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Using expected value, is it economically better to buy or make components

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Using expected value, is it economically better to buy or make components

From an estimated cost, the cost of production is higher than outsourcing the component. Nevertheless, for cost’s accurate comparison, the Teloxy Engineering Company must consider all aspects of acquiring the component and storage compared to creating them within the company.

In the case of Teloxy, the company will incur a higher cost of production, including defects that have a high chance of occurrence. Also, any company incurs the cost of production for equipment and raw materials. Although it is not included, the company will incur storage, proper disposal of byproducts, and labor costs.

Teloxy learned at the design stage that purchasing the product overruns the budgeted cost for the component. Raw materials per unit were higher by $12, from what Teloxy had estimated.  Additionally, there are other costs like storage, shipping, sales tax, etc.

Special consideration

Quantitative analysis is paramount in make-or-buy decisions; hence Teloxy should go for the option which is cost-effective, which in this case, making seems riskier than outsourcing the component. Nevertheless, other factors affect production, such as qualitative aspects. Therefore, Teloxy should consider the following before making the final decision:

  • Can the company work closely with the company outsourcing the component?
  • Is the quality produced within the firm better than the outsourced one?
  • Is Teloxy equipped with the expertise to produce the component?
  • What is the volume of the component?
  • Does the component require multiple sourcing?

Part two

No perfect business management would take up any concept without a subtle strategy. Any good strategy will yield business growth, higher profits, and help achieve whatever the management has established. Bad strategy, on the other hand, will cause losses and may lead to bankruptcy. In my opinion, it is good to consider other choices than economic choices.

Any company should take advantage of advanced infrastructure for quality and maximum production in their company. When a company opts for cost-effective machines, they may save money initially, but later it might cost them when repairing them, replacing them, or even replacing defect components. Also, in the case of Teloxy, the company may lose customers with the substandard quality considering that it is the first time they are producing the component. Good quality and less defective parts will give Teloxy a shot in the market.

Communication

How important are communication skills in project management?

Communication is vital for the articulation of vision-. Project manager must let the team must know clearly the objective of the project.

For a successful project, it is essential to report the project’s progress among the team and the stakeholders. At this level, charts, graphs, and illustrations should be maximized.

Was Herb the right person to be assigned as the project manager?

No. Being able to communicate clearly and effectively is what makes one a good project manager. Although Herb had not worked with the company for eight years, an expert in R&D and manufacturing, he had no experience as a project manager. Also, we see a defect in his communication with stakeholders and his team.

There were communications issues with Alice, Bob, and Frank. For each communication issues, where was the breakdown in communications: encoding, decoding, feedback, and so on?

In the case of a sponsor, there was a defect in the communication. He asks for a report which he didn’t ask directly. According to Herb, it will be risky to tell the sponsor that they had scheduled the meeting for discussion only and no report, considering his rank.

In Alice’s case, she didn’t communicate directly about the promotion recommendation letter to Herb. She said it suggestively, and Herb did not understand that that is what she wanted. Nevertheless, Herb apologizes anyway, which does not make her feel better.

With Bob, he tells Herb that Engineering technicians took the wrong tests. They could not remember the conversation and instructions they received earlier because they didn’t follow the engineer’s communication rule, putting everything in writing.

Frank and Betty ordered materials instead of checking on their costs. They ordered even after Herb explicitly asked them to check on costs first before making procurement decisions. Also, it was not their responsibility to do that.

 

 

References

Müller, R., & Turner, J. R. (2005). The impact of principal–agent relationship and contract type on communication between project owner and manager. International Journal of Project Management23(5), 398-403.

Ouimet, K. J., & Pierce, R. D. (2010). U.S. Patent No. 7,835,936. Washington, DC: U.S. Patent and Trademark Office.

Greene, D. L. (2011). Uncertainty, loss aversion, and markets for energy efficiency. Energy Economics33(4), 608-616.

Zulch, B. (2014). Leadership communication in project management. Procedia-Social and Behavioral Sciences119, 172-181.

 

 

 

 

 

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