Contracting Case Study, Financial Forecasting, And Powerpoint Presentations

Defense Acquisition University ACQ 315 Capstone Student Instructions Version 3.0 VILT April 2020 Student Instructions April 2020 Version 3.0 VILT ii TABLE OF CONTENTS 1 INTRODUCTION ................................................................................................... 1 1.1 Objective ....................................................................................................... 1 1.2 Set-Up ........................................................................................................... 1 1.3 Exercise Flow Activities .................................................................................. 1 2 HAND-OUT DOCUMENTS ..................................................................................... 3 2.1 Schedule Documents ..................................................................................... 3 2.2 Request for Proposal (RFP) Documents .......................................................... 3 3 DIVISION EXCEL FILE ............................................................................................ 7 3.1 Forecast Worksheet Tab ................................................................................ 7 3.2 Forecast Tab .................................................................................................. 9 3.3 Annual Activity Tabs .................................................................................... 10 4 EXERCISE FLOW & ACTIVITIES ............................................................................ 14 4.1 Overview ............................................................. Error! Bookmark not defined. 4.2 Forecast Activity 2032 to 2036 ..................................................................... 14 4.3 Planning Phase ............................................................................................ 14 4.4 Capture Phase ............................................................................................. 15 4.5 Board Phase .............................................................................................. 166 4.6 Reconciliation Phase .................................................................................... 16 4.7 Leadership Briefing ...................................................................................... 16 5 SUMMARY OF RULES ......................................................................................... 18 Student Instructions April 2020 Version 3.0 VILT 1 1 INTRODUCTION In the Capstone, your team is the Division Leadership of one of up to five divisions of the MILPROG Company. MILPROG’s corporate strategy focuses on product leadership, with an emphasis on creating products that consistently push performance boundaries. They have chosen to compete in a wide range of market segments. Each division’s focus and expertise is within a specific market segment or industry; some combination of Aircraft, Communication Equipment, Computers (IT), Navigation, Ship Construction, and Vehicles. The MILPROG’s leadership measures the company’s financial success in terms of Sales, Return on Sales (ROS), Earnings Before Interest and Taxes (EBIT), and Cost of Sales (COS) as a percentage of Sales. Leadership also expects a steady, reasonable pattern of growth. The company’s historical Balance Sheet, Income Statement, and Financial Ratios are provided, as well as your division’s documents. MILPROG’s leadership expects each division to increase Sales each year while reducing their Cost of Sales to Sales percentage. In addition, they desire each division to maintain or increase their current ROS. Today’s date is October 15, 2031. 1.1 OBJECTIVE For the division to forecast Sales, COS, EBIT, and ROS for the years 2032 through 2036 and then meet the annual forecasted financial targets through smooth, reasonable growth. 1.2 SET-UP Each team should have the following: • 2 dice from home, or go to random.org • A page of specific events for 2032 and 3033 (11 per year and are numbered 2-12, to correspond to the combinations of rolling two dice) • An Excel file • PowerPoint file in Blackboard for your annual debrief to MILPROG corporate leadership • Student documents in Blackboard: o Student Instruction booklet o Instructor’s Capstone Introduction Brief Slides o Request for Proposal (RFP) Package (an Excel file) o RFP Opportunity Schedule (1 page) o Exercise event tracking worksheet (1 page) Student Instructions April 2020 Version 3.0 VILT 2 o 1.3 FLOW ACTIVITIES Student Instructions April 2020 Version 3.0 VILT 3 2 HAND-OUT DOCUMENTS 2.1 SCHEDULE DOCUMENTS This RFP Opportunity Schedule pictorially shows the planned contract award date, contract duration, and planned Follow-On contracts for all On-Going and New Capture contracts. The schedule document may be useful during the two forecasting activities to help visualize the interrelationships between the various contracts and assist the teams in determining which contract they desire to submit a bid on. In addition, a blank version of the form is provided to track the contract information for captured contracts, if needed. 