Data Services, Inc.
Huynh Thanh Phong – M987Z242
Nguyen Thi Thanh Nhan – M987Z232
Hoang Thi Ngoc Huyen – M987Z239
COMPANY BACKGROUND
Armistead Insurance Company
A large company by industry standards.
Had experienced substantial growth over the past 20 years
One of the first companies to automate its operations.
By 1990, it was operating two large, leased IBM computer. These computer usually
operated close to capacity for two shifts, but the company had never been successful
at getting its managers to schedule work for the third shift->a large block of largely
idle time.
Data services
would find profitable uses for this third-shift
computer time without interfering with the
processing of normal operation.
Provides data processing services designed especially for the fast-food
industry, provide a comprehensive analytical service to those
companies in the very competitive fast-food industry that could not
afford to perform the function for themselves.
CURRENT DATA SERVICES PERFORMANCE
Sales
Innitial installation of services
Various data summaries
Continuing operations
Revenue from the sale of paper forms to
customers
Competitor it was generally agreed that Data services faced only one competitor
A subsidiary of the nation’s largest fast-food chain
 had been established several years previously to provide computer services to its
own outlets.
 It had standardized its operations and had degun marketing its service to other fastfood chains in 1980
 In 1993, sales: were about 3 times as great as sales of Data services.
 The rate charged: were comparable to the rates charged by Data services.
SALES AND MARKETING
Sales
•
•
•
•
•
•
Data services ‘s top managers and their staffs performed Sales duties in addition to
handling their general-management responsibilities.
They had recruited the 14 new customers acquired during the past fiscal year,
They had no established procedures for soliciting customers.
The managers spent a majority of their time visiting prospective buyers (average:
3 visits to a customer before one cooperation, spent 75% of working times on the
selling function)
After a sale was made, on average an agent spent approximately 1 day each
month with a new customer during the three months of the system
implementation.
Occasionally: the system would have to be modified to meet the needs of a new
customer.
Fee: Data services was charge for their use of times of the corporate units
A one-time charge per shift-reporting unit was made to each new customer
in addition to the regular monthly rate -> this fee partially offset the costs of
installation incurred by Data Services.
SALES AND MARKETING
Marketing
• Policy: grant volume discount to new customers based
on the number of shift-reporting units in the
customer’s systems
• In practice: the discounts were not applied uniformly.
They were not updated to confirm changes in the
number of shift-reporting units per customer
OPERATION
• Process: The company received sales and operations data from its
restaurant customers
enter that data into its files.
processed data, making calculations of
averages and trends.
the reports, usually issued monthly
gave customer managers information about
their labor and material costs and identified trends in these cost.
analyze the historical performance of any shift at
any location, compare shifts within the company, and compare the
company performance relative to the overall fast-food industry.
OPERATION
• As monthly data were received from customers, the data were keypunched and
fed into the computer. The file were updated, and reports were run.
• Data control use a continuous process of manual of documents to detect any
recording errors or computer malfunctions. Programmer continually performed
program maintenance to fine-tune the system and to assure a smooth flow of
information to all customers.
• The service agents, in addition, periodically visited all customers and performed a
supervisory and trouble-shooting function.
• Each regular customer was visited about once a month.
• For some special report that customer would ask occasionally, data services was
happy to apply and then, were billed on a cost basis for those supplies.
