BUSINESS DECISION MAKING
Business Decision-Making
Question 1
Another key feature that may hinder effective launch of the project within a period of 12 weeks is that some of the activities are considered as being critical for the project leading to a situation where the management may opt to focus more on such activities. It would be important for the management to ensure that it takes caution as a way of promoting overall success when dealing with critical activities. From the list of activities, the earliest activity will be activity D, which focuses on the assembly of all the key items that would determine success for the launch that would take approximately 1 week. The latest activity would be activity, which involves movement to the launch pad, which may take approximately 3 weeks.
The crucial activities refer to the activities that the management considers as being important in defining success for the project based on the level of reliability when embarking on this project launch. Walczak and Kuchta (2013, p.84) define crucial activities in a project as the main determinants of success for a project, thus, highlighting the importance of having to focus on the same. Each of the non-crucial activities controls a significant float when dealing with the launching of the project. Although some of these activities may be categorized as being non-crucial, they also play a central role in defining expected success margins for the launching of the project. Thus, this means that the control a significant float for the project and would define the viability of the project during its launch based on its expected outcomes.
Based on the list of crashed activities, presented in the table about, it would be possible for the management to focus more of its attention towards crashing some of the key activities that the project launch may require. However, the management ought to consider two major aspects associated with the crashed activities that would define whether the crashed activities would matter in reducing the time take to launch the project. Firstly, the management must consider the area of cost, as this is determining element on whether the project is able to maintain the set budgetary allocations. Secondly, the management ought to consider the time reduced based on the crashed activities, as this is a key aspect of considering for the launching of the project based on the effectiveness of the data presented.
Although the suggestion by Bob Smith, who is the launch manager, would work as the cheapest option, as well as, allows for a great reduction in the time taken for the project, it would not help in saving the situation at hand due to one main factor. Through consideration that activity C is on, the option would not be viable meaning that Smith must focus on engagement in another option in finding viable outcomes. The activity would have the lowest reduction in terms of number of activities, which would limit its impact on the project. However, the expected time reduction when comparing the normal and crashed durations is approximately 4 weeks. Currently, the normal duration takes approximately 16 weeks, thus, meaning that a reduction by 4 weeks would help ensure that the project fits into the set 12 week period. Ultimately, this would mean that Bob Smith must be willing to engage in a process that would crash another activity in a bid to ensuring that the time margin fits.
In the event that the project takes more than 13 weeks, the company will experience a loss of GBP 5,000 for every week above the 13 weeks, thus creating the need for having to come up with a strategy that would handle the loss, as well as, the costs associated with the crashed activities. Based on the overview of the sum of the crashed activities and the projected loss for the company, it would be viable to implement a strategy focused on evaluating each of the crashed activities individually. That would mean that the management would have the mandate of ensuring that they conduct individual reviews of the crashed activities with an aim of establishing their viability based on their implementation. The strategy would help towards selecting the crashed activities that would have the greatest impact in reducing the overall time before the project launch while minimizing costs.
The main costing options would include:
Crashed Activities Total Cost Saved Crashed Duration (Weeks)
Activities C 1,000 1
Activities G 2,000 1
Activities H 1,500 2
Question 2
Calculate for both machines
Net Present Value
One of the key aspect of calculation for any given product or asset relates to the calculation of its net present value, which would highlight its current value depending on different aspects that would contribute to depreciation. The net present value helps in evaluating the present value of a given asset depending on the initial value and the rate of depreciation for the product (Stretcher, 2015, p.143). Evaluation of the net present value is important, as it helps towards ensuring that the one understand the overall rate of depreciation for the product in question.
Machine 1 NPV = -210,000 + 55,000 + 67,0002 + 70,0003 + 75,0004 + 80,0005
1+15 1+15 1+15 1+20 1+20
= -210,000 + 55,000 + 67,000 + 70,000 + 75,000 + 80,000
16 16 16 21 21
= 210,000 + 47,826.09 + 50,661.63 + 46,026.14 + 42,881.49 + 39,774.14
NPV for Machine 1 = 437,169.48
Machine 2 NPV = -250,000 + 60,000 + 62,000 + 70,000 + 74,000 + 80,000
1+10 1+10 1+10 1+15 1+15
= -250,000 + 60,000 + 62,000 + 70,000 + 74,000 + 80,000
11 11 11 16 16
= 250,000 + 54,545.45 + 51,239.67 + 52,592.04 + 50,543.00 + 49,673.71
NPV for Machine 2 = 508,593.86
Internal Rate of Return
When calculating the internal rate of return, it is important to consider the cash flow within the different years in which the product or asset has been in use. The internal rate of return helps in highlighting the percentage of return for the product or asset within the different years with an aim of establishing whether an asset is worth investment.
For machine 1:
Internal rate of return = {55,000 + 67,000 + 70,000 + 75,000 + 80,000} – 210,000 = 0
(1+8)1 (1+8)2 (1+8)3 (1+8)4 (1+8)5
Therefore the internal rate of return for machine 1 = 18.19%
For machine 1:
Internal rate of return = {60,000 + 62,000 + 70,000 + 74,000 + 80,000} – 250,000 = 0
(1+6)1 (1+6)2 (1+6)3 (1+6)4 (1+6)5
Therefore the internal rate of return for machine 1 = 11.27%
Based on the calculated indicators, highlighted above, it is evident that machine one has a higher internal rate of return when compared to machine 2. However, it is equally important to estimate the overall reduction in value for the product based on the five years presented. One of the key challenges that would create a major challenge in trying to evaluate the depreciation of the machines is that they tend to project varying prices, initially. In review the initial investments for both machines and the net present value, it is evident that machine 1 has a higher net present value than machine 2. That means that investment more towards machine 1 may help in increasing the capacity of return for the initial investment when compared to investment in machine 2.
Bibliography
Stretcher, R., 2015. Net present value simulation: A case study. Journal of Business Strategies, 32(2), pp.139-150.
Walczak, W. and Kuchta, D., 2013. Risks characteristic to Agile project management methodologies and responses to them. Operations Research and Decisions, 23(4), pp.75-95.
