Relevant Information for Decision Making

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Relevant Information for Decision Making

Computer Science Corporation (CSC) is a consultancy and training company with about 120 employees. The company has been in the US market since November 2008. One of the key aims of CSC is to provide corporate training solutions for engineering firms.

Due to the high demand for corporate training services in the US and across the borders, CSC decided to extend its reach to the South American region, the first stop being Argentina in 2012. Due to the enormity of this venture, CSC intended to take at least one year before fully immersing itself into this market. This is an example of several product development decisions the company has made after seeing the huge potential available in the developing countries.

Product development process is important for CSC as the company seeks to increase its profitability. According to Krishnan & Ulrich, (2001) product development refers to the transformation of a market opportunity and a number of assumptions about a product into a product available for sale. As CSC went to South America, the assumption was that the market conditions would be favorable for growth.

The product development for CSC was an enormous task that involved considerable cost implications. In this case, the firm dealt with both relevant and irrelevant costs. According to Irwin, a relevant cost is one that differs in case of an alternative. On the other hand, irrelevant costs for this decision comprised of future costs and sunk costs. Considering this, management bought in project management to make sure that this venture was as cost-effective as possible. The firm had already set the time for the project as two years, so the different inputs involved needed to fit in this timeline.

For the implementation of this product development project, the inputs were establishment cost and advertising costs needed to develop this project. As the company introduced its services in Argentina, it sought to reduce time, with the knowledge that the more time it spent on the project, the more costly this venture became. This is where project management techniques such as CPM and PERT came in handy (Krishnan & Ulrich, 2001).

For the introduction of the product in the region, many project management skills were required. The company had only 1 year to establish a branch in Argentina. To make this happen, the company acquired a new office, and set out a 15-member team to jumpstart it.

The success of this product development exercise would be measured by the impact in the market, and by extension, the profitability. Starting a new product is usually risky, and the initial months may not be productive. After 1 year of operation, the company in Argentina has shown signs of making big profits.

 

 

 

 

 

Financial half year

January – June

Financial half year

June –December

Differential
Revenues(variable) $550,000 $650,000 $100,000
Marketing(fixed) $20,000 $15,000 $5,000
Extra expenses(fixed) $40,000 $35,000 $5,000
Total expenses $60,000 $50,000 $10,000
Net income for operations $490,000 $600,000 $110,000

Fig 1: Analysis of Revenue and Cost for New Branch in Argentina

The above analysis gives differential revenue of $100,000 and cost of $10,000. This means that differential income is $110,000, which is positive. With this information, management will be able to decide whether to keep the new Argentina Company or just stick with the establishment in America.

 

 

References

Irwin (2010). Relevant Costs for Decision Making. [PowerPoint slides]. Retrieved from http://www.thomaswu.com/qdmgmtactg/MA%20W6%2001.pdf

Krishnan, V., & Ulrich, K. T. (2001). Product development decisions: A review of the literature. Management Science47(1), 1-21.

Managerial accounting and cost concepts. In (pp. 26-73). Retrieved from http://www.lec.edu/adcp/doc/ADM 301 Accounting for Managers.pdf

 

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