Assignment:
As Larry saw it he had to choose from one of three options. Which is the best formal recommendation and why?
1. Upgrade to the new APS system. This was the easiest, but could be the most expensive solution. APS proposed to charge FMS a one-time licensing fee of $425,000 for this upgrade.
2. License the old APS System. Under this option FMS would need to pay APS a one-time fee of $350,000. In addition, FMS IT would need to buy additional hardware to run the software, which currently ran on APS servers. They would also need to train several members of the staff to support the product. IT estimated that in the best case these costs would be $100,000 and in the worst case they would be $200,000. Billy estimated a 70% probability they could achieve the best case alternative under this option.
3. Build the system from scratch. Under this option Billy's IT staff would develop a custom payroll system. Billy's staff planned to do the design work and would use contractors to write and test the code. Billy was 70% sure he could get the system up and running for $350,000. He felt there was a 25% chance that they would need to hire additional contractors for an additional cost of 150,000. Billy did concede that if they required additional resources there was a 5% chance they would run out of time in which case FMS would have to scrap their investment in custom development and buy the new FMS system. If this were to happen, FMS would have to spend a total of $925,000. ($500,000 on scrapped custom development, plus $425,000 to upgrade to the new APS system.)