Electro Inc Analysis

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to purchase an abundance of equipment at a lower price, using their current suppliers who have been in the market and who’s products have been tested and reliable. This would also mean that in order to sell series A effectively, it must be sold to all schools or government facilities in an area as they would all need to be on the same system. The window of opportunity is closing on Series A, with only a two-year lead for this competitive advantage, it is growing shorter as delays and costs increase.

Quantitative

Series A is already over budget by $12.55 million (Exhibit 2), and the process is not complete. An estimated total cost is located in Exhibit 2, showing variances of over $35 million. At this current stage testing has not been completed, and software development costs have almost doubled. With being new entrants to the market and incurring extreme costs for this technology, it would appear a loosing battle. Further more, without an extensive amount to allocate to testing this product will not have the quality standards that are required for this market. In order to break even on a low estimate of final costs, Electro would have to guarantee sales of 61 units (Exhibit 2).

Recommendation

It is recommended that Electro stop production of Series A at once and do not incur any more costs associated to this product. The costs should be considered sunk, and all other efforts should be put towards Mercury and Series X and Y.

Issue #3 Management

Management Account Concept: Risk Management and Control

Management has been making decisions that are costing Electro money as well as their reputation in the market.

Analysis

Qualitative

Management has no knowledge other then engineering, yet they are branching into other markets and sectors. Also, it appears a manufacturer was chosen without reviews or compatibility testing. Time lines have not been committed to, Series A has lost ¼ of its lead in the market due to lack of time management. Time management and budget constrains appear to be ignored to attain a short lived competitive advantage for a product that may not succeed. There has been a large dip in sales, and this could be partially attributed to management.

Quantitative

The budget deficit for Series A is astronomical at over 3 times the amount if production was to continue (Exhibit 2). Furthermore, the supplier chosen for Mercury’s monitor has malfunctioned and Electro has incurred $2 million in repairs. Management’s solution is to build the cost of the repair into the price, instead of dealing with the problem and looking at producing in house or changing suppliers. This has cost money and customers in the market.

Recommendation

The board should approve major decisions, such as entering a new market. A discussion should take place with management where Mercury and Series A are thoroughly discussed with the pros and cons, and discuss timeliness and budget constraints and the impact on the company and management