Upload
stephen-randall
View
218
Download
0
Tags:
Embed Size (px)
Citation preview
Project Feasibility
Feasibility is the measure of how beneficial or practical the development of an information system will be to an organisation.
Feasibility Analysis
• It is the process by which feasibility is measured.
• The objective of assessing feasibility is to determine whether a development project has a reasonable chance of success.
• It is the process of selecting the best system that meets the following requirements.
Requirements
• The user has recognised a need.• User requirements are determined and
the problem has been defined.• An initial investigation is launched to
study the existing system and verify the problem.
• The analyst has verified the objective constraints and required output
Five Areas Of Risk
• Economic Feasibility
• Organizational and cultural feasibility
• Technology Feasibility
• Operational Feasibility
• Schedule Feasibility
• Resource Feasibility
Economic FeasibilityIt is a measure of the cost effectiveness of a project or
a solution.It consists of two tests: If the anticipated value of the benefits greater
than projected cost of development Does the organisation have adequate cash flow
to fund the project during the development period? A new system must increase income, either through
cost savings or by increased revenues. And this is determined by cost/benefit analysis.
Organisational & Cultural Feasibility
A currently low level of computer competency Substantial computer phobia A perceived loss of control by staff or
management Potential shifting of political & organisational
power due to the new system. Fear of change of job responsibilities Fear of loss of employment Reversal of long standing work procedures.
Technology FeasibilityA new system brings a new technology into a company.
The new technology could be: A state-of-art of technology Existing technology with new configuration Lack of expertise within the company Technical feasibility looks at what is practical and
reasonable. It addresses three major issues. Is the proposed technology practical Do we currently possess the necessary technology Do we have necessary expertise & is the schedule
reasonable.
Technology Feasibility
Once the risks are identified, the solution provided, which could be
Additional training
Hiring consultants
Hiring more experienced employees.
Schedule Feasibility• Some projects are initiated with specific
deadlines.
• It is required to determine if the deadline is desirable or mandatory.
• If the deadline is mandatory then penalty could be associated with missing such a deadline.
• If deadline is desirable then the analyst can propose alternative schedule.
Operational FeasibilityIt is a measure of how well the solution will work in the
organisation. It is a measure of how people feel about the
system/project.It measures the urgency of the problem or acceptability
of a solution. There are two aspects of operational feasibility to be
considered: Is the problem worth solving How do the end user and management feel about
the problem
Resource Feasibility• The project management must assess the
availability of resources for the project. • Development projects require the involvement of
system analysts, system technicians and users. And one risk is that the required people may not be available to the team when needed.
• An additional risk is that the people who are assigned may not have the necessary skills.
• And continual risk that member might leave the team.
Cost/Benefit Analysis The cost/benefit analysis is a three-step process. 1. Estimate the anticipated development and
operational cost. Development costs are those that are incurred during
the development of the new system. And operational costs are those that will be incurred
after the system have been put into production.2. Estimate the anticipated financial benefits.
Financial benefits are the expected annual savings or increases in revenue derived from the installation of the new system.
3. The cost/benefit analysis is calculated based on detailed estimates of costs and benefits.
Step-1:Development Cost
The cost of developing an information system can be classified according to the phase in which they occur.
System development costs are usually onetime costs that will not recur after the project has been completed.
Many organisations have standard cost categories that must be evaluated
Salaries and wages – The salaries of system analyst, programmers, consultants, data entry personnel, computer operators, secretaries and the like who work on the project make up the personnel costs.
Development Cost• Equipment and installation – Computer time
will be used for one or more of the following activities:
• programming, testing, conversion, maintaining project dictionary,
• prototyping, loading data etc. • This cost could also include charges for
computer resources such as disk storage, report printing.
Development Cost
• Software and license Consulting fees and payment to third
parties Training Facilities Utilities and tools Support staff Travel and miscellaneous
Operational Costs
Operating costs tend to recur throughout the lifetime of the system.
The cost of operating a system over its useful lifetime can be classified as fixed and variable.
Fixed Costs occur at regular intervals but at relatively fixed rates. E.g.
Lease payment and software license payments Prorates salaries of information system
operators and support personnel
Operational Costs Variable Costs occur in proportion to some
usage factors. E.g.: Cost of computer usage (i.e. CPU time used,
terminal connect time used, storage used), which vary with the workload.
• Supplies (pre-printed forms, printer paper used, punched cards, floppy disks, magnetic tapes and other expendables), which vary with workload.
