Case Study 1: The Bloodless Coup Concert 

John Aaron called the meeting of the Programs and Arts Committee of the Student Government Association to order.

“Okay, okay, everybody, quiet down. I have an important announcement to make,” he shouted above the noise. The room got quiet, and John started again, “Well, you guys, we can have the Coup.”

His audience looked puzzled, and Randy Jones asked, “What coup have we scored this time, John?”

“The Coup, the Coup! You know, the rock group, the Bloodless Coup!”

Everyone in the room cheered and started talking excitedly. John stood up and waved his arms and shouted, “Hey, calm down, everybody, and listen up.” The room quieted again, and everyone focused on John. “The good news is that they can come.” He paused a moment. “The bad news is that they will be here in 18 days.”

The students groaned and seemed to share Jim Hastings’ feelings: “No way, man. It can’t be done. Why can’t we put it off for a couple of weeks?”

John answered, “They’re just starting their new tour and are looking for some warm-up concerts. They’ll be traveling near here for their first concert date in DC and saw they had a letter from us, so they said they could come now. But that’s it—now or never.” He looked around the room at the solemn faces. “Look, you guys, we can handle this. Let’s think of what we have to do. Come on, perk up. Let’s make a list of everything we have to do to get ready and figure out how long it will take. So somebody tell me what we have to do first!”

Anna Mendoza shouted from the back of the room, “We have to find a place; you know, get an auditorium somewhere. I’ve done that before, and it should take any- where from 2 days up to 7 days, most likely about 4 days.”

“Okay, that’s great,” John said, as he wrote down the activity “Secure auditorium” on the blackboard, with the times out to the side. “What’s next?”

“We need to print tickets—and quick,” Tracey Shea called. “It could only take 1 day if the printer isn’t busy, but it could take up to 4 days if he is. It should probably take about 2 days.”

“But we can’t print tickets until we know where the concert will be because of the security arrangement,” Andy Taylor noted.

“Right,” said John. “Get the auditorium first; then print the tickets. What else?”

“We need to make hotel and transportation arrangements for the Coup and their entourage while they’re here,” Jim Hastings proposed. “But we better not do that until we get the auditorium. If we can’t find a place for the concert, everything falls through.”

“How long do you think it will take to make the arrangements?” John asked.

“Oh, between 3 and 10 days, probably about 5, most likely,” Jim answered.

“We also have to negotiate with the local union for con- cert employees, stagehands, and whoever else we need to hire,” Reggie Wilkes interjected. “That could take 1 day or up to 8 days, but 3 days would be my best guess.”

“We should probably also hold off on talking to the union until we get the auditorium,” John added. “That will probably be a factor in the negotiations.”

“After we work things out with the union, we can hire some stagehands,” Reggie continued. “That could take as few as 2 days but as long as 7. I imagine it’ll take about 4 days. We should also be able to get some student ushers at the same time, once we get union approval. That could take only 1 day, but it has taken 5 days in the past; 3 days is probably the most likely.”

“We need to arrange a press conference,” said Art Cohen, who was leaning against a wall. “This is a heavy group, big time.”

“But doesn’t a press conference usually take place at the hotel?” John asked.

“Yeah, that’s right,” Art answered. “We can’t make arrangements for the press conference until we work things out with the hotel. When we do that, it should take about 3 days to set up a press conference—2 days if we’re lucky, and 4 at the most.”

The room got quiet as everyone thought.
 “What else?” John asked.
 “Hey, I know,” Annie Roark spoke up. “Once we hire

the stagehands, they have to set up the stage. I think that could be done in a couple of days, but it could take up to 6 days, with 3 most likely.” She paused for a moment before adding, “And we can also assign the ushers to their jobs once we hire them. That shouldn’t take long, maybe only 1 day—3 days worst, probably 2 days would be a good time to put down.”

“We also have to do some advertising and promotion if we want people to show up for this thing,” mentioned Art nonchalantly. “I guess we need to wait until we print the tickets, so we’ll have something to sell. That depends on the media, the paper, and radio stations. I’ve worked with this before. It could get done really quick, like 2 days, if we can make the right contacts. But it could take a lot longer, like 12 days, if we hit any snags. We probably ought to count on 6 days as our best estimate.”

“Hey, if we’re going to promote this, shouldn’t we also have a preliminary act, some other group?” Annie asked.

“Wow, I forgot all about that!” John exclaimed. “Hiring another act will take me between 4 and 8 days; I can probably do it in 5. I can start on that right away, at the same time you guys are arranging for an auditorium.” He thought for a moment. “But we really can’t begin to work on the promotion until I get the lead-in group. So what’s left?”

“Sell the tickets,” shouted several people at once.

“Right,” said John. “We have to wait until they’re printed; but I don’t think we have to wait for the advertising and promotion to start, do we?”

“No,” Jim replied. “But we should hire the preliminary act first so people will know what they’re buying a ticket for.” “Agreed,” said John. “The tickets could go quick; I sup-

pose in the first day.”
 “Or,” interrupted Mike Eggleston, “it could take longer.

I remember 2 years ago, it took 12 days to sell out for the Cosmic Modem.”

“Okay, so it’s between 1 and 12 days to sell the tickets,” said John, “but I think about 5 days is more likely. Everybody agree?”

The group nodded in unison, and they all turned at once to the list of activities and times John had written on the blackboard.

Use PERT analysis to determine the probability that the concert preparations will be completed in time.

