SlowRider Inc. had a rudimentary business intelligence (BI) system. Analysts at SlowRider

Inc. pulled data from three different ERP systems, loaded the data into Excel spreadsheets,

and emailed those spreadsheets to the senior managers each month. However, some

managers complained that they didnt understand how to get the information they needed,

others complained that the data were not accurate, and still others ignored the spreadsheets.

SlowRider established a project team to look at acquiring a state-of-the-art business

intelligence system. After several interviews with all the managers, the project team was

ready to develop the business case.

The project team estimated benefits of the new BI system as follows:

5 percent increase in sales through better-focused sales campaigns, which should

increase gross margins by $200,000 in year 1 and $300,000 in years 2 and 3.

10 percent increase in inventory turnover through better purchasing, which should

reduce inventory carrying costs by $100,000 in year 1 and $150,000 in years 2 and 3.

The project team estimated costs over an expected 3-year life as follows:

Cost Element Year 0 Year 1 Year 2 Year 3

Acquisition cost (new software

and implementation)

$400,000

Operating cost (annual licenses,

upgrades, support)

$50,000 $50,000 $50,000

Training $10,000 $5,000 $5,000 $5,000

Lost productivity during

implementation

$20,000

Total $430,000 $55,000 $55,000 $55,000

SlowRider Inc. had a rudimentary business intelligence (BI) system. Analysts at SlowRider

Inc. pulled data from three different ERP systems, loaded the data into Excel spreadsheets,

and emailed those spreadsheets to the senior managers each month. However, some

managers complained that they didnt understand how to get the information they needed,

others complained that the data were not accurate, and still others ignored the spreadsheets.

SlowRider established a project team to look at acquiring a state-of-the-art business

intelligence system. After several interviews with all the managers, the project team was

ready to develop the business case.

The project team estimated benefits of the new BI system as follows:

5 percent increase in sales through better-focused sales campaigns, which should

increase gross margins by $200,000 in year 1 and $300,000 in years 2 and 3.

10 percent increase in inventory turnover through better purchasing, which should

reduce inventory carrying costs by $100,000 in year 1 and $150,000 in years 2 and 3.

The project team estimated costs over an expected 3-year life as follows:

Cost Element Year 0 Year 1 Year 2 Year 3

Acquisition cost (new software

and implementation)

$400,000

Operating cost (annual licenses,

upgrades, support)

$50,000 $50,000 $50,000

Training $10,000 $5,000 $5,000 $5,000

Lost productivity during

implementation

$20,000

Total $430,000 $55,000 $55,000 $55,000

a. Disregarding the risk, calculate the following for the BI investment:

1. Payback period

2. NPV (assume 10 percent discount rate)

3. IRR

4. Accounting rate of return

b. Recalculate the payback period, NPV, IRR, and ARR considering the risk.

c. Prepare a value proposition for the BI investment. Should SlowRider pursue the

investment? What other issues should they consider?