Adoption of the SAFE Suite on the Basis of the Financial ROI Analysis - Coursework Example

Executive Summary The increased insecurity incidences as well as the increasing number of airport users and the need to offer superior quality services to the customers hence ensuring their satisfaction has necessitated airlines to adopt sophisticated security systems that enable them overcome the above challenges. In this regard, SFO intends to adopt a new security system SAFE suite for its terminal 2 while its current security system calls for a complete infrastructure overhaul. This report performs a ROI analysis with an aim of recommending whether or not the company should go on with the proposed installation of the SAFE suite. In this regard, the report starts with explaining its purpose before giving a brief background to the need for implementation of the SAFE suit. This includes the challenges facing the current security system as well as the benefits the new system will provide. The report then lays down the assumptions that are made in carrying out the ROI analysis before carrying out the ROI analysis. In this regard, all the benefits are quantified. The ROI analysis results in a positive NPV and a high IRR. As such, the report recommends the adoption of the SAFE suite on the basis of the financial ROI analysis as well as other non-financial benefits expected to come with the new system. Table of Contents Executive Summary 1 Purpose 2 Background 3 Assumptions made when conducting ROI analysis 4 Results of the analysis 6 Recommendations 7 Preliminaries 8 References: 9 Appendix 10 Purpose The purpose of this report is to provide an insight as to the return on investment for a new credentialing system for Francisco International Airport (SFO) terminal 2. It is to be noted that the airport has announced a $383 million plan to renovate and reopen terminal 2 and the airport’s assistant deputy director of aviation security Kim Dickie and her team have selected Quantum Securer’s SAFE software suite as the new terminal 2 credentialing system. The proposed new system has a lot of benefits when compared to the old system being used currently as will be discussed below (Mohamed and Rasil, 2012). However, its implementation and maintenance also has a lot of cost implications for the company. As such, the decision to go ahead with the implementation of the new credentialing system for terminal 2 ought to be backed by a strong business case to assure the management that the investment will be worthwhile and that the benefits to be derived from the Quantum Securer’s SAFE software suite will greatly outweigh the costs while improving the customer experience through increased convenience. Thus, the purpose of the report is to provide the management with the basis of making the investment decision based on the analysis of the new system’s ROI. In so doing, assumptions will be made while costs and benefits will be analyzed as shown in the sections below. Background The new credentialing system is necessitated by the renovation and reopening of SFO’s terminal 2 as a result of rising passenger numbers and increasing launch of service by low cost carriers. The new security system needs to be different from the old system given that the old security infrastructure needs a complete overhaul given the many loopholes around employees and passenger security, airside operations, badge credentialing, physical identity and access management. The new system also needs to factor in the need to create a model generation model airport. There has also been increasing security threats as well as challenges in managing the identities of the many people frequenting the airport, their credentials as well as physical access to facilities that requires all airports to execute mission critical processes (Mathews, 2016). The old security system being largely manual gives rise to a lot of security issues such as lack of routine way of determining if an access card has been successfully deactivated after the termination of an airport worker or if a person without the required approval has access to a restricted area. Furthermore, updating the numerous databases lags days or weeks behind actual changes such as terminations. This and other challenges mean that the airport is in need of a more effective security system with SAFE being proposed as an alternative. The new Quantum Secure and SAFE has a promise of increased efficiency, speed and costs as well as increased compliance hence mitigating potentially serious legal and reputational risks. Among the benefits that SAFE promises include reducing the average cost of processing a badge significantly, cutting average wait times by 96 percent, decreasing the average service time significantly and streamlining the credentialing operations with full audit and compliance. The new system does indeed promise improved airport security management as well as improved service and experience while promising compatibility with the existing systems. However, the new benefits do come with enormous cost implications. The system costs $250,000 upfront installation fees with an annual maintenance payment of $25,000 from 2009 to 2013. As such, there is need to determine whether the new system is worthwhile investing in or the costs outweigh the benefits or if there are better alternatives that the airline can go for. Assumptions made when conducting ROI analysis In conducting ROI analysis for the new security system, the following assumptions have been made; a) The assumptions underlying the benefits of the new system The assumptions regarding the benefits on the new system are largely pegged on the benefits realized from a similar system employed by Toronto Pearson International Airport i.e. it is assumed that the new SAFE suite will deliver the following benefits; i) Reduction in the average cost of processing a badge by 28 percent ii) Reduction in average wait times by 96% iii) Decreasing average service time by 66% iv) Streamlining the credentialing operations with full audit and compliance. It is also assumed that the actual benefits will also include; i) Reduction in labor costs regarding the badging process from 9.33 hours to just 20 minutes ii) Reduction in the number of people requiring two badges to zero by 2013 iii) Increased accuracy in record keeping resulting in significant in the amount of time and hence cost for detecting and correcting errors across the airport’s various databases iv) The new system will result in increased compliance leading to avoidance of