Developmental Barriers In Zambia & Analysis Of Crystal Ball Dss Software

Contents

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Case Study Q1

Describe the various barriers Zambia faces in developing its economy…………………………………………………………………2

Q2

In what ways can the Internet help Zambia (and other African countries) attract the investment needed to help their economies modernize and grow?.................................4

Q3

How did the internet help the World Bank operate as an international organization?........................................................................6

Research Q1

Give a brief explanation of the company and system’s profile…………….8

Q2

Describe the purpose of the system………………………………………...10

Q3

Describe the characteristics and functions of the system…………………...13

Q4

Identify the advantages and the weaknesses that you can find from the system……………………………………………………………..15

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Case Study Q.1

Describe the various barriers Zambia faces in modernizing its economy.

There are several significant barriers for Zambia in modernizing its economy. A strong or developing economy is a prerequisite for undertaking modernizing initiatives, something which Zambia sorely lacks. To be more precise, it suffers from the twin demons of relatively high inflation (which was at 20% in 2001, but has since recently improved to a high single digit range) and high foreign debt ($6 billion in 2000). 70% of Zambians live below the poverty line, and nearly half of all Zambians are unemployed as a result of all these factors. These two issues (inflation and debt) pose a huge obstacle to Zambia in modernizing its economy in that high inflation devalues its currency even while a significant portion of its economy is spent servicing its debt. Another problem in Zambia would be due to political problems. While it is still relatively more stable than other African countries, nevertheless the government bureaucracy has been characterized as inefficient and corrupt. The current president of Zambia is seen as much “cleaner” than the previous presidents, although he has demonstrated authoritarian traits, such as wanting to deport a British citizen staying in Zambia who was critical of him. Political stability is something that is crucial to attract foreign investments. Zambia is not a country in turmoil, but investors may be worried about its corrupt system - it ranks 2.6 in Transparency International’s 2007 rankings. (The most corrupt country -Somaliaranks at 1.4, the cleanest -Denmark- at 9.4). There are other factors as well. Infrastructure in Zambia, which has since greatly improved recently, still remains relatively poor. Nevertheless, there have been substantial improvements in telecommunications, so much so that the number of cellular users

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leaped from 6,000 in 1998 to 320,000 in 2004. It currently has 5 ISPs with 334,000 internet users as of 2005. As World Bank officials have said, even more important to Zambia than the lack of money is the lack of information. Without access to information, investors will always shy away due to the fact that they have no idea of what is going on within the country. Likewise, if there is inadequate communications infrastructure, then co-coordinating businesses and investments will be very difficult. As such, very few foreign investors will want to invest in the country, due to the enormous risk. The Zambian telephone network, for example, is notorious for being always congested due to the fact that only one state-owned operator runs it. As such, many people and companies have several telephone lines, in case one doesn’t work. Overall, the information network in Zambia is relatively new and as such still runs into a variety of problems. There are numerous other problems, such as the critically large amount of orphans (over 600,000 living mainly in the capital city of Lusaka) and a soaring HIV/AIDS rate (one million, or one in every ten Zambians have contracted that disease). All these put a great strain on Zambia’s financial and human resources, and all of them pose significant barriers to Zambia in modernizing its economy. Still, it has made great leaps in the past decades (some of which has been highlighted here) and if such progress continues, then it is quite possible that it may become a more progressive nation in the future.

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Q.2

In what ways can the Internet help Zambia (and other African countries) attract the investment needed to help their economies modernize and grow?

Undoubtedly, internet and intranet capabilities have fuelled the rise of Western economies. Nations that have the highest internet penetration rate also tend to have the most progressive economies. Thus, it is crucial for third world African countries like Zambia do develop the infrastructure necessary in order to utilize the benefits of the Internet. As has been stated in the early question, the main way the Internet can help attract foreign investment is by enabling the delivery of information to those investors. Without any access to key information, then many people will see Zambia as high in risk, and thus shy away from investments there. Thus, the main way the internet helps various African countries is through the enabling of access to information. A few ways that the Internet has helped countries like Zambia include: Internet access has enabled the World Bank’s rural branches in African Nations communicate to headquarters around the world. Of course, many other companies have benefited. In Tanzania for example, Sangare Clearing and Forwarding (a small logistics company) eliminated one of its biggest costs (using telex paper) by utilizing the Internet to help customers keep track of their shipments. Due to the large costs of telecommunications in Africa (due to the poor and congested landlines), many companies have turned to the Internet to help keep in contact with foreign partners. A one minute international fax can cost up to US$20 in some countries, but companies can now e-mail pages of documents within a few seconds.

