Question
Using sensitivity analysis make a business decision. VENUS Communications has compiled the following data about its operations. Source of revenue 1: Consulting services to other
Using sensitivity analysis make a business decision.
VENUS Communications has compiled the following data about its operations.
Source of revenue 1: Consulting services to other telecom companies
20,000 hours of consultations per year.
$275 Per hour charged for consulting
Source of Revenue 2:Wholesale of VOIP Usage per Minute
400,000,000 Minutes of VOIP Sold per year.
$0.02 Charged per Minute
Source of Revenue 3:Extra space in Building leased to other companies
100,000 Sq Ft of space Leased (You have 200,000 sq ft and are leasing half, using the other half)
$45 Charged per Sq Ft per Year
Costs are as follows:
$1,000,000 Per Year (Management Salaries)
$0.003 Per minute (Cost of VOIP network Maintenance)
$13.50 Per Sq Ft (Cost of maintaining the leased premises)
$150 Per hour per Telecom Consultant
As the new CEO of the company, you want to increase the Net Revenue of the company by at least 20%.
You have the following options to improve the performance of the business:
OPTION 1 - Increase consulting business volume by 20%
OPTION 2 - Increase the VOIP wholesale volume by 25%
OPTION 3 - Increase your office leased space by 30%
What is your decision?
What are the sensitivity numbers/ratios for each Option?
Prioritize which actions will have more impact on your NET revenue.
To perform sensitivity analysis, we follow these steps:
1. Define the base case of the model.2. Calculate the output variable for a new input variable, leaving all other assumptions unchanged.3. Calculate the sensitivity by dividing the % change in the output variable over the % change in the input variable
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