Question

Decision Tree Analysis Construct a decision tree.

You are going to open a private gym in Chantilly, Virginia. Your idea is to provide fitness service for women only, but including men in not out of the realm of possibility. The cost and time to have the building owner build-out the facility is one month and $80,000. If you do the work yourself, the owner of the building will give you break on your rent but it will take you four months to complete the work. Self build option rent is free for the first year and then 10K monthly. Equipment costs $10,000 and was financed at a rate for 5% for 5 years. If you choose to include childcare, you have additional start up equipment costs of $1000. Utilities are included in the rent. Rent with build-out = $25,000. Rent with self build-out option is $16,000 but first 12 months free. Self build-out costs were 80K.

Important Information

• Expect stable revenue in the form of annual membership fee at $90/monthly for 300 members.
• An expected attrition rate of membership of 5%.
• New membership join rate of 12% annually.
• Private training revenue of $1800/monthly.
• Special class revenue (Pilates, Barre, other) expected to be $180/month. The instructor cost is $120/month.
• Option to hold special events can yield $150 monthly (Friday night happy hour workouts, Valentine's workouts, New Year's Day workouts, etc.).
• Insurance fees - 2% annually.
• Monthly childcare costs $10/hour paid by the client for 6 hours a week. $20/month is added to membership if the client wants childcare. However, if you do not provide childcare, your market is decreased by at least 30%.
• Monthly salaries for trainers - $1000/month. Owner taught classes equivalent of 4 trainers.
• Additional costs include
  
  • Accounting = $100/month
  • Advertising = $50/month
  • Insurance = $3,000/year, if no childcare option, insurance = $2000/year
  • Legal = $500 in the first month
  • General Office Supplies = $100/month (owner does own cleaning)
  • Telephone = $100/month
  • Utilities = included in rent
  • Website = $25/month
• Owner Draw = $1,000/month in the first year then $2,000 and $3,000/month in year 2
  and 3 respectively.
• Choose a course of action and defend.
• What is the payback period?
• Note assumptions in your model as well as risks that would significantly impact the
  decision tree and warrant a revision of the decision tree.

Answer 1

1. In general, there are two methods to measure the capacity of any system or process: in output measures or input measures. Output measures of capacity are best utilized when applied to individual processes within the firm. Input Measures are generally used for low volume, flexible processes, such as those associated with a custom furniture market. The input measure is the degree to which equipment, space, or the workforce is currently being used. In the cases of Fitness Plus, Input Measures of Capacity is more appropriate to be used to measure the capacity of Fitness Plus. This is because Fitness Plus is operating in a flexible flow process involving high product variety and process divergence, for example, members choose their own workouts. The method of input measure can calculate the capacity of equipments, space or the workforce currently being used.

No, Fitness plus has not reached to its maximum capacity as due to growth in membership and large shifts in demand because with the help of calculations as given below capacity utilization did not reach maximum in each activity. Members of Fitness Plus are using more than one area during each visit which is the main problem of crowding and unavailability of equipments. Many members may also workout more than one hour.

Total Members during peak period = Members x Hours

Total Members during Peak period= 240

Aerobic room: There are 35 members capacity in single class. 80 members enter the club at peak duration. 30% of the members use primarily aerobics room hence 24 members usually use the aerobics during peak time.

Utilization of aerobics = 24 x 100%/35= 68% which means that aerobic room did not reach its full capacity.

Workout Room:

As there are 24 pieces of Nautilus equipment it can be assumed that one equipment can be used by any 2 members per hour. Hence capacity of the nautilus equipment has maximum capacity of 48 members per instant.

According to the data collected

80 members enter in club during peak duration. Usually member remains in the club per hour. 25% of the members use nautilus hence 20 members usually use aerobics in peak duration.

Utilization of aerobics = 20 x 100%/48 = 41.66%

Hence workout room has some capacity.

Large Workout Room:

As there are 29 pieces of Nautilus equipment in this room, it can be assumed that one equipment can be used by a 2 members per hour. Hence capacity of nautilus has the capacity of 58 members per instant.

