1. How did ABI handle forecast risk?
• By following their business strategy guidelines:
o Long term margins, long term technical abilities position, advanced technology, utilize project champions, keep plants under 480 employees
• Long term variability in purchased equipment.
• Investing versus non investing comparisons.
• Maximizing flexibility while minimizing exposure.
2. Were ABI’s Stanhope site costs in Table 2 derived by a top-down or bottom-up process? Why?
• Top down
o The cost estimates include past data based on similar activities
o Individual elements are lacking in each task, but the overall estimates are adequately developed to account for the entire project task
3. What are the answers to Steve White’s questions?
A. “Won’t this investment simply dilute current ROI?”
• Yes because of the $7.1 million investment for the project that will be depreciated over the 8 year life. Total company ROI will be negative for the first several years because of the startup costs and working capital required for the Stanhope project.
B. “Will the cost in new equipment be returned by an equivalent reduction in labor? Where is the payoff?”
• No. Although the equipment cost is high, the relative amount of labor necessary to run this technology will remain constant through time.
• The payoff is the through put by the new machines and the properly trained and experienced employees.
C. “What asset protection is there?”
• The asset protection comes in the variability of the equipment to produce several other types of metals and products.
D. “Does this proposal maximize ROI, sales potential, or total profit?”
• This proposal will maximize the sales potential in the future for increased volumes and other products that can be run on these machines.
• Through time and experience, this equipment may also be...
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