Performance Management

Requirement 1:

Hamid’s use of internal rate of return (IRR) and the 10% hurdle rate used
to financially appraise the project. Issues included are:

1.1 Explanations of Internal Rate of Return and Hurdle Rate

Internal Rate of Return (IRR)

 is a financial metric used to evaluate the profitability of an

investment. It represents the discount rate at which the net present
value (NPV) of the project’s cash flows equals zero. A higher IRR
indicates a more profitable investment.
 In the FlattLuxe proposal, Hamid has an estimated of 16% internal
rate of return (IRR) for this project. This project is expected to be
greater compared to the cost of capital.

Hurdle Rate

 also known as the required rate of return, is the minimum return

that a project must achieve to be considered acceptable. It is
usually set based on the company's cost of capital and investment
risk.
 Flatthall's hurdle rate is 10%, this is the standard that the IRR is
measured against to see if the project meets the company's
financial needs.

EVALUATION OF HAMID’S PROPOSAL

1.2 Comparison of the Internal Rate of Return to Hurdle Rate.

 The IRR of 16% is higher than the hurdle rate of 10%, indicating that
the project has the potential to provide returns that are much higher
than the cost of capital, making it a good investment.

2. Considerations and Identified issues

A. Risk Assessment:
 The IRR fails to account for project risk above the predetermined
hurdle rate. The luxury category for student housing may result to
new risks, such as market demand fluctuations or economic
downturns that affect students' capacity to pay premium rents. Such
 risks should be assessed to guarantee that the IRR is a reliable
metric.

B. Overruns in expenses and uncertainty:

The proposal aims for a T$5 million investment each conversion.
There is a risk of cost overruns or unplanned charges, which could
affect the IRR. Sensitivity analysis should be carried out to determine
how changes in expenses or revenues affect the IRR.

C. Cash Flow assumptions:

 The IRR calculation is dependent on the timing and volume of cash
flows. Ensure that the cash flow predictions used to calculate the
IRR are reasonable and based on thorough market research.

D. Market Demand and Pricing Strategy:

 The proposal suggests that luxury units will command three times
their existing price. Market research should show that such a pricing
plan is viable and sustainable. If demand for luxury student housing
is overstated, actual returns may be lower than anticipated.

E. Financing and Funding:

 Evaluating the effects of financing T$5 million per conversion.
Financing costs (interest rates and terms) may have an impact on
actual returns and IRR viability.

Requirement 2:

The challenges that will arise when identifying and

quantifying cash flows relating to the net present value
(NPV) of Taisha’s proposal, especially considering the
potential for lease expiration after 15 years.

1. The risks of unexpected expenses for the remodelling

The average remodelling cost is T$20 million which is about the
expected cost of remodelling each building. Since there is normal
wear and tear depreciation on buildings and each hospital is
different, prices may be very different. It is going to be hard to
estimate the precise remodelling expenses due to:
 Building Conditions: Each hospital may have its own building
structural constraints or building requirements.
 Inflation and Market Fluctuations: Building costs like materials and
the labour could vary in time which can affect the overall
expenditure

2. Revenue forecasts
Future rental income is subject to many uncertainties that must be
quantified where possible.
 Demand Fluctuations: Even though the location is perfect, the
demand for accommodation may vary due to the economic
climate, level of student enrolment, or any other unforeseen
reason.
 Rental Rates: The ability to be able to charge an exorbitant
price is dependent on the level of competition among other
housing facilities in the market.
 Occupancy Rates: Occupancy levels have been estimated over
a time frame of 15 years and although demand may improve
in relation to these estimates, the stability of the economic
climate makes this a difficult task.

3. Lease expiration and property reversion

At the conclusion of the 15-year lease, however, we must consider
possible:
 Reversion fees: In cases where we do not extend the renewed
lease, possible reversion fees for restoration or refurbishment
of the area might be insisted on.
 Future worth of Properties: If further leasing of such premises
shall not be pursued, then the likely use of such properties in
the forthcoming future or their value in the market ought to be
investigated.

4. Regulatory and Compliance issues

 Compliance expenses: These allow for changes to be made to
the Hospital but in compliance with the existing laws which
could change with time and affect both the costs and the
operations.
 Permits and approvals: For remodelling it is often a long
process to get the right licenses.

5. Financial modelling difficulty

 Cash Flow Projections: To make reasonable forecasts of cash
flows within a time frame of ten to 15 years, several
conditions relating to the economy in the future generally
must be assumed and this may lead to a lot of uncertainty.
 Discount Rate: In calculating and evaluating NPV there is an
emphasis on determining the most reasonable discount rate
 and for this, it depends a lot on the risk of the investment
which could change depending on risk environment.

These aspects further compound the problem of determining the financial

viability of this idea. A sensitivity analysis could be helpful in evaluating
variations in the NPV associated with changes in major assumptions.

Requirement 3:
Three key risks that could arise with the use of robots in
place of human concierge staff
1. Technical failures and system downtime
Risk: As robots are highly dependent on technology, there is a risk
of breakdowns or system downtimes. Attempting to operate the
service robot should be done with caution. If it does not work
properly, it may affect guest services, raise complaints and affect
guest satisfaction

 Regular Maintenance and Updates: Ensure that Robo-

guard provides regular maintenance and updates to avoid a
lot of technical issues. Introduce a more systematic approach
towards software and hardware updating by having a
maintenance schedule.
 Technical Support: Set the good provision for the technical
support of the Robo-guard so that they can get solutions
quickly. There should be a support line that is dedicated
towards helping people and addressing issues immediately.
 Backup Systems: Provide for situations where the robot may
fail to trigger and recommend the use of a human concierge
support system, until the problem is diagnosed and corrected.
This ensures that there is no gap in service provision for the
guests.

Without sympathy with robots, there will always be enough

alternative Override Components allowed especially for refining
service robot retrieved from the base without manual override such
as waiters or concierge. This ensures that the available needs of the
clients are and will always be met at the right time.

2. User acceptance and adaptation

 Risk: Guests and students may struggle to adapt to interactions
with robots rather than human workers, resulting in discontent or
opposition to the new system.
 Clear Communication: Guest and Student, assist the
audience in understanding the benefits of the proposed robot
concierge system. Explain how robots are going to enhance
service provision.
 Training and support: Offer appropriate training workshops
or bring along learning materials to tackle the issue of how to
engage visitors and students with the robots. Allow them to
express complaints or seek support in case of need in a
hassle-free manner.
 Gradual Transitions: Introduce the robots to the area
gradually in order to ease discomfort. To begin with, you might
deploy a couple of human concierges to assist in the transition
and troubleshoot problems that arise.

3. Security and privacy concern

Risk: Robots with cameras and access to personal information may
cause security and privacy concerns among guests and students,
particularly when managing sensitive data.
 Robust Data Protection Policies: Ensure that Robo-guard
follows severe data protection and privacy guidelines.
Implement clear policies for personal data collection, storage,
and use.
 Transparency and consent: Clearly notify guests and
students about the types of data acquired by the robots and
seek their consent as needed. Give them the choice to opt out
of non-essential data collecting.
 Regular audits: Conduct frequent audits of the robot
system's data handling and security procedures to guarantee
compliance with privacy laws and to identify any weaknesses.