MODULE 1, ASSIGNMENT 1

August 30, 2012

Topic: Performance Management

Overview Welcome to Module 1. If you have not already done so, read the Program Manual located in the Reference Material section of the CMA Canada Professional Programs website. It provides you with important introductory information about the program. In Module 1 of the program, candidates are exposed to many functional competencies from the CMA Competency Map that involve decision making regarding performance management, performance measurement, risk management and governance, and financial reporting. For assistance when doing their assignments in these areas, candidates are expected to draw on many of their intermediate and advanced management and financial accounting concepts they learned in their university courses and/or in the Accelerated Program. For instance, in this assignment, one of the concepts involves Cost-Volume-Profit (CVP) analysis. In these types of analysis, candidates may be asked to look at how profits and costs change with a change in volume, or a change in such factors as variable costs, fixed costs, selling prices, and mix of products sold. By studying the relationships of costs, sales and net income, management is better able to cope with many planning decisions. Candidates who have difficulty doing this assignment or future assignments regarding CVP are encouraged to review Chapters 11 and 12 from the Horngren et al. required reading mentioned below. As candidates gain more work experience, they will be exposed to a number of organizational concerns in the topic areas outlined above. For instance, candidates may be asked to provide analysis on such items as: 1. Preparing reports on a product or geographic segment to determine where the organization generates cash and profits; 2. Evaluating strategic alternatives in ones organization using cost-benefit and scenario/sensitivity analysis; 3. Determining the effectiveness of costing systems for their appropriateness for an organization;
2012 The Society of Management Accountants of Canada. All rights reserved. / Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada. No part of this document may be reproduced in any form without the permission of the copyright holder.

4. Introducing the main concepts of strategy to facilitate an understanding of the big picture; 5. Constructing and analyzing a cash flow statement to determine cash needs; 6. Looking at different short-term investment strategies as a means to effectively utilize excess cash; 7. Examining the effectiveness of internal control systems within an organization; 8. Reporting results using GAAP or a disclosed basis of accounting; and 9. Analyzing a companys various product lines. Management accountants are often called upon to provide the analysis required for pricing decisions, such as cost-volume-profit, product costing, expected value, break even, contribution margin, and sensitivity analyses. Proper and accurate analysis is critical if management is to make well-informed decisions. Using the Right Financial Analysis Tool Candidates will oftentimes find themselves constrained by space (word/page limits) and/or time when doing their assignments. A critical outcome of analyzing cases is learning to use financial analysis tools under the appropriate circumstances. Selecting the right tool has the effect of demonstrating both good judgement (in terms of the candidates ability to select an appropriate tool) and conciseness (in presenting the information in a professional manner without burdening the reader with non-important information). Below are some examples that help to demonstrate how selecting the right tool for the right circumstance is critical to complete assignments in a quick and efficient manner. While the examples demonstrate the use of one tool, note that other tools may be just as effective. Given two scenarios and asked to provide an analysis between them, candidates could analyze them by forecasting the full income statement for both. While this is a valid approach, it takes a significant amount of time and requires the use of valuable report space that could be better used with the selection of a different tool. It may be more appropriate under these circumstances to identify only those relevant revenues and costs and compare those. For a more in-depth discussion of the differences between the two approaches, see pages 422-423 in Chapter 11 of Cost Accounting: A Managerial Emphasis (Required Readings listed below). Specifically, Exhibit 11-2 on page 423 demonstrates the visual difference between the two approaches. Oftentimes contribution margin calculations can be used to drastically reduce both the time it takes to analyze a problem and the space required to show the analysis. This type of analysis may apply to analyze individual products, divisions or customer groups. This tool can allow one to present the analysis information in a much more concise way.

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Discounting is another tool that can be used to analyze various scenarios. Again, one could prepare a financial forecast for both scenarios and discount those accordingly. However, a more efficient method would be to select only the relevant revenues and/or costs for preparation and discounting. This tool is particularly useful when looking at scenarios that create different multi-year impacts or that need to be evaluated over a period of time. Candidates are encouraged to review Chapters 11 and 12 in Horngren et al. (Required Readings listed below) for more examples on tool selection. Learning to identify the relevant information can drastically reduce both the time spent on the analysis and the space required to report it. In this assignment, candidates are specifically directed to do only certain steps of the Steps for Approaching Business and Corporate Strategy. This case-solving approach was first introduced to candidates at the Orientation Session. As mentioned at the Orientation, these steps provide candidates with a systematic approach for addressing a case involving business-level and corporate-level strategic issues. The first three modules (Development Phase) of the CMA Canada Professional Programs prepare candidates for the Case Examination and focus on the business-level strategic issues. Applying this approach effectively is one of the important competencies that candidates will learn in the Professional Programs. Reference Documents To assist candidates with case analysis, a series of reference documents have been created and can be found in the Reference Material section of the Professional Programs website. The most important documents include: 1. 2. 3. 4. Steps for Approaching Business and Corporate Strategy General Assessment Guide Business Report Guidelines Format Specifications

