Name: Doménica Moncayo

Option Forecast Forecast revenue if Forecast revenue if

costs successful not successful
Probability: 0.3 Probability: 0.7

1. Offshore to country X: has 4 19 2

a history of earthquakes,
good
2. Offshore to country Y: has 5 16 4
no history of earthquakes,
poor infrastructure

3. Offshore to country Z: 6.4 21 4.2

under reconstruction after a
recent earthquake

Safe Passage (SP)

Trent Peters is one of seven partners at Safe Passage (SP). It provides bodyguard* services to
film stars, politicians and other important people in Europe and the Americas. Trent would like
to satisfy a growing demand from Asia but has to choose from two options for the recruitment
and training of bodyguards.
These are:
• offshoring by setting up its own overseas branch in Asian country X or Y or Z
• subcontracting by using an external agency in Asian country X or Y or Z.

The forecast costs and revenues of offshoring are given below (all figures in US$ millions):

The forecast costs of subcontracting to the same Asian countries are given below:

Country X: US$1.5 million.

Country Y: US$2.8 million.

Country Z: US$4.2 million.

The three suitable Asian countries are located in earthquake zones. An earthquake expert
assured Trent that all three areas are safe. Trent is concerned and decides to prepare a
contingency plan for each possible location in Asia. Control over recruitment and training of
bodyguards is vital to SP. Customer service and trust are their unique selling propositions
(USP). Clients will pay high fees to ensure their safe transport to concerts, meetings and
important events. However, Trent is refusing valuable contracts in Asia due to a lack of suitably
trained bodyguards. As a result, SP is missing out on large profits. Trent has mentioned to a
previous customer of his plans to subcontract the recruitment and training of bodyguards. She
has threatened not to use SP again and would tell her friends if the plans went ahead. Trent is
concerned as word-of-mouth promotion is crucial to SP. He calls a meeting of all the partners.
Three partners prefer subcontracting the recruitment and training as it is cheaper, quicker and
less risky. The three other partners prefer offshoring. They believe that subcontracting will
damage SP’s USP. They argue that the higher costs of offshoring will be covered by the forecast
high revenue.

(a) Describe two features of a partnership. [4 marks]

 A written agreement is done in order to decide the responsibilities of the

partners, conflict resolution and financial sharing.
 Depending on the country of operation there could be up to 20 partners
in the business

(b) Construct a fully labelled decision tree and calculate the predicted outcome of each
offshoring option (show all your working). [6 marks]
(c) Comment on the value for SP of using a decision tree as a decision-making tool. [4
marks]

The decision tree will allow Safe Passage to have a graphical representation of
the options to be able to quantify the results of each one in terms of expected
values compared to the costs of each investment, with their respective
probabilities, allowing the association to make an appropriate decision based on
quantitative factors only due to the lack of non-financial considerations, factors
that make the decision tree a decision tool for SP.

(d) Examine two disadvantages for SP of subcontracting its recruitment and training of
bodyguards. [6 marks]

Outsourcing bodyguard recruitment and training to an outside agency will create

some disadvantages for Safe Passage, one of which is that there may be some
issues with the quality of service this agency provides as SP may lose control of
bodyguards and service delivery, affecting the partnership since the quality of
the service they provide to their clients is vital for them and they do not want to
change that perception.

On the other hand, there could be some cultural issues that should be taken into
account when making the decision to trust and transfer the key functions of the
partnership to an external agency that has not worked with them before,
furthermore it can be inferred that SP has a limited work experience with people
from Asia, who may have a different way of doing the job.

However, it can be said that this option is cheaper than offshoring in terms of
establishment, in addition to being considered a less dangerous option because
the decision can be changed more easily and quickly in case the new expected
level of demand in Asia does not stays or drops radically, being a much cheaper
option than establishing a branch abroad.