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Portfolio Component 9

Portfolio Component 9

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Published by vls5063

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Published by: vls5063 on Nov 18, 2011
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Matt. D. SmithPresident
Vicky L. SzaboVice President - Administration
July 18, 2011
Feasibility Study of Introducing Green Widgets
This report evaluates the decision to expand Widgets Inc. production line of red andblue widgets to include green widgets. After reviewing the technological, economical,legal, operational and schedule costs and benefits of introducing a new line of widgets, Ido not recommend the expansion of including green widgets.
Widgets Inc. has been the market leader in widget-related products for nearly 15 years.Individual consumers and small businesses make up the majority of loyal customers,who have relied on Widgets Inc. from its inception. However, within the past three years,competing businesses have been spawned and sold widget-like products at nearlybargain prices. This has negatively affected Widget Inc. production dramatically.Although loyal customers have remained consistent in choosing Widgets Inc., revenuehas declined and production has slowed down. Change is almost inevitable to keepWidget Inc. ahead in sales. Market analysis has shown an increasing trend in demandfor green widgets, a product Widgets Inc. has previously conceived yet left in theplanning stages. The decision for product expansion must be made by December 31,2011 - projected economic timelines based on current trends suggest a drop in ratingsby that date if no change is made. The current budget for production is $5 million.
Possible Factors
The decision for expansion of the production line was based off of the five commonfactors of feasibility - technology, economics, law, operations, and schedule. Moreanalysis has been made in technological, economic and schedule factors, since thesehave shown to be the problem areas. Review has been done by the legal departmentand proven that green widgets does not violate any other companies’ patents. We arewithin legal limits to produce green widgets. Operational factors cannot be determinedunless production were to begin.
Decisive FactorsTechnology
Technological obstacles in introducing a new widget include necessary hardware andsoftware, personnel, and expertise. Currently, we have a surplus of personnel designingand manufacturing widgets. These personnel are properly trained and veryknowledgable in the production of widgets, with over 40 percent having over 10-yeartenure. The hardware and software for widgets is unique; therefore, new hardware andsoftware is needed for green widgets. This additional cost will be included in the projectbudget, limiting available funds.
Cost/benefit analysis of the project does not show a promising result. The costs toproduce and market green widgets will drain the rest of the funds, which must fit into thebudget. These costs include materials, production, shipping, and advertising. Materialfor green widgets for low production, as estimated by operations management, is pricedat $1 million; average production at $2 million. Finance and marketing managementvalue the production costs at $3 million, with shipping included, and advertising at over$5 million. The current budget for the project is not sufficient for the projected price oflow production of green widgets. However, recent demand for green widgets implieshigh sales, which will increase high returns on investment in the long run. Based oncurrent prices, the return on investments is predicted to occur after three years. Due toinitial costs and financial return constraints, green widgets will initially be expensive, withsales not predicted. Overall, the project incurs a high investment that is not guaranteedto pay off for a few years depending on market trends, but has the possibility togenerate high revenue if demand is steady.
The return on investments must be made within a short timeframe so the costs ofproject will not hinder revenue. Analysis from strategic management proposes one yearto design and produce green widgets, another year to mass produce and mass marketgreen widgets, and at least three years for return on investments. In total, the projectedtimeline for investment on green widgets is five years.
Conclusion and Recommendations
Competitors’ affects on sales has prompted Widgets Inc. to make changes in its sales,and proposed green widgets to be included in its production. However, analysis of the

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