Question

Initial cost estimates: for acquisition, $4000 per developer seat; for maintenance, $800 per year. There are 15 developers on staff, with an average annual salary of $70000.

What would the improvement in developer productivity need to be for the company to break even (costs == benefits) at the end of the firstyear? Show the calculations that result in your answer.

What would the improvement in developer productivity need to be for the company to break even at the end of the second year? Show the calculations that result in your answer.

Are there additional factors that are not mentioned above that should be included when calculating costs? If so, what are they?

I do not have the PV Rate

Answer 1

Fixed cost = 4000*15 = $60000

Annual maintenance cost = $800

Annual salary cost = 70000*15 = $1050000

So, total cost for the first year = 60000+800+1050000 = $1110800

To achieve the break even,

the total cost = total benefit = $1110800

So, in the first year there should be improvement in productivity of $1110800 to achieve the breakeven.

For the second year,

Total cost = 800 + 1050000 = $1050800

To achieve the break even in the second year, there needs to be improvement in productivity of $1050800.

Additional cost such as utility & security system, inflation rate, exchange rate fluctuation as well as forecasting of the business development economic scenario are not considered. It will cause the significant impact upon the productivity.