Case 2: Steeley Associates Versus Concord Falls

Steeley Associates, Inc., a property development firm, purchased an old house near the town square in Concord Falls, where State University is located. The old house was built in the mid-1800s, and Steeley Associates restored it. For almost a decade, Steeley has leased it to the university for academic office space. The house is located on a wide lawn and has become a town landmark.

However, in 2008, the lease with the university expired, and Steeley Associates decided to build high-density student apartments on the site, using all the open space. The community was outraged and objected to the town council. The legal counsel for the town spoke with a representative from Steeley and hinted that if Steeley requested a permit, the town would probably reject it. Steeley had reviewed the town building code and felt confident that its plan was within the guidelines, but that did not necessarily mean that it could win a lawsuit against the town to force the town to grant a permit.

The principals at Steeley Associates held a series of meetings to review their alternatives. They decided that they had three options: They could request the permit, they could sell the property, or they could request a permit for a low-density office building, which the town had indicated it would not fight. Regarding the last two options, if Steeley sells the house and property, it thinks it can get $900,000. If it builds a new office building, its return will depend on town business growth in the future. It feels that there is a 70% chance of future growth, in which case Steeley will see a return of $1.3 million (over a 10-year planning horizon); if no growth (or erosion) occurs, it will make only $200,000.

If Steeley requests a permit for the apartments, a host of good and bad outcomes are possible. The immediate good outcome is approval of its permit, which it estimates will result in a return of $3 million. However, Steeley gives that result only a 10% chance that it will occur. Alternatively, Steeley thinks there is a 90% chance that the town will reject its application, which will result in another set of decisions.

Steeley can sell the property at that point. However, the rejection of the permit will undoubtedly decrease the value to potential buyers, and Steeley estimates that it will get only $700,000. Alternatively, it can construct the office building and face the same potential outcomes it did earlier, namely, a 30% chance of no town growth and a $200,000 return or a 70% chance of growth with a return of $1.3 million. A third option is to sue the town. On the sur- face, Steeley’s case looks good, but the town building code is vague, and a sympathetic judge could throw out its suit. Whether or not it wins, Steeley estimates its possible legal fees to be $300,000, and it feels it has only a 40% chance of winning. However, if Steeley does win, it estimates that the award will be approximately $1 million, and it will also get its $3 million return for building the apartments. Steeley also estimates that there is a 10% chance that the suit could linger on in the courts for such a long time that any future return would be negated during its planning horizon, and it would incur an additional $200,000 in legal fees.

If Steeley loses the suit, it will then be faced with the same options of selling the property or constructing an office building. However, if the suit is carried this far into the future, it feels that the selling price it can ask will be somewhat depen- dent on the town’s growth prospects at that time, which it feels it can estimate at only 50–50. If the town is in a growth mode that far in the future, Steeley thinks that $900,000 is a conservative estimate of the potential sale price, whereas if the town is not growing, it thinks $500,000 is a more likely estimate. Finally, if Steeley constructs the office building, it feels that the chance of town growth is 50%, in which case the return will be only $1.2 million. If no growth occurs, it conservatively estimates only a $100,000 return. 

1. Perform a decision tree analysis of Steeley Associates’s decision situation, using expected value, and indicate the appropriate decision with these criteria. 
2. Indicate the decision you would make and explain your reasons. 

 

 

 

 

Case 3: Valley Swim Club 

The Valley Swim Club has 300 stockholders, each holding one share of stock in the club. A share of club stock allows the shareholder’s family to use the club’s heated outdoor pool during the summer, upon payment of annual membership dues of $175. The club has not issued any stock in years, and only a few of the existing shares come up for sale each year. The board of directors administers the sale of all stock. When a shareholder wants to sell, he or she turns the stock in to the board, which sells it to the person at the top of the waiting list. For the past few years, the length of the waiting list has remained relatively steady, at approximately 20 names.

However, during the past winter two events occurred that have suddenly increased the demand for shares in the club. The winter was especially severe, and subzero weather and heavy ice storms caused both the town and the county pools to buckle and crack. The problems were not discovered until maintenance crews began to prepare the pools for the summer, and repairs cannot be completed until the fall. Also during the winter, the manager of the local country club had an argument with her board of directors and one night burned down the clubhouse. Although the pool itself was not damaged, the dressing room facilities, showers, and snack bar were destroyed. As a result of these two events, the Valley Swim Club was inundated with applications to purchase shares. The waiting list suddenly grew to 250 people as the summer approached.

The board of directors of the swim club had refrained from issuing new shares in the past because there never was a very great demand, and the demand that did exist was usually absorbed within a year by stock turnover. In addition, the board has a real concern about overcrowding. It seemed like the present membership was about right, and there were very few complaints about overcrowding, except on holidays such as Memorial Day and the Fourth of July. However, at a recent board meeting, a number of new applicants had attended and asked the board to issue new shares. In addition, a number of current shareholders suggested that this might be an opportunity for the club to raise some capital for needed repairs and to improve some of the existing facilities. This was tempting to the board. Although it had set the share price at $500 in the past, the board could set it at a much higher level now. In addition, an increase in attendance could create a need for more lifeguards.

Before the board of directors could make a decision on whether to sell more shares and, if so, how many, the board members felt they needed more information. Specifically, they would like a forecast of the average number of people (family members, guests, etc.) who might attend the pool each day during the summer, with the current number of shares.

The board of directors has the following daily attendance records for June through August from the previous summer; it thinks the figures would provide accurate estimates for the upcoming summer:

Develop a forecasting model to forecast daily demand during the summer.

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