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FORWARD

SOFTWARE
RISK MANAGEMENT SUBMISSION

0244/53
0253/53
0270/53
0284/53
0302/53
0303/53

NAVIN PRAJAPATI
NISARG NAYAN SWALY
PATIL MANDAR MANOHAR
PRASHANT KUMAR
RAHUL JAIN
RAHUL KUMAR

INTRODUCTION
Focus A-B-C, a spreadsheet product launched by focus software is a market leader in spreadsheet
software, holding 80 percent of market share. Key USPs of Focus ABC include a one liner
explanation of options, a unique menu system, and and ability to create macros. The shortcomings
of the program include usage of a floppy disk to launch the program and printing issues. The
product had a list price of $ 495 and best discounted price of $ 300.
Discount software launched a spreadsheet program, VIP Scheduler, to compete with Focuss A-BC with a list price of 99$. It had a menu which was identical to that of Focuss. However, it faced
reliability issues and users preferred to stay with the popular name of Focus.
Cinco was launched by Forward software and had better printing integration, was more intuitive,
and had backward compatibility with Focus A-B-C. It had two menu systems, of one which
resembled Focuss ABC. It was hailed by critics and quickly gained market share.
Discount Software was sued by Focus over copyright infringement on the look and feel of the
menu of VIP Scheduler which closely resembled that of Focus A-B-C. Sam Ellis, the CEO of
Forward software believes that Forward Share is the real target of Focus Software. He has
various options before him. He can proceed with an out of court settlement with Focus before the
results of Focus-Discount Software litigation is released. Or he can wait for the results, after which
in case Focus loses he would be safe. But if Focus wins, he has an option to either go to court or
settle out of the court. All these options have different cost benefits associated with them and he
has to choose the optimal one.
Also, he has an option of hiring an external law firm to predict the court ruling of Focus-Discount
Software litigation. Of course, the services of law firm come at a cost of $ 0.7 MN. He also has to
decide whether the offer of the law form is worth the cost or not.

PROBLEM STATEMENT
1. Forwards CEO has to decide whether to move ahead with out of court settlement with Focus
now or wait for the result of Focus-Discount case. If he waits for the result of the case, he has
to decide whether to go for out of court settlement or proceed with in court case if Focus
decides to sue.
2. Sam has to decide whether to pay the asking price of $ 0.7 MN to the law firm for predicting the
outcome of Focus-Discount case and what would be the acceptable price for their services.

RECOMMENDATIONS
1. The optimal strategy for Forward software would be to not hire the law firm. Hiring the Law firm
would cost him $ 4.63 MN against not hiring which would cost him $ 4.5 MN.
2. After not hiring the law firm, Forward should move ahead with a strategy of waiting the outcome
of Focus-Discount case which would cost it $ 4.5 MN against settling outside the court now
which would cost it $ 8.3 MN.
3. If the outcome of Focus-Discount case is in favor of Focus and it decides to sue Forward,
Forward should settle the case out of court (cost of out-of-court settlement is $ 12.5 MN
against $ 15.62 MN for trial.

BASIC TREE DIAGRAM AND ANALYSIS


The basic tree diagram for the case when Sam Ellis does not hire the law firm is presented below.
The complete decision tree is attached in the excel sheet.

CONDITIONAL PROBABILITIES
P(Legal suit against Forward)

0.04

P(No legal Suit against Forward)

0.96

P(Law Predicting Focus Win)

0.36

P(No legal suit against forward with PI)

0.64

P(Focus Actually Wins | Law Firm predicting Winning)


P(Focus Actually Loses | Law Firm predicting losing)

1
0.84375

P(Focus Actually Losing | Law Firm predicting Focus winning

0.04

P(Focus Actually Wins |Law Firm predicting Focus losing

0.64

P(Law firm predicting Focus L | Focus Actually winning)


P(Law firm predicts Focus Winning |Focus Actually losing)

1
0.2

P(Focus Actually Win | Law firm predicts Focus Winning)

0.857142857

P(Focus Actually Lose | Law firm predicts Focus Losing)

0.931034483

P(Focus Actually Losing | Law firm predicts Focus Winning

0.142857143

P(Focus Actually Winning | Law firm predicts Focus Losing

0.068965517

P(Law Predicting Focus Wins)

0.42

P(No Suit Forward with PI)

