Assignment 2 Example | Topics and Well Written Essays - 1000 words

2 - Assignment characterThe cash flow from the operations proposed to be outsourced is analyzed to work out the net present nourish for evaluating the outsourcing decision of the company on a lower floor various scenarios. Hypothesis Cost savings is an important determinant in the risk reward analysis of an outsourcing decision taken by a company. However, there are likewise other considerations involved such as tax implications, stringent statutory regulations and the conditions in the labor market. proletariat productivity Since the decision proposed to be taken is mainly on the basis outsourcing labor involved in the operations, productivity of the labor need to be analyzed for simile. Though currently the labor productivity in India is less compared to US, the company is hopeful of increase in productivity over a period of cartridge clip due to training and experience as reflected in Scenario 2. Labor productivity proceeds of good calls per day 600 Total number of call s during the year 600 x 365 = 219000 takings of customers served in US/Hour 10 Number of customers served in India/Hour 6 Number of hours in US required/year 219000 / 10 = 21900 Number of hours in India required/year 219000 / 6 = 36500 Labor Cost The company aims at reducing the personify of providing service to the customers for maximizing its profits. Since the important determinant factor is cheap labor available in India which whole caboodle out to just 20% of the wages prevailing in US, the overall cost of labor comes bulge out in outsourcing. Estimated labor cost in US 21900 x 10 = $219000 Estimated labor cost in India 36500 x 2 = $73000 Investment in outsourcing The company estimates that all other costs associated with outsourcing customer service have a present value of $2 million. The annual rate of interest is considered at 5% for working out the net present value of the cash out flows over the expected future tense life of the business of 20 geezerhood under Scenario 1 and at 3% under Scenario 2 for 30 years. The net present values relating to operations in US and outsourcing to India under the two scenarios are given below. Operations in US Outsourcing to India Scenario 1 (20 years & Interest 5%) 2,729,224 2,909,741 Scenario 2 (30 years & Interest 3%) 4,292,497 4,126,214 It could be observed that under Scenarios 1, outsourcing appears to be not attractive. However, under Scenario 2 outsourcing to India is beneficial. The parameters adopt under Scenario 2 are applied for 20 years time horizon for the purpose of comparison (Scenario 3) as below. Scenario 3 (20 years & Interest 3%) 3,258,167 3,417,476 Outsourcing is not attractive under Scenario 3. In the circumstance of Scenario 2, the reduction in cost through outsourcing is negligible considering the longer time horizon. The changes in Scenario 2 compared to Scenario 1 are analyzed to understand their impact on the outsourcing decision. Also, the recommendations are given after prudent paygrade of the impact of the various important determinants involved in outsourcing decision. Recommendations Outsourcing under Scenario 1 does not result in cost savings in view of the initial investment outlay required to be made. The changes introduced under Scenario 2 also do not make the outsourcing decision attractive. Therefore, based on a careful analysis from different perspectives, outsourcing is not recommended due to the reasons given. However, outsourcing under S