Question

Given the following information concerning a four-year planning horizon for a particular ERP system implementation: Licensing rights for all four (4) years - $400,000 Application server and database server purchase - $75,000 (four-year expected life) Computer purchases and upgrades - $28,000 (one-time charge) Maintenance contract for computers and servers -- $5,500 per year Training - $10,000 for the first year, $5000 for the remaining three years Consulting - Free for the first 6 months then $12,000 per year (prorated for partial years) New hire - Database/ERP system administrator at $200,000 annual salary (includes benefits) Suppose the total costs for ERP system implementation over the four year planning horizon is $1,440,000. It would be better to use SaaS to contract out ALL of the above expenses for a convenient monthly fee as long as that fee was less than: $48,000 $30,000 $12,000 $25,000 not enough information to determine

Answer 1

THE ANSWER IS SaaS IS BETTER IF THE MONTHLY FEE IS  
LESS THAN $ 30,000
EXPLANATION :
THE ESTIMATED TOTAL COST OF ERP IN A 4 YEAR HORIZON IS $ 1,440,000
THE MONTHLY COST WOULD BE $ 1,440,000 /4/12
WHICH COMES OUT TO BE $ 30,000 PM.
HENCE IF SaaS COST IS LESS THAN $ 30,000 PM, IT IS ADVISED TO GO FOR SaaS
FURTHER $
ERP EXPENSES - AS GIVEN EXCEPT UNFORESEEN COSTS
LICENCE FEE - FOR ALL 4 YEARS              4,00,000.00
APPLICATION SERVER AND DATABASE SERVER - 4 YEAR EXPECTED LIFE                  75,000.00
COMPUTER PURCHASE AND UPGRADE - ONE TIME PURCHASE                  28,000.00
MAINTENANCE CONTRACT FOR COMPUTERS - $ 5,500 PA = $ 5,500 X 4                  22,000.00
TRAINING - $ 10,000 FOR THE FIRST YEAR AND $ 5,000 FOR THE REMAINING 3 YEARS                  25,000.00
= $ 10,000 + ( $ 5,500 X 3 )
CONSULTING - FREE FOR FIRST 6 MONTHS AND THEN $ 12,000 PA                    42,000.00
ON PRORATA BASIS = FIRST YEAR $ 6,000 + ( $ 12,000 X 3 )
NEW HIRE - ANNUAL SALARY $ 200,000              8,00,000.00
           13,92,000.00
UNFORESEEN COSTS = 1,440,000 - 1,392,000                  48,000.00
( ASSUMED )
TOTAL ESTIMATED COST            14,40,000.00