6.1 Defining the Case

In order to build an accurate and useful model, we must first define the questions we are trying to answer.

Here are the important elements of the example breach of contract case built in this chapter.

• We represent Kool Coal (KC) which is being sued by TV Utilities (TVU).

• TVU claims the following:

  • KC provided coal that did not meet the contractual specifications.

  • As a result, TVU's equipment was damaged. TVU is demanding $500K in direct damages to repair equipment.

  • In addition, TVU claims that the damaged equipment caused a plant shutdown. TVU is demanding $3.5M in consequential damages for revenue lost during the shutdown.

• TVU has demanded $1M to settle the case.

Given the above, we have several goals presented below. We want to...

• Map out the case based on how issues will be decided in court.

• Estimate the value of the case if it goes to trial given the uncertainties in how the case could be decided.

• Examine risk associated with litigation.

• And ultimately... decide whether to litigate or settle.

Creating a model will help us achieve these goals. Proceed through the remaining sections of this chapter to build and analyze the model to achieve these goals.