Management and the Technology Professional – B302
Building a customer relationship management (CRM) system
Following is a
sample answer for
this case study scenario:
Response text
I'd recommend to the Helpdesk Manager that the best action is to continue the project with the consulting vendor. Although the expected value criterion and present value analysis both suggest that continuing the project is the best action, I'd emphasize that the most important reason to continue the project with the vendor is the very high probability of success – 95% chance of success after 9 months. The upgrade to a new Microsoft Dynamics system is critical to the continued success of the business, as evidenced by the sunk cost of £27,000 in the previous 5 months. For a mission critical project, relative costs are less important than maximising the probability of success.
Decisions must be consistent with the main objective of the decision maker. When I don't have a specific movie in mind, then I prefer to go with a low cost option of watching a movie on television or DVD. In those common situations, I'm willing to accept the lower probability of finding an enjoyable movie in order to minimise costs. However, when there is a movie I would like to see specifically on a large screen, then I'm willing to pay the higher fee to go to a cinema. In that situation, paying the extra money for a cinema ticket maximise the probability that I will enjoy the movie.
If the project was to upgrade something that was not essential to the business, then I'd be more hesitant to recommend that the company continue spending more money on a project which has signs of poor project management, e.g. finding out that the project is 70% likely to be late within the last month of the project. Furthermore, if the project was not essential, then the 85% probability of success for an in-house build might be more appealing.
Despite any misgivings I might have about how the project has been managed and progressed so far, I'd recommend that continuing the project with the vendor is the best action to support the future success of the company. This recommendation is supported by the higher expected value for continuing with the vendor.
(
351 words)
Supporting decision tree and calculations
The following decision tree shows the
outcomes,
probabilities,
future values and
time sequence provided in the case study scenario.
The following decision tree shows the
present values calculated based on
N as equivalent to 1 month and
R = 0.007 (rounded from 0.00682) as the discount rate for 1 month.
The following decision tree shows the
expected values calculated using the probabilities from the first diagram and the present values from the second diagram. According to the
expected value criterion, the best alternative is to
continue with the vendor.
