Exercises: Decision-making and simulation

List and describe the stages of the decision-making process: define the problem, gather information, generate alternatives, assess them, choose, implement, and monitor.

Distinguish between strategic decisions (long-term, hard to reverse) and operational decisions (day-to-day, reversible), and classify these four: opening a new shop, changing opening hours, launching online sales, and changing coffee supplier.

The diagram shows a decision tree: a company is undecided whether to open a second location and, if it opens, the outcome depends on demand. Calculate the expected value of opening and explain whether, based on those data, it is advisable to open or not.

A spreadsheet allows you to simulate 'what if...?' scenarios. Explain what this type of simulation is and design, by describing it, a simple spreadsheet for a coffee shop that wants to see how its profit changes if it increases the price of coffee by 10% and sales fall by 5%.

A company is considering launching a product: if successful (60% probability) it will gain $\$1\,000\,000$, and if it fails (40% probability) it will lose $\$400\,000$. a) Calculate the expected value of the launch as the sum of each outcome weighted by its probability. b) Reason whether the expected value is sufficient to make a decision or if more data are needed.

List the basic parts of a business plan (idea and team, market analysis, marketing plan, operations plan, and financial plan) and explain what question each part answers.

"Dulces Artesanos" operates at 100% capacity in its single workshop and turns away orders every weekend. Management is debating three expansion alternatives: A1) Expand the current premises by renting the adjacent ground-floor unit (high fixed investment and building work, but direct control over artisan quality); A2) Outsource the base dough to an industrial factory and only perform the final baking in-house (minimal fixed costs and fast delivery, but risk of losing exclusivity and reputation); A3) Open a large central workshop in an industrial estate to supply this and future shops (requires a substantial bank loan that jeopardises short-term liquidity). Design a multi-criteria decision matrix: define three justified quantitative or qualitative criteria, assign a coherent percentage weighting to each, and explain which alternative the company should choose if its immediate strategic priority is to protect its brand image without taking on a high risk of insolvency.

Analyse the following statements made during the management committee meeting of a textile company:

1. Expansion Director: "The first consultant estimated that entering the French market would cost 500 pesos 000. Although subsequent, more detailed reports raise that figure to 800,000, pesos we must stick to the initial 500 pesos 000 because that was the agreed benchmark."

2. Production Director: "Our team never misses deadlines; there is no need to budget contingency funds or take out delay insurance on the new assembly line."

3. Managing Director: "We have already invested 200 pesos 000 in developing our own sales platform. Even though customers prefer to buy through third-party distributors and our own website fails to attract traffic, cancelling the project now would be throwing that money in the bin; we need to contribute another 50 pesos 000."

1. a) Identify and justify the cognitive bias distorting each executive's stance, explaining the potential economic harm to the company.
2. b) Design a specific decision-making protocol or technique to neutralise each of these three biases in future committee meetings.

An electric mobility startup applies for a 200 pesos 000 loan from a bank and submits a business plan containing the following assumptions:

• Marketing plan: projects doubling subscription sales every month during the first year based solely on spontaneous word-of-mouth on social media, with an advertising budget of 0. pesos

• Operations plan: outsources 100% of scooter assembly to a single overseas supplier with sea freight delivery times of 60 days, with no safety stock planned in Spain.

• Financial plan: projects a net profit margin of 35% starting from the second month and includes no provision for working capital requirements or credit lines for contingencies.

1. a) Identify and explain the inconsistencies and feasibility flaws that exist among these three sections of the business plan.
2. b) If you were the bank's risk analyst, justify whether you would approve or reject the loan application, and identify which two sections you would review in greater detail to assess the actual debt repayment capacity.