Tuesday, February 14, 2012

Airport PDA Project Business Plan

Hand held and vehicle-mounted Personal Digital Assistant (PDA) are currently used by several service firms in the fields of paramedic and roadside assistance; inventory management warehouse vehicles; courier and shipping deliveries, and logistics and industrial monitoring and control. Employees in the field or shop floor use PDA units to retrieve data, record transactions and update central systems over wireless networks for real time processing.
The company is seriously considering expanding it lines of business to offer handheld and vehicle mounted PDA technology in a commercial airport environment.  A PDA can be configured to run applications to serve as a wireless computer terminal for online real time transaction processing when undertaking ground support activities for processing passengers, cargo and aircraft at the airport terminal. 
Functionalities of wireless Airport PDA
The PDA will run a tweaked Microsoft Windows 8 OS that will have tight integration with the airport specific application and will have a rugged water and shock-resistant body casing of outdoor use, with attachments that can mount it in any part of a service vehicle or taken out for field assignment.  The application suite that can be configured for specific airport user requirement will cover the following:
Pre-flight activities
  • Cargo and baggage handling:  This feature often comes with a scanner that accepted IATA bar coding standards or Radio Frequency tags so they can just read bag tags and to ensure that baggage and cargo get correctly loaded as manifested into the right flight and destination (Stecher)
  • Mobile check-in service for passengers:  With a PDA on hand, terminal check-in staff effectively brings the counter to passengers forming a queue at the check-in counters (Trivedi). Like hamburger fast foods taking orders while you’re queuing, airport staff can check you in doing the same thing but with a PDA. Some airlines consider it a better alternative that Kiosk-based self-check-in counters offered in several European airports.
  • Conveyance for disabled and elderly passengers using electric vehicles to transport them to their gate assignments.
  • Refueling vehicles  to record actual fuel uploads
  • Aircraft turnaround line maintenance
Post-flight activities:
  • Cargo and baggage off-loading for delivery to appropriate terminals
Telecommunications Support Infrastructure
The wireless network infrastructure will harness WiFi 802.11 technology that operates on the spread spectrum range of 2.4 GHz, well outside of airline UHF frequency ranges.  It will use the 802.11n for higher throughput and longer range operation of up to a quarter of a kilometer or doubled with special repeater antennas in select tarmac locations.
Business Requirements
The project as initially estimated will require an investment of £5 Million in manufacturing assembly costs and systems development over an 18-20 month period. 
a)      A client-server middleware that can send and interrogate data from in house systems
b)      UK-CAA clearance to operate in the frequency range that will not interfere with airline operations
c)      Project management teams that will develop and support the PDA
d)     Marketing support for promotions and advertising for product pre-launch 6 months into the project which will fall into Year 1 of operations.
e)      24x7 help desk to support airport operators
f)       Organizational Project implementation support of customer users
Pricing Approach
The break-even point to recover product development costs will be computed and a suitable margin will be determined.  Unit prices will be uniform regardless of volume sold to each client. Initial customers may have to carry the brunt of recovery costs while succeeding customers after achieving the break-even point can benefit from lower or discounted pricing depending on the volume of PDA terminals ordered.
Several vehicle mountable PDA computers are currently available from Rhino, Datalogic, Motorola and Intermec costing upwards of £1,600 with the more expensive one at around £4,500 per gadget.  The initial pricing per Airport PDA of £1,100 is at the low end of the market value spectrum, especially for highly specialized applications and all airline and airport applications are generally in the upscale pricing bracket. The price will remain for the first few years of operation and can be marked down to £800 after the break-even point or payback period is reached. Pricing will be cost based plus mark-up. 
A standard laptop or tablet can be sourced at less than £200 per unit but what sets the Airport PDA is its robust casing construction that can survive the elements for outdoor use as well as the default application systems that will provide the value add to the product. This is not a consumer product and the specialized application is meant to increase efficiency and seamless services for airport terminals and airlines which can have significant savings out of the PDA application.
The cost of 1,100 per unit will recover the licensing and royalty costs for 3rde party technology patents to be used in the Airport PDA hardware and software including in0house software development costs for the specialisd application.  Offshore manufacturing will be considered to achieve better cost efficiencies. Licensing will be done on a per user per site basis.
A separate pricing component will involve hardware and software maintenance services which will be priced at a minimum of 15% of total hardware acquisition and license cost per client per year after the expiration of the first year warranty.  It will contain the following components
·         24x7 help desk support,
·         3-6 hours response time for  technical staff deployment and 1-hour remote diagnostics and repair support,
·         Basic parts inventory and identified sourcing to ensure fast and reliable hardware repairs
·         In-house systems programming work to support PDA client-server application
·         Instant PDA field replacement during in-shop on or-site repairs.
Part A: Project Feasibility and Management
The PDA technology is readily available to be enhanced for airport application and together with network connectivity, the projects proposed here is merely an application that will allow airport and airline stakeholders to harness the technology for seamless, efficient and cost-effective operations for managing ground activities in support of chartered and scheduled flights. domestically and internationally.
Stakeholder Identification using FFA (Forced Field Analysis)
Determining the stakeholders of the project can be first validated using the Forced Filled Analysis.  This allows the project management to identify people and groups that have a stake in the success of the project, whether in confirming their initial support for it or in convincing those with lesser enthusiasm or harbor concerns about it.

