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Endius Case: Developing a Product

Use the case (Endius Inc.: Alternatives for Developing a New Medical Device by Julie H. Hertenstein; Marjorie B. Platt) to address these questions:

1. Assume that Tom Davison is willing to loan Endius the cash to cover the initial product development costs regardless of whether Endius chooses in-house development or outsourced product development with Product Genesis Inc. Contrast the cost to Endius of accepting the Product Genesis proposal with the cost of developing the steerable forceps in-house. For the in-house alternative, what would it cost if it takes eight months to develop the product? 10 months? 14 months?

2. Evaluate the two alternatives. What are the strengths and weaknesses of each?

3. If you were Tom Davison, what would you do? Why?

4. If you were in Tom Davison's position, but you did not know executives at Product Genesis and they did not know you, how, if at all, would that change the situation? Your decision?

Solution Preview

Please see the attachment for formatted tables.

Answer 1
Cost Comparison

The cost of the outsourced product development with Product Genesis Inc. is $287831. The total time for the product development would be nine months (from June to February). If the product is developed in-house then the cost of the product development will be as follows. The total estimated time for the product development is taken equal to the time taken by Product Genesis Inc.
Cost element Total cost amount (in $)
Compensation to senior engineer (100000/12)*9 75000
Compensation to engineering technician (75000/12)*9 56250
Third engineer compensation 75000
Cost of space (4000*9) 36000
Equipment cost 50000
Specialized expertise (50000+75000)/2 62500
Total cost, if product development take 9 months 354750
(Endius Inc.: Alternatives for Developing a New Medical Device, 2004).

If the product is developed in-house then the total cost would be higher than the cost in accepting the proposal of Product Genesis Inc. The compensation cost is taken for 9 month as the project completion time is assumed to equal 9 months. The equipment cost and expertise cost can be reduced from the cost of product development as it would also be used in further product development programs. If this cost is eliminated from the total cost of product development in-house then it in-house cost would be $242250, which is less than the cost of Product Genesis proposal. The specialized expertise cost is taken on average of the total of minimum and maximum cost.

If total cost is considered then the proposal of Product Genesis is financially beneficial for the Endius Inc. then making it with in-house staff. On the other hand in the absence of the equipment and expertise cost the in-house option is the best alternative for the company.

Cost of in-house alternative if it takes 8 months to develop the product -:
Cost element Total cost amount (in $)
Compensation to senior engineer (100000/12)*8 66670
Compensation to engineering technician (75000/12)*8 50000
Third engineer compensation 75000
Cost of space (4000*8) 32000
Equipment cost 50000
Specialized expertise (50000+75000)/2 62500
Total cost, if product development take 8 months 336170
Cost of in-house alternative if it takes 10 months to develop the product -:
Cost element Total cost amount (in $)
Compensation to senior engineer (100000/12)*10 83340
Compensation to engineering technician (75000/12)*10 62500
Third engineer compensation 75000
Cost of space (4000*10) 40000
Equipment cost 50000
Specialized expertise (50000+75000)/2 62500
Total cost, if product development take 10 months 373340
Cost of in-house alternative if it takes 14 months to develop the product -:
Cost element Total cost amount (in $)
Compensation to senior engineer (100000/12)*14 116670
Compensation to ...

Solution Summary

The Solution addresses the four questions from the "Endius Inc.: Alternatives for Developing a New Medical Device" case, evaluating the alternatives and their weaknesses, and providing an analysis of the best action to take.

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