Table 1: Results of Operations for the Year
Ending Sep. 30, 1993 (in thousands of dollars)
Sales :
Sales and installation
Data
Continuing operations
Forms
800
320
6.400
480
Data entry
Service agents
Selling and general management
Computer
Travel
Data control
Programming
Forms
Data
2.000
1.000
1.800
2.000
1.200
600
520
400
400
8.000
Expenses :
General and administrative,
including postage and communications
Rent, depcreciation of office equipment
Profit ( loss)
480
360
10.760
(2.760)
Distribution of Expenses
• Service Agents
– Continuing Operations
• Ave. Number of customers over year = 32 +(1/2 x14) =39
• 39 customers x 12 visits = 468 visits
– Installation
• 14 new customers x 3 visits = 42 visits
– Total visits = 468 + 42 = 510 visits
– $1,000,000/510 visits = $1,961 per visit
To continuing operations: 468 x $1,961 = $920,000
To sales and installation: 50 x 42 = $80,000
Distribution of Expenses
• Selling and general management
– 75% of management and staff time x$1,800,000 = $1,350,000
$1,350,000 to sales and installation
$450,000 not allocated
Distribution of Expenses
• Travel
– Management (Selling)
– Service agents (installation)
14 customers x 3 visits = 42 visits
– Service agents (continuing operations)
39 customers x 12 visits = 468 visits
–
–
–
–
Total = 294 + 42 + 468 = 804 visits
Expense per visit: $1,200,000/804 = $1,493
To continuing operations: 468 X 1,439 = $ 700,000
To sales and installation: 1,200,000 – 700,000 = $ 500,000
Table 2: Analysis of Revenue and Expenses
(in thousands of dollars)
Items
Expenses
not
allocated
Sales
Data
$320
Forms
$480
Sales &
installation
Continuing
operations
Varies with Varies with
of customer
of shifts
$800
Total
$6.400
Expenses :
Data entry
$400
Service agents
Selling and general management
Computer
$80
$450
$1.350
$1.600 $1.600
$920
$1.600
$920
$400
Travel
$500
Data control
$200
$400
$400
Programming
$120
$400
$400
Data
$400
General and administrative
Profit ( loss)
Total Profit (Loss)
$700
$400
Forms
Rent & depcreciation
$700
$400
$360
$400
$2.410
($80)
(2,760)
$80
$80
$400
$2.730
2020
($1.930)
$400
$2.800
4820
$1.580
Table 3: Keep or Drop Decision
(in thousands of dollars)
Items
Keep
Sales
Expense
8.000
Data entry
Service Agents
Sell and general management
Computer
Travel
Data control
Programming
Forms
Data
General and Admin
Rent & depreciation
Profit (loss)
2.000
1.000
1.800
2.000
1.200
600
520
400
400
480
360
Incremental
Drop
10.760
(2.760)
0
0
0
0
1.600
0
0
0
0
0
0
360
0
(8.000)
1.960
(1.960)
(2.000)
(1.000)
(1.800)
(400)
(1.200)
(600)
(520)
(400)
(400)
(480)
(8.800)
800
If Data Services Inc. stops its operation, the company loss will decrease by $ 800,000
• If Data Services Inc. stops its operation, the
company loss will decrease by $ 800,000
• However, We also consider other alternatives
for its operation. When we analyzed the
expenses, we saw that the amount of
expenses for continuing operations is large
and can be reduced. So we suggest 3
alternatives on the reduction of this sort of
expenses.
Table 4: Distribution of Expenses with 3 New
Alternatives of Continuing Operations
Items
Visits/ year
1 month/ visit
1.5
months/visit
2 months/visit 3 months/visit
12
8
6
4
Service agent Continuing Operation
$ 920,000
$ 611,830
$ 458,870
$305,920
Sales and installation
$ 80,000
$ 80,00
$ 80,00
$ 80,00
$ 1,000,000
$ 691,830
$ 538,870
$ 385,920
Continuing Operation
$ 700,000
$ 465,82
$ 349,36
$ 232,91
Sales and installation
$ 500,000
$ 500,000
$ 500,000
$ 500,000
$ 1,200,000
$ 965,820
$ 849,360
$ 732,910
Total
Travel
Total
Table 5: Profit (Loss) Calculation Including 3
New Alternatives of Continuing Operations
(in thousands of Dollars)
Items
Sales
Expense
Data entry
Service Agents
Sell and general management
Computer
Travel
Data control
Programming
Forms
Data
General and Admin
Rent & depreciation
Profit (loss)
Keep
8.000
2.000
1.000
1.800
2.000
1.200
600
520
400
400
480
360
(2.760)
1.5
2 months/
months/
3 months/
visit
visit
visit
Drop
0
0
0
0
1.600
0
0
0
0
0
0
360
(1.960)
8.000
2.000
1.000
8.000
2.000
1.000
8.000
2.000
1.000
692
539
386
2.000
966
600
520
400
400
480
360
(1.418)
2.000
849
600
520
400
400
480
360
(1.148)
2.000
733
600
520
400
400
480
360
(879)
Recommendations
• It is common for a new established company
not to get profit in some early years from its
operations.
• The drop decision of any company’s operation
depends on many factors, especially company
long –term strategies. In this case, we do not
have enough data to suggest that the
company should stop its operation.
Recommendations
• We prefer the alternative of reducing the
expenses of continuing operations to operation
dropping alternative because it reduces more the
loss of Data Service Inc. However, the company
should do further investigation on how much
expenses of continuing operations it reduce to be
efficient,
• Moreover, to improve its performance, it should
strictly set up policies on the service fee and
discount to easily control sales staff and calculate
and forecast revenue.
THANKS FOR YOUR LISTENING