There are other documents such as Situational Analysis Tools, Developing an Implementation Plan and Pro Forma Financial Statements. Candidates should find these documents very useful throughout the program. Learning Outcomes By the end of the assignment, candidates will be able to recommend strategies and tactics to a company that is in a downturn scenario. Due Date Please refer to the Schedule accessed from the left navigation menu.

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Required Readings 1. Cost Accounting: A Managerial Emphasis, 4th Canadian Edition. Authors: Horngren, Foster, Datar, Teall and Gowing (CMA Online Library). a) Chapter 11 Decision Making and Relevant Information b) Chapter 12 Pricing Decisions, Product Profitability Decisions, and Cost Management 2. Moving Upward in a Downturn, Darrell Rigby, Harvard Business Review, June 2001 (CMA Online Library). Candidates are required to review the following documents located in the Reference Material section of the Professional Programs website: 1. Steps for Approaching Business and Corporate Strategy (Reference Material). 2. Business Report Guidelines (Reference Material). 3. Format Specifications (Reference Material). Candidates are encouraged to review the Problems for Self Study and Decision Points in the textbook chapters to ensure an understanding of the concepts presented. Assignment Complete the following assignment, which will be submitted to the website for marker assessment and feedback. An assessment rubric for this assignment is provided in Appendix 5. M1A1 Coast4Life Performance Management Required: Read the Coast4Life case in Appendix A. As Pat Brown, CMA, the newly hired controller, prepare a report to the board of Coast4Life that addresses the issues in the case. Be sure to clearly identify any uncertainties encountered and explain any assumptions made. This assignment covers the performance management issues that could arise when a company is facing a downturn in its industry. Specifically, this assignment addresses issues related to cost analysis. Candidates are encouraged to read Chapter 11 in the required readings as that chapter lends itself to assisting candidates on how best to address the issues. Candidates should also be prepared to apply other relevant quantitative tools learned in their pre-professional programs to analyze the issues in the case (e.g. net present value, payback period, cost-volume-profit analysis). The report should follow the characteristics of an effective short business report provided in the Business Report Guidelines. The report should be in the form of a

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memorandum addressed to Coast4Lifes board of directors and does not require an executive summary, table of contents or bibliography. Third person formal writing style should be used. For this report, only steps 3, 4 and 5 of the Steps for Approaching Business and Corporate Strategy are required, as well as calculating relevant ratios, trend analysis and benchmarking. Do not provide a situational analysis or an implementation plan. An effective report should contain the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. A memo page including Date, To, From and Subject, An introduction, Identification of the issues and the related alternatives, Quantitative analysis of the issues and the related alternatives (details provided in appendices and a high-level summary provided in the body of the memorandum), Qualitative analysis of the issues and the related alternatives, Supported recommendations, A conclusion, Appendices, and Any footnotes.

The report must be no longer than 750 words and may contain no more than five (5) pages of appendices.* * Each assignment has length specifications, defined in words and/or pages. Markers will assess only the content within the specified length. Note that the minimum requirement for preparing the report will be Word 2007; markers will adjust the count to accommodate the bullets and other irregularities. See the Format Specifications for further information on length limits. The body of the report must be done in Word, using Arial 12-point font, double spacing, and portrait orientation. Titles and headings may be in a font size larger than 12-point. Headers, footers and footnotes may be in a smaller font size, but no smaller than 8-point. Any appendices may be done in Excel or Word, using either portrait or landscape orientation. The minimum allowable font for quantitative exhibits is 10-point font. Exhibits comprising 60% or more words must be in 12-point font. For appendices provided in Excel, scaling must be set at 100%; for appendices imported from Excel to Word, text and numbers must be presented at the specified font size. Candidates should bring a copy of their assessed response to the Interactive Session where there will be a further activity on the Coast4Life case. There, candidates will have an opportunity to discuss and share their assignment responses with other candidates in order to learn from one another.

