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RFID, Business Intelligence (BI), Mobile Computing, and the Cloud
for two weeks. This includes a training consultant to run classes at Fitter
headquarters. With travel and lodging, the total cost is $23,000.
• Ongoing consulting—Once the system is up and running, Fitter will need to
pay for consultants to help maintain the system. Fitter believes that having
consultants come in once a month should be sufficient for handling ongoing
issues such as bug resolution and minor updates to the system. The
consulting fees are estimated to be $3,000 per day, with a total annual cost
of $36,000.
• Network and database administrator—Fitter would need a full-time network
and database administrator to run the system. Salary, including benefits, for
a skilled person is $200,000 per year.
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Option 2: Using an SaaS Provider to Deliver ERP Software
The other option available to Fitter is to use an SaaS provider to deliver ERP software.
Estimated costs for this option are as follows:
• PCs—Fitter estimates that it would still need to purchase 10 new PCs with
this option because many more users will now be accessing the computer
system. Each PC costs $1,500, for a total of $15,000.
• Computer maintenance—The maintenance contract on the additional PCs
would be $600 per month, or $7,200 yearly. Because Fitter would not need to
purchase additional servers, the maintenance costs are less with this option.
• Software through the SaaS provider—The monthly cost of delivering ERP
software to Fitter over the Web is $33,333—or $400,000 yearly.
• User training—Training of Fitter employees is provided by the SaaS provider
as part of the monthly software fee.

Calculate the NPV and Make a Recommendation
In the next part of this exercise, you will set up a spreadsheet to total all the costs of each
option. In each scenario, you must deal with the net present value (NPV) of money.
NPV is a way to figure out whether an investment is profitable, or in this case, to
compare outlay of funds from one method to another. NPV addresses the time value of
money—that is, being paid one dollar today is worth more than being paid one dollar a
year from now. Because of the time value of money, if a firm is borrowing the money for
an investment, they have to pay interest on that money. If they have cash on hand to
finance the investment, the company still needs to consider that the cash could be
invested in other ways that would pay the firm interest. When analyzing an investment, a
firm must consider the time value of money, and performing a NPV calculation is a
common way to do that by adjusting future earning or expenses based on an assumed
interest rate. When calculating two different investment options, the NPV calculation
allows different future expenses or earnings to be calculated as an equivalent amount in
the present time. For example, earning $10,000 dollars one year from now might be
equivalent to having $9,345.79 today. NPV can be calculated over a number of years; in
our case, we need a five-year outlay of funds for the ERP project. In an Excel spreadsheet,
the syntax of the NPV calculation is =NPV (hurdle rate percentage, range of values). The
values in the range can be positive or negative numbers. In our case, they are all outflows,

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