Krupetskiy_Chapter1

Krupetskiy_Chapter1 - 1.33 (For practice only) Annual...

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1.33(For practice only) Annual Outsourcing Data Expected (a) Benefits 1. Personnel savings $121,000 2. Facilities savings 90,000 3. Support service savings 60,000 Costs 1. Contracted services 160,000 2. Training costs 20,000 3. Contract administration costs 12,000 Benefits of Outsourcing Expected Amount 1. Personnel savings $121,000 2. Facilities savings 90,000 3. Support service savings 60,000 Total quantifiable benefits 271,000 Costs of Outsourcing Expected Amount 1. Contracted services $160,000 2. Training costs 20,000 3. Contract administration costs 12,000 Total quantifiable costs $192,000 Net financial benefits $79,000
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) Actual (b) $82,000 100,000 70,000 160,000 30,000 13,000 Actual Amount Variance Comments $82,000 $(39,000)underestimate 100,000 10,000 70,000 10,000 252,000 $(19,000) Actual Amount Variance Comments $160,000 $- 30,000 $10,000 underestimate 13,000 $1,000 $203,000 $11,000 $49,000 $(30,000)net benefit lower
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1.33Solution Annual Outsourcing Data Expected (a) Benefits 1. Personnel savings $121,000 2. Facilities savings 90,000 3. Support service savings 60,000 Costs 1. Contracted services 160,000 2. Training costs 20,000 3. Contract administration costs 12,000 Benefits of Outsourcing Expected Amount 1. Personnel savings $121,000 2. Facilities savings 90,000 3. Support service savings 60,000 Total quantifiable benefits 271,000 Costs of Outsourcing Expected Amount 1. Contracted services $160,000 2. Training costs 20,000 3. Contract administration costs 12,000 Total quantifiable costs $192,000 Net financial benefits $79,000
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Actual (b) $82,000 100,000 70,000 160,000 30,000 13,000 Actual Amount Variance Comments $82,000 $(39,000)Large underestimate of savings 100,000 10,000 70,000 10,000 252,000 $(19,000) Actual Amount Variance Comments $160,000 $- 30,000 10,000 Underestimate of costs 13,000 1,000 $203,000 $11,000 $49,000 $(30,000)Net benefits lower than expecte a. Expected benefits of the decision total $271,000 (= $121,000 + 90,000 + 60,000) while expected costs total $192,000 (= $160,000 + 20,000 + 12,000), with a net benefit of $79,000. Qualitative factors to consider include service quality (timeliness, accuracy), impacts on existing customers, contacts with existing customers, and impacts on current and future employees. c. Although quantitative benefits were lower than expected, they are still positive. Unknown is whether the outsourcing contract is responsible for lower sales growth and increased personnel turnover. This looks like a close call, and deserving of more investigation.
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s ed
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1.35Part c (for practice only) Years Effects of Outsourcing 1 IS upgrade (one time) $1,500,000 1 - 5 Outsource Cost (annual) 3,000,000 1 - 5 Outsouce savings (annua 3,200,000 1 - 5 IS Savings (annual) 300,000 Analysis of Costs and Benefits of Outsourcing Year Outsource Cost Outsource & IS Savings 1 $4,500,000 $3,500,000 2 3,000,000 3,500,000 3 3,000,000 3,500,000 4 3,000,000 3,500,000 5 3,000,000 3,500,000 Total $16,500,000 $17,500,000 Additional analysis Interest rate 10% NPV $531,757
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does not include IS Net savings (cost) $(1,000,000) $500,000 $500,000 $500,000 $500,000 $1,000,000
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1.35Part c Solution Years
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This note was uploaded on 11/11/2009 for the course ACC 211 taught by Professor Weber during the Spring '09 term at Colorado Mountain.

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Krupetskiy_Chapter1 - 1.33 (For practice only) Annual...

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