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Format Specifications Refer to the Format Specifications located in the Reference Material section of the Professional Programs website. Collaboration and Plagiarism Researching ideas from published materials and sharing ideas with other candidates is a legitimate approach to learning. However, this is an individual assignment and each candidate must prepare his/her own original response that reflects independent thoughts (e.g. independent applications of ideas) and original writing. Candidates may not copy any part of their response from work done by another candidate. In applying concepts from CMA Canada Professional Programs readings and other published sources, copied material and application of another authors original ideas must be appropriately referenced. Violating these rules will be considered plagiarism. Candidates committing plagiarism are subject to provincial penalties and disciplinary measures. CMA Canadas Plagiarism Policy can be found in the Reference Material section of the Professional Programs website. Posting the Assignment 1. Use the assignment reference number M1A1 plus your member number in the file name and on each page of your report. 2. Do not include your name in the file name or in your report. 3. Post the file from the same page where you accessed this Assignment, using the Browse and Submit functions found there. 4. Post the file by the due date. 5. Refer to the Candidate Website Manual for further details.

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Appendix A Coast4Life Cruises Coast4Life Inc. was incorporated federally on June 3, 2002, and is in the business of offering ocean cruises along the Canadian west coast, with stops at interesting ports of call in British Columbia. The company has a September 30 year end. In 2009, the original owners sold all their Coast4Life shares to the senior management group. Between 2003 and 2012, the company grew steadily from 135 to 574 employees and from $9.4 million to more than $55.7 million in revenue. Refer to Appendix 1 for Coast4Lifes historical financial results. Its vision and mission statements follow: Vision Coast4Life will be the first choice for vacationers who are seeking a safe, enjoyable and unique cruise experience in the northeastern Pacific Ocean. Mission Coast4Life meets the needs of North American vacationers by offering safe, enjoyable and unique cruises along the coast of British Columbia at affordable prices and at a high-quality level of service. Coast4Life also strives to minimize the effects of cruising on the ecology along the BC coast and maximize the safety of customers, staff and marine life by ensuring that the ships used are well maintained and that environmental and safety regulations are not only met, but exceeded. Coast4Life had two ships. The first ship, which was called the Coastal Native, was acquired in 2002 at the bargain price of $20.1 million. In 2009, Coast4Life purchased another cruise ship, the Natural Splendour, at a cost of $53.1 million. It was five years old and did not require any refurbishment before being put into service. In the cruise industry, passenger capacity is based on the assumption that there are two passengers per cabin (also called staterooms) although often a room is occupied by more than two people. Coast4Life keeps its ships well maintained and has a policy that a ship must be refurbished at a dry dock every two years during the winter months. Prior to 2009, during the winters that the Coastal Native was not being refurbished, Coast4Life would rent it to a Caribbean cruise line that provided its own crew. The Caribbean company would operate the vessel until mid-March and then return it to Coast4Life after a brief cleanup. Once the Natural Splendour was acquired, Coast4Life could alternate renting out one ship during the winter each year while the other was being refurbished. Table 1 provides additional information regarding the companys ships.

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Table 1 Ship Specifications Coastal Native 1977 1998 2002 141 (462) 20 (64) 270 540 201 Natural Splendour 2004 2009 159 (521) 21 (68) 300 600 230

Launch date Last major refit Year acquired by Coast4Life Length (m [ft.]) Width (m [ft.]) Number of cabins Passenger capacity Crew at full capacity

During the 2009 cruise season, the Coastal Native operated at almost 99% capacity while the Natural Splendour, being its first year with Coast4Life, operated at less than 50% capacity. By 2012, both ships were operating at more than 90% capacity. On the Coastal Native, the overall emphasis is on value for the price of the cruise, and the ship contains the standard entertainment facilities with few amenities. Also, there are more additional on-board charges for meals and activities than on the Natural Splendour. The Natural Splendour boasts many special amenities and extra facilities, including two swimming pools, miniature golf course, two badminton courts, and ten pool tables. In addition, a daycare centre provides services to parents who do not want to have to care for their children while on board. The cruising season along the BC coast lasts from the beginning of May until the end of September. Winter cruises are impossible due to cool weather, rain and storms. Coast4Life owns a dry dock and ship maintenance facility called the Fraser dry dock, located in Vancouver four kilometres from the head office and dock facility. The dock facility and the dry dock have different functions. The dock facility next to the head office is a wharf where ships can be moored to load and unload passengers, crew and supplies. The dry dock is a dock that permits a ship to be removed from the water so that maintenance can be carried out on the part of the ship that is normally below the waterline. The Fraser dry dock can handle ships as large as 183 metres (600 feet) in length and 29 metres (95 feet) in breadth. Maintenance and refurbishment can include rust and barnacle removal, repainting, hull repairs, and installation of new equipment, propellers, etc. Barnacles are shellfish that grow on the hull of a ship. Attaching themselves in great numbers, barnacles eventually slow the ship down if they are not removed. During the summer, when both Coast4Life ships are cruising, the dry dock tries to obtain contracts to refurbish third-party ships. Such efforts are sometimes but not

