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Feasibility Report On Project Milagro

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Question:

Describe about the Feasibility Report on Project Milagro?
 
 

Answer:

Feasibility Report on Project Milagro

Project Milagro is a project taken under Human Resource division to reduce the operational time for a new employee. Target of this project is to minimize the time entity takes to onboard new resources it’s recruited. Time reduction leads to reduced cost and increased profitability for company. At current situation company takes 10 business days to set up working facilities for a new employee and project target is to reduce such time to 5 business days, which result in saving time and cost. Other than this a new employee takes 60 days to work independently and during these days he can work up to his 80% capacity. So during this period entity loses 20% of their effective time which results in increased cost of establishing a new employee. It is expected that after project completion these 60 days will reduce to 45 days and hence entity will save 20% cost for 15 days at least.
 
1.  We have analyzed the project Milagro and observe cost avoidance per employee is not calculated correctly. Following are some area of concerns:
 
A. After project completion idle time per employee during set up period is 5 business days whereas at current situation it takes 10 days. So cost can be avoided for 5 working days after set up, whereas as per project statistics all 10 days cost is taken as avoidable cost which is not correct. After project completion also company has to bear cost for 5 business days, which is not avoidable.As per project, avoidable cost is $ 3,200 per employee (10 days* 8 Hours * $ 40 per hour). But as per feasibility report, avoidable cost is $ 1,680 per employee (5 days * 8 Hours * $42 per hour). So there is difference of $ 1,520 per employee during set up period only.
 
1.  Again as per project, in first 60 days employee will not be able to work independently so there is not fully utilization of capacity. As per project statistics entity will save 20% cost for 60 days for an employee which comes to $ 3,840 per employee (60 days * 8 hours * $ 40 per hour * 20%). But our observation is different from it, as after completion of project an employee can work independently after 45 days only instead of 60 days. During this 45 days also, employee will utilize its 80% capacity. So after comparing both the situation we can find that there is saving of only 20% during last 15 days. So actual avoidable cost is $1,008 per employee (15 days * 8 Hour * $ 42 per hour * 20%). So there is difference of $ 2,832 in avoidable cost per employee as per our observation and project calculation.
 
2.  New hire amount is $ 42 per hour per employee. As per this new avoidance cost is as follows:

Idle time sitting cost for set up period: 5 business days * 8 hours * $ 42 per hour

                                                                  = $ 1680 per employee

Further, 20 % capacity which can be utilized for extra 15 days after project completion is also saving. So cost of this time is also avoidable cost.

= (60 days – 45 days) * 8 hours * $ 42 per hour * 20%

= $ 1008 per employee

So, total cost which can be avoided = $ 1680 + $ 1008 = $ 2688 per employee

3.  Breakeven point is the point where total project cost can be realized by saving in employee hiring cost. Actual total cost of project is $ 220000 which was earlier calculated as $ 226000.

Breakeven point for this project =          Total Project Cost                

                                                            Cost avoidance per new hire

 

                                                      =     $ 220000

                                                              $ 2688       

                                                      = 82 employees

As per current project details, entity has to hire 82 employees to recover its project cost.

4.  As per given project cost, cost which can be avoided and planning to hire number of employee it is not feasible to go forward with this project, as project cost is higher than planned cost saving. After hiring 82 employees entity can recover its cost whereas entity is planning to hire only 40 employees. So project is not feasible.

5.  There are some improvements has to be done in project so that it can achieve its target. Following improvements can be done:

1.  Total project cost should be reduced.
2.  Process of setting up infrastructure should be revisited and needs radical changes so that time of set up can be reduced.
3.  There should be agreement with supplier of all infrastructure facilities provider so that within two business day all required item can be purchased.
4.  Minimum period required to start working independently has to reduce or at least maximum capacity can be used for such period. So wastage of effective time has to reduce from 20%.

 

References:

https://www.straitstimes.com/premium/forum-letters/story/not-feasible-reduce-cost-hiring-foreign-labour-20150117

https://www.referenceforbusiness.com/small/Eq-Inc/Feasibility-Study.html

https://www.entrepreneur.com/article/217866

https://www.emeraldinsight.com/doi/abs/10.1108/09670731011071656

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