South- West Gas wants to move its sales order system to the Web. Under the proposed system, gas stations and other merchants will use a Web browser and, after typing in a password for the South- West Gas webpage, will be able to check the availability and current price of various products and place an order. Currently, customer service representatives take dealers\' orders over the phone; they record the information on a paper form, and then manually enter it into the firm\'s computer system. (Click the icon to view the cost information Click the icon to view the original benefit information. Requirements 1. What are the expected benefits of the web-based ordering system? 2. Would you recommend that South-West Gas accept the proposal? 3. Before Smith makes a final decision, what other factors should she consider? Requirement 1. What are the expected benefits of the web-based ordering system? The expected benefits of the web-based ordering system are Requirement 2. Would you recommend that South-West Gas accept the proposal? Complete the table below to calculate the expected net benefits (costs) of the project. (Use parentheses or a minus sign when entering a net cost.) Expected benefits Expected costs Net benefits (costs) Because the Requirement 3. Before Smith makes a final decision, what other factors should she consider? More Info !\' a cost-benefit analysis | proceeding with the web-based system. CFO Carrie Smith believes that dealers will not adopt the new Web system unless South-West Gas provides financial assistance to help them purchase or upgrade their PCs. Smith estimates this one-time cost at $740,000. South-West Gas will also have to invest $165,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $255,000. More Info The web system will enable South West Gas to eliminate 25 clerical positions. Smith once estimated that the new system\'s lower labour costs will save the company $1,360,000. Smith revises her estimate of the benefits from the new system\'s lower labour costs and she now thinks the savings wil be only $939,000 Choose from any list or enter any number in the input fields and then continue to the next question.
Part 1)
The expected benefits of the web-based ordering system are $939,000. (revised estimate of savings in labor costs)
_____
Part 2)
The value of net benefits is determined with the use of following table:
Because the costs exceed the benefits, a cost-benefit analysis does not justify proceeding with the web-based system.
_____
Part 3)
The other factors that should be considered by Smith before taking a final decision are given below:
1) In comparison to manual processing of orders, web-based processing will be faster and more efficient. The likelihood of errors resulting from human/manual processing (of orders) will also get reduced. This in turn may result in an overall decrease in costs.
2) With a web-based system, dealers will be able to check the latest prices and inventory available with South-West. They will be able to place orders in real-time which in turn will help them reduce their inventory levels and save on inventory carrying costs.
3) Termination of clerical staff may have an adverse impact on the morale and efficiency of remaining employees. Additionally the costs associated with termination may offest the benefits derived from the web-based system initially.
| Expected Benefits | 939,000 |
| Expected Costs (740,000 + 165,000 + 255,000) | 1,160,000 |
| Net Benefits (Costs) | ($221,000) |
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