ISMT221 Information Systems Analysis and Design

1
ISMT221Information Systems Analysis and Design

• Feasibility Cost Analysis Tools
• Lab 2
• Tony Tam

2
Feasibility Analysis

• Feasibility Analysis provides shared assessment
  of a project between sponsors and project team
• Technical Feasibility
• Economic Feasibility
• Organizational Feasibility
• With the Baseline Project Plan and Statement of
  Project Scope, decide Go/Not Go.

3
Economic Feasibility Project Benefits

• Tangible benefits
• Reduce and avoid cost
• Reduce error
• More flexible
• Faster activities
• Improve control and planning
• New market niche and increasing sales
  opportunities

• Intangible benefits
• Maintain competitiveness
• Increase organizational flexibility
• Raise morale
• Promote learning and understanding
• Timely information

4
Economic Feasibility Project Costs

• Tangible Costs
• System development
• Hardware and software procurement
• Users and staff training
• Site preparation
• Data or system conversion

• Intangible Costs
• Maintenance and support
• Incremental data storage expense
• Incremental communications
• New software and hardware leases
• Consumables

5
Some terminology

• Sunk Cost
• The capital that was paid in the past
• E.g. existing Application Server hiring cost of
  existing staff
• Once-time/ Once-off Cost
• The capital invested only once (usually at the
  beginning of the project)
• E.g. New hardware, software licenses new storage
  facilities hiring new staff
• Recurring Cost
• Continuous capital investment that need to pay
  periodically
• E.g. Staff compensation advertising expenses
  depreciation PPE goodwill of brand

6
How do we estimate economical benefits

• Economical benefits are usually estimated with
• Historical information of similar projects
• Future taxation and inflation estimates
• Scale and scope of the project
• Anticipation of other competing projects

7
Present Value of future cash flow

• The money you have today worth more than the
  money you have in future
• Discount rate the best interest rate that you
  are willing to invest your money of today the
  maximum amount of risk that you are willing to
  tolerate for the uncertainty in future

8
Economic Feasibility Analysis

• Net Present Value (NPV)
• Sum of all the Present Value of Benefits minus
  Costs
• Return On Investment (ROI)
• How much your return on each dollar invested
• Break-even analysis
• When is the break-even point (benefits just
  offset the costs)
• So you know when your payback period and when to
  throw away the system (again)
• Sensitivity analysis
• How sensitive is your project against the change
  in environment?