and the cups will be without the logo. Cups are non-perishable, so you can store any extra that you don’t use during the week. However, any extra coffee must be discarded at the end of the week, so spend some time making sure you order the right amount of coffee. The DECISION ANALYSIS Coffee Calculator tool can assist you in making this decision. Remember when setting café hours, that you only have two managers working each day, and they have to be at the café an hour before the store is open, and an hour after it closes. For example, if you are open 7am to 11pm, one manager works from 6am-3pm and one works from 3pm to midnight. After the simulation is advanced this screen will display “Operations Notes”. Be sure to check here (and COMPANY Messages) for helpful hints about operational concerns, such as if you needed an emergency supply of cups or coffee, how many cups remain in inventory, and how much (if any) coffee was discarded that week, due to purchasing more than what was needed.

Set café hours here.

Amount of coffee and cups being

purchased, and their cost appear here.


DECISIONS NOTES: Upload graphic files (JPG is best) to a website such as, Flickr, Shutterfly, Picasa, PhotoBucket, etc. Copy and paste the "direct link to layout pages" into the boxes provided. Your ad and logo will appear in the simulation Newsletter.

Creative Design This option allows you to use your more creative side. For instance, you may create a logo and/or design an ad for your café. This page will embed your café logo and café ad links to a site (such as, Flickr, Shutterfly, Picasa, PhotoBucket, etc.) where you’ve uploaded or saved your café ad or logo. This process may be part of an assignment, or optional. Links to these items will show up in the BizCafe News each week so other teams in your industry can view them. Once your ad or logo is uploaded, copy your graphic file address link and paste it into the link box on the Creative Design page in the simulation. Remember your ad and logo must be a graphic file to be seen (a jpg file is best).

Pastes a link to your logo and/or ad in the spaces

provided here and then click [Submit].

Your logo and ad will appear here.


DECISIONS NOTES: Click the incident title to read about the incident. There is no absolute right or wrong response to most incidents although there may be some responses that are more correct than others. Some responses will incur an expense, others may increase sales, and some will have little to no effect. When ready to enter your decision, select the option that is closest to your opinion. After the simulation is advanced, look for feedback about your incident response in the messages section of simulation screens.

Special If your instructor has selected this option, each week may contain a mini-case, which is termed an Incident. Your team will need to debate the issues being presented by the Incident and select the appropriate response here. If you don't like any of the choices, you must still select the one closest to your opinion. An Incident response is a required decision and is not optional. Incidents represent a "window of opportunity" for you, and will only be available during the quarter in which it is offered. Any incurred costs will be automatically charged against your budget and will appear in your company financial reports under "other" expenses. To read the full Incident, click on the Incident title link. Remember to enter your response by clicking the [Enter Decision] button and selecting the option you prefer. Your response to the Incident may or may not have an effect on your firm's sales or costs in the current or subsequent quarters. Once the simulation is advanced, feedback on your response will be reported in the simulation Newsletter, in addition to an announcement about the current quarter's Incident (if applicable).

Select preferred option here.

Click title to open read about the incident.


DECISIONS

Decision Summary Use the Decision Summary to review your decisions each week. It may also be worthwhile to print this report for your records, though you may always view old decisions by changing the period number from the Period list box at the top of the screen. This printout will contain the same information as you would find in each decision screen for the period, but all in one place. Please refer to the appropriate sections of the operations guide for more information on the specifics for each decision.

Slide scroll bar to scroll page view downward.


DECISION

ANALYSIS

Service Capacity This report can help you refine your operational decisions. It estimates your daily service capacity based on the decisions that you are currently entering. Thus, as you change the number of servers you hire, your estimated daily service capacity values will change. When you are satisfied with the service capacity that is calculated, you won’t need to hire any additional servers. This table also shows you what time your café opens and closes, and the total number of hours you are open each day. The “Servers per Hour” column shows the average number of servers you have working per hour during each day of the week based on your current hiring decisions, which is then used to determine the final column, “Est. Daily Capacity”, which is approximately how many cups you have the capacity to serve each day based on your current decisions.

