mis 160 chapter 5

Tangible Operational Cost Examples

Server running out of disk space software licensing fees, salaries for the operations staff, equipment upgrades, incremental data storage expenses

Economic Feasibility

Should we build it?

Intangible cost examples:

loss of customer goodwill, loss of employee morale, or operational inefficiency.

Tangible Development Cost Examples

new hardware, software purchase, salaries for the project team, user training, consultant fees, office space and equipment

Tangible costs are divided into 2 categories

•Development Cost - one time cost •Operational Cost- maintenance cost

•Economic Feasibility cost-benefit analysis

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

Tangible benefit examples:

•increased sales, higher profit margin, reduction in staff, reductions in inventory, better supplier prices, error reduction, cost reduction, opening new markets.

Tangible benefits

•refer to items that can be measured in dollars and with certainty.

Intangible benefit examples

improvement of employee morale, increased brand recognition, higher quality products, improved customer service, better supplier relationships, more confidence in decision quality, and positive impact on society.

. Cost-benefit analysis is

is a decision making tool accounting for the costs and benefits of a project over time to establish a net present value.

The first task when conducting a cost-benefit analysis

is to identify the benefits and costs the system will have.

The main idea for cost-benefit analysis is

is to understand whether the allocation of resources is as efficient as possible. If NPV is positive then it means pouring money into project is worthwhile

Intangible benefits

are benefits derived from the creation of a software that cannot be easily measured in dollars or with certainty.

development costs

as one-time costs

operational costs

as ongoing or maintenance related costs.