Data Services, Inc.Huynh Thanh Phong – M987Z242Nguyen Thi Thanh Nhan – M987Z232Hoang Thi Ngoc Huyen – M987Z239

COMPANY BACKGROUNDArmistead Insurance CompanyA large company by industry standards.

Had experienced substantial growth over the past 20 years

One of the first companies to automate its operations.

By 1990, it was operating two large, leased IBM computer. These computer usually

operated close to capacity for two shifts, but the company had never been successful

at getting its managers to schedule work for the third shift->a large block of largely

idle time. Data services

Provides data processing services designed especially for the fast-food

industry, provide a comprehensive analytical service to those

companies in the very competitive fast-food industry that could not

afford to perform the function for themselves.

would find profitable uses for this third-shift computer time without interfering with the processing of normal operation.

CURRENT DATA SERVICES PERFORMANCE Sales Innitial installation of services

Various data summariesContinuing operationsRevenue from the sale of paper forms to customers

Competitor it was generally agreed that Data services faced only one competitor

A subsidiary of the nation’s largest fast-food chain had been established several years previously to provide computer services to its

own outlets.

It had standardized its operations and had degun marketing its service to other fast-

food chains in 1980

In 1993, sales: were about 3 times as great as sales of Data services.

The rate charged: were comparable to the rates charged by Data services.

SALES AND MARKETINGSales• Data services ‘s top managers and their staffs performed Sales duties in addition

to handling their general-management responsibilities.• They had recruited the 14 new customers acquired during the past fiscal year,• They had no established procedures for soliciting customers.• The managers spent a majority of their time visiting prospective buyers (average:

3 visits to a customer before one cooperation, spent 75% of working times on the selling function)

• After a sale was made, on average an agent spent approximately 1 day each month with a new customer during the three months of the system implementation.

• Occasionally: the system would have to be modified to meet the needs of a new customer.

Fee: Data services was charge for their use of times of the corporate units A one-time charge per shift-reporting unit was made to each new customer

in addition to the regular monthly rate -> this fee partially offset the costs of installation incurred by Data Services.

SALES AND MARKETING

Marketing

• Policy: grant volume discount to new customers

based on the number of shift-reporting units in the

customer’s systems

• In practice: the discounts were not applied uniformly.

They were not updated to confirm changes in the

number of shift-reporting units per customer

OPERATION• Process: The company received sales and operations data from its

restaurant customers enter that data into its files.

processed data, making calculations of

averages and trends.

the reports, usually issued monthly

gave customer managers information

about their labor and material costs and identified trends in these cost.

analyze the historical performance of any shift

at any location, compare shifts within the company, and compare the

company performance relative to the overall fast-food industry.

OPERATION• As monthly data were received from customers, the data were keypunched and fed into

the computer. The file were updated, and reports were run.

• Data control use a continuous process of manual of documents to detect any recording

errors or computer malfunctions. Programmer continually performed program

maintenance to fine-tune the system and to assure a smooth flow of information to all

customers.

• The service agents, in addition, periodically visited all customers and performed a

supervisory and trouble-shooting function.

• Each regular customer was visited about once a month.

• For some special report that customer would ask occasionally, data services was happy to

apply and then, were billed on a cost basis for those supplies.

Table 1: Results of Operations for the Year Ending Sep. 30, 1993 (in thousands of dollars)

Sales : 　 　 　　 Sales and installation 800 　　 Data 320 　　 Continuing operations 6.400 　　 Forms 480 8.000 Expenses : 　 　 　　 Data entry 2.000 　　 Service agents 1.000 　　 Selling and general management 1.800 　　 Computer 2.000 　　 Travel 1.200 　　 Data control 600 　　 Programming 520 　　 Forms 400 　　 Data 400 　

　General and administrative, including postage and communications 480 　

　 Rent, depcreciation of office equipment 360 10.760 Profit ( loss)　 　 (2.760)

Distribution of Expenses

• Service Agents– Continuing Operations

• Ave. Number of customers over year = 32 +(1/2 x14) =39• 39 customers x 12 visits = 468 visits

– Installation• 14 new customers x 3 visits = 42 visits

– Total visits = 468 + 42 = 510 visits– $1,000,000/510 visits = $1,961 per visitTo continuing operations: 468 x $1,961 = $920,000To sales and installation: 50 x 42 = $80,000

Distribution of Expenses

• Selling and general management– 75% of management and staff time x$1,800,000 = $1,350,000

$1,350,000 to sales and installation$450,000 not allocated

Distribution of Expenses• Travel

– Management (Selling)

