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A feasibility study for Grott Video.

Extracts from this document...

Introduction

CONTENTS EXECUTIVE SUMMARY PG 2 PROBLEM AREAS PG 3 SOLUTIONS PG 4 RECOMMENDATION PG 17 APPENDICES PG 18 Systems Analysis Assignment 3 James Heavey May 2003 Executive Summary: This piece of work is essentially a feasibility study for Grott Video. Grott Video is a relatively small firm consisting of 3 shops. Jean-Luc Picard is the name of the owner. Jean is currently in the process of deciding how best to increase shop efficiency as well as whether an installation of I.T. facilities would be beneficial to the way it works. Within this work you will find a detailed list of problems facing Jean and his staff followed by an equally detailed list of solutions provided by myself. Next you will find calculations and explanations illustrating which, of 3 methods, would be best chosen by Grott Video if they decide to implement the computer system. These calculations are taken from the investment appraisal and consist of Net Present Value, Payback Period and the Average Rate of Return. After this you will find a section on project planning before the whole piece is rounded off with some considered recommendations. Problems: Since there are only three shops, and a staff number so small that the manager is often called upon himself in busy times, Jean-Luc Picard is able to closely monitor any problems experienced on the shop-floor as well as up in his office. This knowledge is clear to see from the detailed and quantitative information given by Jean in the case study. These problems are: Initially I feel Jean should alter the membership rules enabling under 18's to join. Once a customer has chosen a video the employee checks in the card index file to see if there are any outstanding payments due. This is time-consuming. A slip is filled in for each loan and stored until after closing when it is copied on to the members card index file. ...read more.

Middle

Also, the further ahead a forecast looks, the less likely it is to be accurate due to uncertainty increasing over time. For this reason payback is advantageous as it only focuses on the short-term. Weaknesses: It doesn't measure profitability, doesn't account for the time value of money and ignores financial performance after the break-even period. Using this method may also encourage a short-termist attitude within the business. Payback period is the most widely used measure for evaluating potential investments. Payback Period for Option A: Initial information: Number of videos hired per day in all 3 shops = 250. 250 x 6 (days open per week) =1500 videos hired per week. 1500 x 52 (weeks in a year) = 78000 videos hired per year. Total Cost: Hardware + Software = (�1500 + �500) �2000 Training support: �0 Annual sales increase: 2.5% Year Revenue Cumulative Total Year 0 (�2000) (�2000) Year 1 �3900 �1900 Here we can see the payback occurs in the first year. We use the formula ... Day of Payback = (Income Required / Contribution per Day) ... to gain a precise day when payback will be made. �2000/�10.69=187.09 therefore option A will take 188 days to payback Payback Period for Option B: Total Cost: Hardware + Software = (�4500 + �1500) �6000 Training support: �650 Annual sales increase: 10% Year Revenue Training & support Cumulative Total Year 0 (�6000) (�6000) Year 1 �15600 (�650) �8950 Here we can see the payback occurs in the first year. We use the formula to gain a precise day when payback will be made. �6000/�40.96=146.48 therefore option B will take 147 days to payback. Payback Period for Option C: Total Cost: Hardware + Software = (�7000 + �2250) �9250 Training support: �950 Annual sales increase: 15% Year Revenue Training & support Cumulative Total Year 0 (�9250) (�9250) Year 1 �23400 (�950) �13200 Here we can see the payback occurs in the first year. ...read more.

Conclusion

It also always has a start, a middle and an end. The characteristics of a project are: Purpose - a single, definable end product. Complexity - traditional organisational lines become blurred as projects utilise skills and talents from other areas. Uniqueness - Each project requires something different doing than before. Unfamiliarity & Stake - new technology may cause uncertainty, failure could jeopardise the organisation and its goals. Impermanence - once a goal is achieved the organisation often disbands. Life Cycle - the process of working to achieve a goal. Recommendations: Based on all this information I would advise Jean to immediately install a computer system before areas as important as customer relations suffer anymore. The computer system seems the ideal answer to so many of his current problems. However, there are some problems explained above that cannot be solved by I.T. (at least not alone), these solutions should also be heeded as it is my considered opinion that they would only improve the business. By using three different methods of investment appraisal we can see the same figures highlighting different areas and providing us with new information. The most interesting thing found out was that in all three instances option B was the best project for Grott Video. It is worth bearing in mind though that methods such as Break-even Point Analysis and Internal Rate of Return have been overlooked on this occasion. Having said that, using the information that has been obtained I can confidently advise Grott Video to pursue the installation of the I.T. facilities detailed in option B as they came out top in all three methods, Payback, ARR and NPV. Please find herewith James Heavey's Feasibility report on Grott Video. All the information asked for is provided and I very much hope it is of the desired use to you. If there are any queries or comments you wish to make on any of the following areas, please do not hesitate to contact me at Floor 2, Crewe Building (01270-001270). Thank you for taking the time to read this feasibility report. Signed ........................ ...read more.

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