Management and the Technology Professional – B302

Case study answer 3

Being the software engineer I would firstly identify the possible options which I have, from which I could form the decision tree. When all possible paths have been calculated, the possibilities of each one occurring could be estimated based on the information which I have. So from this I would have the following 6 possible outcomes.

• Project started but failed 0.1
• Project started and successful 0.9
• Project successful and Microsoft acquires Yahoo 0.4
• Project successful and Yahoo stays independent 0.6
• Project cancelled and Microsoft acquires Yahoo 0.7
• Project cancelled and Yahoo stays independent 0.3

As you can see the probabilities of each path occurring has also been assigned. From these paths and probabilities the decision tree was formed plus the present, future and NPV’s calculated. From doing this I reached my decision that I would go ahead with the project and my reasons for this are now explained based on the decision tree.
Firstly you can see the probability of the project being successful is 90%. This value has been estimated as Yahoo is a well established internet based company, and their primary revenue is created from advertising. The likelihood of complete failure is minimal as such projects would have been dealt with many times in the past. Whether Microsoft acquire or Yahoo or not, the end result if the project is successful and should be beneficial. This can be seen from the NPV of both of those paths. If Microsoft was to acquire Yahoo and the project was successful, the NPV would equate to approximately £25,551, if Yahoo stayed independent and the project was successful the NPV would be approximately £53,589. Both figures being positive suggesting so either should be beneficial. The chances of Microsoft taking over Yahoo have only been estimated at 40% due to Yahoo declining the first offer, but there are still talks between the two companies which suggest it’s not over yet.

It could be said this would greatly reduce the probability of it happening all together, but if you look at the big picture Microsoft need to get into a position where a challenge can be made on the top companies such as Google hence still leading to a reasonable chance of this occurring. If a deal does take place it doesn’t look like it will happen soon, so this probability is based on present day information.

One further consideration I checked before coming to this result it the current financial state of Yahoo. For this I checked the share prices over the past 52 weeks. Obviously if Yahoo were not currently financially secure there may be more consideration of a project cancellation due to the initial outlay of £25,000 and the associated risks. The current share price is reasonably high and has been consistent over the past 52 weeks which suggests they have some stability, hence meaning they should be able to invest in the project weather Microsoft acquire them or not.

As mentioned I also analysed the possibility of cancelling the project. As you can see from the probabilities above, there would be an approximate 70% chance of the project being cancelled if Microsoft acquired Yahoo and a 30% chance of a cancellation if Yahoo stayed independent. This has been calculated based on the theory that if Microsoft acquired Yahoo, its likely major changes would be put into place essentially leading to smaller projects being held back. Alternatively if Yahoo stayed independent and cancelled, this would be considered a complete loss of revenue. If this path is analysed further, based on the 30% chance of this actually happening, the expected value (so taking into account the risk along with the probability) there is approximately a £27,000 loss.

As mentioned if Microsoft acquired Yahoo or didn’t, but the project was successful it would still be beneficial. Being the software engineer, the ideal outcome for myself would be that Microsoft does not acquire Yahoo as the charges involved are reduced. It could also reflect well on myself within the department if the project went well. This could lead onto the topic of ethics involved with this decision. Microsoft already have a large foothold on the IT industry, is it fair to help them try to wipe out competition in other areas? Should my beliefs in this effect my decision or should the greatest benefit to the company come first? I personally feel that Yahoo should continue independently as Microsoft do not need to expand to more areas - how far can they go before the service they provide becomes diluted, which could essentially lead to failure? Even though I have these opinions, I would still act in the best interests of the company as this is what is required of me within my job role. It can also be said that the initial costs to take on the project are greater than that of cancelling the project, but when cancelling there is a 30 % chance of losing all revenue compared to only a 10% chance of taking on the project and failing.

In conclusion the initial outlay is greater when taking on the project but is worth the risk compared to those of cancelling the project as shown above. As with many business ventures there has to be a certain level of risk involved, as if all outcomes were set in stone no failures would ever be seen. The estimated risk only equates to 10% when the project is taken on, which should be acceptable when a deal could bring £90, 000 revenue in a 4 month period. These reasons provide a further basis for my decision to take on the project.