Page 245 - Operations Strategy

220 CHAPTER 6 • PRoCEss TECHnology sTRATEgy

Figure 6.11 Cash inflows, outflows and requirements up to the finish of the
project (€000s)

3,000
Cash requirements (€s) 2,000

1,000

Start 12 24 36 48
Time (months) End
–1,000

Six-month periods 0 1 2 3 4 5 6 7 8
Cash inflows 0 1,000 1,000 1,000 1,000 2,000 0 0 3,000
Cash outflows 1,050 800 970 950 700 200 200 200 300
Net cash flow (1,050) 200 30 50 300 1,800 (200) (200) 1,700
Beginning cash
without financing 0 (1,050) (850) (820) (770) (470) 1,330 1,130 930
Ending cash
without financing (1,050) (850) (820) (770) (470) 1,330 1,130 930 2,630

All figures in €s

funding requirement of €1,050,000 occurs within the first eight months of the project,
and diminishes only slowly for two years. After that, the project enjoys a large net inflow
of cash. Of course, this analysis does not include the effects of interest payments on cash
borrowed. When it is decided how the cash is to be raised (i.e. borrowed from a bank or
private investor or raised from the equity markets), this can be included.

evaluating acceptability

Evaluating acceptability can be done from many technical and managerial perspec-
tives. Here we limit our discussion to cover the financial perspective on evaluation and
the ‘market requirements’ and ‘operations resource’ perspectives. Figure 6.12 summa-
rises the different elements of our analysis.

Acceptability in financial terms
Financial evaluation involves predicting and analysing the financial costs to which an
option would commit the organisation, and the financial benefits that might accrue
from acquiring the process technology. However, ‘cost’ is not always a straightforward
concept. An accountant has a different view of ‘cost’ to that of an economist. The

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