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IBM, and Accenture are willing to assume responsibility for a plethora of services, from IT to human resources to accounting. Smaller companies are willing to perform more targeted services. If one chooses to outsource offshore, consider the major Indian companies (e.g., Tata Consulting Services, Wipro, or Infosys). Whichever route a company chooses, however, it needs to evaluate the strengths and weaknesses of the provider. Those include: • Relevant experience. • References. • Price. • Personnel. • Available resources. • Financial stability. • Past lawsuits. • Length of time performing outsourcing. • Past successes. • Past failures. Request for Proposal (RFP) Content In order for a provider to respond to an RFP with an accurate and complete proposal, it must be provided with a wealth of information, including: • Company information (size, geography, products, public/private, etc.). • Background on project (how the service is being performed currently). • Guidelines for responding to the RFP. • Detailed specifications for project to be developed. • Testing criteria. • Required response times (either for software or for service). • Customer satisfaction requirements. • Logistics. • Selection criteria. • Potential contract terms. The RFP is the entry point into what will become a contractual relationship. If the company is to enter into a legally binding contract with the provider, it must provide that vendor with an accurate picture of its needs. If those needs are not well defined, both parties will be dissatisfied, which will most likely lead to a product that does not meet the company‟s needs or increased costs in doing so. The RFP is probably the most demanding part of the project, because it requires buy-in from all stakeholders. Investing time and effort up front pays dividends in the long-term success of the project. RFP Evaluation Once the RFPs have been submitted, they must be evaluated, which can be a daunting task. Most companies establish specific criteria and weigh the items so that the more important ones have greater influence on the overall score. Aside from the initial items requested in the RFP, the following should also be evaluated:
• Results of meetings with vendor references. • Professionalism. • Vendor stability. • Vendor financials. • Vendor staff to be assigned to project. • Scope of vendor responses (not too narrow or broad). • Willingness to compromise. • Willingness to negotiate. Vendor Selection As the saying goes, let the buyer beware. Initially, everything might look great, but there is a series of danger points to be aware of. First, review the vendor‟s financials. If it is a public company, then the financials are readily available. However, if the company is private, you must obtain them from the vendor itself. Many will resist supplying their financials, but that is a red flag. In today‟s day and age, transparency is expected. Is the company well funded? Look for negative working capital. Is the company dependent on progress payments from its customers in order to survive? Examine its sources of funds. Is the company generating positive cash from operations, or is it dependent on borrowings? Have shareholder class action lawsuits been filed against the firm, or has the Securities and Exchange Commission (SEC) initiated an investigation into the firm? In the late 1990s and early 2000s, a few very large software firms were the target of both class action shareholder lawsuits and SEC investigations, resulting in significant fines, settlements, and, in at least one case, imprisonment of some of its officers. Such action would indicate stock price manipulation through possible financial fraud. In early 2009, Satyam, a major outsourcing company in India, confessed to falsifying its financials. It overstated its cash by $1 billion, its revenues by 20%, and its profits by 90%. This was a company that was audited by one of the major U.S. accounting firms and was listed on the New York Stock Exchange (NYSE). Its customers included the U.S. government, General Electric, Nestle, and Cisco. Has the company undergone a major restructuring, or have there been significant resignations at the executive level? During an economic boom, a number of sins are obscured by the success of the times, but during a recession, internal problems become more apparent. Companies must be aware that in tough economic times their vendors could be in jeopardy and the success of their project or outsourced service could be in peril. Beware of bargain prices. They could indicate a company is willing to buy its way into the marketplace, but they could also be a signal of a company in distress. In either case, proceed carefully. Companies that lowball a quote could merely be planning price increases later on in the relationship. A company that wants to enter the market can be an interesting play. However, the outsourcer company must decide if it is comfortable being a guinea pig or a training ground for a vendor that wants to gain experience in the marketplace. Does it want to bear the risk in return for potentially substantial savings?
