Software/Hardware Implementation  

Dirt Bikes would like to implement new production planning, quality control, and scheduling software for use by 25 members of its manufacturing staff. Management is trying to determine whether to purchase the software (along with any hardware required to run the software) from a commercial vendor, or to use a hosted software solution from a software service provider. (The hosted software runs on the service provider’s computer.) You have been asked to help management with this rent vs. buy decision by calculating the total cost of each option over a three-year period.

The costs of purchasing the software (actually for purchasing a license from the vendor to use its software package) include; the initial purchase price of the software (licensing fee of $100,000 paid in the first year), the cost of implementing and customizing the software in the first year ($20,000), one new server to run the software (a first-year purchase of $4000), one information systems specialist devoting half of his or her time to supporting the software ($55,000 in full-time annual salary and benefits with a 3% annual salary increase each year after the first year), user training in the first year ($10,000), and the cost of annual software upgrades ($5,000).

The costs of renting hosted software are; the rental fees ($2500 annually per user), implementation and customization costs ($12,000 in the first year), and training ($10,000 in the first year).

1. Assess whether or not to lease or purchase software and hardware over a period of time.

2. Assess the benefits of leasing vs. purchasing hardware and software.