Chapter 11ObjectivesSlide 3Feasibility AnalysisFeasibility Checkpoints During Systems AnalysisSix Tests For FeasibilityOperational FeasibilityCultural (or political) feasibilityTechnical feasibilitySchedule feasibilityEconomic feasibilityLegal feasibilityInformation System CostsInformation System BenefitsCosts for a Proposed SolutionThree Popular Techniques to Assess Economic FeasibilityTime Value of MoneyPayback AnalysisPresent Value FormulaPayback Analysis for a ProjectReturn-on-Investment Analysis (ROI)Net Present Value (NPV) AnalysisCandidate Systems MatrixSample Candidate Systems MatrixSample Candidate Systems Matrix (cont.)Slide 26Feasibility Analysis MatrixSample Feasibility Analysis MatrixSample Feasibility Analysis Matrix (cont.)Slide 30Slide 31The System ProposalLength of the Written ReportFormats for Written ReportsOrganization of the Written ReportSecondary Elements for a Written ReportWriting the ReportSystem Proposal – formal presentationsTypical Outline and Time Allocation for an Oral PresentationGuidelines for Visual AidsConducting the Formal PresentationWhen Answering QuestionsMcGraw-Hill/IrwinCopyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 11Feasibility Analysis and the System Proposal11-2Objectives•Identify feasibility checkpoints in the systems life cycle.•Identify alternative system solutions.•Define and describe six types of feasibility and their respective criteria.•Perform various cost-benefit analyses using time-adjusted costs and benefits.•Write suitable system proposal reports for different audiences.•Plan for a formal presentation to system owners and users.11-311-4Feasibility AnalysisFeasibility – the measure of how beneficial or practical an information system will be to an organization. Feasibility analysis – the process by which feasibility is measured.Creeping Commitment – an approach to feasibility that proposes that feasibility should be measured throughout the life cycle.11-5Feasibility Checkpoints During Systems Analysis11-6Six Tests For FeasibilityOperational feasibility – a measure of how well a solution meets the system requirements.Cultural (or political) feasibility - a measure of how well a solution will be accepted in an organizational climate.Technical feasibility – a measure of the practicality of a technical solution and the availability of technical resources and expertise. Schedule feasibility – a measure of how reasonable the project timetable is.Economic feasibility - a measure of the cost-effectiveness of a project or solution.Legal feasibility - a measure of how well a solution can be implemented within existing legal/contractual obligations.11-7Operational Feasibility•How well proposed system solves the problems and takes advantage of opportunities identified during the scope definition and problem analysis phases•How well proposed system satisfies system requirements identified in the requirements analysis phase•Is the problem still worth solving?11-8Cultural (or political) feasibility•Does management support the system?•How do end users feel about their role in the system?•What end users may resist or not use the system? How can this be overcome?•How will the working environment change? Can users and management adapt to the change?11-9Technical feasibility•Is the proposed technology or solution practical?•Do we currently possess the necessary technology?•Do we possess the necessary technical expertise?11-10Schedule feasibility•Are specified deadlines mandatory or desirable?•Are mandatory deadlines realistic for proposed solution?11-11Economic feasibility•During Scope Definition•Do the problems or opportunities warrant the cost of a detailed study and analysis of the current system?•During Problem Analysis•After a detailed study of the current system•Better estimates of development costs and benefits•During Decision Analysis •Requirements now defined•Development costs can be better estimated11-12Legal feasibility•Copyrights•Union contracts•Legal requirements for financial reporting•Antitrust laws•National data and work laws11-13Information System Costs•Development costs - one time costs that will not recur after the project has been completed.•Personnel•Computer usage•Training•Supply, duplication, and equipment•Computer equipment and software•Operating costs - costs that recur throughout the lifetime of the system. •Fixed costs — occur at regular intervals but at relatively fixed rates.•Variable costs — occur in proportion to usage.11-14Information System Benefits•Tangible benefits are those that can be easily quantified. •Intangible benefits are those benefits believed to be difficult or impossible to quantify.•Fewer processing errors•Increased throughput•Decreased response time•Elimination of job steps•Increased sales•Reduced credit losses•Reduced expenses11-15Costs for a Proposed Solution11-16Three Popular Techniques to Assess Economic Feasibility•Payback Analysis•Return On Investment•Net Present Value11-17Time Value of Money•Used with all three cost-effectiveness techniques.•Concept that recognizes that a dollar today is worth more than a dollar one year from now.•Invest $100 at 2% for one year yields $102.•So $100 today and $102 one year from today represent the same value.•Given $20,000 benefit from information system two years from now and 10% return from other investments, means that benefit is worth $16,528 today.11-18Payback AnalysisPayback analysis – a technique for determining if and when an investment will pay for itself.Payback period – the period of time that will lapse before accrued benefits overtake accrued and continuing costs.11-19Present value – the current value of a dollar at any time in the future.PVn = 1/(1 + i)nWhere n is the number of years and i is discount rateDiscount 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 investmentsPresent Value Formula11-20Payback Analysis for a Project11-21Return-on-Investment Analysis (ROI)Return-on-Investment (ROA) analysis – a technique that compares the lifetime profitability of alternative solutions.The ROI for a solution or project is a percentage rate that measures the relationship between the amount the business gets back from an