This project give thee opportunity for you to help real-world company make decision about whether to rent or buy new technology. You will use excel to compare total 3 year cost of licensing and maintaining new manufacturing software or renting software from application service provider.
Dirt Bikes would like to execute new quality control, production planning, and scheduling software for use by 25 members of its manufacturing staff. Management is trying to find out whether to buy software from commercial vendor along with any hardware needed to run software or to use a hosted software solution from application service provider. You have been asked to aid management with this rent vs. buy decision by computing total cost of each option over a 3 year period.
Costs of purchasing software include initial purchase price of software (licensing fee of $100,000 paid in first year), cost of implementing and customizing software in first year ($20,000), one new server to run software (a first-year purchase of $4,000), one information systems specialist devoting half of his or her time to supporting software ($55,000 in full time annual salary and benefits with a 3% annual salary increase each year after first year), user training in first year (10,000), and cost of annual software upgrades ($5,000).
Costs of renting hosted software are rental fees ($2,500 annually per user), implementation and customization costs ($12,000 in the first year), and training ($10,000 in the first year).
1.) Use excel to compute total cost of renting or buying this software over a 3 year period. Recognize lowest-price alternative which meets Dirt Bike's requirements.
2.) What other factors must Dirt Bikes consider besides cost in finding whether to rent or purchase hardware and software?