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Qualitative Analysis
Quantitative analysis can capture only those factors that are measurable, yet projects often have both positive and negative implications that are difficult to quantify. Also quantitative analysis rarely captures the characteristics of a dynamic and competitive environment.
Qualitative analysis considers the interaction between the firm, the market and the macro economic environment
Exhibit 15-5
Exhibit 15-6
Internal factors Development expense Investigation cost Development cost Development speed Investigation time Development time Production Cost Product Performance
Net Present Value Exhibit 15-7 Key factors influencing development profitability
A 20 percent decrease in development cost will increase NPV to $9,167,000. This represents a dollar increase of $964,000 and a percentage increase of 11.8 in NPV. This is an extremely simple case: we assume we can achieve the same project goals by spending $1million less on development, and we therefore have increased the project value by the present value of the $1million in savings accrued over a time period of 1 year. The CI-700 development cost sensitivity analysis for a range of changes is shown in Exhibit 15-9. The values in the table are computed by entering the changes corresponding to each scenario into the base-case model and noting the results. It is often useful to know the absolute dollar changes in NPV as well as relative percentage changes, so we show both in the sensitivity table.
Change in Development Change in Development Cost, Development Change in Cost,% $ Thousands Cost, $Thousands NVP, % 50 20 10 Base -10 -10 -30 7,500 6,000 5,500 5,000 4,500 4,000 2,500 2,500 1,000 500 base -500 1,000 2,500 -29.4 -11.8 -5.9 0.0 5.9 11.8 29.4
Change in NVP, NVP, $Thousands $Thousands 5,791 7,238 7,721 8,203 8,685 9,167 10,615 -2,412 -964 -482 0 482 964 2,412
Exhibit 15-10
of the specific product context. In many cases the interactions are trade-off. For example, decreasing development time may lead to lower product performance. Increased product performance may require additional product cost. However, some of these interactions are more complex than a simple trade-off. For example, decreasing product development time may require an increase in development spending, yet extending development time may also lead to an increase in cost if the extension is caused by a delay in a critical task rather than a planned extension of the schedule. In general, these interactions are important because of the linkage between the internal factors and the external factors. For example, increasing development cost or time enhance product performance and therefore increase sales volumes allow higher prices. Decreasing development time may allow the product to reach the market sooner and thus increase in sales volume. While accurate modelling of externally driven factors (e.g., price, sales volume) is often very difficult, the quantitative model can nevertheless support decision making.
Strategic fit: Decisions of the development must not only benefit the project, but also be consistent with the firms overall product plan and technology strategy. For example, how well does a proposed new product, technology or feature fit with the firms resources and objectives? Is it compatible with the firms emphasis on technical excellence? Is it compatible with the firms emphasis on uniqueness?