using business management flight simulatiors as a teaching tool for entrepreneurs
DESCRIPTION
Decision-making in entrepreneurship is often very risky because consequences of entrepreneurs’ actions are visible only after longer time (months or even years). Ideal education tool in entrepreneurship would allow entrepreneurs to compresses time and space in non-risk environment and to gain experience and make mistakes without fear of real damage. Such tool would allow potential entrepreneurs to see the consequences of his/her actions in few minutes or hours, and to detect possible wrong presumptions about the real world venture capitalism. This paper argues that management flight simulation models could meet the educational challenge in entrepreneurship and allow entrepreneurs to avoid intuitively correct decisions that are actually not optimal. Paper will present the system dynamics model of supply and demand.TRANSCRIPT
Slajd 1
Prof.dr.sc. Mirjana Peji BachDepartment of InformaticsFaculty of Economics & Business Zagreb
Using Business Management Flight Simulatiors as a Teaching Tool for Entrepreneurs
When we make decisionsUnintended effectsCosts are visible only after a long time
Entrepreneurs would benefit from more effective education that would improve the quality of the decisions making.
One of the answersManagement simulation games areA powerful tool that:enhances learning about company, market and competitorsportrays the cognitive limitations on the information gathering and processing power of human mindfacilitates the practice of considering opinionssupports building of "What if" scenarios.
Example of management simulation gameWhat if customers do not pay on time?
What can we do?Strategy / Policy optionRetaining profitBorrowing money from the bankChose customers that are better payers /Lose the market!Delay paying to suppliersStrategy 1Strategy 2Strategy 3Strategy 4
Lets simulate!
Crystal ballTurnover (local currency in millions)Profit marginAverage aging of accounts receivable (months)Average aging of debt to suppliers (months)Negative cash position (local currency in millions)Scenario 14.53 16.7%2.083.00NoScenario 24.539.0%13.603.00Yes (-39.19)Scenario 34.533.8%13.603.00Yes (-10.60)Scenario 43.8815.5%5.863.00Yes (-0.84)Scenario 53.8815.5%5.865.94No
Behind the scene
Lessons learned from the modelThe worst solution would be to do nothingCredit from the bank would not be sufficientBecause of a restrictive accounts receivable policy the firm would eventually lose its market shareThe only way out use informal sources of credit and to delay payments to suppliers, which is the most likely reaction.
Because of the inefficiency of the legal system, most firms decide to pay debts late simply because the cost associated with late payment is smaller than the cost of alternative sources of finance. Underpaid suppliers usually do not terminate further shipments for fear of losing their clients, and, as a result, mutual arrears become a universal practice. Final effect
How to do it?
Models are to be used, not believed.Henri Theil
Graph for debt to suppliers
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Debt to suppliers : Scenario 1 - Ideal case
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Debt to suppliers : Scenario 2
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Debt to suppliers : Scenario 3
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Debt to suppliers : Scenario 4
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Debt to suppliers : Scenario 5
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