Assume You Are Hired By The XYZ Company Systems Analyst

Assume You Are Hired By The XYZ Company Systems Analyst to Prepare a

Assume you are hired by the XYZ company as Systems Analyst to prepare a cost-benefit analysis report for building an R&D laboratory for its staff with the following specifications: The company already has a large hall reserved for the purpose, meaning the owner will not have to rent the space. The lab will have ten computer spaces with a computer table and chair. Each computer space is to be equipped with a high-performance laptop, a headphone, and a scanner. Each laptop will have an operating system (i.e., Microsoft Windows), a word processing package (i.e., Microsoft Office 2016), and antivirus software (i.e., Kaspersky Antivirus) installed. All the computers need to be connected to the internet (requiring the purchase of a router and internet connection from an Internet Service Provider). The laptops in the lab will share a heavy-duty printer available on the network. This lab will be established in Year 0, and you have to calculate the cost of establishing it. You can use e-commerce websites (e.g., Amazon Saudi Arabia, Jarir Book Store, Extra Store) to gather the costs of each of the items to estimate the total establishment cost (in SAR). Once operational, benefits and ongoing costs are projected over a period of three years according to the table shown below: Year 0: establishment cost, Year 1-3: benefits and ongoing costs.

The total benefits are estimated at 25,000 SAR over the three years, and the total costs need to be estimated, with the Year 0 costs included. The Year 0 cost includes equipment, software, internet setup, and other establishment expenses. The table below summarizes the data:

• Year 0: Establishment costs (to be estimated in SAR)
• Year 1-3: Estimated benefits of 25,000 SAR in total
• Year 1-3: Ongoing costs (to be estimated in SAR)

Calculate the following:

1. The total benefits and total costs over the three-year period.
2. The return on investment (ROI).
3. The break-even point (BEP).

Paper For Above instruction

The purpose of this paper is to conduct a comprehensive cost-benefit analysis (CBA) for establishing a research and development (R&D) laboratory at XYZ company. The project involves significant initial investment, including purchasing high-performance laptops, peripherals, internet infrastructure, and software. The analysis aims to inform decision-making by evaluating the financial viability of the project over a three-year horizon, incorporating benefits, costs, ROI, and break-even point calculations.

Introduction

The decision to establish an R&D laboratory is driven by the need to foster innovation, enhance research capability, and improve the company's competitive edge. A well-structured CBA provides insights into whether the benefits derived from the lab justify its costs. The analysis considers the initial setup costs, ongoing operational expenses, and the projected benefits realized through increased productivity and innovation.

Initial Costs Estimation

The initial investment involves acquiring ten high-performance laptops, each equipped with Windows OS, Microsoft Office 2016, Kaspersky Antivirus, and peripherals such as headphones and scanners. The cost of each item was obtained from reputable e-commerce sites, with estimates as follows:

• High-performance laptop: SAR 4,000 each
• Headphone: SAR 150 each
• Scanner: SAR 1,000 each
• Router and internet setup: SAR 2,500
• Shared heavy-duty printer: SAR 3,000
• Software licenses (Windows OS, Office 2016, Antivirus): SAR 1,000 per laptop (including all software costs)

Based on these estimates, the total initial cost (Year 0) calculation is as follows:

Total laptop costs: 10 x SAR 4,000 = SAR 40,000

Total headphone costs: 10 x SAR 150 = SAR 1,500

Total scanner costs: 10 x SAR 1,000 = SAR 10,000

Internet and router: SAR 2,500

Shared printer: SAR 3,000

Software licenses: SAR 10 x SAR 1,000 = SAR 10,000

Grand total initial cost (Year 0): SAR 40,000 + SAR 1,500 + SAR 10,000 + SAR 2,500 + SAR 3,000 + SAR 10,000 = SAR 67,000

This total encompasses all necessary hardware, software, and connectivity infrastructure for the lab’s setup.

Projected Benefits and Ongoing Costs

Over the three-year period, the company expects to realize benefits totaling SAR 25,000. These benefits may include improved research output, faster data analysis, and increased innovation capacity.

Ongoing costs per year may include internet subscription fees, maintenance, software updates, and consumables. Based on industry standards and estimates, these ongoing annual expenses are projected as SAR 5,000.

Annual benefits and costs are summarized as follows:

• Total benefits over three years: SAR 25,000
• Annual ongoing costs: SAR 5,000
• Ongoing costs over three years: SAR 15,000

Calculations

Total Benefits and Total Costs

Total benefits over three years: SAR 25,000

Total costs include initial costs plus ongoing expenses:

Year 0: SAR 67,000

Years 1-3: SAR 15,000

Total costs over three years: SAR 67,000 + SAR 15,000 = SAR 82,000

Return on Investment (ROI)

The ROI measures the efficiency of the investment, calculated as:

ROI = (Total Benefits - Total Costs) / Total Costs x 100%

ROI = (SAR 25,000 - SAR 82,000) / SAR 82,000 x 100% ≈ -69.51%

The negative ROI indicates that, based solely on these projections, the project would not be financially profitable over three years; thus, it may serve strategic or qualitative objectives rather than immediate financial gain.

Break-Even Point (BEP)

The BEP occurs when cumulative benefits offset the initial and ongoing costs. Since benefits are limited to SAR 25,000 over three years and costs are higher (SAR 82,000), the project does not reach a break-even point within this period.

However, if the benefits increase or costs decrease, the BEP could be achieved earlier. It is essential to revisit estimations periodically and consider long-term gains beyond the three-year horizon.

Conclusion

The cost-benefit analysis indicates that the establishment of the R&D laboratory, given current benefit and cost estimates, may not be financially justified within the three-year timeframe. Nevertheless, strategic benefits, such as innovation, research capabilities, and competitive advantage, could outweigh short-term financial metrics. It is recommended that the company evaluate long-term benefits, potential for increased productivity, and non-monetary returns before proceeding.

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