B-Spoke Bikes in the UK - Research Proposal Example

B-Spoke Bikes in the UK Introduction This paper is a feasibility study report for the B-Spoke Bikes, a small bicycle sales and repair business located on the outskirts of Swansea. The business has experienced low income and its owners are considering possible solutions to widen sales opportunities to the whole of the UK with a new e-commerce venture. Elen, the owner’s daughter can create a customized e-commerce and stock control system for the business, the business can subscribe to a simple template based e-commerce service despite its inflexibility. B-spoke could also rent a city center showroom that would cost approximately 70,000 Euros annually in order to boost sales. B-spoke is also thinking about selling specialized machines such as electric bikes, which could give more profit from an hour’s work customizing a bike. In the feasibility study, the analysis seeks to establish the possibility of implementation of the project; given the economic, financial, organizational, and technological constrains. The feasibility study also analyses viability of the project by comparing the cost incurred and the expected benefits (Davies & Cline, 2005). In this paper, there is analysis of the stakeholders that are likely to be affected by the project. There will also be estimation of costs and benefits of the project. The feasibility study is analyzed in six parts; the B-spoke stakeholders, costs-benefits analysis, project viability, hindering factors to the project, solutions to the hindrances, and the summary. Aim of the Project and Possible Solutions The main reason for B-Spoke’s management to consider venturing into e-commerce is to increase sales. Relevant information regarding the costs and benefits that are associated with this project should be collected, and a comparison of the costs and benefits made (Pannerselvam & Senthilkumar 2003). There should be collection of economic information, financial information, technical information, and organizational information in order to establish the viability of the project. This will also ensure that the project is more economical, effective, and relevant to the task it was developed for. Information on the present system should also be collected in order to establish its drawbacks to overcome them in the new system being developed (Murch, 2001). Currently, the stock control system is manual and outdated. It also consumes a lot of time, which can be used in other areas to either increase production or address other issues affecting the enterprise. By venturing into e-commerce, B-Spoke stands a chance of widening its sales opportunities to the whole of the United Kingdom at a minimum cost. Opening stores in the entire United Kingdom could be more expensive since this could lead to increase in the cost of rent payable to all the showrooms, increase in salaries and wages for the hired employees, and cost of finances as a result of borrowing loans from financial institutions to fund the project. By venturing into e-commerce, B-Spoke will be in a position to cover a wider area at a low cost, therefore increasing its sales and profitability. By venturing into e-commerce, B-Spoke will incur costs such as hardware, cost of the development software, hosting costs, adverting costs, cost of the time taken developing the system, and licensing costs. There could be minimization of these costs if B-Spoke decides to either venture into e-commerce via the customized e-commerce and stock control system or subscribe to a simple template based e-commerce service. By using the customized e-commerce and stock control system, B-Spoke is likely to incur high costs of advertising since the service would be new in the internet. There could be other expenses such as purchase of the development software, costs associated with hosting the website, and hardware that will be used to develop and maintain the e-commerce service. There will be consumption of a lot of time in developing the customized e-commerce and stock control system, which can be spent elsewhere. However, developing a customized e-commerce and stock control system could bring some advantages that could not be achieved from a simple template based e-commerce service. By developing a customized e-commerce and stock control system, B-Spoke will be in a position of administrating the system and meeting its specific needs. The system will be flexible and designed as per the stock control problems facing B-Spoke, hence facilitating efficiency. By subscribing to a simple template based e-commerce service, B-Spoke will be in a position of avoiding high costs of advertising. This is because template based e-commerce services have wide publicity and most buyers use them to find what they want to purchase. B-Spoke will also avoid incurring the development software cost, costs associated with hosting the website. This is because such web services are owned by other enterprises. Therefore, the company owning the service incurs the costs associated with developing and maintaining the template based e-commerce service. The main disadvantage of venturing