You know that UWGs current workload requires six hours of office staff overtime per week at a base rate of $15 per hour. In addition, based on current projections, UWG will need to add another full-time clerical position in about six months. Neither the overtime nor the additional job will be needed if UWG implements the new system. The current manual system also causes an average of three errors per day, and each error takes about 20 minutes to correct. The new system should eliminate those errors.

You estimate that by working full-time you could complete the project in about 12 weeks. Your consulting rate, which UWG agreed to, is $35 per hour. If you design the new system as a database application, you can expect to spend about $2,500 for a networked commercial package. After the system is operational and the staff is trained, UWG should be able to handle routine maintenance tasks without your assistance.

As an alternative to in-house development, a vertical software package is available for about $12,000. The vendor offers a lease-purchase package requiring a $4,000 down payment, followed by two annual installments of $4,000 each. If UWG buys the package, it would take you about four weeks to install, configure, and test it, working full-time. The vendor provides free support during the first year of operation, but then UWG must sign a technical support agreement at an annual cost of $600. Although the package contains many of the features that UWG wants, most of the reports are pre-designed and it would be difficult to modify their layouts.

No matter which approach is selected, UWG probably will need you to provide about 10 hours of initial training and support each week for the first three 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 can be performed by a clinic staff member. In both cases, the necessary hardware and network installation will cost about $12,500. In your view, the useful life of the system will be about five years, including the year in which the system becomes operational.

Tasks

1. Provide an overview of the proposed system, including costs and benefits, with an explanation of the various cost-benefit types and categories.

2. Develop an economic feasibility analysis. Calculate the ROI and net present value (assume a discount rate of 10%).

3. Provide a brief explanation of the various alternative development strategies that should be investigated if development continues, including in-house development and any other possible strategies that you have considered.

COST BENEFIT TABLE Cost or Benefit Eliminate three hours of overtime each week at $15 per hour Financial Impact Annual savings of 6 hours * $15 hourly rate * 52 weeks * 1.5 overtime factor = $7,020 (six months of impact, or $3,510, will be available in Year 0) Description of Cost or Benefit Direct, operational, variable, positive benefit Discount Rate 10% Data For Plan A: In-House Development Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Costs: Consultant time to develop system Purchase necessary software platform Hardware Consultant training time Office staff maintenance, backup and updating Total Costs: Benefits: Eliminate overtime Eliminate additional position Eliminate daily errors Total Benefits: Cash Flow ROI = (Total Benefits - Total Costs) / Total Cos ??? NPV $0.00 Year 1 Year 2 Year 3 Year 4 Year 5 Data For Plan B: Purchase Vertical Software Package Year o Costs: Purchase price for vendor package Tech support contract Consultant time to install, configure, and test Hardware Consultant training time Office staff maintenance, backup and updating Total Costs: Benefits: Eliminate overtime Eliminate additional position Eliminate daily errors Total Benefits: Cash Flow ROI = (Total Benefits - Total Costs) / Total Cos??? NPV $0.00 Cost-Benefit Summary Costs Benefits Description 16,800.00 4,200.00 Developmental Developmental Cost-Benefit Item Plan A: In-House Development Consultant time to develop system Purchase necessary software platform Plan B: Purchase Vertical Software Package Purchase price for vendor package Tech support contract Consultant time to install, configure, and test Cost & Benefits Common to Both Plans Hardware Consultant training time Office staff maintenance, backup and updating Eliminate overtime Eliminate additional position Eliminate daily errors 12,000.00 600.00 5,600.00 Developmental Operational After Year 1 Developmental 12,500.00 4,500.00 3,120.00 Developmental Developmental Per Year Costs (prorate for 1st Year) 7,020.00 Operational(prorate for 1st Year) 31,200.00 Operational (prorate for 1st Year) 3,900.00 Operational (prorate for 1st Year) Development Strategy Overview COST BENEFIT TABLE Cost or Benefit Eliminate three hours of overtime each week at $15 per hour Financial Impact Annual savings of 6 hours * $15 hourly rate * 52 weeks * 1.5 overtime factor = $7,020 (six months of impact, or $3,510, will be available in Year 0) Description of Cost or Benefit Direct, operational, variable, positive benefit Discount Rate 10% Data For Plan A: In-House Development Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Costs: Consultant time to develop system Purchase necessary software platform Hardware Consultant training time Office staff maintenance, backup and updating Total Costs: Benefits: Eliminate overtime Eliminate additional position Eliminate daily errors Total Benefits: Cash Flow ROI = (Total Benefits - Total Costs) / Total Cos ??? NPV $0.00 Year 1 Year 2 Year 3 Year 4 Year 5 Data For Plan B: Purchase Vertical Software Package Year o Costs: Purchase price for vendor package Tech support contract Consultant time to install, configure, and test Hardware Consultant training time Office staff maintenance, backup and updating Total Costs: Benefits: Eliminate overtime Eliminate additional position Eliminate daily errors Total Benefits: Cash Flow ROI = (Total Benefits - Total Costs) / Total Cos??? NPV $0.00 Cost-Benefit Summary Costs Benefits Description 16,800.00 4,200.00 Developmental Developmental Cost-Benefit Item Plan A: In-House Development Consultant time to develop system Purchase necessary software platform Plan B: Purchase Vertical Software Package Purchase price for vendor package Tech support contract Consultant time to install, configure, and test Cost & Benefits Common to Both Plans Hardware Consultant training time Office staff maintenance, backup and updating Eliminate overtime Eliminate additional position Eliminate daily errors 12,000.00 600.00 5,600.00 Developmental Operational After Year 1 Developmental 12,500.00 4,500.00 3,120.00 Developmental Developmental Per Year Costs (prorate for 1st Year) 7,020.00 Operational(prorate for 1st Year) 31,200.00 Operational (prorate for 1st Year) 3,900.00 Operational (prorate for 1st Year) Development Strategy Overview