I need two pages of Swot analysis and Pestel analysis. I attached the example, please see the Swot analysis and Pestel analysis in the file. We are opening a brewing restaurant in Allston area in Boston city, so need to do the Swot analysis and pestal analysis related to that.

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Assignment 3-PART 2 (Team Project)

Managerial Report

The Rationale for Investing in a New BrewPub

Ruilin Meng, Jie Li, Hangyu Zhao, Siyao Zhang, Youwei Cai

Boston University Metropolitan College

AD 715: Qualitative and Quantitative Decision Making

Professor Krystie Dickson

June 27, 2022

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Contents

Executive Summary………………………………………………………………………………………………………………………………..

3

Introduction……………………………………………………………………………………………………………………………………………..

4

Purpose of the Report……………………………………………………………………………………………………………………….4

Structure of the Report……………………………………………………………………………………………………………………. 4

Operations Management and Decision Making…………………………………………………………………………………..

5

The Strategy of Operations Management Area……………………………………………………………………………..5

Cut-off Point……………………………………………………………………………………………………………………………………..5

What-if Analysis……………………………………………………………………………………………………………………………….

6

Break-even Analysis

………………………………………………………………………………………………………………………..

7

Risk Analysis (Monte-Carlo Simulation)………………………………………………………………………………………

9

Impact on Decision Making…………………………………………………………………………………………………………..

11

Innovation & Technology Management and Decision-Making……………………………………………………….

12

The Strategy of Innovation & Technology Management Area………………………………………………….12

Brewing Process Upgrading………………………………………………………………………………………………………….

13

SWOT Analysis ……………………………………………………………………………………………………………………………..

14

VRIO Framework…………………………………………………………………………………………………………………………..

15

Impact on Decision-Making…………………………………………………………………………………………………………..

17

Organization & HR Management and Decision-Making………………………………………………………………….1

8

The Strategy of Organization & HR Management Area…………………………………………………………….

18

PESTEL Analysis………………………………………………………………………………………………………………………….. 18

Decision Tree Analysis………………………………………………………………………………………………………………….

21

Impact on Decision-Making…………………………………………………………………………………………………………..

25

The Best Output Parameters (The Best Cycle)………………………………………………………………………………….

26

Summary of Results and Decision Strategy ………………………………………………………………………………………

27

References …………………………………………………………………………………………………………………………………………….

30

Appendix………………………………………………………………………………………………………………………………………………..31

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Executive summary

This report aims to analyze the rationale for investing in a new brewpub, also

called microbrewery. All analysis we made are based on Business Cycle Simulation

altogether with Decision tree, Financial Statement, and Implementation Plan.

In Operations Management and Decision-Making section, to reach the break-even

point faster, we need to strictly control the cost and minimize the cost expenditure;

Adjust the unit price and cut-off points according to the relationship between supply and

demand; at the same time, try our best to reduce the unit cost to increase our income. In

Innovation & Technology Management and Decision-Making section, we made

upgrading by using the new box-fermentation brewing method, which allows us to build

and enhance comparative advantages as well as market competitiveness. In

Organization

& HR Management and Decision-Making section, the decision tree analysis perfectly

reflects the correctness of our decisions in terms of human resources strategy and the

huge impact of specialized technical staff (such as brewers) on the profitability of our

projects.

In summary, we identified the Cycle 16 as our best cycle and our Average (Profit)

of the best cycle is $392,194.81 and our Average (IRR) is 0.71. Our Sharpe Ratio

(Applying Risk-Free Interest Rate) is 7.90 and our Sharpe Ratio (Applying Expected

Return on Investment) is 8.17. Thus, we firmly believe that stakeholders should invest

$150,000 in the microbrewery project. Also, we need to closely monitor the operation of

the whole project and the completion of the relevant indicators according to the

implementation plan. Once an anomaly is detected, we must take action at the first

opportunity to prevent the spread of the problem.

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Introduction

Purpose of the Report

The purpose of the report is to identify the rationale for investing in a new

BrewPub. As mentioned in part 1, we define the nature of the restaurant as a combination

of a grill and a microbrewery. And its outstanding feature is to provide consumers with

sports broadcast services. Increase alcohol consumption by enabling customers to watch

sporting events while dining. According to market research and analysis, we verified

again that the relationship between grill restaurants, beer, and sports events is often close

and integrated (Noel, 2018). Therefore, in part 2, we will explore the feasibility of this

project in more depth from three aspects: Operations Management, Innovation &

Technology Management, and Organization & HR Management.

Structure of the Report

The main structure of the article is organized around three parts：

Operations Management and Decision Making

Innovation & Technology Management and Decision-Making

Organization & HR Management and Decision-Making

At the beginning of each section, we will clarify the strategy we used for such an

area; at the end of each section, we will summarize the impact of such results on

decision-making. Based on the above three sections of analyses and conclusions, we will

conclude with the best cycle and output parameters and explain their reasons. In the end,

we will conclude with a summary of all the results and provide a description of the

overall project process according to the implementation plan.

