Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 1 The Feasibility Study What is a feasibility study? What to study and conclude?

Department of Computer Science

© Castro, Mylopoulos and Easterbrook 2002 1

The Feasibility Study

What is a feasibility study? What to study and conclude?

Types of feasibility Operational Technical Schedule Economic

Quantifying benefits and costs Payback analysis Net Present Value Analysis Return on Investment Analysis

Comparing alternatives



Why a feasibility study? Objectives of a feasibility study:

To find out if an information system project can be done: ...is it possible? ...is it justified?

To suggest possible alternative solutions. To provide management with enough information to know:

Whether the project can be done Whether the final product will benefit its intended users What the alternatives are (so that a selection can be made in subsequent phases) Whether there is a preferred alternative

After a feasibility study, management makes a “go/no-go” decision.

A feasibility study is a management-oriented activity



Content of feasibility study Things to be studied in the feasibility study:

The present organizational system users, policies, functions, objectives,...

Problems with the present system inconsistencies, inadequacies in functionality, performance,…

Objectives and other requirements for the new system Which problems need to be solved? What needs to change?

Constraints including nonfunctional requirements on the system (preliminary pass)

Possible alternatives “Sticking with the current system” should always be studied as one alternative Different business processes for solving the problems Different levels/types of computerization for the solutions

Advantages and disadvantages of the alternatives

Things to conclude: Feasibility of the project The preferred alternative.



Types of feasibility Operational feasibility

Explores the urgency of the problem and the acceptability of any solution:

If the system is developed, will it be used? Includes people-oriented and social

issues internal issues:

manpower problems labour objections manager resistance organizational conflicts and policies

external issues: social acceptability legal aspects and government regulations.

Technical feasibility Is the project feasibility within the limits

of current technology? Does the technology exist at all? Is it available within given resource

constraints? i.e. budget, schedule,…

Schedule feasibility Is it possible to build a solution in time

to be useful: What constraints are there on the project

schedule? Can these constraints be reasonably

met?

Economic feasibility (Cost/Benefits Analysis)

Is the project possible, given resource constraints?

What benefits will result from the system?

Look for both tangible and intangible benefits

Quantify the benefits (e.g. cost savings) What are the development and

operational costs? Are the benefits that will accrue worth

the costs?



Exploring Operational Feasibility The “PIECES” framework

Useful for identifying operational problems to be solved, and their urgency Performance

Does current system provide adequate throughput and response time? Information

Does current system provide end users and managers with timely, pertinent, accurate and usefully formatted information?

Economy Does current system provide cost-effective information services to the business?

Could there be a reduction in costs and/or an increase in benefits? Control

Does current system offer effective controls to protect against fraud and to guarantee accuracy and security of data and information?

Efficiency Does current system make maximum use of available resources, including people,

time, flow of forms,...? Services

Does current system provide reliable service? Is it flexible and expandable?



Checking for Operational Feasibility How do end-users and managers feel about…

…the problem you identified? …the alternative solutions you are exploring?

You must evaluate: Not just whether a system can work… … but also whether a system will work.

A workable solution might fail because of end user or management resistance:

Does management support the project? How do the end users feel about their role in the new system? Which users or managers may resist (or not use) the system?

People tend to resist change. Can this problem be overcome? If so, how?

How will the working environment of the end users change? Can or will end users and management adapt to the change?



Technical Feasibility Is the proposed technology or solution practical?

Do we currently possess the necessary technology? Do we possess the necessary technical expertise, and is the schedule

reasonable? Is relevant technology mature enough to be easily applied to our problem?

What kinds of technology will we need? Some organizations like to use state-of-the-art technology

…but most prefer to use mature and proven technology. A mature technology has a larger customer base for obtaining advice

concerning problems and improvements.

Is the required technology available in the information systems shop (in house)?

If the technology is available: …does it have the capacity to handle the solution?

If the technology is not available: …can it be acquired?



Schedule Feasibility How long will it take to get the technical expertise?

We may have the technology, but that doesn't mean we have the skills required to properly apply that technology.

True, all information systems professionals can learn new technologies. However, that learning curve will impact the schedule.

Assess the schedule risk: Given our technical expertise, are the project deadlines reasonable? If there are specific deadlines, are they mandatory or desirable?

If the deadlines are desirable rather than mandatory, the analyst can propose alternative schedules.

What are the real constraints on project deadlines? If the project overruns, what are the consequences?

Deliver a properly functioning information system two months late… …or deliver an error-prone, useless information system on time?

