Lecture Note 3Determining Feasibility

Systems Analysis and Design

Kendall & Kendall

Sixth Edition

Part I: System Analysis Fundamentals

CS206 System Analysis & Design Note 3 By ChangYu

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Major Topics • Project initiation• Determining project feasibility (可行性 )

– Technical feasibility– Economic feasibility– Operational feasibility

• Project scheduling• Managing project activities• Manage systems analysis team members

Those are all important capabilities for the system analyst to master. They are considered Project Fundamentals.

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Project Initiation

Projects are initiated (提出 ) for two broad reasons:

– Problems that lend themselves to systems solutions.

– Opportunities for improvement through• Upgrading systems.

• Altering systems.

• Installing new systems.

Both situations can arise as organization adapts (適應 ) to and copes (應付 ) with nature, evolutionary change.

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Organizational Problems

Checking output, observing employee behavior and listening to feedback are all ways to help the analyst pinpoint (明确指出 ) systems problems and opportunities.

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Project Selection• Projects come from many different sources and for many reasons. You must be clear in your own mind about the reasons for recommending (推荐 ) a systems study on a project that seems to address a problem or could bring about improvement.

• Prospective (未來的 ) projects need to be examined from a systems perspective in such a way that you are considering the impact (含意 ) of the proposed change on the entire organization. The various subsystems of the organization are interrelated and interdependent. A systems project cannot be contemplated (籌劃 ) or selected in isolation (孤立 ) from the rest of the organization.

• There are five specific criteria for project selection.

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Criteria (條件 ) for Selection of Systems Projects:

1. Backing (支持 ) from management Nothing can be accomplished without the endorsement (批准 ) of the people who eventually (最後 ) will foot the bill.

2. Appropriate (撥出 ) timing of project commitment (實行 ) Ask yourself if the business in presently capable of making a time commitment for installation of new systems or improvement to existing ones.

3. Possibility of improving attainment (達成 ) of organizational goals The project should put the organization on target, not deter it from its finally goals.

4. Practical in terms of resources for systems analyst & organization Some projects will not fall within your realm (框架 ) of expertise (專業 ) and you must be able to recognize them.

5. Project is worthwhile (值得 ) compared to other ways organization could invest resources Remember that when a business commits (託付 ) to one project. It is useful to view all possible projects as competing for the business resources of time, money and people.

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Determining Objectives• The system analyst serves as catalyst (催化剂 ), supporting

expert primarily by being able to see where processes can be improved. Improvements to systems can be defined as changes will result in incremental (增值 ).

• There are many possibilities for improvements including:– Speeding up a process.– Streamlining a process through the elimination of

unnecessary or duplicated steps.– Combining processes.– Reducing errors in input through changes of forms and

display screen.– Reducing redundant storage.– Reducing redundant output.– Improving system and subsystem integration.

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• The corporate objectives are affected by improvement to information systems. These corporate objectives include:

– Improving corporate profits.– Supporting the competitive strategy of the

organization.– Improving cooperation with vendors and partners.– Improving internal operations support so that goods

and services are produced efficiently (高效率 ) and effectively (卓有成效 ).

– Improving internal decision support so that decisions are more effective.

– Importing customer service.– Increasing employee morale (士氣 ).

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Feasibility Impact Grid (FIG)• The system analyst can be able to

– Notice opportunities for improvements,

– Prepare the better sources of information about improvement,

– Help expertise to determine whether the improvement is worthwhile,

– How it can be implemented.

– Feasibility study is not a full-blown systems study. It is used to gather broad data for the managements to make a decision.

• A feasibility impact grid (FIG) is used to :– Assess (估价 ) the impact of any improvements to the

existing system.

– It can increase awareness of the impacts made on the achievement (達到 ) of corporate objectives.

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• Current or proposed systems are listed on the left. They are categorized into three system types: ecommerce systems, management information systems (MIS), and transaction processing systems (TPS).• Objectives are listed on the top.• Red check marks in the grid show that a positive (確實的 ) impact can be made when a system improvement is made.• Green check marks indicate that the system has been implemented and that the improvement positively impacted the process objective.

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• This grid emphasizes the point that improvements to Management Information System greatly affect corporate objectives.