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Operations Management and Decision Making

The Strategy of Operations Management Area

Within the Operations Management functional area, our strategy is to mainly

analyze the microbrewery project through aspects based on the Business Cycle

Simulation: Break-even Analysis, What-if Analysis and Risk Analysis (Monte-Carlo

Simulation). First, we determined a cut-off point for each brand of beer by calculating

the ratio excess demand/total demand. Then we adjust our parameters and decisions

according to the contribution rate of different products (every beer brand). In What-if

Analysis, we will use the method of controlling variables to analyze the impact of three

variables/factors (total fixed cost, selling price per unit, and variable cost per unit) on our

microbrewery project’s revenue, profit, sales volume, as well as the period it takes to

reach the break-even point. In the break-even point analysis, we will pay attention to the

break-even point (BEP), and analyze the main factors that influence the time when our

microbrewery project reaches the break-even point through the logic behind it. In Risk

Analysis, we will use Monte-Carlo simulations and using its result to compare which

cycle is the most profitable. Then, we will discuss the influence of the conclusions drawn

from the above analysis on our

decision-making.

Cut-off Point

Cut-off point is the point at which an investor decides whether to abandon a

production. In the analysis of microbrewery, we include the cut-off point to limit losses.

However, how to determine the cut-off point made our analysis more difficult, and we

had to calculate the reasonableness of each point and choose the most appropriate cut-off

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point. After continuous testing, we determined the most reasonable cut-off point. The cut-

off point of Pilsner is 0.52, and we used the formula that excess demand/total demand can

be calculated as 4.3% in fiscal year 1, which the ratio should be less than +10% or -10%,

which means that this cut-off point is reasonable. Similarly, we can calculate that in fiscal

year 2 and fiscal year 3, it is 4% and 3.4%, which are within the interval. The cut-off

point of Bavarian Lager is 0.6, which can be calculated as 3.4% in fiscal year 1, and 3.3%

and 3.5% in fiscal year 2 and fiscal year 3 by using the formula excess demand/total

demand. Also, the cut-off point of Light Wheat is 0.38, and we used the formula that

excess demand/total demand and got the result of -5.8% in fiscal year 1. Through a series

of calculations, we are able to justify our cut-off point.

What-if Analysis

What-if analysis is an evaluation tool, assuming what would happen if different

strategies were adopted and analyzing the results to make the best decision (Singh, 2013).

And this is very much like the single-variable analytical model in mathematics.

In our business cycle simulation, the first analysis is changing the total fixed costs,

and we need to answer the question that What is the BEP if the total fixed costs are

increased and/or decreased while the selling price and the variable costs per product

remain the same. (See Figure 8.1) In the original scenario, the fixed cost of our project is

$211,027, which results in 4.86 months and $318,729 sales for a break-even point.

However, if we increase our total fixed costs from $211,027 to $250,000, and other

variables remain the same, we can have the break-even point of 5.70 in months and

$373,864 in revenue. On the other hand, if we decrease our total fixed costs from

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$211,027 to $200,000, and other variables remain the same, we can have the break-even

point of 4.56 in months and $299,092 in revenue. We found that the smaller the total

fixed costs, the less time it would take for our project to reach the break-even point, and

also the lower the

corresponding break-even sales.

Then we analyzing what is the BEP if the selling price per product are increased

and/or decreased while the total fixed costs and the variable costs per products remain the

same. (See Figure 8.2) If we increase the unit price of each beer brand by $0.5, and other

variables remain the same, we can have the break-even point of 3.92 in months and

$296,268 in revenue. On the other hand, if we decrease the unit price of each beer brand

by $0.5, and other variables remain the same, we can have the break-even point of 6.22 in

months and $346,212 in revenue. This means that the higher the unit price per beer, the

less time it takes for us to reach the break-even point, and also the lower the

corresponding break-even sales.

The last analyzing is that what is the BEP if the variable cost/unit are increased

and/or decreased while the total fixed costs and the price per products remain the same.

(See Figure 8.3) If we increase the variable cost/unit by $0.2, and other variables remain

the same, we can have the break-even point of 5.29 in months and $347,034 in revenue.

On the other hand, if we decrease the variable cost/unit by $0.2, and other variables

remain the same, we can have the break-even point of 4.41 in months and $289,356 in

revenue. We found that the higher the variable cost/unit, the longer it will take us to reach

the break-even point, and also the higher the corresponding sales.

Break-even Analysis

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The break-even point (BEP) gives us ideas mathematically about the relationship

between revenue and cost. Changes in various uncertain factors (such as investment, cost,

sales volume, product price, project life cycle, etc.) will affect the economic effect of the

investment plan (Tsorakidis, 2011)

Our break-even analysis is derived from the business cycle simulation. In simple, the

brake-even point is calculated as follows: Break-even point (or volume sold) = fixed cost

÷ contribution of the unit. For our project, the total brand-01’s revenue is $786,740.56.

The total expenses of Brand-01 is $265,849.04, and the total fixed cost is $221,027,

which is a very important parameter. And the contribution of the total brand-01 is

$520,891.53, and the contribution margin is 66.21%. According to the Break-even

Analysis:

Break-even Months: 4.86 [=Total Fixed Costs/Contribution*12 months]

Break-even Sales: $318,729 [=Total Fixed Costs/Contribution Margin]

This means that the microbrewery project we are launching will break even within

four to five months of production (see Figure 7). During this time, our total cost range

was between $221,027 and $318,729. In addition, according to the break-even analysis,

we noticed that the beer BR01-10 has the highest contribution margin, reaching 79.99%,

while the beer BR01-11 has the lowest contribution margin, only 12.62%. We think this

result is reasonable: compared to other products, the beer BR01-10 sells for $4.49 per

unit with similar variable costs, making it the most expensive of all the beers we have

launched. Correspondingly, as our special beer BR01- 11 is only $1.25 per unit, which is

the cheapest of all the beers we have introduced.

