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Task 1
Report
To: Board of directors
From: External Consultant
Subject: Advice on the financial and non-financial benefits and drawbacks of each of the investment
projects and recommendation of the chosen project
Date: August 20X3
Introduction
The following information relates to the advice related to the financial and non-financial benefits and drawbacks
of each of the investment projects and recommendation of the chosen project.
Sailing dinghies
Benefits
There are several benefits related to this investment project, which are as follows.
Payback period
The payback period of the investment in sailing dinghies is 3.5 years compared to the investment in luxury
yachts of 6 years. The payback period relates to the time in which the company will equal the initial investment
of the project (in this case $4 million) from its net proceeds/cash flows/benefits received from the investment in
a project. This is almost half of that of the investment in luxury yachts. This means that Yaxmarine will get the
payback for the investment in sailing dinghies in almost half the time compared to if it invests in the production
of luxury yachts.
Initial investment
The initial investment of investing in the sailing dinghies is $4 million compared to the $10 million initial
investment on luxury yachts. The initial investment relates to the costs to be incurred at this point in time in
order to commence operations of the project. The initial investment in sailing dinghies is 60% lower compared
to the initial investment on the luxury yachts. This will only use $4 million of the $10 million proceeds from the
sale of the two Hameldon sites which means the remaining $6 million could be reinvested in the company.
Although, further evaluation on this could have been done if the marketing costs were provided.
Timing of revenue
The revenue received from the sale of sailing dinghies will be received in 50% less time than if Yaxmarine
decides to sell luxury yachts. This will bring a higher frequency of revenue in the company which would be
better for the company's working capital management.
Target market
The target market for the sailing dinghies are the Neoland families which makes it a product which is accessible
and affordable for the common people of Neoland. This would be the reason for higher frequency of revenue
compared to selling luxury yachts, as discussed above.
Competition
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There are a number of manufacturers in the market of sailing dinghies in Neoland. However, all of them are
smaller in size compared to Yaxmarine which means that the competiition is low and if Yaxmarine decides to
invest in the sailing dinghies market, it could easily be the most dominant company in the market, which could
even capture a huge part of its market share.
Drawbacks
Yaxmarine may face these drawbacks if it chooses to invest in the sailing dinghies market, including the
following.
Selling price
The selling price would be $4,000 per sailing dinghy. This is lower that the sector average and, at least, 99%
lower than the selling price of one luxury yacht. This shows that Yaxmarine would be generating a very low
revenue compared to if it invests in the luxury yachts market.
Gross profit margin
The gross profit margin is 35% compared to the 62% of that of the luxury yachts. This would be mostly due to
the reason that the selling price per sailing dinghy is too low.
Operating profit margin
The operating margin is cut by almost two-thirds compared to the gross profit margin of the sailing dinghies
which indicates higher operating costs compared to the luxury yachts, whose operating margin is just about
halved compared to its gross profit margin which indicates relatively lower operating costs compared to
operations.
Net present value (NPV)
The NPV earned by the sailing dinghies is positive ($5.5 million) which means that this investment project will
generate returns. However, Yexmarine may not be able to enjoy a net present value of $7 million, earned on the
investment on luxury yachts, if it selects the sailing dinghies investment project.
Luxury yachts
Advantages
The following are the benefits received from the investment of the luxury yachts project.
Selling price
The selling prie of each of the luxury yachts are $400,000 or more, which is, at least, 99% higher than the selling
price of the sailing dinghies. This high selling price would be the reason for such high levels of gross and
operating profit margins, which will be discussed in more detail below.
Gross profit margin
The gross profit margin is alot higher than compared to the one earned in the investment in sailing dinghies. This
would be due to extremely high sellig prices charged for each luxury yacht, as discussed above.
Operating profit margin
The operating profit margin is just less than half of the gross profit margin which means that operating costs
(related to operations) are reletively lower compared to the that of the sailing binghies, as discussed above.
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Net present value (NPV)
The NPV earned through the investment in luxury yachts is positive and higher ($7 million) compared to the
NPV of the investment in sailing binghies ($5.5 million) which makes this investment more lucrative and
indicates higher generation of returns.