Missed schedules are bad, but inadequate systems are worse!



Economic Feasibility Can the bottom line be quantified yet?

Very early in the project, economic feasibility analysis is just a judgement of whether possible benefits of solving the problem are worthwhile.

As soon as specific requirements and solutions have been identified, the costs and benefits of each alternative can be assessed

Cost-benefit analysis Purpose - answer questions such as:

Is the project justified (because benefits outweigh costs)? Can the project be done, within given cost constraints? What is the minimal cost to attain a certain system? What is the preferred alternative, among candidate solutions?

Examples of things to consider: Hardware/software selection How to convince management to develop the new system Selection among alternative financing arrangements (rent/lease/purchase)

Difficulties discovering and assessing benefits and costs… …they can both be intangible, hidden and/or hard to estimate ranking multi-criteria alternatives



Benefits and Costs Examples of benefits

cost reductions error reductions increased throughput increased flexibility of operation improved operation better (e.g., more accurate) and more

timely information. Benefits may be:

Monetary: if $-values can be calculated

Tangible (Quantified): if benefits can be quantified, but $-values

can't be calculated Intangible

if neither of the above applies

How to identify benefits? By organizational level (operational,

lower/middle/higher management) By department (production, purchasing,

sales,…)

2 Types of Cost Development costs (OTO)

Development and purchasing costs: who builds the system (internally or

contracted out)? software used (buy or build)? hardware (what to buy, buy/lease)? facilities (site, communications, power,...)

Installation and conversion costs: installing the system, training personnel, file conversion,....

Operational costs (on-going) System Maintenance:

hardware (repairs, lease, supplies,...), software (licences and contracts), facilities

Personnel: For operation (data entry, backups,…) For support (user support, hardware and

software maintenance, supplies,…)



Example: costs for small Client-Server projectPersonnel:2 System Analysts (400 hours/ea $35.00/hr) $28,0004 Programmer/Analysts (250 hours/ea $25.00/hr) $25,0001 GUI Designer (200 hours/ea $35.00/hr) $7,0001 Telecommunications Specialist (50 hours/ea $45.00/hr) $2,2501 System Architect (100 hours/ea $45.00/hr) $4,5001 Database Specialist (15 hours/ea $40.00/hr) $6001 System Librarian (250 hours/ea $10.00/hr) $2,500

Expenses:

4 Smalltalk training registration ($3500.00/student) $14,000

New Hardware & Software:1 Development Server (Pentium Pro class) $18,7001 Server Software (operating system, misc.) $1,5001 DBMS server software $7,5007 DBMS Client software ($950.00 per client) $6,650

Total Development Costs: $118,200

PROJECTED ANNUAL OPERATING COSTS

Personnel:2 Programmer/Analysts (125 hours/ea $25.00/hr) $6,2501 System Librarian (20 hours/ea $10.00/hr) $200

Expenses:1 Maintenance Agreement for Pentium Pro Server $9951 Maintenance Agreement for Server DBMS software $525

Preprinted forms (15,000/year @ .22/form) $3,300

Total Projected Annual Costs: $11,270



3 ways of analyzing Costs vs. Benefits Payback Analysis

how long will it take (usually, in years) to pay back the project, and accrued costs:

Total costs (initial + incremental) - Yearly return (or savings)

Net Present Value Analysis determines the profitability of the new project in terms of today's dollar values

if you invest in the proposed project, after n years you will have $XXX profit/loss on your investment

Return on Investment Analysis: compares the lifetime profitability of alternative solutions.

Lifetime benefits - Lifetime costsLifetime costs



Discount Rates & Present Value A dollar today is worth more than a dollar tomorrow…

Your analysis should be normalized to refer to “current year” dollar values.

The discount rate: measures the opportunity cost of investing money in other projects, rather

than the information system development one This number is company- and industry-specific.

Present Value: Represents the real (“current year”) dollar value for costs or benefits n years

into the future, for given discount rate i 1Present_Value(n) = (1 + i)n

For example, if the discount rate is 12%, then Present_Value(1) = 1/(1 + 0.12)1 = 0.893 Present_Value(2) = 1/(1 + 0.12)2 = 0.797 ...



Payback Analysis We need to compute

Total costs (initial + incremental) - Yearly return (or savings)

…but with present dollar values.