2.2 REQUEST FOR PROPOSAL (RFP) DOCUMENTS (AN EXCEL FILE) There are three different types of RFP Information sheets provided: (1) On-Going Contracts, (2) New Capture Contracts, and (3) Follow-On contracts. The formats are similar for each RFP information sheet type and provide the essential RFP/Contract information: • Contract Award Date • Contract Type • Fee or Profit Percentage • Required Bid and Proposal (B&P) Funds • Required Independent Research and Development (IR&D) funds • Competitor Information • Three different biding strategies that provide - Bid Price - Target Fee - Target Cost - P(win) Percentage - Anticipated Sales for each year of the contract - Anticipated Cost of Sales (COS) for each year of the contract There is a separate RFP information sheet for each New Capture opportunity and the Follow- On contracts. An example of the RFP/Contract information data and how to interpret them are provided on the next two pages. Note: All financial numbers on the RFP documents are in thousands of dollars ($K). Most of the content of each RFP is MILPROG analysis of the opportunity; the true RFP information is at the top, related to the contract itself. They are combined for academic purposes Student Instructions April 2020 Version 3.0 VILT 4 The On-Going Contract Information sheet provides the contract information for contracts which were captured in earlier years. It provides the Award Date, Contract Duration, Type of Contract, Profit or Fee Percentage, Target Price, Target Fee, Target Cost, along with an Annual Sales and Cost of Sales forecast. Xray #1 Program Acquisition Phase: Contract Information Target Price: 20,000$ Target Fee: 1,567$ Target Cost: 18,433$ Forecast 2030 2031 2032 2033 2034 Total Sales $6,667 $13,333 $20,000 Cost of Sales $6,144 $12,289 $18,433 EBIT $522 $1,045 $1,567 ROS 7.8% 7.8% 7.8% Yankee #1 Program Acquisition Phase: Contract Information Target Price: 29,000$ Target Fee: 2,636$ Target Cost: 26,364$ Forecast 2030 2031 2032 2033 2034 Total Sales $9,667 $11,600 $7,733 $29,000 Cost of Sales $8,788 $10,545 $7,030 $26,364 EBIT $879 $1,055 $703 $2,636 ROS 9.1% 9.1% 9.1% 9.1% Zion #1 Program Acquisition Phase: Contract Information Target Price: 27,500$ Target Fee: 2,725$ Target Cost: 24,775$ Forecast 2030 2031 2032 2033 2034 Total Sales $10,804 $11,786 $4,911 $27,500 Cost of Sales $9,733 $10,618 $4,424 $24,775 EBIT $1,071 $1,168 $487 $2,725 ROS 9.9% 9.9% 9.9% 9.9% Fee 11.0% Duration: 28 mo. Type: CPIF EMD Duration: 30 mo. Type: CPIF Award Date: 1-Feb-31 Fee 10.0% EMD Award Date: 1-Mar-30 FFP 8.5% Production Duration: Type: Profit Award Date: 1-Aug-31 15 mo. Student Instructions April 2020 Version 3.0 VILT 5 Aerospace #1 Program Low Option: Forecast Sales Cost of Sales EBIT ROS Medium Option: Forecast Sales Cost of Sales EBIT ROS High Option: Forecast Sales Cost of Sales EBIT ROS Competitor: Weaknesses: New Program Team 8.3% Lucky Company Strengths: Cutting edge technology Proven performance 8.3% 8.3% 8.3% 8.3% Expected Bid 67,500$ Good Reputation $23,127 $25,229 $25,229 $2,102 $75,688 $2,081 $2,271 $2,271 $189 $6,812 2032 2033 2034 2035 2036 2037 2038 Total $25,208 $27,500 $27,500 $2,292 $82,500 Bid: $82,500 Target Pwin: 60.0%Fee Cost $6,812 $75,688 8.3% $1,892 $2,064 $2,064 $172 8.3% 8.3% 8.3% 8.3% $68,807 $6,193 Total $22,917 $25,000 $25,000 $2,083 $21,024 $22,936 $22,936 $1,911 $75,000 $68,807 2032 2033 2034 2035 2036 2037 8.3% Bid: $75,000 Target Pwin: 70.0%Fee Cost $6,193 $5,573 $18,922 $20,642 $20,642 $1,720 2038 $61,927 $1,703 $1,858 $1,858 $155 8.3% 8.3% 8.3% 8.3% 2032 2033 2034 2035 2036 2037 2038 Total $20,625 $22,500 $22,500 $1,875 $67,500 Bid: $67,500 Target Pwin: 80.0%Fee Cost $5,573 $61,927 Target Fee: 9.0% B&P $1,250 Share Ratio: 20% IR&D $3,750 Proposed Award Date: 1-Feb-32 AeroSpace #3 Production 1-Aug-36 Type: CPIF Contract Duration: 36 Investment 2032 February 2032 New Capture Request for Proposal Information Acquisition Phase: EMD Award Contract Information Follow-On Contracts Date Proposal Due Date: 31-Oct-31 Aerospace #2 Production 1-Feb-35 Student Instructions April 2020 Version 3.0 VILT 6 A er os pa ce # 1 Pr og ra m Lo w O pt io n: Fo re ca st S al es C os t o f S al es E B IT R O S M ed iu m O pt io n: Fo re ca st S al es C os t o f S al es E B IT R O S H ig h O pt io n: Fo re ca st S al es C os t o f S al es E B IT R O S Co m pe tit or : 20 15 20 16 $2 27 $1 9 20 18 20 18 8. 3% Pw in : 8. 3% 8. 3% 20 17 Ta rg et 9. 0% 20 % C P IF 20 12 $1 86 $1 5 $2 ,2 94 20 12 $7 ,5 00 $6 19 $6 ,8 81 $2 06 $1 7 Ta rg et $6 ,7 50 80 .0 % Pw in : $2 ,2 50 $2 ,2 50 $1 88 $5 57 Fe e $2 ,0 63 20 17 To ta l 20 12 20 13 To ta l $2 ,2 92 $2 ,5 00 $2 08 20 18 8. 3% 8. 3% 8. 3% Pw in : 70 .0 % $6 ,1 93 $5 57 B & P IR & D Ty pe : C on tra ct D ur at io n: Ta rg et F ee : S ha re R at io : P ro po se d A w ar d D at e: A er oS pa ce # 3 P ro du ct io n 1- A ug -1 6 In ve st m en t $1 25 $3 75 1- Fe b- 12 36 Fe br ua ry 2 01 2 Co nt ra ct In fo rm at io n D at e Fo llo w -O n Co nt ra ct s A w ar d 31 -O ct -1 1 A cq ui si tio n Ph as e: P ro po sa l D ue D at e: E M D Ne w C ap tu re R eq ue st fo r P ro po sa l I nf or m at io n 1- Fe b- 15 A er os pa ce # 2 P ro du ct io n 8. 