PJMT $2102$ Case #$1$: Strategic Project Selection for Evergreen Manufacturing

Background:

Evergreen Manufacturing, a mid$-$sized automotive parts supplier, is at a critical decision point. The automotive industry is changing rapidly, with electric vehicles $($EVs$)$ and corporate social responsibility $($CSR$)$ gaining prominence. The company must choose a strategic project that not only improves financial performance but also strengthens its competitive position in the market.

Your team has been tasked with recommending the best project by evaluating financial, strategic, and stakeholder impacts using multiple project selection models, including both numerical and non$-$numerical approaches.

Evergreen$$s Strategic Goals:

$$ Innovation and Growth: Expand into new markets, especially in EV components, to ensure long$-$term relevance.

$$ Operational Efficiency: Improve productivity and reduce costs through investment in technology.

$$ Sustainability and CSR: Embrace environmentally and socially responsible practices to meet rising expectations.

$$ Market Competitiveness: Protect and grow market share in an increasingly competitive landscape

Project Options:

$1.$ New Production Line for Electric Vehicle Components:

Investment: $$8$ million

Projected Cash Flows:

o Year $1$: $$2$ million

o Year $2$: $$2\mathrm{.}5$ million

o Year $3$: $$3$ million

o Year $4$: $$3\mathrm{.}5$ million

o Year $5$: $$4$ million

Risk Level: Medium

Time to Implementation: $18$ months

Customer Response: Positive, as demand for EVs is rising.

Competitiveness: High; strategically positions Evergreen in the growing EV market.

CSR Impact: High; contributing to a cleaner transportation sector.

$2.$ IT System Upgrade for Operational Efficiency:

Investment: $$3$ million

Projected Cash Flows:

o Year $1$: $$1$ million

o Year $2$: $$1\mathrm{.}2$ million

o Year $3$: $$1\mathrm{.}4$ million

Risk Level: Low

Time to Implementation: $12$ months

Customer Response: Minimal direct impact, but improved efficiency could lead to better service.

Competitiveness: Moderate; reduces costs but does not directly affect market position.

CSR Impact: Low; primarily focused on internal operations.

$3.$ Acquisition of a Small Competitor:

Investment: $$10$ million

Projected Cash Flows:

o Year $1$: $$2$ million

o Year $2$: $$2\mathrm{.}5$ million

o Year $3$: $$3$ million

o Year $4$: $$4$ million

o Year $5$: $$5$ million

o Year $6$: $$5\mathrm{.}5$ million

o Year $7$: $$6$ million

Risk Level: High

Time to Implementation: $24$ months

Customer Response: Mixed; could expand offerings, but customers may be concerned about service disruption.

Competitiveness: Very high; increases market share and reduces competition.

CSR Impact: Moderate; concerns over market consolidation but potential for positive community engagement.

The group must also consider how each project impacts Evergreen$$s key stakeholders.

Key Stakeholders:

$$ Customers: Impact on customer satisfaction, loyalty, and future demand.

$$ Employees: Potential job creation, layoffs, or need for new skills.

$$ Shareholders: Which project provides the highest returns and ensures long$-$term financial stability?

$$ Suppliers: Impact on supply chains and relationships with key suppliers.

$$ Regulators: Potential regulatory challenges, particularly with the acquisition.

$$ Local Community: Environmental and social implications, especially regarding CSR goals.

Your group is tasked with evaluating and recommending one of the three projects. You must use a combination of numerical and non$-$numerical models to make your decision.

$1.$ Criteria Definition and Stakeholder Analysis

Define evaluation criteria, such as:

a$)$ Cash Flows $($NPV$,$ total projected cash flows over the project$$s life

b$)$ Customer Response

c$)$ Competitiveness

d$)$ CSR Impact

e$)$ Risk

f$)$ Time to Implementation

Conduct a stakeholder analysis to identify who has the most to gain and who has the most to lose for each project.

$2.$ Apply Multiple Project Selection Models

Use a combination of numerical and non$-$numerical models to evaluate the projects:

a$)$ Numeric Scoring Model:

Score each project based on a set of weighted criteria, such as financial returns, customer impact, and CSR$.$ Assign a final score by multiplying the score for each criterion by its weight.

b$)$ Numeric Model: Real Options

Evaluate each project as if it were an investment opportunity that offers flexibility in the future. This model allows Evergreen to delay, expand, or abandon a project based on new information or market changes.

Consider the value of keeping future options open for each project:

o For the EV components project, does Evergreen have the option to expand into other markets or scale back production if demand decreases?

o For the IT upgrade, does Evergreen retain the option to further automate other areas of the business?

o For the acquisition, how much flexibility does Evergreen have to integrate the acquired company or sell off portions if the acquisition doesn$$t go