To calculate the break-even point, we need to compare the total costs of the internal solution and the vendor’s solution over time. The internal solution has a higher initial cost ($78,000) and a higher monthly cost ($8,765) than the vendor’s solution ($61,000 and $7,990 respectively). Therefore, the internal solution will take longer to break even with the vendor’s solution. The formula for the break-even point is:
Break-even point = (Initial cost difference) / (Monthly cost difference)
Plugging in the numbers, we get:
Break-even point = ($78,000 - $61,000) / ($8,765 - $7,990) Break-even point = $17,000 / $775 Break-even point = 21.94 months
Rounding up to the nearest whole month, we get 22 months as the break-even point. References: This question is based on the concept of financial feasibility analysis, which is part of the business analysis planning and monitoring knowledge area in the BABOK® Guide. Financial feasibility analysis is the process of comparing the costs and benefits of different solutions to determine the optimal one for the organization. One of the techniques for financial feasibility analysis is break-even analysis, which calculates the point in time when the costs of a solution equal the benefits of the solution. You can find more information about financial feasibility analysis and break-even analysis in the following sources:
BABOK® Guide, section 3.4.5.5, pages 76-77
CBAP / CCBA Certified Business Analysis Study Guide, chapter 3, pages 85-86
Certified Business Analysis Professional™ (CBAP®) | Coursera, course 2, week 3, video 3.3