into e-commerce via a template-based service is its inflexibility. A template-based e-commerce service does not address the specific aims of an enterprise venturing into e-commerce. The main problems affecting an enterprise such as B-Spoke’s cannot be addressed when using a template-based service. B-Spoke may also lack control rights over the template-based e-commerce service since its owned by a different enterprise. B-Spoke Bikes Stakeholders A stakeholder is a person, group, or organization that has interest or concern in a business enterprise, and who can affect or be affected by its operations, decisions, and actions. The stakeholders in a business has can be broadly categorized as internal and external stakeholders. The internal stakeholders include managers, shareholders, and employees (Nagarajan, 2007). The external stakeholders include suppliers, distributers, customers, the local government, the society, and the government. B-spoke has a number of stakeholders who can be affected by the project in a number of ways. Some of the stakeholders that are likely to be affected by B-spoke’s project of increasing sales include the owners who are Dave and Bethan, Employees, customers, the local government, suppliers, and the society. B-spoke’s task can be called a project because it is non-routine, well planed, aimed at a specific target, it is made up of several different phases, and its constrained by time and resources. These are the characteristics differentiating a project from a task. The enterprise’s decision to increase sales and improve its stock management system by venturing into e-commerce, selling electric bikes, or renting a city center showroom will affect the stakeholders in different ways. The society living around B-Spoke Bikes will benefit from the enterprise’s increased sales. The occasional casual helpers who are usually employed on short-term basis may be employed on permanent basis, and even more individuals from the society may be employed. Employees currently working in B-Spoke Bikes may also receive better remuneration due to the increased revenues generated from either the e-commerce venture or the city-center showroom rental. The B-Spoke Bikes’ suppliers also stand to benefit since more of their supplies will be used by the business to meet the high volume of sales. The local government will also receive more taxes and revenues generated by B-Spoke Bikes’ increased activities. The management will experience economies of scale and the benefits that result from this. Some of the operational costs will be reduced and there will be an increase in profits resulting from that occurrence. Some costs such as the cost of raw materials are likely to increase due to increase in production, these being some of the disadvantages. The table below summarizes the list of stakeholders and how they are likely to be affected by the project. Stakeholders Effects caused by the Project Society Benefit by being employed in B-Spoke Bikes Employees Benefit from increased remuneration Suppliers More purchase of their supplies Local Government Increased tax collection and revenues The Owners Economies of scale and more profits Customers Increased customer satisfaction Cost and Benefits Analysis In this part of the B-Spoke Bikes feasibility analysis, there will be identification and analysis of all the costs, which are likely to be incurred when the enterprise undertakes either venturing into e-commerce, selling electric bikes, or renting a city center showroom. The costs will be broadly categorized into development costs, setup costs, and operational costs. There will be also the identification of benefits that are likely to be received from the projects B-Spoke Bikes will venture into. The benefits and costs incurred in the various projects will be analyzed using tables. There will be selection of the project generating highest revenues. Costs and Benefits Identification In order to increase sales, B-Spoke Bikes is considering three options. Its management can choose to venture into e-commerce via Elen, the manager’s daughter creating a customer e-commerce and stock control system. B-Spoke Bikes can also subscribe to a simple template based e-commerce service despite its inflexibility (Reiss, 2007). The enterprise can also rent a city center showroom to increase sales. In all the projects, B-Spoke Bikes will incur a certain amount of cost and gain a certain benefit. Some of the costs that are likely to be incurred when B-Spoke Bikes ventures into e-commerce via Elen’s customer e-commerce and stock control system include; cost of hardware, cost of the development software, hosting costs, cost of the time taken developing the system, and licensing costs, shipping and logistics costs, and Search engine Optimization costs and adverting costs. The opportunity cost for not investing in either the simple template based e-commerce service and renting a showroom in the city should be considered too. It is assumed that the system developer will not be paid because this happens to be their family business. Some of the revenues that are likely to be received when B-Spoke