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Keegan Worley Dr. Marley SCMG367 29 March 2012 Homework #4 Pagoda.com Case Study Current Solution Outsourcing 40 FTE * $40,000 = $1,600,000 N/A Personnel Costs 3 * $70,000 = $210,000 $2000 + $1000 = $3000 $2000 + $1000 = $3000 Equipment Costs $1.50 * 800,000 = $1,200,000 $0.50 * 800,000 = $400,000 Variable Costs N/A $1,500,000 Fixed Cost TOTAL $3,013,000 $1,903,000 Outsourcing would be the lesser cost of the two options, yielding $1,903,000 compared to the current solution of $3,013,000 (a $1,110,000 difference). 2. While an important factor, cost should not be the sole consideration in making an informed decision. Other factors that may be of issue to Pagoda, for instance, is delivery reliability: what happens if, somewhere along the way, Indias access to the internet is temporarily down? In addition to delivery reliability, Pagoda should consider the skill level of the personnel in New Delhi. While these individuals may have a college degree and/or the appropriate technical background, the full-time technical experts that currently run its online help desk are the ones who build Pagoda.coms outstanding customer service reputation, based on efficiency and reliability. Assigning weights based on importance, cost and delivery reliability should be deemed equally important at a weight of 0.4 each, leaving skill level of personnel weighted at 0.2. Consequentially, a weighted point evaluation system can be put into place as follows:
(1=poor to 5=excellent) Dimension Cost Delivery reliability Skill level of personnel Weight 0.4 0.4 0.2 1.0 Current Solution 2 * 0.4 = 0.8 4 * 0.4 = 1.6 5 * 0.2 = 1.0 =3.4 New Delhi Proposal 5 * 0.4 = 2.0 3 * 0.4 = 1.2 3 * 0.2 = 0.6 =3.8

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MEMORANDUM
TO: FROM: DATE: Thad Matta, President Keegan Worley, Manager of Risk & Assurance March 29, 2012

RE: New Delhi Help Desk Proposal ______________________________________________________________________________ It is in my estimation that the New Delhi Help Desk Proposal should be accepted based on three factors: cost of the overall project, delivery reliability to our customers and skill level of personnel involved. Outsourcing our online help desk to New Delhi will greatly cut costs, from $3,013,000 per year to $1,903,000a savings of $1,110,000 per year. Though the personnel in New Delhi will have a college degree and/or the appropriate technical background to handle our service, I am concerned with the difference in skill level as our current employees are technical experts. Furthermore, I am concerned (should we accept this proposal) that the delivery reliability to our customers may lag or cut out, as New Delhi is not based in the United States. Our customers pay a premium for our expert service; therefore I do not want encounter problems with interruptions in service and, as a consequence, lose our customer base. While there is a small potential for problematic issues to arise, the New Delhi Proposal is one that will further Pagoda.coms already broad customer base and strengthen its image as a reliable Internet service provider and customer-friendly business. Again, I recommend that you accept this proposal in light of the aforementioned information.