Student’s Name
Professor’s Name
Course
Date
Case Analysis: B&K Distributors
The B&K Distributors case study is a real life scenario that requires readers to assist
Jim Anfield, the project manager contracted by B&K and Nancy O’Neil, the sale VP at B&K
to come up with valid ROI projections based on the information provided (Jeffery & Anfield,
2006). To assist the process, Anfield provides templates marked Exhibit 14 A, 14B, 14C and
14D. Within the overview of the case, Anfield determines that an investment in the web
portal would lead to increased penetration to potential customers, reduction in their costs and
an increase in the orders they receive. This information was adequately projected using
exhibits 5,6,7,8 and 9 of the case study (Jeffery & Anfield, 2006). Nontheless, the project was
still expected to incur costs towards implementation and these costs were equally projected.
As per my analysis of the information, I determined that B&K would experience a
40.6% internal rate of return within five years which, according to the discount rate would be
12% if the web portal idea is not put to motion. This analysis therefore points towards the
viability of the web portal as a profitable investment. Despite this, decesions made through
financial analyses need to be subjected to a sensitivity test (Jeffery, 2010). A sensitivity
analysis is required to determine the effects that will occur if the outcome of the project
varies from what was initially thought.
After the analysis Anfield and O’Neil need to consider a number of questions they
may encounter before approaching the top level managers of B&K. They should for instance
consider technical issues that may affect the portal as well as the dynamic nature of
technology that may render the portal obsolete even before the payback period reaches. There
is no definite answer for these hypothetical questions but in subsequent years, an IRR
analysis may reveal similar risks affecting returns.
The risk that is bound to be faced is evidenced by the fact that the projected IRR for
three years is 3.3%. This is very low when compared to the discount rate of 12% that the
company is set to achieve even if it fails to implement the project. If the project is faced by
the technological risks mentioned above before the end of the three year period, the company
will never get past a 12% NPV (Jeffery & Anfield, 2006). As per the projections, their cash
flow is set to increase after the three year period but if they face the named risks, they will
remain to have a negative NPV hence fail at their strategy. Their solution would be to
identify any of these risks and project costs that may be needed to rectify them.
From the projections, the other business analytics issues they may face is their
projected market penetration. Predicting the future is difficult and even though projecting
marketing penetration is an estimation, it needs to be as accurate as possible to yield positive
results. According to the research done, once the web portal is up, B&K’s market penetration
is expected to increase from 50% to 70% (Jeffery & Anfield, 2006). The strategic outcome is
only bound to be beneficial if this number was understated to accommodate events that may
stagnate the growth in penetration. If it was exaggerated, there is bound to be risk of
experiencing a negative NPV given that a company’s NPV is sensitive to this aspect. My
recommendation will be that they take caution to be as accurate as possible when considering
certain estimations.
There are many risks accompanying the web portal project. Despite this, If I were
B&K’’s CEO, I would carry on with the project considering that the benefits outweigh the
risks. If the project is not adopted and managed properly, competitors may swoop in and
overtake them in adopting the technology.
Reference
Jeffery, M. (2010). Data-Driven Marketing: The 15 Metrics Everyone in Marketing Should
Know (1st ed.). Wiley.
Jeffry, M. Anfield, J.(2006). B&K Distributors: Calculating ROI for a Web-Based Customer
Portal, HBSP Case: 5-404-764.