Pan Europa FoodsAnalysis

Robbi Palacios

Wendell Salcedo

Subject: Project Management Regis ProgramSubmitted to: Rene D. Aguila

Question 1

a. Strategically, what must Pan-Europa do to keep from becoming the victim of a

hostile takeover?

Answer: Pan Europa should not decrease the dividends of the shareholders to not

devalue the stock price of the company. Instead should just decrease capital spending

as what they board of directors have decided. In short, they should adopt strategies that

should increase stock price not push it down to discourage buyout.

b. What rows categories in Exhibit 2 will thus become critically important in 1993?

What should Pan-Europa do now that they have won the price war?

Answer: As suggested by their bank they should reduce their debt due to the high debt

to equity ratio incurred during the price wars and use their competitive market reach to

attain this.

c. Who should lead the way for Pan-Europa?

Answer: Humboldt and Morin should be leading the charge on this strategy since these

folks are the ones initiating the innovative changes in the company.

Question 2:

a. Using NPV, conduct a straight financial analysis of the investment alternatives

and rank the projects. Which NPV of the three should be used?

Due to the duration of the project it would be wise to use the Annuity instead since it

corrects discrepancies project durations unlike the NPV. Using this analysis the

preferred project would be 11, the Strategic Acquisition. Then following in order would

be:

Eastward Expansion

Snack Foods

Southward Expansion

Inventory Control System

Artificial Sweeteners

New Plant

Expanded Plant

Automation and Conveyor System

Expand Truck Fleet

Effluent Treatment Program (which has no NPV)

While the Effluent Treatment Program has no formal NPV it can be considered an

investment of 4M now to save a cost of 10M in 4 years.

Question 3

a. What aspects of the projects might invalidate the ranking you just derived?

There are many aspects that could invalidate the simple NPV analysis of the projects. They include

Risk Political considerations Regulatory issues including health, safety and environmental Incompatibility with corporate strategy Resource availability

b. How should we correct for each investment’s time value of money, unequal lifetimes, riskiness, and size?

Different analysis techniques and different assumptions can be used to correct for the various factors that affect each project differently. For example:

The time value of money reliable measures are discounting methods such as NPV or IRR.

Unequal lifetimes of the projects are solved using Equivalent Annuities.

Risk can be dealt with by increasing the hurdle rate.

Different project sizes can be can be measured by multiplying the NPV by the ratio of the size of the projects or by using a profitability ratio.

Question 4 Reconsider the projects in terms of:

a. Are any “must do” projects of the nonnumeric type?

The Effluent project is a must do project. The Automation and Conveyor Systems might be a must do since it is a health hazzard to employees. These impose both safety and environmental issues.

b. What elements of the projects might imply greater or lesser riskiness?

Answer: Projects that involve small technology changes like expanding the truck fleet would have low risk. Increasing levels of technological sophistication such as automation or introducing artificial sweeteners into products would also increase implementation risks. Another risk area for any producer in a capitalist environment is attempting to increase markets with new products in new areas. The prospective customers may simply choose to not buy the product. Other elements of risk include project size, complexity and length of the period of return.

c. Might there be any synergies or conflicts between the projects?

Answer:There are real synergies between the plant expansion/additions, automation, truck upgrade and the geographic expansion projects.

d. Do any of the projects have nonquantitative benefi ts or costs that should be considered in an evaluation?

Answer: Projects that have nonquantitative costs and benefits would include:

Projects that impact the company’s regulator compliance such as effluent treatment (environment) and warehouse automation (safety).

Several of the projects could impact the company’s image. For example, the snack food rollout could be positive because of its wholesome connotations while the acquisition of the schnapps brand could be negative. The effluent project could be positive by showing the company’s willingness to act on environmental concerns early. Similarly the automation project could be cast a positive step towards increased safety. The plant expansion project may be positive or

negative depending on whether the community reacts to new jobs or factory encroachment.

Question 5

Considering all the above, what screens/factors might you suggest to narrow down the set of most desirable projects?

