(Solved by Humans)-You have been charged with drawing up the budget for a software
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?You have been charged with drawing up the budget for a software project. The project is to create a new database system
for a company of realtors. You are told that the system will need to be built so that existing data can be transferred onto
the new database. You will have two teams; one in-house and one based in another country. You will also have the help
of an outside firm which will undertake the testing.
Outline how you would go about budgeting for this project. (600 - 700 words)
Diploma in Construction Project Management
Budgeting and Finance
Budgeting Case Study
Budgeting Case Study
Budgeting ? Case Study
This case study brings in many facets of Project Management but also looks at the financial and budgeting problems of an
online start-up company. The company in question was boo.com, which was set up around 1998 with a vision to become the
world?s biggest online provider of sports and leisure clothing/shoes. The company directors wanted to be what Amazon.com is
to books but in the sports and leisure consumer market.
Historical information
Boo.com began life in 1998, a time when the internet was still relatively ?new?, people were buying online but broadband and
fast connections were not as widespread as they are today. Boo.com knew that consumer spending was increasing all the time
and wanted to become the first leading edge company to provide sportswear to discerning customers. They believed they had
researched the market and knew their potential clients ? affluent, fashion conscious individuals who had disposable income to
spend online. The directors of boo.com wanted to recreate the offline shopping experience online. Thus they invested hugely in
technology and developed Miss Boo, an online mannequin that a person could use to ?try? on the clothing. This technology had
the ?wow? factor which would, they hoped, get people talking about the site, and have a virtual queue of people waiting to buy
from them.
They did achieve the objective of having people talking about the site, but for the wrong reasons.
Fitzwilliam Institute Group
2
Budgeting Case Study
Boo.com and Project Management
The directors of Boo.com knew what they wanted; they were clear on the goals of their project ? to build an online shop like no
other that would be technologically advanced. They were a European brand that would have a global reach. They decided that
they would launch on a global scale, i.e. in the US and Europe at the same time.
Technically boo.com wanted to amaze its customers, but it also amazed its investors, who included many well known finance
houses and banks, including JP Morgan. Boo had a product/service which was ahead of its time and given the growth in the
online spending sector they believed (as did the investors) that they would capture a good percentage of the market and profit,
while establishing themselves as ?the site? for sportswear.
Boo.com had a substantial amount of money invested through venture capital ($188 million approx). Unfortunately they did not
manage this money correctly, as it was spent within 18 months. Much of the expenditure went on development costs for the
stock control, distribution and virtual salesperson Miss Boo ? for example the software end of Boo.com cost over $70 million to
produce. The Boo.com creators were also lavish in their spending on airline tickets and hotels. In essence they did not budget at
all and spent as they needed.
Boo.com launched in the autumn of 1999 and closed shortly after in 2000. They are widely recognised as the best known
dotcom that went bust. There are many reasons why this happened, which are detailed below.
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3
Budgeting Case Study
Failures of Boo.com
Project definition ? as you are aware, in order to launch a product/service the project must have a good business case prior to
being given approval. Research needs to be undertaken to ensure that what is being delivered is what is wanted by the client.
The client in this case was the consumer.
Although Boo.com did research and found that online retailing was a growing industry they failed to realise many facts about
their target market:
Many of the customer who Boo.com thought were ?right? would be fashionable, trendy users, who would probably own Apple
Mac computers ? unfortunately the site only worked on PCs, thus they eliminated a large % of their target market immediately.
Technology ? Boo.com were technologically advanced and cutting edge by using such technologies as Flash, however most of
their users did not have this ?plugin? for their browser and had to download it ? this added to the complexity of the site.
Speed ? coupled with the technology was speed of access. Most users did not have broadband which was needed to view the
site. They were still using dial up connections which meant the site downloaded very slowly. In fact one source is quoted as
saying it took him 86 minutes to go through the ordering system and purchase his items, only to have to wait a week for them
to be delivered.
Products ? many established brands did not want to compete against their other distribution networks ? ie the offline retailer.
Growth ? From inception Boo.com grew at an enormous rate ? employing over 350 employees in various offices around the
world. They also wanted to establish themselves as a global brand from the start, rather than build up a name in one region and
then expand. This is the model that Amazon.com undertook.
Fitzwilliam Institute Group
4
Budgeting Case Study
Finance ? this was where boo.com went wrong. They did not manage their finances; instead they spent about $188 million in
18 months. Rather than plan their budget, forecast their costs and revenues they spent too much money building their brand.
Tests showed that they had about a .09% conversion rate. That is for every 100 customers that visited the site only .09%
actually bought something ? this was not a sustainable figure. The directors also felt that since they were building a strong
brand they would survive the initial years by continued investment by venture capitalists ? this did not work out as planned.
How could boo.com have managed its finances better?
Realistically boo.com should have known more about its target market from speed of internet connections to what consumers
wanted. They wanted to be the best and have the best technology which they did, however they did not think of the client ?
the deliverables passed many check lists within the minds of the directors, however it did not pass the ultimate challenge of
delivering what the client wanted and needed.
Boo.com should have undertaken cost estimation and looked to see what they needed and how much it would cost. It would
appear they decided to go for everything they could, as they believed they had an endless supply of money. One reason for this
may have been that since it was venture capital, the directors did not feel they were personally going to loose anything!
If proper estimation had been put in place money would not have been wasted as it was.
It appears that no risk management or contingency was included in Boo.com?s plans. They had a vision and were going to make
it work regardless of what the market wanted
Fitzwilliam Institute Group
5
Budgeting Case Study
Lessons Learned
Boo.com taught many companies many lessons. The main lesson that can be learned is that a solid project plan must be in place
and that it is essential that proper budgeting and control is adhered to. Boo.com could have been a success, but failed in one
very important element ? that is giving the customer what they want.
Key Point to Note
Money is money, whether it comes from venture capital or from your own pocket. Without proper budgeting, your project may
fail.
Fitzwilliam Institute Group
6
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This question was answered on: 10 May, 2025
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