C H A P T E R 10 FEASIBILITY ANALYSIS AND THE SYSTEM PROPOSAL Feasibility Analysis and the System Proposal Identify feasibility checkpoints in the systems life cycle Identify alternative system solutions Define and describe four types of feasibility and their respective criteria Perform various cost benefit analyses using timeadjusted costs and benefits Write suitable system proposal reports for different audiences Plan for a formal presentation to system owners and users Chapter Map Feasibility Why does a company make any kind of investment It expects it to pay for itself The same is true regarding investment in information systems Feasibility Analysis Feasibility is the measure of how beneficial or practical the development of an information system will be to an organization Feasibility analysis is the process by which feasibility is measured Creeping Commitment approach to feasibility proposes that feasibility should be measured throughout the life cycle Sunk Cost not considered when making cost benefit feasibility Feasibility Checkpoints Checkpoints Scope Definition Measure of urgency First cut at development costs Rarely well defined Problem Analysis Determine benefit Minimally cost of the problem More refinement of development costs Still a SWAG Good measurable objectives Decision Analysis Requirements I O methodology Data storage techniques Computer Hardware Software Alternatives Do Nothing A baseline against which to measure other alternatives Reengineer the manual processes BPR Enhance the existing computer process Purchase OTS software Watch out for the NIH syndrome Design and Construct as new system Five Tests For Feasibility Operational feasibility is a measure of how well the solution will work in the organization It is also a measure of how people feel about the system project Technical feasibility is a measure of the practicality of a specific technical solution and the availability of technical resources and expertise Schedule feasibility is a measure of how reasonable the project timetable is Economic feasibility is a measure of the cost effectiveness of a project or solution Risk feasibility an evaluation of the probability of success Operational feasibility Is the problem worth solving PIECES Will the solution work POLITICALLY based Based on organizational culture Measure of how well the solution will work in the organization Measure of how people feel about the system project Does management support the effort How receptive to change How much change can be tolerated Usability Ease of learning Ease of Use Satisfaction Technical feasibility Is the proposed technology or solution practical BLEADING edge Late adopter Is the necessary technology in house Does it have the capacity Can we obtain more Are the necessary skills available Schedule feasibility How reasonable is the project timetable Deadlines Mandatory Desirable Penalties Better to miss the deadline than to implement an inadequate error prone solution Cost Benefit Analysis Techniques Costs Development costs are one time costs that will not recur after the project has been completed Operating costs are costs that tend to recur throughout the lifetime of the system Such costs can be classified as Fixed costs occur at regular intervals but at relatively fixed rates Variable costs occur in proportion to some usage factor Benefits Tangible benefits are those that can be easily quantified Intangible benefits are those benefits believed to be difficult or impossible to quantify Costs for a Proposed Systems Four Popular Techniques to Assess Economic Feasibility Payback Analysis Return On Investment ROI Net Present Value NPV Internal Rate of Return IRR The Time Value of Money is a concept that should be applied to each technique The time value of money recognizes that a dollar today is worth more than a dollar one year from now Present Value Formula PVn 1 1 i n Where n is the number of years and i is the discount rate Present Value Interest Factor PVIF readily available from tables Discount rate a percentage similar to interest rates that you earn on your savings In most cases the discount rate for a business is the opportunity cost of being able to invest money in other projects or investments Payback Analysis Payback analysis is a simple and popular method for determining if and when an investment will pay for itself Payback period is the period of time that will lapse before accrued benefits overtake accrued and continuing costs Biased against long lived projects Return on Investment Analysis ROI Return on Investment compares the lifetime profitability of alternative solutions or projects The ROI for a solution or project is a percentage rate that measures the relationship between the amount the business gets back from an investment and the amount invested ROI Formulas Lifetime ROI estimated lifetime benefits estimated lifetime costs estimated lifetime costs Annual ROI lifetime ROI lifetime of the system Net Present Value Analysis Sum of PV of Costs and Benefits A positive NPV the project is worthwhile NPV PV costs PV benefits A way to evaluate competing projects Internal Rate of Return IRR Sometimes called the Hurdle Rate The Discount Rate that results in a NPV 0 Cannot be computed directly Iterative trial and error methodology Use software to perform iteration Spreadsheet Examples Solutions Recognize others ideas and opinions Consult standards and methodologies Brainstorm Seek references Journals and professional publications Candidate Systems Matrix Identifying Candidate Solutions Do Nothing Opinion of Others Brain Storming Standards References Research Candidate Systems Matrix documents similarities and differences between candidate systems however it offers no analysis Stakeholders Knowledge Process Communications Sample Candidate Systems Matrix Characteristics Portion of System Computerized Brief description of that portion of the system that would be computerized in this candidate Benefits Brief description of the business benefits that would be realized for this candidate Servers and Workstations A description of the servers and workstations needed to support this candidate Software Tools Needed Software tools needed to design and build the candidate e g database management system emulators operating systems languages etc Not generally applicable if applications software packages are to be purchased Candidate 1 Candidate 2 Candidate 3 COTS package Platinum Plus from Entertainment Software Solutions