Project Overview
As it was presented and further approved by the Board of Directors, this document aims to enact a detailed implantation plan of the Online Loyalty Program for the clients of an Eagle´s Next Hotel Chain. Current loyalty solution applying physical cards proves to be ineffective and market competition drives innovation in this sector. Given the IT capabilities and existing market technology it was suggested that the company develops personalized mobile application that will serve as a loyalty cards upon validation of the hotel stay.
The arguments behind the recommendation for the investment portfolio were summarized as follows:
- Financial benefits from the project account s for USD$ 20 million in profit over the long-term, while total expenditure required for implementation of the loyalty program totalizes in USD$ 62 million.
- Feasibility study reflects relatively short payback period of only 12 months.
- Implementation timeline is estimated at 90 days, which allows short-term application of the project. This comes along with easy way-out strategy for this initiative.
- ROI comes along with brand image benefits that will increase accessibility and visibility of the Eagle´s Nest brand.
The above elements are the pillars of the Loyalty program, but it should not be left without attention that IT solution for the customer service will bring a number of opportunities to the organizations. Some of them include possibility of reporting and data collection that can further be used in customer service improvement and competitive advantage initiatives, link between online loyalty program and market studies, potential channel for new customer segment and promotional campaigns.
Given the above summary and the general approval of the project, this document is built to present to the Board an implementation plan that will include tentative project implementation timeline, impact analysis of the department, analysis of the critical dependencies and milestones for the department. On the basis of these findings, estimated implementation budget will be presented for consideration of the stakeholders.
Project Impact on Departments
Departmental Funding
The project will influence the operations of all core business areas that include Sales and Marketing (S&M), Operations and Human Resources (HR). The objective of the Finance Department is to bring in financial planning into the implementation time line of the Loyalty Program project. To justify the funding and financing options that will be presented below, it was decided to outline the type of involvement from each of the departments.
Implementation of the project is based on very asset-light structure that will not require hiring additional headcounts for commercial areas of the business. As such, control of the project and Key Performance Indicators (KPIs), related to this initiative will be respectively delegated to the departments. M&S department will be responsible for the development and implementation of the online campaigns and sales leads for the system and, thus will count with the major promotional budget. Operations Department will require financial input given two strategic needs: a) training of 2 `super users` within the organization that will bring an in-house expertise for the Loyalty application and b) additional budget to contract outsourced development team that will continue with the project until the Go-life stage (Hill, 2008).
Involvement of HR department is secondary as the core contribution will come from the development and readjustment of the KPIs to create specific measures for the Loyalty program. With that in mind it is believed that no additional budget should be accounted for HR needs. Eventual investment should be made into internal marketing material that will be partially attributed to the M&S budget along with HR.
Legal assistance Issues
Legal department in-house possess all the necessary headcount and structure to assist on the project implementation. It will require however, funding for hourly legal consultancy on the online management and information protection issues. The core elements in this regards will include the setting of the partner contract and platform development legal base. Additionally, legal assistance will be require to build on the customer relationships contract incorporated into the application Terms & Conditions and dispute handing. It is estimated that the outsourced consultant will work throughout the implementation base for 4 hours a week for a total of 12 weeks.
Joint Venture (JV) and Mergers& Acquisition (M&A)
It is expected that one of the core challenges for the project will come from the establishment of the financial platform for the payment and receipt issuance. While the platform for the loyalty program itself can be developed from scratch, the situation with the financial side of the operation is much more sensitive. Financial department will provide a recommendation and financial impact analysis of partnership with recognized from security and reliability perspective online financial transactions company, such as Paypal Inc. It is however, recommended that the Loyalty Program remains asset-light project with easy to leave strategy (Montague, 2010). To maintain this strategy it is recommended to avoid any JV or M&A actions on the first cycle of the project existence.
Tentative Project Implementation Timeline
Project Outline
The above Project Outline highlights the weekly development of the project, based on five core processes and its continuity through Post launch follow up stage (Hill, 2008):
- Introduction of the product: the stage of the project development that creates a sense of urgency or need in the organization. In other terms at this stage the project is presented to the stakeholders and relevant users are trained to be able to contribute towards later processes in the project time line.
