How to play Fundamentals of Finance
In our previous article, we wrote about the potential of using business finance as a common language in organizations.
We explored how this common language helps organizations set a direction that is measurable, understood, and applicable by all stakeholders – which in turn fosters more relevant decisions and stability across the company.
The business finance language can be easily taught within organizations by using a game: a setup in which people from different business units, teams and across hierarchies are brought together and try things out, in a fun and engaging way.
The power of games is that they offer first-hand experience, which sticks better in long term memory than pure theoretical knowledge.
One of our business simulations, Fundamentals of Finance, has been around for a while and played in corporate universities around the world, across a wide range of industries – banking, retail, petrochemicals, and communication, to name a few.
Yet, we felt it was time for the game to get an upgrade based on our users’ reviews and taking into consideration features that we integrated into business simulations we developed at a later stage.
Let’s take a look at what this business finance game, Fundamentals of Finance, is about.
Format of the business finance simulation
Fundamentals of Finance is a team-based business finance simulation that is played over multiple rounds, each round ending with teams making a decision.
Its web-based interface makes it flexible and adequate for both online and face-to-face learning environments.
Teams compete against one another and are given the keys to a fictional company operating on various markets. Starting equal, they make decisions regarding various aspects of their organization in order to rank as high as possible across a set of performance criteria by the end of the game.
Decisions should be submitted by a specific deadline, after which a new market situation is generated, based on all teams’ decisions. The total number of decisions teams make ranges from 3 to 6, depending on the context and the learning needs.
Thanks to the game’s flexibility, decisions can be spaced over days, weeks or even months. Each decision round takes 1 to 1.5 hours, including team brainstorming and coaching by educators. Between each decision round, educators usually dedicate a session to stress a specific aspect of business finance – e.g. financial statements, the working capital requirement, the return on capital employed, etc.
Scenario of the game
With their team, participants take the lead of a manufacturing company designing, producing, and selling two products: product A and product B.
Although produced by the same company, both products are targeted at two different types of customers with very different expectations – e.g. Product A customers are highly sensitive to price variations, while Product B customers are interested in good marketing. A description of their target customer is provided at the start of the game, for participants to articulate their value proposition.
Important is therefore for participants to make sure they cater to their customers’ needs if they want to create demand.
Also, Product A and B are at different stages of their product lifecycle and producing them entails different cost sensitivities: Product A allows for economies of scale, while Product B doesn’t so much. A full list of cost sensitivities is also provided, thereby guiding participants in making strategic production choices. Each product has also a different need for capital investment. Therefore, the teams will experience the choice of investing heavily either in a business with high profit margin, but low capital employed turnover, or in a product with lower profitability but higher turnover.
All teams are operating on the same market, reaching for the same customers, and starting with the same financial and market situation. However, given the unique combination of participating teams and their decisions, every new market situation in the game after the execution of the simulation is truly unique.
The aspects on which team are to decide include price, production capacity, customer and supplier payment terms, financing schemes, and more!
So, different customer profiles, different cost sensitivities, competition: that’s a lot! How do we know when a team has won the game?
How to win the game
To win this game, the goal is to allocate the available financial resources efficiently, while aiming for profitable and sustainable growth. Focusing on generating demand is not enough: teams should be able to deliver in a profitable way.
In the simulation, unlike in real business life, there must be an end. By the last decision, teams are expected to rank as high as possible across a set of performance metrics, also called “winning criteria”.
They vary from one business simulation to another, and they can also be adapted on demand, depending on the key learnings educators want to take away from the experience.
The default winning criteria in Fundamentals of Finance are the following:
- Sales revenue, which is the revenue a company has generated from selling products
- Earnings before interests and taxes (EBIT), which measures the profit generated from a company’s operations.
- Retained earnings, which is the sum of profits and losses since a company’s inception.
- Return on capital employed (ROCE), which is measured by comparing EBIT with Capital Employed, and identifies how efficiently a company is at using capital to generate profit.
- Share price, which is the value of a company’s shares on the stock exchange.
- Employee morale, a measure of employees’ engagement and satisfaction.
All through the game, teams can track their current ranking against the winning criteria and adapt their decisions to improve their performance.
There again, each situation is unique: a team might win thanks to high rankings in employee morale, retained earnings and ROCE, without necessarily being the best performer in terms of sales revenue. All criteria are given the same weight, though, meaning that variance across teams in a specific metric does not affect the ranking itself.
If you are curious about the playing experience, or if you have questions about the content and integration of Fundamentals of Finance into a course or program, do reach out to us!
Also, we will be organizing a 3-round game in May for all those interested to play the game as it would be in an online setting. Stay in touch!
To get in touch, you can find us on LinkedIn!