IB Business Management HL 5.7.3 Impact of contingency planning Question Bank

Safe Passage (SP)
Trent Peters is one of seven partners at Safe Passage (SP). It provides bodyguard* services to film stars, politicians and other important people in Europe and the Americas. Trent would like to satisfy a growing demand from Asia but has to choose from two options for the recruitment and training of bodyguards. These are:
- offshoring by setting up it's own overseas branch in Asian country X or Y or Z
- subcontracting by using an external agency in Asian country X or Y or Z .
The forecast costs and revenues of offshoring are given below (all figures in US$ millions):

The forecast costs of subcontracting to the same Asian countries are given below:

Country X: US$1.5 million.
Country Y: US$2.8 million.
Country Z: US$4.2 million.

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* bodyguard: a person who is responsible for protecting a person from harm
}
The three suitable Asian countries are located in earthquake zones. An earthquake expert assured Trent that all three areas are safe. Trent is concerned and decides to prepare a contingency plan for each possible location in Asia.

Control over recruitment and training of bodyguards is vital to S P. Customer service and trust are their unique selling propositions (USP). Clients will pay high fees to ensure their safe transport to concerts, meetings and important events. However, Trent is refusing valuable contracts in Asia due to a lack of suitably trained bodyguards. As a result S P is missing out on large profits.

Trent has mentioned to a previous customer of his plans to subcontract the recruitment and training of bodyguards. She has threatened not to use S P again and would tell her friends if the plans went ahead. Trent is concerned as word-of-mouth promotion is crucial to S P.

He calls a meeting of all the partners. Three partners prefer subcontracting the recruitment and training as it is cheaper, quicker and less risky. The three other partners prefer offshoring. They believe that subcontracting will damage SP's USP. They argue that the higher costs of offshoring will be covered by the forecast high revenue.

Explain two benefits and one cost to S P of preparing a contingency plan of the three possible locations in Asia.