| Course | BU 531 Strategic and Risk Management for Business Success |
|---|---|
| Unit | Unit 2 |
| Paper type | Strategic options generation |
| Length | About 1,030 words, 6 pages |
| Format | APA 7 student paper |
| School | Herzing University |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for BU 531 Unit 2
Stay, Contract, Buy or Export: Four Genuine Strategic Options for a Composite Northern Michigan Pellet Producer, Each Specified to Its Commitments and Its Exit
Student Name
Business, Herzing University
BU 531: Strategic and Risk Management for Business Success
Instructor Name
March 9, 2026
Stay, Contract, Buy or Export: Four Genuine Strategic Options for a Composite Northern Michigan Pellet Producer, Each Specified to Its Commitments and Its Exit
What the Options Must Do
Unit 1 found a firm that holds up in normal years but could be tipped over by one bad one, with five dependencies: a debt covenant with little headroom, two retail chains taking a third of revenue, one sawmill supplying nearly a third of feedstock, a single mill, and summer inventory carried on the revolving line. An option worth considering should change at least one of those dependencies, and the set as a whole should give the board a real choice rather than one preferred direction flanked by two weak ones. Four options meet that test, including the case for continuing as the firm is.
Each option is specified the same way: what the firm would do differently, what it moves toward, what it consumes in capital and management attention, over what period, how it could be unwound and what has to hold for it to work. Ghemawat (1991) places commitment at the center of strategy, and the specifications here follow that lead, because options differ most in what they make hard to undo.
Option A: Continue as the Firm Is
The firm keeps producing about 104,000 tons a year for its current bagged and bulk customers, spends about $600,000 a year on maintenance capital, pays down the term loan on schedule and keeps paying the family dividend. It moves toward nothing new. It consumes little management attention, and it requires nothing to unwind, because nothing new is committed.
Its assumptions are that winters average out, that both large retail chains stay, that the largest sawmill keeps running and that nothing happens to the mill. Unit 1 showed that any one of those failing in a given year could push the debt ratio close to the covenant. Continuing is therefore not a neutral choice. It is a choice to keep every current exposure, in exchange for not adding new ones.
Option B: Long-Term Supply Contracts With Institutions
The firm would sign five-year supply contracts with institutions that heat with pellet boilers, such as school districts, county buildings, greenhouses and small manufacturers in northern Michigan, reaching about 15,000 tons a year by 2029. Contracts would set a minimum annual volume the customer must pay for and a price adjusted each year by a published fuel index. It moves the firm toward contracted, less weather-sensitive revenue and away from dependence on the two retail chains.
It consumes about $2.1 million of capital for four more blower trucks and two regional storage silos, plus the salary of a commercial account manager, and a large share of the owner's attention for two years while contracts are won. The extra volume fits within the mill's 120,000-ton capacity. It could be unwound fairly easily: trucks can be sold, silos repurposed and contracts allowed to expire, though early termination would carry penalties. Its assumptions are that enough institutions exist or will install pellet boilers, about 30 sites averaging 500 tons each, and that they will accept minimum-volume terms.
Option C: Acquire a Second Mill
A pellet mill in northern Wisconsin with capacity of about 60,000 tons a year is for sale after its owner's retirement. The firm would buy it for about $7.5 million and spend about $2.5 million upgrading it. The option moves the firm toward two sites, a second feedstock region and new retail customers in Wisconsin and Minnesota. It consumes about $10 million of capital, which would require either new debt that would take the debt ratio above the current covenant or an equity contribution from the family that would suspend the dividend for several years. It would absorb most of senior management's attention through 2028.
It is the hardest option to unwind: a mill bought in 2026 could probably only be resold at a loss. Its assumptions are that the lender agrees to restructure the debt, that the family accepts a suspended dividend, that the Wisconsin mill's feedstock suppliers stay through the change of ownership and that the firm can run two sites 300 miles apart with its current managers.
Option D: Industrial Export Supply
A European pellet trader has asked whether the firm could supply 40,000 tons a year of industrial-grade pellets for power generation under a three-year contract, priced in euros and delivered to a Great Lakes port. The mill cannot make that volume on top of its current output, so the firm would add a second production line of about 50,000 tons and a chipper to process roundwood, for about $6.4 million. The option moves the firm toward year-round, non-seasonal demand and toward a customer base outside the heating market entirely. In the terms Porter (1980) used, it would place the firm in a second industry with different buyers, different rivals and far less pricing power, since industrial pellets are sold largely on price.
It consumes large capital and new skills: currency management, export logistics and the sustainability documentation European buyers require. It is partly reversible, because the new line can also make residential pellets if the contract ends, though at a capacity the domestic market may not absorb. Its assumptions are that European policy continues to support pellet-fired power through the contract, that the firm can secure roundwood at a workable price and that shipping through a port that closes for winter can be scheduled around the contract.
Are the Options Genuinely Different?
