Chapter 5: Initiating and Planning Systems Development Projects

The six elements of *Project Initiation*:

*1.)* Establishing the Project Initiation Team *2.)* Establishing a Relationship with the Customer *3.)* Establishing the Project Initiation Plan *4.)* Establishing Management Procedures *5.)* Establishing the Project Management Environment and Project Workbook *6.)* Developing the Project Charter

The *objective* of the project planning process is the development of a

*Baseline Project Plan (BPP)* and the *Project Scope Statement (PSS)*

*Example -* Accepting three payments of $1500 rather than $4500 today (discount rate of 10%) PV₁ = 1500 x ... PV₂ = 1500 x ... PV₃ = 1500 x ... NPV = ...

*PV₁* = 1500 x (1/(1 + 0.10)¹) = 1500 x 0.9091 *= 1363.65* *PV₂* = 1500 x (1/(1 + 0.10)²) = 1500 x 0.8264 *= 1239.60* *PV₃* = 1500 x (1/(1 + 0.10)³) = 1500 x 0.7513 *=1126.95* *NPV* = PV₁ + PV₂ + PV₃ *= $3730.20*

Describe project *scope*,

*alternatives*, *feasibility*

Intangible benefits may have direct organizational

*benefits*, such as the improvement of employee morale

The key activity of project planning is the process of defining

*clear, discrete activities* and the work needed to complete each activity within a single project

3.) Develop a culture where all project participants are responsible for

*defining accurate* estimates

1.) Have *clear guidelines* for creating

*estimates*

The *BPP* becomes the

*foundation* for the remainder of the development project

6.) Monitor progress and record discrepancies to

*improve future* estimates

2.) Use *experienced* developers and/or project managers for

*making* estimates

Besides tangible and intangible costs, you can distinguish IS-related development costs as either

*one-time* or *recurring*

When comparing investment options, all costs and benefits must be viewed in relation to their

*present value* when comparing investment options

Fixed costs are billed or incurred at a

*regular interval* and usually at a *fixed rate* (Example: facility lease payment)

Intangible benefits may have broader

*societal implications*, such as the reduction of waste creation or resource consumption

*NPV* is equal to the

*sum of PVs* across years

Given that we now know the relationship between time and money, the next step in performing the economic analysis is to create a

*summary worksheet* reflecting the *present values of all benefits and costs* as well as all pertinent analyses

Net Present Value (NPV) calculates

*time value* of money

One goal of a cost-benefit analysis is to accurately determine the

*total cost of ownership (TCO)* for an investment

*Example -* Suppose you want to buy a used car from an acquaintance and she asks that you make three payments of $1500 for three years, beginning next year, for a total of $4500. 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?

*→ Consider the time value of money* • A dollar today (or $4500 for that matter) is *worth more than a dollar tomorrow* or next year • Most of us would gladly accept $4500 today *rather than* three payments of $1500

A rule of thumb is that between _____ and _____ percent of the entire development effort should be expended on the PIP study

10 and 20

*Baseline Project Plan (BPP)*

A major outcome and deliverable from the PIP phase

What is a required activity for all information systems projects due to budgetary and time constraints

Assessing project feasibility

Who is responsible for performing the PIP process?

Most organizations assign an experienced systems analyst, or a team of analysts for large projects

Start-up Costs: Type of cost

Operating

Procurement Costs - Type of cost

Project

*Return on Investment (ROI)*

Ratio of cash receipts to cash outlays

Project economic feasibility is reviewed after each

SDLC phase in order to decide whether to continue, redirect, or kill a project

*Net Present Value (NPV)*

Use discount rate to determine present value of cash outlays and receipts

Assessing project feasibility is a potentially

large undertaking

The analyst must clearly understand the

motivation for and objectives of the proposed system

Because the development and useful life of a system may span several years, these benefits and costs must be

normalized into present-day values in order to perform meaningful cost-benefit comparisons

The *PSS* produced by the team clearly outlines the

objectives and constraints of the project *for the customer*

Develop communication

plan

*PVₙ* is equal to the

present value of *𝒀* dollars *𝓃* years from now based on a *𝘥𝘪𝘴𝘤𝘰𝘶𝘯𝘵 𝘳𝘢𝘵𝘦* of *𝒊*

Determine standards and

procedures

Set baseline

project plan

Proper and insightful project planning provides can easily do what

reduce time in later project phases

Estimate resource

requirements and create resource plan

Identify and assess

risk

Develop preliminary

schedule

Divide project into

tasks

*Time value of money (TVM)*

the concept that money available today is worth more than the same amount tomorrow