3% $6 81 $7 ,5 69 To ta l $8 ,2 50 $2 ,3 13 $2 ,5 23 $2 08 $2 ,5 21 $2 ,7 50 $2 29 20 12 $2 10 20 13 20 14 $2 27 8. 3% 8. 3% $2 ,5 23 $2 ,7 50 20 17 $2 ,5 00 Ta rg et 8. 3% $2 ,0 64 $1 86 8. 3% $2 ,0 64 $1 72 Co st $6 ,8 81 60 .0 % Fe e Co st $6 81 $7 ,5 69 8. 3% 8. 3% 8. 3% 8. 3% $1 89 E xp ec te d B id 6, 75 0 $ W ea kn es se s: N ew P ro gr am T ea m S tre ng th s: C ut tin g ed ge te ch no lo gy P ro ve n pe rfo rm an ce G oo d R ep ut at io n Lu ck y C om pa ny Bi d: $6 ,7 50 Bi d: $7 ,5 00 Bi d: $8 ,2 50 $1 ,8 92 20 16 20 14 20 15 Co st $6 ,1 93 $2 06 20 13 20 14 20 15 20 16 $6 19 $2 ,1 02 $2 ,2 94 $1 91 Fe e $1 70 Aw ar d Da te Th re e Bi ds w ith Th re e Pw in s B& P co st s a re in cu rr ed if y ou ch oo se to b id IR & D in ve st m en t i s o pt io na l, bu t f ai lu re to in ve st lo w er s Pw in fo r F ol lo w -O n co nt ra ct s Co nt ra ct In fo rm at io n An nu al S al es , C O S, EB IT , a nd R O S fo re ca st fo r e ac h bi d If yo u w in th e in iti al co nt ra ct , y ou m us t b id o n th e Fo llo w -O n co nt ra ct s C ho ic es m ad e fo r th e pu rp os e of f or ec as ti ng a re N O T ‘lo ck ed -in ’. D ur in g ea ch y ea r’ s Ca pt ur e Ac tiv ity , ot he r co nt ra ct s an d/ or o th er b id s am ou nt s m ay b e ch os en . Co m pe tit or In fo rm at io n Pr og ra m N am e Student Instructions April 2020 Version 3.0 VILT 7 3 DIVISION EXCEL FILE 3.1 FORECAST WORKSHEET TAB The Forecast Worksheet found in the Excel Workbook is designed to assist the teams in developing their forecasts. There are two forecast worksheets - one for the 1st year, 2032, and one for the 2nd year, 2033. The left side of the worksheet is broken down into two sections: On-Going contracts and New Capture contracts. Each MILPROG Division is required to submit a bid on the On-Going contracts X-Ray, Yankee, and Zion and can submit bids on up to two New Capture contracts each year. To use the form, pull the drop-down and select either “Y” for yes or “N” for no in the 3rd column (in the 2032 worksheet) for the programs to include in the forecast. Then select a bid option; “H” for high bid, “M” for medium bid, or “L” for low bid in the 4th column (in the 2032 worksheet). The specified annual estimated Sales and Cost of Sales (COS) values will be populated in the appropriate years across all of the program contracts selected. In order for the amounts to appear, the bid level must be selected. Once all of the desired programs have been identified and selected, the worksheet automatically estimates the total forecasted Sales and COS. As noted above, each Division can bid on up to two New Capture contracts each year; if more than two are selected, the selections will be highlighted in red. Also, in order to forecast and/or bid on the Cloud P3I1 contract, the initial Cloud contract must be forecast and/or bid on and won. An example of a representative Forecast Worksheet that has been filled out for demonstration purposes is on the next page; the actual Division Forecast Worksheet for the class will not have any entries except what was already on-going prior to 2032. As a quick Recap: • Each Division must submit a bid on all On-Going contracts. • During the annual Planning Phase, each division may bid on a maximum of two New Capture RFPs. • All financial numbers within the workbook are in thousands of dollars ($K). 1 P3I = Preplanned Product Improvement Student Instructions April 2020 Version 3.0 VILT 8 Note: The grey cells will not accept an entry and orange cells are drop-down selections. As seen above for the Dynamic #1 contract, if you select “Y” to include it, the Sales line per year will not populate unless the bid amounts are selected. As shown on the next page, the right side of Forecast Worksheet provides an opportunity for the Division to ‘tweak’ the automatically totalled Sales and COS forecasts across the program contracts selected based on their own independent assessment of the Division operational goals. The Division assessment to adjust, if they want to, the forecast could be based on P(win), Division strategies for lowering COS, or for any other reason. The Division has the ability to adjust either the Sales or Cost of Sales forecast for each year. Submit a bid for all on-going contracts Bid (H/M/L) 2032 2033 2034 2035 2036 Xray #1 On-going 13,333 Xray #2 2032 M 3,333 20,000 1,667 Yankee #1 On-going 7,733 Yankee #2 2032 M 7,089 21,267 3,544 Yankee #3 2034 H 25,500 12,750 Zion #1 On-going 11,786 4,911 Zion #2 2033 H 11,751 20,145 1,679 Zion #3 2035 H 21,358 13,592 Total Sales ($K) 43,275$ 57,929$ 50,856$ 35,787$ 13,592$ Total Cost of Sales ($K) 39,513$ 52,037$ 42,825$ 29,839$ 11,280$ Submit a bid on a maximum of 2 new capture opportunities for each year Include Bid (Y/N) (H/M/L) 2032 2033 2034 2035 2036 Aerospace #1 2032 Y M 22,917 25,000 25,000 2,083 Aerospace #2 2035 M 40,333 25,667 AeroSpace #3 2036 H 29,972 Battle #1 2032 Y M 16,364 