Chapter 10
Return on Investment (ROI)
Ratio of net cumulative benefits to total cumulative costs
Expected Value Calculation
Technique to assign probabilities to scenarios and calculate the sum of expected values
Net Present Value (NPV)
Technique to standardize future cash values using a discount rate
ROI calculations for just a 1 year
all project benefits - all project costs/ all project costs
How is ROI reported?
as a percentage
How is BEA presented (Payback period)?
report as a time ex. 18 months, 3 weeks
intangible -> tangible
use expected value
How to access Security Feasability?
•Are minimum security requirements clear? •Are staff properly trained in security best practices? •Are metrics designed and practical for compliance? •Are 3rd party components evaluated? •Have we conducted threat monitoring? •Is there a credential safety process in place?
Examples of Intangible costs
•Loss of customer goodwill •Employee morale •Operational inefficiency •Increased effort or cost for suppliers and customers •Opportunity cost (your project has the developers, not another project) •Negative impact on interdependent systems •Increased risk in other areas
How do you calculate Expected Value?
•Step 1: Make a plausible link between the intangible and dollars. Owner must agree to it, ideally suggest it. •Step 2: Create a small set of possible scenarios, and then assign probabilities to each. Sum of probabilities must be 1.0. Owner must be leading this part. •Step 3: Calculate expected values of each, then sum the totals. •Step 4: Explain why that total is the likely tangible value of the intangible benefit. Use that number in your ROI and Payback.
What does One time Costs
•Systems development •New hardware and software purchases •User training •Site preparation Data or system conversion
What do you assess for Technical Feasibility?
- development team - systems technology maturity - vendor reliability/ capability
Types of Feasibility Tests
- financial (aka economic) - technical(aka technology) - organizational (aka operational) -security - scheduling -legal liability and contractual
What does financial Feasibility look at?
- net financial benefits - cost associated with the project - benefits and costs
Examples of Project Tangible Costs
- subscription/ leasing cost - labor costs operational costs, including employee training and building renovations - have to decide about overhead costs
What are the metrics of Financial Feasibility?
-return on investment (ROI) - Payback Analysis (BEA) - Net Present Value (NPV)
What does BEA analysis look like?
0-5 years of - discount rate -n(pv) of benefits
What are the guidelines for assessing technical feasibility?
1. Larger projects are riskier than smaller projects. 2. Messy, poorly understood or political projects are riskier than structured, easily understood and nonpolitical projects. 3. Projects using new or nonstandard technology are riskier than projects using common or standard technology. 4. Projects using an unfamiliar SDLC, in an unfamiliar application domain are riskier than projects using a familiar SDLC in a familiar application domain.
ROI calculations for just a 2 year
= NPV(all project benefits) - NPV ( All Project Costs)/ NPV(All Project Costs
Net Present Value Calculations
= sum of PV's across year - calculates time value of money
Payback Analysis (Break Even Analysis)
Amount of time required for cumulative benefits to exceed cumulative costs
Schedule Feasibility
Assessing if the project deadlines are reasonable with respect to business requirements and system quality
Organizational Feasibility
Assessing if the system can work, if the problem is worth solving, and if the proposal is the real solution
Feasibility Analysis
Assessing the Continued Feasibility of a Project
Technical Feasibility
Assessing the experience and capability of the development team, technology maturity, and vendor reliability
Cost-Benefit Analysis
Assessing the net financial benefits and costs associated with the project
Financial Feasibility
Assessing the net financial benefits and costs associated with the project
Cybersecurity Feasibility
Assessing the security requirements, training, metrics, and evaluation of third-party components
Intangible Benefits
Benefits that are hard to measure in dollars or with certainty
What are questions for organizational Feasability?
Can and Will the system work?
Total Cost of Ownership (TCO)
Cost of running a system with all costs included
Fixed Costs
Costs incurred at a regular interval and usually at a fixed rate - (tangible or intangible) - (one-time or recurring)
Variable Costs
Costs incurred depending on usage - (tangible or intangible) - (one-time or recurring)
Tangible Costs
Costs that can be easily measured in dollars and with certainty
Intangible Costs
Costs that cannot be easily measured in dollars or with certainty
Recurring Costs
Costs that occur during the lifetime of the system in production mode (tangible or intangible)
One-Time Costs
Costs that occur during the project and won't happen after system implementation (tangible or intangible)
Which Feasibility category deals with identifying financial benefits associated with the project?
Financial Feasibility
Graphical Example of BEA
Payback period = 26months
Tangible Benefits
Positive events or outcomes that can be easily measured in dollars