- Testing: the stage in Loyalty Program implementation that is aimed at general test-drive of the application and its usability. It will be performed internally with help of the “super users” graduated from the training program.
- Pilot: the stage at which the product will be evaluated in real time environment as it expected to be on the stage of launching. The difference between the pilot and test stages is the degree of preparedness of the Loyalty Program application; where pilot serve to get the feedback on application functions, user-friendliness and general elements from market perspective.
- Go Life: the stage at which application is finalized and all the bugs and errors are excluded. The application is ready to be launched to the final consumer.
- Follow up: this stage is the final element of the implementation process that allows comparing the estimations with reality. The purpose of this process is to be able to understand the reaction of the market and create opportunity for fine tuning and small adjustments that would maintain or get back on track the Loyalty Program targets.
- Post launch follow up: is a process that will directly follow the implementation stage and it is reflected on the outline to show the continuity of the project.
Dependency Analysis
As it can be seen from the outline of the Loyalty Program project, each stage of the process involves at least two departments. This does not, however, limit the dependencies of the project elements, as the complexity of work on each milestone is different and often builds on a number of interdependencies. Introduction stage will require robust coordination of work between HR that has to build the responsibility net and KPIs and OPS teams that will have to build the training for the entire project. Testing and pilot stages will require simultaneous work from OPS, S&M and other support function and the influence of promotional campaigns and material as a part of communication strategy is critical for the success. Most critical stage for all the departments, however, is the Go-life process, where all the operations should be fine-tuned and departments should be very clear on their tasks and responsibilities. As such, S&M should be able to hold on communication and project sales strategy and provide initial guidelines to the customers, OPS department will be fully dependent on the quality of this process to limit the amount of “calls” on technical issues. HR department should be able to not only delegate the tasks through responsibility net, but create information flow between the departments to measure the effectiveness. Core responsibility of the financial department in the entire timeline is the financial and legal assistance on the issue. It is critical to provide timely and proper funding and at the same time work on the best distribution of the investment capital to maintain the liquidity.
Key Milestones
Implementation of the project directly follows the development stage and, thus the interdependencies consider in this analysis exclude the delays and impact of the development element. The implementation of the Loyalty program project will be highly dependent on several key milestones that in case of delay will shift the entire implementation schedule of the project. The project outline demonstrates 13 sub-processes that for the purpose of this implementation plan will be referred to as milestones. While all of them are important for the completion of the process, some are critical for maintaining the project time line on track:
- Training of product agents (2) will enable the entire process of testing and piloting as it will provide the organization with internal expertise on the Loyalty Program.
- Pilot of the program with the focus group (8) is one of the most effective ways to adjust the application and add value to the marketing perspective. The delay of this stage will result in inevitable postponement of the program launch.
Each of the milestones is assigned the responsible department and the majority of the processes is done with either lead or support from Outsourced Development Team (ODT). While each stage has a responsible stakeholder, other departments will continue to contribute with supportive functions.
It is important to bring the awareness of the go life follow up process to the internal stakeholders as lack of follow up on the project can potentially burn the idea before it becomes sustainable. The feedback of the users about the application and comparison of the reality with the initial expectations is the only way to measure the product success.
Contingency Plan
Several potential contingencies have been identified as critical for the project. First of all, unexpected issues with the partner payment system can result in significant reduction of sales due to transaction issues. Secondly, implementation timeline can be shifted forward due to the above outlined milestone delays. Thirdly, cultural and technological scenarios in different countries can affect the success of the launch as the pilot is focused on the United States.
Contingency plan for the development of the Loyalty Program application is therefore based on the prevention and reduction of potential impact of the contingencies. Not a lot can be done to eliminate the risk of IT issues with payment. Even though Paypal is a reliable system the risk will remain average. To address it, it was decided that application will allow retrospective validation of the receipts. Second contingency is the delay in the implementation time line. To eliminate the impact the tentative time line was built in a way to allow sub-process 2 and 3 to run in parallel. To reduce the impact of milestone pilot focus group (8), milestone pilot internal stakeholders (7) can be eliminated.
