The S'No Risk Program (Management Decision Models) 2 Assignment

The S'No Risk Program (Management Decision Models) 2 - Assignment Example After going through the entire case it can be said that the most important reason behind the sudden hike in rates by the insurance firms was sudden flow of demand for Toro products, especially the shovels during the winter months (Bell, 1994, pp.1-2) and the interest of consumers in buying larger models of shovels so as to take optimum benefit of the deal. The growing interest among the consumers to purchase Toro shovels provided dealers the prospect to clear stock from their warehouses and this helped them to regain their lost confidence. Also S’ no risk program had basic cost of sales of 2.1% of sales which is generally 10% and hence the rates were heaved. The reasonable estimation of rates of insurance will depend on the factors like customer preferences, product demand, competitor’s insurance rates, cost of sales, scope of profit of the company etc. Based on the case, the effect of plausible insurance rates and their relationship with profitability can be derived fr om the following table- Items Single Stage Power Shovel Two-Stage Power Shovel    Min Max Min Max    Price ($) Retail Price 270 440 640 1500 Units Sold 100000 100000 20000 20000 Total Revenues 27000000 44000000 12800000 30000000 Basic Cost of Sales/Premium @ 2.1% 567000 924000 268800 630000 Profit 26433000 43076000 12531200 29370000 Premium @6% 1620000 2640000 768000 1800000 Profit @ 6% 25380000 41360000 12032000 28200000 Premium @8% 2160000 3520000 1024000 2400000 Profit @ 8% 24840000 40480000 11776000 27600000 premium @ 10% 2700000 4400000 1280000 3000000 Profit @ 10% 24300000 39600000 11520000 27000000 From the chart shown above it can be concluded that when the rates are raised profitability will get reduced and vice-versa. Answer 2 The S’ No risk program by Toro is shown below: From the consumer’s point of view, the above pattern showcases an appealing proportion of refund which is utterly reliant on the amount of snowfall in the area. The pattern states that when the snowfall would increase, the consumers would have the alternative to purchase any model of shovel and during lesser snowfall the customers would be allowed money back. However the money back alternative would be applicable till the average snowfall reaches 50%. Further than that the consumers won’t get the reimbursement advantage. Hence it can be concluded that both the approach would be in support of the customer benefit. However a condition might arise when a purchaser makes the purchase of a self-propelled two-stage shovel worth $1500 and during that year the average snowfall in the area reaches 80%, then he will not be entitled to any money back benefit. In such situation the consumer might think that he has made an incorrect choice by expending $1500 for the shovel when he had the alternative to procure the shovel valued at $ 640. The table in the previous discussion demonstrates that the clients prefer to expend the smallest amount and obtain the most gain from a deal. Therefore we can state that the rate which would be most accepted by the consumers is 6%. However 6% would not be favored by the insurance company as it would not bring them enough profits. Thus Toro must select a moderate rate considering both the related stakeholders and it should opt for the 8% rate. Answer 3 Snowfall is the common decision trap here. From Toro’s perspective, the volume of sales would exclusively