An estimate of the number of cups

you have the capacity to sell

each day

The average number of servers working each hour


DECISION ANALYSIS

Cash Budget Analysis This analysis screen contains a projection of the revenues and expenses for the coming week. The revenues are based on your price input and a sales projection. The expenses are based on your staffing, marketing, and materials purchasing decisions, as well as projected rent, utility, and loan payments. Use this analysis tool to make sure you have enough cash available to cover your plans for the week. To see results based on a different amount of unit sales, enter your projected cup sales into the input screen, and click the [Recalculate] button.

Click Recalculate

Estimated Cup Sales


DECISION

ANALYSIS NOTES: Fixed costs include monthly expenses, such as rent, utilities, depreciation and loan interest. It also includes weekly expenses, such as payroll, advertising, and promotion. Unit cost expenses include variable costs, such as coffee and cups. Default fixed and unit cost figures are based on previous period results. You may want to adjust these figures to match your current decision inputs. Changing your selling price in this screen will give you an estimate of the cup sales needed to breakeven at that price. (This will not change your actual selling price. To change your actual selling price, you must enter that change in the Marketing decision screen.

Breakeven Worksheet This worksheet uses a formula to calculate either the price necessary to charge at a particular level of sales, or the number of units necessary to sell at a particular price to cover your normal operating (fixed) costs. Breakeven analysis is a forward-looking analysis. In other words, you should use your expected price, expected costs, and the number of units you expect to sell during the next period. The Worksheet automatically takes all of your costs that do not vary based on units sold and provides a weekly total for them (Estimated Fixed Cost). During the 1st

period, the automatically-calculated fixed cost figure will be partially based upon the level of coffee quality you select in the operations decision screen. During subsequent periods, that figure will be based upon the previous week's results. You'll want to change this figure if you want it to be more in line with your current decision inputs, or to make projections on a daily basis, rather than weekly. To find your daily breakeven instead of weekly breakeven, use your weekly estimates divided by the number of days you are open.

Similar to the fixed costs figure, you may use the Unit Cost automatically calculated by the simulation software or enter your own estimate. Next, enter your average Unit Price. Finally, click the [Recalculate] button. The number of cups given will be the number you'll need to sell in order to breakeven at that price and at that level of fixed and variable costs. If the sales volume figure seems out of line, you may want to rethink your selling price.



DECISION

ANALYSIS Decision Analysis: Breakeven Worksheet

Estimated Unit Cost (variable cost)

Average Unit Price

Total Estimated Fixed Cost


DECISION

ANALYSIS

Coffee Calculator This tool will help you estimate the amount of coffee to order, based upon your estimate of cup sales for the current period. Remember to allow for normal growth in sales. In addition, if you have made adjustments to decision inputs (such as price, marketing options, or number of employees) adjust your estimated cup sales estimate accordingly. Simply enter your cup sales estimate into the box provided and click the [Recalculate] button. The number of pounds of coffee you will need to order will be shown in the Projected Coffee Required line. If too much coffee is purchased, the excess will be disposed of. If too little coffee is ordered, additional coffee will be ordered for you, but at a higher price.

First, enter projected cup sales estimate…

…and projected coffee amount required displays here.

…then, click [Recalculate]...


COMPANY Dashboard

The Dashboard becomes available after the simulation has been advanced one period. It provides a graphical representation of performance measures, such as: customer satisfaction, cups sold, net income, revenue, etc. You can access the dashboard in either the COMPANY menu, or by clicking the dashboard image in the upper right quadrant of the simulation screen at any time. Select the variable you want to graph by clicking into the down-arrow.

Access the Dashboard by clicking here.

Down-arrow


COMPANY

Messages After the simulation has been advanced, this screen will display a list of informative messages, alerting you to items in need of attention or consideration. For example, you may discover you have been ordering too much coffee, or too few cups. These messages may alert you to management, operations, and marketing decisions in need of attention.

