hi I need a great finance tutor to evaluate the study team?s findings and calculate the project?s cash flows and economic returns to the company attached. I have attached a sample business case as a guide along with the case being presented and instructions.
Webster University ? Greenville Metro
FINC 5880 ? Summer 2016
Big Breeze Fans
Big Breeze Fans got its start 45 years ago as a manufacturer, seller, and installer of fans for industrial
sites. They invest heavily in fan technology and lead the nation in sales of fans to large industrial
customers. Big Breeze developed a reputation for innovative design and energy efficiency that allows
them to charge a premium price for their fans. Likewise, many Big Breeze sales representatives enjoy the
generous expense accounts and healthy commissions that the steep margins on a large sale to an
industrial customer make possible.
While the investment made in product engineering and research paid off handsomely over the first 40
years of the company?s history, sales reached a plateau and Big Breeze has not been able to increase
prices over the last five years. Concerned about the company?s future, 3 years ago Big Breeze?s executive
management team developed a new long-term strategic plan. The plan looks out 10 years into the
future and caused some dramatic shifts in the company?s thinking.
The plan called for the creation of a new product line designed for luxury homes. Big Breeze had never
designed fans for consumer use, however, it appeared more and more architects and designers were
ordering industrial fans for large spaces in their clients new ?estate ? sized? homes. As a result of
additional market research, Big Breeze concluded there was, indeed, a healthy demand for industrial
quality fans for the retail market. Two years ago, Big Breeze retooled a section of their main
manufacturing facility and began producing smaller diameter, lower horsepower fans. Robust sales of
the new product line encouraged them to expand their consumer grade fan building capacity.
Because of the relatively limited run of fans produced in the initial test of the market, Big Breeze decided
it would sell the fans via the internet and use third parties to distribute and install the fans (Big Breeze
delivers and installs 100% of its industrial fans). This new fulfillment model worked so well, that Big
Breeze intends to expand its online presence and market and distribute consumer fans strictly via the
Another initiative called for by the strategic plan was to conduct customer satisfaction surveys and
determine why industrial fan sales had stagnated. A major marketing research firm was hired to gather
and analyze feedback from customers. What the surveys uncovered was eye-opening to Big Breeze
executives. The surveys revealed that industrial customers who ordered large quantities of fans were
generally very satisfied with the product and the customer service they received. Large customers often
credited their Big Breeze sales representative with providing a seamless customer experience. Unlike
large, well established industrial customers, however, more entrepreneurial customers were completely
dissatisfied with the service they received and felt the company had not lived up to its marketing pitch.
Big Breeze Business Case
The main problems experienced by smaller customers seemed to be missed delivery and installation
deadlines, confusing paperwork and billings, and uncertainty over the credit terms they would be
extended. Cash flow was critical to smaller customers and Big Breeze made it difficult for the small shop
or retailer buying only one or two fans to predict when the bills would be presented or due. Smaller
customers said they definitely WOULD NOT recommend Big Breeze fans to a business associate.
Management concluded from the research results that industrial fan sales would indeed be slowing if a
better service experience could not be provided to new start-up businesses and smaller customers.
After further investigation, it appeared the ?back-office? processes used by Big Breeze were a major
impediment to achieving a great customer experience for smaller industrial fan buyers. The consultants
advised Big Breeze to investigate implementing a CRM (Customer Relationship Management) System. A
CRM would enable Big Breeze to streamline the order and fulfillment process, providing much better
service to its smaller industrial customers. In addition, a CRM was especially critical for support of online
marketing and sales and would be needed if Big Breeze wanted to aggressively expand their consumer
The industrial fan fulfillment process, shown as exhibit 1, had evolved over time such that, without a
sales representative to intervene, the process created delays and undue confusion for a customer. For
large industrial accounts, the sales reps worked diligently to keep customers informed and to prioritize
their orders over smaller customers. As such, the sales reps protected their commissions and had, over
time, built a fulfillment system that only an experienced sales person could effectively navigate.
Implementing a CRM would drive radical change in the fulfillment process and would require sales
representatives to do more work upfront to feed information to the system. That upfront information
was used by the CRM to automatically check inventories, schedule deliveries, and order installations.
Moreover, the CRM provided information that enabled anyone at Big Breeze to resolve customer issues.
Sales representatives would also be more productive because they would now be able to handle a larger
number of customers. A CRM, however, was not a popular idea with the sales reps. While greater sales
productivity could potentially increase their commissions, many sales representatives thought adding
more customers to their workload would not be worth the extra salary earned.
Economic Costs and Benefits
Big Breeze executives appointed a team to conduct a feasibility study and investigate various CRM
systems that could be implemented. The team was told to use a 7-year life for the project as technology
changes would require Big Breeze to adopt a replacement system at the end of 7 years. The team was
also told to estimate inflation at 2% over the life of the project.
The study team met with various software vendors and saw CRM systems in action at some of the
vendor?s clients, after which the study team recommended Big Breeze?s fulfillment process be revised as
shown in exhibit 2.
Big Breeze Business Case
Based on study findings, the cost of implementing the new system would be $15 million and it would
take an entire year to set up the CRM and train employees in its use before it could be brought online.
