My team has pulled together the information you have requested and have come up with a recommendation for what we have found to be the most appropriate proposal for Piper Industries Corporation.
The team has decided that the Stargazer proposal will be most beneficial to Piper Industries Corporation. This project proposal is forecasted to create the highest ROI compared to the forecasted project cost. A majority of the project costs are sunken costs of $450,000 which has been applied to the research and development of the new widget. The final project cost is estimated to be $575,000, which is an additional cost of $125,000. A key figure important in the decision was also the ROI, which is predicted to be $1,600,000 for the first three years on the market. The widget is expected to have a life-cycle of seven years. Based on the forecasted information from the first three years of sales, (first year $300,000, second year $550,000, and the third year $750,000) forecasted demand for the widget is expected to continue to grow.
The difference between the ROI and the project cost is $1,025,000 (only estimated for the first three years). The reason that the Juniper and Palomino proposals were not selected was because of the projected costs in relation to the expected ROI. The Juniper project is expected to generate $250,000 ROI in a two to three year period, but the project costs are expected to be $325,000. The life-cycle is expected to be three years.
The difference is -$75,000 in revenue, which means that the project does not have a profitable gain during its life-cycle. The Palomino project is predicted to generate a greater revenue of $450,000 in a five-year period ($90,000 yearly ROI), but the project costs are predicted to be $655,000. The life-cycle of the Palomino widgets is estimated to be seven years which increases the ROI to $630,000, and is still a loss to the company in relation to project costs of -$25,000 revenue. Neither of these projects is estimated to create profits during their life-cycles.
The setbacks in the Stargazer project include that the widget is an innovative product so there is a lack of historical data that can be used in the development. The specifications of the widget (based on R&D that has already been conducted) make it a high-risk product because of greater technological uncertainties. These uncertainties will be addressed early in the project process but will make it harder to meet the expected completion deadline. The project deadline is February 29, 2016, and the estimated delivery date will be determined in the first phase of the project. The phases of the project are broken down as follows:
Phase One: Initiation
This is the research phase of the project, where the goals and objectives of the project are defined clearly. In this phase, the forecasted budget, end-date (final deadline is February 29, 2016), resources required (including team members based on skills needed), and project milestones are addressed.
Phase Two: Planning
In this phase, all preparations are made for how the project will function. This is where the project objectives are defined, as well as key requirements of the project. The project is broken down into tasks and subtasks that are scheduled carefully to stay on track with other objectives. The schedules are made to reach the project delivery date, which is currently established for January 1, 2016 so the widget can be on the market by the project deadline of February 29, 2016. The cost of each task is determined, which gives a more precise picture of project cost.
Phase Three: Implementation
Actual work on the project begins in this phase. In this phase, cost accounts are created, work orders are issued, RFP are issued, contracts are made with vendors, and further resources are acquired (such as personnel). The project is officially set into motion.
Phase Four: Control
The project’s performance is carefully monitored for variances in actual activity and planned activity. The four main aspects that are monitored closely for variations include cost, schedules, risks, and the scope (the objectives of what the project is supposed to accomplish). This information is monitored by consistently collecting and analyzing data pertaining to these four aspects. The information is regularly reported through status reports and briefings to keep all interested parties up to date with the project’s progress.
Phase Five: Closure
In this phase, you are provided with the final product (widget), that has been tested and approved by all parties to the project. A complete history of the project is documented and given to you to be filed. The final payments to vendors are issued, and the cost codes for the project are closed, and the final invoice for services are submitted to you. Any equipment used for the project is disposed of accordingly, and the last step is to close the project site.
My team is looking forward to your response to our suggestion. We are also looking forward to working with you on this project. If you have questions or concerns, please don’t hesitate to contact me.