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Risk Analysis (Monte-Carlo Simulation)

Based on the generated business cycles, we can apply risk analysis which is also

called the Monte-Carlo Simulation. The main tool for our risk analysis is the Monte-

Carlo Simulation. It is an algorithm that randomly generates our assumptions and then

outputs values based on these generated assumptions. In the business world, Monte-

Carlos Simulation are often used to visualize project risks and uncertainties. In our

program, the values that vary are those that would in a real business, such as variable cost

and demand volumes, etc. Rather than being chosen completely randomly, these values

are generated according to probability distribution centered on the assumptions from the

cycle. In plain, they’re likely to be close to the values we chose for each cycle. A Monte

Carlo simulation will iterate many times to create a complete understanding of whatever

it is we are trying to model.

In our case, the overall goal of Monte-Carlo simulation is to model the possible

profit from each cycle. After the simulation is done running, it will provide a histogram

of potential profits (see Figure 9). This simulation is outputting profit after taxes based

on the various inputs of the cycle. It generates a histogram for each year and overall,

which shows the number of cycles as the y-axis and the profit interval as the x-axis. In

our microbrewery project, (see the histograms in deep blue) after running business cycle

simulations until 16 times with 100 iterations, we have 15 iterations that result in a profit

interval between 135-143 (in thousands); Also, we have 13 iterations that result in a

profit interval around 151-160 (in thousands). So, the histograms there have bars with 15

and 13 units high. The in FY-2, we have 13 iterations that result in a profit interval

between 145-155 (in thousands); Also, we have 12 iterations that result in a profit

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interval around 126-136 (in thousands). So, the histograms there have bars with 13 and

12 units high.

Moreover, we can run multiple Monte-Carlo simulations on different cycles by

clicking the Run Series button. We selected the first, fourth, seventh, and tenth as our

target cycles (see Figure 10). Each run of the simulation gets added to the histogram as a

different colored chart. For example, in our microbrewery project, (see the histograms in

red) after running business cycle simulations the first time with 100 iterations, we have

20 iterations that result in a profit interval between 108-119 (in thousands). And we also

have 17 iterations that result in a profit interval around 119-130 (in thousands). So, the

histograms there have bars with 20 and 17 units high. After running business cycle

simulations four times with 100 iterations (see the histograms in green), we have 15

iterations that result in a profit interval between 119-130 (in thousands). And we also

have 14 iterations that result in a profit interval around 87-98 (in thousands). So, the

histograms there have bars with 15 and 14 units high. After running business cycle

simulations ten times with 100 iterations (see the histograms in light blue), we have 18

iterations that result in a profit interval between 151-162 (in thousands). And we also

have 17 iterations that result in a profit interval around 130-141 (in thousands). So, the

histograms there have bars with 18 and 17 units high.

By using the Monte-Carlo simulations, we can already make some basic

conclusion about our project. Cycle 16, represented in deep blue, is obviously the most

profitable of all the cycles.

Then, in the Sim-Report (see Figure 11), we can make more advanced inferences

according to those important metrics taken from recent Monte-Carlo simulations. The

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standard deviation of profit shows variance between iterations of each simulation.

Similarly, the standard deviation of the internal rate of return represents variance in the

IRR. The Sharpe ratio is a metric used to compare investment risk and return, The higher

the ratio the better an investment has performed relative to the risk it has taken on.

Note that these numbers match the lowest histogram from the D-Analysis table. In

our project’s best cycle, the Standard Deviation (Profit) is 56,293. The Failure rate

(Return on Investment) is 0.0% which is very well. Our Standard Deviation (IRR) is 0.15.

Our Sharpe Ratio (Applying Risk-Free Interest Rate) is 7.90 and our Sharpe Ratio

(Applying Expected Return on Investment) is 8.17. These two Sharpe Ratios are

significant because they are the highest ratios compared to each of their rows. This tells

us that after multiple cycles, our Sharpe ratio is gradually moving in a better

direction. Then, our Average (Profit) of the best cycle is 392194.81 and our Average

(IRR) is 0.71.

Impact on Decision Making

This section focuses on how these tools used above affect the changes made in

our business simulation files.

From the cut-off point, we realize that different cut-off points will affect the

whole profit and loss situation, and we must choose the most suitable cut-off point to

prevent losses.

From What-if analysis, we are aware of the impact of changes in total fixed cost,

selling price of each product and variable cost/unit on our income and the time required

to reach the break-even point.

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From the Break-even analysis, we realize the importance of paying attention to

the contribution and contribution rate of each beer brand to the overall brand/project, and

its influence on the time when we reach the break-even point. In addition to the special

price, increase the supply of beer brands with high contribution rate to the whole project,

increase the marketing budget, and increase the promotion of such beer brands.

