Case study THE SKILLS INVENTORY PROJECT. read the passage to answer the questions

The Riverside Software Group (RSG) was a small software company that specialized in software to support the human resources departments of both large and small corporations. RSG had been in business for more than 30 years and had an excellent reputation and an abundance of repeat business. In 2011, RSG was awarded a contract from a Fortune 100 company to develop an inventory skills software package. The Fortune 100 company maintained a staff of more than 10,000 project managers worldwide and a total employment of more than 150,000. Although the company sold products and services across the world, it was also marketed as a global business solutions provider. Since most of the work was global, RSG utilized virtual teams on almost all projects. The difficulty was in creating the virtual teams. Quite often, the project managers had limited knowledge of the capabilities of employees around the world, and this made it difficult to establish a project team with the best available resources. What was needed was an inventory skills matrix for all employees. The contract with RSG was not that complex. Whenever the Fortune 100 company would complete a project, either for an external client or one of its worldwide clients, the entire project team would use the software to update their resumes, including the new skills they developed, the chemical or specialized processes they were now familiar with, and whatever additional information would be valuable to their company in determining the best available personnel for the next project. The project team also had to identify in the software program the lessons that were learned on that project, the best practices that were captured, the metrics and key performance indicators that were used, and other such factors that could benefit the company in the future. RSG saw this as an excellent opportunity. The client had done its homework well and created a detailed requirements package. Neither RSG nor the client expected any significant scope changes since the requirements were reasonably well established. The contract was a firm-fixed-price effort of $1.2 million for labor and materials, an additional $150,000 in profit, and with a scheduled completion date of 12 months. Within the first two months of the project, RSG realized that this software package had tremendous potential and could be sold to many of its clients around the world. RSG estimated that clients would pay at least $75,000 for such a package and also pay additional costs for possible customization. The problem was that the contract with the client was firm-fixed-price and all of the intellectual property rights stayed with the client. If RSG agreed to allow the client to sell the package to other customers, RSG would probably have to spend about $10,000 in preliminary customization for each client. Detailed customization would be billed separately to each client. Additional costs, including documentation, packaging, and shipping/handling, would be about $5,000. Therefore, even adding in a small financial reserve of $5,000 as a risk factor for other design contingencies, RSG's cost per package would be about $20,000, and it could sell for $75,000. Marketing and sales personnel believed that at least 100 of these packages could be sold worldwide. Given the potential of this effort, the company had to come up with a plan on how they would approach the Fortune 100 client and request a change in the contract. The simplest solution would be to make the client a 50-50 partner, but that could create problems with enhancements and upgrades to the package downstream. The second approach would be to see if the client would allow the contract to change to a cost-sharing effort. The profit of $150,000 would be removed from the $1,350,000 contract that now existed, and the remaining question would be the cost-sharing split. Originally, RSG considered proposing a 70-30 or 60-40 spilt with the Fortune 100 client paying the greater percentage of the cost. However, to make new plan attractive to the client, RSG decided to offer the client a 40-60 split with the 60 percent paid for by RSG.

QUESTIONS 1. If you were the client, would you accept this offer? 2. If the client accepts the offer, is it a win-win situation? 3. If the client accepts the change to the contract, how much profit will RSG make if it can sell 100 units?