Data Tech

Data Tech

Strayer University

1. A smaller facility with the possibility of expansion or a larger facility

IT organizations have to analyze performance problems and correct them as reported by users. In order to avoid such problems, the firms have to conduct capacity planning. Data Tech is an Information Technology organization set to provide information services to paperless companies. In this business, there are two factors influencing the choice of size of the firm under capacity planning. The business is a new idea and it also has to expect performance problems in the future. Capacity planning is done to ensure a cost effective way of provision of satisfactory services to users. It is a long-term strategic decision that determines the level of resources that a firm would use. Capacity planning affects customer responsiveness, the ability of an organization to compete, product lead times and operating costs (TeamQuest, 2004). Too much capacity can strain a company's resources and prevent it from venturing into other investments or even expanding. Inadequate capacity, on the other hand, limits growth and can lead to loss of customers (Gupta, 2007). Data Tech is a new company. Operating on smaller facility with the possibility of expansion is a better option. Data Tech is a proposed company with an uncertain market. The target market is established, but it is still unknown if this market will respond positively to the services provided. The target market is also a small one. It targets companies who are looking to be paperless but still need the paper services. One of the reasons for having confidence in this type of business is the trend that will impact on it in the future; which is the continued growth of these kind of companies and their increasing use of technology, mainly the internet. It is important to first establish a market and make appropriate estimations before deciding to establish a larger capacity.

One of the factors to consider when starting a business is the size of the firm or the scale of operation. An appropriate size is that which the average cost per unit is least. When starting a business, the size of the firm should be optimum, considering the technique of production, availability of finance, the extent of the market, nature of the product, competence of management, and so many other factors that will be involved in the business. In the proposed business, the entrepreneur should consider if the available funds, the target market, and provision of services will ensure optimum use of the facility chosen. It is highly likely that making use of a larger facility immediately, would lead to optimum use of capacity. As mentioned earlier, the target market is uncertain, the competence of the firm's management is not known, and it has not established how it will get its profits. Gupta (2007) notes that expert managerial skills and large capital, are required if a business is to make use of large scale operations. He also notes that in case there are high risks involved, or a new idea of business is to be tried, it is always advisable to start with a small size and expand gradually. This is exactly the case with Data Tech. The business is a new idea. The fact that it has not been explored to determine optimum levels of operation is risky. The risks involved have also not been determined and this makes it even risky to begin with a larger facility. The initial size of the business should be based on an estimate of the sales made judiciously. Accurate sales estimates will help the firm avoid investment in an establishment that is too expensive and too large to be profitable at the initial sales. This may even hinder progress and expansion of the business in the future (Gupta, 2007). There are too many risks involved, one of which is an expensive and large capacity without the capability of achieving optimum level of operation, and there is an uncertain target market. It is not easy to achieve optimum level of operation with a large capacity firm for a starting business with a new idea. The entrepreneur should just establish the business and focus on when it is appropriate to increase the capacity and by how much.

2. Weight of each factor is determined out of 1.0. The level of risk determines the value given to a factor. A factor with the highest risk of damaging the business (not achieving optimum operation level) and decreasing the chances of expansion is given high value from 0-1. One with the lowest risk of damaging the business and increasing the chances of expansion is given low value.

Uncertainty of the market 0.9

Expenses of the facility 0.6

Uncertainty of the market is an unavoidable risk. Other companies preference to use the service determines the market that the company will get. This makes the level of the risk to be so high. It is unlike the expenses of the facility which can be avoided. By selection of an affordable smaller capacity, the risk of spending extra resources on a large capacity and reducing chances of expansion is reduced. Additionally, if an entrepreneur has enough capital to sustain the business in a large capacity facility,