The Horizon Insurance Agency

4 Pages Posted: 21 Oct 2008

See all articles by Mark E. Haskins

Mark E. Haskins

University of Virginia - Darden School of Business

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Abstract

The basic decision scenario is whether to outsource an internal publishing department. What is initially presented as a comparison of a department's annual operating costs versus an outside contract quote gets reformed as a four-year cash flow investment decision.

Excerpt

UVA-C-2140

Rev. Feb. 14, 2011

THE HORIZON INSURANCE AGENCY

Horizon Insurance (HI) was a full-service regional insurance agency located in Albuquerque, New Mexico. To date, HI had done all the printing and publishing of its own promotional brochures, newsletters, informational pamphlets, and required regulatory reports. Linda Wolfe, the business manager of the agency, had for some time thought that the firm might save money and get equally good service by contracting the publishing work to any one of the three or four specialty firms operating in the greater Albuquerque area. After several inquiries, she approached a firm specializing in such work, G-Art Inc., and asked for a quote. At the same time, she asked Bob Myer, her controller, to prepare an up-to-date statement of the cost of operating Horizon's publishing department.

Within a few days, the quote from G-Art Inc. arrived. The firm was prepared to provide all the required publications work for $ 410,000 a year with the contract running for a guaranteed term of four years with annual renewals thereafter. If the estimated number or assumed mix of publications changed in any given year beyond the baseline planning estimates, the contract price would be adjusted accordingly. Wolfe compared G-Art's quote with the internal cost figures prepared by Myer (Table 1).

Table 1. Annual cost of operating HI's publications department: Myer's figures.

. . .

Keywords: cash flow cost analysis behavior internal rate of return relevant

Suggested Citation

Haskins, Mark E., The Horizon Insurance Agency. Darden Case No. UVA-C-2140, Available at SSRN: https://ssrn.com/abstract=1276592

Mark E. Haskins (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4826 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/haskins.htm

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