Vehicle Tracking System and Present Value

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Case: Integrated Siting Systems, Inc. (ISSI)

PROBLEM STATEMENT
Integrated Siting Systems Inc (ISSI) manufactures and installs state-of-the-art mobile vehicle tracking systems. ISSI’s primary market is municipal emergency vehicles, and when functioning effectively, the system allows municipal authorities to track their vehicles and deploy them more effectively to respond to emergencies. While the company already has an extensive network of clients across the Midwest in rural areas, a new project involves deploying a system in a dense urban Midwestern city.

The foliage and transit density of the urban area results in a (10%) probability of failure of the current standard tracking system. As this is the first deployment in a densely developed zone, it is crucial for ISSI to have a successful deployment. A system failure would result in the perception that ISSI is incapable of adapting its technology to specific client needs.

Presently, ISSI has three options:
Option| Outcome|
Deploy the standard system| Successful implementation of the standard system provides a sizeable profit while failure will result in significant financial loss to the company.| Conduct a simulation on the standard system| There is a fee for the simulation, and it does not provide 100% confidence.| Deploy the robust system| This robust system has no risk of failure, but halves the potential profit margin.|

RECOMMENDATION
ISSI should install the more robust system without further testing or simulations. Moreover, the company should (i) engage a comprehensive study of system design for densely developed market segments, and (ii) consider including a System Design engineer to the sales team for each instance where the company plans to enter a new market segment.

ANALYSIS AND SUPPORTING EVIDENCE

Installing the Standard System
Installing the standard system provides a $300,000 profit with 10% probability of failure. Failure, however, is not merely a loss of...
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