Dave Armstrong (A) DLI'UE Armstrong is the disguised name of the 29-year old second year MBA student who wrote this case. I grew up in Dumas, Texas, population 9000, graduating from a small liberal arts college in central Texas. Immediately upon graduation I went to work for Thorne Enterprises in Austin, Texas, as a computer programmer. After 6 months Mr. Thorne made me president of a subsidiary company that sold conveyor belt scales. The subsidiary had 6 employees including myself. As a practical matter, Iwas the chief salesman. Belt scale sales had been at through the 1973-1974 recession and did not improve much under my management. After eighteen months I quit to go into the life insurance business in Amarillo. In five years with nothing more than a secretary and a telephone, my income was around $60,000 a year. It was a comfortable living, but the problem was I was a one-man band. When I took a vacation or even the afternoon off, the entire sales process came to a screeching halt. There was no momentum built up in the way I operated. I applied to the Harvard Business School to see if I could get in. I hadn't considered what I would do if I got accepted. But when I was accepted, I decided that I had to go. I would still be receiving renewal income from my old policyholders, so my wife and I would not have to make too much of a sacrice in our lifestyle. But now, it's early March. I'm three months from graduation and I have to figure out what to do next. For the last several months I've been trying to sell a producing oil lease for an exploration company in Kentucky. It's a pretty good deal from my standpoint. They pay my expenses if I don't sell it, and an 8% commission (about $30,000) if I do sell it. If this deal sells, the 30K would make quite a difference in my plans. At this point, I've got three job prospects. I'll call them Job A, Job B, and Job C. Job A is the one I really want, since it has the most upside potential. But I'd say it has a pretty good chance of not working out at all. Iob B had better odds of working out but doesn't have quite the same excitement as Job A. Job C is what I would call a traditional job. Job A Mr. Thorne called me last fall about an idea he has for a piggyback rail terminal to be located halfway between Dallas and Houston. I got a group of second year students at the B- school to do a feasibility study of the idea. Thorne's idea is to develop a rail terminal on 9,000 acres he owns there and ship truck trailers into and out of Texas via rail. The idea of a truck trailer riding \"piggyback\" on a rail car is not new. But what is new is the idea of a hub serving two major cities. This terminal would draw business from both Dallas and Houston and would be built on land that is 1/100 the cost of Dallas or Houston industrial property. That's where the economies come in. Thorne also owns a railroad that already serves the proposed terminal site. Hopeftu this terminal will transform the surrounding real estate into an attractive industrial site. Mr. Thorne suggested that the terminal could be segregated from the rest of his business in order to provide a cleaner way for me to participate in the equity. At this stage, we think it will require around $1 million to get started: $300K for equipment and $700K for one year's operating expenses. I'd put in as much money as I could and Mr. Thorne would supply the rest. In addition to profit sharing, I'd be paid $5070K, salary and bonus, to start- up and run the facility. I have to give Mr. Thorne an answer by the end of March. Job B Robert Irwin owns an oil exploration company in Houston. I met him during the course of trying to sell the Kentucky oil property. Irwin and I have talked about setting up a corporation that would actively seek out producing oil leases that might be for sale. The oil and gas business has been in a severe recession for eighteen months now and a large number of producing properties have been forced on the market at fire sale prices. I would have two petroleum engineers working for me to evaluate these properties. Irwin's exploration company would receive a standard investment banking fee. I would put up a third of the equity ($100K). In addition, I would receive annual compensation equal to the greater of $60,000 or onethird of the profits. This is really only a short-term deal. Within two years, the oil and gas glut will be gone and the attractiveness of this business will disappear also. If the oil and gas glut dries up before we got our business laimched, Iwould probably stay on with Irwin as an agent or broker to sell oil and gas properties. There would be no equity role for me in this but commission at 8% would add up fast if I'm good. This would also give me an opportunity to develop many contacts with prospective buyers and sellers. Dave Armstrong (A) 396-800 Hopeftu I would develop a strong relationship with a single buyer and then enter into an equity deal with him at some point in the future. Job C The third possibility is what I'd call a conventional job. Earlier this spring Mr. Irwin put me in touch with a large pension fund management company in Houston. They have plans to begin an oil and gas investment fund for key executives in the firm. I have interviewed for a position where I'd be working with two or three others to evaluate oil and gas properties for the fund. This position doesn't open up for another 6-12 months, but they'll put me on in the interim as a securities analyst for around $45K until the fund is started. I'm going to Houston in three weeks for another series of interviews and will have to let them know if I'm