The chapter will address the following questions:

1
Introduction

• The chapter will address the following questions
• What are the feasibility checkpoints in the
  systems development life cycle?
• What are the four types of feasibility and what
  is the description of each?
• How do you perform various cost-benefit analyses
  using time-adjusted costs and benefits?

2
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Feasibility is the measure of how beneficial or
  practical the development of an information
  system will be to an organization.
• Feasibility analysis is the process by which
  feasibility is measured.
• Feasibility should be measured throughout the
  life cycle.
• The scope and complexity of an apparently
  feasible project can change after the initial
  problems and opportunities are fully analyzed or
  after the system has been designed.
• Thus, a project that is feasible at one point in
  time may become infeasible at a later point in
  time.

3
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Feasibility is the measure of how beneficial or
  practical the development of an information
  system will be to an organization.
• Feasibility analysis is the process by which
  feasibility is measured.
• Feasibility should be measured throughout the
  life cycle.
• The scope and complexity of an apparently
  feasible project can change after the initial
  problems and opportunities are fully analyzed or
  after the system has been designed.
• Thus, a project that is feasible at one point in
  time may become infeasible at a later point in
  time.

4
(No Transcript)
5
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Survey Phase Checkpoint
• At this early stage of the project, feasibility
  is rarely more than a measure of the urgency of
  the problem and the first-cut estimate of
  development costs.
• It answers the question Do the problems (or
  opportunities) warrant the cost of a detailed
  study of the current system?''
• Realistically, feasibility can't be accurately
  measured until the problems (and opportunities)
  and requirements (definition phase) are better
  understood.

6
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Study Phase Checkpoint
• Because the problems are better understood, the
  analysts can make better estimates of development
  costs and of the benefits to be obtained from a
  new system.
• The minimum value of solving a problem is equal
  to the cost of that problem.
• Development costs, at this point, are still just
  guesstimates.
• If the cost estimates significantly increase from
  the survey phase to the study phase, the likely
  culprit is scope.
• Scope has a tendency to increase in many
  projects.
• If increased scope threatens feasibility, then
  scope might be reduced.

7
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Definition Phase Checkpoint
• The next checkpoint occurs after the definition
  of user requirements for the new system.
• These requirements frequently prove more
  extensive than originally stated.
• For this reason, the analyst must frequently
  revise cost estimates for design and
  implementation.
• Once again, feasibility is reassessed.
• If feasibility is in question, scope, schedule,
  and costs must be rejustified.

8
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Selection Phase Checkpoint
• The selection phase represents a major
  feasibility analysis activity since it charts one
  of many possible implementations as the target
  for systems design.
• During the selection phase, alternative solutions
  are defined in terms of their input/output
  methods, data storage methods, computer hardware
  and software requirements, processing methods,
  and people implications.

9
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Selection Phase Checkpoint
• The following list presents the typical range of
  options that can be evaluated by the analyst.
• Do nothing! Leave the current system alone.
• Reengineer the (manual) business processes, not
  the computer-based processes.
• Enhance existing computer processes.
• Purchase a packaged application.

10
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Selection Phase Checkpoint
• The following list presents the typical range of
  options that can be evaluated by the analyst.
  (continued)
• Design and construct a new computer-based system.
  This option presents numerous other options
• Centralized versus distributed versus cooperative
  processing
• On-line versus batch processing
• Files versus database for data storage
• Of course, an alternative could be a combination
  of the preceding options.
• After defining these options, each option is
  analyzed for operational, technical, schedule,
  and economic feasibility.

11
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Procurement Phase Checkpoint
• Because the procurement of hardware and
  applications software involves economic decisions
  that may require sizable outlays of cash, it
  shouldn't surprise you that feasibility analysis
  is required before a contract is extended to a
  vendor.
• It should be noted that the procurement phase may
  be consolidated into the selection phase because
  hardware and software selection may have a
  significant impact on the feasibility of the
  solutions being considered.

12
Feasibility Analysis - A Creeping Commitment
Approach

• Feasibility Checkpoints in the Life Cycle
• Systems Analysis - A Design Phase Checkpoint
• Because implementation is often the most
  time-consuming and costly phase, the checkpoint
  after design gives us one last chance to cancel
  or downsize the project.
• Downsizing is the act of reducing the scope of
  the initial version of the system.
• Future versions can address other requirements
  after the system goes into production.

13
Four Tests for Feasibility

• Most analysts agree that there are four
  categories of feasibility tests
• Operational feasibility is a measure of how well
  the solution of problems or a specific solution
  will work in the organization. It is also a
  measure of how people feel about the
  system/project.
• Technical feasibility is a measure of the
  practicality of a specific technical solution and
  the availability of technical resources and
  expertise.
• Schedule feasibility is a measure of how
  reasonable the project timetable is.
• Economic feasibility is a measure of the
  cost-effectiveness of a project or solution. This
  is often called a cost-benefit analysis.

