CASE ANALYSIS ON

FORWARD
SOFTWARE

Introduction:
Brief Overview
The spreadsheet market is primarily ruled by Focus Software, whose product Focus A-B-C occupies
80% of the market share. It had a symbolic effect on introduction soon after the IBM PC. Some of
its key features included a unique menu system which worked by pressing slash (/) key. The menu
allowed the user to make choices and provides a one-line explanation of each menu option. Another
advantage of Focus A-B-C was its ability to let users write their own macros. However, it did had
some flaws as well. Issues such as the software being copy-protected, problems in printing graphs
existed. The final list price amounted to 495/- with the best discount price available being around 300.

Another organization named Discount Software introduced its own spreadsheet to the market.
Though most of its features resembled the ones offered by Focus Softwares spreadsheet, its list price
was $99, and the software was not copy-protected. Despite the advantages offered over and above
Focus Software, sales for it were not as strong as for it, given the name of Focus in market.
Forward Softwares Dilemma:
Forward Software has been developing and marketing high-quality software packages for more than
five years, but those products were mostly computer software language interpreters. Encouraged by
the wide acceptance of its products, last year Forward Software decided to enter the applications area
for the IBM and compatible audience, leading off with Cinco and following up with a word processing
application, fast.

When Forward released its first spreadsheet product, Cinco, it was hailed by critics as a better all-
around product than Focus A-B-C. It had better graphics, allowed users to print graphs from within
Cinco, and was 100% compatible with Focus A-B-C, but the menu and options were arranged more
intuitively. For users who did not to invest time to learn a new menu system, Cinco could emulate the
Focus A-B-C menu system. In a move that surprised the industry, Focus recently sued Discount
Software, publisher of VIP Scheduler, for copyright infringement. Sam Ellis, the president of CEO of
Discount Software, is certain that Focus initiated this lawsuit because Cinco has made such dramatic
progress in gaining a share of the spreadsheet market. Sam is also sure that Focuss target is not really
VIP Scheduler, because it has such a small market share, but Cinco.

A few possibilities which exist are:

They could make a quiet overture to Focus to settle out of court

They could wait for the outcome of the Focus versus Discount Software suit. Forwards attorneys
believe that Focus has a 40% chance of winning its lawsuit against Discount Software.
Forward attorneys believe there is a 90% chance that Focus could initiate a lawsuit against them
in case the outcome of Focus Vs Discount was positive.
Here too they could either settle the case out of court or go for a trial
They could also hire an outside law firm, with a prediction accuracy of 90%, to conduct a detailed
research on the likelihood that Discount Software will win the lawsuit filed by Focus

Problem Statement:
Sam Ellis, the CEO and President of Forward Software, has to
decide upon the best strategy and option to minimize expected
loss. He also needs to consider whether it would be worthy
enough to hire the outside law firm for the research or continue
without it.

Basic Decision Tree:

For making decision between out of the court settlement or trial from the court, the above decision
tree can be followed which will lead to the minimum cost for forward.
For settling case out of court, there are three possibilities each with cost of $1 million.

$6 million with probability of 0.5

$9 million with probability of 0.3
$13 million with probability of 0.2

So, after calculating the total cost, we got -: 0.6*5+0.3*9+0.2*13= $8.3 million

Now, If Forward waits for result of the trial between Focus and Discount there are two possibilities:

Focus wins with probability of 0.4 and losses with 0.6 charge of $0 million

If Focus wins it can decide to sue Forward with probability of 0.9 and not sue with probability of
0.1 charge for Forward = $0 million
If Focus sues Forward has a decision to make between

(a) Out of court settlement with charge of $ 1.2 million:

$9.2 million with probability of 0.3

$12.2 million with probability of 0.4
$16.2 million with probability of 0.3

So, the total cost comes out to be 0.3*9.2+0.4*12.2+0.3*16.2= $ 12.5 million

(b) Now for considering the Trial option: it has probability of wins 0.2 and has cost of $2.5 million
and losses with probability of 0.8 with cost $10.5 million with probability of 0.1

$18.5 million with probability of 0.3

$20.5 million with probability of 0.6

So the total cost comes out to be 0.1*10.5+0.3*18.5+0.6*20.5= $ 18.9 million

Forward will go ahead with Trial if Focus wins against Discount and sues Forward minimum (12.5,
18.9) = $ 12.5 million

Cost for Forward if sued= 12.5*0.9+0.1*0= $ 11.25 million Cost for Forward if Focus wins the
argument against Discount = 11.25*0.4+0.6*0= $ 4.5 million

Therefore Forward will wait for trial between Focus and Discount and opt for out of court
method if Focus wins against Discount, as Cost minimum (8.3, 4.5) = $ 4.5 million