Table 1 FFA Analysis of stakeholder viewpoints

 Cash Flow Forecast and Analysis
The Revenue Model
The company will invest £5 Million in Year 0 from internal funds to roll out the product over a one-year project implementation timeframe.  Revenue streams are expected to be generated during the first 5 years based on initials sales of a modest 316 units based on the following assumptions:
  • The pricing approach as discussed above will apply, starting at 1,100 per unit and getting lower after the break-even on payback period has been achieved. 
  •  The project development will take all of Year 0 and 6-8 months into the second year to accommodate the standards systems beta testing market penetration.
  • The first two years will experience heightened market growth, registering 500% annual increases in sales volumes for two consecutive years starting on the 2nd year and settling to a 200% increase annually thereafter,.

Table 2: Revenue Model

There will be a fixed operating and overhead costs pegged at £7 Million annually to take dare of manufacturing costs and salaries of executives and employees involved in the. For variable costs, the following assumptions are made.
  • Maintenance costs will be a function of customer volumes and is initially pegged at 30% of the estimated maintenance charges paid out by customers from the purchase of the PDA, and will grow proportionately with the annual sales volume.
  • Marketing costs will increase proportionately with increase in clients (sales calls, trade exhibits, promotional giveaways, user training costs, etc.) and this is initially pegged at 3% of the gross revenues and will grow at an estimated 20% annually representing planned client growth which is independent of PDA units sold.
  • Taxes are expected to grow but cost component are excluded in the pre-tax variable costs.
  •  Licensing costs and royalties in the use of patented technologies in the PDA products will also increase the number of units sold and is estimated to cost 2% of unit prices.

The Operating Expense and Capital Model
With these assumptions, the following Operating and Capital Expenditure model is made, accounting for the investment on year one with a project development, testing and marketing lasting 18 -20 months.

