Tech Firm Corp Finance Interview Question: How can you allocate resources of developers to various products

Hi All,
I was asked a question in Tech firm corp finance role. The interviewer asked how i can allocate software engineers resources to various prod. say why should we invest more engineers to this product and less to another prod.
Thank you for all thoughts from talents here.

Comments (12)

Jul 6, 2017

One way or another it will be driven by the best roi.

Jul 7, 2017

Thank you.
ROI caculates the rate of investment ((gains-costs)/costs).
What if the prod with higher ROI but takes a long time to achieve it? how may we take time into consideration?

Jul 7, 2017

Apply discount rates to arrive at a present value. Projects might have differing risk levels as well...example. Project A may take a long time but company has a lot of expertise. Project B might be shorter in duration but company has little/no expertise and thus would require a higher discount rate.

Jul 7, 2017

Just compare NPVs of Project A vs. Project B, and whichever has the higher NPV at the respectively appropriate discount rates is the project you should most likley invest in. This of course ignores any situational specific nuances or qualitative assessments that may impact your analysis, but from a quantitative standpoint you're just comparing the ROI (either with an NPV or an IRR Is fine too) of the two projects and going with the one that yields a higher return.

Jul 7, 2017

It was a staffing model question. I am going to go out on a limb and say that the role probably dealt quite a bit with operations.

Edit: to clarify it was an Optimization Staffing Model, that you can bang out with solver in excel.

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Jul 7, 2017

Some update thoughts:
Should the analyst consider calculating contribution margin of each prod to get breakeven unit. Let's say fixed asset/ weighted avg contribution margin per unit. Then use that overall breakeven unit to get breakeven unit per prod ( overall breakeven unit * prod a budget sales / budget total sales) ..and then allocate engineers resource per breakevent unit for each prod.
How does everyone think?

Jul 18, 2017

You can go with the allocation that maximizes the sum of the projects NPV.
If you go that way, you'll have to deal with the rather approximative science of accounting for the differences in uncertainty through the discounting rates.

One easier way I had seen in a non tech industry is to optimize for the sum of cashflows over 5/10 years.
It is likely more robust, I guess it is not advisable for a corp finance interview as you won't be able to showcase your ability to calculate financial metrics (NPV, WACC ...).