Bikes ventures into e-commerce via Elen’s customer e-commerce and stock control system include; increased sales, and income generated by time saved by the system. Costs associated with B-Spoke Bikes’ subscription to simple template based e-commerce service include advertising costs, service costs, shipping and logistics, and SSL certificate for accepting credit cards. The table below shows the costs estimates for the customized and the template version of the project. Customized E-commerce Service (project 1) Cost Template-based e-commerce service (project 2) Cost Cost of Hardware £2899.80 Advertising Costs £250 Cost of Development Software £583.30 Service Costs £2500 Web hosting Costs £291.65 Shipping and Logistics Optional Cost of Licensing £960 SSL certificate Costs £875 Shipping and Logistics Costs Optional S. E. O and Advertising Costs £500 SSL certificate Costs £875 Total £6109.75 Total £3625 (Ecorner 2012) In order for B-Spoke to venture in e-commerce, a total of 1517.64 Euros will be spent on customized e-commerce services while a total of 180 Euros spent on template-based ecommerce service system. There will be other quantifiable but not valued costs which will be incurred such as time spent on developing the customized e-commerce system and decrease in customer complaints. There are other identifiable but not easily quantified costs and benefits that B-Stoke is likely to experience when venturing into e-commerce. Such costs and benefits include; public approval for the enterprise, bigger target market, and improved public image. Costs and Benefits Analysis In this section of the feasibility study, the costs likely to be incurred in the two projects will be analyzed and a comparison made on the benefits generated from the different projects. The income estimates generated from the projects will be computed and analyzed using the payback period method, Return on investment, Net present value, and the Internal rate of return methods. The expected income from the two projects in a period of two years is as shown in the table below in thousand Euros. P1 represents project one while P2 represents project two. jan feb mar apr may jun jul aug sep oct nov dec jan feb mar apr may jun jul aug sep oct nov dec P1 1 1 2 1 2 2 3 2 3 4 3 2 2 3 4 3 4 5 4 3 2 3 4 5 P2 0.2 0.3 0.2 0.3 0.4 0.6 0.7 0.5 0.7 0.5 0.6 0.7 0.8 0.9 1 0.9 1 1 2 2 3 2 3 2 By using the payback period, project one will repay the initial investment after four months and 8 days. On the other hand, project be will be able to repay itself after 8 months and 15 days. When evaluating the viability of the projects under the payback period, project one could be the most viable since it repays itself in the shortest time. When analyzing the two projects using the Return on investment method, the formula below was used. The projected net income for project one was £68,000 while that of projects two was £25300. The total capital invested in project one is £6109.75, while that invested in project two was £3625. The return on investment for project one can therefore be established to be 11.13, while that of project 2 is equal to 6.98. Project 1 could still be more viable since it has a higher return on investment than project 2. When analyzing the two projects using the Net present Value method, the formula below was used when the inflows are even (Finance Formulas 2012). NPV = R × 1 – (1 + I)-n – Initial Investment i Where R is net cash inflows expected in each period, i is the required rate of return per period, and n are the number of periods during which the project is expected to operate and generate inflows. Where the cash flows are uneven, like in this case, the following formula will be applicable. NPV =    R1  +  R2  +  R3  + ...    − Initial Investment ( 1 + i )1 ( 1 + i )2 ( 1 + i )3 Where,    i is the target rate of return per period;    R1 is the net cash inflow during the first period;    R2 is the net cash inflow during the second period,    R3 is the net cash inflow during the third period. In the calculation of net present value, a discount rate of 18 percent was used. The table below shows the present values of the expected cash inflows from the two projects. Year Project 1 Present value Project 2 Present value Year 1 26000 25999.15 5700 5699.15 Year 2 42000 41999.28 19600 19599.28 Total 67998.43 25298.43 The net present value for the inflows from project 1 is -1.57(68000-67998.43) while that of project 2 is -1.57(25300-25298.43). This means both project have the same net present values. Assuming the economy grows, which could bring about a drop of the interest rate to 12 percent, the net present value for the projects would be expected to be as shown in the table below. Year Project 1 Present value Project 2 Present value Year 1 26000 25999.11 5700 5699.11 Year 2 42000 41999.20 19600 19599.20 Total 67998.31 25298.31 The net present value for the inflows from project 1 would be -1.69(68000-67998.31) while that of project 2 is -1.69(25300-25298.31). This means both project would still be expected to have the same net present values (Accounting Explained 2012). Choice of Project Both project 1 