Professional Documents
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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.
CONDITIONAL PROBABILITIES
P(Legal suit against Forward)
0.04
0.96
0.36
0.64
1
0.84375
0.04
0.64
1
0.2
0.857142857
0.931034483
0.142857143
0.068965517
0.42
0.58
0.04
0.64
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.
Prob.
0.3
0.4
0.3
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.
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
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.
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
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