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always successful. If there is not enough work, some of the employees are laid off temporarily. Thus far, the union has accepted this situation. Customers generally book their trips via an independent travel agent. The agent receives a commission of eight percent, a rate set by Coast4Life, and passes the customers credit card number to Coast4Life to make the charge. Customers can also call Coast4Lifes head office and book directly by phone. Sometimes, Coast4Life sells groups of cabins at a heavily discounted rate to travel agencies that resell them at their own risk. This type of sale accounts for approximately 10% of total passenger bookings. All bookings with Coast4Life are in Canadian dollars. Cancellation clauses are fairly onerous for the customer, and therefore, cancellations are rarely made. However, there are a number of repeat customers who book cruises a year in advance. Demand tends to be highest for cruises during July and August. Table 2 shows the distribution of Coast4Life employees in 2012 during the peak cruising season. Table 2 Distribution of Employees Coastal Native Natural Splendour Dry dock Head office Total 201 230 71 72 574

The company reports financial results by operating division (see Appendix 2 for 2012 financial results). The three divisions are the Coastal Native, the Natural Splendour, and the Fraser dry dock. The dry dock division charges the ship divisions a price of full cost plus 20% for work performed on the ships. On September 30, 2012, a terrorist group attacked a cruise ship owned by a Dutch company in the Caribbean, extensively damaging the ship and forcing the evacuation of passengers and crew. Rescue operations were successful and only one life was lost. Over 80% of the passengers and a minority of the crew were U.S. citizens. Approximately three percent of the passengers were Canadian. The worldwide cruise industry, which had been running close to capacity, experienced an immediate decline in bookings. Based on the effects of past terrorist attacks on the airline industry, Coast4Life expects overall bookings for cruises worldwide to drop by 50%-55% over the next six months, and 30%-35% overall for the next year. If there are no further incidents, worldwide demand for cruises could be restored to 2012 levels by 2014.

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Near the end of the final cruise of the season, the Coastal Native struck an uncharted underwater structure, which damaged the hull of the ship. Emergency safety measures were taken, which allowed the ship to complete the cruise with minimal disturbance of the passengers and no serious damage to the local environment. However, the Coastal Native will require extensive hull repairs to prepare it for the 2013 season, and they are not covered by Coast4Lifes insurance plan. It is estimated that the repairs will cost approximately $3 million, in addition to the refurbishment already scheduled to take place in the upcoming winter. A summary of the external and internal environmental scans conducted in late 2012 is provided in Appendix 3. The board of directors mandated that Coast4Life remain profitable during the downturn. With the expected drop in business, the board members were trying to find ways to cut costs or generate additional revenue. They have directed the newly hired controller, Pat Brown, to analyze and provide supported recommendations on the alternatives below. One option was to consider divesting the Fraser dry dock. Coast4Life had been approached by a party interested in purchasing its dry dock land, facility and equipment for $4.3 million. The current book value of the dry dock is $2.6 million. Coast4Life believed it could have its standard dry dock maintenance done for an average of $2 million per ship at one of the commercial dry docks in Vancouver or Seattle. Average termination costs would be $6,000 per dry dock employee. The general manager of the dry dock division objected to this option because he believed that divesting the dry dock would hurt Coast4Lifes reputation for safety. He also believed that the layoffs could damage the relationship the company has with the local community, the city, and other governments. In 2012, the dry dock operated at full capacity and contributed to the overall profitability of the company. The second option was to target a more profitable market segment. The board provided the controller with a market study (Appendix 4) conducted by a consulting company and asked the controller to determine if Coast4Life can increase its profitability by changing its customer mix. A third option was to consider registering Coast4Lifes ships in Liberia and hire unskilled crew and hospitality workers from underdeveloped countries for low wages. The wages and salaries for crew and hospitality staff for a ship registered in Panama or Liberia would be up to 30% less than for ships registered in Canada. Approximately 30% of wages and salaries for the Coastal Native and 20% for the Natural Splendour pertain to captains, officers and sailors. The balance pertains to hospitality staff. There were concerns, however, about the implications of this alternative on service quality levels and potential public relations issues.