14
Four Tests for Feasibility

• Operational Feasibility
• Operational feasibility criteria measure the
  urgency of the problem (survey and study phases)
  or the acceptability of a solution (definition,
  selection, acquisition, and design phases).
• There are two aspects of operational feasibility
  to be considered
• Is the problem worth solving, or will the
  solution to the problem work?
• How do the end-users and management feel about
  the problem (solution)?

15
Four Tests for Feasibility

• Operational Feasibility
• Is the Problem Worth Solving, or Will the
  Solution to the Problem Work?
• PIECES can be used as the basis for analyzing the
  urgency of a problem or the effectiveness of a
  solution. The following is a list of the
  questions that address these issues
• Performance. Does the system provide adequate
  throughput and response time?
• Information. Does the system provide end-users
  and managers with timely, pertinent, accurate,
  and usefully formatted information?
• Economy. Does the system offer adequate service
  level and capacity to reduce the costs of the
  business or increase the profits of the business?

16
Four Tests for Feasibility

• Operational Feasibility
• Is the Problem Worth Solving, or Will the
  Solution to the Problem Work?
• PIECES can be used as the basis for analyzing the
  urgency of a problem or the effectiveness of a
  solution. The following is a list of the
  questions that address these issues (continued)
• Control. Does the system offer adequate controls
  to protect against fraud and embezzlement and to
  guarantee the accuracy and security of data and
  information?
• Efficiency. Does the system make maximum use of
  available resources including people, time, flow
  of forms, minimum processing delays, and the
  like?
• Services. Does the system provide desirable and
  reliable service to those who need it? Is the
  system flexible and expandable?

17
Four Tests for Feasibility

• Operational Feasibility
• How do End-Users and Managers Feel about the
  Problem (Solution)?
• It's not only important to evaluate whether a
  system can work but also evaluate whether a
  system will work.
• A workable solution might fail because of
  end-user or management resistance. The following
  questions address this concern
• Does management support the system?
• How do the end-users feel about their role in the
  new system?
• What end-users or managers may resist or not use
  the system? People tend to resist change. Can
  this problem be overcome? If so, how?

18
Four Tests for Feasibility

• Operational Feasibility
• How do End-Users and Managers Feel about the
  Problem (Solution)?
• A workable solution might fail because of
  end-user or management resistance. The following
  questions address this concern (continued)
• How will the working environment of the end-users
  change? Can or will end-users and management
  adapt to the change?

19
Four Tests for Feasibility

• Operational Feasibility
• Usability Analysis
• Usability analysis is often performed with a
  working prototype of the proposed system.
• This is a test of the systems user interfaces
  and is measured in how easy they are to learn, to
  use and support the desired productivity levels
  of the users.
• The goal is to identify the areas of the system
  where the users are prone to make mistakes,
  processes which may be confusing or too
  complicated, and also observe the reactions of
  the user and assess their productivity.

20
Four Tests for Feasibility

• Operational Feasibility
• Usability Analysis
• How do you determines if a systems user
  interface is usable?
• There are certain goals or criteria which experts
  agree help measure the usability of an interface
  and they are as follows
• Ease of Learning - How long does it take to train
  someone to perform at a desired level.
• Ease Of Use - You are able to perform your
  activity quickly and accurately. If you are a
  first time user or infrequent user, the interface
  is easy and understandable. If you are a frequent
  user, your level of productivity and efficiency
  is increased.
• Satisfaction - You the user are favorably pleased
  with the interface and prefer it over types you
  are familiar with.

21
Four Tests for Feasibility

• Technical Feasibility
• Technical feasibility can only be evaluated after
  those phases during which technical issues are
  resolved namely, after the evaluation and
  design phases of our life cycle have been
  completed.
• Technical feasibility addresses three major
  issues
• Is the proposed technology or solution practical?
• Do we currently possess the necessary technology?
• Do we possess the necessary technical expertise,
  and is the schedule reasonable?

22
Four Tests for Feasibility

• Technical Feasibility
• Is the Proposed Technology or Solution Practical?
• The technology for any defined solution is
  normally available.
• The question is whether that technology is mature
  enough to be easily applied to our problems.
• Some firms like to use state-of-the-art
  technology, but most firms prefer to use mature
  and proven technology.
• A mature technology has a larger customer base
  for obtaining advice concerning problems and
  improvements.

