Brilux: The Fot-320 Decision

BRILUX: THE FOT-320 DECISION

Memorandum

To: Claude Boucher

Director of Research and Development

From: Brilux Management Science Team

Subj: FOT-320 Development Decision

Introduction

The fastest form of data transfer available is achieved through optical applications as they can carry information in the form of light, and light travels at enormous speeds. Over the years it has become apparent that fiber optical transport will be the new standard in data transfer networks as it outperforms traditional products in all main characteristics such as speed, maintenance, bandwidth and the likes.

Brilux is a company providing high-speed data networking equipment for cable companies and other multi-service operators in the telecommunications industry. It is a leading company in the sense that it is valued highly for its advancements in data networking products and the reliability of those products.

The number one product of Brilux is ARTAN, an optical data service platform. The company has recently been looking into the development of a complementary product for fiber optic transport, named FOT-320. The research in fiber optics was prompted by customers who stated that combining ARTAN with a product like FOT-320 would be valuable for Brilux as it would increase the attractiveness of their product range.

Innovation is a key factor in successful dealings in a commerce as volatile as the high-end technological industry. Any developments that allow for increased income are as welcome as in any business, especially if they can be used in addition to other products already sold by the manufacturing company.

The particular case we were instructed to look into has all the makings of a successful market opportunity at a first glance. However, it is necessary to consider a number of uncertainties in making any decision, especially one that has the potential to influence the resources of the company as much as this one. We will provide some description of relevant issues in this matter and how they were dealt with. The basis of the analysis will revolve around the issue of developing FOT-320 by forecasting its potential results.

Problem Statement

As we have mentioned, FOT-320 looks very promising particularly because of the direct customer suggestions towards the development of such a product. There are some nuances to be made of course, and we will mention these constraints and issues to be considered in this section.

From a technical point of view Brilux has no substantial problems in developing FOT-320. There are mechanical and design engineers available, with the necessary knowledge in the type of applications required.

The first real issue for the company lies in the financial aspect of the development. Not that Brilux is doing bad, far from it, but the investment needed for completion of FOT-320 is significant in terms of monetary, physical and human resources. We already stated that the industry Brilux operates in is highly subject to changes in technology that follow each other at a rapid pace. Thus putting significant resources towards any project should be carefully considered.

Furthermore, developing a high-end technological product is not quite that straightforward. Theory put into practice usually provides insights in problems that arise when actually manufacturing the product. Therefore a tiered plan was designed for the development of FOT-320.

To understand the stages of the plan, we must look at the concept of the product. FOT-320 would consist of a main cabinet with removable cards providing the support for target applications. These cards provide the actual functional possibilities of FOT-320.

Phase 1 in the development would be the main cabinet and a first set of cards, due to the limited amount of engineers available. Phase 2 would then be the development of the second set of cards. Both components will be subjected to 3 separate stages consisting of a prototype, a small production run and an actual commercialization.

The specific problem arising in the development is the uncertainty of the costs as the specification of FOT-320 is incomplete. Each one of the stages has to be completed in order to advance to the next stage and we have figures available for the range of fluctuation in each of the cost figures. Linked to the changes in development costs are the reactions of the consumers which will be considered in the decision to move to the next stage or not.

Considering the number of stages and sizeable possible fluctuations in the development costs of those stages of the product is however not sufficient to make any sort of recommendation for FOT-320.

After the development of the product it needs to be marketed and sold. The specific suggestion of consumers towards initializing FOT-320 as an add-on to ARTAN makes for a very specific market view: FOT-320 would mainly be sold as a complementary product to ARTAN. The marketability of FOT-320 therefore is linked to ARTAN sales; a part of the market for ARTAN would be the market for FOT-320. The numbers influencing these decisions can also be found in the technical appendix.

The focus for developing and marketing is the cost attached to FOT-320, which is substantial and subject to uncertainty in all stages of the process. The final decision will have to be taken by benchmarking the return on investment projected by the FOT-320 forecast with other projects Brilux could devote resources to. A return on investment of more than 10% after tax is the objective.

Method

The large number of uncertainties in the analysis and the need to cautiously consider the input of resources led the management science team to the use of simulation to forecast the outcomes under the restrictions - all of which can be found in the technical appendix.

Basically the simulation we applied is an approximation of the real life situation which gives us values for the inputs under their restrictions. We simulate possibilities over and over and look at the average results in order to get an idea of what the outcome of the model is.

For technical details we refer to the appendix, but we will give a brief overview of some of the main characteristics of the model.

Cost estimates have been assigned to each one of the development