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Problem 2 – Make versus Buy

(Outsource):

Real Estate Nerds Co. needs a new designing software for providing potential client with a clear 5D design of their home if they choose to remodel it using the company’s designs. Currently they design for 1,000 clients annually. Software engineering resources (personnel and lab) to complete the development of the software will cost $3,000 per week. If the engineers don’t work on this project, they will be assigned to another. The approximate cost per usage of their own software is estimated to be $50/design usage which includes labor costs for an individual to input the customer data and overhead costs.

Software Solutions, Inc., already has a 6D model software that is already developed and is very similar to the one that Real Estate Nerds needs. If the Nerds choose to outsource this software usage, Software Solution can make the necessary changes to suit what the Nerds need in just 4 weeks, at a price of $60/design usage. With Software Solutions version of the software, customers can put in their own data and no additional overhead would be incurred.

Required:

1.     Should Real Estate Nerds go forward with their own software, or should it accept Software Solution’s offer?

2.     If Real Estate Nerds decided to outsource the new module to Software Solution, how much would the other projects that Real Estate Nerds’ engineers work on have to return/save to make outsourcing financially beneficial?

ScholarMatic: Explanation & Answer

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