Provide graphical visualization, discussion of the risk, and discussion of the break even.

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John Woo's Cellular Connections

Background

John Woo runs a small advertising firm. He employs 10 sales agents who need individual cellular phone service at all times. He is trying to decide which cell phone package to purchase.

John's Concerns

John has noticed that some plans tend to "low-ball" on the monthly fee but then stick the customer with big per minute charges when the free minutes are used up. John was wary of plans like this because if his employees used a lot of minutes the per minute fees swamped any saving obtained in the low monthly fees. On the other hand, some plans "low-balled" the "per minute" charges but stuck users with a high monthly fee. These plans appealed to customers who knew they would use large amounts of minutes, but John felt uncertain about if the higher monthly fees were worth the lower "per minute" charges.

Plan Options

He has narrowed his options down to two plans; however, he is uncertain about which plan to select. Each employee uses about the same amount of airtime a month. John wants a plan that meets his current needs but will also be advantageous as his needs grow. The "regular" plan charges a fixed fee of $55 per month for 2000 minutes of airtime plus $0.15 per minute for any time over 2000 minutes. The "executive" plan charges a fixed fee of $75 per month for 1000 minutes of airtime plus $0.09 per minute over 1000 minutes.

Spreadsheet Modeling and Discussion Questions

Construct an Excel spreadsheet model with graphs to assist John with the following questions:

1. If John expects his sales agents to use the phone for 50 hours per month, which plan should he select?

2. Perform an analysis based on the idea that John believes his agents' average use will be 50 hours per month but knows that they will never use less than 40 hours or more than 60 hours per month.

3. How does the decision change if the agents' usage habits change and they now use the phone on average 65 hours a month, but will never use more than 85 hours or less than 50 hours a month?