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Certified Business Analysis Professional (CBAP) · IIBA
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We divide the difference in upfront costs ($17,000) by the monthly savings ($775) to find out how many months it will take to "break even". Think of it like this: - The difference in upfront costs ($17,000) is like a "debt" that the "do it yourself" option needs to pay off. - The monthly savings ($775) is like a monthly "payment" that the "do it yourself" option makes towards paying off that "debt". By dividing the "debt" ($17,000) by the monthly "payment" ($775), we get the number of months it will take to pay off the "debt" and break even. Make sense?
well explained. makes so much sense
Let's break it down in simple terms: Imagine you have two options to get something done: Option 1: Do it yourself ( internal solution ) Option 2: Hire someone else to do it ( vendor's solution ) The cost of doing it yourself is $78,000 upfront, and then you'll pay $8,765 every month to maintain it. The cost of hiring someone else is $61,000 upfront, and then you'll pay $7,990 every month to maintain it. The question is: how long will it take for the "do it yourself" option to be cheaper than hiring someone else? To find the answer, we calculate the difference in upfront costs ($78,000 - $61,000 = $17,000) and the difference in monthly costs ($8,765 - $7,990 = $775). Then, we divide the difference in upfront costs ($17,000) by the monthly savings ($775), which gives us approximately 22 months. So, it will take about 22 months for the "do it yourself" option to be cheaper than hiring someone else.