Starbucks is planning to enter the prepaid debit card market as a means of increasing their market presence. They believe an entry into this segment can enable them to main customer contact and generate considerable value for their customers as well as themselves. After attending the executive training program on project options at COX, they have to decided to have the introduction of their pre-paid debit card broken into several stages. they believe that this staged implementation can help them minimize the risks associated with the project. Specifically, the four stages were as follows: Stage 1: Install basic hardware and software at local store level to support simple debit card Stage 2: Install on-line registration of cards to allow users to replace lost cards, reload cares with additional money, etc. Stage 3: Install loyalty points program, including email notification system Stage 4: Introduce co-branded Visa card with Bank One

It was estimated that each stage would take two years to implement; the cost per year and the potential gain at the end of two years from successful implementation are indicated in the table below (in $M). The conditional probability of each stages success, given that the previous stage is successful, is also indicated in the table. If a stage fails, it is assumed that there is no gain at the end of the two year implementation period. The stages must be done in sequence if implemented (for example, you could not choose to implement only stages 1, 3, and 4). Starbucks used a discount rate of 20 percent for this project. For accounting purposes, assume that costs are incurred at the beginning of every year while the benefits (value) are accrued at the end of the year. 1. If you were the project manager assigned to this project, would you have recommended that Starbucks proceed as planned or modify the plan (and if so, how)?

Estimated gain Prob of Stage Annual Implementation from Costs (Cost/yr) Implementation success $4.80 $3.00 $1.20 $0.90 $18.00 $9.00 $7.20 $4.80 0.8 0.65 0.5 0.65 4