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Table of Contents Title Page Copyri
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Chapter 6 - Planning Capital Expend
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For Further Reading Part IV - Manag
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Successful Postmerger Implementatio
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This book is printed on acid-free p
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Syllabus How Chapter Topics in This
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Some of these experts are full-time
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About the Contributors Richard T. B
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Advances in Quantitative Analysis o
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enterprise development. Dr. Zachara
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The left side shows Nutrimin‟s in
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Gail, let‟s go over this balance
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Gail, do you have any questions abo
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11. Not all expenses are cash outfl
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Financial Statements: Who Uses Them
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profitability to keep investing for
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Financial Accounting Standards It i
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Downloadable Resources for this cha
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Next, we explain each of these thre
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liquidity. Or, more simply, achievi
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If these ratios are seriously defic
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The debt-to-equity ratio is evaluat
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year 1 to year 3. The net effect wa
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to rate of return on the equity. Th
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Other types of comparisons of finan
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income/sales), asset turnover (sale
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successful businesspeople should ha
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More than a decade ago, a special c
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companies is used for illustration.
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The identification of nonrecurring
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The Dow Chemical single-step income
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is a pretax measure, but income fro
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Sources: Companies‟ annual report
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Exhibit 3.11 Examples of discontinu
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amortization purposes, the Company
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Examples of nonrecurring items disc
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During Fiscal 2006, inventory quant
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The nonrecurring items of Boston Sc
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The disclosure presented earlier in
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gains or losses that appear as part
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ecurring as for Kimberly-Clark, the
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Summarizing Nonrecurring Items and
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This example of using the SEB works
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Exhibit 3.27 Other income (expense)
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Source: Pfizer, Inc., annual report
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Exhibit 3.30 Acquisitions note: Pfi
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Source: Pfizer, Inc., annual report
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Exhibit 3.33 Cost-reduction initiat
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Exhibit 3.36 Share-based payment no
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The Pfizer Worksheet Analysis: Down
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Some Further Points on the Pfizer W
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• It is common to treat items as
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FedEx Corporation (2007) First Sola
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1 The American Institute of Certifi
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28 These alternative translation me
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If you need some instruction in Exc
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To solve using Excel, open your Exc
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As you can see from the previous ex
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C6 = 5 • Now enter the “=” si
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Ordinary Annuity An ordinary annuit
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To confirm that the number of payme
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The FV of this first payment into t
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Exhibit 4.15 Finding the future val
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Exhibit 4.18 Finding the present va
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From Exhibit 4.20, we see that as t
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Exhibit 4.22 Amortization schedule
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Exhibit 4.25 Regular cash flows wit
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Internet Links For Further Reading
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Investors who are risk averse will
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considering the risk of a single as
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Portfolio Risk Stand-alone risk is
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In spite of unique or diversifiable
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If a particular stock is highly sus
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The formula tells us that, to begin
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for the entire market of stocks sin
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The dividend per share for preferre
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If you are able to determine the cu
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Debt finance is the lower-cost meth
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We don‟t observe many firms whose
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Capital Structure in Practice Finan
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are able to observe regularities in
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dividends and capital gains. We wil
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where EBIT is earnings before inter
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Since long-term debt holders have a
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accept more investment projects. Re
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A beer company is considering build
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accounts receivable, and tabulates
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profit by the tax rate determines t
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Accounting profit often mixes varia
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The concept that future cash flows
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Like project A, project C also cost
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The after-tax interest rate is the
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equal mix of debt and equity, its d
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The payback period rule stipulates
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The IRR rule is appealing in that i
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complete with its real options is g
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What does it matter that one invest
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Exhibit 7.3 Time line in dollars an
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There are a number of countries in
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eturn of 10% on its investments in
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Exhibit 7.12 Summary of exchange ra
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and so will the value of the liabil
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Source: CIA, World Factbook, availa
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Exhibit 7.18 Net present value of c
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equired interest payments to be pai
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So if the assistant treasurer was r
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This theory is far from perfect, as
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The Consulting Firm Jennifer, Jean,
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part by a statute, the Uniform Limi
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formation in Delaware (or any state
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purpose of requiring qualification.
