PGMP · Question #116
You are trying to determine if you should buy or build a solution for your program. If you build the solution it'll cost you $45,000 to create and $7,000 per month to support. A vendor reports that…
The correct answer is A. Build the solution if you'll use it longer than 22 months. This is a break-even analysis. Building costs $44,000 more upfront ($45,000 − $1,000) but saves $2,000 per month ($9,000 − $7,000). Break-even point = $44,000 ÷ $2,000/month = 22 months. If the solution will be used longer than 22 months, building is cheaper because the monthly…
Question
You are trying to determine if you should buy or build a solution for your program. If you build the solution it'll cost you $45,000 to create and $7,000 per month to support. A vendor reports that they can create the solution for you for $1,000 but you'll have to pay them $9,000 per month to support the solution. Should you buy or build this solution?
Options
- ABuild the solution if you'll use it longer than 22 months.
- BBuy the solution if you'll use it longer than 24 months.
- CBuy the solution if you'll use it longer than 22 months.
- DBuild the solution if you'll use it longer than 25 months.
How the community answered
(36 responses)- A86% (31)
- B8% (3)
- C3% (1)
- D3% (1)
Explanation
This is a break-even analysis. Building costs $44,000 more upfront ($45,000 − $1,000) but saves $2,000 per month ($9,000 − $7,000). Break-even point = $44,000 ÷ $2,000/month = 22 months. If the solution will be used longer than 22 months, building is cheaper because the monthly savings eventually offset the higher upfront cost. Therefore, 'Build the solution if you'll use it longer than 22 months' is correct. The other options either state the wrong action (buy vs. build) or the wrong break-even month count.
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