Recommendations:
From the basic tree it is clear that,
 Forward should wait for the trial between Focus and Distance and not opt for out of
court settlement.
Since the cost for out of court trial comes out to $8.3 million, to opt for it, the
expected cost of Out-of-Court settlement should go down by more than $3.8 Million
for the optimal decision to change.
Also after the decision for trial against Focus or Out-of-Court settlement, Forward
should opt for out of court settlement
To change this optimal decision, the expected judgment cost should reduce by
$3.9mn for the decision to change to go ahead with trial.
At last, Forward should not pay more than $0.564 million and not $0.7mn to the law
firm if it hires it for the survey

SENSITIVITY OF VALUE OF INFORMATION TO PREDICTION ACCURACY:

As we have seen, the optimal solution does not involve the Law firm. The law firm must increase the
accuracy to bring down the expected cost incurred for the company Forward Software. The sensitivity
analysis reveals that the indifference point (between hiring and not hiring a law firm) is when the
accuracy is at 92.20%. We can see the corresponding expected outcome as the level of accuracy
changes in the graph given below, assuming the other probabilities and payoffs remain the same.
 -4

Expected Cost Incurred in

-4.2

hiring the firm

-4.4
-4.6
-4.8
-5
-5.2
0.8 0.82 0.84 0.86 0.88 0.9 0.92 0.94 0.96 0.98 1
Level of Accuracy

The expected cost does not change for a while and remains constant at a value of $5.2 million. The
expected cost starts decreasing once the level of accuracy reaches somewhere around 81% and
continues to decrease to $4.02 million when the accuracy is 100%.

As explained the optimal expected cost without hiring the law firm is $4.5 million, hence the strategy
is to go without the Law firm if the cost incurred by hiring the firm is more than $4.5 m, and if the
cost incurred by hiring the firm is less than $4.5 million, go with the Law firm. As we have seen in the
above analysis the costs when the law firm is hired go down when accuracy of prediction is more than
92.2%. The entire range final optimal cost that is incurred with respect to the accuracy level is shown
in the graph below.

-4
-4.05
Expected Cost Incurred

-4.1
-4.15
-4.2
-4.25
-4.3
-4.35
-4.4
-4.45
-4.5
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Level of Accuracy

COST OF PERFECT INFORMATION

We can see from the above graph that the cost incurred with perfect information (100 accuracy) is
$4.02 m. This is $.48 m less than the current optimum value and the law firm costs us $0.7 m. So the
cost of perfect information is the sum of these two which is $1.18 million

PROBABILITY DISTRIBUTION OF COSTS UNDER THE OPTIMAL DECISION

The probability distribution of the cost under the optimal decision is(Settlement out of the court):
Cost that would be incurred Probability
$ 9.2 million 0.3
$ 12.2 million 0.4
$ 16.2 million 0.3

SENSITIVITY ANALYSIS

PROBABILITY OF FORWARD WINNING THE LAWSUIT AGAINST DISCOUNT

Consider the case where the probability of Forward winning the lawsuit against Discount changes. As
of now it is 0.4 in the optimal scenario. Let us see how this probability changes the optimum expected
cost incurred. The attached excel sheet has the sensitivity analysis required. The graph below
summarizes it:

0
-1
Expected Cost Incurred

-2
-3
-4
-5
-6
-7
-8
-9
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Probability of Focus winning against Discount

Also, as this event occurs and has impact on our decision, this changes both hiring and not hiring
branches of the decision tree. The slope of the graph changes at different points. The slope changes
around probability 0.45 and the rate of increase of cost incurring decreases. The expected cost incurred
becomes constant when the corresponding probability is 0.85.

PROBABILITY OF FOCUS SUING FORWARD

Consider the case where the probability of Focus suing Forward changes. As of now it is 0.9 in the
optimal scenario. Let us see how this probability changes the optimum expected cost incurred. The
attached excel sheet has the sensitivity analysis required. The graph below summarizes it:
 0
-0.5
-1

Expected Cost Incurred

-1.5
-2
-2.5
-3
-3.5
-4
-4.5
-5
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Probability of Focus suing forward

Again, as this event occurs and has impact on our decision, this changes both hiring and not hiring
branches of the decision tree. It is apparent that the cost incurred increases almost linearly with the
probability. The rate of increase decreases around a probability of 0.9 and the expected cost incurred
becomes constant when the corresponding probability is 0.95.

PROBABILITY OF FOCUS WINNING AGAINST FORWARD

Consider the case where the probability of Focus winning against Forward changes. As of now it is
0.8 in the optimal scenario. Again, as this event occurs and has impact on our decision, this changes
both hiring and not hiring branches of the decision tree. The attached excel sheet has the
sensitivity analysis required. The graph below summarizes it:

-0.5
-1
Expected Cost Incurred

-1.5
-2
-2.5
-3
-3.5
-4
-4.5
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Probability of Focus winning against Forward

It is clear from the graph that the expected cost incurred increases linearly with probability; from $1
million to $4.5 million when probability increase from 0 to 0.6, it then becomes stable at $4.5 million
with any further increase in the probability..