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Phil‟s death may terminate the bu
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the transfer. This means that if Br
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These rules extend to tort liabilit
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In the absence of a meeting, stockh
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A more detailed discussion on the b
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Partnerships If possible, the resul
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associated with this arrangement ar
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Partnerships are also not separate
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For most start-up businesses, howev
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form, even at the risk of some unli
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likely that our consultants will be
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Thus, the corporation and LLC, with
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It is not possible to fully describ
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usiness corporation for all purpose
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a cash-basis taxpayer to be taxed a
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The Tax Reform Act of 1986 substant
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limit is the product of the value o
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he would have spent anyway. In fact
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protect Brad from the scenario of h
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paying for the privilege. If the st
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The second tax scenario attaches to
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include that nullity in his taxable
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then the capital gain to be taxed h
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Most relevant to Morris is Section
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To begin with, the ESOP will have t
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general partner of a limited partne
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small businesses) is also subject t
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oth Lisa and Brad would be free to
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Assume that a limited liability com
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corporations, and had been audited
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There is plenty of blame from the c
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• An important study about top ma
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• The federal government made at
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$79.7 million for other services, a
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Budgets offer a variety of benefits
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determine the impact of specific pr
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Exhibit 11.2 Budget variance report
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udget, we just add more to it next
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income statement. The financial bud
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For a manufacturing company, cost o
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C&G‟s Gift Shop has a policy to m
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Meeting cash obligations as they co
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was unusually low, say, due to the
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A fixed budget, sometimes called a
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A large part of the budget selling
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• Centralized resource allocation
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Merewitz, Leonard, and Stephen H. S
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This chapter starts with a discussi
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Interestingly the numbers for quart
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Exhibit 12.4 Scenarion analysis.
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Pitfalls Although this analytic tec
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Exhibit 12.6 Variable cost element
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Variable Cost as a Function of Outp
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If scenario 2 yields a lower profit
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Microsoft certainly does not price
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If it is determined that dumping ha
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Leaving government agencies and not
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transaction processing. Each proces
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Exhibit 13.3 E-commerce transaction
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To summarize the analysis, the busi
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Capacity costs are probably the mos
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which it was, but for the inventory
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They called this strategic cost man
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A closer study, however, revealed s
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the benefits of business planning.
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The last type of plan is called a d
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The Business Plan We will progress
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Hook the Reader That means having t
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Industry The goal of this section i
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upscale suburban client who wants p
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Company and Product Description Com
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Exhibit 14.8 shows the competitive
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Exhibit 14.9a Advertising schedule.
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Scope of Operations What is the pro
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Development Time Line A development
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By law, most organization types req
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As mentioned in the development pla
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that can be depreciated, you should
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1 Special thanks to Matt Feczko, Mi
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For better or worse, the business e
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Leeson bet and lost. Japanese stock
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Between February and April 1994, Da
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LTCM could be picky when it came to
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An investor who wished to invest in
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Similarly, the swaps market has rev
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speculator would suffer losses equa
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American manufacturer will suffer l
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The ease with which futures facilit
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Exhibit 15.1 Call option payoff dia
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Exhibit 15.2 Payoff diagram for a w
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Notice that the put option payoff r
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Bank, owns a large block of NASDAQ
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can be tailored so that the money r
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Finally, the last step is to choose
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3 Fischer Black, who co-invented th
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not include assets that the firm ha
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Thus, a business valuation will usu
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Negative • Acme is highly depende
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Exhibit 16.3 Acme Manufacturing, In
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Profitability ratios reflect the re
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When we talk about the value of a b
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This example illustrates that with
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Income Approach: Discounted Cash Fl
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Exhibit 16.5 Acme Manufacturing, In
