Lecture 2 - Feasability Analysis PDF

System Analysis and Design By Dr. Marwa Hussien Mohamed Information Systems dept. Faculty of Computer Science and Information Systems  Lecture 3 Feasibility Analysis Learning Objectives Be able to create a system request. Describe technical, economic, and organizational feasibility as...

System Analysis and Design By Dr. Marwa Hussien Mohamed Information Systems dept. Faculty of Computer Science and Information Systems  Lecture 3 Feasibility Analysis Learning Objectives Be able to create a system request. Describe technical, economic, and organizational feasibility assessment. Be able to perform a feasibility analysis. In the Last Lecture We learned how to make the System request. The completed system request is submitted to the steering/approval committee for consideration. The steering committee: People in the organization that meets regularly to make information systems decisions, a senior executive who has control of organizational resources, or any other decision-making body that governs the use of business resources. The committee reviews the system request and makes an initial determination, based on the information provided, of whether to investigate the proposed project or not. If so, the next step is to conduct a feasibility analysis. 4 Feasibility Analysis Guides the organization in determining whether to proceed with the project. Identifies the important risks associated with the project that must be managed if the project is approved. Include techniques to assess three areas: technical feasibility, economic feasibility, and organizational feasibility. The results of evaluating these three feasibility factors are combined into a feasibility study deliverable that is submitted to the approval committee at the end of project initiation. 5 m 6 Technical Feasibility It is the extent to which the system can be successfully designed, developed, and installed by the IT group. Strive to answer the question: ”Can we build it?” 7 Technical Feasibility – Familiarity with Application Many risks can endanger the successful completion of the project, such as users’ and analysts’ familiarity with the application. If analysts are unfamiliar with the business application area, they have a greater chance of misunderstanding the users or missing opportunities for improvement. The risks increase when the users themselves are less familiar with an application, such as with the development of a system to support a new business innovation. In general, the development of new systems is riskier than extensions to an existing system, because existing systems tend to be better understood. 8 Technical Feasibility – Familiarity with Technology When a system will use technology that has not been used before within the organization, there is a greater chance that problems and delays will occur because of the need to learn how to use the technology. Risk increases dramatically when the technology itself is new. 9 Technical Feasibility – Project Size Can be measured as the number of people on the development team, or the length of time it will take to complete the project, or the number of distinct features in the system. Larger projects present more risk, because they are more complicated to manage and because there is a greater chance that some important system requirements will be overlooked or misunderstood. Also if the project is highly integrated with other systems (which is typical of large systems) can cause problems, because complexity is increased when many systems must work together. 10 Technical Feasibility – Compatibility The compatibility of the new system with the technology that already exists in the organization. New technology and applications need to be able to integrate with the existing environment for many reasons. They may rely on data from existing systems, they may produce data that feed other applications, and they may have to use the company’s existing communications infrastructure. 11 Economic Feasibility Is determined by identifying costs and benefits associated with the system, assigning values to them, calculating future cash flows, and measuring the financial worthiness of the project. Also called a cost–benefit analysis. This attempts to answer the question “Should we build the system?” As a result of this analysis, the financial opportunities and risks of the project can be understood. Keep in mind that organizations have limited capital resources and multiple projects will be competing for funding. The more expensive the project, the more rigorous and detailed the analysis should be. 12 Steps to Conduct the Feasibility Analysis 13  Economic Feasibility – 1. Identify Costs and Benefits The costs and benefits can be broken down into four categories: Development costs tangible expenses that are incurred during the creation of the system. Known as one-time costs. Operational costs tangible costs that are required to operate the system. Known as ongoing costs. Tangible benefits include revenue that the system enables the organization to collect, or reduction in certain cost. Intangibles benefits difficult to incorporate into the economic feasibility analysis because they are based on intuition and belief rather than on “hard numbers.” Should be listed in the spreadsheet along with the tangible items. 14 Economic Feasibility – 1. Identify Costs and Benefits 15 Economic Feasibility – 2. Assign Values to Costs and Benefits Once the types of costs and benefits have been identified, the analyst needs to assign specific dollar values to them. Although this task is very difficult, you have to do the best you can to come up with reasonable numbers for all of the costs and benefits. Only then can the approval committee make an informed decision about whether or not to move ahead with the project. The most effective strategy for estimating costs and benefits is to rely on the people who have the best understanding of them (e.g. IT group) 16 17 Economic Feasibility – 3. Cash Flow Analysis and Measures An initial investment that produces a stream of benefits over time, along with some ongoing support costs. Therefore, the value of the project must be measured over time. Cash flows, both inflows and outflows, are estimated over some future period, then evaluated using several techniques to judge whether the projected benefits justify incurring the costs. 18 Economic Feasibility – Simple Cash Flow Projection 19 20 Economic Feasibility – 4. Return on Investment (ROI) Is a calculation that measures the average rate of return earned on the money invested in the project. ROI is a simple calculation that divides the project’s net benefits (total benefits/total costs) by the total costs. The ROI formula is: A high ROI suggests that the project’s benefits far outweigh the project’s cost. 21 Economic Feasibility – 4. Break-Even Point (BEP) It is the number of years it takes a firm to recover its original investment in the project from net cash flows. Also called the payback method. The project’s cumulative cash flow figure becomes positive during Year 3, so the initial investment is “paid back” over two years plus some fraction of the third year. 22 23 Organizational Feasibility How well the system will be accepted by its users and incorporated into the ongoing operations of the organization. There are many organizational factors that can have an impact on the project. Attempts to answer the question “If we build it, will they come?” 24 Organizational Feasibility Conduct a stakeholder analysis. Stakeholder is a person, group, or organization that can affect (or can be affected by) a new system. In general, the most important stakeholders in the introduction of a new system are the project champion, system users, and organizational management, but systems sometimes affect other stakeholders as well. 25 Organizational Feasibility The champion: is a high-level executive and is usually, but not always, the project sponsor who created the system request. The champion supports the project by providing time and resources (e.g., money) and by giving political support within the organization by communicating the importance of the system to other organizational decision makers. More than one champion is preferable because if the champion leaves the organization, the support could leave as well. Organizational management: support conveys to the rest of the organization the belief that the system will make a valuable contribution and that necessary resources will be made available. Management should encourage people in the organization to use the system and to accept the many changes that the system will likely create. 26 Organizational Feasibility System users: Users of the system once it has been installed in the organization. User participation should be promoted throughout the development process to make sure that the final system will be accepted and used, by getting users actively involved in the development of the system (e.g., performing tasks, providing feedback, and making decisions). 27 28 Tune Source – Case Study After reading the system request, the steering committee placed the digital music download project high on its list of projects. The next step was for Carly and Jason to develop the feasibility analysis. They prepare executive summary page of the feasibility study: The report itself was about 10 pages long, and it provided additional detail and supporting documentation. Detailed economic feasibility analysis is in Appendix A1, Page 41- 43. 29 Tune Source – Technical Feasibility 30 Tune Source – Economical Feasibility 31 Tune Source – Organizational Feasibility 32 Tasks to do this week Hand on the system request in your section. Prepare the feasibility analysis(Technical, Economical, Organizational). prepare executive summary page of the feasibility study. And a report 1-2 pages long, to provide additional detail and supporting documentation. 33