• You may recall that traditional MIS did not affect many process objectives, but on the other hand, they do affect most of the corporate objectives.

• You may recall that TPS did not affect many corporate objectives, but they do affect most of the process objectives.

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• It is essential that analysis systematically go through the steps in developing FIG. By understanding process and corporate objects, an SA realizes

• Why he is building systems and• Comprehends what the importance of designing efficient and effective systems might be. • SA can communicate those impacts to the decision makers evaluating the project.

• The objectives of the project need to be cleared formally on paper as well as informally by taking to people in the business. Find out

• What problem they believe the systems project would solve• What situation it would improve and • What their expectations are for the propose system.

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Determining Feasibility

• A feasibility study assesses the operational, technical, and economic merits (价值 ) of the proposed project.

• There are three types of feasibility:– Technical feasibility.– Economic feasibility.– Operational feasibility.

Operational

Economic

Technical

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Technical Feasibility

• Technical feasibility assesses whether the current technical resources are sufficient (足夠 ) for the new system.

• If they are not available, can they be upgraded or add to provide the level of technology necessary for the new system.

• At this point the expertise of system analysts is beneficial, because by using their own experience and their contacts with vendors, system analysts will be able to answer the question of technical feasibility.

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Economic Feasibility• Economic feasibility determines whether the time and

money are available to develop the system.• Includes:

– the Systems analyst’ time– Cost of doing a full systems study– Cost of business employee time for study– Estimate (評估 ) cost of new equipment & hardware.– Cost of packaged software or software development

• The business must be able to see the value of the investment. – If short-term costs are not overshadowed by long-term gains (效益 ) or– Produce no immediate reduction in operating costs,

the system is not economically feasibility.

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Operational Feasibility

• Operational feasibility determines if the human resources are available to operate the system once it has been installed.

• System analyst should let users know– Which interfaces are possible

– Which will satisfy their needs

• System analyst also listed carefully to – What users really want

– What it seems they will use.

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Assessing Economic Feasibility

Economic Feasibility: A process of identifying the financial benefits and costs associated with a development project.

• Economic feasibility is often referred to as Cost-Benefit Analysis. – For development of a project, SA should provide several useful

worksheets for recording costs and benefits based on the techniques for making cost-benefit calculations.

• These worksheets and techniques are used after each SDLC phase as the project is reviewed in order to decide whether to continue, redirect, or kill a project.

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Determining Project Benefits

Tangible Benefit: A benefit derived from the creation of an information system that can be measured in dollars and with certainty. Example: reduced personnel expense (費用 ), lower transaction costs, higher profit margins (高利潤 ).

• Most tangible benefits will fit within the following categories:

– Cost reduction and avoidance– Error reduction– Increased flexibility– Increased speed of activity– Improvement of management planning and control– Opening new markets and increasing sales opportunities

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TANGIBLE BENEFITS WORKSHEETCustomer Tracking System Project

Year 1 through 5

A. Cost reduction or avoidanceB. Error reductionC. Increased flexibilityD. Increased speed of activityE. Improvement in management planning or controlF. Other

$ 4,500$2,500$7,500

$10,500

$25,000$0

TOTAL tangible benefits $50,000

Example: After collecting information from users of the current customer tracking system. We summarized on a tangible benefits worksheet.

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Intangible Benefit: A benefit derived from the creation of an information system that cannot be easily measured in dollars or with certainty.

Competitive necessity More timely information Improved organizational planning Increased organizational flexibility Promotion of organizational learning

& understanding Availability of new, better, or more

information Ability to investigate more

alternatives

Faster decision making Information processing

efficiency Improved asset utilization Improved resource control Increased accuracy in clerical

operations Improved work process that

can improve employee morale Positive impacts on society

Intangible Benefits from the Development of an Information System

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Determining Project Costs

Tangible costs: A cost associated with an information system that can be measured in dollars and with certainty.– E.g. Hardware costs, labor costs, operational costs

(employee training & building renovations (裝修 )) .

Intangible costs: A cost associated with an information system that cannot be easily measured in dollars or with certainty.– E.g. Loss of customer goodwill (善意 ), employee

morale (士氣 ), operational inefficiency (無效的 ).

