Reference no: EM132190297

Buy or Lease?

This type of decision comes up often in many projects; do you want to buy an item or lease it? In IT circles, do you outsource a software package hosted in the cloud or do you invest in servers and run your own software hosted at your company?

Solve the following problem:

You can purchase software you need to work your project for $40,500 which requires the purchase of hardware (servers) with a cost of $52,000. The purchased software has a yearly maintenance fee of $3,000 starting after the first year. The servers have a monthly operating cost $250.

On the other hand, you can contract with a cloud services provider for an initial setup fee of $2,000 and a $3,000 a month utilization charge starting the first month and charged until the end of the contract.

Right now, at the planning stage of your project, your project schedule estimates that the project will be completed in three years from today. You started analyzing risks on your work breakdown structure (WBS) deliverables and have determined that half of the activities carry at least one high negative risk associated with it. Your mitigation plan may include extending the project to manage those high risks. Also, you know that your company will not use the software once the project is over.

1. In which month does the purchase cost is the same as the lease cost?

2. What is your decision as a Project Manager, should you lease or should you buy? Explain the reason for your decision.

3. Weighing the negative risk factors and the mitigating plan for those factors, you run the risk of finishing late by six months. What is your decision at 3.5 years? Explain.

4. You know that if you purchased the software, you will continue to accrue expenses after the project is completed. Do you make a different decision? Explain the reasons of your decision.