After the simulation is advanced, this screen

will alert you to items in need of attention.


COMPANY NOTES: The checkbook is a record of all receipts (revenues) and disbursements (payments) for the current week. Your beginning balance is shown at the top right and your final balance for the week is shown at the bottom right. The difference between these two values represents your net change in your cash position, based on receipts and payments for the week. For a $50 fee, your bank will ensure you have sufficient funds. Overdraft protection will be activated if your checkbook has a negative balance at the end of any week. The overdraft amount will be considered a loan and interest will be charged on the balance.

Checkbook In your first decision period, you will see several entries for startup expenses. These include the initial loan, utility, and rent deposits, as well as any startup decision costs incurred after startup decisions have been finalized. Until the first month is complete, the checkbook represents your best measure of financial results. Be sure to watch how the balance changes during the week. Are your receipts covering your disbursements? If not, are the disbursements one-time or on-going? You should be able to recognize in advance whether your café is successful or not.

Deposits

Current running balance after

payment and/or deposit

Payments Description of activity


COMPANY NOTES: If additional cup sizes become available, a second table will display the receipts and cups sold by size for the most recent week. The last column in the table displays the total revenue for the week, which will match the total revenue for the week in the top table.

Daily Receipts “Capacity” is the number of cups of coffee your shop could have served that day, based on the available equipment and servers on staff (and their productivity). “Cups Served" is the number of cups your shop actually served that day. Comparing cups served to capacity is one way to measure how busy your staff was during the day. If you served at capacity, it probably means that your servers were always busy and possibly that some people may have left due to the long lines. “Average Price/Cup” is the average price your coffee was sold for each day. This reflects both the mix of cups sizes sold (if selling multiple sizes) as well as the use of promotional coupons (such as 2 for 1 or $0.50 discount). "Receipts" is the total revenue for the day, resulting from multiplying the number of cups served by the average price per cup. Keep in mind these daily totals, as well as the total revenue for the week (at the bottom right) are revenues, not profit.

Total revenue for the week

Cups Served shows the number of cups you actually sold.

Capacity shows the number of cups you could have served.


COMPANY Materials

You may want to check this report before ordering cups as you may have enough in stock (inventory) to meet demand for the coming week. In addition to the current inventory of cups, you can review cost and usage information on both cups and coffee. Remember that unlike cups, coffee is perishable and any coffee not used during the week will be discarded at the end of the week. If you do not order enough coffee or cups to meet demand, a local source will be used on an as needed basis to fulfill orders. However, the local source is somewhat more expensive, and if any additional cups are needed, they will not have your store logo printed on them.

Cups in inventory; number of emergency

cup purchases.

Coffee used and sold; cost per cup.

Notes appear here, alerting you to items in

need of attention.


COMPANY NOTES: This report is a record of your revenues and expenses. Click an expense or revenue $ link

to see a list of transactions that created the balance.

Rent is due the first day of the month; utilities are paid the first week of the month following use. Subtracting COGS from revenue results in gross margin. To be profitable, your gross margin must exceed your monthly expenses. Total expenses are subtracted from the gross margin to calculate net income (profit). Once January has been completed, the year to date column will reflect the sum of all previous months as well as the current period.

Income Statement Revenues are your total receipts for each day of the previous month. Cost of goods sold (COGS) represents the total direct cost associated with those revenues (coffee, cup). Expenses include the amount paid for management and staff (payroll taxes, salaries). Advertising and promotional costs for the month are shown on the next line. (Note that any $0.50 coupons are deducted directly from revenues and are not included in promotional costs.) The next line items are rent and utilities, which are paid monthly. Rent and utility deposits do not show up on the income statement but do appear on the balance sheet as an asset. Interest on the loan is paid mid-month. Depreciation is calculated monthly based on the original value of the assets (furniture, espresso maker) depreciated over five years with a residual value of zero. Monthly depreciation on an asset depreciated over five years is calculated using the equation: Original Value of Asset / 5 Years * 12 Months, or Purchase Price / 60.