– Service agents (installation)14 customers x 3 visits = 42 visits

– Service agents (continuing operations)39 customers x 12 visits = 468 visits

– Total = 294 + 42 + 468 = 804 visits– Expense per visit: $1,200,000/804 = $1,493– To continuing operations: 468 X 1,439 = $ 700,000– To sales and installation: 1,200,000 – 700,000 = $ 500,000

Table 2: Analysis of Revenue and Expenses (in thousands of dollars)

ItemsExpenses

not allocated

Data Forms Sales & installation

Continuing operations

Varies with of customer

Varies with of shifts Total

Sales 　 　 $320 $480 $800 　 　 $6.400 Expenses : 　 　 　 　 　 　 　 　　 Data entry 　 　 　 $400 　 　 　　 Service agents 　 　 　 $80 　 $1.600 $1.600 　 Selling and general management $450 　 　 $1.350 $920 　 $920 　 Computer $1.600 　 　 　 　 $400 $400 　 Travel 　 　 　 $500 $700 　 $700 　 Data control 　 　 　 $200 　 $400 $400 　 Programming 　 　 　 $120 　 $400 $400 　 Data 　 $400 　 　 　 　 　　 Forms 　 　 $400 　 　 　 　　 General and administrative 　 　 　 $80 $400 　 $400 　 Rent & depcreciation $360 $400 　 $2.730 2020 $2.800 4820Profit ( loss) 　 $2.410 ($80) $80 ($1.930)　 　 $1.580

Total Profit (Loss) (2,760)

Table 3: Keep or Drop Decision(in thousands of dollars)

Items Keep Drop　 Incremental

Sales 　 8.000 0 0 (8.000)Expense 　 　 　 　 　　 Data entry 2.000 　 0 　 (2.000)　 Service Agents 1.000 　 0 　 (1.000)　 Sell and general management 1.800 　 0 　 (1.800)　 Computer 2.000 　 1.600 　 (400)　 Travel 1.200 　 0 　 (1.200)　 Data control 600 　 0 　 (600)　 Programming 520 　 0 　 (520)　 Forms 400 　 0 　 (400)　 Data 400 　 0 　 (400)　 General and Admin 480 　 0 　 (480)　 Rent & depreciation 360 10.760 360 1.960 (8.800)Profit (loss) 　 (2.760) 　 (1.960) 800

If Data Services Inc. stops its operation, the company loss will decrease by $ 800,000

• If Data Services Inc. stops its operation, the company loss will decrease by $ 800,000

• However, We also consider other alternatives for its operation. When we analyzed the expenses, we saw that the amount of expenses for continuing operations is large and can be reduced. So we suggest 3 alternatives on the reduction of this sort of expenses.

Table 4: Distribution of Expenses with 3 New Alternatives of Continuing Operations

Items 1 month/ visit 1.5 months/visit 2 months/visit 3 months/visit

Visits/ year 　 12 8 6 4

Service agent Continuing Operation $ 920,000 $ 611,830 $ 458,870 $305,920

　 Sales and installation $ 80,000 $ 80,00 $ 80,00 $ 80,00

　 Total $ 1,000,000 $ 691,830 $ 538,870 $ 385,920

Travel Continuing Operation $ 700,000 $ 465,82 $ 349,36 $ 232,91

　 Sales and installation $ 500,000 $ 500,000 $ 500,000 $ 500,000

　 Total $ 1,200,000 $ 965,820 $ 849,360 $ 732,910

Table 5: Profit (Loss) Calculation Including 3 New Alternatives of Continuing Operations

(in thousands of Dollars)

Items Keep Drop

1.5 months/

visit

2 months/visit 3 months/

visit

Sales 　 8.000 0 8.000 8.000 8.000 Expense Data entry 2.000 0 2.000 2.000 2.000 　 Service Agents 1.000 0 1.000 1.000 1.000 　 Sell and general management 1.800 0 692 539 386 　 Computer 2.000 1.600 2.000 2.000 2.000 　 Travel 1.200 0 966 849 733 　 Data control 600 0 600 600 600 　 Programming 520 0 520 520 520 　 Forms 400 0 400 400 400 　 Data 400 0 400 400 400 　 General and Admin 480 0 480 480 480 　 Rent & depreciation 360 360 360 360 360

Profit (loss) 　 (2.760) 　(1.960) (1.418) (1.148) (879)

Recommendations

• It is common for a new established company not to get profit in some early years from its operations.

• The drop decision of any company’s operation depends on many factors, especially company long –term strategies. In this case, we do not have enough data to suggest that the company should stop its operation.

Recommendations• We prefer the alternative of reducing the

expenses of continuing operations to operation dropping alternative because it reduces more the loss of Data Service Inc. However, the company should do further investigation on how much expenses of continuing operations it reduce to be efficient,

• Moreover, to improve its performance, it should strictly set up policies on the service fee and discount to easily control sales staff and calculate and forecast revenue.

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