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Cost-benefit analysis
The project has a ten-year lifecycle. Its implementation will require $ 1.2 million; furthermore, Centervale Apparel will need to spend $ 250,000 on annul maintenance costs. Therefore, its total cost will be $ 3.7 million. In turn, the annual savings will be $ 500, 000. Thus, this project will break even within 7 years and 5 months.
Moreover, in the course of ten years, it will bring the company $ 1.3 million of net revenues. Additionally, one should mention such improvements as the reduced time of delivery and enhanced satisfaction of clients. So, it is possible to speak about improved organizational and financial performance.
Evaluation of alternatives
A company can adopt several strategies that may serve as an alternative to this project. First of all, they can modify or upgrade existing order fulfillment technologies. The main justification for this initiative is that it will require a lesser amount of costs. Nevertheless, the management may not ensure that this strategy will help the company improve data accuracy and reduce the costs of inventory.
Furthermore, this organization can invest in the training of employees so that they could better understand the work of the current technologies. This approach can also be beneficial because in many cases, the poor work of information technologies can be attributed to the lack of users’ skills. Nevertheless, it is only a conjecture, and one cannot say that current problems can be explained by the lack of training. These is the main limitation of this alternative.
Enterprise Risk Management (ERM) model
At first, it is necessary to identify the possible risks that this organization can face. First of all, Centervale Apparel may have to spend more time and capital in order to implement this project. Additionally, the company may have to spend more money on the annual maintenance of new technologies.
Each of this risk is quite likely because even the most experienced business administrators can be too optimistic while estimating the timelines or costs of a project (Mankiw, 2007, p. 304). Provided that these risks are overlooked, they can completely undermine the value of project.
To some degree, these risks can be mitigated by using both internal and external controls. For example, this project can be assessed by auditors, supply chain managers, and IT specialists who estimate the costs of this project.
Moreover, one should mention that the benefits of this project may not justify the expenses of the company. For example, this new supply chain management (SCM) system may not bring the expected savings. Again, this issue should not be disregarded because people are inclined to see the positive aspects of their initiatives, rather than their drawbacks (Mankiw, 2007, p. 304).
These risks should be addressed with the help of internal and external controls. In particular, IT professionals and supply chain managers should closely examine the work of various technologies and determine how they can affect the cost-efficiency of the organization. Furthermore, Centervale Apparel should invest capital in the training of workers.
Justification for the project
Certainly, these risks are important, however, even despite these limitations, the company should implement this project. In this case, senior executives should focus on two important criteria. One of them is financial performance of the organization since this project will yield $5 million in ten years, while the cost of ownership will be 3.7 million.
More importantly, the adoption of the system can lead to improved organizational performance, such as increased customer satisfaction, reduced delivery time, and competitive strength of Centervale Apparel.
Reference List
Mankiw, N. (2007). Principles of Macroeconomics. New York: Cengage Learning.
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