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Bus maintenance
Topic Difficulty Style
Business situation Beginner Candidate-led (usual style)
Operations strategy
Profitability analysis
The CEO wants to know from you if they should pursue the in-house
maintenance strategy next year?
Comments
This case does not require any complicated analysis of the industry
(customers, market or competitors). However, it covers an issue, which is
quite often faced by business all around the world. Should we do it in-house or
should we hire someone to do it elsewhere (outsource)?
The case does NOT require any specific framework. However, a very clear
analysis structure should be laid out from the beginning of the case and
followed throughout.
Remember, the interviewer wishes to measure how organized and
structured the interviewee is.
Short Solution
Paragraphs highlighted in orange indicate hints for you how to guide the
interviewee through the case.
I. Economic comparison
At this stage, the interviewee should ask for the main costs that the
in-house maintenance would require. You should first request an estimate of
the main costs of the maintenance operation.
Information that can be shared on the interviewee’s inquiry:
Share Table 1 with the in-house costs in both scenarios and Table 2
with the extern costs, if inquired.
Scenario 1
Scenario 2
The investment would pay off in a bit less than 3 years, also below
the payback limit stated.
II. Advantages/risks
Advantages
BusCo would possess a very valuable real state asset (worth $1.5m).
The investment would be paid back in 3.5 years.
Less dependence of facilities contracts and less vulnerability to
changes in price or even to cancelation of rent contracts from the part of
the facility owners.
Risks/disadvantages
Advantages
Risks/disadvantages
If the in-house service works, then after 3.5 years the company would
not own the facilities worth $1.5m as in scenario 1.
Rent is very likely to increase after 5 years.
Advantages
III. Conclusion
I believe that the BusCo should try to do its maintenance in-house next
year. Indeed, it should buy the facilities it will need instead of renting
them.
Main reasons