307Logistics
normal, tangible costs. On the other extreme, a crisis may occur infrequently but could be
very costly, even disastrous. An expected value (EV) analysis can be helpful in projecting
the possible economic impact of such disruptions.
Step 5. Estimate the Return on Invested Capital
Use a time value of money approach to assess the total return on invested capital for the
offshore outsourcing project. Selecting a reasonable time horizon is critical because it is
unlikely that the initial arrangement will last for very long. A discounted cash ow analy-
sis can show the return on invested capital. It should include the initial costs of dropping
the present system and recovering these costs over a relatively short period. Subsequent
costs ...