serious or not. The Decision I've never been faced with a hard choice before. When I graduated from college, working for Thorne as a computer programmer seemed like a great opportunity. And going to Harvard Business School looked like the obvious thing to do once I was accepted. Now, for the first time in my life, things aren't so clear. Thorne needs a decision in a couple of weeks. Some days, when I think of all the financial upside, I'm tempted to reach for the phone and tell Thorne yes. But I decide to sleep on it and wake up frightened about the $200K to $300K that I might have to put into Thorne's project. All of a sudden I think about all the contacts I might develop working with Irwin and ]ob B looks pretty good. Of course, I've asked my wife for her opinion. She's been after me to take Job C and thinks that I'm crazy for \"gambling" our money on these other deals. But really all she want is that I be happy in my work; that's what it comes down to. Dave Armstrong (B) One night after having browsed through my three cases for the next day, I just couldn't bring myself to do any work. I picked up the managerial decision making case for that night again. It was about some quant jock from Wharton who had used preference analysis to assist his father in making a major career change. Since I was facing a major career choice of my own, I tried again to finish the case. About half way through, I decided I should do this stuff for myself and forget about this guy' s dad. So Iput the unnished case aside and drew up Exhibit 1. Exhibit 1 is my rough cut analysis of what makes a job "good.\" I started by listing all of the attributes that the ideal job would have, such as a high salary, a bonus, equity, etc. Then I made an assessment of how each job I was considering measured up relative to each other. Since I knew that both Job A and Job B had uncertain outcomes depending on the economy and my own ability, I created a Hi and Lo scenario for each of these. Job C was a traditional job and as such had only one scenario to consider. So for each attribute, I now had ve scenarios to assess. For each attribute, I gave the best scenario a raw score of 100 and the worst a raw score of 0. For example, the salary for Job A is poor compared to the salary for Job B or Job C. But the bonus for Job A is better than the bonus for Job B, provided that we are talking about the Hi scenarios for both. However, Job C has a small bonus that is better then the bonus for either Iob A-Lo or Job B-Lo. Travel was easy to assess. Job A has limited travel, just about the right amount, and therefore gets a score of 100. Job C has no travel, which seems conning to me. Job B requires extensive travel. I would prefer extensive travel to no travel, so Job B gets a score of 50 and Job C a score of 0. The most attractive feature of Job C is the contacts I would make in the Houston business community. Conversely, one of the biggest drawbacks to Job A is that I would be involved in a prosaic industry (railroading) and would make very few contacts outside of the central Texas area. This \"contact\" issue is one of the most difcult aspects of this whole career decision to assess and as such is one of the motivating factors for doing this analysis. The next step was to assign weights to each attribute and then to produce \"weighted assessments\" by multiplying each \"raw assessment" by its weight. If I understand this, these weighted assessments mean, for example, that the improvement in quality of Contacts between Iob A and Job B (either Hi or Lo) is equal to the improvement in Work Flexibility between Job C and Job BHi scenario. To risk adjust each scenario, I assigned probabilities to each. Job A-Hi has only a 20% chance of working out. I am almost positive that Job C will work out so I've given it a 1.0 chance. So after all the math is complete, I end up with overall expected preference scores of 366, 356, and 206. This seems to conrm my view that I should forget Job C. I am kind of surprised that Iob A and Job B end up so close. In my heart, I want to do the piggyback deal (lob A). I showed this table to my wife. She was really interested and understood what was going on. She asks what' 5 wrong with Job C. The other jobs both seem awfully risky to her, but again she tells me that she wants me to be happy with my work. One other thing. She'd like to stay in Boston rather than move to some unknown place. We have a house in Belmont and our two kids are in school. It may sound strange but Boston would be a good location from which to pursue the oil and gas deal (Job B). Being from the oil patch (Texas) adds credibility up here. Since most of the action is on the phone or involves ying, it doesn't matter a whole lot where you're based. I think the main thing is she wants to resolve the uncertainty about where we'll live. She wants our next move to be our last move, at least for a while. RAW ASSESSMENTS WEIGHTED ASSESSMENTS JOB A JOB B JOB C JOB A JOB B JOB C Weight Objective HI LO HI LO HI LO HI LO Description 0.1 Salary 0 100 80 80 0 10 0 00 OO 0.9 Bonus 100 80 O 20 90 72 18 1.0 Equity 100 0 80 0 0 100 0 80 0 0 0.9 Fun 100 60 50 60 0 90 54 45 54 0 0.6 Travel 100 100 50 50 0 60 60 30 30 0 0.8 Contacts 0 0 60 60 100 0 0 48 48 80 1.0 Ideas 0 40 40 100 40 40 100 0.6 Work Flexibility 100 30 80 30 60 18 48 18 OO Title 100 30 30 30 24 24 0.3 100 0.8 # of Employees 100 100 80 80 30 80 64 64 0.7 Location 100 100 0 70 70 0 0 Subtotals (Not Risk Adjusted) 580 312 461 286 206 times probabilities X .2 X.8 X.4 X.6 x 1.0 Intermediate products 116 250 184 172 206 Risk adjusted Preferences 366 356 206