24,545 4,091 Battle #2 2034 M 21,667 26,000 4,333 Battle #3 2036 M 18,750 Cloud #1 2032 N Select Cloud #2 2034 Select Cloud #3 2035 Select Cloud P3I #1 2034 Select Select Cloud P3I #2 2036 Select Dynamic #1 2033 Y M 21,500 21,500 21,500 Dynamic #2 2036 M 11,667 EverReady #1 2033 Y L 17,556 14,044 EverReady #2 2034 H 7,944 23,833 3,972 EverReady #3 2036 H 5,556 Falcon #1 2033 N Select Falcon #2 2035 Select Ground #1 2034 Y M 7,639 18,333 1,528 Ground #2 2036 M 9,167 Hotel #1 2034 Y H 13,625 27,250 13,625 Hotel #2 2036 H 16,500 Indigo #1 2035 Y H 19,038 5,712 Indigo #2 2036 M 22,500 Jamaica #1 2035 Y L 15,816 21,088 Killer #1 2035 N Select Total Sales ($K) 39,280$ 88,601$ 115,510$ 194,187$ 190,035$ Total Cost of Sales ($K) 36,037$ 80,960$ 104,308$ 174,043$ 168,164$ Sales ($K) On-Going Contracts PoP Start Sales ($K) PoP StartNew Capture Contracts Student Instructions April 2020 Version 3.0 VILT 9 This is done by simply entering a percentage in the appropriate ‘yellow color’ cells. The final forecasts are automatically transferred to the Forecast ‘tab’. After the team submits their Division initial forecast in 2032 and experience a year of activity, they will have the ability to ‘redo’ their forecast in 2033. The 2033 forecast tab shows the 2032 forecast selections in the grey section, and requires the team to make new selections for their Divisions for 2033 and on. The ability to forecast for Follow-on contracts to base year 2032 contracts will be impacted if the Division won or lost the contract during the Activity phase. Note: Once the forecast is submitted in 2032, it is “locked” and cannot be changed until the 2033 Planning Phase. A new forecast needs to be submitted in 2033; the 2032 forecast will not be carried forward if new selections are not made. 3.2 FORECAST TAB This Forecast Tab is found in the Excel workbook and is used to finalize your Division 5-year forecast. An example of the Forecast Tab is shown on the next page. The Division forecasted Sales and COS values are presented by contract category: (1) On-Going contracts, (2) New Capture contracts, and (3) New Business contracts. The On-Going and New Capture contract values are automatically entered from the previously discussed Forecast Worksheet. Entering a forecast for New Business, “Bluebird,” contracts is optional. New Business opportunities may become available during the Board Phase. The Division leaders have the option to submit or not submit a bid on these opportunities. Sufficient Bid and Proposal (B&P) funding must be available to submit a bid. The New Business Contract area is prepopulated with $10,000K for each year, but can be adjusted by the Division. Review initial 5-year forecast Initial Forecast ($K) 2032 2033 2034 2035 2036 Sales On-Going Contracts 43,275$ 57,929$ 50,856$ 35,787$ 13,592$ Cost of Sales On-Going Contracts 39,513$ 52,037$ 42,825$ 29,839$ 11,280$ Sales New Capture Contracts 39,280$ 88,601$ 115,510$ 194,187$ 190,035$ Cost of Sales New Capture Contracts 36,037$ 80,960$ 104,308$ 174,043$ 168,164$ Adjust forecast (consider things such as: likelihood of winning all contract, organization goals, etc Adjustment Factors (%) 2032 2033 2034 2035 2036 Sales 100% 100% 100% 100% 100% Cost of Sales 100% 100% 100% 100% 100% Review adjusted 5-year forecast Adjusted Forecast ($K) 2032 2033 2034 2035 2036 Sales On-Going Contracts 43,275$ 57,929$ 50,856$ 35,787$ 13,592$ Cost of Sales On-Going Contracts 39,513$ 52,037$ 42,825$ 29,839$ 11,280$ Sales New Capture Contracts 39,280$ 88,601$ 115,510$ 194,187$ 190,035$ Cost of Sales New Capture Contracts 36,037$ 80,960$ 104,308$ 174,043$ 168,164$ Student Instructions April 2020 Version 3.0 VILT 10 3.3 ANNUAL ACTIVITY TABS There is also an Annual Activity Tab for each year of the Capstone exercise: 2032, 2033, and 2034. As illustrated previously in Section 1.3 (Flow Activities), each spreadsheet is broken down into four sections: Planning Phase, Capture Phase, Board Phase, and Reconciliation Phase. All decisions, actions, and impacts should be documented on these mandatory worksheets. As a reminder, data may only be entered in the orange and yellow highlighted cells. The orange highlighted cells indicate there is a drop down menu to select your entry, while data must be entered in the yellow highlighted cells. Note: The worksheets MUST BE completed from left to right and top to bottom for all aspects of the exercise to work properly. Once data is entered and you’ve moved to another section, if you desire to make a change, then all blocks after the change must be reentered. 3.3.1 Planning Phase Section This Planning Phase Section, example shown below, is used to display and annotate the current year’s Capital Investment decisions, production capability and assignments, IR&D funding decisions, B&P fund status, and annual sales and COS goals. The number of production facilities (lines) currently in use out of the number of production facilities (lines) available are provided in the left side of the Planning Phase Section. 