Cost-benefit analysis | Business & Finance homework help

The ABC Company buys a certain type of sales information from many (several thousand) companies (suppliers). ABC compiles the information into research reports and other products and services which it sells to businesses (customers). The Data Compilation Department manages the processing and building of the research reports and maintains an up-to-date master list of data suppliers each with a unique master identifier. A different department, the Sales Department, markets and delivers to the customers who buy ABC products and services. The Sales Department maintains its own customer master system giving each customer a unique, but different identifier.

A recent analysis by the Data Compilation Department showed that about 60% of the data supplier companies are also customers buying ABC products and services. The analysis was difficult to conduct because the Sales Department has its own customer master management system that is independent from the one used by the Data Compilation Department. The data supplier master data management system was internally built several year ago. The customer master data management system was recently purchase from a commercial vendor. These systems assign different identifiers and also track different information about each company. So even if the same company is both a data supplier and a customer, it is assigned different master identifiers in the two systems.

The Chief Marketing Office (CMO) does not now know, but would like to know, which data suppliers are already customers and which suppliers are not customers. The CMO believes there could be many new sales opportunities in converting data suppliers into customers, especially by offering special product purchase discounts to suppliers willing to become customers. The Chief Data Officer (CDO) likes this idea too, because she believes the ABC products and services could be significantly enhanced if there were more suppliers enriching the data, and hence, could increase the number of customers. In other words, the CDO would like to know the opposite of the CMO, i.e. which of the current customers are not data suppliers, and see if they could be also incentivized with product discounts to become a data supplier.

The IT department has provided estimates for two possible solutions. One is to keep both of the current MDM systems (Supplier and Customer), but internally develop a bridging system to maintain a “cross-walk” between the identifiers in the two systems. They estimate the bridging system would cost about $750,000 and 8 months to build, and would require about $400,000/year of additional ongoing operational cost to keep it current and accurate. The second solution offered by IT is to migrate the information from the custom-built, legacy data supplier master into the more modern commercial customer master. The vendor for the customer master claims its system can be modified to handle both suppliers and customers. The vendor has given an estimate of $2,300,000 one-time charge and 3 months to make the changes needed for its system to service both data supplier and sales operations, but this estimate does not include the actual migration of data from the supplier system into the enhanced system. For this second solution, there is essentially no additional ongoing operational cost to maintain, because any additional maintenance cost for the consolidated master system is offset by retiring the legacy supplier master system. In fact, IT believes this migration solution could possibly result in some marginal savings in IT operational cost.

Assignment:

Suppose the CDO and CMO came to you and asked you to come up with a recommendation for solving this problem. Even though there is not sufficient information given here to make a complete business case, describe in detail for each solution what direct and indirect costs and what tangible and intangible benefits you think should be considered in order to make a fair comparison of the solutions listed below. For each cost or benefit without an estimated value, indicate how you think the missing value could be obtained.

· Solution 1: Let internal IT build and maintain the cross-walk system.

· Solution 2: Let the vendor of the customer master make changes necessary for it to serve as both supplier and customer master.

· Default Solution: Do not make any changes, continue operations as usual.

· Alternative Solutions: Do you think there are other possible solutions to be considered? If so, describe them.

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