Improving Decision Making: Making the Rent vs.

Buy Decision for Hardware and Software

•Use your spreadsheet software to calculate the total cost of renting or purchasing this software
over a three-year period. Identify the lowest-price alternative that meets Dirt Bikes’s
requirements.

Option 1
Total cost of purchasing software

Expenses Year 1 Year 2 Year 3

Number of Users 25 25 25
Software License
Fee 100,000.00 - -

Software Upgrades 5,000.00 5,000.00 5,000.00

Customization Cost 20,000.00 - -

Hardware
Installation 4,000.00 - -
Users Training
Cost 10,000.00 - -
29,174.0
Technical Support 27,500.00 28,325.00 0
34,174.0
Annual Total 166,500.00 33,325.00 0

Total 3 Year Cost 233,999.00    

Note: For technical support, information systems specialist devoting half of his or her time to
supporting the software and a 3% annual salary increase each year after the first year.
Option 2
Total cost of renting software
Expenses Year 1 Year 2 Year 3
Number of Users 25 25 25
Software Rental Fee ($2500 62,500.0 62,500.0
Per User) 62,500.00 0 0

Customization Cost 12,000.00 - -

User Training 10,000.00 - -

62,500.0 62,500.0
Annual Cost 84,500.00 0 0
       
209,500.0
Total 3 Year Cost 0    
The total cost of purchasing this software over a three-year period is $233999, and the total cost
of renting this software over a three-year period is $209500. So, the total 3-year cost of renting
software is less expensive than purchasing it and using software requires less management than
Dirt Bikes purchasing and running its software. However, there are other factors to consider-the
functionality of the hosted software versus purchased software, the flexibility of the hosted
software compared to in-house resources, and the reliability and reputation of the hosted
software vendor.

 What other factors should Dirt Bikes consider besides cost in determining whether to rent
or buy the hardware and software?
Besides cost in determining whether to rent or buy the hardware and software, we ought to also
consider other hardware and software costs include ongoing administration costs for hardware
and software upgrades, maintenance, technical support, training, and even utility and real estate
costs for running and housing the technology. “Hidden costs” for support staff, downtime, and
supplementary network management are difficult to compute but very necessary.