BKFin provides banks access to sophisticated financial information and analysis systems over the Web. The company combines these tools with benchmarking data access, including e-mail and wireless communications, so that banks can instantly evaluate individual loan applications and entire loan portfolios.
BKFin 's CEO Jon Wise is happy with the company's growth. To better focus on client service, Wise is considering outsourcing some functions. CFO Jenny Lee suggests that the company's e-mail may be the place to start. She recently attended a conference and learned that companies like Continental Airlines, DellNet, GTE, and NBC were outsourcing their e-mail function. Wise asks Lee to identify costs related to BKFin 's in-house Microsoft Exchange mail application, which has 2,300 mailboxes. This information follows:
Variable costs:
E-mail license............................................................................ $7 per mailbox per month
Virus protection license ............................................................ $1 per mailbox per month
Other variable costs.................................................................. $8 per mailbox per month
Fixed costs:
Computer hardware costs......................................................... $94,300 per month
$8,050 monthly salary for two information technology
staff members who work only on e-mail ............................... $16,100 per month
Requirements
1. Compute the total cost per mailbox per month of BKFin 's current e-mail function.
2. Suppose Mail , a leading provider of Internet messaging outsourcing services, offers to host BKFin 's e-mail function for $9 per mailbox per month. If BKFin outsources its e-mail to Mail , BKFin will still need the virus protection software, its computer hardware, and one information technology staff member, who would be responsible for maintaining virus protection, quarantining suspicious e-mail, and managing content (e.g., screening e-mail for objectionable content). Should CEO Wise accept Mail 's offer?
3. Suppose for an additional $5 per mailbox per month, Mail will also provide virus protection, quarantine, and content-management services. Outsourcing these additional functions would mean that BKFin would not need either an e-mail information technology staff member or the separate virus protection license. Should CEO Wise outsource these extra services to Mail?