Page ‹#›Information Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 1VII. The Feasibility StudyVII. The Feasibility StudyTypes of FeasibilityTypes of FeasibilityCost/Benefit AnalysisCost/Benefit AnalysisRisk AnalysisRisk AnalysisComparing AlternativesComparing AlternativesInformation AcquisitionInformation AcquisitionFeasibility Study ContentsFeasibility Study ContentsDo it!Information Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 2The Feasibility StudyThe Feasibility Study The objective of a feasibility study is to find out if aninformation system project can be done, and if so,how. A feasibility study should tell management:Whether the project can be done;What are alternative solutions?What are the criteria for choosing among them?Is there a preferred alternative? After a feasibility study, management makes ago/no-go decision.••A feasibility study is aA feasibility study is a••management-oriented activitymanagement-oriented activityInformation Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 3Dimensions of FeasibilityDimensions of Feasibility Operational -- how will the solution work? Technical -- is the technology needed available? Economic -- return on investment Schedule -- can the system be delivered on time?Constraints may be Constraints may be hard hard or or softsoftInformation Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 4Economic FeasibilityEconomic Feasibility The bottom line for many projects! Economic feasibility amounts to judging whetherpossible benefits of the project are worthwhile. As soon as a specific solution has been identified, theanalyst can weigh the costs and benefits of eachalternative. This is called cost-benefit analysis.Information Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 5Cost/Benefit AnalysisCost/Benefit Analysis The purpose of a cost/benefit analysis is to answerquestions such as:Is the project justified (benefits outweigh costs)?Can the project be done, within cost constraints?What is the minimal cost to attain a certain system? Difficulties -- discovering and assessing benefits andcosts; they can both be intangible, hidden and/orhard to estimate, it's also hard to rank multi-criteriaalternativesInformation Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 6Types of BenefitsTypes of Benefits Benefits may be classified into one of the followingcategories:MonetaryMonetary -- when $-values can be calculated;TangibleTangible (Quantified) -- when benefits can bequantified, but $-values can't be calculated;IntangibleIntangible -- when neither of the above applies. How to identify benefits? By organizational level(operational, lower/middle/higher management) or bydepartment (production, purchasing, sales,...)Page ‹#›Information Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 7Types of CostsTypes of Costs Project-related costsDevelopment and purchasing costs;Installation, training and conversion costs. Operational costs (on-going)Maintenance: hardware, software, facilitiesPersonnel: operation, maintenance. For a small business that wants to introduce a PC-basedinformation system, these cost categories amount to:Project costs: purchase hardware, software, furniture;customize software, train, install, file conversionOn-going costs: operating the system (data entry,backups, helping users, vendors etc.), maintenance(software) and user support, hardware and softwaremaintenance, supplies,...Information Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 8SampleCostsfor aClient-ServerDevel/ntProjectPersonnel:2 System Analysts (400 hours/ ea $35.00/hr) $28,0004Programmer/Analysts (250 hours/ea $25.00/hr) $25,0001GUI Designer (200 hours/ea $35.00/hr)$7,0001Telecommunications Specialist (50 hours/ea $45.00/hr)$2,2501 System Architect (100 hours/ea $45.00/hr)$4,5001Database Specialist (15 hours/ea $40.00/hr)$6001 System Librarian (250 hours/ea $10.00/hr)$2,500Expenses:4 Smalltalk training registration ($3500.00/student)$14,000New Hardware & Software:1Development Server (Pentium Pro class)$18,7001Server Software (operating system, misc.)$1,5001DBMS server software$7,5007DBMS Client software ($950.00 per client)$6,650Total Development Costs:$118,200PROJECTED ANNUAL OPERATING COSTS Personnel:2Programmer/Analysts (125 hours/ea $25.00/hr)$6,2501 System Librarian (20 hours/ea $10.00/hr)$200Expenses:1Maintenance Agreement for Pentium Pro Server$9951Maintenance Agreement for Server DBMS software$525Preprinted forms (15,000/year @ .22/form)$3,300Total Projected Annual Costs:$11,270Information Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 9Accounting MethodsAccounting MethodsPayback Analysis:Payback Analysis: how long will it take (usually,in years) to pay back the project, and accruedcosts:Total costs (initial + incremental) - Yearly return (orsavings)Return on Investment AnalysisReturn on Investment Analysis: compares thelifetime profitability of alternative solutions.Lifetime benefits - Lifetime costsLifetime costsNet Present Value Analysis:Net Present Value Analysis: determines theprofitability of the new project in terms of today'sdollar values. Will tell you that if you invest in theproposed project, after n years you will have $XXXprofit/loss on your investmentInformation Systems Analysis and Design CSC3402004 Jaelson Castro and John MylopoulosThe Feasibility Study -- 10Discount RateDiscount Rate A dollar today is worth more than a dollar tomorrow… The dollar values used in this type of analysis should benormalized to refer to current year dollar values. For this, we need a number, the discount ratediscount rate, whichmeasures the opportunity cost of investing money. Thenumber is company/industry-specific. To calculate the present valuepresent value,, i.e., the real dollar valuegiven the discount rate i, n years from now, we use theformulaPresent 1Value(n) (1 + i)n For example,
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