ANALISIS EKONOMI PENGEMBANGAN PRODUK Lecture 14 FaridWajdi©2014
Elements of Economic Analysis • Quantitative analysis – expected cash flows project based on NPV – the value in today’s dollar of all of the expected future cash flows.
• Qualitative analysis – projects often have both positive and negative implications that are difficult to quantify – quantitative analysis rarely captures the characteristics of a dynamic competitive environment (firm – market – macroeconomics)
When EA be performed? • Go/No-go milestones – Should we try to develop a product to address this market opportunity? – Should we proceed with the implementation of a selected concept? – Should we launch the product we have developed?; etc…
• Operational design and Development decisions – Should we spend $100,000 to hire an outside firm to develop this component in order to save two months o development time? – Should we launch the product in four months at a unit cost of $450 or wait until six months when we can reduce the cost to $400; etc…
Economic Analysis Process 1. 2. 3. 4.
Financial model (cash flows) Sensitivity analysis Understand project trade-offs Consider the qualitative factors
1. Financial Model • Estimate cash inflows and outflows • Compute NPV (net present value) • Investment decisions (go/no-go)
“One dollar of today is worth more than one dollar of tomorrow”
2. Sensitivity Analysis • To understand the impact of the full range of possible outcomes for the uncertain factors (causes uncertain cash flows) • To answer “what if” questions by calculating the change in NPV corresponding to a change in the factors included in the model Internal Factors Development expense investigation cost development cost Development speed investigation time development time Production cost Product performance
PRODUCT DEVELOPMENT PROJECT
Net Present Value
External Factors Product price Sales volume Competitive environment
3. Understand Project Trade-Offs • Understand the relative magnitude of the financial interactions Development Time
Product Cost
Product Performance
Development Cost
Six potential interactions between internally driven factors
• What is the cost of one month delay in development time? • What is the cost of a 10% development budget overrun? • What is the cost of a $1 per unit increase in manufacturing cost? • Etc… Case printer CI-700, need to wait drivers for Windows and Mac that would delay product intro by two months (approx. cost ~ $960,000). Intro the product with available drivers.
• Limitation of quantitative analysis: – Only focus on measurable quantities – Depends on validity o assumptions and data – Bureaucracy reduces productivity
4. Consider the Qualitative Factors • Many factors difficult to quantify • Projects interact with the firm, the market, and the macro environment project firm market Macro environment
Project profit
project
= Firm profit
firm Two key interactions between PROJECT and FIRM: Externalities :benefit imposed on one part of the firm by the actions of a second e.g.: development learning on one project may benefit other current or future project such as UMTS project PTT Telecom, and Iridium project Motorola Strategic fit :decisions of the development team must be consistent with the firm’s overall product plan e.g.: how well does a proposed new product, technology, or feature fit with the firm’s resources and objectives?
The market is impacted by the actions not only the development team but also three other groups.
project market IT AFFECTS PRODUCT PRICE & VOLUME
COMPETITORS may provide products in direct competition or products which compete indirectly substitutes CUSTOMERS’ expectations, incomes, or tastes may change. Change may be independent or may be driven by new conditions in the markets for complementary or substitute products SUPPLIERS of inputs to the new product are subject to their own market’s competitive pressures. These pressures may indirectly through the value chain, impact new product
Take into account key macro factors: project macro
MAJOR ECONOMIC SHIFTS which impact the value of development projects are changes in foreign exchange rates, materials prices, or labor costs GOVT REGULATIONS can destroy product development opportunity. It can also spawn entire new industries SOCIAL TRENDS such as increased environmental awareness can also destroy existing industries or create new ones
Qualitative Analysis • Consider the interactions: – The project and the firm – The project and the market – The project and the macro environment
• Consider the interaction above with the quantitative analysis • Determine the most appropriate development speed, - expense, manufacturing costs, and product performance
Decrease in the price of a substitute product
Increase competition in a complementary product market
The ‘option’ value of creating a good platform product
NPV • Interest rate r • Amount invested C • Time period (could be a month, a quarter, or a year long) Example: Case 1 Pak Komeng menyimpan uang $100 di bank untuk satu waktu periode dengan bunga 8% (interest rate). Maka uang yang akan didapat pada periode berikutnya adalah: (1+r) x C = (1+0.08) x 100 = $108 Case 2 Jika pak Komeng setelah satu waktu periode mendapatkan $100, maka uang yang harus di investasikan di bank berapa? (dengan bunga 8% - discount rate): (1+r) x C’ = 100 C’ = $92.59
NPV Case 3 Pak Komeng menyimpan uang $100 di bank untuk tiga waktu periode dengan bunga 8% (interest rate). Maka uang yang akan didapat adalah: 1 time period (1+r) x C = (1+0.08) x 100 = $108 2 time periods (1+r) x (1+r) x C = (1+0.08)2 x 100 = $116.64 3 time periods (1+r) x (1+r) x (1+r) x C = (1+0.08)3 x 100 = $125.97 Case 4 Jika pak Komeng setelah menyebar investasinya beberapa waktu periode dan mendapatkan $100, maka uang yang harus di investasikan di bank berapa? (dengan bunga 8% - discount rate): (1+r) x C’ = 100 C’ = $92.59 (untuk 1 time period) (1+r) x (1+r) x C’ = 100 C’ = $85.7 (untuk 2 time periods) (1+r) x (1+r) x (1+r) x C’ = 100 C’ = $79.38 (untuk 3 time periods) formula: PV = _C__ (1+r)t NPV is the PV of all cash inflows and cash outflows. Good Investment is that the NPV must be positive / earns more than opportunity cost of capital
Sunk Costs Contoh: sebuah perusahaan telah investasi $600 juta dan 9 tahun tanpa sebuah produk yang dapat dipasarkan (sunk cost). Tim pengembang produk meminta tambahan dana $90 juta. Apa yang akan anda lakukan? Yang terpenting disini adalah berapa profit yang bisa didapat dengan investasi tambahan tersebut. Scenario I Additional amount invested 0 Profits from product sales 0_ NPV decision 0 Total invested -600 Total project return -600
Scenario II -90 350 260 -690 -340
Pada scenario II NPVnya positif, jadi layak untuk diteruskan (investasi tambahan $90 juta.
Analisis skenario dilakukan apabila ada hal-hal yang akan terjadi dengan beberapa kemungkinan keputusan. Patent allowed PVa = $6,500,000 Launch Product Patent not allowed PVb = $1,500,000
Launch Product With High Market Risk PVi = $2,000,000
Market Testing
Patent allowed PVa = $6,500,000
PVi = $1,000,000 Patent not allowed PVb = $1,500,000