Benefits to be gained were estimated by the team as well. Because of process streamlining, there would
be a reduction of labor required to perform back office functions. Sales projections were also made
based on track records of other businesses who had gone through a CRM conversion. The study team?s
benefit estimates are as follows:
Sales Increases ? Year over Year Growth Estimates:
Sales for industrial fan are not projected to increase until two years after CRM implementation because
of the sales personnel learning curve and organizational change issues. Because of uncertainty over the
industrial market, growth is not projected to increase beyond the 3 rd year after implementation. Sales of
consumer fans will increase in the first year after implementation because the fulfillment process is not
undergoing significant change. The consumer market is thought to be robust enough that growth can be
sustained for five years after which it will level off. There are no additional sales of either consumer or
industrial fans forecasted for years 6 and 7 of the project.
Industrial fans sell at a gross margin (price less cost of goods sold) of $800 per unit on average.
Consumer fans have a lower markup and only generate a gross margin of $150 per unit. To support
volume growth, plans are not to raise gross margins over the life of this project. They are forecast to
remain flat. Because consumer fans are distributed through a 3 rd party, there is an additional expense for
marketing and logistics of $50 per fan. Contracts with these third party distributors include fee increases
based on the rate of inflation each year.
The significant streamlining of the fulfillment process will eliminate positions in the billing department
and warehouse. The CRM is also cloud-based, meaning less IT employees will be needed. In all, 15 fulltime positions would be eliminated as a result of moving to a CRM system. If an employee whose
position is eliminated cannot qualify for another open position at the company, they will be offered a
severance package which includes outplacement services. Big Breeze?s payroll costs for these positions,
including salaries, benefits and payroll burden, averages $60,000 per year. Payroll costs are also
expected to track inflation, so manpower savings will be worth more in the future.
Employees will be severed immediately as the new system comes on line. Severance is estimated to cost
60% of the total payroll costs saved in the first year of the project. Payouts are immediate and
outplacement is provided for 6 months after termination
Big Breeze?s CEO and special Committee of the Board want you to evaluate the study team?s findings and
calculate the project?s cash flows and economic returns to the company. They would like to know what
Big Breeze Business Case
the NPV, IRR, and Payback are for implementing a CRM. The CEO has set hurdle rates at 25% for all
capital projects. While Big Breeze has a WACC of 15%, the CEO only wants to consider projects that far
exceed WACC to guard against the risk of a slowdown in the overall economy which would hurt fan sales.
The CEO refers to this as ?Project A?.
The CEO also wants you to look at another variation of this project, ?Project B? which can generate even
greater savings, but which involves terminating more employees. She wants to make sure she
understands the difference in the economic impacts of both projects and selects the one that best serves
the stockholders without damaging the company?s culture and reputation as a fair employer.
Project B takes advantage of new system capabilities to outsource the remaining back office functions to
a 3rd party. Because of economies of scale of the outsourcer, it appears the cost of the fulfillment
process can be further significantly reduced by letting a 3 rd party perform warehousing, billing, and other
back office functions.
Project B Incremental Economics:
An additional 25 positions can be eliminated by moving these functions to a 3 rd party provider.
Therefore, project B results in termination of a total of 40 Big Breeze employees. Because these
additional employees include managers and other technical experts, their average salaries and benefits
are higher at $75,000 per employee. These salaries are also expected to rise with inflation.
Severance and outplacement continue to be estimated at 60% of the payroll costs saved. Not all 25
positions can be eliminated in the first year, however. In order to support a successful transition to the
3rd party provider, Big Breeze will need to hold onto 10 key employees during the first year after
implementation. In order to do this, Big Breeze will need to offer a retention bonus equivalent to 30% of
salary and benefits for each retained employee. At the end of that year, the retained employees will be
terminated and receive full severance benefits.
The third party provider will charge a flat fee of $1 million per year to perform the duties of these 25
people. The provider signs only 3 year contracts and the feasibility team estimates the rate will jump to
$1.1 million for years 4-6, and then $1.25 million for years 7 and beyond.
Analyze the economic returns of Project B, compare them to Project A, and present a business case
recommending the best course of action. The CEO and Board can move forward with one of these
projects or reject the idea of moving to a CRM and continue to do business as usual. The CEO and Board
are willing to consider other economic criteria, but they must know what the NPV, IRR, and Payback on
these projects are in order to accept the recommendation made in your business case.
It will be important that the Board knows you took into account the human resource issues associated
with these projects and weighed them appropriately. The Board is accountable to stockholders for this
decision and will need your business case to defend their actions.
Big Breeze Business Case
This question was answered on: Oct 15, 2019Buy this answer for only: $15
This attachment is locked
Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
About this QuestionSTATUS
Oct 15, 2019EXPERT
YES, THIS IS LEGAL
We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.
You can also use these solutions:
- As a reference for in-depth understanding of the subject.
- As a source of ideas / reasoning for your own research (if properly referenced)
- For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
NEW ASSIGNMENT HELP?
Order New Solution. Quick Turnaround
Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.
WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN A DEADLINE.