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Victoria explains that the second p
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Victoria analyzes Acme‟s audited
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In summary, the discounted cash flo
Page 463 and 464: Adjustment for Illiquidity As previ
Page 465 and 466: 51% position sells for a higher pri
Page 467 and 468: examples. The proper application of
Page 471 and 472: The subject of this chapter is grow
Page 473 and 474: Finally, an acquisition can be effe
Page 475 and 476: M&A activity has been the focus of
Page 477 and 478: companies continue to make the same
Page 479 and 480: equals was taking on a distinctive
Page 481 and 482: Anatomy of a Successful Acquirer: T
Page 483 and 484: employees kept their original jobs
Page 485 and 486: where ΔCF t is the incremental cas
Page 487 and 488: where it‟s ultimately buried. Suc
Page 489 and 490: The following example summarizes th
Page 491 and 492: make sure that you are at least awa
Page 493 and 494: acquisition, there is no immediate
Page 495 and 496: its vascular business, which was so
Page 497 and 498: While all employees should be part
Page 499 and 500: makes strategic and financial sense
Page 501 and 502: Bhagat, Sanjai, Ming Dong, David Hi
Page 505 and 506: The 2008 financial crisis underscor
Page 507 and 508: Source: Plunkett’s Outsourcing &
Page 509 and 510: To summarize: Trends • Large numb
Page 511 and 512: Companies are becoming increasingly
Page 513: What steps should a company follow
Page 517 and 518: • Breach of contract and remedies
Page 519 and 520: Assuming the project or service rev
Page 521 and 522: The answer is: profits. The company
Page 523: 19 Information Technology and You D
Page 527 and 528: People‟s lives have been turned u
Page 529 and 530: its self-contained rechargeable bat
Page 531 and 532: Random-Access Memory (RAM) Random-a
Page 533 and 534: On laptop computers and PDAs, the s
Page 535 and 536: Operating System An operating syste
Page 537 and 538: the spreadsheet software together w
Page 539 and 540: Exhibit 19.5 Pro forma sales and in
Page 541 and 542: Database Software A database is a c
Page 543 and 544: Internet e-mail addresses often con
Page 545 and 546: Personal Finance Software There are
Page 547 and 548: There are several different approac
Page 549 and 550: One of the major attractions of the
Page 551 and 552: While not a new version of the Web
Page 553 and 554: industrial revolution, and has occu
Page 555: Dummies Inc. has a series of books
Page 559 and 560: organization. This chapter is desig
Page 561 and 562: As technology has evolved, the term
Page 563 and 564: While the software mentioned earlie
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Most of the focus of the investor c
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Data Access and OLAP Before the lat
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Exhibit 20.5 illustrates a differen
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Productivity Tools Workers expect t
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Client-server technology is based o
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Today, most programmers write in C+
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Exhibit 20.6 is a model of a typica
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No treatment of relational database
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Online analytical processing (OLAP)
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server) and the rest on the users
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the other operational departments w
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The world of business has changed d
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Chaffey, Dave, E-Commerce and E-Com
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According to the results of the sur
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understand the financial situation
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MBA graduates who are hoping to ent
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Summary Financial services opportun
Page 603 and 604:
Let‟s begin with the “I left it
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MBA student: “Well, I go to [Grea
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Aiming for Your Goals For career ch
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Networking is generally regarded as
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Let‟s begin with some key assumpt
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like, or moving ahead in the compan
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Accrual accounting: An accounting m
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Cash flow: Cash that is spent or re
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Distribution channel: A chain of in
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Goodwill: As it relates to valuatio
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Management’s discussion and analy
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Ordinary annuity: An annuity that p
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Securities and Exchange Commission
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Vertical merger: A merger in which
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about activity-based costing progre
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Application systems ARPAnet Arthur
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Bell Labs Benefit measurement Beta
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goal orientation legal and contract
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segment information note share-base
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process of purpose of real world us
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uy/build decision capital budget in
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written resume Careers in corporate
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Cell Center for Research in Securit
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Compensation and ownership Competit
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Corporate culture Corporate debt in
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profit planning from an internal pe
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Data Data access and OLAP Database
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Askin Capital Management Barings Ba
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market approach publicly traded gui
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Electronic data interchange (EDI) E
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Extensible markup language (XML) Ex
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short term liquidity users and uses
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Fourth generation programming (4GL)
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Going private Going private transac
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Hypertext links Hypertext markup la
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Information technology and the firm
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International Accounting Standards
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Last-in-first out (LIFO) vs. curren
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Long call option payoff Longer-term
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Market risks Market size and struct
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Motivation to outsource Multiple IR
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Nonrecurring items defined disclosu
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Operational complexity Operational
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Outsourcing metrics Overhead Over-t
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Personal end game Personal expense
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Price competition Price decreases P
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Projected cash flow statements Proj
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Relevant range Relevant range assum
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Risk sharing Risk transfer Risk vs.
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Short call option payoff Short part
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Spot price Spreadsheet software Spr
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Summarizing nonrecurring items and
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acquisition the business dividends
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Timmon‟s Model of Opportunity Rec
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U.S. immigration quotas U.S. Intern
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discounting with discount rate form
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