Simulation on Offshoring

Labor costs are not the only relevant costs. You also ask each of your key advisors about how the costs of facilities compare. Here's what they had to say: Business consultant: "Just as labor costs are lower in Baltonia, so are real estate costs. Overall, the price is about one-fifth what it would be in Genovia: $15 per square foot in Baltonia vs. $80 per square foot in Genovia. Now, I should admit that we'll want our facilities to be better built than the typical building in Baltonia, which will probably raise the cost to about $30 per square foot. We'll also have to pay for things that aren't necessary in Genovia, like extra security and a powerful backup generator. These additional items will add another 20% to facilities costs. Even considering this, you'll still come out ahead if you make the move." Director of Software Quality Assurance: "New construction is expensive in Genovia, but our facilities are already built. We own the land and the buildings. Even better, the Genovian government is likely to give us tax breaks if we stay. Other companies in similar situations have had their real estate taxes lowered by 25% or more. Also, keep in mind the risks of building a new facility. What if it's late, as new construction tends to be?" Based on the information the advisors have provided, which of the following options best expresses the difference between facility costs in Genovia and Baltonia?

(??) It is too difficult to determine which of the countries is likely to have higher facilities costs.

Based on the information you gathered, which of the following options best expresses the difference between software QA labor costs in Genovia and Baltonia?

(??) baltonian labor costs are lower now, but they will likely reach genovian levels within a few years.

You need to learn more about the real difference in labor costs, so you talk to both of your advisors. Here's what they had to say: Business consultant: "I'm glad you asked. Labor costs in Baltonia are much lower than they are in Genovia. The per capita income here is about $1,500. In Genovia, per capita income is closer to $40,000. That's over 25 times as much! Think of the money the company could save by moving to Baltonia." Director of Software Quality Assurance: "Labor costs are definitely higher here in Genovia. But you need to consider all the costs of the operation, not just labor costs. Also, keep in mind that although Genovia is much more expensive now, Baltonia is growing economically. Baltonian GDP is expected to rise by 10 percent or more every year for a long time. Within a few decades, Baltonians will demand just as much in wages as Genovians." What would be the most appropriate follow-up question?

(??) how many people are employed in the software qa function in Genovia as opposed to the projected number of employees in baltonia

You recommend splitting the software QA function between Genovia and Baltonia.

(??1/5) Baltonia has lower labor costs. New genovian facilities need to be built and require cossts that baltonian facilities do not.

You have decided to learn more about the talent pools in Genovia and Baltonia. Which of the following questions will you investigate?

(??1/5) How many people in genovia and baltonia have previous work experience with our company? How many people with relevant work experience and skills live in baltonia and genovia? Is baltonia making progress in improving literacy rates in all sectors of its population?

You recommend splitting the software QA function between Genovia and Baltonia. How should the work be divided between them?

(??1/5) baltonia should receive one half of th eQA projects and genovia should receive the other half.

Although some the software QA employees could work remotely, Holden-Evan expects the majority of software employees to work out of central offices. For this reason, you have decided to ask your advisors about the talent pools in Genovia and Baltonia. Business consultant: "People start looking at Baltonia because of price advantages, but they stay there because of our people. Baltonian culture is highly supportive of education. Students who get top scores in exams get their pictures in the newspaper here. Although it is true that much of the country is working towards improving basic literacy, the large cities have very well-educated populations, and the competition for those outstanding individuals is less intense than it is in Genovia. We can get the best of the best." Director of Software Quality Assurance: "Genovians are among the best-educated people in the world. While Baltonia is struggling with literacy rates, Genovia has world-renowned universities and a highly sophisticated workforce. Don't take talent for granted. If we move operations to Baltonia, we will be struggling to find people half as good as the ones we already have." Do you have enough information to draw a conclusion about the talent pools in each country?

No, more investigation is required to draw a reliable conclusion.

Select two arguments that would best support your recommendation to retain some of the QA operations in Genovia

The talent pool for workers is stronger in Genovia. It is less risky to stick with an existing operation.

Moving a large operation to another country is a complex challenge. You ask each of your key advisors about the costs of transitioning the software QA function to Baltonia. Here's what they had to say: Business consultant: "It's good that you're asking this question, because this is a real issue. Rest assured that we won't try to transition this function to Baltonia overnight. We'll build this piece by piece, and in the end, we'll be able to keep everything that was good about the Genovian operation and fix what didn't work in Genovia. That operation was functional, but it isn't perfect, and we can do better." Director of Software Quality Assurance: "Well, obviously I have a bit of a bias on this, but we really need to consider the risks. Right now, we have an operation that works. If we move it, the transition won't be seamless, and if quality drops, the money we save on QA will be nothing compared to the money we lose after we produce buggy software. The safer decision is to stay." You need to learn more about transition costs. Which of the following is the best question to ask?

(??1/5) would the transition costs be higher or lower if a different function were under discussion?

Based on the information you were provided, which of the options is the most accurate statement with respect to the possible transition of the software QA function to Baltonia?

Moving to Baltonia involves greater risks but also potentially greater rewards.

You still are not sure whether the Baltonians are likely to perform as well as the Genovians when it comes to the software QA function. You have decided to run some tests to see how the Baltonians do on actual work. Which of the following would be the most effective way to perform the test?

Open a small, temporary office in Baltonia; hire software QA staff; and evaluate the kinds of errors, if any, that exist after their review.

You meet with the Director of Software Quality Assurance of Holden-Evan. He says: "It's a pleasure to meet you. Look, I know that the company is seriously considering closing down the facilities here, and that would obviously affect me personally. But you have my word that I'll give you my honest opinion to help you make a good decision. If you keep an open mind and consider all the relevant factors, I'm sure you'll agree that we would be better off keeping our operations in Genovia." You thank him for his honesty, and then think about what you want to ask him first. What would be the most relevant information to know at this time?

What is software quality assurance, and what are the key factors to doing it well?

You meet the business consultant to discuss the pros and cons of moving Holden-Evan's QA functions to Baltonia. She says: "Thanks so much for taking an interest in Baltonia. Of course, I would like to see the company move operations to Baltonia, but I won't let my feelings get in the way of my job, which is to help you sort through the different issues involved in this decision. The team in Baltonia is committed to making this work, and if you choose to make the move, I promise you that you will not be disappointed." The business consultant knows a great deal about the constraints on this decision. What would you want to know about what's possible?

Would Holden-Evan consider moving part of the QA function to Baltonia and leaving part of it in Genovia?