case study
Issues Identified:
1) The first issue of the case is whether Harry Hepburn, the president of Southern California Division of Robinson Brothers Homes should make the projection on the specific project more optimistic or not. By making the revenue forecasts more optimistic, the most likely outcome is that the project will be undertaken and his team of employees will keep their position. Otherwise, at the current estimated return projections, the project is expected to be declined, and Harry’s team will be partially laid off in accordance with the Robinson Brothers Homes plan on cutting costs as the company faces the slowing down market and decreased profitability.
2) The second issue of the case is to evaluate what can be done to either decrease the required IRR benchmark related to this project or to increase the expected IRR of the project.
Due to decreasing margins on their recent construction projects RBH needs a project to bring their revenues and profits up for the upcoming years. RBH’s Southern California division (one of 15) and its VP Michael Borland have come up with a prospective project “The Platinum Pointe Land Deal” which has potentials to increase profits and revenues. The issue with it remains is that the project has a IRR of 21 and for a project like this Michael Borland and his division has calculated a required IRR of 24.5.
Issue Prioritization:
Both issue seem to be equally important, however it seems that IRR issue should be attempted to be resolved first: if the required IRR can be lowered without making the forecast too optimistic, Harry will not need to solve this difficult ethical dilemma at this moment.
Alternative Generation:
* Increase IRR
* Decrease required IRR (risk)
* Don’t’ change
Ethical Problem:
1. Harry submits the forecast as planned.
Consequences: project will be rejected and the division will be downsized
2. Harry makes the forecast more optimistic.
Consequences: Project gets funded and employee layoff could be
1) The first issue of the case is whether Harry Hepburn, the president of Southern California Division of Robinson Brothers Homes should make the projection on the specific project more optimistic or not. By making the revenue forecasts more optimistic, the most likely outcome is that the project will be undertaken and his team of employees will keep their position. Otherwise, at the current estimated return projections, the project is expected to be declined, and Harry’s team will be partially laid off in accordance with the Robinson Brothers Homes plan on cutting costs as the company faces the slowing down market and decreased profitability.
2) The second issue of the case is to evaluate what can be done to either decrease the required IRR benchmark related to this project or to increase the expected IRR of the project.
Due to decreasing margins on their recent construction projects RBH needs a project to bring their revenues and profits up for the upcoming years. RBH’s Southern California division (one of 15) and its VP Michael Borland have come up with a prospective project “The Platinum Pointe Land Deal” which has potentials to increase profits and revenues. The issue with it remains is that the project has a IRR of 21 and for a project like this Michael Borland and his division has calculated a required IRR of 24.5.
Issue Prioritization:
Both issue seem to be equally important, however it seems that IRR issue should be attempted to be resolved first: if the required IRR can be lowered without making the forecast too optimistic, Harry will not need to solve this difficult ethical dilemma at this moment.
Alternative Generation:
* Increase IRR
* Decrease required IRR (risk)
* Don’t’ change
Ethical Problem:
1. Harry submits the forecast as planned.
Consequences: project will be rejected and the division will be downsized
2. Harry makes the forecast more optimistic.
Consequences: Project gets funded and employee layoff could be