Table 3:  Operating expense model

Getting the difference between the revenue streams and operating and capital expenses yields the net cash flow forecast over the five year period as follows
Table 4:  Net cash flow forecast

Applying the standard financial measures of Payback, Modified Payback, IRR, and Net Present values, and Profitability Index (Abraham), we get the following
Table 5:  Payback Period

Based on the cash flow forecast, payback computations show that given the assumptions, the company can realize its money back only after 4 years, more precisely, 0.12 months into the 5th year or roughly in the second month of that year. This may prove problematic in seeking the approval from the board which usually would like to see some promise of a return at an earlier date, preferably in the 2nd year.
Moving the Payback Period Earlier
A second scenario can be simulated where the payback period is advanced to the 2nd year of project implementation. This means a net cash flow that will allow full investment recovery on the 2nd year which is quite ambitious for the project.  This can happen only with the following assumptions based on the first scenario:
·         The first year volume of sales is effectively increased nine-fold from 316 to 2,844 PDA units.  This means that the project development timeframe is shortened to less than a year during which time, marketing would be in full swing.
·         The 2nd year is critical and the earlier assumption of a five-fold growth is maintained while a slower growth can be expected for the 3rd year onwards. 
For expenses, the following assumption is made:
·         Marketing cost will be increased to 540T for Year 1 and grow 20% on the 2nd year and maintained at the level thereafter.
After this time, the unit price can already come down to 800 on the 3rd year and 600 on the 5th year. The simulation yielded the following:

Table 6: Scenario 2 moving the payback period the 2md year

A second year payback period pushed all financial measures to an astounding level that is hard to believe – about 94% IRR and a staggering NPV of more than 5 times the initial investment.  On the other hand, the first scenario provides a more modest but realistically achievable target with IRR at 24% and a Net Present Value of 9.2 million which is almost twice the value of the investment.  The financial indicators already present a lucrative promise for the project despite having a nearly 5-year break even period.
While the first scenario’s payback period may prove unattractive, a 2nd year payback simply looks too good to be true and betrays a very optimistic projection that can later disappoint as reality sets in.  In the first place, hurrying the project development team to get the Airport PDA out the production line sooner than planned could result in system bugs that, while allowing for patches, could prove embarrassing for the company.  In addition, it will be a real challenge for marketing to penetrate the target airport and airline markets with its new product lines given the time constraints getting significant sales turnover right on Year 1.
Benefits of inter-project learning for a global consumer electronics firm
            A company that has ambitious plans to manufacture and market consumer electronics as well special-function gadgetry such as what is envisioned in this project can benefit from a synergistic and symbiotic strategic alliances and business partnerships with companies overseas that have specialized focused skills and the products identified as critical to the totality of  i9t planned products (Grant).  The point is that there is no business sense reinventing the wheel, as it were, to allow a company to go into vertical integration when it is so much more efficient to focus on your own knowledge and skill and let other to what do best for you. 
It’s all about collaborative enterprise engagement – one that creates more value to the customer because it achieves better efficiencies of focused contribution by each partner in the alliance.  It is said that when Pavarotti partnered with the Spice Girls to make an album, it is not because Pavarotti is crossing over to pop, or that the Spice Girls are interested in cross into operatic singing.  It was all about creating a collaborated engagements where both partners reap a more rewarding performance and market following.
Companies in South Korea, Taiwan and China, for instance, manufactures LCD screens and built-up circuit boards for almost any kind of processing function needed to make a PC, smartphone or any appliance.  A company needs only to choose which ones are relevant and have them assembled and branded by a 3rd party lost cost producer, just as what Apple is doing for its iPad and iPhones which are 100% built in China and elsewhere but conforming to rigid Cupertino-engineering and design specifications.
            It is strongly recommend seeking out these companies, mostly based in Southeast and Northeast Asia for the company to achieve strategic cost efficiencies in business alliances with suppliers. Just like Pavarotti or the Spice Girls, businesses today don’t want to learn how to make LCD displays, or do laser soldering, but if these technologies are needed for their products, they can always harness these highly focused skills using capital –intensive processes from partners faster, more cost effectively and profitably.
Hence, there’s now need to craft the PC from scratch.  The company can just re-house a hand-held computer with more robust casing for outdoor and have it rebranded.  There are many in China that can do this. Even the programming effort can be outsourced to 3rdparty partners that specialize in airport applications. The only real effort the company needs to do is marketing and positioning the product well in the global markets. 

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