costly litigation and injuring of the company’s reputation (Beattie, 2016). v) That the new system will actually be compatible with the old system b) The SAFE system will actually cost $250,000 with annual maintenance costs of $25,000. We assume a 10 percent discount rate on investment c) There is no risk that the technology will not be fully developed and that it will not be obsolete before the ROI period is over d) There is no risk that the project will not be rolled out on time and on budget and that the project will not deliver the expected benefits e) That the project will fit within the company’s corporate strategy Results of the analysis The financial results of the analysis are contained in the attached excel sheet. The input into the analysis included; i) A 10 percent discount rate ii) There is significant onboarding labor costs savings from the current system’s 9.33 hours per user to the proposed SAFE suit’s 0.33 hours or 20 minutes per user. This is nine hours savings per user and given that each labor hours is assumed to be $8, then the company stands to save $72 per user. The number of users is 2,000 in 2009 and this is expected to increase at 10% annually thus resulting in total savings of $144,000 in 2009, $158,400 in 2010, $174,240 in 2011, $191,644 in 2012 and $20,816 in 2013. iii) The new system results in significant savings in badge processing costs estimated at 28.6% or $12.58 per badge. With 2,000 badges expected to be processed in 2009 and 5,000 badges expected to be processed in each of the other four years, this will results in savings amounting to $25,168 in 2009 and $62,920 in each year from 2010 to 2013 (Farris, 2010). iv) The new system does also result in significant identity management activity costs with a 35% saving expected on labor time spent on identity management. This would result in $0.70 savings per user and consequently $14,700 savings in 2009, $15,435 in 2010, $16,207 in 2011, $ 17,017 in 2012 and $17,868 in 2013. v) Though the SAFE suite does not result in savings as far as new badges are concerned, it does result in users not having to have two badges for terminal 1 and 2 as is the case with the present system. As such, the new SAFE suite will result in savings as a result of customers not being required to have two badges for each terminals owing to the compatibility provided by the new system. This will also lead to reduction in badge losses consequently resulting in $1,120 in 2009, $2,240 in 2010, $4,480 in 2011 and $5,600 in 2012 (Marrelec and Fransson, 2011). vi) There are also significant savings that result in increased accuracy in record keeping. In the old system, seven workers have to work a full day in correcting record keeping errors. This is not the case with the new system. Thus, assuming an 8 hour working day for each employee, this does result in annual savings amounting to $4,838.40 over the five years period. vii) The only costs incurred by installing the SAFE suit include the $250,000 installation fees and the annual maintenance fee of $25,000. Based on the above analysis, investing in the SAFE suite would result in net cash flows from the purchase amounting to $899,827 over the analysis period. This results in a net present value of $603,378 and an internal rate of return of 76% which is way above the discount rate of 10% required by the company. Recommendations The ROI analysis as analyzed above would result in significant savings for the company with the SAFE suite’s benefits far outweighing the costs. The analysis has result in a net present value of $603,378 with an internal rate of return of 76%. The decision rule provides that all other factors held constant, a project with a positive npv should be adopted and hence implemented. On the other hand, a project with a higher npv than the discount value should also be adopted. As such, it is recommended that this project be adopted based on the financial analysis of ROI carried out (Sammy, 2012). In addition to ROI, the project’s benefits far more outweigh those of the older PIAM system. These benefits include; streamlined and accountable end-to-end badging operations, automatic physical access provisioning and terminations on the basis of policies, policy based access with audit trail, and compliance reporting. It would also result in increased employee productivity owing to reduction in delays of credential process and hence increased customer satisfaction owing to lower support cost owing to automation. As such, the benefits of the proposed SAFE suite far outweigh the costs. Thus, this report recommends that the company adopts the SAFE system since the company stands to greatly benefit. Preliminaries Apart from the benefits considered in the ROI analysis, there are other financial benefits that have not been factored owing to the limited information available that would have enabled full consideration of the full financial implication of the benefits. These include; i) Increased compliance savings-the new system will result in 28% increase in compliance with various regulations that would save the company from litigation and loss of reputation. However, it is known that each case of non-compliance could cost the company as much as $8,849. ii) The new system will lead to increased compatibility that will allow the company avoid the large capital expenses of a rip-and-replace implementation. However, there is no information to enable quantification of the total costs avoided. References: Mohamed, A&, Rasil, N2012, Business impact and ROI: A proposed approach to learning and development investment, Social and Behavioral Sciences, vol. 40, pp. 596-602. Mathews, J2016, The benefits and challenges of calculating your Library’s ROI, Library Leadership & Management, vol.25, no. 1, pp. 1-14. Beattie, A2016, FYI on ROI: A guide to calculating return on investment, Retrieved on 3rd April 2016, from; http://www.investopedia.com/articles/basics/10/guide-to-calculating-roi.asp Marrelec, G&, Fransson, P2011, Assessing the influence of different ROI selection strategies on functional connectivity analysis of MRI data acquired during steady-state conditions, PLoS ONE, vol. 6, no. 4, pp. 23-34. Sammy, H2012, The ROI analysis: Project management office development: PMO projections charter, Create Space Independent Publishing Platform. Farris, P2010, Marketing metrics: The definitive guide to measuring marketing performance, Upper Saddle River, New Jersey: Pearson Education, Inc. Appendix The attached excel sheet lays down the ROI analysis for the project Read More