Based on your earlier recommendations, Willowbrook decided to continue the systems development process for a new information system that would improve operations, decrease costs, and reduce some of the administrative workload.

Willowbrook would like you to create a financial report that will define the costs and benefits of this project. You must examine tangible costs and benefits to determine the economic feasibility of several alternatives. The finance and fundraising committees will need to examine the costs and benefits to determine if the development process will go ahead. If Willowbrook School decides to go ahead with the development process, the system can either be developed in-house or a vertical package can be purchased and configured to meet the needs of the school.

Currently, Susan Brown is logging 30 hours of overtime a month to accomplish the increased workload associated with increased enrollment and school expansion. She is being compensated for overtime at the rate of $12 per hour. Based on current enrollment projections, the overtime will need to be expanded to 70 hours a month for the billing requirements for the next school year as the final grade in the 4-6 classroom comes online. The overtime requirement would be eliminated if Willowbrook implements the new system. The current system now causes an average of twenty errors per month, and each error takes about 30 minutes to correct. The new system should eliminate those errors.

Based on your research, you originally estimated by working full-time you could complete an in-house development project in about 8 weeks. Your consulting rate, which Willowbrook agreed to, is $50 per hour. If you design the new system as a database application, you can expect to spend about $2,000 for a networked commercial package. One of the parents at Willowbrook has extensive experience with this package as a Database Administrator at a local company and has committed to providing 15 hours per week working with you to develop the project. You have agreed to reduce your estimate to 25 hours per week for 8 weeks to take advantage of this offer. After the system is operational and the staff is trained, you hope that Willowbrook staff and volunteers can handle routine maintenance tasks without your assistance.

As an alternative to in-house development, a vertical software package is available for about

$7,500. The vendor offers a lease-purchase package of $2,500 down, followed by two annual installments of $2,500 each. If Willowbrook buys the package, it would take you about three weeks to install, configure, and test it, working full-time. The vendor provides free support during the first two years of operation, but then Willowbrook must sign a technical support agreement at an annual cost of $500. Although the package contains many of the features that Willowbrook wants, most of the reports are pre-designed and it would be difficult to modify their layouts.

You have agreed to provide 5 hours per week of training and support for the first two months of operation. After the new system is operational, it will need routine maintenance, file backups, and updating. These tasks will require about four hours per week and will be performed by school staff or parent volunteers (use the overtime rate of $12 per hour for maintenance).

For both the in-house development and the vertical software package, the necessary hardware will cost about $3,000. Hardware and network installation will be provided by three parent volunteers.

In your view, the useful life of the system will be about five years, including the year in which the system becomes operational.

The development of the new system will occur in Year 0, but the system will not be used until Year 1. The school will use the manual system during development and will switch over to the new system during the month of June, to start the new school year on the new system.

TASKS:

1. Costs and Benefits
   1. Itemize each cost for Willowbrook School.
   2. Itemize each benefit for Willowbrook School.
2. Payback
   1. Discuss payback analysis.
   2. Determine the payback for Willowbrook School using the costs and benefits determined in section 1 for Plan A (In-house development) and Plan B (Purchase Vertical Software Package):

Payback Analysis Template Note: Cells C8:C14 and E8:E14 contain formulas to accumulate costs and benefits Year Costs Cumulative Benefits Cumulative Costs Benefits OUAON-ONet Present Value (NPV) Template The formula in cell C18 will calculate NPV when values are entered in cells B10:H11 and B14:H15 Note: Cells B12:H12 and B16:H16 contain formulas to multiply discount factors * benefit and cost values Cells 112 and I16 contain adjusted cost and benefit totals Cell C18 contains the calculation for net present value (NPV) Year Year Year Year Year Year Year Total 0 2 3 4 5 6 Benefits Factor PV of Benefits Costs Factor PV of Costs Net Present Value:Return on Investment (ROI) Template The formula in cell C17 will calculate ROI when values are entered in cells B8:B14 and D8:D14 Note: Cells C8:C14 and E8:E14 contain formulas to accumulate costs and benefits Cell C17 contains formula to calculate ROI Year Costs Cumulative Benefits Cumulative Costs Benefits OUADNO ROI: #DIV/OI