Cost benefit analysis for the Long Engineering Company
The Long Engineering Company (LEC) has decided to install a network system to help their technical support engineers (five of them who earn an average of $100,000 each per year) to deliver better customer service including: mail out sales and other literature, answer phone calls for technical assistance and log and forward repair requests using an alpha-numeric paging system that will be part of the new network system. Currently all company technical manuals and are in physical format, but will need to be scanned and converted to electronic readable form. There are about 3000 pages of technical literature. The initial feasibility study estimated that there would be savings in various areas including: (1) there are currently four clerical staff, two of these would no longer be needed ($60,000 per year each), and (2) Reduced long distance toll bills of $1,500 per month for calls to field support staff regarding repair requests. It was also expected that there would be an increase in sales of $400,000 per year because of improved customer service, with a gross profit rate of 40%. The company typically uses a cost of money (discount rate) of 20% for these types of projects.
Ten months ago, our company’s IT consultant/vendor gave us the following proposal, and we prepared an Excel spreadsheet (see separate handout) showing a Net Present Value of $257,605 for the project:
"Our system will provide a full LAN configuration for your customer support services area covering the major areas of functionality required including: call logging by customer or inquirer, recording of nature of request and nature of response, access to all company technical literature online, and automatic message forwarding to hand-held devices of field service persons where necessary. The cost of the system includes the required file server and six workstations, laser printer and WAN communications adapter ($150,000). The...
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