Revenue
The timing of revenue is double that of selling sailing binghies, which means that by the time our one luxury
yacht is sold, two of the sailing dinghies would be sold, on the basis of estimates. However, to put things into
perspective, in 3 years time when one luxury yacht is sold, the total revenue generated from the sale of the
sailing dinghies would be upto $8,000. But the revenue generated from the sale of the one luxury yacht will be
$400,000 or higher in that time. This means, event though sailing dinghies are sold more frequently than the
luxury yachts, according to estimates, the one luxury yacht's sales revenue would be 98% higher compared to the
total sales revenue of the sailing dinghies in the similar time period.
Disadvantages
Yaxmarine will face the following drawbacks if it chooses to invest in the luxury yachts project.
Payback period
The payback period of the luxury yachts is 6 years which is 2.5 years higher than the payback period of the
investment in the sailing dinghies project. This means that the project will generate returns in a frequency which
will take 6 years for the initial investment to be paid back and then the actual returns will start flowing
toYaxmarine. If it decides to invest in the sailing dinghies, this time could be reduced.
Initial investment
The initial investment of the luxury yachts project is $10 million. This is equal to all of the proceeds received
from selling the two sites in Hameldon, which means that no funds will be left for reinvestment from the
proceeds received as all of it will be invested in this project. If Yexmarine decides to invest in the sailing
dinghies project, the initial investment could be minimised to a high extent.
Target market
The target market for the luxury yachts are very wealthy individuals in Neoland and, given the selling price, this
makes the luxury yachts a niche product. This means that not everyone would be able to afford it, which
explains the sales frequency of the yachts. In addition, given that this product is a luxury, during times of
recession the market for luxury products are highly disadvantaged as the consumers spending decreases,
especially related to luxury. The wealthy individuals pruchasing the luxury yachts would also hold their wealth
until the recessionary phase is over and this would drive sales volume and revenue to almost nothing. However,
nothing can be determined about this as no information has been provided over the economic conditions of
Neoland.
Competition
The market for luxury yachts faces high competition and Yaxmarine would also have to face this level of
competition. Further, some of the international producers of luxury yachts are larger in size compared
toYaxmarine which means that Yaxmarine would not be able to capture a large part of the market share for a
while. Yaxmarine would have to innovate highly and keep prices according to competition in order to stay in the
market.
Recommendation
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I would recommend Yaxmarine to invest in the sailing dinghies. This is because Yaxmarine's performance in the
cruising yachts industry is inferior to that of its three other competitors. It would be better for Yaxmarine to
invest in a lower level of the shipbuilding industry which is the sailing dinghies. The luxury yachts, although,
seem more lucrative as they seem to give extra ordinary returns, but the market is too competitive and
Yaxmarine would not be able to deal with such complications.
Best regards
External Consultant
Task 2
(a) Letter
External Consultant
Tranart Consultants
Neoland
Date: September 20X3
Chief executive
Yaxmarine
Neoland
Subject: Assessment of the proposal to establish a strategy committee
Respected chief executive,
I have assessed your proposal of establishing a strategy committee and below are my findings and comments on
its benefits and problems.
Benefits
There are several benefits which Yaxmarine could experience after the establishment of the strategy committee,
including the following.
Stock exchange listing
Creating a strategy committee will bring Yaxmarine one step closer to a stock exchange listing which will make
the company go public. This will increase the level of investment in the company as the wider public would be
able to invest in Yaxmarine by buying its shares.
Better planning and decision-making
The strategy committee will improve the strategic decision-making process of the company. This is because a
separate committee has been identified which analyses and evaluates the strategies provided to the company,
documents it and presents its findings to the board which reduces the time taken for this process.
High monitoring of competiton
The competition of Yaxmarine will be closely monitored, as told in the chief executive's proposal, which will
give the company more insight in what its competitors are planning and what competitive risks are present to the
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company. This way, Yaxmarine will stay ahead of its competition in this highly competitive market as it will be
informed about its competitors' activities.
Informed board of directors directors
One of the main roles of the strategy committee will be to analyse and report on the strategic threats and
opportunities to the board, which will keep the board informed about these areas. The board will then plan and
create objectives to mitigate the threats and avail the opportunities accordingly.
Problems
Yaxmarine can also face the following problems if it establishes the strategy committee.
