Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 8 pages in length and its case teaching package is 8 pages.

Abstract

The case, set in 1987, considers project economics, financial accounting results, and strategic issues for a new product venture by a property and casualty insurance company.

Forbes and White Insurance Group (F&W) is an agency-based commercial insurance company. They are concerned about the loss of "personal-lines" share of market (SOM) to "Direct Writers." They want to build back share in personal-lines (PL). They are offered a chance to bid on a very big direct marketing opportunity—an auto insurance program for a large "preferred risk" trade association. The financial projections look great. They place a bid. They win the contract—Hooray!! One year later the five-year projected results on a GAAP basis are far worse than predicted. The five-year combined GAAP forecast is dismal. They develop a revised actuarial and marketing forecast—best current estimates—which shows that, on a project return basis, the venture still looks very good.

Linkages to Textbooks or Journal Articles/Fit Within a Course

The issue is, how should they look at the venture and what should management do now? The case is an excellent vehicle to show students the way "project economics" and overall GAAP results can often diverge widely and show very different pictures of financial performance.

The case is also very useful for showing the way strategic considerations can be blended with financial analysis if students are willing to think about the business issues as well as the financial calculations.

Study Questions

1. Based on the information in the first column of Exhibit 2 of the case, prepare the five-year strategic plan for the DMO project as it was originally presented to senior management at Forbes and White.
2. What format would you recommend for summarizing the profitability of the DMO project?
3. Using the format you recommend in question 2, what is your estimate of the overall profitability of the project under:
   1. the original projections?
   2. the revised projections?
4. How would you resolve the problem of presenting the DMO project to parent company management and public shareholders when a "project return" format does not match a "GAAP-based return" format and the two formats show conflicting views of the project?
5. What business issues are raised for Forbes and White by this new venture? Is it a good strategic fit?
6. What is your recommendation to Frank Donahue regarding the future of the DMO project? Why?

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here:   For Windows 3.x   For Windows 95

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