About twice a year a switch fails in a company's network center. Under the maintenance contract, the switch would be replaced in two hours losing the business $1,000 per hour. The cost of a spare…

Question

Options

• AIt is more cost-effective to eliminate the maintenance contract and purchase a replacement
• BIt is more cost-effective to purchase a spare switch prior to an outage and eliminate the
• CIt is more cost-effective to keep the maintenance contract instead of purchasing a spare
• DIt is more cost-effective to purchase a spare switch prior to an outage and keep the

• A
  4% (1)
• B
  12% (3)
• C
  4% (1)
• D
  81% (21)

Explanation

Annual downtime cost with maintenance contract only: 2 failures × 2 hours × $1,000 = $4,000 + $1,500 contract = $5,500/year. Purchasing a spare switch ahead of time eliminates downtime (saving $4,000/year), while the maintenance contract ($1,500/year) ensures that after the spare is deployed, the contract quickly replenishes it - preventing the 12-hour delivery delay that would create downtime on the next failure. Eliminating the maintenance contract (Option B) means after using the spare, the next failure incurs 12 hours of downtime ($12,000) while waiting for a new spare. Keeping only the contract (Option C) still incurs $5,500/year. Option A eliminates the contract and orders reactively, creating massive 12-hour downtime costs. Option D (spare + contract) is the most cost-effective combined strategy.

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