From the perspective of economic law and the relationship between supply and

demand, we can even fine-tune the prices of these beer brands that contribute more to the

overall project. At the peak of demand, we can consider increasing the unit price of these

beer brands to some extent to further increase our income. Of course, this practice is risky,

and we need to always be alert to the impact of price fluctuations on sales.

In general, in order to reach the break-even point faster in our decision-making

process, we need to strictly control the cost and minimize the cost expenditure; Adjust the

unit price according to the relationship between supply and demand; at the same time, try

our best to reduce the unit cost to increase our income.

Innovation Technology Management and Decision-Making

The Strategy of Innovation & Technology Management Area

Within the strategy of innovation & technology management area, our strategy is

to Brewing Process Upgrading, mainly analyze the microbrewery project based on the

SWOT Analysis, and using VRIO Framework to analysis. First, we determined the

difference between craft beer and common industrial beer. We found that the craft beer

attracted more young customer class with higher demands for a sense of experience,

personalization, and diversity in consumption. Based on market research, our team

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decided to use the box-fermentation brewing method. Then we used SWOT Analysis to

determined strengths, weaknesses, opportunities and threats. After that we used VRIO

Framework to determine the value, rarity, inimitability and organization. In the end, we

will discuss the influence of the conclusions drawn from the above analysis on our

decision-making.

Brewing Process Upgrading

The biggest feature that distinguishes craft beer from common industrial beer is

its extremely rich variety, which is sought after by consumers for its unique recipe of

ingredients and independent brewing process (Gatrell et al., 2018). According to market

research, craft beer has a much higher added value compared to industrial beer. Generally

speaking, a 500ml craft brew sells for $4 to $7, while ordinary beer is sold at restaurants

for $1 to $3 a bottle. Although it seems that there is still a significant price gap between

the two, but craft beer has tended to civilian consumption momentum, the market

potential is still very large (Hoalst-Pullen et al., 2014). Craft beer (an upgrade of the

brewing process) is in fact an innovative movement in the beer industry, behind which is

the rise of a young consumer class with higher demands for a sense of experience,

personalization, and diversity in consumption.

The quality of craft beer also depends on the freshness of the product, and the shelf

life of fresh beer varies from 15 to 30 days. In order to maximize the freshness of the beer,

our microbrewery project must be based on the local market and open craft brew bars for

promotion. On the other hand, craft brew brands are going beyond in-store sales. Setting

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up smaller craft breweries and expanding channels through the internet and social media

are also options for us.

Based on market research, our team decided to use the box-fermentation

brewing method. This is a relatively simple brewing method. Wort is a small volume,

concentrated, syrupy liquid obtained by removing most of the water and is pre-made by

the maltster. The homebrewer rehydrates the wort and then ferments it to make a full keg

of beer quickly. This method takes only 20-30 minutes. And it requires very little

expertise. In recent years, professional brewers have developed brew kits that closely

resemble commercial beers, and the quality of brew kits has improved dramatically as a

result.

SWOT Analysis

Strengths

Brewing can be prepared quickly

Easy to get started, no need for too much expertise

Box-fermentation brewing method

Only basic equipment required

Can brew many types of beer

Specific grains can be used to get the desired flavor

A strong sense of participation and a boost of confidence to quickly acquire skills

Weaknesses

There are few known beer recipes, so we must try them ourselves

Inevitably, some of the hop aromas are lost during the brewing

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Some raw materials (wort) are not suitable for this method

The yield rate is not very high, which may lead to waste and rework

Opportunities

Create a new brand image

Breaking the industry and technical barriers to craft beer through technological

innovation

Threats

No long-term and extensive market (consumer) testing

This technology is still in a rapid iteration phase

VRIO Framework

Value

The value of the microbrewery and craft beer technology upgrade lies in its own

characteristics as well as the novel restaurant style design and free form. The expression

of diverse product styles fits the consumer experience of young consumer groups seeking

new and different things. Visually, craft beer has a more delicate and long-lasting foam

than ordinary beer, and its color is brighter and more lustrous. In terms of smell, craft

beer usually has more types and quantities of malt, yeast and hops added, which allows

for hundreds of different flavors to be brewed. In terms of taste, craft beer has a

particularly mellow and layered taste. In terms of brewing process, it is more refined and

unique than industrialized ordinary beer, thus ensuring the quality of craft beer, and

making it synonymous with high quality beer.

Rarity

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From the perspective of culture and function, craft beer also contains alcohol culture

and social functions that can meet the needs of young consumers. Craft beer packaging

design has moved toward content-based expressions, and marketing planners have

incorporated more emotional and ideological elements into the design of craft beer bottles,

trademarks, and craft beer halls to reinforce the value of the product. Craft beer has taken

on a colorful pattern in terms of bottle shape and brand logo design. It also better conveys

the brand’s distinctive concept to consumers. This advantage is not available in other

alcoholic products.

Inimitability

From the point of view of technological innovation and upgrading, the brewing

method of box fermentation used in this project allows for quick preparation. It is easy

for the staff (brewers) to get started, without having much expertise or long training, and

after becoming familiar with the basic process only basic equipment is needed to brew

many types of beer.

