ICTE 354 Introduction to

Systems Analysis
Lesson 3: Feasibility Studies

Last Lesson
You will understand the purpose of SSADM
Requirements Analysis
Functional
Non-Functional

Today
Feasibility Study: Business Case
Operational Feasibility
Technical Feasibility
Economic Feasibility

Sample Feasibility Information to

Executives
The project ROI is 170%
The payback period is 2.5years but can be accomplished
faster than anticipated
Probability of success is greater than 70%
The project risks have been analysed and have been
deemed acceptable

Business case
Business case refers to the reasons, or justification, for a
proposal.
Why are we doing this project?
What is the project about?
How does this solution address key business issues?
How much will it cost and how long will it take?
Will we suffer a productivity loss during the transition?

Business case
What is the return on investment and payback period?
What are the risks of doing the project? What are the risks of
not doing the project?
How will we measure success?
What alternatives exist?

Business case
Is the proposal desirable in an operational sense?
Is it a practical approach that will solve a problem or take
advantage of an opportunity to achieve company goals?
Is the proposal technically feasible?
Are the necessary technical resources and people available for
the project?

Business case
Is the proposal economically desirable?
What are the projected savings and costs?
Are other intangible factors involved, such as customer
satisfaction or company image?
Is the problem worth solving, and will the request result in a
sound business investment?
Can the proposal be accomplished within an acceptable time
frame?

Main Reasons for Systems Projects

Improved service
Support for new products and services
Better performance
More information
Stronger controls
Reduced cost

Factors that Affect Systems Projects

Internal Factors
Strategic plan
Top managers
User requests
Information technology department
Existing systems and data

Factors that Affect Systems Projects

External Factors
Technology
Suppliers
Customers
Competitors
The economy
Government

IS Trends
Period

Predominant used of Information Systems

1950s

Mostly used to automate repetitive, data-intensive processes,

1960s

Used by managers to facilitate better decision-making through the creation of,

for instance, management reports.

19070s & 80s

was on communication and networking,

1990s

Strategic information systems to provide organisations with a competitive

advantage

In the 2000s and

beyond

Trends in this early part of the new century show that the focus of information
systems today is to network beyond the organisations to include preferred
partners such as suppliers, distributors and major customers

Competitive Strategy

Company can gain advantage by:

Improving operational efficiency

Improving the efficiency and productivity of internal processes

as well as external activities

Reducing costs

Providing products at the lowest possible cost

Increasing barriers to entry

Deterring potential entrants into its market

Establishing switching costs and

Making it difficult for customers to buy from competitors, or
locking in suppliers and customers suppliers to do business with rival firms
Through innovation

Offering unique products and services, entering new markets,

innovating production processes, etc

Differentiating products and

services

Attracting new customers based on product features that differ

from those of rivals

Establishing alliances

Forming unique partnerships with other organisations to add

value to their product/service offerings

Operational Feasibility

Operational feasibility
Evaluates how the proposed system will be used
effectively after it has been developed
Does management support the project?
Do users support the project?
Is the current system well liked and effectively used?
Do users see the need for change?
Will the new system result in a workforce reduction?
If so, what will happen to affected employees?

Operational feasibility
Will the new system require training for users?
Will the company prepared to provide the necessary resources
for training current employees?
Will users be involved in planning the new system right from
the start?

Operational feasibility
Will the new system place any new demands on users or
require any operating changes?
For example, will any information be less accessible or produced less
frequently?

Will performance decline in any way?

Will an overall gain to the organization outweigh individual
losses?

Operational feasibility
Will customers experience adverse effects in any way, either
temporarily or permanently?
Will any risk to the companys image or goodwill result?
Does the development schedule conflict with other company
priorities?
Do legal or ethical issues need to be considered?

Technical Feasibility

Technical feasibility
Evaluates technical resources needed to develop,
purchase, install, or operate the system.
Does the company have the necessary hardware, software,
and network resources? If not, can those resources be
acquired without difficulty?
Does the company have the needed technical expertise? If
not, can it be acquired?