But as per data

80 members enter in club at peak duration. Generally member remains in the club for an hour. 40% of members utilize cardiovascular equipment in large workout room hence 32 members usually use aerobics room during peak duration.

Utilization of aerobics = 32 x 100%/58 = 55.17%

Hence large workout room has capacity of 55.17%.

Free Weight Room:

There is not valid information available about free weight room. Hence we cannot calculate capacity of free weights room. But we can get to the member flow in peak duration in the free weight room area.

Racquetball Courts:

There are 8 racquetball courts in the recreation center of the fitness plus. Assuming if 2 members use one racquetball court at a time then the capacity of the courts will be 16 members in one hour.

According to the data collected by the survey:

80 members enter club at peak duration. Usually members remain in club for an hour. 15% of members use aerobics hence 12 members usually use aerobics room in the peak duration.

Utilization of aerobics room = 12 x 100%/16 = 75%

This shows that racquetball court capacity is 75%.

Tennis courts:

There are 6 tennis courts in recreation area of fitness plus. If two members use 1 tennis court in a hour capacity of tennis court is 12.

According to data:

80 members enter in the club at peak duration. 10% of the members use the aerobics so 8 members usually use the aerobics room in the peak duration.

Utilization of aerobics = 8 x 100%/12 = 66.66%

Hence tennis court utilization is 66.66%.

Outdoor Pool:

Members using large pool area is not mentioned. Moreover this area is not complaint by any of members. So the capacity issue cannot be considered

Whirlpool tubes:

This area is present in the locker rooms of the fitness plus & data is unavailable and customer is never concerned about this area so this area can be ignored.

As above discussed the capacities have been measured by the utilization tool. Neither of the areas has reached their capacities.

2. For current circumstance Short term methodology would be fitting for the Fitness in addition to on the grounds that they need to grow their business. They not have much space, time and neither have numerous budgetary assets. By utilizing the fleeting technique, Fitness Plus can discover data identified with statistical surveying, workers, clients and innovation by including representatives in their basic leadership, take the remarks of clients into thought and set aside a few minutes table and booking by giving enhanced types of gear. Organization of Fitness in addition to ought to reach the individuals from the club and make a point to give best administrations to their clients. They need to gather the criticism from their individuals.

For future points of view, they have to deal with long haul methodology as the developments of their individuals are expanding. Long haul limit arranges manage interests in new offices and types of gear at the authoritative level since they are not effortlessly turned around. These arrangements cover no less than two years into the future however development lead times can some of the time take longer and result in longer arranging era. In future they need to purchase new working to grow the zone and decide the economies of scale. They need to build their work by thinking about that individuals won't be influenced by the adjustment in cost.

3. The proprietors ought to think about other working choices that are connected with the procedure. By utilizing transient methodology, an answer was discovered identified with planning and procedure of first start things out served. Organization of Fitness in addition to need to remember that it won't influence the other working exercises else it will be stuck in an unfortunate situation than some time recently. They need to remember about the focused needs: in the event that they need to grow the club they need to ensure that it won't influence the time booking of the individuals. Quality is the principle motivation behind keeping an association contending with different firms.

Process analysis: is important in wellness in addition to enhance or keep up the viability and productivity of process stream. One reason to break down process is to decrease planning sum and dispensing assets all the more adequately. They need to employ new work force in the new wellbeing and wellness focus. New office would require proficient staffs to play out their obligation. Trainings for the staff is additionally fundamental to enhance representatives communication with clients.

Layout design: the portion and planning of each action ought to be resolved so that each part will be qualified for get decent amount of utilization. It ought to be composed in the way that gives required limit use, have adequate adaptability for expanding interest of clients.

Break-even analysis: it must be performed to assess the choice of building extra offices. Wellness in addition to fixate must screen intently on the impact of cost and request.

Any extension includes an incredible viewpoint into the future and speaks to a long-term speculation. Ensure that each division teams up with the other one to achieve the result of the association.