Barcena, Johan

Rueda, Nicholas
Sy, Matthew Bentley
Sy, Matthew Christian

Guide Questions:

> How will you justify this project to the Board of the company
> Construct a cost-benefit spreadsheet that can justify this project (assume a 5 year
projection) How will you quantify the benefits?
> Where will the savings come from?
> Use present value analysis/break-even analysis to justify the project
> When will the company get back its investment?
> Will it get back its investment or is the investment too high?
> What are your options if the investment is too high vis-à-vis the potential savings?
> Give a detailed plan on the savings component, how will it be quantified? Would it
be realistic? Remember if you have to cut personnel you have to give them their
benefits and separation pay. The separation pay will be 12 times the current monthly
rate for those who will be laid off. This is a cost to the company.
> Use a hurdle rate of 15% for the net present value analysis.
 Based on the calculations, it is safe to say that implementing the Oracle Financial
System will minimize the accounting firm’s costs effectively in the span of five years. This will
occur because of the potential savings generated by downsizing is twice the expenses
associated with the installation and maintenance of the new Oracle Financial System
(including the separation pay costs as well as the retaining employee salary expenses).
To quantify the costs and savings, we have identified the given data and assigned
them to costs (Oracle Installation and Maintenance Fees, retained employee salaries and
separation pay costs) and benefits (savings generated by laying off employees)
As observed from the cost benefit analysis spreadsheet, the company will get back
its investment after approximately 4.58 years. If the investment is way higher than the
savings, then we might not opt to implement the Oracle System since it doesn’t minimize the
company’s costs and it also gives a good excuse not to lay off a massive number of
employees as this method is rather very unpopular.
For the savings portion, we simply take the potential number of employees that might
be downsized (for example, the original 180 accountants subtracted by the 50 accountants
that will be left after the downsizing is applied) multiplied by their regular monthly salaries
converted in a per year basis.
For the payback period graph, the blue line represents the cumulative costs while the
orange line represents the cumulative gross (the potential savings). At the start, the blue line
is significantly higher than the orange line which is parallel from the calculations in the
spreadsheet since these show the early part of the timeline where the initial cost at year zero
are still being gradually ‘repaid’ by the savings which start to accumulate at year one. When
x=4.58 (with x being the time on per year basis), the two lines intersects, which represents
the break-even point of the timeline when costs and savings cancel out (cost-savings =0).
Beyond the point of intersection, the orange line is the top since the savings continue to
increase as the years go by.