More importantly, there are not many off-the-shelf recipes for the beer we brew,

which means that we need to innovate and experiment to develop our own “secret recipe”

or “exclusive recipe”. Once this “exclusive recipe” has been tested in the market and

recognized by consumers, we can form a strong comparative advantage and market

competitiveness. At the same time, this is also an important aspect that is difficult for

other competitors to imitate.

Organization

In terms of organizational factors, as mentioned above (It is easy for the brewers to

get started, without having much expertise or long training, and after becoming familiar

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with the basic process only basic equipment is needed to brew many types of beer). The

box-fermentation brewing method we used in the microbrewery project naturally dictated

that we did not need to expend excessive cost and effort in terms of human resources.

Thus, this can save us some labor costs while ensuring a good return on products.

Impact on Decision Making

This section focuses on how these tools used above affect the decision we would

make for craft beer.

From the Brewing Process Upgrading, we realize that the quality of craft beer also

depends on the freshness of the product, in order to maximize the freshness of the beer,

our microbrewery project must be based on the local market and open craft brew bars for

promotion by using the box-fermentation brewing method.

From SWOT Analysis, we can see that we have lots of strengths like brewing can

be prepared quickly, easy to get started, no need for too much expertise, and only basic

equipment required, etc. However, there still have some weaknesses like some raw

materials (wort) are not suitable for this method and the yield rate is not very high, which

may lead to waste and rework. But these weaknesses can be remedied in different ways.

We can use this chance to breaking the industry and technical barriers to craft beer

through technological innovation.

From the VRIO Framework, we found that the value of craft beer and craft beer

technology upgrading lies in its own characteristics, novel restaurant style design and free

form. And hundreds of different flavors can be brewed, so that the taste of the craft beer

is particularly mellow and full of layers. Moreover, once this “exclusive recipe” has been

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tested in the market and recognized by consumers, we can form a strong comparative

advantage and market competitiveness. At the same time, this is also an important aspect

that is difficult for other competitors to imitate. In general, craft beer is worth investing in

terms of its value and rarity.

Organization HR Management and Decision-Making

The Strategy of Organization & HR Management Area

Within the organization & HR management area, our strategy is to mainly analyze

the microbrewery project through two aspects: PESTEL Analysis and Decision tree

Analysis. In the PESTEL analysis, we will concentrate on five factors which are political

factors, economic factors, social factors, technological factors, and legal factors. In the

Decision tree analysis, we will use five steps which are obtain profit table, profit table

solution, calculate for expected monetary value (EMV), sensitivity analysis and create the

decision tree. We can analyze and understand our microbrewery project in more detail

based on the above two dimensions. Then, we will discuss the impact of the conclusions

from the above analysis on our decision-making.

PESTEL Analysis

Political and Legal Factors

Compliance with local policies and laws can make or break our business. In

Massachusetts, it is illegal for any person under 21 to possess alcohol, unless the person

is with a parent or legal guardian (Chan, 2013). Therefore, when we sell alcohol products,

all our staffs must strictly ensure the legal age of the buyers.

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Social and Environmental Factors

Employees are the mirror of the company. Therefore, when recruiting and training

employees, we are always aware of the interaction between social and environmental

factors and employees. The industry in which our project is located is essentially a

combination of the fast-marketing industry and the service industry. Therefore, we will

first conduct personality tests when hiring employees in order to gain better idea of each

employee’s personality characteristics, with the aim of placing the right personality

(employee) in the right position. At the same time, to enhance the happiness of our

employees, we will provide corresponding benefits on some important holidays and

festivals. After all, our special offers are not necessarily only available to consumers, but

also to our own employees.

Economic Factors

Our employees are always our core productivity. In the Human resources section

of our Business Cycle Simulation (see Figure 6), we set four positions: Office Assistants,

Salesmen, Executives, and Miscellaneous (Consultants). We give our employees in these

four positions adequate compensation and bigger room for future growth. For office

assistants, we decide to hire a full time employee in the first fiscal year and offer a salary

budget of $20,000 and increases of 1.11 and 1.20 for the next two years; For salesmen,

this is a very important position, and we decide to hire a full time employee and a part-

time employee in the first fiscal year offering a salary budget of $55,000 and increases of

1.11 and 1.20 for the next two years; For executives, we decide to hire a part-time

employee in the first fiscal year offering a salary budget of $10,000 and increases of 1.11

and 1.20 for the next two years; For miscellaneous (vonsultants), we decide to hire a part-

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time employee in the first fiscal year offering a salary budget of $3,000 and increases of

1.11 and 1.20 for the next two years. Therefore, in total, our budget for the first fiscal

year is $88,00, and $97,680 and $117,216 for salaries budget in the second and third

fiscal years, respectively.

Technological Factors

Our technical staff (brewers) is the key to developing and enhancing our

comparative advantage and market competitiveness. In the Employees’ Compensation

table (see Figure 6), we divide the compensation into two parts, Critical Salesmen and

(General) Salesmen. For critical salesmen in the first fiscal year, the market research is

$41,000, the minimum is $34,000 and the maximum is $50,000. And we set the base

level of $41,000. Meanwhile, the growth is 10% in both the second and third fiscal years.

For (general) salesmen in the first fiscal year, the market research is $25,000, the

minimum is $23,000 and the maximum is $27,000. And we set the base level of $28,000.