3.3.2 Capture Phase Section This Capture Phase Section, shown below, is used to annotate all current contract decisions and capture results. The Division rolls two dice and enters the result in the Decision column, Sales ($K) 2032 2033 2034 2035 2036 On-Going Contracts 43,275$ 57,929$ 50,856$ 35,787$ 13,592$ New Capture Contracts 39,280$ 88,601$ 115,510$ 194,187$ 190,035$ New Business Contracts 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ Total 92,555$ 156,530$ 176,366$ 239,975$ 213,627$ COS ($K) On-Going Contracts 39,513$ 52,037$ 42,825$ 29,839$ 11,280$ New Capture Contracts 36,037$ 80,960$ 104,308$ 174,043$ 168,164$ New Business Contracts 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ Total 85,550$ 142,996$ 157,133$ 213,882$ 189,445$ EBIT ($K) 7,005$ 13,533$ 19,234$ 26,093$ 24,182$ ROS 7.6% 8.6% 10.9% 10.9% 11.3% 2012 No Investment Required Prod Lines 2 Allocated $9,500 Allocated $3,500 Available Prod Lines 4 Funded Used $700 Item Value Item Value Line EOY Prod Pgms Program Available $2,800 Sales $93,910 Sales No Change #1 Xray Program COS 92% COS No Change #2 Yankee Program EBIT $7,246 EBIT No Change #3 Program ROS 7.7% ROS No Change #4 Total #5 N/A Available $9,500 #6 N/A #7 N/A Planning Activities Goals Initial End of Year Capital Investment Production Capability IR&D Funding B&P Funding Student Instructions April 2020 Version 3.0 VILT 11 which determines if the contract is captured based on the P(win) for the Bid Amount selected and a Yes or No appears. If the contract is captured (Won), then the award and end dates will be populated and also the available Work Team (e.g., A, B, C, D) to be assigned will appear in the drop-down for selection. 3.3.3 Board Phase Section The actions and impacts resulting from the actual ‘play’ efforts are recorded in the Board Section. The top area is used to annotate New Business contract activities, decisions, and results. The lower section is used to summarize the impacts resulting from other events. • After you finish the Planning and Capture phases of 2032, open the Events for 2032 document • Using this document, you will roll two dice to determine which events happen to your Division in 2032 • Execute the event on the page of your roll. • After you have executed that event, roll two again. • If you have already executed that event, keep rolling two until you hit a number you haven’t already had. • Continue until you have executed FOUR events. After the FOURTH event, move to the Reconciliation Phase in the workbook The following is a picture of the board used in the classroom version of the Capstone exercise. Program B&P Bid P (win) Decision Capture Award Date Work Team End Date Xray #1 1-Aug-11 D11 31-Oct-12 Yankee #1 1-Mar-10 D12 31-Aug-12 Zion #1 1-Feb-11 D13 31-May-13 Program B&P Bid P (win) Decision Capture Award Date Work Team End Date #1 Select Amount Dice Value Select #2 Select Amount Dice Value Select Program B&P Bid P (win) Decision Capture Award Date Work Team End Date #1 Xray #2 $350 Amount Dice Value D11 #2 Yankee #2 $350 Amount Dice Value D12 #3 #4 #5 #6 #7 Capture Activity New Captures Follow-On Contracts On-Going Contracts Student Instructions April 2020 Version 3.0 VILT 12 The various events will provide an incident or occurrence and then specify an impact/action. New Business events may provide an opportunity to bid on a ‘Blue Bird’ or a previously not bid RFP. The Division will decide if they desire to take advantage of this opportunity. The other events may identify a change in the overall Division or a specific contract Goals, Sales, Cost of Sales (COS), or Contract Duration. The impacts are entered in the yellow blocks in the Board Phase of the worksheet shown below. For the New Business opportunities, the Division will once again roll two dice and enter the result in the Decision column to determine if the contract is captured. If the contract is captured, the team will need to follow the event instructions for the contract Award Date and select a Work Team from the drop-down. Note: In some cases, the number of Work Teams available may be a limiting factor dictating whether or not a contract may be won. Program B&P Bid P (win) Decision Capture Award Date Work Team End Date #1 Select Amount Dice Value Select Select #2 Select Amount Dice Value Select Select #3 Select Amount Dice Value Select Select #4 Select Amount Dice Value Select Select Sales % $ % Xray #1 Yankee #1 Zion #1 Lost Appeal Select Select Select Select Select Select Select Select 1 2 3 4 5 6 Game Board Phase COS to Sales (Percent) EBIT (Percent) Sales (Percent) New Business Contracts Change in Goals Contract Duration Program New Captures On-Going Contracts Follow-On Contracts New Business COS Contract Activity (Changes) ROS (Percent) Student Instructions April 2020 Version 3.0 VILT 13 3.3.4 Reconciliation Phase Section This Reconciliation Phase Section is used during the final phase of the exercise to capture the annual performance of each program. The section, shown below, should be automatically populated with the names of all active Division programs. As the overrun, under run, or on target decisions are made based on the two dice