14. two approaches are being considred for a new system to track an mange a comp

Question

14. two approaches are being considred for a new system to track an mange a companys project protfolio : one is for the compny's own IT deparment to develop and install the system , the other is to hire an IT contractor to install one of its existing products . the IT department estimaties it can complete the project in 2 year with existing personnel. The deparment operates as a profit center and ,hence ,charges for its work.The estimated develpment and uokeep cost of the system is 8 M .the contractor has prposed to install its system in only 6 monthes for a cost of 10 M ,And to maintain it therer after for an additinoal cost 20,000per year , starting after the system has been operatonal for 6 monthes. The annual benefit of euther system in terms of better selected and - manged project is estimated to be least 20M. In terms of benefit -cost ratio , which is better ? note:it is expected that the chosen system whichver , will have to be replaced somethong else in 6 year .

this is qustion from project mangment

Explanation / Answer

Let us consider the two options

1. One with companies own IT department to maintain and install the system

2. hire an IT contractorto instal existing product

consider the coat and time taken to install the system.

1. IT department- It takes 2 year to complete with an existing personnel. And estimated coast is 8M

2. With a contractor it takes 6 months and coast of 10M. Also maintains with 20K per anum.

Annual benefit of the system is expected to be 20M.

Case1: coast is less but need 18 months more to complete the project as compared with 2nd case.

case 2: coat is higher but if the system is installed within 6 months it can manage as a profit centre and it can earn 20k(1 full year)+10K(for 6 months) . and a part of that can be spend for maintanance also.

Comparing to case 1 case 2 is beneficial as well as more efficient.

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