In the annual budget cycle, your SBU was allocated $24 million dollars of funding uniformly spread over the next year for your portfolio. This means you have $6 million dollars to spend any given quarter. You may select any of the below projects to be included in your portfolio, but you cannot spend more than the allotted dollars allocated to your SBU. Your task is to select those projects, using your selection criteria, that most benefit the overall company without exceeding you quarterly budget of $6 million dollars. You must also lay out a plan for what quarter your selected projects will start in.
Below are your possible projects:
Project Call Center
Currently you have no call center to address customer complaints or accept orders. Customers must use the internet to fill out an online form to address their complaints or service needs. These forms are processed by employees in your department. Currently the turnaround time on any given form is between four to eight hours. This creates a number of other customer complaints. Project Call Center is designed to reduce this turnaround time by 75% by creating and staffing a call center in Tampa. Building acquisition, building renovations, building fit out, IT system upgrades, and hiring and training of staff are estimated to cost $8.5 million dollars. This $8.5 million dollars can be paid evenly in any two quarters in the next year. In addition, seven new employees will need to be hired at $40,000 burdened labor costs per year to staff the call center. Management of this project could easily be done with the current in-house staff. Most of the work of this project would be outsourced and will have minimal impact on day-to-operations.
Project Ordering Upgrade
Currently ordering processing is done online. The software and hardware used in this system are about ten years old. As such, order processing is a long, arduous process for the fifteen person staff. Upgrading this process to a state of the art system would cost approximately $2.5 million dollars, and it is a onetime pay in full internal charge to your SBU. It would also result in a reduction in the fifteen person staff by 7 individuals and reduce order processing time by 50%. Each individual in this department is paid $35,000 burdened labor costs a year. Most of the work of this project could be done internally with existing staff. One weekend of operations will be impacted by the project in its entirety.
Project Rocky
The Alaskan cruise ship industry is booming. For some reason, people like to look at icebergs. Unfortunately, our company is servicing no cruise ships in Alaska. Project Rocky is to expand into the Alaskan market. This project will require the acquisition of property in Alaska, renovation of that property, and staffing of the facility. This project is seen as a major money maker for the company and has a NPV of $19 million dollars over five years. Its costs would be $13 million dollars to initially set up the project and $400,000 a year to operate the facility. This initial cost can be spread evenly over each of four quarters of the entire year. These initial costs should be recovered within the first two or three years of operation. Most of the work of this project would be outsourced and management of the project would likely be difficult.
Project Europa
The Mediterranean cruise ship industry is booming. Unfortunately, our company is servicing no cruise ships in the entire European area. Project Europa is to expand into the Mediterranean market. This project will require the acquisition of property in Italy, renovation of that property, and staffing of the facility. The current governmental overspending and austerity issues may impact this project. However, this project is seen as a major money maker for the company and has a NPV of $15 million dollars over seven years. Its costs would be $11 million dollars to initially set up the project and $500,000 a year to operate the facility. This initial cost can be spread evenly over each of the four quarters of the entire year. These initial costs should be recovered within the first three years of operation. Most of the work of this project would be outsourced and management of the project would be extremely difficult.
Project Robot
Our key distribution center is in St. Petersburg, Florida. It has a staff of 100 individuals to process the linens for the Florida cruise industry. Automation would allow us to reduce staff by 35 individuals. The average burdened labor costs of each of these individuals is $45,000 dollars a year. The cost of such automation would be in the neighborhood of $17 million dollars. This initial cost can be spread evenly over the entire year. This project would also likely disrupt the facility for about 3 months while the work is being done. Upon completion, the newly remodeled facility will be 1/3 smaller allowing our need for warehousing space to be reduced by 1/3. This would allow us to sublet this space for an estimated $2 million dollars a year in revenue. Most of the work of this project would be outsourced.
Project Tableware
In order to become the provider of choice for the cruise industry, our company needs to expand to more than just linens. A suggestion was made to expand into supplying tableware to the cruise industry, as much tableware is lost every cruise to breakage. Currently this need is supplied by a number of smaller companies that we could easily compete with. This project would involve creating a Just In Time process to receive and supply the cruise ships. It would also involve the need for a minimal warehouse facility. This project is likely to cost $5.5 million dollars and have a NPV of $1 million dollars over five years. All initial costs can be spread over any two quarters of the upcoming year. It would likely take four years to recover the initial costs of this project. It would further cost approximately $300,000 dollars a year to operate this facility. All of the work of this project would be outsourced.
Your Assignment
Your task is to use your portfolio process to determine which of the above projects best fit into your portfolio and create a time based plan by quarters as to when each project selected should begin and be paid for. Once this is accomplished, you need to write an internal memo to your Vice President denoting the projects selected, the time based plan in quarters, and why you chose as you did.
The document should be double-spaced, 10 or 12 point font with one inch margins. This is a Recommendation Memo for an executive, so be concise and to the point.