Prorated overhead costs (utilities, maintenance, and telephone service) which can be allocated throughout the lifetime of the system using standard techniques of cost accounting.
Step-2 Benefits
Benefits normally increase profits or decrease cost, both highly desirable characteristics of a new information system.
Benefits are classified as tangible or intangible
Tangible BenefitsThey are those that can be easily qualified. Tangible benefits are usually measured in terms of
monthly or annual savings or profit of the firm. They can be measured or estimated in terms of money and that accrue to the organisation.Fewer processing errorsIncreased throughputDecreased response timeElimination of job stepsIncreased salesReduced credit lossesReduced expenses
Intangible BenefitsThey are those benefits believed to be difficult or
impossible to qualify. Unless these benefits are at lease identified, it is entirely
possible that many projects would not be feasible. These are benefits that accrue to the organisation but
that cannot be measured quantitatively or estimated accurately.Improved customer goodwillImproved employee moralBetter service to communityBetter decision-making
STEP 3:Financial Calculations• The financial calculations are based on “The Time Value
of Money” concept i.e. a dollar today is worth more than a dollar one year from now.
• The time value of money is extremely important in evaluation processes.
• Say, for an opportunity that generates $3000 a year, how much is needed to invest.
• Obviously one would like to invest less than $3000. To earn the same money five years from now, the amount of investment would be even less.
• The time value of money is usually expresses in form of interest on the funds invested to realise the future value
Formula-F = P( 1 + i )n WhereF = Future value of an investmentP = Present value of investmentI = Interest rate per compounding periodN = Number of years$3000 invested in Treasury notes for three years @ 10% interest
would have a value at maturity of F = $3000(1 + 0.1) 3
= $3000(1.33)= $3993
There are three popular techniques to assess economic feasibility: Net Present Value Payback Technique Return on Investment
NPVIt is the present value of dollar (i.e. money) benefits and
costs for an investment such as a new system.The two concepts of net present value (NPV) are1. All benefits and costs are calculated in terms of
today’s money i.e. present value2. Benefits and costs are combined to give net value The future stream of benefits and costs is netted together
and then discounted by a certain factor for each year in the future.
The discount rate is the annual percentage rate that an amount of money is discounted to bring it to a present value.
NPV To compute present value, we take the formula for
future value i.e. F = P( 1 + i )n
ThusP = F/( 1 + i )n
So, the present value $1500 invested at 10% at the end of forth period is
P = 1500/(1 + 0.1) 4
= 1500/1.61 =1027.39
Thus, if we invest 1027.39 today we can expect to have 1500 after 4 years.
Payback Analysis The Payback Analysis technique is simple and popular
method used to determine if and when an investment will pay for itself.
Because system development costs are incurred long before benefits begin to accrue, it will take a long time for the benefits to overtake the costs.
After implementation there are additional expenses that must be covered.
Payback analysis determines how much time will lapse before accrued benefits overtake accrued and continuing costs i.e. Payback Period or Breakeven Point.
It is defined as the time period at which the accumulated cash flow (including capital expenditures) becomes positive.
Example
$20,000 is being invested in two proposals
Proposal A: Positive net cash flow of $3200 annually for the first 7 years.
Proposal B: Net cash flow Year 1 -$2000, Year2 $2675, Year 3 $3200, Year 4 $4550, Year 5 $6550, Year 6 $7000,Year 7 $8000
Compare the proposals using payback method
SolutionYear Flow in Year Cumulative
cash flow at year end
0 -20000 -20000
1 -2000 -22000
2 2675 -19325
3 3200 -16125
4 4550 -11575
5 6550 -5025
6 7000 1975
7 8000 9975
Comparison
Proposal A: Payback Period = 20000/3200 = 6.25 years
Proposal B will recover the initial cost before end of year 6. If we assume that the $7000 net cash inflow occurs in 12 equal monthly cash inflows, it will be nearly ninth month of the year before payback is achieved i.e. approximately 5.75 years
Return on Investment Analysis
It is a measure of the percentage gain received from an investment such as a new system.
The ROI for a solution or project is percentage return needed (like an interest rate) so that the costs and benefits are exactly equal over the specified time period.
Lifetime ROI = (Estimated Lifetime benefits – Estimated lifetime costs)/
(Estimated Lifetime costs)
ROI-3 Periods
• When a system is being developed, initial costs is high i.e. it is an investment period.
• When both costs are equal, it is break-even.
• Beyond that point, the new system provides greater benefit (profit) than the old system. This is the return period.