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The Internet has also allowed entrepreneurs extend their businesses globally, via ecommerce. In Niger, rural craftsmen have leveraged on the Internet to sell their handcraft globally, with the help of a Canadian charity. This initiative greatly expanded their market base, and thus, their income. The internet also allows government agencies, which may be separated by large distances, to keep in touch with each other, allowing a more efficient administrative system. Likewise, access to the internet has also saved many lives: a doctor managed to save a patient’s life after utilizing Kenya’s HealthNet to e-mail specialists in the US for their advice. African farmers also utilized the Internet to find out the latest international prices for their agricultural produce, and many children living in rural areas could not be provided with world class education. As such, the Internet plays an important role in the provision of information and subsequently, a higher standard of living. It can clearly be seen, then, that the Internet has enabled African nations to communicate and as such their businesses and their governments to improve in efficiency and productivity. In the end, this leads to greater willingness for foreign investments- which is of the utmost importance for a progressive economy.

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Q.3

How did the Internet help the World Bank operate as an international organization?

One of the main objectives of the World Bank is to reduce information and income inequalities. As such, this especially requires them to set up bases of operation in various third world countries, and especially in places where many people live in poverty. A main barrier for them in effectively conducting their operations would be that of a lack of communications infrastructure. As was noted previously, many African nations like Zambia sorely lack the telecommunication capacity to adequately meet World Bank’s needs. As was pointed out, the phone lines were not well maintained, and were usually overloaded. Likewise, the cost for their usage was exorbitant. As such, it faced great difficulties in communicating with its branches in more rural areas, in nations like Zambia and Tanzania. Even in 1994, staff in the Washington D.C. could only receive latest updates by speaking to their staff who had returned from those countries. Often, the reports were weeks outdated. Since that, the World Bank has taken such measures as to install in all of its offices (around the world) intranet capabilities. As such, branches worldwide (via the Internet) could be connected with their headquarters, providing instant updates around the clock. The Internet provided World Bank these capabilities, and more often than not they were responsible for setting up Internet capabilities for countries that lacked it (such as Zambia). One of its latest innovations would be the Global Development Learning Network (GDLN), which serves its 111 field offices and 26 learning centers utilizing satellite networks. This network essentially provides those centers with Internet connectivity capabilities, and includes such features as distance learning and teleconferencing.

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The added advantage of using satellites is that it will be able to penetrate even the most rural areas, where phone lines are non-existent. The Internet has thus managed to help World Bank operate as an international organization in that it allows it to coordinate its branches effectively, and with minimal delay. References for Case Study The World Bank, Cisco Systems http://tinyurl.com/yswt5g Mike Jensen, Internet opens new markets for Africa, Africa Recovery Online http://www.un.org/ecosocdev/geninfo/afrec/vol12no3/internt1.htm Africa and the Internet, The Chronicle http://www.thechronicle.demon.co.uk/archive/7_9_14af.htm Communications in Zambia, Zambia Travel Guide http://www.zambia-travel-guide.com/bradt_guide.asp?bradt=1152 Zambia, CIA World Fact Book https://www.cia.gov/library/publications/the-world-factbook/geos/za.html Africa Cases 2004 http://www.cpj.org/cases04/africa_cases04/zambia.html

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Research Q.1

Give a brief explanation of the company’s and system’s profile.