rolls, the other columns will automatically be completed. The Division rolls two dice and enters the result in the Over/Under Decision column. The result will be shown in the Over/Under Run % column. The possible outcomes are a +2.5% or +5% as overruns, an on-target (0% change), or a -2.5% as an underrun. Note: The remainder of the annual contract performance blocks will be automatically completed once the value of the two dice is entered. COS Profit/Fee Sales COS to Sales (Percent) EBIT ROS B10 Dice Value D12 Dice Value D13 Dice Value Dice Value Dice Value Dice Value Dice Value Dice Value Dice Value Dice Value Sub-Total On-Going Contracts New Captures Team Assigned Over/Under Decision Over/Under COS Change COS Profit/Fee Sales COS to Sales (Percent) EBIT ROS Select Dice Value Select Dice Value Follow-On Contracts Team Assigned Over/Under Decision Over/Under COS Change COS Profit/Fee Sales COS to Sales (Percent) EBIT ROS Dice Value Dice Value Dice Value Dice Value Dice Value Dice Value Dice Value Sub-Total On-Going New Business Contracts Team Assigned Over/Under Decision Over/Under COS Change COS Profit/Fee Sales COS to Sales (Percent) EBIT ROS Select Dice Value Select Dice Value Select Dice Value Select Dice Value Sub-Total New Business Grand Total 2012 Team Assigned End of Year Performance COS Change Over/Under Decision Overrun (+) Under Run (-) End of Year / Performance Phase Sub-Total Bids Xray #1 Yankee #1 Zion #1 On-Going Contracts Student Instructions April 2020 Version 3.0 VILT 14 4 FLOW & ACTIVITIES 4.1 FORECAST ACTIVITY 2032 TO 2036 As discussed previously, the Forecast Activity initiates the exercise. The objective of the forecasting activity is to develop a five year (2032-2036) forecast of Sales and Cost of Sales based upon the provided Balance Sheets, Income Statements, and ratio data along with the potential future contract information. The forecast will support leadership’s four financial objectives through smooth, reasonable growth. As mentioned earlier, a number of spreadsheets and Excel worksheets have been provided to assist the Division teams in completing this activity. Ultimately, the Division forecast must be entered on the Forecast Worksheet. Note: This is a forecasting activity only and thus contract bid decisions made during this activity are non-binding and may be revised during actual execution in each year. 4.2 PLANNING PHASE Capital Investment: Each year the Division has the option to make a capital investment to increase Production Capability. The capital investment can be done by either issuing stock or by taking a loan (both as drop-down options). The required Capital Investment is $500,000. The end of year Balance Sheet will reflect either a $500,000 loan (debt) or issuing of 500,000 of shares of stock (equity). If the investment is made, the additional production capability will be available the following year. Note: One year is required to fund and build the additional production capability. Therefore, a capital investment in Year 1 will result in additional production capability in Year 2 (next year). Production Capability: Identifies the number of programs already using the Division production lines. Each Division starts with 4 production lines available. If the Division desires additional production lines, the aforementioned Capital Investment must be made. Again, it takes one year after the investment before the production line is operational. IR&D Funding: An Independent Research and Development (IR&D) investment is made to maintain competitive advantage. If the investment is not made in each year’s Planning Phase for work in the forecast intended to be won that year, the capture percentage Pwin for that contract AND all follow-on work is reduced by 10%. If a team chooses to invest in IR&D for a particular program, the ‘drop-down’ is used to select the program and the IR&D amount automatically populates and deducts from the funds available. IR&D funding is limited to the amount shown on the top of the Activity Worksheet for that year. The exception for this is the contracts in hand at the beginning of 2032, for which the team did not have the opportunity to affect. If a team does not initially invest IR&D to keep the Pwin at the original level for the “#1” opportunity and still wins the work, the team may invest IR&D in the Planning Phase of the year of the follow-on contract to raise the Pwin back up to the original level. Student Instructions April 2020 Version 3.0 VILT 15 B&P Funding: For all contracts for which a bid is submitted, some Bid and Proposal (B&P) funding is required. This block highlights the annual Division B&P allocation from MILPROG corporate account, how much has been used, and the available balance. If the Division tries to pursue addition work during the execution year but does not have enough B&P money, the “B&P Funding” and Board Phase sections will so indicate. Goals: These will be automatically updated from year to year as activities occur during the previous year. 4.3 CAPTURE PHASE On-Going Contracts: This tracks the contract information from successful contracts awarded in previous years and will be automatically updated. New Captures: The team selects up to two New Capture contracts to bid on and the bid option level. In addition, whether or not the capture is won is determined and the team assigned. Steps: 1. In the Program column, use the ‘drop-down’ to select the program. 