0.58

P(Focus Actually Losing | Law firm predicts Focus Winning

0.04

P(Focus Actually Winning | Law firm predicts Focus Losing

0.64

COST ANALYSIS OF HIRING THE OUTSIDE LAW FIRM


1. As is evident from the tree diagram Forward should proceed ahead without hiring the law firm.
Hiring the law firm would cost Forward $ 4.636 MN as against not hiring which would cost it $
4.5 MN.
2. The difference is $ 0.136 MN. Forward should not hire the firm at $ 0.7 MN make a counter
offer of $ 0.564 MN (0.7 MN 0.136 MN).
3. In case focus hires the form, then if the form predicts that Focus would win the Focus-Discount
case then Forward should look forward to out of court settlement. If the form predicts that
Focus would lose then Forward should wait for the outcome of the result.

SENSITIVITY OF INFORMATION TO PREDICTION ACCURACY


In the currently stated scenario the law firm should not be hired, however this result is based on a
prediction being 90 percent accurate. The prediction accuracy however, can vary from 0 percent to
100 percent. The expected cost against the accuracy of information of the law firm is charted
below.

Initially the cost of hiring the firm remains constant at $ 5.2 MN. After the probability of 0.807 the
cost starts decreasing linearly reaching the minimum of $ 4.02 MN at perfect accuracy. The
expected cost of not hiring the firm is $ 4.5 MN, so as long as the hiring the form costs more than
than, Forward should not go ahead with hiring the law firm. However, at prediction accuracy of
92.23 percent, the hiring costs are equal to not hiring costs and at a level of accuracy higher than
that Forward should go ahead with hiring the external law firm.
At 90 percent accuracy the law firm is charging $ 0.7 MN. The potential cost savings at perfect
information level is $ 0.48 MN (4.5 MN-4.02 MN). Thus we can conclude that the cost of perfect
information is $ 1.18 MN.

PROBABLITY DISTRIBUTION AND SENSITIVITY ANALYSIS - OPTIMAL


The cost of settling outside the court in optimum strategy is;
Cost for settlement
$ 9.2 MN
$ 12.2 MN
$ 16.2 MN

Prob.
0.3
0.4
0.3

FOCUS WINNING THE CASE AGAINST DISCOUNT


The probability of Focus winning the case against Discount is 0.4. However, as the probability
winning changes the expected costs to be borne by Forward would also change as per below
chart.

Changes in the probability of focus winning against Discount affects both decision trees of
hiring/not hiring the law firm. Points of inflection can be observed at P~0.43 and P~0.82. After
P~0.82 the cost is constant at $ 8.3 MN.

P(Focus win Discount)


0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1

Output Value
0
0.5625
1.125
1.6875
2.25
2.8125
3.375
3.9375
4.5
5.02425
5.4125
5.80075
6.189
6.57725
6.9655
7.35375
7.742
8.13025
8.3
8.3
8.3

FOCUS SUING FORWARD


The probability of Focus suing Forward if it wins Discount case is 0.9. However, as the probability
winning changes the expected costs to be borne by Forward would also change as per below
chart.

5
4.5
4
3.5
3
Expected Costs

2.5
2
1.5
1
0.5
0

The costs rose linearly till a probability level of 0.95 after which it becomes flatter, with a value of
4.686 at a probability of 100 percent.

P (Focus going for law suit | Focus


winning the case)
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1

FOCUS WINNING FORWARD

Output Value
0
0.25
0.5
0.75
1
1.25
1.5
1.75
2
2.25
2.5
2.75
3
3.25
3.5
3.75
4
4.25
4.5
4.661
4.686

The probability of Focus suing Forward if it wins Discount case is 0.8. However, as the probability
winning changes the expected costs to be borne by Forward would also change as per below
chart. There would be changed in both the decision trees

5
4.5
4

Expected Costs

3.5
3
2.5
2
1.5
1
0.5
0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

P(Focus suesand winsover Forward)

The expected costs rise linearly to $ 4.5 MN, becoming constant at a probability level of 0.65.
P (Focus losing against
Forward)
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1

Output Value
0.9
1.1952
1.4904
1.7856
2.0808
2.376
2.6712
2.9664
3.2616
3.5568
3.852
4.1472
4.4424
4.5
4.5
4.5
4.5
4.5
4.5
4.5
4.5