How much value is generated from cost savings associated with the project? In order to answer this question, we need to pay attention that all the revenue we used should be the number before tax, then Cost Baseline-Cost Upside=Net Income of Upside-Net Income of Baseline+ Revenue of Baseline-Revenue of Upside=693492, which is the value gathered from cost savings in five years.
How much value lies in improved revenues?
As shown in the Excel above, the improved revenue accumulated in five years is 12,167.
What additional factors should be included in the ROI analysis? There are many assumptions and factors we need to consider to calculate the ROI: •
Can all the growth rate and inflation rate be very constant in the five years? •
How much will the switching cost be to use the new IT system? •
How will the competitors response to this change?
Is the way in which the company estimates its penetration of the market reliable? •
How much will the sum of maintenance be in the five years? •
What will be the risk and threat in this change?
If you were B&K’s CEO, would forward with the project? Why or why not? As what I state above in Question 4, I will push further on the uncertainty and some facts which are not mentioned in the previous report. It is a trade-off the CEO need to thinker further and make a careful decision, especially when the evidence and the numbers are all provided by the company who want to sell its product.
On the current analysis result, I will go forward with the project because of the good ROI and the good vista on taking this change.
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