A state agency is considering two mutually exclusive alternatives for upgrading the skills of its technical staff. Alternative 1 involves purchasing software that will reduce the time required to collect background information on each client. The total cost for the purchase, installation, and training associated with the new software is $840,900. The present worth of the benefits from increased efficiency is expected to be $1,020,000. Alternative 2 involves developing multimedia training to improve the performance of the staff technicians. The total cost to develop, install, and train the technicians will be $1,780,000. The present worth of the benefits from increased performance due to training is expected to be $1,850,000. Use a B/C analysis to determine which alternative, if any, the
agency should undertake.
What will be an ideal response?
DN is an option. Rank alternatives by increasing PW of total costs: DN, 1, 2
1 vs. DN: B/C = 1,020,000/840,900
= 1.21 eliminate DN
2 vs. 1: ?B = 1,850,000 – 1,020,000
= $830,000
?C = 1,780,000 – 840,900
= $939,100
?B/C = 830,000/939,100
= 0.88 eliminate 2
Select Alternative 1
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