Financial Budget Expectations and Schedule
Development costs of the application for the Loyalty Program are estimated at USD 24.3 mil, while as additional USD 17.63 mil are expected to be invested on the implementation stage to the project. These costs are distributed over the 12 weeks period and attributed to the respective budgets of responsible departments our third parties. Detailed cost distribution is presented in Appendix under Financial Budget Schedule.
Major costs during the course of the implementation stage will fall on Weeks 0, when the Project Leadership Team (PLT) will require initial budget for Training and Development under HR department responsibility and start-up promotion and marketing campaign. Additional pressure will be felt during the week 7, when the project will go to the final pilot stage and additional capital expenses associated with the costs of system integration and interconnection with existing IT structure will share the development costs.
It is important to mention that Human Resources (HR) and Finance Department (FIN) will share the biggest costs in the total investment portfolio of the project due to budget requirements for Training and Development across the countries for the internal stakeholder and external legal, licensing and business protection expenses.
Finance department prepared the budget schedule in a way to make the pay-off schedule have lighter pressure on the working capital of the company. With that in mind, it is suggested to apply immediate need budgeting. In other terms the department gets the budget allocation based on the milestone performance in terms of timing. This, however, will not allow avoiding major capital injection required on Week 0. It is suggested to negotiate shared payment of the second stage development costs that will occur on Week 7, which will allow reducing liquidity pressure, by paying 50% of the costs to ODT on the week and another 50% on the delivery of the project to the final stage.
The presented budget schedule, presented to the consideration of the Board is tentative and further adjustments to the allocated budgets and timing can be made on the basis of the comments, shared with the Project leadership Team.
Return on the Project
Based on the limitations in regards to the data for the Return on Investment (ROI), financial viability study at this stage will be limited by the Income statement for the period of the 12 months as from the first day of life of the Loyalty Program (Appendix II). Core assumptions that have been made for this study include the following:
The program expects to reach USD 2 mil in net sales over the first operational month.
Following promotional and marketing campaigns it is expected that the company will be able to increase its Loyalty sales by 75% on month 3 and maintain this level for the first half of the year. Following second aggressive marketing campaign based on larger target customer group, sales volume will re-start its growth and will reach the level of USD 7.4 mil by the end of the first year.
Small sales are expected from the indirect sales channel, more specifically, impact of the application on other customers that will not use the online solution, about will generate interest in the Brand to purchase through other channels.
Income statement includes running costs, comprised of 5 categories (Appendix II). The costs of the program update are estimated on the basis of the ODT life cycle of the application. Month 3 and Month 12 of Loyalty program life will require minor update to align IT elements with needs of the application. Major costs will come on the month 8, when the program will go through strategic layout and interface update to continue offering new and innovative solutions.
Running operational expenses are related to the costs of time and headcount attributed by the OPS department for ensuring quality of the program and FIN department that will be constantly involved in the financial transaction handlings along with the PayPal. Program Maintenance Costs are the costs related to the partner charges and ODT charges for platform maintenance.
Conclusions
The proposal presented to the Board creates a number of long-term benefits for the company. Implementation plan for the Loyalty Program, at the same time is reasonably short, 12 weeks that allows expecting short-term return on investment. As it is presented in the report, M&S, OPS, FIN and HR departments will be heavily involved in the development of the milestones of the implementation stage of this project and each of these departments will have to participate in the cost allocation, as presented in the Budget Schedule. Expected total cost of the implementation stage is USD 17.63 mil, which falls inside the total Loyalty Program investment of USD 42 mil. The financial return calculated on the basis of the net cash flow is estimated at USD 62 mil. All the estimations are based on the real sales volume and target market potential of the industry.
References
Field M and Keller L (2007). Project Management. London: Thomson Learning.
Schwindt C (2005). Resource Allocation in Project Management. Berlin: Springer Publications.
Montague D. (2010). Essentials of Online Payment Security and Fraud Prevention. London: John Willey & Sons.
Butscher S. (2002). Customers Loyalty Programs and Clubs. Hants: Gower Publishing Limited.
Hill G. (2008). The Complete Project Management Handbook. 2nd Edition. Auerbach Publications.
Appendix I – Financial Budget Schedule
Appendix II – Income Generated
