Reference no: EM132252207

Currently, Michelle Madrid is logging 10 hours of overtime a week due to the increased workload associated with increased enrollment and school expansion. She is being compensated for overtime at a cost of $22.50 per hour including overhead expenses. Based on current enrollment projections, the overtime will need to be expanded to 15 hours a week in the next school year. The overtime requirement would be eliminated if Willowbrook implements the new system. The current system now causes an average of six errors per week, and each error takes about 20 minutes to correct. The new system should eliminate those errors.

Based on your research, you originally estimated by working 35 hours per week you could complete an in-house development project in about 8 weeks. Your consulting rate, which Willowbrook agreed to, is $35 per hour. If you design the new system as a database application, you can expect to spend about $1,500 for a networked commercial package. One of the parents at Willowbrook has extensive experience with this package as a Database Administrator at a local company, and has committed to providing 10 hours per week working with you to develop the project. After the system is operational and the staff is trained, you hope that Willowbrook staff and volunteers can handle routine maintenance tasks without your assistance. If they continue to require your assistance, a contract rate can be negotiated later depending on the nature of the problem.

As an alternative to in-house development, a vertical software package is available for about $8,500. The vendor offers a lease-purchase package of $2,000 down, followed by two annual installments of $3,250 each. If Willowbrook buys the package, it would take you about three weeks to install, configure, and test it, working full-time. The vendor provides free support during the first year of operation, but then Willowbrook must sign a technical support agreement at an annual cost of $750 for the duration of years. Although the package contains many of the features that Willowbrook wants, most of the reports are pre-designed and it would be difficult to modify their layouts.

You have agreed to provide five hours per week of training and support for the first two months of operation. After the new system is operational, it will need routine maintenance, file backups, and updating. These tasks will require about four hours per week and will be performed by school staff or parent volunteers at an average hourly rate of $12.50.

For both the in-house development and the vertical software package, the necessary hardware will cost about $3,500. Hardware and network installation will be partially provided by three parent volunteers.

In your view, the useful life of the system will be about five years, including the year in which the system becomes operational.

The development of the new system will occur in Year 0, but the system will not be used until Year 1. The school will use the manual system during development, and will switch over to the new system during the month of June, to start the new school year on the new system. Use $15.00 per hour for any rate not previously stated in the case.

Task:

Develop a cost-benefit analysis, using payback analysis, ROI, and present value (assume a discount rate of 6 percent).