The world is fast changing. Advancement in technology has seen companies make some hard but worthwhile choices so as to remain viable and in business. And the field of prototyping as well is rapidly evolving. According to Bak (2003), new technologies in 3D printing have enabled companies to print massive volumes of complex designs in a short period, an undertaking that used to take a lot of time and labor resources. Every existing and upcoming business is focusing on maximizing profits and minimizing costs. Family businesses, however small, are no exception as well. The current situation at EGCM is typical for most companies. This report is delivered to the Director of EGCM Prototyping Company, to help in decision making as to which project to undertake in the enterprise. The projects at hand are to either one, expand existing practices, or two, to introduce new and advanced machinery in the prototyping field. Both projects have the same end in mind, to attain maximum profits. Unfortunately, both cannot be undertaken concurrently (Kendrick, 1973).
The management of projects begins with the identification of need and alternatives of satisfying the need. Making a choice on which option to go with is the most crucial part of the project. The idea that is picked then needs to be well thought through and nurtured for the benefit of all stakeholders. In the EGCM company case, there is a need to optimize profits, stay relevant in future dates and to expand the market. The two possible projects are meant to push the company to new heights. But one needs to be selected that strikes the right balance between the benefits it brings to the organization against the expenses of installing it. Also of importance is how the project, in the long run, affects organizational orderliness, employee satisfaction as well as meeting consumer needs (Chapman & Ward, 1996). To make an informed choice, both projects will be evaluated using three benefit measurement methods, namely: Cost Benefit Analysis, Payback Period, and Opportunity Cost.
First, we consider the option of expanding the existing plant. This option will not cost much since it will only require an extending in the floor space and an employment of extra staff to cover the area. The assumption made here is that the expansion space is existing, and therefore, the acquisition cost is nil. On the qualitative side too, there is no much change regarding company culture and structure. Therefore, the workers remain satisfied. On the flip side, though, if the employees are de-satisfied on how the company structure is, then they will be severely affected, but the assumption here is that they are all satisfied. Considering the opportunity cost of choosing to expand as opposed to introducing new technology, it is cheaper and easier to grow the company as it is. The long-term cost though is that, though the company will end up increasing production and sales, the production rate will still be lower than if they took the alternative project. Regarding administration and business management, this choice will be most appropriate since it will have no significant changes in the company structure. This means that the firm remains solely a family run business as it was traditional. The payback period may tend to be stretched out over a longer period for the first project (Morris & Hough, 1987).
On the other side, considering the second project, the primary assumption is that the company has the capital and resources required to undertake the project. The opportunity value lost so as to undertake this project is relatively small. But the cost of setting it up is quite significant. The team will require a new training on how to handle the new technology and equipment, so as to achieve a better customer satisfaction than even in the old days. The cost of training and equipment acquisition is very high. On the flip side, the benefits of such an undertaking are also significant. Prototyping that used to take a day or two can now take an hour or two. Accuracy is also enhanced since it is machine work and a wider range of products can now be produced. This will not only lead to an increase in units produced, but also in customer satisfaction, market expansion and also competitive prices. This project though not only calls for specialized skills men to handle the new equipment but may also need a specialist in the 3D printing technique to be a part of the management. This requirement will affect the business management, which may not be readily accepted by the family. The payback period for this project is likely to be short, about the amount of cost incurred to roll it out. But relatively to the first project, the cost to duration ratio may be the same (Morris & Hough, 1987).
The methods employed in this project selection report are; cost-benefit analysis, opportunity cost as well as payback period. CBA compares the costs of undertaking a project and the benefits it will accrue and then advises on the most appropriate project. The method assumes that the qualitative aspects of the project, such as customer behavior, employee satisfaction remain unaffected. It is a simple method to use, in that it is quite easy to understand, and it is straightforward. But CBA does not, in many accounts, take into consideration the qualitative parameters of the project, such as customer behavior and response to given changes. Payback period method focuses on the time it takes for an investment to generate cash inflows that will match the initial cash outflows that were expended to carry out the investment. This method gives a correct estimate of how worth the undertaken project was since it focuses on how much it returns and how soon, as opposed to how much it consumes. It, however, does not consider other factors such as market fluctuations which affect the sales of the product. And hence a good investment can be deemed to be poor, yet it was the market rates or change in consumer behaviour that caused the downfall (Mishan & Quah, 2007).
Opportunity cost is the potential gain that is lost when a company choice to undertake one project over another. This also assumes that customer satisfaction is unaffected. The advantages of using the opportunity in project evaluation include: it increases awareness of what one is forgoing to achieve something else, this leads to a more careful consideration before decision making. It also allows one to make a comparison between costs of different projects and make an informed decision. However, opportunity cost, when well conducted, requires a lot of time to do calculations and other detailed considerations which may not be available in many cases. These costs are also not reflected in the company account books, which makes it hard to explain on future dates. In some cases, opportunity cost can also be expanded to include the non-tangible elements of the project, like market scope and consumer needs. This enables it to be a better evaluation method (Archer & Ghasemzadeh, 1999).
On the assumption that the payback period will be proportional to cost incurred for either project, then the remaining points of comparison will be the opportunity cost and the CBA analysis. The first project has a larger opportunity cost and acceptable cost vs. benefits relation. It has a lower risk as well, and it is not quite disruptive. The second project, on the other hand, has a smaller opportunity cost, and though it is high risk and high cost, it bears long term, futuristic and worth benefits that place the company in a better position of not being obsolete. Considering the profit optimization possibilities for both projects, the second project is more rewarding than the first project. Therefore, in conclusion, it is better for EGCM to adopt the second project, and introduce new machines to be used in the prototyping process. Other recommendations to EGCM Company are that they need to factor in training costs for the staff. Instead of hiring new employees that vast experience in the incoming technology, it is better to train existing ones who bear the ideals of the company and share in the mission and vision, so that they can incorporate it into the business vision.
References
Archer, N. P., & Ghasemzadeh, F. (1999). An integrated framework for project portfolio selection. International Journal of Project Management, 17(4), 207-216.
Bak, D. (2003). Rapid prototyping or rapid production? 3D printing processes move industry towards the latter. Assembly Automation, 23(4), 340-345.
Chapman, C., & Ward, S. (1996). Project risk management: processes, techniques and insights. John Wiley.
Kendrick, J. W. (1973). Productivity Trends. Business Economics, 56-61.
Mishan, E. J., & Quah, E. (2007). Cost-benefit analysis. Routledge.
Morris, P. W., & Hough, G. H. (1987). The anatomy of major projects: A study of the reality of project management.