Assuming the same figure as for year 4, the net present value of this investment in the project will be:

after 5 years, $13,652 after 6 years, $36,168





Using Payback Analysis Can compute the break-even point:

when does lifetime benefits overtake lifetime costs? Determine the fraction of a year when payback actually occurs:

|beginningYear amount| / endYear amount + |beginningYear amount|) For our last example, 51,611 / (70,501 + 51,611) = 0.42 Therefore, the payback period is 3.42 years

Can compute the Net Present Value Discount all costs and benefits (using the discount rate) Estimate the expected life of the system (in years) Subtract the sum of the discounted costs from the sum of the discounted

benefits to determine the net present value. If it is positive, the investment is good. If negative, the investment is bad.

When comparing alternatives, the one with the highest positive net present value is the best investment.





Return on Investment (ROI) analysis Compares the lifetime profitability of alternative

solutions or projects. The ROI measures the ratio of the amount the business gets back from an

investment and the amount invested.

The ROI is calculated as follows:ROI = Estimated lifetime benefits - Estimated lifetime costs

Estimated lifetime costsor:ROI = Net Present value / Estimated lifetime costs

For our example ROI = (795,440-488,692)/ 488,692= 62.76%, or ROI = 306,748 / 488,692 = 62.76%

The solution offering the highest ROI is the best alternative



Comparing Alternatives How do we compare alternatives?

When there are multiple selection criteria? When none of the alternatives is superior across the board?

Use a Feasibility Analysis Matrix! The columns correspond to the candidate solutions; The rows correspond to the feasibility criteria; The cells contain the feasibility assessment notes for each candidate; Each row can be assigned a rank or score for each criterion

e.g., for operational feasibility, candidates can be ranked 1, 2, 3, etc. A final ranking or score is recorded in the last row.

Other evaluation criteria to include in the matrix quality of output ease of use vendor support cost of maintenance load on system …



Example matrix

Candidate 1 Name Candidate 2 Name Candidate 3 NameDescription

Ranking

Operational FeasibilityTechnical FeasibilitySchedule FeasibilityEconomic Feasibility



Criterion Weight Candidate 1 Candidate 2 Candidate 3

Same as candidate 2

Score:60 Score: 100 Score: 100Weighted Score: 18 Weighted Score: 30 Weighted Score: 30

Score: 50 Score: 95 Score: 60Weighted Score: 15 Weighted Score: 28.5 Weighted Score: 20

Operational Feasibility

30.00%

Services functionality; business processes need to be modified to take advantage of software

Fully supports user-required functionality

Technical Feasibility

30.00%

Current release of Platinum Plus product has only been on market for 6 weeks. Maturity is a risk, and vendor charges monthly fee for support. Need C++ expertise to perform modifications for integration.

Although current developers have only PowerBuilder experience, transition to Visual Basic should be simple; Visual Basic is a mature technology.

Although developers know PowerBuilder, management is concerned with Sybase's acquisition of PowerBuilder; MS SQL Server, which competes with Sybase, is a current company standard, and future versions of PowerBuilder may not 'play well' with Sql Server.



Criterion Weight Candidate 1 Candidate 2 Candidate 3

Less than 3 months 9-12 months 9 monthsScore:95 Score: 80 Score: 85Weighted Score: 28.5 Weighted Score: 24 Weighted Score: 25.5

Score: 95 Score: 80 Score: 85Weighted Score: 9.5 Weighted Score: 8 Weighted Score: 8.5

Total Score 71 90.5 84Rank 3 1 2

Schedule Feasibility

30.00%

Economic Feasibility

10.00%

Present-value benefit: $350, 000; present-value cost, $210, 000; payoff time approximately 4.5 years

Present-value benefit $418, 040; present-value cost $306, 748; payoff time approximately 3.5 years.

Present-value benefit $400, 000; present-value cost $325, 000; payoff time approximately 3.3 years.



Feasibility Study Contents1. Purpose and scope of the study

objectives, who commissioned it, who did it, sources of information, process used for the study, how long did it take,…

2. Description of present situation 1. organizational setting, current system(s).2. Related factors and constraints.

3. Problems and requirements.4. Objectives of the new system.5. Possible alternatives

1. including, possibly, the present situation.6. Criteria for comparison

1. definition of the criteria7. Analysis of alternatives

1. description of each alternative2. evaluation with respect to criteria3. cost/benefit analysis and special implications.

8. Recommendations 1. what is recommended and implications what to do next; 1. (optionally, recommend an interim solution and a permanent solution)

9. Appendices, to include any supporting material.

Documents

Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 1 The Feasibility Study What is a feasibility study? What to study and conclude?