Product Development Risks
You have the opportunity to invest INR 100 billion for your company to develop a jet engine for commercial aircrafts. Development will span 5 years. The finalproduct costing Rs. 500 million / unit could reach a sales potential, eventually ofRs. 2500 billion. The new engine can be placed in service 5 years from now, butonly if it qualifies four years from now for certification clearing commercial use andonly if it meets America’s Federal Aviation Administration’s (FAA) ever tighteningstandards for noise reduction.
Certification also has to be obtained from India’s Director General of Civil Aviation (DGCA). There is competition from world-classmanufacturers like Pratt and Whitney and Rolls Royce who are developingcompeting engines. If you decide to proceed with the project, you must alsodetermine where the new engines will be produced and develop the manufacturingfacilities. If you decline to proceed, your company could invest its resourceselsewhere and based on its track record, get attractive returns. To refer this case study click here Production and Operations Management
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