23
Four Tests for Feasibility

• Technical Feasibility
• Do we Currently Possess the Necessary Technology?
• Assuming the solution's required technology is
  practical
• Is the technology available in the information
  systems shop?''
• If the technology is available, does it have the
  capacity to handle the solution.
• If the technology is not available
• Can the technology be acquired?''

24
Four Tests for Feasibility

• Technical Feasibility
• Do we Possess the Necessary Technical Expertise,
  and is the Schedule Reasonable?
• We may have the technology, but that doesn't mean
  we have the skills required to properly apply
  that technology.
• True, all information systems professionals can
  learn new technologies.
• However, that learning curve will impact the
  technical feasibility of the project
  specifically, it will impact the schedule.

25
Four Tests for Feasibility

• Schedule Feasibility
• Given our technical expertise, are the project
  deadlines reasonable?
• Some projects are initiated with specific
  deadlines.
• You need to determine whether the deadlines are
  mandatory or desirable.
• If the deadlines are desirable rather than
  mandatory, the analyst can propose alternative
  schedules.
• It is preferable (unless the deadline is
  absolutely mandatory) to deliver a properly
  functioning information system two months late
  than to deliver an error-prone, useless
  information system on time!
• Missed schedules are bad.
• Inadequate systems are worse!

26
Four Tests for Feasibility

• Economic Feasibility
• The bottom line in many projects is economic
  feasibility.
• During the early phases of the project, economic
  feasibility analysis amounts to little more than
  judging whether the possible benefits of solving
  the problem are worthwhile.
• As soon as specific requirements and solutions
  have been identified, the analyst can weigh the
  costs and benefits of each alternative.
• This is called a cost-benefit analysis.

27
Four Tests for Feasibility

• The Bottom Line
• You have learned that any alternative solution
  can be evaluated according to four criteria
  operational, technical, schedule, and economic
  feasibility.
• How do you pick the best solution? It's not
  always easy.
• Operational and economic issues often conflict.
• The final decision can only be made by sitting
  down with end-users, reviewing the data, and
  choosing the best overall alternative.

28
Cost-Benefit Analysis Techniques

• How Much Will the System Cost?
• Costs fall into two categories.
• There are costs associated with developing the
  system.
• Can be estimated from the outset of a project and
  should be refined at the end of each phase of the
  project.
• There are costs associated with operating a
  system.
• Can only be estimated once specific
  computer-based solutions have been defined
  (during the selection phase or later).

29
Cost-Benefit Analysis Techniques

• How Much Will the System Cost?
• Systems development costs
• Are usually one-time costs that will not recur
  after the project has been completed.
• Sample systems development costs
• Personnel costs
• Computer usage
• Training
• Supply, duplication, and equipment costs.
• Cost of any new computer equipment and software.

30
(No Transcript)
31
Cost-Benefit Analysis Techniques

• How Much Will the System Cost?
• The lifetime system benefits must recover both
  the developmental and operating costs.
• Systems operating costs
• Recur throughout the lifetime of the system.
• The costs of operating a system over its useful
  lifetime can be classified as fixed and variable.
• Fixed costs occur at regular intervals but at
  relatively fixed rates. Examples of fixed
  operating costs include
• Lease payments and software license payments.
• Prorated salaries of information systems
  operators and support personnel (although
  salaries tend to rise, the rise is gradual and
  tends not to change dramatically from month to
  month).

32
Cost-Benefit Analysis Techniques

• How Much Will the System Cost?
• Systems operating costs
• Variable costs occur in proportion to some usage
  factor. Examples include
• Costs of computer usage (e.g., CPU time used,
  terminal connect time used, storage used) which
  vary with the work load.
• Supplies (e.g., preprinted forms, printer paper
  used, punched cards, floppy disks, magnetic
  tapes, and other expendables), which vary with
  the work load.
• Prorated overhead costs (e.g., utilities,
  maintenance, and telephone service).
• After determining the costs and benefits for a
  possible solution, you can perform the
  cost-benefit analysis.

33
Cost-Benefit Analysis Techniques

• What Benefits Will the System Provide?
• Benefits normally increase profits or decrease
  costs, both highly desirable characteristics of a
  new information system.
• To as great a degree as possible, benefits should
  be quantified in dollars and cents.
• Benefits are classified as tangible or
  intangible.
• Tangible benefits are those that can be easily
  quantified.
• Tangible benefits are usually measured in terms
  of monthly or annual savings or of profit to the
  firm.
• Examples include fewer processing errors,
  reduced expenses, and increased sales.

34
Cost-Benefit Analysis Techniques

• What Benefits Will the System Provide?
• Benefits are classified as tangible or
  intangible. (continued)
• Intangible benefits are those benefits believed
  to be difficult or impossible to quantify.
• Examples include improved customer goodwill and
  improved employee moral.
• Unfortunately, if a benefit cannot be quantified,
  it is difficult to accept the validity of an
  associated cost-benefit analysis that is based on
  incomplete data.

