This document summarizes an Enterprise Resource Planning (ERP) system upgrade proposal presented to Delta Dental. It discusses financing the $106 million project through either 100% cash or maximum debt of $80 million. It also analyzes scenarios of delayed completion, delayed layoffs of 400 employees, and eventually re-upgrading the system. The recommendation is to use a balloon payment and layoffs concurrently, have a strict layoff policy, improve the ERP evaluation process, and then invest in growth areas like marketing, mobile, and research.

1. Edan Carignan, Caroline Rashidi, Shane Nath
Enterprise Resource Planning Computer System Upgrade
Sponsor: Mr. Gary Radine

2. Agenda
❖ Company Summary
❖ Project Summary
❖ Project Constraints
❖ Financing The Project
Using 100% Cash
❖ Maximum Debt
❖ Delayed Completion
❖ Delayed Layoffs
❖ Re-Upgrade of Project
❖ Possible Outcomes
❖ Recommendation
❖ Q&A

3. Company Summary
❖ Non-profit organization founded in 1954
❖ Largest dental plan system in the US
❖ 39 members covering all 50 states
❖ Enrollment and gross revenues doubled
by CEO Mr. Gary Radine

4. Project Summary
❖ Best method of implementing ERP system
❖ 35 page report
❖ 5 detailed scenarios
❖ Possible outcomes of each scenario
❖ Recommendation to Delta Dental
Delay of ERP
Implementation
Edan
All Cash Max Debt
Delayed
Layoffs
Shane
Re-Upgrade
Possible
Outcomes
Caroline

5. Project Constraints
❖ Cash surplus cannot go below $200
million
❖ Only method of raising capital is a 3-
year loan
❖ Loan amount limited to $80 million
❖ $20 million annual cash inflow
❖ Management prefers the funding to be
from cash flow from operations and
borrowings from the bank

6. Financing using 100% Cash
❖ Policy to not go below $200
million in cash reserves
❖ $106 million project cost
❖ Risks
❖ Leverage will decrease $75
$150
$225
$300
C
ash
Surplus
ProjectC
ost
Cash Surplus
Project Cost
Cash Reserve Limit

7. Financing using 100% Cash
Comparable Companies Leverage Ratio (L/A)
United Healthcare (UNH) 0.61
Wellpoint (WLP) [acquired by Anthem] 0.63
Aetna (AET) 0.72
CIGNA Corp. (CI) 0.80
Humana (HUM) 0.60
Centene Corp. (CNC) 0.70
Health Net, Inc. (HNT) 0.71
WellCare Health Plans (WCG) 0.67
Healthspring (HS) [acquired by Cigna] 0.47
Molina Healthcare (MOH) 0.77
Average 0.67
0.18
0.35
0.53
0.70
Delta Dental Top 10
0.67
0.54

8. Maximum Debt
Pros
❖ More Liquid Cash
❖ Current Low Interest
Rates
Cons
❖ Risk of Default
❖ Drop in Credit Rating

9. Maximum Debt
A.M Bests’ BCAR Model
❖ Business Profile
❖ Operating Performance
❖ Balance Sheet Strength

10. Delayed Completion of Project
59%
41%
Exceed Budget
53%
47%
Take Longer
49% 51%
Receive Anticipated
Benefits

11. Delayed Completion of Project
ERP Evaluation Team
Poorly Defined
Requirements
Change in Management
During Implementation
Choosing a Vendor Based
Solely On Sales Pitch
Lack of Employee
Training
Reason Solution
Involve more employees
than ERP Evaluation Team
Spend time understanding
your specific needs
Invest in comprehensive
training programs

12. Delayed Layoffs
Scenario
❖ Originally 400 layoffs in
year 4
❖ Delay of 200 employees
for 2 extra years
Reasons
❖ Project delayed
❖ System is not as efficient
❖ Employee adjustment time
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Cash Surplus $300,000 $397,850 $417,850 $369,500 $403,750 $433,250
Cash from Operations $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Borrowed Capital $33,216 -$33,216
FTE Reductions $9,500 $14,250 $9,500 $4,750
Total $353,216 $417,850 $414,134 $403,750 $433,250 $458,000

13. Delayed Layoffs
Short Term Effects
❖ Pay extra $28.5 million
Long Term Effects
❖ Fear of layoffs
❖ Employee Morale
Decreases
❖ Workplace Productivity
Decreases
Outcome
❖ Layoffs are necessary
❖ Extra money is spent
❖ Fear within employees is set
$28.5
million

14. Re-Upgrade of Project
Technological Revolution
❖ Significant investments in computer upgrades
❖ Opportunities in infrastructure and application development
To Stay Competitive
❖ Keep and increase market share
❖ Appropriate response to competitors

15. Possible Outcomes
❖ Invest in marketing
❖ Invest in mobile platform
❖ Invest in research and risk management
❖ Lower insurance premiums
❖ Invest in money-market securities

16. Recommendation
❖ Balloon payment and FTE
layoffs happen concurrently
❖ Strict layoff policy
❖ ERP Evaluation Team
❖ After successful project,
Delta Dental should invest
in the previously mentioned
possible outcomes
68%
32%
Debt Cash

17. Questions?

18. Thank You