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A fourth option was to implement a web-based booking system to take advantage of the increasing numbers of travellers who are making reservations via the Internet. According to a quote provided by the VP of Marketing, a web-based booking system for Coast4Life would require approximately $50,000 for set-up costs and software. An accounting module that would be fully integrated with the booking system is available for an additional $25,000. The booking and accounting system would also enable shipto-shore electronic communication of transactions. It would also reduce the travel agent commissions by 10%. Coast4Life has a required after-tax rate of return of 16% and a tax rate of 38%.

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Appendix 1 Financial and Business Information (all in 000s except passengers and employees)
Budget 2012 24,000 574 $52,200 $21,400 $12,200 $4,330 $2,500 $4,473 $7,297 $4,500 $10,147 $350 $873 $196 $11,566 $62,709 $74,275 $6,586 $38,011 $13,140 $16,539 $29,679 2012 24,462 574 $55,653 $22,161 $13,009 $4,334 $2,511 $5,183 $8,455 $4,500 $10,461 $398 $933 $196 $11,988 $63,705 $75,693 $6,846 $38,011 $13,140 $17,697 $30,837 2011 22,793 574 $49,090 $20,127 $11,782 $4,312 $2,638 $3,888 $6,344 $4,500 $6,337 $310 $728 $154 $7,529 $65,740 $73,269 $6,216 $40,171 $13,140 $13,741 $26,881 Actual 2010 2009 19,919 18,143 524 $37,599 $15,415 $9,024 $4,284 $2,757 $2,325 $3,793 $2,000 $2,346 $222 $622 $88 $3,278 $69,085 $72,363 $5,122 $42,203 $13,140 $11,898 $25,038 484 $31,864 $13,064 $7,647 $3,312 $2,869 $1,889 $3,082 $200 $1,649 $80 $361 $88 $2,178 $72,100 $74,278 $7,760 $44,113 $12,300 $10,104 $22,404 2006 11,048 275 $16,348 $6,703 $3,924 $2,290 $1,071 $897 $1,463 $200 $10,725 $50 $300 $45 $11,120 $24,892 $36,012 $2,121 $16,398 $12,300 $5,193 $17,493 2003 7,722 135 $9,427 $3,865 $2,262 $1,940 $609 $285 $465 $50 $1,736 $3 $200 $15 $1,954 $18,220 $20,174 $1,498 $9,546 $8,200 $930 $9,130

Total passengers Total employees during cruise season Revenues Direct costs Selling and administration expenses Amortization expense Interest expense Income taxes Net income Dividends paid Cash and marketable securities Accounts receivable Inventory Prepaids Current assets Property, plant and equipment, net Total assets Current liabilities Long-term liabilities Capital stock Retained earnings Shareholders equity

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Appendix 2 Detailed Financial and Business Information For the Year Ended September 30, 2012 (Unaudited) (in 000s except passengers and passenger days)
Coastal Native $12,668 6,218 5,100 23,986 Expenses: Wages and salaries2 Fuel Direct materials3 Docking fees Other operating costs Credit card commissions3 Travel agent commissions3 Advertising and promotion Administration Insurance Interest Amortization Dry dock maintenance1 Income before taxes Income taxes Net income Passengers Number of passenger days 11,516 80,612 12,946 90,619 3,013 1,879 1,773 792 881 357 821 152 285 1,473 11,426 $12,560 Natural Splendour $20,454 6,473 26,927 3,295 1,885 1,994 774 638 509 1,325 170 492 2,244 1,540 14,866 $12,061 Dry Dock $ 6,280 InterDivision1 $ (1,540) (1,540) (1,540) (1,540) $ Head Office $ 3,916 1,452 2,964 189 2,511 557 11,589 $(11,589) Total $33,122 12,691 5,100 4,740 55,653 12,871 3,813 4,854 1,566 2,973 866 2,146 1,484 3,590 1,007 2,511 4,334 42,015 $13,638 5,183 $ 8,455 24,462 171,231

Revenues1: Ticket revenue On-board sales Ship rental Dry dock revenues

6,280 2,647 49 1,087 1,454 32 304 41 60 5,674 $ 606

Notes: 1. Budgeted revenues amounted to $31.2 million for ticket sales, $12 million for onboard sales, $5 million for ship rental and $4 million for dry dock revenues from external customers. The dry dock expense in the ship divisions is revenue to the dry dock division and is eliminated in calculating total revenues and expenses. It is expected that the dry dock will charge the Coastal Native $2.16 million for maintenance and $3.6 million for repairing the hull damage in 2013. 2. Approximately 30% of wages and salaries for the Coastal Native and 20% for the Natural Splendour pertain to captains, officers and sailors. The balance pertains to hospitality staff. 3. Variable costs.