Important: The income statement and balance sheet for a month include only transactions during that month, which is a unique reporting period. Totals shown will not match weekly totals for the 4 or 5 individual weeks. Thus, for January, the income statement will include transactions only from the period of January 1st – January 31st

.



COMPANY A sample Income Statement is shown below.

This is your year-to-date net income.

This shows you what your net income was for the month

These are the current and year-to-date columns.

Click an active link to open a detail report.


COMPANY

Balance Sheet The Balance Sheet allows you to view the current balance in your Assets and Liabilities accounts and is generated monthly. Unlike the income statement (which shows results over a certain time period) the balance sheet is a snapshot of your organization at a current point in time. Thus, when you receive your first balance sheet the first week in February, you will see the levels of your assets and liability accounts as of January 31st

.

Cash, deposits (for utilities and pre-paid rent), equipment, accumulated depreciation, and inventory are listed on the left side under Assets. Liabilities such as taxes payable and loans are listed on the right under Liabilities. Retained earnings will match your year to date net income. All of the categories are linked, so if you do not understand how these numbers were obtained, click on the link to view the details for that line item along with a brief description of the account.

Click an active link to open a detail report.


MARKET

Newsletter The BizCafe News is where you can view your competitors’ logos and ads, if they choose to display them. In addition, you may find out how competitor prices and café hours compare to your own. This is also where you will see who won the “best of” awards for the previous week. If playing in the directly competitive mode, click a competitor's [View] button to obtain information on their café hours, coffee prices, and promotions. NOTE: In the benchmark version of the simulation, the BizCafe News does not provide competitor information; only your own café’s information will be visible.

Click a competitor's [View café menu] button

to view their menu, prices, and hours.


MARKET Local Labor Report

This report provides the local averages for manager and staff wages, average turnover rate (which tells you about how often the staff at local businesses is quitting), and the area’s minimum wage. Compare these local wage averages to your employees’ wages. Remember that if your managers and servers are paid less than the averages, they will become unhappy. If you have an occasional server quitting, you can compare with the average turnover rate to see if you are close to the norms for your local area. Comparative data is important information when used to help you maintain an organized, attentive, and satisfied staff.


MARKET

Customer Survey A local marketing research firm offers a survey of coffee shop customers. This survey provides information on how customers perceive and rate coffee shops in your area and is conducted every period. The basic customer survey includes consumer ratings of customer satisfaction. The purpose of the survey is to provide more in-depth information about your customers: what is important to them, what they think about your shop, based upon their actual experience. In general, you will discover how effectively the numbers of employees you employ serve customers and how satisfied your customers are, compared to the industry average.


SIMULATION

This section of the menu contains links that control the game. The Advance, Replay and Restart links may or may not be available during your simulation. Your instructor may choose to turn off these options. If your instructor does allow students to use these options, only the team leader can perform them. Important: Advance, Replay and Restart are only available when running the benchmark version of the simulation. In the direct competition version, everyone will be advanced based on a schedule set by your instructor. Please see your course website for the current schedule. Advance If the Advance

link is available to you during the simulation, your team leader can use this option to advance the simulation to the next week, allowing you to see your results. You may then determine what changes need to be made to your decisions for the following week.

Replay If your instructor allows it, you can go back one week in time by having your team leader click the Replay

link. This will set you back one week in time and allow you to make adjustments to the most recent week’s decisions. In effect, an undo button for the simulation.

Restart The team leader may click the Restart

link, if allowed by the instructor, to erase all decisions and results for all periods, and completely start over. Some instructors like students to do a few practice weeks and then restart, in which case this button would be used to reset you back to the beginning of the simulation.

Logout Click the Logout

link to exit the simulation.

BE CAREFUL WHEN CHOOSING RESTART!