2. The B&P costs will automatically be ‘charged’ and updated in the B&P total section at the top. 3. In the Bid column, use the ‘drop-down’ to select the bid option level. For FFP contracts, in order achieve the specified profit percentage, the middle level bid (Option 2) needs to be selected. The bids are arranged in order of Low, Medium, and High. 4. The Pwin, which is the probability associated with that bid level, will appear. 5. Roll two dice and enter the value from the ‘drop-down’ Decision column. 6. Depending upon the value entered, the Capture column will show “Yes” if the Division has been awarded the contract or “No” if the Division did not get the contract. If the Division is awarded the contract, the Award Date and End Date columns will be automatically populated. 7. If the Capture column indicated a “Yes,” a Work Team (either A, B, C, or D) will need to be assigned for the contract. The ‘drop-down’ in the Work Team column provides a list of available work teams. Different teams have different levels of effectiveness: the A teams are the most effective followed by B teams, etc. The effectiveness of the work team assigned to each contract will impact the probability of an overrun or underrun and the magnitudes during Reconciliation Phase activities. Note: Your division has only one “A-Team” available and multiple B, C & D teams. Teams will not always carry over from year to year. Follow-On Captures: Use the same steps as above for all Follow-On contracts. Corporate expects a bid will be submitted for all captured Follow-On contracts. Conversely, due to a significantly lower probability of a successful capture, Corporate has decreed that Divisions will NOT bid on non-captured Follow-On contracts. Division may only bid on Follow-On contracts where they captured the initial development contract. Note: It is recommended that the teams use the provided Blank Schedule Spreadsheet hand out to keep track of the contracts that were won. Student Instructions April 2020 Version 3.0 VILT 16 4.4 BOARD PHASE New Business Contracts: This section is used to enter any new business activity resulting from obtaining a New Business event. If a New Business event is selected, the team must decide if it desire to submit a bid. Should the team choose to submit a bid, the procedure to enter information is identical to the procedure used to enter data for New Captures with one minor exception. Since the contract award date is specified with the event, it does not automatically prepopulate; therefore there is a pull-down menu to select the award date. In many instances, the event states that the award will take place in the current month or the following. The instruction with each event dictates the month in which the event happened, e.g., “the month after the division’s last award.” Change in Goals: All goal changes resulting from the event are entered here. Changes made here will adjust the Division’s original goals. See the upper right corner of the Excel page, in the Planning section Contract Activity (Changes): The events may require Sales, Cost of Sales, or contract duration changes to specific programs or all programs. Those changes are entered here. All active contracts names should automatically be populated in the correct sections. The cost impact or change may specify a dollar or percentage change. Those changes should be entered in the appropriate cell. Contract duration changes are entered in months and should be entered in the Contract Duration column. Certain events may state that a contract appeal is taking place; in this case, update the Lost Appeal column with the appropriate selection from the drop- down. Note: If the event stipulates that something is decreasing, this will always be reflected as a negative “-“ number in that cell. Note: For the purpose of the capstone, RDT&E is equivalent to EMD. Play continues until the board piece reaches the next Reconciliation space on the board which signifies the end of activities for that year. 4.5 RECONCILIATION PHASE This is a key phase in regards to how well the Division performed for that year. In order to determine the program cost performance, roll two dice and enter the value in the column titled Over/Under Decision. The Over/Under Run column should then specify the outcome a -2.5% as an underrun, on target (0% change), or a +2.5% or +5% as an overrun. The worksheet automatically calculates the Profit/Fee for each contract, and then provides the end of year performance, in terms of Sales, Cost of Sales (COS), Earnings Before Interest and Taxes (EBIT), and Return on Sales (ROS). These are key metrics and related trends discussed in class all week and important to address in the annual Leadership Brief. 