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Appendix 3 Environmental Scan Strengths Good reputation for safety in the industry Offers unique services and features (e.g. whale watching, ports of call) Offers value for price (Coastal Native) and special amenities (Natural Splendour) Owns dry dock; ships well maintained Experienced sailors; low turnover Dock and head office in good location Good management team Steady growth in revenues (approaching full capacity) and income Weaknesses Ships fly Canadian flag, resulting in higher labour costs and higher taxes than competitors Advertising limited to sports and outdoor magazines Insufficient detail regarding passengers and crew provided in the database Passenger acquisition cost is higher than the industry average Lack of a web-based booking system rely mainly on travel agents for bookings High employee turnover Because of age of Coastal Native, damage insurance coverage is limited Threats Canadian destinations for cruises have a small market Large cruise ships and large brand operators dominate the market Worldwide events can seriously impact demand in the cruise industry (e.g. on-board outbreaks of diseases, terrorist attacks) Cruise industry is highly regulated Foreign currency fluctuations influence cruise prices and diesel fuel costs

Opportunities Growth in tourism industry in Canada Growth in cruise industry in Vancouver Strengthening economy in Canada Government agencies promote tourism in Canadian cities Increasing trend of online self-bookings by travellers More BC communities lobbying the government for assistance in building docks for cruise ships and freighters

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Appendix 4 Customer Data In the summer of 2012, a customer survey was conducted on selected Coast4Life cruises. The results revealed the following: 40% of passengers are less than 40 years old, 30% are from 40 to 60 years old, 30% are more than 60 years old, the average annual family income of passengers is $72,412, an average of 2.1 passengers travel together, 59.5% are U.S. citizens, 21.2% are Canadian citizens, and customers between the ages of 40 and 60 spend 20% more money on cruises than the other age groups (mainly because these passengers are in their peak earning years, rarely have children with them on the cruise, and spend more energy on in-port activities). As well, the company engaged FRI, an information technology consulting firm, to mine Coast4Lifes customer data. The objective was to uncover potentially useful marketing and other information. However, the consultants were unable to provide the report they were engaged to prepare. FRI indicated that the database was extremely difficult to work with, and the data groups are hard to link in order to produce relevant information. The consultants had tried to determine the revenue and profitability associated with each customer, but the data in the system lacked the required degree of detail. On-board sales of meals, liquor, goods and services (e.g. spa, hair salon) were not tracked by customer, nor were trips ashore. The only conclusion the firm could draw from the information available was that repeat customers spend approximately 15% more money on cruises than first-time passengers. Repeat passengers seem to sign up for more expensive cruises and prebook more extra services, such as whale-watching and sport-fishing trips. The revenue from the pre-booked extra services associated with individual customers is available in the database. FRI prepared the following summary: First-Time 19,570 $35,584,000 $2,100,000 Repeat 4,892 $10,229,000 $1,400,000 Total 24,462 $45,813,000 $3,500,000

Number of passengers Total revenue (estimated) Revenue from pre-booked extra services

FRI also noted that the database does not indicate the background of the ships crews, such as home country and languages spoken. Coast4Lifes marketing research department also provided the board with an industry benchmark for the key passenger metrics. The 2012 industry information is provided in Table 3 below.

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Table 3 International Cruise Industry Information for 2012 Total cruise revenue per passenger per day Passenger acquisition cost* Passengers per crew member per cruise % of passengers less than 40 years old % of passengers 40 to 60 years old % of passengers more than 60 years old Average annual family income % of first-time passengers CDN$314 CDN$114 2.31 29% 38% 33% CDN$78,000 60%

* Booking and promotion costs divided by the number of passengers carried.