The company that will be discussed is British Petroleum, or more popularly known as BP. As their name suggests, they are an oil and gas company; the third largest in the world. Their total product output constitutes 5% of total global oil production. They have operations in more than a 100 countries and over 102,000 staff worldwide. BP also has one of the highest oil reserves in the world, second to ExxonMobil (the number one) and higher than companies like Shell. In 2008 they produced 5 million barrels of oil. The company was founded in 1901, and most of its shares were held by the British government. It was only in the 1980s when Margaret Thatcher’s privatization program was implemented did the government sell its shares to private investors. In 1998, BP merged with American oil and gas company Amoco, becoming BPAmoco. In 2000, it was renamed back to BP and adopted the tagline “Beyond Petroleum”. Indeed, they recently stated in early 2007 that over US$8 billion will be spent over the next decade researching alternative methods of fuel. BP operates all the way from the back end to the front end (like most major oil companies). This means that it does its own oil exploring and surveying, followed by drilling, processing and finally shipping it all the way to its retail outlets. As such, enormous amounts of expenditure are required annually. In the process of locating new oil wells to drill, a large amount of capital (30% of BPs capital expenditure) and risk is involved.

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Operating drilling rigs costs $500,000 a day alone. Likewise, its must also take into accounts its partners (such as the governments who allow them to drill in that location) who may be upset if BP reports extra costs or lower output. As such, BP must always keep its promises. The equation here is a very simple but hard to balance one, namely, that of minimizing cost overrun vs. maximizing project value. Such cost estimations may be extremely complex. As such, BP has employed a specific DSS (Decision Support System) application in order to aid their calculations. Specifically, it is a computer based software known as Crystal Ball. Crystal Ball is a model-driven decision support system. In other words, it is a DSS application that processes decisions or different options and helps managers and decision makers choose the optimal solution. It is also very popular, being used by more than 85% of Fortune 500 companies. It was developed by Decisioneering, Inc. and is now owned by Oracle. It should be noted that is not an independent program- it requires a user to have Microsoft Excel. As such Crystal Ball works as an extension, or plug-in for Excel. There are two main editions of Crystal Ball, the standard edition which is a simplified version of it and the professional edition, which includes a development kit for more advanced users who which to create custom models. Crystal Ball software can utilized for a wide variety of purposes, such as cost estimation, Six Sigma design, financial planning, business and market forecasting, portfolio allocation, project management, valuation and such.

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Q.2

Describe the purpose of the system.

As was stated earlier, the main purpose of Crystal Ball is to act as a DSS (Decision Support System) for companies seeking deeper analysis of given variables. The most popular use of Crystal Ball in this regard is as a risk analysis tool. In the context of BP, Crystal Ball is used primarily as a risk management tool. Utilizing its Monte Carlo algorithms, it is used for example, for time and cost estimation in oil drilling projects.

Fig. 1- How BP conducts time and cost estimation. The process first involves inputting set values into an Excel spreadsheet. After all the required values are placed, the user runs Crystal Ball. The simulation, using “Monte Carlo” analysis takes into account various factors of uncertainty (factors that would make traditional cost and time estimations very difficult). The figure in the next page shows an example of Crystal Ball in action, calculating the amount of savings from two different cellphone plans.

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Fig 2- Spreadsheet values prior to Crystal Ball analysis. This is a screenshot of an Excel spreadsheet, with two separate cellphone calling plans. Using Crystal Ball, the user can calculate the actual amount of cost savings from a certain cellphone plan.

Fig 3- Spreadsheet values after Crystal Ball analysis. Figure 3 shows values of the spreadsheet post-simulation. Notice that the cost savings for column B has changed. This is due to Crystal Ball’s taking into account various uncertainty variables, including variables such as standard deviation. 11

The above is merely one of the uses for Crystal Ball; as was stated earlier, it has a wide variety of uses. Nevertheless, its main purpose would be for forecasting (with a wide variety of applications) in order to provide a “credible picture of risk, create accurate predictive models and search for the best solution in maximizing value.”

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Q.3

Describe the characteristics and functions of the system.