Appendix—Page 53

USING BIZCAFE IN A GROUP If you are using BizCafe in a classroom setting, you will likely be asked by your instructor to work in groups. Each group will pool its skills and resources to manage collectively the management, marketing and operations roles. Thus, the specific decisions your group will make depend on the responsibilities you are assigned. Group work is the way business is most often conducted today. It can be rewarding and frustrating. Thus, it is critical that you learn how to make every group experience a success. One of the most frequent complaints with group work is the amount of time wasted in trying to get organized and make decisions. There are also complaints that individual members are not "pulling their weight." To reduce these problems, your group should answer the following questions in your first meeting:

• When, where, and how often should we meet? • How should we efficiently and effectively conduct our meetings? • Should we choose a general manager? What authority should this person have? • How should we divide the tasks among group members? • How do we resolve issues and make final decisions? • How do we encourage and maintain a high quality of contribution? • How will we deal with personal conflicts among group members?

Over time, the group should assess whether it is functioning efficiently and effectively. The group may have to reorganize to best meet the current needs of the business as your product portfolio changes, new competitive situations arise, and more information becomes available.


GLOSSARY

Accounting The way in which a business keeps track of and provides important information about its financial state; and fulfills its state, local and national reporting obligations.

Accrual Accounting

System

An accounting system wherein money in the form of revenues and expenses is counted when it is used, not necessarily when payment is made or received. A sale is recognized at the time of the sale, even if payment comes later.

Ambiance The mood, character, quality, tone, and atmosphere of an environment.

Balance Sheet A snapshot of your organization at a particular point in time, containing the current balance in your asset, liabilities and shareholder equity accounts.

Breakeven Analysis

A way to calculate either the price necessary to charge at a particular level of sales, or the number of units necessary to sell at a particular price to cover normal operating costs (fixed costs).

Capacity The estimation of how many cups of coffee your shop could have handled serving a given day.

Cash-based Accounting

System

In this system, money that is received is counted or recognized as income or revenue at the time it is deposited. Money that is spent is counted as an expense when it is spent.

Checkbook This represents your cash-based accounting system. It is a record of all receipts and disbursements for the current week.

Compensation Something given or received as an equivalent for services or debt.

Competition Nearby businesses of a similar nature producing a similar product, which may attract customers that would otherwise support your business.

Cost of Goods How much it costs to make the product, or create the service, that is being sold.

Customers Someone who purchases a company’s product or service.

Customer Analysis

Report

An evaluation of who the customers are and what they are looking for in regards to a particular product.

Customer Satisfaction

The extent to which a business is fulfilling the needs and desires of its customers.

Appendix—Page 55

Disbursements Payments or expenses costing the business money.

Distribution Where a product or service is purchased and everything that leads up to, and helps achieve this action.

Depreciation

A decrease or loss in value, as because of age, wear, or market conditions. For accounting purposes, there are different methods and time periods by which the value of an asset is depreciated. For example, an asset worth $1,000 might be depreciated over 5 years using “straight-line” depreciation. In this situation, each year $200 of the asset’s value would be depreciated.

Expenditures All of the expenses of a company; what was actually spent in a fiscal period.

Expenses Costs and charges that you must pay.

Forecasting Predictions of spending or costs based on calculations in advance.

Human Resources

Management

The management of people, which includes: job analysis, recruitment and selection, compensation and benefits, training, and employee motivation and morale.

Income Statement

A report of a firm’s overall results for a period, including a breakdown of major expenditures and a calculated value of the net income.

Inventory The stock and materials on hand at a business, including raw materials, finished goods, etc. Inventory would be listed as an asset on the balance sheet of the company.

Job Description

A written description of what a job entails, including what tasks and skills are expected of an employee.

Management

In BizCafe, management often refers specifically to the aspect of managing people – such as hiring, setting wages, etc. However, more generally, management often refers to the managing of people, products, materials, and any other number of items.

Manufacturing Capacity

The maximum amount that can be produced or manufactured in a particular period of time.

Materials Management

Managing the materials in a business, from raw materials to the finished product.


