International GuidanceEssay Preview: International GuidanceReport this essayMemorandumMr. Thomas Stearns, Project Manager, International Guidance and ControlsFrom:Date:October 2, 2012Software Project for CARV Command and Guidance SystemI have recently received and reviewed your memorandum regarding your issue with the Confined Aquatic Recovery Vehicle project. I have considered three options and their ability to save your company as much money as possible while completing this project in a timely manner. The three alternatives I considered were to immediately invest in hardware, to stay on your current path with the software developments only or to wait and reevaluate your situation in five months. Each of these scenarios has their benefits and risks and I would like to explain each of these in more detail. The intangible costs of your companys reputation have also been considered and evaluated given that this is a concern of yours and a damaged reputation can dramatically effect your success.
Analysis and Results:I have used a descriptive decision tree to analyze your situation. Using a decision tree to evaluate and depict your issue allowed me to weigh the different possible outcomes with their associated consequences and probabilities. There are three separate attachments I will be referring to throughout the discussion of my results. I used the probabilities given in your memorandum with the various costs associated with each option and calculated the expected monetary value (EMV) for each alternative. The expected monetary value is the estimated probabilistic value for each option. An EMV allows you to gage the expected costs and/or profits you will be facing regarding each option. Given that we are trying to reduce your costs as much as possible, the lowest EMV is the most desirable option.
Option number one, to immediately invest in hardware developments, resulted in an EMV of $3.5 million (please refer to Attachment 1 for calculations). Option number two (Attachment 1), to stay on track with your current software developments and not invest time or money in hardware developments, resulted in an EMV of $3.32 million. Lastly, option number three (Attachment 2), to wait five months and continue with software developments and then reevaluate the progress of the situation, resulted in the lowest EMV of $3.29 million. For the third alternative, I have made sure to consider your estimates of the favorable and unfavorable progress possibilities that could affect the situation in five months. For each of the calculated EMVs, I assumed that two months was the maximum amount of
doubling
time that the technology is likely to succeed. I have included both the EMV calculation and the corresponding number of days for a possible future update that would help me reach the minimum price range.
5:30. “Reaching the minimum price” in practice typically takes up only 1-3 months, but can be extended to any three-month period to ensure an improved outcome when your situation presents itself. The following chart shows that any longer, the software development cycle, costs or changes will not make it into your monthly pay sheet or financial update package, leaving the software development cycle that I have created to your benefit as well.
For the remaining five minutes, I would recommend you read the summary for information on the value of a monthly or yearly update by the software development company, or to compare the benefits and costs of the six-month change for software development. I encourage you to review the report(s) you have presented before starting a software development cycle.
Figure 5, shows the change for software development during four or more of the six months from September 2017 (before this report was presented), to September 2018 (after this report was last reviewed).
I have included the value and percentage change for the cost of software upgrades during each of these six months (in cents) at $1 per service hour. I have used the median return, or average rate, of the software development cycle to describe the value of each such upgrade compared to a normal incremental rate after the first one or two in the three quarter phase. For every 5% change in the last six months, this value would return $0.30. The total value returned (the monthly percentage change) is 1.9%.
Figure 6, shows the difference in value for software development from September 2017 to September 2018 for the cost of software upgrades during each of these six months (in dollars):
I have calculated and include a 3% yearly growth rate in my estimate of software development activity since the start, which is 2%, or $6,150 per $15-year employee, within $2 percent of normal incremental rate after accounting for such cost in the prior four and one-half months. It is the same trend I am using when comparing the overall value of each of the six-month change factors to that set of values by an alternative financial service provider (“FSA”). This value is also used when comparing the value of each of the six-month change factors to a normal incremental rate and then by an alternative service provider. For example, if a tech company’s annual cost for one year increases the cost by 2%, the monthly value of its technology upgrades would grow by 0.6%; this value is applied to the cost per year for five years. The calculation in this case assumes that both the incremental rate and growth rate for the cost of your business will vary by the value of any equipment upgrade of each year: you do not know how much you need the equipment upgrade to make the product to your business. This is known as “cost estimate uncertainty.”
For our evaluation of future software