2.) Describe Global Airlines problems and the contemplated solutions?
The last few years had been extremely difficult for the Global Airlines. Recession in the early part of the 21st Century and the event of September 11, 2001, had put the whole airline industry on the edge of failure. Several airlines in the industry were bankrupted while other airlines were forced to cut their cost and services. Due to the competitive cost structure of the Global Airlines, they did not declare bankruptcy but they were forced to cut their costs and delay their capital improvement projects. The prolong recession and the decrease in the business spending affected the airline industry. The overall reduction in the airline capacity, improvements in the economy and the implementation of additional cost cutting measures eventually improved the financial position of the Global Airlines. The firm had started to analyze the possibility of funding number of previously delayed capital improvement projects.
The major problem of the Global Airlines is related to the customer services problems. The cost cutting that occurred in the Global Airlines has hurt the quality of the customer services of the company. It fell three places in the recent customer satisfaction survey. They need the system that helps the Global Airlines to regain its competitive advantage over its rival. The company should develop an IT solution that will help them to improve their customer services and increase the chances of growth for the company. In addition to this, they have to manage the risk of the projects that are complicated and that financial return for the company. Global Airlines also need to fund projects that are performing better and those projects that better meet the requirement of the company.
The use of real option analysis may help the company to analyze the project and to calculate its true value. It can also give insight into the optimal development strategy that manages risk. By using option analysis, a company can make better decisions of IT deployment and mange risk; which may help them to improve the satisfaction level of customers.
3.) What is the main real option embedded in this case?
The three project approach is the main real option that is embedded in this case. In the first project of this approach, five data mart will be consolidated. There will be a stage gate review between each of the projects to determine if the consolidation should continue or not. After the first five data marts consolidated there will be a stage gate review. The stage gate review will determine that whether the first project in the three project approach is successful or not. The information that is collected in this stage gate review process will allow the global airlines to make decision related to the continuation of the project. It helps the Global Airlines to make better and effective decision regarding whether to continue with the second project in the three project approach or not. If the first project passed the stage gate review, then the additional five data marts will be consolidated in the second project. Finally, the last five data marts will be consolidated in the last project in the three project scenario if the second project passed the stage gate review.
The advantage that global can have by using this method is that there is a lower risk involved due to the lessons learned from the first project that means that deployment team of the projects can learn as it went through the project and make adjustments as required. The shortcoming of using this method is that the consolidation will not be benefited from the economies of scale and will cost more to the Global Airlines....................................
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