Lack of non-executive directors (NEDs)
There is no participation of NEDs in the committee. This will demotivate the NEDs of the company as they will
feel that they do not have the similar participation compared to the executive directors (EDs), given that they
also have less representation on the board. This would adversely impact their performance. In addition, the
NEDs which are experts in strategy making would be absent which would create a difficulty in the operation of
one of the major roles of the committee.
Committee meetings schedule not defined
The committee meetings are not defined. If this is not determined beforehand, the meetings of this committee
would be irregular and may not take place in a long time, even taking months or years. This would erase the
purpose of this committee as the members would not use it to its purpose.
Finance director not included
The finance director has not been included in the members of this committee. The finance director will be
crucial in determining whether the company has the finance available and/or the sources of finance available to
it. Without the finance director, the committee cannot make decisions on key strategies as they would not have a
financial expert.
Regards
External consultant
(b) Briefing notes
FAO: Board of directors
From: External Consultant
Subject: Analysis on employee dissatisfaction and its effects on each stage of the organisational
changeprocess
Date: September 20X3
The following information is relevant for the analyses on how employee dissatisfaction may impact upon each
stage of the organisational change process.
Unfreeze
Unfreeze phase deals with employees before change is implemented. It helps them to understand the change and
that they could also share their feedback. If this is not done properly, the employees may not understand the
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reasons for change, will feel neglected and will not buy into the proposed changes. If the employees do not agree
with the proposed changes, they may refuse to participate which would jeopardise the success of the planned
changes. As shown in the survey, the employees believe that their is a lack of communication between top level
management and the staff and that the board does not care about their views.
Move
Move phase deals with the implementation/execution phase. Detailed planning is done, teams are made and
tasks are allocated to the concerned teams. Proper training is provided to the teams so that they can carry out the
tasks properly. If this is not done properly, the team would not know what they are supposed to do. If this is the
case then they will not participate in the implementation activities. This would singificantly delay the project. As
shown in the employee survey, some employees have concerns that they will not be rewarded for the overtime
work they will do. Also some employees are concerned that they may not get proper training on the new roles.
Refreeze
Refreeze phase deals with ensuring that employees follow the new processes and do not revert back to the
previous ones. It requires strict monitoring and rewarding employees for their hard work. Also it requires dealing
with employees who are resisting and trying to return to the previous processes. If employees are demotivated,
they will not adopt to the new changes and will try to revert back to the previous one. This could also result in
high turnover which will adversely affect the changes as high level of retention is vital factor for this project. As
you can see from the employee survey results, some employees have concerns that Yexmarine will lose more
senior employees or employees with specialist skills who can most easily find jobs with competitors, and they
are concerned about how difficult it will be to replace these staff.
Task 3
(a) Report
To: Chief executive
From: External Consultant
Subject: Evaluation of the adequacy of the risk mitigating activities for each risk and recommendation
on any further mitigating activities which may be required
Date: September 20X3
Introduction
The following information is relevant for the evaluation of the adequacy of the risk mitigating activities of each
risk and recommendation of any further mitigating actions.
Flooding
Risk level
The operations director has mentioned that this is a non-serious risk. I completely disagree with this. Flooding is
a serious risk as you are located in a coastal city. In addition, it is forecasted that flooding will become more
frequent and severe in Lympool.
Adequacy of risk mitigating activities
Insurance has been identified as one of the mitigating actions of flooding. Insurance will be able to compensate
Yexmarine for the damages caused by the floods. But, the company's insurance policy should be reviewed to
assess the percentage of the damage which will be compensated. If the damages are not fully compensated, then
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the remaining amount should be estimated and a provision relating to it should be created in Yexmarine's
financial statements.
Local flood defences are also a good measure in order to reduce the damage caused by flooding. These flood
defences would not let flooding impact the company's premises. It should be evaluated whether the flood
defences are up to date and should be checked regularly to ensure that they will operate effectively during times
of floods.
The company also watches out for flood warnings which is also an effective measure. It should be assessed on
how regularly the management watches out for these warnings. If these warnings are not watched out for
regularly, the company would not be ready for the floods.
Recommendation of further risk mitigating activities
Yexmarine should invest heavily in flood proof infrastructure. This will reduce the damage caused by the flood
by a high level.
Further, the company should create a flood committee where experts relating to weather forecast and natural
disasters should be recruited and made members along with executive directors, so that strategies could be made
on how to tackle the issue of flooding.