Organic Grown using fertilizers or pesticides that are strictly of animal or vegetable origin, thereby creating a product without the use of drugs, hormones or synthetic chemicals

Operations The areas of manufacturing, quality control, purchasing and materials management, and storage and distribution of the product to the channel or customer in a timely manner.

Place Refers to distribution, or how products get to the stores so that it is convenient for us to buy.

Price Involves all factors that affect how much is paid for a product. The amount of money a person is charged for a product or service.

Product The bundle of attributes that we buy to satisfy our needs and wants, be it an item, service or intellectual property.

Product (or service)

development process

The process by which a business takes products from ideas to products that are sold. Usually this process is well defined and used repeatedly.

Promotion

Involves all activities that companies use to communicate with us from advertising to sales people, and the activities companies use to get us to buy from them. In BizCafe, a coupon for a special deal such as $1 off and the advertising associated with it is an example of a promotional activity.

Purchasing Ordering supplies and other raw materials.

Quality Control

The process by which a business ensures that its products are meeting standards.

Receipts Revenues, or money coming into the business.

Recruitment The process of discovering employees and drawing them to your business to work.

Revenues A particular item or source of income.

Stakeholders Those who have invested in the business and have an interest in profits. In BizCafe, this would include Jane Valdez.

Value The relationship between the benefits of a product or service and the cost of that product or service. These include functionality and emotional benefits.

Index—Page 57

INDEX

A accounting

accrual system ............................................................. 12 defined ................................................................... 54

balance sheet .............................................................. 12 basic financial statement ............................................. 12 cash-based system................................................. 12, 54

defined ................................................................... 54 defined ........................................................................ 54 expenses ...................................................................... 12 income statement ....................................................... 12 revenues ...................................................................... 12

accounting startup ............................................................ 42 initial loan .................................................................... 42 utility and rent deposits .............................................. 42

ads .................................................................................... 48 advertising ........................................................................ 45

calculate the total cost ................................................ 30 newspaper expense ..................................................... 30 radio expense .............................................................. 30

ambiance .......................................................................... 17 defined ........................................................................ 54

analyzing business planning ........................................................ 13 choosing a course of action ......................................... 13 identify opportunities .................................................. 13 reports ......................................................................... 27 the situation ................................................................ 13

annual demand ................................................................. 11 aspects of running a business ............................................. 7 assets ................................................................................ 12

residual value .............................................................. 45 atmosphere....................................................................... 16 average price .................................................................... 43 average turnover rate ....................................................... 49

B balance sheet .................................................. 17, 45, 47, 54

assets and liability accounts ........................................ 47 benchmark competition ..................................................... 1 benefits of a product or service .................................. 10, 56 BizCafe News .............................................................. 20, 48 breakeven analysis

defined ........................................................................ 54

C café

ad, create link ........................................................ 21, 32 hours................................................................ 20, 31, 35 logo, create link ..................................................... 21, 32 perception of ............................................................... 18

capacity ...................................................................... 26, 43 defined ........................................................................ 54

cash deposits .................................................................... 47 checkbook .................................................................. 12, 42

defined ........................................................................ 54 disbursements............................................................. 42 electronic .................................................................... 17 negative balance ......................................................... 42 receipts ....................................................................... 42

coffee ............................................................................... 31 pricing ......................................................................... 20

COGS ................................................................................ 45 company

culture ..................................................................... 9, 10 objectives .................................................................... 13

COMPANY Balance Sheet .............................................................. 47 Checkbook................................................................... 42 Daily Receipts .............................................................. 43 Dashboard ................................................................... 40 Messages .................................................................... 41

comparative data ............................................................. 49 compensation

defined ........................................................................ 54 competition ................................................................ 13, 27

defined ........................................................................ 54 competitor information.................................................... 48 corporate income tax returns .......................................... 12 cost of goods sold ............................................................. 13

defined ........................................................................ 54 coupons

redeemed .............................................................. 30, 43 course of action ................................................................ 13 cups .................................................................................. 31 cups served ...................................................................... 43 customer

analysis report............................................................. 12 defined ................................................................... 54

defined ........................................................................ 54 satisfaction

defined ................................................................... 54 customer survey ............................................................... 50

