Page 7 - CIMA MCS Workbook November 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

BPR changes would need a great deal more input before sign off. Wide ranging changes would
have effects potentially on many areas of the factory and would therefore need approval from a
number of managers, including top level management. Before implementation, depending on the
size of the project, a capital investment appraisal may be needed to evaluate the full benefit of
the changes to be made and whether it’s worth spending a large amount of money to get those
benefits. A feasibility study may also be needed, including a prototype or model of the
reengineered process to prove that it can work.

The effect on the morale of staff would also need to be taken into account. If individuals are
rewarded for the suggestions they make for small improvements under a Kaizen system, they will
be motivated to help the business improve overall.

Morale might be negatively affected when BPR changes are made. Grapple’s recent test of an
automated process, if successful, could lead to all similar production lines being redesigned to
work on a more automated basis. Whilst leading to measurable improvements in efficiency and
wastage, there will be adverse consequences on staff morale. It would be unlikely that the
business would be able to retain all its existing staff, so redundancies would be needed. Those
who remain may be worried that they will be next to go if further changes are made.

Grapple prides itself on how it looks after its employees, so these are genuine considerations for
the company. Of course, some BPR projects would lead to improvements in morale. If a system
was redesigned to make it safer for employees then this could lead to happier workers and
improved production.

Kaizen changes should be relatively cheap and quick to implement, whereas BPR changes will
inevitably be slower and more expensive. BPR changes could also include hidden costs. It may
not be recognised, for instance, that the company’s servers are inadequate to deal with a higher
flow of information from, say, a move to electronic production scheduling, leading to an
unexpected IT upgrade cost.

3. TYPES OF INVESTMENT APPRAISAL

Payback

Payback is a method of investment appraisal where the measure of success is the time taken for
the initial investment spend to be recouped. Generally, the shorter the payback period the
better. When using payback as an investment appraisal tool, businesses may set a target payback
period and investments which recoup their investment spend before or up to this target will be
deemed as feasible.

This method is most useful for businesses that have liquidity issues, where locking up cash in a
project for a long period of time could be detrimental to the business’s ability to stay afloat.

Grapple does not have large cash reserves. This is perhaps why the production director has taken
account of the payback period for the production line automation project.

However, payback is limited in its use. It is not a very sophisticated appraisal tool and ignores
some key factors.

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