Meanwhile, the growth is 5% in both the second and third fiscal years. On the other hand,

in the Workers’ Compensation table (see Figure 6), we divide the compensation into two

parts, Critical Workers and (General) Workers. For critical workers in the first fiscal year,

the market research is $35,000, the minimum is $25,000 and the maximum is $32,000.

And we set the base level of $35,000. Meanwhile, the growth is 10% in both the second

and third fiscal years. For (general) workers in the first fiscal year, the market research is

$20,000, the minimum is $15,000 and the maximum is $22,000. And we set the base

level of $30,000. Meanwhile, the growth is 5% in both the second and third fiscal years.

The purpose of setting a higher salary growth rate is to retain capable employees so that

these outstanding employees will serve the project in a long run.

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Decision Tree Analysis

Step 1: Obtain Profit Table

In the obtained payoff table, we need to identify the essential elements and critical

elements (see Figure 13). Essential Elements are Alternatives (A Full-time Brewer; A

Part-time Brewer; A Full-time Brewer and A Part-time Brewer), Conditions (Optimistic

Conditions, Realistic Conditions, Pessimistic Conditions), and Probabilities (The

corresponding probabilities of different alternatives under different conditions.) Critical

Elements are the Cost of using the new method ($5,000), and the Probability of the new

box-fermentation brewing method works well (0.63), the Probability of the new box-

fermentation brewing method works bad (0.37) (Probability derived from multiple

market practice tests. Also, from the analysis in the Innovation & Technology

Management section, it is known that this new method has a relatively high probability of

running well.) And the corresponding probabilities of different alternatives (workers)

under different conditions.

Step 2: Profit Table Solution

In this step, we need to divide into two parts (see Figure 14): Calculate the profits

generated of all alternatives under three different conditions combined with their

corresponding probabilities if we do not use the new box-fermentation brewing method.

Another is Calculate the profits generated of all alternatives under three different

conditions combined with their corresponding probabilities if we use the new box-

fermentation brewing method (If the new box-fermentation brewing method works well

or if the new box-fermentation brewing method works bad). To calculate the profits

22

generated if we use the new box-fermentation brewing method, we need to: (Each

alternative’s profits generated) – (Cost of using the new method).

Step 3: Calculate for Expected Monetary Value (EMV)

As a quantitative decision-making method, EMV is the most popular method for

choosing the alternatives when there are several possible states of nature and the

probabilities associated with each possible state are known (Dickson, 2022). In our case,

EMV is calculated as: EMV of each alternative = The sum of (Each alternative’s profits

generated * Probability under corresponding conditions).

If we use the new box-fermentation brewing method, then: EMV (Use the new

box-fermentation brewing method) = EMV (the new box-fermentation brewing method

works well) * Probability if the new box-fermentation brewing method works well

+ EMV (the new box-fermentation brewing method works bad) * Probability if the new

box-fermentation brewing method works bad.

Finally, among the three tables we select the largest EMV in each table for

comparison (see Figure 15):

EMV (if we use the new box-fermentation brewing method) = $158,9

40

EMV (if we do not use the new box-fermentation brewing method) = $123,217

$123,217 < $158,940, which means EMV (if we do not use the new box-fermentation

brewing method) < EMV (if we use the new box-fermentation brewing method).

Therefore, our final EMV is $158,940 (Use the new box-fermentation brewing method).

Step 4: Sensitivity Analysis

First, we need to make assumption:

Probability of the new box-fermentation brewing method works well: p

23

Probability of the new box-fermentation brewing method works bad: 1-p

Thus:

EMV (If we use the new box-fermentation brewing method) =

$190,530*p + $105,152*(1-p)

EMV (If we NOT use the new box-fermentation brewing method) = $123,217

When:

EMV (If we use the new box-fermentation brewing method) = EMV (If we NOT

use the new box-fermentation brewing method)

$190,530*p + $105,152*(1-p) = $123,217

p = 18,065/85,378

p = 0.2116

We know that whether the company should hire a business analyst depends on the

value of p, and a reasonable p-value should be between 0 and 1. According to our

calculations, the value of p is 0.2116 (see Figure 16). This would indicate that:

If p>0.21: Use the new box-fermentation brewing method

If p<0.21: Do NOT use the new box-fermentation brewing method

If p=0.21: Both are good

Step 5: Create the Decision Tree

In this part, we need to pay special attention to putting in the EMVs and the

probabilities corresponding to each condition (see Figure 17). After completing the

decision tree, we can verify again whether our previous conclusion is correct.

It is important to note that through decision tree analysis, we can see that the

benefits of using the new method will outweigh the benefits of not using the new method.

24

This seems like it should be part of the Innovation & Technology Management section.

However, after much careful deliberation, we decided to apply the decision tree approach

to the Organization & HR Management section. The reason behind is that we believe

the decision tree analysis perfectly reflects the correctness of our decisions in terms

of human resources strategy and the huge impact of specialized technical staff (such

as brewers) on the profitability of our projects. Combining business cycle simulation

and decision tree analysis, we can clearly see that purely full-time employees (brewers)

will lead to high salary budgets, which will put higher pressure on our cost control,

but their effect on increasing profits is huge; while purely part-time employees

(brewers) can lower our salary budgets and thus reduce our cost expenditures, but

their effect on increasing profits is much weaker.