D DECISION ANALYSIS

Breakeven Worksheet ................................................. 37 Service Capacity .......................................................... 35

decision categories ........................................................... 27 decision-making

process ........................................................................ 13 DECISIONS

advertising .................................................................. 10 Creative Design ..................................................... 21, 32 decision summary ....................................................... 28


Decision Summary ....................................................... 34 first decision period ..................................................... 42 functional .................................................................... 13 management ................................................................. 8 Management ............................................................... 28 Marketing .................................................................... 30 price ....................................................................... 10, 13 promotion.................................................................... 11 Special ......................................................................... 21 Special (Incident) ......................................................... 33

DECISIONS ANALYSIS Cash Budget Analysis ................................................... 36

demand forecasting .................................................... 11, 12 depreciation .......................................................... 12, 26, 45

defined ........................................................................ 55 equation ...................................................................... 45

disbursements .................................................................. 42 defined ........................................................................ 55

distribution defined ........................................................................ 55

E employee

compensation and benefits ................................. 8, 9, 55 development ................................................................. 9 factors that will impact performance ............................ 9 hiring decisions ............................................................ 35 interviewing procedures ................................................ 9 job satisfaction .............................................................. 9 motivation and morale .............................................. 8, 9 recruitment and selection ....................................... 8, 55 retain ............................................................................. 9 testing ............................................................................ 9 training .............................................................. 8, 11, 55 training and education .................................................. 9 wage rates ................................................................... 20

environment ............................................................... 13, 27 Environment Menu ........................................................... 48 equipment .............................................................. 7, 11, 19

depreciation ................................................................ 18 espresso maker ................................................................. 18 estimated daily capacity ................................................... 35 estimated demand ............................................................ 37 expenditures ..................................................................... 17

defined ........................................................................ 55 expenses ....................................................................... 7, 45

defined ........................................................................ 55 expenses projection .......................................................... 36

F financial health ................................................................. 12 fixed costs ......................................................................... 37 forecasting

defined ........................................................................ 55 functional areas of a business ............................................. 7 furniture ............................................................................ 18

G gross margin ..................................................................... 45

H historical data ..................................................................... 8 human resources management ......................................... 8

defined ........................................................................ 55

I incidents ........................................................................... 21 income statement ................................................ 12, 17, 45

defined ........................................................................ 55 industry norms ................................................................... 8 input screens .................................................................... 23 integration ........................................................................ 13 interest on loan ................................................................ 45 inventory .......................................................................... 17

defined ........................................................................ 55

J job

analysis .......................................................................... 8 description .................................................................... 8

defined ................................................................... 55 specificatons ................................................................. 8

L leadership ........................................................................... 9 loan

interest on ................................................................... 45 small business ............................................................. 18

local labor averages .......................................................... 49 location ............................................................................ 16 logo ............................................................................ 26, 48 long-term demand ........................................................... 16

M manage ............................................................................. 20 management

decisons ........................................................................ 9 defined ........................................................................ 55 notes ........................................................................... 28 style ......................................................................... 9, 10

managers .......................................................................... 20 manufacturing capacity .................................................... 11

defined ........................................................................ 55 market .............................................................................. 13 MARKET

Customer Survey ......................................................... 50 Local Labor .................................................................. 49 Newsletter .................................................21, 32, 33, 48

market potential .............................................................. 16

Index—Page 59

marketing ...................................................................... 9, 20 4 P’s of ......................................................................... 10 creative aspects ............................................................. 9 customers .................................................................... 10 distributution ............................................................... 10 indirect vs direct .......................................................... 10 notes ............................................................................ 30 product (or service) development process .................... 9 product emotional benefits ......................................... 10 product value............................................................... 10 sales forecast ............................................................... 11

materials management ..................................................... 11 defined ........................................................................ 55

