Read the case study “Teloxy Engineering (A)” on page 948 and answer the corresponding questions on the same page.
The primary post should be at least 300 words in length. Your second postings can comment to his or her original post. Secondary posts must be at least 150 words in length
Any project that we take or bid has a risk associated with it. A good project manager performs risk analysis, a key to project management as a part of the project planning, practise and execution. By performing risk analysis, the team members would have a better perspective to handle various levels and layers of risks that could be allied with the project (Lavanya & Malarvizhi, 2008). The cost is measured by calculating the level of effort (units of time) contributed by each individual (Alhmdan, 2018). So, based on the Teloxy Engineering case study, the team had to decide if it is economical to make the product or buy the product.
Decision to Make/Buy the Component
As per the case study, Teloxy Engineering has received a one-time contract to design 10,000 units of the new product. Total cost in purchasing the product would be $720,000 ($72 x 10,000 units) based on the statement given by the engineering team. An estimate predicted by the manufacturing team in making the product sum up to $758,000 which is inclusive of manufacturing set up cost ($100,000), production cost ($400,000) and repair cost ($258,000). Since Teloxy has not made this product earlier they have calculated the probability of risk occurrence in manufacturing the component that cost $120/unit ($120 x 2150 units) which is stated as repair cost. Therefore, in deciding whether to buy or make the component, on an economical stand point I would say that it would save an extra $38,000 if they bought the components rather made it!
What might be the Strategic approach of the Management?
Despite knowing what the cost-effective measure is, at times the management might consider going for another option which is not economical. This might be due to cost over efficiency. There might be a situation where we had to compromise cost over quality because of the fact that no good product could be made and delivered at a cheaper cost. It is important that an industry looked at its efficiency before focusing on cutting down the cost or compromising for a cheaper cost (Ikwukeme, 2015). Here in this case the company/management on a strategic note must have considered going for another option than choosing for the most economical one, because one, they may not want to try working from the scratch in producing a component which they have not worked on before, two, they may want to have experienced hands work on this, three, they would have thought that investing in more cost would have better quality.
Besides all the possible strategic reasons I could think for the management to opt for a non-economical one, I personally feel that the management would not want to take the risk, hence rooting for another choice than the economic one.
Alhmdan, S. (2018, March 29). Cost Estimation. Retrieved fromhttps://www.projectmanagement.com/wikis/233035/Cost-Estimation
Hagel, J., III, Brown, J. S., Kulasooriya, D., Giffi, C., & Chen, M. (n.d.). The future of manufacturing. Retrieved from https://www2.deloitte.com/insights/us/en/industry/manufacturing/future-of-manufacturing-industry.html
Ikwukeme, E. (2015, January 25). Hack:Cost vs. Efficiency- Success is not a cost factor but an efficient factor. Retrieved fromhttps://www.managementexchange.com/hack/cost-vs-efficiency-success-not-cost-factor-efficient-factor
Lavanya, N. & Malarvizhi, T. (2008). Risk analysis and management: a vital key to effective project management. Paper presented at PMIÂ® Global Congress 2008â€”Asia Pacific, Sydney, New South Wales, Australia. Newtown Square, PA: Project Management Institute.