Principles of Supply Chain Management, Second Edition, 2nd Edition

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 ...