Medicare reporting requirements .................................... 12 menus

pull-down .................................................................... 23

N navigation buttons, green ................................................. 24 net income ........................................................................ 45

O objectives ................................................................ 7, 13, 27 operating costs ................................................................. 37 operational

aspects ......................................................................... 11 capacity ....................................................................... 17 decisions ...................................................................... 11

operations ....................................................... 11, 17, 18, 20 defined ........................................................................ 56 fundamental ................................................................ 11 guide ........................................................................ 5, 23 management ............................................................... 11 notes ............................................................................ 31

Operations Menu .............................................................. 11 ordering cups .................................................................... 44 organic

defined ........................................................................ 56 organic coffee ................................................................... 21 organizational approaches

general ........................................................................... 7

P payments .......................................................................... 42 payroll taxes ...................................................................... 45 peak demand capacity ...................................................... 11 place

defined ........................................................................ 56 planning and integration .................................................. 13 planning process ............................................................... 11 price ............................................................................ 13, 16

adjust ........................................................................... 30 defined ........................................................................ 56

product defined ........................................................................ 56

product (or service) development process defined ........................................................................ 56

product-based business ................................................... 11 productivity ................................................................ 20, 26 profitability ......................................................................... 8 promotion ........................................................................ 20

defined ........................................................................ 56 promotional

costs ............................................................................ 45 discount ................................................................ 43, 45

purchasing .................................................................. 11, 21 coffee .......................................................................... 12 cups ............................................................................. 12 defined ........................................................................ 56

Q quality .......................................................................... 8, 16

considerations ............................................................. 11 control ......................................................................... 11

defined ................................................................... 56

R receipts ............................................................................. 42

defined ........................................................................ 56 recruitment

defined ........................................................................ 56 rent ................................................................................... 45 reporting obligations ........................................................ 12 revenue projection ........................................................... 36 revenue total

for the week ................................................................ 43 revenues ............................................................7, 42, 45, 54

defined ........................................................................ 56 review

historical information.................................................. 24 your decisions ............................................................. 34

S salaries ............................................................................. 45 sales information .............................................................. 17 server hours ..................................................................... 20 servers .............................................................................. 20 Servers per Hour column .................................................. 35 service ................................................................................ 8 service capacity ................................................................ 35 service operations ............................................................ 11 service-based businesses ................................................. 11 shareholder equity account ............................................. 47 simulation

navigation ................................................................... 23 SIMULATION

Advance ...................................................................... 51 Replay ......................................................................... 51 Restart ......................................................................... 51

small business loan ........................................................... 18


snapshot of your organization .................................... 47, 54 Social Security ................................................................... 12 staff ........................................................... 16, 20, 43, 45, 49 staffing levels ................................................................ 8, 17 stakeholders ....................................................................... 7

defined ........................................................................ 56 STARTUP

case .............................................................................. 24 Case ............................................................................. 25 decisions ................................................................ 18, 24

café naming ............................................................ 26 espresso maker ...................................................... 26 furniture ................................................................. 26

glossary ........................................................................ 24 startup funds .................................................................... 15 state of the business ......................................................... 12 state unemployment ........................................................ 12 stimulate additional demand ............................................ 17 storage and distribution ............................................. 11, 56 supplies ....................................................................... 17, 56 supply chain management ................................................ 11

T target customers ............................................................... 10 timing of purchases .......................................................... 11

tools decision-making .......................................................... 23

U unit cost............................................................................ 37 usage information ............................................................ 44 utilities .................................................................. 16, 45, 47

deposits ....................................................................... 45

V value ..................................................................7, 42, 43, 55

defined ........................................................................ 56 variable cost ..................................................................... 37 view old decisions ............................................................ 34

W wages ................................................................... 20, 49, 55 weekly

budget ......................................................................... 30 decisons ...................................................................... 20

word-of-mouth ................................................................. 17

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