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CS3 Questions and Answers

Question # 4

A week later, Romuald Marek stops by your workspace and hands you a document.

The Board minute extract from Romuald can be viewed by clicking the Reference Material button above.

Reference Material

Board minutes extract: proposal to profit from ongoing strength of NS

Anna Obalowu Sole, Chief Operating Officer, reported that the strong NS was helping generate revenues from fuel sales. Discussion followed as to whether the strong N$ was likely to persist and whether a strong N$ benefits Arrfield overall.

Markus Jokela. Chief Executive Officer, stated that the Board should develop contingency plans that could be implemented if it seemed likely that the strong N$ would persist. In particular. Arrfield need not renew the contracts that permit aviation fuel suppliers to operate from its airports. Arrfield would then be free to create its own fuel sale business, buying fuel in bulk to replenish the storage tanks at each of its airports in Norland and then selling it directly to airlines He stated that this would almost certainly enhance Arrfield's share price

Romuald Marek reminded the Board that four of Arrfield's six airports are located in Norland and that those airports charge for aeronautical and non-aeronautical services in N$.

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Question # 5

It is now three days since the start of the oil spillage crisis.

You have received the following email from William Seaton, Director of Finance:

From: William Seaton, Director of Finance

To: Finance Manager

Subject: Crisis management issues


A quick update on the latest developments.

We have brought Block Associates in to lead the operations on dealing with the oil spill. It has assigned one of its leading consultants to take charge of this for us. We have paid Block Associates an annual retainer for many years, but we have never actually had to call on its services because we have been able to contain any environmental problems using our own resources.

Using Block Associates is going to be expensive. It insists on being free to bring in whatever equipment and personnel are required to resolve matters and to charge that on the basis of cost plus 25%. Our annual retainer is simply the cost of ensuring that it will respond on this basis if required.

We have had some murmurings of discontent already because our own engineers and geologists have made significant progress in identifying the cause of the spillage and they believe that they are capable of bringing it to a successful conclusion. They have suggested that it would be both quicker and cheaper to leave them in charge, while retaining the option to bring in Block Associates at a later date if they fail.

Firstly, what factors should we take into account in deciding whether to leave our own experts in charge of this operation rather than using Block Associates?

Secondly, how should we manage our relationship with Block Associates if we decide that it should be used?

Thirdly, two things: The Board is concerned that Slide’s engineers and geologists have already become disillusioned by the decision to consider calling in Block Associates. We cannot afford to lose their commitment or to see them decide to leave Slide in the longer term. I need you to provide me with some ideas as to how we can motivate them to give their best performance for the duration of this crisis AND to inspire them to remain in Slide’s employment after the crisis has been resolved.


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Question # 6

William Seaton, the Director of Finance stopped you in the corridor a week after the Head Geologist’s announcement that reserves had been overstated:

“We informed the stock exchange that our reserves had been downgraded and our share price has taken a solid hit. We need to work towards making sure that this is never repeated.

The Board is actively considering some changes that we hope will improve our forecasting system. I am not convinced that the suggestions will work. Frankly, if we could predict the future with certainty then I would have us stop looking for oil and start selling forecasts.

I would like you to work through the proposals that have been put forward and to recommend on their adoption, with changes if you think it necessary. The issues that we are most seriously considering are:

A suggestion that Big Data could be used to monitor oil prices. Do you think this would be a sensible way to proceed?

A suggestion that we should update our reserves information on the company website in real time. Do you think that would be an effective communication strategy?

Finally, we have considered a number of issues surrounding the motivation and inspiration of our geologists. Two quite distinct schemes have been proposed. Firstly, some Board members believe that our geologists should be rewarded in relation to the accuracy of their forecasts. Bonuses will be paid on the basis of correct initial evaluation of wells. The bonus will increase if a well that was initially identified as commercially viable goes into production and will decrease if a well that was classified as viable is reclassified as unproductive.

Secondly, other members of the Board believe that there should be a greater degree of accountability on the part of geologists. The incorrect classification of a well’s potential could be treated as a disciplinary matter. Please provide a detailed analysis of EACH of those suggestions.”

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