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Unit Title: Business Data Analysis

Unit Code: BSS002-6
Assessment 1: Group work 5 members per group from within the same class ONLY to produce
one formal business report. There will also be an oral viva to assess the award for an individual grade
for each group member.
Assignment Title: Fennel Design
Issued date: Week One Commencing 01/10/2012
Submission due date: Friday 30/11/2012 a single report per group should be submitted via the
TURNITIN link in the Assessments folder and a paper copy should also be submitted to the
Assignment Collection Centre Each member within a group will be awarded an individual grade
depending on the quality of an individually designed definitive and comprehensive seven-step
approach for conducting a successful simulation related to the given case study not exceeding 500
words.
Weighting for assessment 1: Group report 35% and Individual simulation study design 15%, both
elements must be passed separately in order to pass assessment 1.
Unit co-ordinators name: C F Shoostarian
Learning outcomes:
Core Learning Outcomes

Learning Outcomes
On completion of this unit you should be
able to:
Assessment Criteria
To achieve the learning outcome you must
demonstrate the ability to:
1
Conduct an Exploratory Data Analysis to
critically appraise the data
Construct appropriate charts and
statistical summary measures
according to the nature of the data

Assess the hidden features of the data
and its distribution

Critically appraise the discrepancy
between the empirical distributions of
model and data
2
Formulate appropriate statistical models of
random events
Select an appropriate probability
distribution model based on:
the nature of data;
the Exploratory Data Analysis
conducted;
testing assumptions.
2

3
Formulate and solve practical problems
arising in finance using appropriate
optimization methods to develop concepts
of risk diversification.
Develop efficient portfolios through
optimization using two and three
stocks, and show how covariance and
correlation can help the investor to
diversify risk
4
Critically evaluate statistical evidence from
a range of complex sources.
Assess the evidence provided by the data
in favour of some claim about the
population using confidence Interval
and hypothesis testing.
5
Collaboratively research, synthesize and
produce a technical report for effective
communication using a complex data
source.
Work effectively in a group setting to
communicate clearly your findings and
recommend solutions justifying your
choice in a technical report which has:
clear structure;
tables, diagrams and figures are
clearly labeled and interpreted;
accuracy;
objectivity;
clarity;
conciseness;
continuity;
A relatively formal writing style should be
used when composing technical
reports.

Assessment Criteria: Learning Outcomes with the corresponding Assessment Criteria
Grading/
Criteria
A+ A A- B+ B B- C+ C C- D+ D D- E
16 15 14 13 12 11 10 9 8 7 6 5 4
LO1: Conduct
an Exploratory
Data Analysis
to critically
appraise the
data
Critically
appraise the
discrepancy
between the
empirical
distributions of
model and
data
Appraisal the
discrepancy
between the
empirical
distributions of
model and
data
Appraisal the
discrepancy
between the
empirical
distributions of
model and
data
Construct
appropriate
charts and
statistical
summary
measures
according
to the
nature of
the data

Construct
charts
and
statistical
summary
measures
of the
data


Grading/
Criteria
A+ A A- B+ B B- C+ C C- D+ D D- E
16 15 14 13 12 11 10 9 8 7 6 5 4
3

LO2: Formulate
appropriate
statistical
models of
random events
Tasks 1 and 3
have been
accurately
calculated and
comprehensively
discussed.
Tasks 1 and 3
have been
accurately
calculated
and
discussed.
Tasks 1 and 3
have been
calculated and
discussed.
Tasks 1 and 3
have been
calculated.
Tasks 1
and 3
have been
attempted.

Grading/
Criteria
A+ A A- B+ B B- C+ C C- D+ D D- E
16 15 14 13 12 11 10 9 8 7 6 5 4
LO5:
Collaboratively
research,
synthesize and
produce a
technical report
for effective
communication
using a complex
data source.
A
comprehensive
formal business
report. An
accurate and
full discussion
of all tasks.
A formal
business
report. An
accurate and
good
discussion of
all tasks.
A structured
business
report.
Calculations
and
discussions
with some
errors.
A business
report.
Calculations
and
discussions
with errors.
A
business
report and
tasks have
been
attempted.


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Fennel Design
After spotting a gap in the market for creative and interesting greeting cards, Laura Watson launched
her online greeting cards company, Fennel Design, with the help of Business Gateway Aberdeen.
In this case study, she explains how she turned her distinctive designs into a successful
online business.
"I came to a point in my life where I wanted to do something different. I had just completed a
photography course after my first degree which was in Management Science (Phew!) and I knew I
wanted to do something creative, but I wasn't sure what. Then one day I had to buy a birthday card
and that's when I came up with the idea to design and sell my own cards.
"I wanted to offer people something different as often it's the same cards in all the shops. I started
coming up with designs and people seemed to like them, so I went ahead and started Fennel Design.
We began trading in November last year and I've been delighted with the response."
"I first heard about CLAN when I was training to be a nurse. The work they do to help cancer sufferers
in the North East is amazing and I really wanted to help in any way I could. I have recently launched
my card business and was thinking of ways to help CLAN. Donating 5 per cent of the profits from
every card seemed like the perfect solution and I'm delighted to be supporting them."
"I went to Business Gateway for help and they have been great. Not only do I get my own adviser who
is always there to give me advice, but I attend their free workshops which have been a huge help to
me. I'm new to all this, but with Business Gateway's support I've learned quickly and efficiently how to
run my own business."
One problem that Laura faced when she first started Fennel Design was to forecast the future
demand for her new product. From the research that she had done, she knew that Market Research
Companies will often conduct surveys asking respondents to estimate their future demand for new
products. But, this of course costs money and the projected demand may exhibit systematic bias. For
example, the more respondents like a product, the more they may exaggerate their demand.
However, she needed somehow to ascertain the views of a large number of people from a wide
variety of background quickly. She decided that the cheapest and quickest method would be to
conduct consumer intercept survey. This can be done in a shopping centre where there is a good
population of target consumers. She needed to design a short questionnaire concerning the
consumer's behaviour, habits, preference and the likelihood of success for her product.
This was a success and she managed to collect and project the following responses from 1,000
shoppers. The data is provided in Table 1.0 below:
Table 1.0: The number of shoppers supporting the demand for my new greeting cards
Future demand for my
new greeting cards
10,000 20,000 40,000 60,000
No. of supportive
responses
100 350 300 250

