Technical and financial feasibility study for a video conferencing network for ITW Signode India Ltd.

Abstract

In 1994, ITW Signode India Ltd, had a sales turnover of 112 Crores leading to a profit after tax of 7.8 Crores. At this scale Travel and conveyance cost of the company stood at 4.5 Crores and communication expenses came to around 1.5 crores. Both these expense heads added together form more than 75% of PAT. A 10% cut in these expenses will boost the PAT by more than 7.5%. Video Conferencing (VC) if implemented will cost 5 Lakhs per site (fixed cost) in equipment cost and approximately 9 lakhs per site per year(recurring cost) in link costs (VC will need special high speed links running at 64 Kbps). The above costs are costs of a working link. The proposed 64 Kbps will not be used for 24 hrs on VC alone, so this link will partially take up the STD and FAX traffic to the four metros and the surrounding areas. Past year analysis of travel, conveyance and communication expenses of the company yield that this network in operation will cut these cost heads by 50-60% thus saving the company 2 to 3 crores. Any increase in traffic will not increase these costs as_ the costs are rental costs, irrespective of traffic. The network can be suitably extended at a future date to reach remote customer sites. If the VC is implemented at 5 sites, it will cost 70 lakhs plus some communication equipment costing 10 Lakhs thus Capital investment in this will be around 80 Lakhs while saving 2 crores annually. 45 lakhs is the recurring cost component of 80 lakhs investment. Financially, the link will payback the entire amount within a year. Couple it with a 100 crore cost head in year 2000 for travel, Conveyance and communication and the benefits are apparently visible. ITW corporate executives travel on an average 5000 days thus a loss of 5000 man days is relevant. If converted into monetary terms this manpower costs come to around 40 lakhs. Alternatively speaking, company is paying 40 lakhs annually, to the corporate executives to travel.