Forward Software Essay

Forward Software, Inc. is a software company potentially facing a copyright infringement lawsuit. The spreadsheet product Forward sells includes an optional menu navigation system identical to that of Focus Software, the original developer of the menu system. Forward’s spreadsheet product currently dominates the market. Focus Software is currently suing a smaller software company that has also used this identical menu system in their spreadsheet software. It is believed that based on the outcome of this pending lawsuit, Forward Software, Inc. may also be sued. Forward has to decide between offering Focus an unsolicited settlement prior to the pending trial’s conclusion or waiting for the outcome and possibly facing litigation. To do this, Forward needs to determine the optimal decision strategy to take and how much the strategy is expected to cost. The hiring of an outside law firm that may be able to provide a prediction of the company’s success in winning a trial must also be considered, as well as the maximum that should be paid for that service. Savings associated with hiring the firm need to be determined and analysis of the best decision strategy will also need to be done. Based on our analysis, the best strategy is to wait until the outcome of the pending lawsuit. If Focus wins that lawsuit and files a lawsuit against Forward, Forward should hire the law firm to conduct the proposed study for the lawsuit. Based on the law firm’s findings (predicted win, predicted loss, can’t predict) Forward will have to decide to go to trial or settle out of court. The results show that unless the firm can make the prediction that Focus would likely win the lawsuit, Focus should settle out of court. The expected costs of this strategy range between $9 – $12.8 million dollars. This includes expected costs associated with hiring the firm. The maximum amount that should be paid for hiring the firm is $1.14 million. If the firm could accurately predict the outcome of the Forward versus Focus case, Forward could expect to save $2.4 million. A decision tree was constructed to determine the best strategy for Forward. This approach was chosen as there were many decisions and states of nature to consider and chronology was important. The decision tree allowed for evaluation in a chronological pattern. In determining the optimal strategy, analysis was performed to determine if it is best to settle now or wait on the verdict of a pending trial, whether to hire or not hire a law firm if sued, and also to determine the value of information that could be provided. Our analysis is as follows -Settle Now or Wait? The optimal strategy indicates that it best is to wait until the outcome of the pending trial. Following the optimal strategy, there is a probability of .64 that Focus will not have to make any payout, this is based highly on waiting on the outcome of the trial as there is a .60 probability that Focus will lose and not initiate a lawsuit. As the bulk of the non-payout probability is based on the out come of the current Focus case, this event was included in a sensitivity analysis of the overall strategy. The analysis was performed to assess how sensitive the strategy is to changes: in the probability of Focus winning its pending lawsuit (0-1); the probability of Forward winning a suit if brought (0-1); the maximum expected settlement if sued (+/-50%); the maximum expected judgment (+/-50%); and the cost of the firm’s research prediction (+/-100%). The torpedo graph below shows that the optimal path is influenced most highly by the probability of 1) Focus winning the pending suit and 2) the probability of Forward winning if sued. Of particular importance is the increase in cost (expected value) based on changes in the probability of the outcome of the pending Focus vs. Discount Software trial. The increase in expected cost to over $6 million indicates that the decision to wait or offer settlement prior to the pending suit’s outcome changed. To determine the point at which the strategy changed base on the probability of the current suit’s outcome, a second sensitivity analysis was performed focusing on this event. The strategy region chart below indicates that the decision to wait or settle now changes if there is a chance great than 67% that Focus will win its pending suit. As there is currently only a 40% chance given to Focus winning its pending trial, the recommended strategy of waiting for the outcome should be followed. (Though Forward should confirm the probabilities assigned to this event.) Do or Don’t Hire a Firm? Should Sam hire this law firm to do a study for the lawsuit and what is the maximum amount of money Sam should pay for the service? Important considerations in determining whether to hire the firm include the value of the information the firm can provide and the cost for this information. To determine the value of the information provided by the firm, expected costs of making the decision with and without the firm’s (free) information must be compared. Without the law firm’s analysis, Forward’s expected cost is $12.1 million. With the firm’s analysis, Forward’s expected cost is reduced to $10.96 million. (This figure assumes the information is provided for free.) The difference in the expected cost with and without the information is $1.14 million. This is the value of the information the firm can provide and is also the maximum amount Forward should pay for the service. If the law firm could accurately predict the outcome of the Forward versus Focus case, how much money can he expect to save? If the firm was able to accurately predict a win or loss, this would be considered perfect information. The expected cost in this case is $9.7 million. The difference between this expected cost and the expected cost of proceeding without the firm’s perfect information ($12.1 million) is $2.4 million. This is the amount Forward could expect to save if the firm was able to accurately predict the outcome of the Forward versus Focus case.