Whirlpool Europe Case

The Whirlpool Europe case provides an opportunity to look at different ways to evaluate a major IT investment the company is considering. To undertake this analysis we have to make a few assumptions because the case does not have all the details needed to estimate benefits and investment cost. However, if you were in a company faced with this situation, these numbers would be available.

The spreadsheet for Whirlpool contains two worksheets. Worksheet 1 is a net present value analysis, and worksheet 2 applies an options pricing model to the decision.

Be sure to save a copy of the spreadsheet when you download it because most of the questions refer back to the original spreadsheet, which you will often change in a preceding question.

NPV Analysis (Worksheet 1)

The NPV analysis follows the scenario in the case: the company invests for a series of years, and implements in the West, South Central and North regions in that order. The spreadsheet has been designed with the first analysis showing the summary of investment costs and anticipated benefits for the six year time horizon in the case. The spreadsheet calculates the net present value of each year's benefits and costs, and subtracts the NPV of costs from benefits. The table just below this analysis contains variables that you can change to test the sensitivity of the analysis. The rest of the spreadsheet presents the details of the assumptions and calculations to arrive at the yearly costs and benefits.

Options Pricing Analysis (Worksheet 2)

The options pricing analysis applies real options theory to the evaluation of an IT project. Suppose that SAP, sensing some hesitation on Whirlpool's part, makes the following offer. Instead of committing to the SAP project in total, SAP proposes to management that Whirlpool implement 6 to 8 modules of the entire system