Crystal Ball is a model-driven decision support system that employs a computational algorithm known as “Monte Carlo” simulation. It was first developed as a technique that used random numbers and probability to solve problems. It was named after the famous casino resort, known for its games of chance (i.e. gambling). In Crystal Ball, the algorithm is utilized as a method to imitate a real-life system in contrast to other, more traditional analysis which may be too mathematically complex to reproduce. Crystal Ball acts as an augment to the traditional spreadsheet (which can only work in a linear direction, or the most likely or average scenario) by enabling the user to run simulations, which randomly generate values for uncertain variables over and over to simulate a model. For example, it assigns values to various variables that are subject to change at any instance: interest rates, staffing needs, stock prices, inventory etc. In running the simulation, the user chooses a probability distribution for possible values:

Fig. 4- Probability distribution models in Crystal Ball. Crystal Ball, through the simulation, will create a model by collating values from the selected probability distribution model, which will flesh out various scenarios for the uncertain variables. The simulation can be run thousands of times in a space of a few seconds to generate a more balanced result.

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Overall, Crystal Ball comes with a rich set of features, such as: OptQuest, a step by step wizard that optimizes the search for a given business decision. Essentially, it saves the users time and effort by automatically making the best decision from a given set of variables. CBPredictor, which predicts future outcomes by analyzing historical time series data. It also allows users to easily create “regression models” that uses multiple data series to create predictions. Developer Kit, which allows advanced users to create Crystal Ball models for programs other than Microsoft Excel (but which are Visual Basic based). It also includes tools that render results into graphics, a “bootstrap” tool that assesses the reliability of forecasts, and scenario analysis, which allows the user to see a certain outcome for a specific variable.

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Q.4

Identify the advantages and weaknesses that you can find from the system.

For BP, there are several advantages inherent in using Crystal Ball. For example, the utilization of Crystal Ball (which uses Excel Spreadsheets) saves time and implementation cost. It would be much more painstaking and expensive to learn completely new software, whereas people already familiar with Excel need only learn a few elementary basics about Crystal Ball to do their work. Likewise, the spreadsheet based decision support system makes the interpretation of results easier, since most people are familiar with and understand Microsoft Excel. If, for example, most of the company’s financial analysis is done with Excel, then Crystal Ball will be right in line with their policies, and they need not turn to other software to perform any needed analysis. Specifically, BP has two main reasons why they utilize this method for their time and cost estimations: firstly, by using spreadsheets, this better helps their engineers investigate past performance and to identify and quantify risk. Secondly, it is to show the management the range of outcomes and the reasons behind the range. The main goal, thus, is to enable constructive conversations around risk and performance. Some more general benefits of Crystal Ball include: Its Monte Carlo simulation offers a more sophisticated approach than traditional “guesstimates” of values. Its correlation and precision control features provide more accurate and flexible (and faster) modeling. It also has macro tools to automate simulations and analysis.

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It also has intuitive tools, making it easier for an inexperienced user to learn the software. Its “Sensitivity Analysis” optimizes results to show what matters the most; and it also can reproduce them in the form of graphics and images in order to help others better understand the results. Recently, a new version of Crystal Ball had been introduced which incorporated the “Extreme Speed” feature, where thousands of simulations could be run within the space of a few seconds, something not found in other similar software. There are, however, a few drawbacks. Perhaps the main one is that Crystal Ball requires Microsoft Excel to run, and this might be a disadvantage for those who do not have that specific application, and for companies who run other products like Open Office or Star Office. Along with Microsoft Excel, a thorough knowledge of it is required. Since Crystal Ball takes full advantage of the spreadsheet, this means that the user must be thoroughly acquainted with Excel to utilize Crystal Ball to its full potential. Some might have difficulty understanding a spreadsheet. Even with Crystal Ball’s ability to distil the results in graphical form, viewing the raw Excel data might be complicated for those not familiar with spreadsheets. Since Crystal Ball is very much mathematical software, a detailed knowledge of business finance and quantitive methods is required in order to understand and operate the software. The user must first properly understand his company’s “uncertain” variables, such as interest rates and inventory. Nevertheless, Crystal Ball is one of the more intuitive model-driven DSS software, and as such is used by a large majority of companies.

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References for Research BP Corporate Website www.bp.com Crystal Ball Company Website http://www.decisioneering.com/crystal_ball/index.html Hugh Williamson, How BP uses Monte Carlo analysis as a risk management tool http://www.crystalball.com/events/download/cost_20060524.zip Types of Decision Support Systems http://www.gdrc.org/decision/dss-types.html The tools of the master forecaster, FCW.com http://www.fcw.com/online/news/102385-1.html

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