Managerial decision making
... implementation cost. After consultation with the system supplier, the combined initial set up cost has been estimated to be HK$100,000. The second type of expense is the various on-going costs. So far Company A has been relying on an outside IT consultancy firm to provide hardware and software IT supports. Although the company is able to save fixed cost by outsourcing IT supports to an external vendor, sometimes the company may need to wait for a long time before a consultant would arrive to resolve problems. With the implementation of the new system, operations will heavily rely on the software and any technical issues will have dramatic impact on productivity. Hence, the management sees a need to hire a full-time IT support in-house to ensure that technical problems could be addressed immediately and quickly. The salary expense of an in-house IT staff is expected to be HK$156K per year. Another type of on-going cost is system maintenance cost. Based on data provided by the system vendor, maintenance cost should not exceed HK$10,000 per year. Benefit– cost reduction The new technology should be able to bring various costs down. First, it is expected that 100% data entry cost be saved. Currently the data entry procedure is executed by students recruited on a part-time basis. The new system will allow data entered by operators to be captured directly by a server and therefore completely eliminate the need of hiring part-timers for data entry purposes. Secondly, it is expected that increased operations efficiency will lead to cost saving. Currently, the results of data collection are checked manually by either supervisors or senior operators. The manual quality control procedure starts after the data collection process and could consume as much as 20% of the data collection processing time. In addition, due to human errors, manual checking may not be able to capture all inaccuracies. One key feature of the new system is that quality control compliance is built within the system and figures are checked as soon as they are keyed into computers by operators. This automatic checking feature could replace the time cost of a supervisor, reduce human errors and significantly shorten operations time for a project because checking could be done during and not after operations. Thirdly, it is expected that 60% of IT outsourcing cost be saved. As an in-house IT support would be recruited, he/she will also be responsible for general IT support and therefore the company should no longer require the full support from the external IT consultancy firm. As the current amount paid to external IT consultant is HK$36,000 per year, it is assumed that the in-house staff should help save 60% of this cost, or HK$21,600. Benefit– revenue generation Other than reducing cost, the ...