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

The Value of Flexibility at Global Airlines:

Real Options for EDW and CRM

  • 1.      Explain the difference between (traditional) NPV and expanded or strategic NPV.

Deciding the assessment of a task is testing in luminosity of the detail that there are distinctive approaches to measure the assessment of future inflows. On account of the time estimation of cash, a dollar earned later on won't have the same worth as the one that is earned today. The discount rate in NPV recipe is an approach to record these sorts of change in the worth of inflows overtime. Organizations have distinctive methods for distinguishing the discount rate, regardless of the reality that a typical strategy is utilizing the normal return of other financing decisions with a comparative level of danger.

For instance, if a retail apparel business needs to buy a current store then it will first gauge the future inflows that store will create and later he will markdown those money streams into one knot aggregate present worth measure of say $300,000. In the event that the manager of the store is ready to offer his business for short of what $300,000; then the buying organization will likely acknowledge the offer as it displays a positive NPV speculation. Then again, if the holder will not offer for short of what $300,000, so the buyer will not purchase the store; as the financing will exhibit a negative NPV around then and this will diminish the general assessment of the garments organization as a result.

The expanded Net Present Value incorporates the charge of real options while calculating the value of an investment. Its valuation is the same to NPV that is derived from the investment plus the value of it real options.

A real option is an option or decision that gets accessible with a business speculation of good fortune. True alternatives can incorporate chances to stretch and stop ventures if certain conditions emerge, which results in different choices. They are alluded as "genuine" on the grounds that they normally relate to substantial possessions, for example, capital gear instead of fiscal instruments. Considering true choices can incredibly influence the judgment of potential ventures. Nonetheless, value systems for example NPV excludes the profits that true choices give.

Note that this sort of alternative is not a subordinate instrument; however, it is a real choice (in the feeling of "decision") that a business may pick up by undertaking certain attempts. Case in point, by putting resources into a specific expand, an organization may have the actual choice of growing, downsizing or deserting different ventures later on. Different cases of genuine choices may open doors for R&D, M&A and authorizing.

  • 2.      Describe Global Airlines’ problems and the contemplated solutions.

Under the declining economic conditions in the early years of the 21st century, a few Airline companies were forced to bow down to all financial obligations and the remaining Airlines were compelled to radically reduce costs of operations. Because of Global Airlines present volatile cost configuration, it did not require to opt for non-payment; though it was forced to find out supplementary methods to cut cost and to postpone new capital ventures.

The deferred move back and stamped reduction in expenditures drastically influenced the Airlines and the areas from where they made an extensive dominant fraction of their benefits, luxury and notch travel. Nonetheless, all the contingencies measure pulled-off by Global Airlines enhanced its financial position alongside the recovery of the market but by that time the damage had been done.

The cost cutting conducted by Global Airlines had severe implications on its customer service; a recent survey shows that the company has lost 3 places but the worst part of all was that one of the board members of the Global Airlines received poor treatment from the airlines during his travel that sent grave impact on the company. The solution that is derived to counter this problem is the implementation of consolidation of data marts and customer relationship management project.

  • 3.      What is the main real options embedded in this case

There are a total of three approaches for Global Airlines in order to consolidate the data marts of the company. The Two-Step and the Three-Step approach are the real options available to Global Airlines.

In the Two-Step approach, five common data marts would be consolidated in the primary expand. After the initial five data marts are solidified, there would be a period entryway survey. The survey would figure out if the first expand had been fruitful. The data assembled in this survey would permit Global Airlines to settle on a superior choice on whether to proceed with the second expand. In the event that the task passed the phase door survey, the last ten data marts would be merged in the second expand. This system profited from lower hazard, because of the lessons gained from the first expand.

The last situation comprises of a ............................................

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