*Present value*

the current value of a future cash flow

PIP is such a challenging activity because

the objective of the PIP study is to transform a vague system request document into a tangible project description

5.) *Update* estimates as

the project progresses

*Discount rate*

the rate of return used to compute the present value of future cash flows (the cost of capital)

The actual amount of time expended on proper and insightful planning will be affected by

the size and complexity of the project as well as by the experience of your organization in building similar systems

The analyst must clearly understand the motivation for and objectives of the proposed system. Therefore, effective communication among who is crucial to the creation of a meaningful project plan

the systems analyst, users, and management

This assessment does not focus on how the proposed system will operate but rather on

understanding the scope of a proposed project and its feasibility of completion given the available resources

*Variable costs* are items that

vary in relation to usage (i.e., long-distance charges)

The PSS describes

what the project will deliver

Develop a statement of

work

Examples of recurring cost include (5):

• Application software maintenance • Incremental data storage expenses • Incremental communications • New software and hardware leases, and • Supplies and other expenses (i.e., paper, forms, data center personnel)

Most tangible benefits will fit within the following six 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

Most feasibility factors are represented by the following six categories:

• Economic • Technical • Operational • Scheduling • Legal and Contractual • Political

IS development tangible costs include (3):

• Hardware costs • Labor costs, or • Operational costs, including employee training and building renovations

Procurement Costs - Examples (3):

• Hardware, software, facilities infrastructure • Management and staff • Consulting and services

Three important questions that must be considered when making the decision on the division between project initiation and planning (PIP) and analysis:

• How much effort should be expended on the PIP process? • Who is responsible for performing the PIP process? • Why is PIP such a challenging activity?

Start-up Costs - Examples (3):

• Initial operating costs • Management and staff • Personnel recruiting

Intangible costs can include (3):

• Loss of customer goodwill, • Employee morale, or • Operational inefficiency

Three commonly used techniques for conducting *economic feasibility analysis*:

• Net Present Value (NPV) • Return on Investment (ROI) • Break-Even Analysis (BEA)

One-time cost encompass activities such as (5):

• Systems development • New hardware and software purchases • User training • Site preparation, and • Data or system conversion

Three examples of tangible benefits

• reduced personnel expenses • lower transaction costs, or • higher profit margins

PVₙ =

𝒀 x (1/(1+𝒊)ⁿ)

*Break-even analysis* is a type of cost benefit analysis to identify

at what point (if ever) *benefits equal costs*

With any given project, there are many potentially associated

benefits and costs

*Intangible benefits*

benefits derived from the creation of an information system that cannot be easily measured in dollars or with certainty

Baseline Project Plan (BPP) contains the

best estimate of a project's scope, benefits, costs, risks, and resource requirements

4.) Use *historical data* to help in establishing

better estimates of costs, risks, schedules, and resources

The PSS ensures that

both you and your customer gain a common understanding of the project

Create preliminary

budget

Most projects must be developed within tight

budgetary and time constraints

*Project Scope Statement (PSS)* is a document that is prepared for the

customer

A key consideration when conducting project initiation and planning (PIP)

deciding when PIP ends and when analysis, the next phase of the SDLC, begins

Assessing project feasibility requires that you, as a systems analyst, do what

evaluate a wide range of factors

Both one-time and recurring costs can consist of items that are

fixed or variable in nature

The PSS can be used as the basis of a

formal contractual agreement outlining firm deadlines, costs, and specifications

The PSS outlines at a

high level all work required to complete the project

*Tangible benefits*

items that can be measured in dollars and with certainty

*Total Cost of Ownership (TCO)*

All costs associated with ongoing use and maintenance of a system

*Break-Even Analysis (BEA)*

Amount of time required for cumulative cash flow to equal initial and ongoing investment

Economic feasibility is often referred to as

Cost-benefit analysis

For example, a careful feasibility analysis that leads to deciding that a project is not worth pursuing can save

a considerable expenditure of resources

*Tangible cost*

a cost associated with an information system that can be measured in dollars and with certainty

*Intangible cost*

a cost associated with an information system that cannot be easily measured in terms of dollars or with certainty

*One-time cost*

a cost associated with project start-up and development or system start-up

*Recurring cost*

a cost resulting from the ongoing evolution and use of a system

*Economic feasibility*

a process of identifying the financial benefits and costs associated with a development project

*Project initiation* focuses on activities designed to

assist in organizing a team to conduct project planning