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  • The Australia Government is offering a research contract for Orange Roughy Fishery in the Great Australia Bight.
  • Sounds interesting what is the benefit to us
  • We would be allowed to access Australian fishery for 5 years up to the level of the catch we secured on the research voyage
  • I have to go to meeting now, but could you work out the details so that I can understand better what would be involved?
  • Fishing
  • There are three stages to this project: the investment in the Aussie Navigation equipment, the transit to the GAB and back again and the catching and processing operations.
  • Transit
  • Eric Croft CEO of Deep South Fishing meets Mike Nelson Special Projects Manager in the kitchen of their Dunedin office. Mike tells Eric about an opportunity to carry out a research project in Australia.
  • I have listed all the assumptions that I have made about the project on this Value Generation Map that includes: Income, Opex and Capex
  • Mike outlines details of the contract and describes the potential benefits to Deep South.
  • The key benefit is access to Australian fish. There will be some setup costs such as Aussie Navigation Charts etc. The transit time is expected to be 2 -3 days and we will have to pick up an observer in Adelaide.
  • Eric agrees that the project has potential and asks Mike to develop an operational plan.
  • We have good information about the cost of catching and processing and loss of gear etc. The biggest unknown is .....are there fish in the GAB!
  • Mike meets with Charles Stanley (Operations Manager) and together they develop an operational plan.
  • OK. The project has potential. I will need a Cash Flow Statement and Risk Analysis.
  • Working with Charles and Wayne Giles (Marine Biologist) Mike develops a Value Generation Map. This involves recording all the assumptions that they have made about the setup costs, the rate of catch the transit costs and the operating costs.
  • Mike meets with Eric to discuss all the assumptions that they have identified. They include: Strategic Benefits and Set Up Costs.
  • Mike identifies the assumptions that they have made about the Operating Costs and Risks.
  • Eric agrees that the project has potential. He reviews each element and makes some suggestions about some oi the issues that need to be addressed. He instructs Mike to have the Finance team prepare the Cash Flow Statement and Risk Analysis.
  • Mike meets with Helen Green, Financial Analyst who uses Mike's Value Generation Map to prepare the Cash Flow Statement and Cash Flow Graph.
  • Hi Mike, I've converted your Value Generation Map into Cash Flow Statement
  • When the Cash Flow Statement is completed Mike and Helen take Eric though the financial analysis.
  • This project has quite substantial upfront costs - setup costs plus the transit costs, which are recovered when fishing commences. The effect of this is that the cumulative Cash Flow represents a J Curve Graph
  • Eric is concerned about the influence that level of catch has on the project and asks for more information.
  • Mike - The Cash Flow Graph really identifies the key issue. It clearly shows that the viability of the project depends upon the level of catch. We need to know what the likelihood of achieving the proposed catch is.
  • Mike meets with Wayne and works through the assumptions Wayne has made in determining his catch estimates. Wayne informs Mike that his estimates are based on a normal distribution with a a range of 0 - 20 Tonnes per day, a standard deviation of 3.5 and a median of 10 Tonnes per day..
  • I have plotted my assessment of the likely catch on the board for you. I believe there is a 50% chance of catching 10 tonnes a day
  • I am concerned about the size of the catch and how it impacts on the economics, can you run a MC analysis please.
  • OK Mike. I will need your distributions for the key assumptions.
  • These are the two key output charts from the simulation.
  • These are the two measures you asked for: Break even point and $100,000
  • Mike is concerned about the risks and wants to see how the catch impacts on the cash flow. Mike asks Helen to run a simulation on the model data using Monet Carlo simulation software.
  • These are the Catch Risk and Sensitivity Charts
  • To prepare the risk analysis Helen needs to convert her previous deterministic model to a stochastic model. To do this she requires additional information about the key assumptions, particularly the catch estimates. Working with the development team Mike and Helen identify the key assumptions and assign the appropriate distributions to them.
  • Well its decision time. I have taken into account the strategic benefits the Cash Flow, the financial metrics the Risk and Sensitivities. I would like to discuss the deployment and delivery plans with the full team.
  • Helen runs the simulation and produces Risk and Sensitivity charts for Net Cash Flow and Catch.
  • OK I am happy with all the issues. Can you guys prepare a business case for me by Wednesday so that I can discuss the proposal with the Board. Thanks for your good work!
  • Net Cash Flow data: •A 50% chance of making a cash gain of $241,000. •An 84.45% chance of making a cash gain of $100,000. •A 96% chance of breaking even.
  • Catch Data Based on the distribution that Wayne has used to estimate the catch: •A 92.68% of chance of catching 25 Tonnes. •The Sensitivity Analysis confirms that the project is very sensitive to the size of the catch.
  • Eric prepares to make the decision: He asks for a portfolio of information to be prepared including: •Strategic Impact •Financial Impact •Risk and Sensitivity Analysis
  • The development team work on the Operational Blueprint and the Value Delivery Plan. After discussing the project with the development team Eric instructs Helen and Mike to prepare a business case for the Board.
  • Using the business case Eric explains to the board the activities involved and how the project will be deployed. In particular he explains the Value Delivery Plan including: •Strategic Impact •Financial Impact •Risk and Sensitivity Analysis
  • We have now discussed at the issues . Our delivery plan is to catch at least 20 tonnes and to produce a cash surplus of $100,000
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