Chapter 12

Lifetime ROI =

(estimated lifetime benefits - estimated lifetime costs) / estimated lifetime costs

Economic feasibility During Problem Analysis

After a detailed study of the current system. Better estimates of development costs and benefits

Schedule feasibility

Are specified deadlines mandatory or desirable? Are mandatory deadlines realistic for proposed solution?

Information 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 expenses

Time 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.

Six Tests For Feasibility Schedule feasibility -

a measure of how reasonable the project timetable is.

Six Tests For Feasibility Legal feasibility -

a measure of how well a solution can be implemented within existing legal/contractual obligations.

Six Tests For Feasibility Operational feasibility -

a measure of how well a solution meets the system requirements.

Six Tests For Feasibility Cultural (or political) feasibility -

a measure of how well a solution will be accepted in an organizational climate.

Six Tests For Feasibility Economic feasibility -

a measure of the cost-effectiveness of a project or solution.

Six Tests For Feasibility Technical feasibility -

a measure of the practicality of a technical solution and the availability of technical resources and expertise.

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

System proposal -

a report or presentation of a recommended solution. Usually formal written report or oral presentation. Intended for system owners and users

Formal presentation -

a special meeting used to sell new ideas and gain approval for new systems. They may also be used for any of these purposes: Sell new system, Sell new ideas, Head off criticism, Address concerns, Verify conclusions, Clarify facts, Report progress

Payback analysis -

a technique for determining if and when an investment will pay for itself.

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 investment and the amount invested.

Candidate Systems Matrix -

a tool used to document similarities and differences between candidate systems.

Feasibility Analysis Matrix -

a tool used to rank candidate systems.

Creeping Commitment -

an approach to feasibility that proposes that feasibility should be measured throughout the life cycle.

Net present value -

analysis technique that compares annual discounted costs and benefits of alternative solutions.

Operating costs -

costs that recur throughout the lifetime of the system.

Knowledge -

how data will be implemented, how inputs will be captured, how outputs will be generated.

Communications -

how processes and data will be distributed.

Processes -

how processes will be built and implemented.

Stakeholders -

how system will interact with people and other systems.

Annual ROI =

lifetime ROI / lifetime of the system

administrative format -

modern, result-oriented format preferred by managers and executives.

Fixed costs —

occur at regular intervals but at relatively fixed rates.

Variable costs —

occur in proportion to usage.

Information 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

Secondary elements

package the report so the reader can easily identify the report and its primary elements.

Primary elements

present the actual information that the report is intended to convey.

Present value -

the current value of a dollar at any time in the future. PVn = 1/(1 + i)n Where n is the number of years and i is discount rate

Feasibility -

the measure of how beneficial or practical an information system will be to an organization.

Payback period -

the period of time that will lapse before accrued benefits overtake accrued and continuing costs.

Feasibility analysis -

the process by which feasibility is measured.

factual format -

traditional and best suited to readers interested in facts and details as well as conclusions.

Operational 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?

Economic feasibility During Decision Analysis

Requirements now defined. Development costs can be better estimated

Legal feasibility

Copyrights, Union contracts, Legal requirements for financial reporting, Antitrust laws, National data and work laws.

Economic feasibility During Scope Definition

Do the problems or opportunities warrant the cost of a detailed study and analysis of the current system?

Cultural (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?

Technical feasibility

Is the proposed technology or solution practical? Do we currently possess the necessary technology? Do we possess the necessary technical expertise?

Writing the Report

Paragraphs should convey a single idea. Sentences should not be too complex. Write in active voice. Eliminate jargon, big words, and deadwood. System Proposal - formal presentations

Three Popular Techniques to Assess Economic Feasibility

Payback Analysis, Return On Investment, Net Present Value,

Length of the Written Report:

To Executive-level managers - one or two pages. To Middle-level managers - three to five pages. To Supervisory-level managers - less than 10 pages. To clerk-level personnel - less than 50 pages. Formats for Written Reports