Introduction:
JDA Consulting performs research and an ROI analysis in order to evaluate a proposed web portal for B&K Distributors.

Specifically, research reveals the following benefits of implementing an Internet portal: - Increased penetration of customer base - Enhanced customer order frequency - Increased average order size - Reduction in transaction cost per order
The forecasted ROI (calculated in our Excel worksheet) would help determine whether the web portal project is approved.

Excel Spreadsheet:
The ROI Analysis concluded an Internal Rate of Return (IRR) of 40.61%. This demonstrates a good return on investment, but to truly analyze the project a sensitivity analysis is also needed.

The high IRR from the analysis hinges on optimistic projections of increasing market penetration and a steady growth in average order size. The key driver of the ROI analysis was the market penetration assumption. The allocation of Upfront vs. Ongoing Costs would also affect the IRR value. Finally, the decision horizon also plays an important role in the sensitivity of the IRR, since some of the benefits are long-run benefits. If any of these factors are adjusted, the IRR could become unacceptable.

Analysis: • B&K Distributors was a $100 million dollar distributor of paper and packing products based in Chicago, Illinois. • B&K signed a preferred supplier agreement with a leading fast food restaurant chain, but the company was unable to significantly penetrate the market any further. • B&K classified their customers into “A”, “B”, and “C” tiers. Getting customers to “A” or even “B” status would significantly enhance their revenue and profitability prospects. • Currently, a sales order can be received in one of three ways: by phone, fax, or mail. • On-Going support costs of the web portal: ▪ Web Hosting Costs ▪ Campaign Continuance Costs ▪ Additional Consulting Costs

- The ROI Analysis concluded an Internal Rate of Return (IRR) of 40.61%.

- The estimated ROI is most sensitive to the market penetration assumption. The estimated ROI is also sensitive to the decision horizon of short vs. long-run costs/benefits. Other assumptions that could affect the estimated ROI include the growth in average order size and allocation of ongoing costs. An example of the project generating an inadequate ROI: market penetration of 60% leads to an IRR of 3.54%.

Conclusion:
We recommend B&K to implement web portal service to create a competitive advantage and also of Information Technology there by simplifying the process at both ends with regard to the company and customer which enhances the current business process. However, considerations beyond the data are required to make a fully informed decision. Strictly considering the data in this analysis, the B&K CEO should pursue this project. The IRR at 40.61% is much higher than the cost of capital, 12%.