35
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• There are three popular techniques to assess
  economic feasibility, also called
  cost-effectiveness.
• Payback analysis.
• Return on investment.
• Net present value.
• One concept that should be applied to each
  technique is the adjustment of cost and benefits
  to reflect the time value of money.

36
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• The Time Value of Money
• A concept shared by all three techniques is the
  time value of money a dollar today is worth
  more than a dollar one year from now.
• Some of the costs of a system will be accrued
  after implementation.
• All benefits of the new system will be accrued in
  the future.
• Before cost-benefit analysis, these costs should
  be brought back to current dollars.
• Why go to all this trouble?
• Because projects are often compared against other
  projects that have different lifetimes.

37
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• Payback Analysis
• The payback analysis technique is a simple and
  popular method for determining if and when an
  investment will pay for itself.
• Because systems development costs are incurred
  long before benefits begin to accrue, it will
  take some period of time for the benefits to
  overtake the costs.
• After implementation, you will incur additional
  operating expenses that must be recovered.
• Payback analysis determines how much time will
  lapse before accrued benefits overtake accrued
  and continuing costs.
• This period of time is called the payback period.

38
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• Payback Analysis
• How do you determine the payback period?
• Adjust the costs and benefits for the time value
  of money (that is, adjust them to current dollar
  values).
• The present value of a dollar in year n depends
  on something typically called a discount rate.
• The discount rate is a percentage similar to
  interest rates that you earn on your savings
  account.
• The discount rate for a business is the
  opportunity cost of being able to invest money in
  other projects.

39
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• Payback Analysis
• How do you determine the payback period?
  (continued)
• The current value, actually called the present
  value, of a dollar at any time in the future can
  be calculated using the following formula
• PVn 1(1 i)n
• where PVn is the present value of 1.00 n years
  from now and i is the discount rate.
• Determine time period when lifetime benefits will
  overtake the lifetime costs.
• This is the break-even point.

40
(No Transcript)
41
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• Return-on-Investment Analysis
• The return-on-investment (ROI) analysis technique
  compares the lifetime profitability of
  alternative solutions or projects.
• 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.
• The ROI for a potential solution or project is
  calculated as follows
• ROI (Estimated lifetime benefits - Estimated
  lifetime costs) / Estimated lifetime costs
• The solution offering the highest ROI is the best
  alternative.

42
Cost-Benefit Analysis Techniques

• Is the Proposed System Cost-Effective?
• Net Present Value
• The net present value of an investment
  alternative is considered the preferred
  cost-benefit technique by many managers.
• Costs are represented by negative cash flows
  while benefits are represented by positive cash
  flows.
• After discounting all costs and benefits,
  subtract the sum of the discounted costs from the
  sum of the discounted benefits to determine the
  net present value.
• If it is positive, the investment is good.
• If negative, the investment is bad.
• When comparing multiple solutions or projects,
  the one with the highest positive net present
  value is the best investment.

43
(No Transcript)
44
Feasibility Analysis of Candidate Systems

• Candidate Systems Matrix
• The candidate systems matrix documents
  similarities and differences between candidate
  systems however, it offers no analysis.
• The columns of the matrix represent candidate
  solutions.
• The rows of the matrix represent characteristics
  that serve to differentiate the candidates. The
  breakdown is as follows
• TECHNOLOGY
• INTERFACES
• DATA
• PROCESSES
• GEOGRAPHY

45
(No Transcript)
46
(No Transcript)
47
Feasibility Analysis of Candidate Systems

• Feasibility Analysis Matrix
• This matrix complements the candidate systems
  matrix with an analysis and ranking of the
  candidate systems. It is called a feasibility
  analysis matrix.
• The columns of the matrix correspond to the same
  candidate solutions as shown in the candidate
  systems matrix.
• Some rows correspond to the feasibility criteria
  presented in this chapter.
• Rows are added to describe the general solution
  and a ranking of the candidates.
• The cells contain the feasibility assessment
  notes for each candidate.

48
Feasibility Analysis of Candidate Systems

• Feasibility Analysis Matrix
• Each row can be assigned a rank or score for each
  criteria (e.g., for operational feasibility,
  candidates can be ranked 1, 2, 3, etc.).
• After ranking or scoring all candidates on each
  criteria, a final ranking or score is recorded in
  the last row.

49
(No Transcript)
50
(No Transcript)
51
Summary

• Introduction
• Feasibility Analysis - A Creeping Commitment
  Approach
• Four Tests for Feasibility
• Cost-Benefit Analysis Techniques
• Feasibility Analysis of Candidate Systems