One-time costs: A cost associated with project start-up and development, or system start-up.

Recurring costs: A cost resulting from the ongoing evolution and use of a system.

One-time costs and Recurring costsONE-TIME COSTS WORKSHEET

Customer Tracking System ProjectYear 0

A. Development costsB. New hardwareC. New (purchased) software, if any

1.Packaged applications software2.Other

D. User trainingE. Site preparationF. Other

$20,000$15,500

$5,000$0

$2,500$0$0

TOTAL one-time cost $42,500

RECURRING COSTS WORKSHEETCustomer Tracking System Project

Year 1 through 5

A. Application software maintenanceB. Incremental data storage required: 20MB x $50 (estimated cost/MB = $50)C. Incremental communications (lines, messages)D. New software / hardware leasesE. SuppliesF. Other

$25,000$1,000

$2,000$0

$500$0

TOTAL recurring cost $28,500

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The Time Value of Money

The Time Value of Money (TVM): refers to the concept of comparing present cash outlays (花費 ) to future expected returns.

Discount rate: The rate of return used to compute the present value of future cash flows.

Present value (PV): The current value of a future cash flows.

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Example

To buy a used car from an acquaintance and she asks that you make three payments of $1,500 for 3 years, beginning next year, for a total of $4,500. If she would agree to a single lump sum payment at the time of sale (and if you had the money!), what amount do you think she would agree to? Should the single payment be $4,500? Should it be more / less?

To answer this question, we must consider the time value of money. Most of us would accept $4,500 today rather than three payments of $1,500. Because a dollar today is worth more than a dollar tomorrow or next year, because money can be invested. The rate at which money can be borrowed or invested is called the discount rate for TVM calculations.

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* Suppose the seller could put the money received for the sale of the car in the bank and receive a 10% return on her investment.* The formula for the present value:

where PVn is the present value of Y dollars n years from now when i is the discount rate.

Net Present Value (NPV) = PV1 + PV2 +PV3 = 1363.65 + 1239.60 + 1126.95 = $3730.20

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* Calculate the ROI (Return On Investment).

* Break-even analysis: To discover at what point benefits equal costs, i.e. when break-even occurs.

Break-Even Ratio = = 0.40415,303 – 9,139

15,303

Using the data in the example to calculate the Break-Even Point:

Therefore, project break-even occurs at approximately 2.4 years.

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• The objective of the Break-Even Analysis is to discover at what point benefits equal costs (that is when break-even occurs).

• It is clear to know the cost-benefits of a proposed system and possible to make an informed decision regarding approval or rejection of the service request.

Break-Even Analysis for Customer Tracking System (Pine Valley Furniture)

A graphical representation of this analysis is shown here.

Project Break-Even Point

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The summary spreadsheet reflecting the present value calculations of all benefits and costs.

Initial investment

$35,003

$145,236

$180,239 - $145,236

$44,643 - $25,446

$44,643 - $67,946

Break-Even Ratio

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There are many techniques that you can use to compute a project’s economic feasibility. This table describes three commonly used techniques for conducting economic feasibility analysis.

Analysis Technique Description

Net Present Value

(NPV)NPV = PV1+ PV2 +PV3

PVn = Y * (1/(1+i)n )

NPV uses a discount rate determined from the company’s cost of capital to establish the present value of a project. The discount rate is used to determine the present value of both cash receipts and outlays.

Return on Investment (ROI)

ROI = NPV/NPV of all Costs

ROI is the ratio of the net cash receipts of the project divided by the cash outlays of the project. Trade-off analysis can be made among projects competing for investment by comparing their representative ROI ratios.

Break-Even Analysis (BEA)

BE Ratio = (YearlyNPV-OverallNPV)/YearlyNPV

BEA finds the amount of time required for the cumulative cash flow from a project to equal its initial and ongoing investment.

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Review Question

• What are the five major project fundamentals?• List five criteria for systems project selection?• Which three principal ways is the system projects

feasibility assessed in?• Define the terms tangible benefit, intangible

benefit, tangible costs, intangible costs, one-time costs, recurring costs, discount rate and present value.

• What is the time value of money?