Therefore, in the early stages of the project, we opted for a combination of

full-time and part-time employees. On the one hand, we can reduce our cost budget

in terms of human resources, and on the other hand, we can maximize the role of

employees in enhancing profits. In summary, based on the analysis of the above steps

and the graphs produced, through the comparison of EMVs, sensitivity analysis, p-values,

and decision trees, we can draw the following conclusions: We should use the new box-

fermentation brewing method. In this case, hiring a full-time worker and a part-

time worker at the same time will maximize our profits (to get the highest EMV of

$158,940).

25

Impact on Decision Making

This section focuses on how these tools used above influenced the changes made

in our business simulation file.

From PESTEL Analysis, we consider hiring Office Assistants, Salesmen,

Executive Staffs, and Consultants, which are reflected in the tables of Employees,

Employees’ Compensation, and Workers’ Compensation in the business simulation file.

As analyzed above, the advanced brewing equipment and especially, the experienced

brewers enable us to produce and sell high-quality beer. It is also a guarantee for us to

form a comparative advantage and improve market competitiveness. Combined with

PESTEL Analysis, we decided to adjust the salary levels of employees and workers.

Especially for critical workers, it is necessary to ensure a higher level of income and

compensation growth for them.

From Decision tree Analysis, we can see that the EMV (if we use the new box-

fermentation brewing method) is $158,940 and the EMV (if we do not use the new box-

fermentation brewing method) is $123,217, which use the new box-fermentation brewing

method would be better. Through sensitivity analysis, we calculated the p value of 0.2116,

which more definite use the new box-fermentation brewing method.

In conclusion, we should use the new box-fermentation brewing method. In this

case, hiring a full-time worker and a part-time worker at the same time will maximize our

profits (to get the highest EMV of $158,940).

26

The Best Output Parameters (The Best Cycle)

According to the Business Cycle Simulation, we identified the Cycle 16 as our

best cycle. To evaluate the output parameters and define the best cycle, we need to focus

on three sections: 36-Mo-Fin-Pr, D-Analysis, and Sim-Report.

In 36-Mo-Fin-Pr section (see Financial Statement), we first look at the Sales Projections.

The overall products volume in FY-1 is 244,839, in FY-2 is 265,537, and 292,610 in FY-

3. Thus, we get a sum of 802,978. In particular, we note that the total products volume

has consistently grown well over the three years. In the Annual Fixed Costs table, the

total fixed cost in the first year was $211,027, in the second year it was $226,942, and in

the third year it was $261,025. We believe this increase is reasonable given the expense

and growth of the microbrewery project in terms of human resource costs, marketing,

equipment replacement, etc. In the 12 Month Performance and Financial Summary: per

FY & Overall table, the after-tax profit in the first year was $196,537, in the second year

it was $209,435, and in the third year it was $225,729. Obviously, this is a good growing

trend.

In D-Analysis section, the Break-even analysis, the break-even month is 4.86 and

the break-even sales is $318,729. This is an amazing result, and we realize the

importance of paying attention to the contribution and contribution rate of each beer

brand to the overall brand/project, and its influence on the time when we reach the break-

even point. In addition to the special price, increase the supply of beer brands with high

contribution rate to the whole project, increase the marketing budget, and increase the

promotion of such beer brands. In Risk Analysis (Monte-Carlo Simulation), we run

multiple series. (See the histograms in blue, Figure 10) after running 16 times with 100

27

iterations, we have 17 iterations that result in a profit interval between 151-162 (in

thousands). So, the histograms there have bars with 17 units high. As we can see from the

statistical table on the right, Cycle 16 produced the highest average profit.

In Sim-Report section (see Figure 11), the standard deviation of profit shows

variance between iterations of each simulation. Similarly, the standard deviation of the

internal rate of return represents variance in the IRR. The Sharpe ratio is a metric used to

compare investment risk and return, The higher the ratio the better an investment has

performed relative to the risk it has taken on. In our project’s best cycle, the Standard

Deviation (Profit) is 56,293. The Failure rate (Return on Investment) is 0.0% which is

very well. Our Standard Deviation (IRR) is 0.15. Our Sharpe Ratio (Applying Risk-Free

Interest Rate) is 7.90 and our Sharpe Ratio (Applying Expected Return on Investment) is

8.17. These two Sharpe Ratios are significant because they are the highest ratios

compared to each of their rows. This tells us that after multiple cycles, our Sharpe ratio is

gradually moving in a better direction. Then, our Average (Profit) of the best cycle is

392194.81 and our Average (IRR) is 0.71. All in all, the parameters and results of cycle

16 are the best compared to all previous cycles.

Summary of Results and Decision Strategy

Based on the conclusions of the Managerial Report both Part 1 and Part 2, We

firmly believe that stakeholders should invest $150,000 in the microbrewery project.

Combined with the Sim-Report, the project’s average profit over three years was

$392,194, with an IRR of 0.71. Also, the Sharpe Ratio (Applying Risk-Free Interest Rate)

is 7.90 and the Sharpe Ratio (Applying Expected Return on Investment) is 8.17. On the

28

other hand, according to Break-even Analysis, the break-even month is 4.86 and the

break-even sales is $318,729. This means that we will be able to recover our upfront

costs and become truly profitable by the fifth month after the project starts. Therefore,

creating a microbrewery project at a grill restaurant would be a win-win for both

our project and the restaurant.