and two have proved to be viable as shown in the analysis above. However, project 1 is more viable since it takes the shortest time to repay the initial investment. By using the return on investment method to establish viability of the projects, project one had a higher return on investment than project two. The net present values of both the two projects were equal. Hindering Factors to the Project There are other factors that are likely to affect the project other than economical factors. For example, organizational factors such as resistance to change, which is one of the major factors. Employees may decide resist the changes that are likely to be brought about by the new system due to the fear of the unknown and other psychological reasons. Lack of qualified staff may also be another organizational factor that is likely to hinder the success of the project. This is because the employees may lack the skills needed to ensure that the project is achieved effectively and efficiently. Technological constrains may be another hindering factor. Equipments needed may be unavailable, unreliable or expensive, thus rendering the project unachievable. For example, B-Spoke may not be able to afford the best development software for its customized e-commerce service, therefore making its services unreliable and of poor quality. Other technical constraints that are likely to occur include lack of statistical or mathematical techniques. Due to this factor, the models that will to be developed are likely to be unreliable and incorrect. Solutions to the Problems In order to ensure that the project is successfully achieved, all the problems that are likely to arise should be addressed in time (Lewis, 2007). For example, organizational factors such as resistance to change should be properly dealt with. Employees and other stakeholders who are most likely to be affected by the project should be trained on how to deal with the changes. The training should be effective and should ensure that it obtains the stakeholders’ confidence so as to achieve the projects objective. Selecting the employees with the technical knowledge of implementing the change is another way of dealing with the resistance effectively. Technological constrains that may arise should be effectively dealt with before starting the project. All the tools and equipments needed for a project should be availed at all cost. Management can seek for financial help from financial institutions once the viability of the project is established. For example, if B-Spoke is not in a position to afford the best development software for its customized e-commerce service, it can seek for a long-term loan from a financial institution at a rate of between 18 and 12 percent. Summary This paper was a feasibility analysis for the B-Spoke Bikes, a small bicycle sales and repair business located on the outskirts of Swansea. The feasibility study was relevant since there was need to improve its profits and the stock management system. The B-Spoke management was considering possible solutions to widen sales opportunities to the whole of the UK with a new e-commerce venture via both a customized e-commerce and stock control system for the business, or a subscription to a simple template based e-commerce service despite its inflexibility. This feasibility analysis seeks to establish the possibility of implementation of the two projects given the economic, financial, organizational, and technological constrains. The feasibility study also analyses viability of the project by comparing the cost incurred and the expected benefits (Knutson & Bitz, 1991). Stakeholders that are likely to be affected by the project have also been stated, how how the project is going to affect them explained. There will also the estimation of costs and benefits of the project. The feasibility study is analyzed in six parts; the B-spoke stakeholders, costs-benefits analysis, project viability, hindering factors to the project, and solutions to the hindrances. Reference List Accounting Explained 2012, Net Present Value (NPV), viewed 30 November 2012, . Davies, A & Cline, T 2005. ‘A consumer behavior approach to modeling monopolistic competition’, Journal of Economic Psychology, vol. 26, no. 6, pp. 797–826. Ecorner 2012, Costs & Issues Starting an E-commerce Online Business, viewed 28 November 2012, < http://www.ecornerstoresplus.com.au/FAQs-Questions-Ideas-Centre/Costs- Issues-Starting-An-eCommerce-Online-Business>. Finance Formulas 2012, Net Present Value, viewed 30 November 2012, . Field, M & Keller 1998, Project Management, John Wiley and Son, London. Knutson, J & Bitz, I 1991, Project Management: How to Plan and Manage Successful Projects, GAO, Washington DC. Lewis, J, 2007, Fundamental of Project Management, Thomson Learning,London. Murch, R 2001, Project Management: Best Practices for It Professionals, John Wiley and Son, London. Nagarajan, 2007, Project Management, Westport Publishers, New York. Pannerselvam & Senthilkumar 2003, Project Management, Westport Publishers, New York. Reiss, G, 2007, Project Management Demystified, John Wiley & Sons, New York. Read More