Question 3 Tactical Decisions (10 marks)

Relevant topics:

Topic 1: Strategic Management and Leadership

Topic 2: Sustainability

Topic 6: Tactical Decisions

The local site managers from a chain of fitness centres currently receive IT and HR support from Australian-based, head office teams. The current annual costs associated with these teams are provided below:

Staffing costs (10 staff members @ $76,000 p.a.) $760,000

Telecommunications and IT costs $32,000

Direct employee recruitment costs $80,000

Allocated depreciation costs $60,000

The firm has received an offer from an external provider of IT and HR services to take over the IT and HR support team's responsibilities for $850,000 p.a. If this proposal is accepted and the IT and HR support function is outsourced:

Two of the current IT and HR support team members will be retained and promoted to manager with higher salaries of $90,000 p.a.

The current telecommunications and other IT costs associated with the IT and HR support team will be reduced by 95%.

The firm will no longer have any responsibilities for direct employee recruitment.

Half of the space currently utilised by the IT and HR support staff will become utilised by the firm's accounting department. The other half will be rented out for $10,000 p.a

Required:

1. Evaluate whether this proposal is acceptable on financial grounds. Ensure that your answer is discussed and supported by relevant calculations/workings (5 marks).

2. Based on a consideration of financial, environmental and other factors, discuss whether this proposal is acceptable (5 marks). All calculations must be performed in Excel and your excel file must be supplied (penalties will apply if you do not comply with this requirement).