In our Implementation Plan (see Figure 18), we must make every effort to seek

support from investors and plan to finalize the details of the investment with stakeholders

as soon as possible after the start of the project. Then we need to prepare a business plan

for the new business unit and secure finances. All finance-related planning must be

precise and clear. In this phase, we need to prepare a formal business plan and obtain

investment loans and operating loans from financial organizations. And we plan to finish

this phase in one week. In the next phase, it will take us one week to procure the

equipment needed for the new microbrewery system and to arrange for delivery of the

equipment at the same time. And our purchasing budget is positioned at $100,000. In

Phase 4, we need to prepare the production and distribution site for the new business unit.

According to our estimates, this will be a very time-consuming process, so we have given

40 days of preparation time. In Phase 5, We needed to hire staffs to operate our newly

acquired microbrewery system. Details of the specific employee types and salary budgets

required can be seen in the Organizational-Management section of the Business Cycle

Simulation. The Phase 4 is expected to take 40 days. Then in the next phase we need to

train the new recruits systematically for 10 days. In Phase 7, we will launch a marketing

campaign for our new programs and products with the goal of increasing consumer

awareness. The marketing tools we use are Local Advertising, Trade Shows, Website,

29

and Social Media. We know that building brand recognition or consumer awareness

is not an easy task. Getting consumers used to us and liking us is not something that

can be done overnight. Therefore, we decided to spend 90 days to gradually “penetrate

the hearts of consumers.” In the penultimate phase, Phase 8, we will sign multi-year

contracts with interested beer suppliers. This phase is very important because the

signing of long-term contracts can effectively hedge the negative impact on product

prices and sales due to economic fluctuations or rising raw material prices in the

beer industry. In the last phase, we need to closely monitor the operation of the whole

project and the completion of the relevant indicators. Once an anomaly is detected, we

must take action at the first opportunity to prevent the spread of the problem.

30

References

Chan, J. (2013, February 7). Underage Drinking Laws in Massachusetts. The Law

Offices of Jason Chan – <781-343-1DUI (781-343-1384). Retrieved June 17, 2022,
from http://attorneychan.com/blog/underage-drinking-laws-in-
massachusetts/#:~:text=Possessing%2C%20Buying%2C%20and%20Selling%20Al
cohol&text=In%20Massachusetts%2C%20it%20is%20illegal,a%20parent%20or%
20legal%20guardian.

Dickson, K. (2022). In-class PowerPoint slides, AD715 Summer 1 2022 Class-6. Page 16.

Boston University Metropolitan College.

https://learn.bu.edu/ultra/courses/_86440_1/cl/outline

Gatrell, J., Reid, N., & Steiger, T. L. (2018). Branding spaces: Place, region,

sustainability and the American craft beer industry. Applied Geography, 90, 360-

370.

Hoalst-Pullen, N., Patterson, M. W., Mattord, R. A., & Vest, M. D. (2014). Sustainability

trends in the regional craft beer industry. In The geography of beer (pp. 109-116).

Springer, Dordrecht.

Noel, J. (2018). Barrel-aged stout and selling out: goose Island, Anheuser-Busch, and

how craft beer became big business. Chicago Review Press.

Pokrivcak, J., Supekova, S. C., Lancaric, D., Savov, R., Toth, M., & Vasina, R. (2019).

Development of beer industry and craft beer expansion. Journal of Food &

Nutrition Research, 58(1).

Tsorakidis, N., Papadoulos, S., Zerres, M., & Zerres, C. (2011). Break-even analysis.

Bookboon.

31

Appendix

Figure 1 – Project brief view (Project Tittle and Location)

32

Figure 2- OVERALL BUSINESS PARAMETERS OF THE PROJECT (BUSINESS UNIT: next 36 Months of

Operations

Figure 3- Marketing costs

Figure 4- Product Name & Description

33

Figure 5- Targeted Market Size (per product and FY)

Figure 6- Human Resources (Employees, Employees’ Compensation, and Workers’ Compensation)

34

Figure 7- BREAK-EVEN ANALYSIS

WHAT-IF ANALYSIS

Figure 8.1 – What is the BEP if the total fixed costs are increased and/or decreased while the selling price

and the variable costs per product remain the same?

35

Figure 8.2 – What is the BEP if the selling prices per products are increased and/or decreased while the

total fixed costs and the variable costs per products remain the same?

Figure 8.3 – What is the BEP if the Variable Cost/unit are increased and/or decreased while the total fixed

costs and the price per products remain the same?

36

Figure 9 – Risk Analysis (Monte-Carlo Simulation) Single-MCS

37

Figure 10 – Risk Analysis (Monte-Carlo Simulation) Multiple-MCS

38

Figure 11 – Sim-Report

39

Figure 12 – Trend Analysis

40

Figure 13 – Decision Tree-Profit table

Figure 14 –Profit table Solution

41

Figure 15 –EMV

42

Figure 16 – Sensitivity Analysis

43

Figure 17 – Decision Tree

44

Figure 18 – Implementation-Plan

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