1) I would recommend four screens be applied using the following factors:

Does the project incurr a high cost?

Exceeds Tolerable Cost Value

Is the project a “Mandatory”?

Options – Yes/No

Does the project meet minimum IRR?

Options –Ok/Not Ok

Does the project meet maximum payback period?

Options –Ok/Not Ok

Does the project incur high risk?

Options –Ok/Not Ok

Does the project meet the current corporate strategy?

Options –Ok/Not Ok

What criteria would you use to evaluate the projects on these various factors?

2) Using these screens and criteria the following projects would be eliminated outright:

Truck Fleet (1) because it does not meet the minimum IRR and exceeds the maximum payback period dictated by company policy.

New Plant (2), Plant Expansion (3), Artificial Sweetener (4) and Plant Automation (5) all because they exceed the maximum payback period dictated by company policy.

Strategic Acquisition (11) and Artificial Sweetener (4) would both be eliminated due to excessive risk.

Strategic Acquisition (11) would also be eliminated because it does not match the current strategy

Strategic Acquisition(11) eliminated due to high cost.

Question 6: Divide the projects into the four Project Profi le Process categories of incremental, platform, breakthrough, and R&D. Draw an aggregate project plan and array the projects on the chart.

No Project Name Cost Aggregate1 Expland Truck Fleet 22 Platform - major departures2 New Plant 30 Platform - major departures3 Expanded Plant 10 Derivative - incremental4 Artificial Sweetner 15 R&D – long 5 Automation and Conveyor 14 Derivative – incremental (completed quickly)6 Effluent Treatment 4 Derivative – incremental (completed quickly)7 Eastward Expansion 20 Platform - major departures 8 Southward Expansion 20 Platform - major departures

10

2

1

3

5

4

6

11

9

7

8

9 Snack Foods 18 Platform - major departures10 Inventory Control 15 Breakthrough11 Strategic Acquisition 40 Platform

Derivative – Add ons or minor enhancements to existing systems. Clearly bounded and require few development resources. Completed quickly.Platform - Cros between derivative and breakthrough. More technology change than derivative but not completely new,untried systems like breakthrough. Fundmanetal improvements over range of performance dimensions(Speed, functionality, reliability, etc) rather than just one or two. Designed for future expansion.Breakthrough Projects – Signficant changes to both technology and business processes. Establish new core systems that fundamentalyy from previous. Large degree of change in many functional areas. Require large resources allocation and heavy management involvement.R&D Proejcts – Takes the longes time to finish.

Question 7: Based on all the above, which projects should the management committee recommend to the Board of Directors?

The following projects should be recommended based on table below.

1. Effluent Treatment2. Eastward Expansion3. Southward Expansion4. Snack Foods5. Inventory Control

No Project Name ClassificationCost

Mandatory IRR

Payback Risk

Strategy

Investment

1 Expland Truck FleetEfficiency and Expansion 22 No

Not Ok - 7.8% Not Ok Ok Ok

2 New Plant Market Extension 30 No Ok - 11.3% Not Ok Ok Ok

3 Expanded Plant Market Extension 10 No Ok - 11.2% Not Ok Ok Ok

4 Artificial Sweetner New Product Category 15 No Ok - 17.3% Not OkNot Ok Ok

5Automation and Conveyor Efficiency 14 No Ok - 8.7% Not Ok Ok Ok

6 Effluent Treatment Environmental 4 Yes n/a n/a n/a n/a 4

7 Eastward Expansion New Market 20 No Ok - 21.4% Ok Ok Ok 20

8 Southward Expansion New Market 20 No Ok - 18.8% Ok Ok Ok 20

9 Snack Foods New Product Category 18 No Ok - 20.5% Ok Ok Ok 18

10 Inventory Control Efficiency 15 No Ok - 16.2% Ok Ok Ok 15

11 Strategic Acquisition New Product Category 40 No Ok -28.7% OkNot Ok Not Ok

Total Cost 77