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Laura worked out that the greeting card should sell for 4.00 each, and the variable cost of producing
each card is 1.50. Leftover cards must be disposed of at a cost of 0.20 per card.
Task 1
(a) How many cards should be printed?
(b) If Laura produces 20,000 cards instead of 40,000 cards, how does this change affect her expected
profit?
(c) Into what interval should she be 95 percent sure the true mean profit will fall? Discuss your
findings as fully as you can.
As Lauras business venture becomes more successful and grows, her partner: Alex an IT specialist,
suggested to her that manufacturing Wireless Portable Printers is a growing area which is now the
aim of most printer companies. For many years they have been exploring the wireless sector by
providing printers that are capable of interfacing wirelessly. These days people work much more away
from the office and in many cases are travelling and also staying overnight out of town. Being able to
print wirelessly can considerably cut down on the amount of kit you need to carry as well as
convenience with being able to print directly from your phone. Alexs idea seemed to attract Laura
who suggested that Alex must first to conduct a feasibility study and only after careful consideration of
all the facts and figures would she be able to make a decision.
Alex started to work and after months of research and consultation he teamed up with two of his
colleagues and developed a prototype for a new high-quality portable printer. The new printer features
an innovative design and has the potential to capture a significant share of the portable printer
market. Preliminary marketing and financial analyses provided the following selling price, first-year
administrative cost, and first-year advertising cost.
Selling price = 249 per unit
Administrative cost = 400,000
Advertising cost = 600,000
The cost of direct labour, the cost of parts, and the first-year demand for the printer are not known
with certainty and are considered probabilistic inputs. At this stage of the planning process, Alex's
best estimates of these inputs are 45 per unit for the direct labour cost, 90 per unit for the parts
cost, and 15,000 units for the first-year demand.
Showing these estimates to Laura she said what happens if the estimates of the direct labour cost per
unit, parts cost per unit, and first-year demand do not turn out to be as expected.
For instance, suppose that direct labour costs could range from 43 to 47 per unit, parts cost could
range from 80 to 100 per unit, and first-year demand could range from 1,500 to 28,500 units.
Alex would like an analysis of the first-year profit potential for the printer. Because of Alex's tight cash
flow situation, he is particularly concerned about the potential for a loss. Alex approached Laura for
advice. Laura said that one approach to risk analysis is called what-if analysis and she explained to
Alex that a what-if analysis involves generating values for the probabilistic inputs (direct labour cost,
parts cost, and first-year demand) and computing the resulting value for the output (profit).

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Task 2
(a) Develop the profit model for the first year.
(b) Using the profit model work out the
i. Base-case scenario
ii. Worst-case scenario
iii. Best-case scenario
(c) What is your conclusion and recommendations?
On discussing the profit model and the three possible case scenarios with Laura, Alex listened
carefully to Laura whose first degree was in Management Science, Laura explained that although the
development of a profit model and the three case scenarios were a good start but Alex had a little bit
more work to do. She suggested that since there are variables within the model that are uncertain
then using simulation to perform risk analysis is like playing out many what-if scenarios. This can be
achieved by randomly generating values for the probabilistic inputs for the profit model. The
advantage of simulation is that it allows us to assess the probability of a profit and the probability of a
loss.
Applying simulation to this project requires generating values for the probabilistic inputs that are
representative of what might be observed in practice. To generate such values, we must know the
probability distribution for each probabilistic input.
Further analysis by Alex led to the following probability distributions for the direct labour cost per unit,
the parts cost per unit, and first-year demand:
Direct Labour Cost
Alex believes that the direct labour cost will range from 43 to 47 per unit and is described by the
discrete probability distribution shown in Table 2.
Table 2: Probability distribution for direct labour cost per unit
Direct Labour Cost per Unit Probability
43 0.1
44 0.2
45 0.4
46 0.2
47 0.1

Parts Cost
This cost depends upon the general economy, the overall demand for parts, and the pricing policy of
Alex's parts suppliers. Alex believes that the parts cost will range from 80 to 100 per unit and is
described by the uniform probability distribution shown in Figure 1. Costs per unit between 80 and
100 are equally likely.

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Figure 1: Uniform Probability Distribution for the Parts Cost








First-Year Demand
Alex believes that first-year demand is described by the normal probability distribution shown in
Figure 2.
Figure 2: Normal Probability Distribution for the First-Year Demand










The mean or expected value of first-year demand is 15,000 units. The standard deviation of 4,500
units describes the variability in the first-year demand.
Task 3
Prepare a report that discusses the general development of the spreadsheet simulation model, and
make any recommendations that you have regarding:
(a) The worst and best results obtained in a simulation of 500 trials;
(b) The mean profit and its corresponding risk;
(c) How the profit values are distributed over their range, and what profit values are most likely;
(d) The probability of a loss;
(e) Critically appraise the simulation approach to risk analysis.

80 100 90
1/20
Parts Cost per unit
Probability
Mean = 15,000
Number of
units sold
Probability
Standard Deviation
= 4,500