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Appendix 5 Assessment Rubric Please see the General Assessment Guide for details on each Component. Note that some of the components are not assessed in this assignment.
AE: Above Expectations ME-: Low Meets Expectations ME+: High Meets Expectations BE: Below Expectations ME: Meets Expectations NA: Not Attempted

The difference between ME+, ME and ME- depends on the quality of the response.
Component 1. Qualitative Analysis and Strategy Formulation (Weight: 15%) 1. b) Integration is demonstrated to a reasonable degree. The analyses of the alternatives and minor issues: 1. Consider the cause and effect relationships between situational analysis (e.g. SWOT points, mission, goals/targets, constraints, preferences, KSFs) and alternatives; 2. Consider the implications of one issue or alternative on another; 3. Indicate how the alternative takes advantage of strengths and opportunities while mitigating weaknesses and avoiding/mitigating threats; and 4. Indicate how the alternative meets goals/targets within constraints, or aligns with the mission. AE: Provides more than 6 (not repeated) clear integration links that are reasonably balanced among the alternatives. ME: Provides 4-6 (not repeated) clear integration links that are reasonably balanced among the alternatives. ME+ ME MEBE: Provides fewer than 4 (not repeated) clear integration links, or the response includes serious errors/problems.

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Component 2. Application of Quantitative Tools (Weight: 35%) 2. a) The financial assessment of the organization covers three years and includes the following, and analyses are interpreted appropriately. 1. A balanced selection of relevant ratios, accurate calculation (e.g. liquidity, coverage, activity, profitability, return on investment/equity/assets); 2. Analysis of ratios (i.e. trend analysis and/or common sizing are applied appropriately in evaluating the organizations performance and risk); 3. Comparison with industry benchmarks (i.e. benchmarks provided are appropriately used for comparison and are interpreted in the analysis); and 4. Analysis on expected impact of downturn. BE: Fewer than four relevant ME: Four or five relevant ratios ratios are calculated, analysis is are calculated without serious provided for less than three errors for three years, at least years, fewer than two attributes two of the attributes are are addressed, interpretations addressed, and analyses are are not provided, or the interpreted with reasonable response includes serious quality. The response may errors/problems. include minor errors/problems. ME+ ME ME2. b) The quantitative analyses of the alternatives demonstrate a reasonable understanding of relevant decision analysis concepts and tools. Appropriate concepts and tools are chosen and applied appropriately (e.g. free of serious errors and reasonable quality). Any assumptions made are reasonable and relevant for the analysis of the alternatives. Relevant decision analysis concepts and tools that may be applied in the quantitative analyses of the alternatives may include (but are not limited to) the following: AE: More than five relevant ratios are calculated accurately for three years, at least three of the attributes are addressed, and analyses are interpreted appropriately. The quality of the response is good. 1. 2. 3. 4. Customer mix analysis/Contribution margin analysis; Profitability analysis; Capital budgeting; and Uncertainty/sensitivity analysis. ME: Most of the appropriate tools/concepts are applied, all strategic alternatives are analyzed, and assumptions are appropriate. The quantitative analyses may include minor errors/problems. ME+ ME MEBE: Insufficient tools/concepts are applied, one or more strategic alternatives are not analyzed, or the quantitative analyses include serious errors/problems.

AE: All appropriate tools/ concepts are applied, all alternatives are analyzed, and assumptions are appropriate. The quality of the quantitative analyses is good.

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Component 4. Systematic Approach for Issue Analysis (Weight: 25%) 4. a) Alternative/issue identification and prioritization: All alternatives and most of the minor issues (operational, functional and business issues) are identified and prioritized reasonably: 1 . All alternatives and most of the minor issues are identified and classified correctly; if there are both strategic and minor alternatives, strategic alternatives are identified before minor alternatives. 2 . Alternatives are analyzed in greater depth and breadth compared to minor issues; if there are both strategic and minor alternatives, strategic alternatives are analyzed in greater depth and breadth compared to minor alternatives (the quality of the analyses is assessed in 2. b) and 4. b)). AE: The response identifies and prioritizes the alternatives and minor issues appropriately. ME: The response identifies and prioritizes the alternatives and minor issues, may include minor errors/ problems. ME MEBE: The response does not identify one or more alternatives, or there are serious errors/problems with identification or prioritization.

