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Exam CBAP topic 1 question 55 discussion

Actual exam question from IIBA's CBAP
Question #: 55
Topic #: 1
[All CBAP Questions]

You are the business analyst for the TGH Organization and are determining if you should buy or build a solution for your company. You have determined that you can create the in-house solution for $78,000 with a monthly support cost of $8,765. A vendor can create the solution for $61,000 with a monthly support costs of
$7,990.
How long will it take your company to break even if you choose the internal solution versus the vendor's solution?

  • A. 36 months
  • B. 12 months
  • C. 6 months
  • D. 22 months
Show Suggested Answer Hide Answer
Suggested Answer: D 🗳️
by mismango at July 31, 2020, 12:46 p.m.

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Banafa
Highly Voted 3 years, 6 months ago
need to find the common variable used in make or buy which is here number of months. Alt (make) the Break point = 61000 + 7990 * N where N number of months Alt (buy) the Break point = 78000 + 8765 * N where N number of months at break point value the two alternarives are equal 61000 + 7990 * N = 78000 + 8765 * N N=21.935
upvoted 15 times
binu801
2 years, 9 months ago
by solving this equation, we will get a negative value of N, the question is incorrect.
upvoted 4 times
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km_45
Highly Voted 3 years, 2 months ago
there is an error in the numbers: the cost (or support) should be switched to break even at 22 months. Otherwise, they would never ever break even: the first solution is more expensive both in cost and support.
upvoted 10 times
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Farooq_95
Most Recent 3 weeks, 4 days ago
The internal solution will never break even because its costs will always be higher than the vendor's cost. The vendor's cost are always beneficial as its fixed as well as variable costs are lower compared to internal solution's cost. As the time passes, the internal solution tends to cost more compared to internal solution. This is also justified by negative N value resulted from solving the equation: $78,000 + $8,765*N = $61,000 + $7,990*N
upvoted 1 times
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NuriaIzard
1 year, 6 months ago
It is true that the values for the monthly costs are reversed. Like this, the number of months would be negative since the two functions would never meet, as Olivier said
upvoted 1 times
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Hong_i
1 year, 7 months ago
Buy: $86765 Make: $68990 Implementation cost difference: $17775 Monthly cost difference: $775 Implementation cost difference: $17775/Monthly cost difference: $775 =22.93 months to break even. Nearest answer D
upvoted 1 times
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ElyonSenjo
1 year, 11 months ago
out of scope of BABOK v3
upvoted 1 times
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OlivierPaudex
2 years, 1 month ago
makavely007 answer is correct, only if we reverse the monthly cost. Without that, there is no chance that second solution will break first one
upvoted 1 times
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SavvyBA
2 years, 4 months ago
This is a tricky question. I think the way it is written throws me off, but ultimately I see that the "break even" is referring to how much time will it take to offset the extra expenses that would have been saved up front. E.g., if the company had chosen the vendor's solution, they would have immediately realized and equivalent of 22 months of savings vs. the internal solution.
upvoted 1 times
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makavely007
2 years, 5 months ago
Monthly extra cost for in-house solution=$8765-$7990=$775 Extra cost expended in a year for in-house solution against vendor solution=$78000-$61000=$17000 How many months would it take to cover extra yearly cost at $775 monthly=$17000/$775=21.935 or 22months
upvoted 5 times
AnyU
2 years, 2 months ago
The logic used for the solution does not make any sense.
upvoted 2 times
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eiadsaadah
3 years, 8 months ago
me too
upvoted 1 times
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mismango
3 years, 8 months ago
I would like to find out the formula that got us 22 month
upvoted 2 times
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