Comparison of Costs: Internal Solution vs. Vendor Solution
Question
You are the project manager for your organization.
You have identified a risk event youre your organization could manage internally or externally.
If you manage the event internally it will cost your project $578,000 and an additional $12,000 per month the solution is in use.
A vendor can manage the risk event for you.
The vendor will charge $550,000 and $14,500 per month that the solution is in use.
How many months will you need to use the solution to pay for the internal solution in comparison to the vendor's solution?
Answers
Explanations
Click on the arrows to vote for the correct answer
A. B. C. D.B.
To determine the number of months needed to use the vendor's solution to pay for the internal solution, we need to compare the total costs of both options over time.
For the internal solution:
- Initial cost: $578,000
- Monthly cost: $12,000
For the vendor's solution:
- Initial cost: $550,000
- Monthly cost: $14,500
To find the break-even point, we need to calculate when the total cost of the vendor's solution will equal the total cost of the internal solution:
Let X be the number of months we need to use the solution. Total cost of internal solution = 578,000 + 12,000X Total cost of vendor's solution = 550,000 + 14,500X
We set them equal to each other:
578,000 + 12,000X = 550,000 + 14,500X
We subtract 550,000 from both sides:
28,000 + 12,000X = 14,500X
We subtract 12,000X from both sides:
28,000 = 2,500X
We divide both sides by 2,500:
X = 11.2
So it will take approximately 11 months to reach the break-even point. Therefore, the answer is B. Approximately 11 months.
