OMGT 3223 Business Decision Modeling Spring 2017 Case Study Assignment #1 Due Date: Tuesday March 14th, 10:00 PM via Blackboard. Submit the recommendation paper in Word format. Overview Your assignment is to analyze the Freelance Marketing case study. You should analyze the business issue outlined in the case using the analytical tools we have developed in this course. There is no template for this assignment. Organize your work into a report of about 3-6 pages. The report should be a well organized, well written, business style Microsoft Word document. You may work in groups of up to three on this assignment (all group members must be in the instructor's class) and if you do you will turn in a single paper with multiple names. If done as a group project the quality of the paper should reflect the number of contributors (i.e. multiple contributors should lead to a better paper.) The team is responsible for making sure everyone contributes fairly to the final deliverable. If you decide to work in a group, email me with the names of the group members. Case Analysis For this assignment you are to analyze the FMS Case. Write up the report that Larry assigned to Spencer. Make sure your report provides an unambiguous recommendation and a clear rationale for that recommendation. Be sure to consider the issues about report writing we discussed in class. OMGT 3223 - Case #1 Freelance Marketing Solutions, LLC Preparing for the Presentation Larry returned to his office, tired and frustrated. He had spent yet another day in meetings discussing options for how to handle the HR/Payroll issue. After several weeks of what seemed like non-stop meetings, Larry was still not sure what recommendation he would make to the board at the next meeting, only two days away. Larry called in Spencer, his VP of Finance and Accounting, to discuss how they would finalize their preparations and make their recommendation. An Unexpected Problem Freelance Marketing Solutions, (FMS) had been founded by Larry and his wife Kelly, about 15 years ago to provide marketing and design services to medium sized business. Over its 15-year history FMS had experienced substantial growth and now employed over 1,200 full time-staffers providing various marketing services to its clients. In addition to full timers, FMS managed a network of over 2,500 freelance marketing consultants who would subcontract to FMS as needed. The combination of full time and sub-contracted employees made FMS's human resource management and payroll issues difficult to manage. In the early days Larry had managed this process himself using spreadsheets, but FMS quickly outgrew the spreadsheets and Larry hired another small firm to manage his payroll. Automated Payroll Solutions (APS) was a small firm when Larry hired them 12 years ago, but they too had grown significantly. APS in fact had become so successful that they had recently been acquired by a larger firm, and this was the source of Larry's new problem. The new owners of APS had decided to discontinue the product used by FMS and move all users up to a product built on a more modern platform. Because APS realized that not all users want to upgrade, they have made a one-time offer that will allow customers to purchase the source code for the old system. The payroll system currently ran on APS hardware and FMS connected to it overt the Internet. If FMS were to acquire the system they would have to run on their own hardware. Larry held discussions with the IT staff to determine if they should upgrade to the new system, or buy the source code to the old product. During those meetings Billy, FMS' Chief Information Officer, put a third option on the table - the FMS IT staff could develop an in-house version of the payroll system from scratch. Billy was confident his team could develop the application for significantly less than APS planned to charge. Larry's problem was that he had to make a decision quickly. Because of the magnitude of the costs involved Larry wanted buy-in from the board of directors for any decision he made. He needed to make his recommendation to the board in two days, and he didn't know what he should do. 2 OMGT 3223 - Case #1 Replacement Options As Larry saw it he had to choose from one of three options. 1. Upgrade to the new APS system. This was the easiest, but could be the most expensive solution. APS proposed to charge FMS a one-time licensing fee of $425,000 for this upgrade. 2. License the old APS System. Under this option FMS would need to pay APS a one-time fee of $350,000. In addition, FMS IT would need to buy additional hardware to run the software, which currently ran on APS servers. They would also need to train several members of the staff to support the product. IT estimated that in the best case these costs would be $100,000 and in the worst case they would be $200,000. Billy estimated a 70% probability they could achieve the best case alternative under this option. 3. Build the system from scratch. Under this option Billy's IT staff would develop a custom payroll system. Billy's staff planned to do the design work and would use contractors to write and test the code. Billy was 70% sure he could get the system up and running for $350,000. He felt there was a 25% chance that they would need to hire additional contractors for an additional cost of 150,000. Billy did concede that if they required additional resources there was a 5% chance they would run out of time in which case FMS would have to scrap their investment in custom development and buy the new FMS system. If this were to happen, FMS would have to spend a total of $925,000. ($500,000 on scrapped custom development, plus $425,000 to upgrade to the new APS system.) Spencer's Assignment Larry gave the Spencer the responsibility for coming up with a recommendation. \"Look Spence, I'm an advertising guy and a salesman\