Talent Management
SOLUTION TO THE CASE STUDY- The Most Profitable Option Of Payment
Appshop, Inc., is the consulting firm for the client who has given a project OS-7 project providing 3 different ways of payment. Upon the costs incurred by the consulting firm, it analyses the best option.
Cost to the consulting firm:
Time required for the work: 1000 * 24= 24000
Total cost: 140 * 24000 = 33,60000
Revenue for the year: 175000*24= 42,00,000
Marginal savings: 42,00,000 - 33,60000= 840000
|Client’s 1st proposal |Monthly |Annual |
| |Fixed payment: 155000 |37,20,000 |
| |Saving: 37,20,000-33,60,000 |3,60,000 |
|Client’s 2nd proposal |Monthly |Annual |
| |Fixed payment: 1,25,000 |30,00,000 |
| |Bonus:15,00,000 |Bonus:15,00,000 |
| |Probability of bonus: 0.7 |Probability payment: 0.7*15,00,000= |
| | |10,50,000 |
|If bonus-linked |Revenue: 30,00,000 + 15,00,000 |Margin: 11,40,000 |
| |= 45,00,000 | |
| |Cost: 33,60,000 | |
|If bonus not linked |Revenue: 30,00,000 |Margin: -360000 |
| |Cost: 33,60,000 | |
|If bonus probability |Revenue: 30,00,000+10,50,000= 40,50,000 |Margin: 6,90,000 |
| |Cost: 33,60,000 | |
|Client’s 3rd proposal |Monthly |Annual |
| |Fixed payment: 150000 |3600000 |
|payment |savings |share |total | |With 45% of |Avg. margin |
| | | | | |winning | |
|36,00,000 |3.2 |0 |36,00,000 |Low |16,20,000 |0+36lac-33,60,000=2,40000 |
|36,00,000 |5.6 |20% of 1.6 |39,20,000 |Mostly likely |17,64,000 |39,20,000-33,60,000=5,60,000 |
| | |3,20,000 | | | | |
|36,00,000 |12.8 |60% of 4.8 |76,80,000 |highest |34,56,000 |76,80,000- 33,60,000=43,20,000 |
CONCLUSION:
Since the 1st proposal gives a fixed income and involves less risk, the consulting firm must choose that. The 2nd proposal has a risk of not achieving bonus, since its probability is only 0.7. The 3rd proposal shows that the firm does not guarantee its chances of winning as there is