BUS100: Question 2 Terry is Confident of Winning the “Health Buddies” Manpower Tender: Business Skills and Management Assignment, SUSS, Singapore

Question 2

Terry is confident of winning the “health buddies” manpower tender. At the same time, he is worried. There is so much paperwork to be done in order to recruit a great number of candidates in a short period of time. The computers in the office are good only for word-processing and printing. He decided to invest in an Information System (IS) for the future of his business. He found two off-the-shelf systems that he could procure quickly: i) Basic Talent Scout IS priced at $60,000, and ii) Enterprise HR IS priced at $600,000. And he needs to make a decision as to which of these two systems he should purchase.

Besides maintaining employee data, the Enterprise HR system has a rich set of features including payroll processing, claims management, leave process automation, and performance appraisal tracking. These can also be accessed online over the Internet by both the staff and the HR personnel. However, it will require yearly system maintenance for bug fixes and enhancements which will cost an additional 15% of the system cost in the first year. This maintenance cost will increase by 9% each year. By comparison, the Basic Talent Scout system is focused only on recruitment processing, but it is cheaper and requires no maintenance. Both vendors have advised that the commercial lifetime of their systems is 6 years.

To conserve cash, Terry plans to use a bank loan to finance the purchase. His corporate bank charges a preferential rate of 4% per annum, but any loan taken must be repaid in equal installments on a monthly basis for a duration of 6 years. He has also been advised by his accountant that the required return on investment for any company investment is 12%.

Coincidentally, Terry learned of another tender being put out by the Ministry of Health to manage the HR affairs of the health buddies after the pandemic subsides, which is predicted to be within 3 to 4 months. However, there will still be remnant asymptomatic patients that need to be cared for. Hence, it expects to retain some 15,000 health buddies for the long-term. And this will grow at a rate of 5% per year as their job role will be gradually re-scoped for elderly-care moving forward into the future. The tender requires the supplier to provide automated online HR services that provide leave management, claims processing and employee data-keeping, and performance report tracking. The tender states an indicative service fee of between $24 to $35 per head per year. Suppliers will have to compete on price and service reliability.

a. Compose a model to analyze the bank loan needed to finance the purchase of the 2 alternative information systems at the indicated prices. Compare the monthly installments needed to repay the loan. What is the total amount of interest to be paid on each of the loans? What is the equivalent annual interest to be paid on each of these loans? State any assumptions needed by your model.

b. Determine which information system Talent Finder should invest in. Justify your answer quantitatively with a suitable analytical model. Is the investment worthwhile based on your analytical model? Explain your recommendations.