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In: Accounting

Improving Decision Making: Making the Rent vs. Buy Decision for Data Storage for ABC Digital Software...

Improving Decision Making: Making the Rent vs. Buy Decision for Data Storage for ABC Digital

Software skills: Spreadsheet formulas, and charts
Business skills: Technology rent vs. buy decision, TCO analysis

This project provides an opportunity for you help a real-world company make a decision about whether to rent or buy new technology for data storage. You’ll use spreadsheetsoftware to compare the total 4-year cost of ownership for two options.

Deciding whether to store data on the cloud or on-site is often the dilemma for most business owners. There are advantages and disadvantages to both options. However, in this project you are only focusing on the cost benefits of each option regardless of other aspects including the access time, privacy and scalability issues which are also critically important in making this decision.

Scenario

ABC Digital is looking for a solution for storing their data. They have approximately 100 Terabytes of data that they need to store. The followings are typical cost information associated to option 1, that is to store data on the premises:

Description

Cost/ Resource

Copies of data needed for redundancy

3

Dollar per Gigabyte of Storage

$4

Typical Fulltime Staff for Data Admin

1 Full Time Admin for 200TB of data

Typical Cost of Full Time Data Engineer

$80,000 for the first year, increases by 10% each year

Facilities and Power Charges

$20,000 for the first year, increases by 8% each year

The cost items associated to cloud-based storage (Option 2) is given below.

Description

Cost/ Resource

Dollar per Gigabyte per year for cloud charge

$1.48

Dollar per Gigabyte of initial data migration into cloud

$0.1

Cost of Data Communication and Networks

$60,000 for the first year, increases by 7% each year

Note that with cloud solution, the backup and redundancies are provided by the cloud provider and the service is included in the cost.

Tasks

  1. Use your spreadsheet application to calculate the cost of each option for year 1 to year 4. To get the full mark, you should use Excel formula when it is appropriate. In other words, I should be able to change the above parameters (listed in the tables) and the total cost values should be changed automatically. (30 points)

  2. Use an appropriate chart type to present and compare the cost of both solutions in one graph for year 1 to year 4. (15 points)

  3. Determine which cost items are considered as capital expenditure (Capex) and which ones are operational expenditures (Opex) for each solution. (15 points)

  4. Calculate the total cost of ownerships for a 4-year period for each of the two solutions and suggest the best solution for the ABC Digital. (20 points)

  5. One of the main advantages of spreadsheets is that you can easily change the parameters of the model and evaluate “What if...” types of scenarios. Your manager wants to see the sensitivity of the total cost for solution 1 in relation to the year-to-year increase in the “Facilities and Power Charges”. More specifically, your current solution shows the total cost when considering 8% year-to-year increase of the cost of “Facilities and Power Charges” as shown in the Table. However, she wants to see how your estimates changes with this quantity. You should evaluate the total costs over 4 years when evaluating 4%,6%,8% (your current solution), 10%,12% and 14% increase in the year-to-year cost of “Facilities and Power Charges”. The first year cost is still the same, i.e. $20,000 for all scenarios. You should create a new sheet for this. This sheet should show the total cost of solution 1 when changing the year-to-year changes in the Facilities and Power Charges as suggested above. (20 points)

Solutions

Expert Solution


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