The options pass the test of real choice. They act on different dependencies, consume very different amounts of capital and differ sharply in how easily they could be reversed. No two share most of their activity. Option B is not merely a smaller Option D, because one deepens the firm's home market and the other leaves it.
Dixit and Pindyck (1994) show that when an investment is irreversible and the future uncertain, the ability to wait or to stage a commitment has value of its own. That suggests a question the later units should keep asking of Options C and D in particular: whether any part of either could be staged, so that the firm learns before it commits fully.
| Option | Capital | Main dependency it changes | Main new commitment | Reversibility |
|---|---|---|---|---|
| A. Continue | $0.6 million a year maintenance | None | None | Not applicable |
| B. Institutional contracts | $2.1 million | Retail concentration and weather | Five-year supply obligations | High |
| C. Second mill | $10 million | Single site and supplier concentration | Debt or suspended dividend; two-site operation | Low |
| D. Industrial export | $6.4 million | Seasonality | Euro-priced contract; export capability | Partial |
References
Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton University Press.
Ghemawat, P. (1991). Commitment: The dynamic of strategy. Free Press.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. Free Press.
BU 531 Unit 2 instructions, in plain terms
Unit 2 of BU 531 asks students to generate strategic options for the firm analyzed in Unit 1. Expect three or four options plus continuing as is, each specified far enough that its commitments are visible: what the firm would do differently, which markets or capabilities it moves toward, what capital and management attention it consumes, over what period, how reversible it is and what assumptions must hold. Assumptions sit with each option rather than in a shared list. The set should give a real choice rather than one favorite and two weak alternatives. Options your company is currently weighing are confidential, so build options for a composite firm instead.
Inside the BU 531 Unit 2 example
The paper restates the five dependencies from Unit 1 and the test every option must pass, then explains why commitment is the main way options differ, following Ghemawat. Four options follow in turn, each covering what changes, what it moves toward, capital, management attention, period, reversibility and assumptions, with continuing as is presented as a choice to keep every current exposure. A comparison table sets out capital, the dependency each option changes, the new commitment and reversibility. A closing section explains why no two options share most of their activity and why staging should be tested for the large, irreversible ones, citing Dixit and Pindyck on the value of waiting.
Where the points sit in the BU 531 Unit 2 rubric
The rubric for options generation generally rewards genuinely distinct options, consistent specification, visible commitments, stated assumptions and a test of whether the set offers a real choice, with writing and APA. Distinctness earns credit when options act on different parts of the firm's position. Consistent specification scores when every option is described on the same dimensions. Visible commitments, including capital and reversibility, are often the most heavily weighted criterion. Assumptions earn points when they sit with the option they support. The test of real choice rewards papers that compare the set and explain why the continue case is not a neutral default. Instructors also credit options specified enough to be costed later.
Common BU 531 Unit 2 mistakes, and how to avoid them
Options papers lose marks when one preferred direction is surrounded by two weak alternatives that no board would choose. Another common problem is describing options as goals, such as grow internationally, without saying what the firm would actually do. Writers often omit reversibility, which is what makes some options far riskier than others. Some leave out the continue case or treat it as costless. Others put all assumptions in one shared list, so no option can be challenged on its own. Using a real company's live options raises confidentiality issues. If your options feel lopsided, our writers can help you rebuild a balanced set for your composite firm.
Get a BU 531 Unit 2 example written to your instructions
Upload the Unit 2 instructions with the BU 531 rubric your classroom carries, plus whatever case or firm the assignment holds over from the previous unit. We write a custom example that specifies several genuinely different directions on common terms, keeps the continue-as-is case, and states reversibility and assumptions for each. First custom sample free, returned in 24 to 48 hours.
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BU 531 Unit 2 questions, answered
How many options should the example carry?
Follow your instructions where a number is given. Where it is open, three or four plus the continue-as-is case is usually workable: enough for a real comparison, few enough that each can be specified properly. A long list looks thorough and reads thin, because the exposures examined later need detail that a set of eight options rarely gets.
Can two options share most of their activity?
They can, but then say what separates them and check the difference is worth a separate column. Two versions of one direction produce nearly identical exposure profiles, which wastes the comparison the course is building toward. Where variants differ only in pace or sequence, it is often cleaner to carry a single option and treat timing as a variable inside it.
May I use options my company is currently weighing?
Not as material. Live option papers, capital request forms, planning packs and anything circulated ahead of a committee are confidential to that organization, and a direction under consideration is often price sensitive as well. Generate the options for the composite firm instead, using your sense of what such a business realistically could do, and keep every figure invented for the assignment.
Where can I find a free BU 531 Unit 2 sample paper?
This page publishes the full BU 531 Unit 2 strategic options generation free, with four specified options, the comparison table and margin notes. Working on a different firm? Email the prompt with your position analysis; we return a balanced option set free, mostly within 48 hours.
Should continuing as is count as an option in BU 531 Unit 2?
Yes, treated as a real choice. The sample shows that continuing keeps every current exposure, including a covenant that one mild winter could breach, so it is not a safe default.