4.6 LEADERSHIP BRIEFING At the end of each operating year, the Division is required to brief MILPROG corporate leadership on the actual performance in relation to its goals and forecasts. During the briefing preparation activity, corporate leadership may provide additional guidance on special interest Student Instructions April 2020 Version 3.0 VILT 17 areas to be discussed. The Division will be supplied a PowerPoint template in Blackboard with questions to be answered for each activity year to be used to debrief the MILPROG corporate leadership. The time allotted for the Division briefing each year is 5-8 minutes. Student Instructions April 2020 Version 3.0 VILT 18 5 SUMMARY OF RULES 1. B&P funds have an annual limit; if B&P funds are not available, then the Division cannot submit a bid. However, there may be an opportunity for a Division to receive some additional B&P funds from MILPROG corporate based on a request and valid assessment of the opportunity relative to Division goals. 2. Initially, only four manufacturing lines are available. Additional lines may be built but requires a capital investment in the prior year. It takes one year to make an additional production line available; therefore a capital investment in 2032 would result in additional production capability in 2033. a. The capital investment is $500,000 and the funds may be obtained by borrowing $500,000 from a bank or issuing 500,000 shares of stock. The CFO will arrange for either the issue or the loan. 3. IR&D funds have an annual limit. An IR&D investment for any “XXX #1” opportunity is required in the Planning Phase to maintain the division’s original Pwin for that contract and its follow-on work, i.e., to keep the Pwin from dropping by 10%. If a contract is captured without the IR&D investment, the team may apply IR&D to the follow-on work to raise the Pwin back to its original value for the next award in that program’s sequence, e.g., apply IR&D to “#2” to return keep “#3” Pwin at its original value. 4. Corporate policy requires submitting a bid for all follow-on contracts, and that follow-on work must be part of the multi-year forecast. 5. Initially, there are 50,000,000 shares of stock outstanding per Division. This is atypical of the equity structure of a publically held company, but is done here for academic purposes. 6. Divisions may bid on up to two new capture (“XXX #1”) contracts per year. 7. There is no limit on the number of follow-on or new business contracts a Division may bid on each year within the available B&P funding. 8. If a Division wins work but does not have the production capacity, the MILPROG CFO will reject the contract. 9. A Division uses two dice for Capture Phase, new business won or loss during the Board Phase, and the Reconciliation Phase. Student Instructions April 2020 Version 3.0 VILT 19 6 APPENDIX A – SELECT ABBREVIATION LIST Abbreviation Term Definition B&P Bid and proposal The information (the proposal) and cost (the bid) to meet the requirements of the Request for Proposal. COS/COGS Cost of Sales/Cost of Goods Sold COS includes the purchase of raw materials and manufacturing finished products. For non-manufacturing classifications, Cost of Sales includes providing the services the entity sells. Other costs are included in the cost of sales to the extent that they are involved in bringing goods to their location and condition ready to be sold. Non-production overheads such as development costs may be attributable to the cost of goods sold Costs of bring electricity to the point of transmission, or administrative screening, appointment and delivery of services to patients (including supervision), could be included in COS for electric utilities or medical offices respectively. The costs of services provided will consist primarily of personnel directly engaged in providing the service, including supervisory personnel and attributable overhead. EBIT Earnings Before Interest and Taxes Difference between operating revenues and operating expenses. It includes all expenses except for interest and income tax. EMD Engineering and Manufacturing Development The development and design phase in an acquisition process before becoming production ready. IR&D Independent Research and Development IR&D is a voluntary, incurred cost not funded by grant or contract. A company spends IR&D to, among other things, develop future solutions for current or potential clients, and/or increase the chances of winning future work. RDT&E Research, Development, Test, and Evaluation A government appropriation that funds phases of an acquisition to determine its viability before the government commits to significant procurement of a system. RFP Request for Proposal A formal request from a buyer to solicit solutions to meet the product or service needs of the buyer. Sellers respond to the buyer with a proposal. ROS Return on Sales Net After Tax Profit divided by Annual Net Sales, indicating the level of profit from each dollar of sales. This ratio can be used as a predictor of the company's ability to withstand changes in prices or market conditions.