ME+ 4. b) The analyses of the alternatives:

1. Demonstrate appropriate depth and breadth; 2. Are reasonably balanced (e.g. balanced between pros and cons, and balanced between qualitative and quantitative analysis); 3. Are objective/unbiased; and 4. Consider more than one perspective/global view consider the organizations internal and external environment. BE: One or more alternatives are ME: All alternatives are not analyzed, the response analyzed. The response addresses fewer than three of addresses at least three of the the above attributes, or the above attributes. The quality of the analyses is reasonable; may analyses include serious errors/problems. include minor errors/problems. ME+ ME ME4. c) Use of case facts, concepts from assigned readings, and assumptions. In the response: AE: All alternatives are analyzed. The response addresses all four attributes. The quality of the analyses is good. 1. Relevant case facts and concepts from the assigned articles and readings are appropriately applied; and 2. Ambiguous and/or missing information is identified, and assumptions are clearly stated. AE: A majority of relevant case facts and at least one concept from the assigned readings are used and well explained; most ambiguities are identified and dealt with appropriately. ME: Many relevant case facts are used and explained; some ambiguities are identified and dealt with appropriately. ME+ ME MEBE: Insufficient relevant case facts are used or explained, ambiguities are not identified/ dealt with appropriately, or the response includes serious errors/problems.

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Component 5. Recommendations (Weight: 15%) 5. Alternatives are ranked in terms of important decision criteria (e.g. goals/targets, constraints, key stakeholders preferences, KSFs, profitability, how easily the cons and key risks can be resolved, etc.). Recommendations for the alternatives are clear, feasible (i.e. address capacity, financing and other constraints), supported, and are presented in a convincing manner. AE: The response demonstrates that goals/targets are met within the constraints, and the recommendations are clear, feasible, supported, and are presented in a convincing manner. ME: The response demonstrates that goals/targets are met within the constraints, or the recommendations are clear, feasible, supported, and are presented in a convincing manner. ME+ ME MEBE: The response does not consider the goals/targets/ constraints, and the recommendations are not clear/feasible/supported/ presented in a convincing manner.

Component 6. Professionalism and Communication (Weight: 10%) 6. a) The format and organization of the report are appropriate: 1. The elements of a short report format are present: i) memo, ii) introduction, iii) body of the report, iv) conclusion, v) appendices/exhibits, and vi) footnotes. 2. The introduction provides the purpose and scope of the report; 3. The conclusion brings together the findings and draws the report to a close; 4. The appendices contain appropriate content (e.g. SWOT analysis, quantitative analysis); 5. The sources of articles and readings are acknowledged in the footnotes, and references follow an accepted standard; 6. The content of the report is organized appropriately for a business report (e.g. uses headings and subheadings, is appropriately sequenced, uses lists effectively); and 7. The report follows the given format specifications pertaining to font size, scaling, use of Excel and Word, spacing, margins, page numbering, page orientation and paper size (for appendices provided in Excel, scaling must be set at 100%; for appendices imported from Excel to Word, text and numbers must be presented at the specified font size; images may be used to illustrate concepts or trends only (e.g. graph or pie chart) and may not be used to present text boxes or quantitative exhibits). AE: All elements are present and of appropriate quality, the content is organized appropriately, and the report conforms to most of the format specifications. ME: One or two elements are missing or may not be appropriate, may include some minor errors/problems with organization, and the format of the report is acceptable. ME+ ME MEBE: More than two elements are missing or are not appropriate, or the report seriously deviates from the organization or format specifications.

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6. b) The language, style, content expression and flow of the report are appropriate: 1. The language used in the narrative is without a distracting number of deviations from business norms, jargon or unexplained abbreviations, and has few spelling, grammatical, sentence structure, punctuation and typographical errors; 2. The report reflects an appropriate professional tone and tact, and addresses the appropriate audience (e.g. managers, executives). In applying the concepts from assigned readings, brief non-academic explanations are provided that are appropriate for the audience; 3. The qualitative and quantitative content is expressed clearly, logically and coherently, and flows well. Repetition is used in an effective manner and is not excessive; and 4. References, labels and audit trails are provided where appropriate (e.g. the report is easy to follow, provides direction to the reader). BE: Major problems such as ME: Some problems with distracting errors. Overall, the language use or content report is difficult to follow. expression, but they are not distracting; the report flows well and provides acceptable direction to the reader. Overall, the report is still easy to follow. ME+ ME ME6. c) The introduction, body and conclusion combined are no more than 750 words, and there are no more than five (5) pages of properly formatted appendices. Content that exceeds these length limits is not considered in the assessment of the response. The report is limited to one MS Word and one MS Excel file. AE: Few problems with language use or content expression; the report flows well and provides good direction to the reader. Overall, the report is easy to follow.

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