Technical feasibility
Does the proposed platform have sufficient capacity for future
needs? If not, can it be expanded?
Will a prototype be required?
Will the hardware and software environment be reliable? Will it
integrate with other company information systems, both now
and in the future?
Will the system be able to handle future transaction volume
and company growth?

Technical feasibility
Will it interface properly with external systems operated by
customers and suppliers?
Will the combination of hardware and software supply
adequate performance?
Do clear expectations and performance specifications exist?

Economic easibility

Economic feasibility
Evaluates if the projected benefits of the proposed
system outweigh the estimated costs usually considered
the total cost of ownership (TCO), which includes
ongoing support and maintenance costs, as well as
acquisition costs.

Economic feasibility
Economic feasibility involves the following steps:
1. Identify Costs and Benefits
2. Assign Values to Costs and Benefits
3. Determine Cash Flow Forecast
4. Assess Projects Economic Value

Assigning Economic Value

Use one or more of the following evaluation techniques:

Benefits Cost Analysis

Return on Investment (ROI) Analysis
Pay back Analysis
Present value analysis

Economic feasibility
TCO includes the following:
Development / acquisition costs (one-time)
Ongoing operational costs
Maintenance costs

Economic feasibility
People, including IT staff and users
Hardware and equipment
Software, including in-house development as well as
purchases from vendors
Formal and informal training
Licenses and fees

Economic feasibility
Consulting expenses
Facility costs
The estimated cost of not developing the system or
postponing the project

Tangible benefits
A new scheduling system that reduces overtime
An online package tracking system that improves service
and decreases the need for clerical staff
A sophisticated inventory control system that cuts excess
inventory and eliminates production delays

Intangible benefits
A user-friendly system that improves employee job
satisfaction
A sales tracking system that supplies better information
for marketing decisions
A new Web site that enhances the companys image

Schedule feasibility
Schedule feasibility evaluates the likelihood of a project
being implemented in an acceptable time frame

Price vs cost
Price is the amount of money that is given by a client to
the project manager in other to receive something from
him/her.
Cost on the other hand is the resources consumed (e.g.
money, staff, training, materials and equipment)

Benefits Cost Analysis

Benefit-Cost Analysis gives you a simple, quantitative approach for
deciding whether to go ahead with a decision

Benefit Cost Analysis=Estimated Benefits X Estimated Profit X Probability of Success

Estimated Cost

Benefits Cost Analysis

In a project the total cost is GHC35,000 with an
estimated probability of success of 70%. The project has
an estimated profit of 20% and estimated benefit of
GHC50,000.
Calculate the Benefit Cost Analysis

Return on Investment
Return on Investment (ROI)%= Net Present Value X 100
Initial Investment

Net Present Value

Should you invest in a new office building in the hope of
selling it at a profit next year?
You should do so if net present value is positive, that is,
if the new buildings value today exceeds the investment
that is required. A positive net present value implies that
the rate of return on your investment is higher than your
opportunity cost of capital, that is, higher than you could
earn by investing in financial markets.

Future Value
For single periods
FV = PV (1+r)
For multiple periods
FV = PV (1+r)n

Present Value
For single periods
PV = FV 1/(1+r)
For multiple periods
PV = FV 1/(1+r)n

Net Present Value

NPV = {Net Period Cash Flow/(1+R)n} - Initial
Investment

Net Present Value

When cash inflows are even
NPV = R x

1 1+

- Initial Costs

Where
R: net cash inflow each period
i: rate of return per period
n: number of periods during which the project is expected
to operate and generate cash inflows.

Pay Back Analysis

Decision Rule: Accept the project only if its payback
period is LESS than the target payback period.
For fixed cash inflow:
Initial Investment
Payback Period =
Cash Inflow

Pay Back Analysis

For variable cash inflow:
B
Payback Period =A +
C
Where
A: last period with a negative cumulative cash flow
B: Absolute cumulative net cash flow for that period
C: Total net cash flow in the following period

Any Questions?