The Value of Flexibility at Global Airlines Harvard Case Solution & Analysis

2.      Do a traditional NPV analyses.

Under traditional NPV analyses, an NPV of $987,623 is achieved through the Big Bang Approach, which shows the heavy success that Global Airlines will receive if this approach is adopted for the consolidation process. WACC of Global Airlines currently stands at 14% contrast to the IRR of this approach; the shareholders will give it a priority during the final decision. (Refer to calculation in excel file)

In the Two Project approach, a negative NPV is received from the first venture that may be due to the implementation of the project for the primary occasion and the break-up bases gives them the liberty to do it perfectly rather than focusing on reducing cost but it may not go down well with the shareholders. But purely on the base of total value of the project, if it is given any consideration then the full amount NPV of the approach is $981,342 with 16% being the average IRR that is a very financially strong result is mainly because the first process is done by considering that there will a great learning element derived from it which will bring the results in the second process. (Refer to calculation in excel file)

In the Three Project approach, a negative NPV is received from the first project as it was in the case of the 2 process approach similar to that fact that the focus will be doing it right rather than doing it cost efficiently. Given the facts purely on the bases of financial ground, the shareholders will reject the project because even the sum NPV of the venture is only $44,068 and the companies’ WACC is similar to the IRR of the approach. No great synergies are created from the actuality that the venture is broken into 3 parts. (Refer to calculation in excel file)

3.      What are the main factors of uncertainty in the case? What are the the stochastic processes (risk factors) you propose?

There are two factors of vagueness in the case that will have an impact on the decision of the consolidation venture. The first is the actual cost of consolidation for Global Airlines and the subsequent is the redundancies in the number of staff owing to the consolidation of DM’s.

Despite the reality that Teradata gave implausible benchmark cases, the actual cost to conclude the merging was novel to each organization on the grounds that the collection of data in every data marts was different in each organization. These variables completed changes in the expenses and value required for the data mart consolidation. Nonetheless from Teradata's viewpoint, the hazard of data mart union undertaking was internal risk whereas the similar thing for Global Airlines is an exterior risk.

The second variable that was basic to the monetary accomplishment of the data shop merging was the reduction in headcount that would come about at Global Airlines. The presentation of a more effective EDW at Global Airlines implied that the amount of help faculty could be lessened. Bergin worked with his IT group and Teradata specialists to gauge the reach of conceivable headcount diminishments. Yet the real lessening or reassignment of data store staff was the obligation of the IT chiefs at Global Airlines; thus, it made it an internal risk for the Global Airlines whereas, a similar thing for Teradata is an exterior risk.

1.      Make a spread sheet to calculate the NPV of the project(s) while include the risk factor(s), do a simulation, include the real options. Describe what assumptions you have made. Does your out come differ from the traditional analyses? Why?

The two risks that Global Airlines is open to consist of the hazard of the lessening the staff, which must be considered in record as it is the main hazard that is inside the organization. However, the other risk that is the charge of the methodologies is an outside hazard against which Global Airlines can do nothing. The supposition made to compute the NPV changed in accordance with the risk associated with the venture is by conforming the typical divergence provided in the circumstances with NPVs’ of all the three methodologies.

The Big Bang Approach is the most popular approach under the customary methodology to NPV for the solidification of the Data Mart as it has the most noteworthy NPV and IRR contrasted with alternate methodologies; however, the conventional methodology fails to offer the attention to the dangers. The dangers that are interior to the organization are controlled by the activities of the organization; these danger ought to be considered and a methodology is to be recommended that will take them into consideration in turn, which will relieve or in any event it will decrease it to a worthy level This is fused in the expanded NPV, which takes into account the diminishment in the staff because of the combination and up-degree....................................

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