Product obsolescence
Adequacy of risk mitigating activities
Comparisons with local competitors is one way to keep a check on product obsolescence. This will help in
determining whether our products are not obsolete compared to the competitor's products. However, not just
local competitors, international competitors' products should also be compared to our products to confirm
whether ours is up to date or not.
The company also develops additional features in its current products. This is a good measure as the customers
will get additional features in the product which could lead to customer satisfaction. However, just developing
additional features is not viable enough. The company should invest heavily on research and development as
well to constantly innovate and produce and launch new and different products in the market.
Recommendation of further risk mitigating activities
The company should create a policy to conduct customer surveys and feedbacks on a regular basis, for example
once a month. This will help in determining about the customers' needs and wants in the company's products.
The company should invest in research and development to innovate and produce new products which would
keep the customers' satisfied.
Data security
Adequacy of risk mitigating activities
Yexmarine used anti-virus and firewall softwares to mitigate its data security risk. This would prevent hackers
from hacking and leaking confidential customer data. However, the security provided by the firewalls and anti-
virus softwares should be evaluated. A data security expert should be hired to assess these controls and verify
that they are indeed keeping the data secure.
The company also keeps backups to secure its data. Backups load all the current data in the system on the
company's cloud server. This prevents data loss. The regularity of the backups should be assessed. If the backups
are not being performed regularly, for example weekly or monthly, huge amounts of data could be lost.
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Password protection is another way of securing the company's data. It should be assessed further to identify the
staff who know the password, and whether the password are protected through procedures such as two-factor
authorisation.
The company has placed access barriers to non-staff. This is a good measure, but not all staff should be handed
out access to the company's data. Only the most trusted and responsible staff who are competent for this job
should be granted access to the company's data.
Recommendation on further risk mitigating activities
The management should change the password regularly so that even if the previous password is leaked, the other
one would already have been implemented and the previous password would have been nullified.
The staff of Yexmarine should be provided training related to data security so that they would be competent
enough on how to handle this data.
Reputation risk
Adequacy of the risk mitigating activities
All the given mitigating activities already implemented by Yexmarine seem to be adequate. Although, further
mitigating actions could also be implemented to reduce this risk, which are as follows.
Recommendation of further risks mitigating activities
Customer surveys should be performed on a regular basis to obtain their feedback about what they and the
general public thinks about Yexmarine.
Yexmarine should be involved in corporate social responsibility (CSR) activities which will boost its public
image and reduce the risk of reputation loss.
(b) Briefing notes
FAO: Board of directors
From: External Consultant
Subject: Benefits of e-marketing
Date: September 20X3
The following information relates to assessment of the benefits that e-marketing can provide for Yexmarine.
Globalisation
Yexmarine would be able to expand internationally if it uses e-marketing to market its products. Given that the
demand for cruising yachts have increased over the last few years and that international buyers have also entered
the market, this is a great opportunity for Yexmarine to capture global market share as it currenlty specialises in
cruising yachts.
Competitive advantage
There is very limited use of e-marketing in Neoland. This means that e-marketing could be cheap as well, as
demand is currently low,. Yexmarine could use this opportunity to create a competitive advantage for itself as its
competitors are not yet focusing on it.
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Modern approach
As Yexmarine's approach is more traditional and old-fashioned, and also the fact that the company is behind in
competition from the other two companies in the cruising yachts industry, e-marketing is a modern approach
which will help Yexmarine to improve its marketing by diversifing its marketing channels and making more
people aware of its products.
Younger generation customers
Yexmarine's customer base consists of loyal customers who are over 50 years of age. The younger generation
seems uninterested in the company's products. As e-marketing also includes marketing on social media, the
younger generation will be made aware of the products offered by Yexmarine which would make them interested
in the company's products, expending the customer base in the process.
Data analytics
Yexmarine would be able to gather vast sums of customer data which would help it in analysing customer
information, such as their spending patterns and seasonal changes. This data could be used in decision-making,
including pricing, related to innovating and producing goods according to customer needs.
Lower cost
E-marketing is relatively cheaper than physical marketing. Given that the operating margin is declining over the
last few years, adopting this marketing channel could improve profitability and operating profit margin, as
marketing costs will be reduced.
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