I spent a great day in the San Diego area training United Technologies (UTC). This was a case study follow-up to the three day session from earlier in the year. We find that doing case studies is a great way to really solidify learning for students.
The day went well, in this class we do two cases. First, we looked at a make vs. buy decision for a new component on a manufactured part. Many of the issues in a make vs. buy decision are biased by the person putting together the analysis and the data available. This case is great because it illustrates both points. Many of the students in class said they experience these issues often. In this particular case the financial analyst making the recommendation did not add any internal cost for outsourcing which made it look better than the in house option. In the case the students needed to consider the full costs of both options variables and fixed costs to get to a better analysis.
In the second case a multi-million capital project was considered. In this case the project was approved based on several assumptions without considering alternatives or sensitivity analysis. In any major capital investment analysis there are numerous assumptions that are made to get to the analysis. For example, what interest rate should be used as the discount rate, how revenues and/or costs are estimated or how long is the return on the investment going to last. There are many more.
In any analysis one needs to consider many issues. It usually makes sense to consider different scenarios before making a final decision. Too often the project is forced through on a single set of numbers. There is always politics and bias in these types of analysis. This type of case does a good job with illustrating this point.
The class went well and it was truly a great day for finance. It was also a great evening for football my BYU Cougars got win number 3 and are now ranked 21 nationally. Those are some pretty good numbers! Remember every day is a great day for finance and numbers and my team has some good ones right now.