Chapter 3 (Part C)

Initiating and Planning Systems

Development Projects
Learning Objectives
 Describe the steps involved in the project initiation and planning
process.
 Explain the need for and the contents of a Project Scope
Statement and Baseline Project Plan.
 List and describe various methods for assessing project
feasibility.
 Describe the differences between tangible and intangible
benefits and costs and between one-time vs. recurring benefits
and costs.
 Perform cost-benefit analysis and describe what is meant by the
time value of money, present value, discount rate, net present
value, return on investment, and break-even analysis.
 Describe the general rules for evaluating technical risks
associated with a systems development project.
 Describe the activities and participant roles within a structured
walkthrough.
 Initiating and Planning Systems
Development Projects
 What must be considered when making the decision on the
division between project initiation and planning (PIP) and
analysis?
 How much effort should be expended on the PIP process?
 Who is responsible for performing the PIP process?
 Why is PIP such a challenging activity?

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The Process of Initiating and Planning IS
Development Projects

FIGURE 1
Systems development
life cycle with project
initiation and planning
highlighted

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Cont. . . Project initiation

 Project initiation focuses on activities designed to assist in

organizing a team to conduct project planning.

 Activities in project initiation include:

 Establishing the Project Initiation Team
 Establishing a Relationship with the Customer
 Establishing the Project Initiation Plan
 Establishing Management Procedures
 Establishing the Project Management Environment and Project
Workbook
 Developing the Project Charter

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 Project initiation
Cont. . .
 The key activity of project initiation is the development of the
project charter.
 A short document that is prepared for both internal and external
stakeholders.
 Provides a high-level overview of the project.
 Useful communication tool that helps to assure that the organizations
and other stakeholders understand the initiation of a project.

 A project charter typically contains:

 Project title and date of authorization
 Project manager name and contact information
 Customer name and contact information
 Projected start and completion dates
 Key stakeholders, project role, and responsibilities
 Project objectives and description
 Key assumptions or approach
 Signature section for key stakeholders 6
Cont. . .
 The key activity of project planning is the process of defining
clear, discrete activities and the work needed to complete
each activity within a single project.
 The objective of the project planning process is the
development of a
 Baseline Project Plan (BPP) and
 Project Scope Statement (PSS).

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Elements of Project Planning
 Describe project scope, alternatives, feasibility.
 Divide project into tasks.
 Estimate resource requirements and create resource plan.
 Develop preliminary schedule.
 Develop communication plan.
 Determine standards and procedures.
 Identify and assess risk.
 Create preliminary budget.
 Develop a statement of work.
 Set baseline project plan.
 Deliverables and Outcomes PIP
 Business Case
 Justification for an information system.
 Presented in terms of the tangible and intangible economic benefits
and costs.
 The technical and organizational feasibility of the proposed system.

 Baseline Project Plan (BPP)

 A major outcome and deliverable from the PIP phase.
 Contains the best estimate of a project’s scope, benefits, costs, risks,
and resource requirements.

 Project Scope Statement (PSS)

 A document prepared for the customer.
 Describes what the project will deliver.
 Outlines at a high level all work required to complete the project.
Assessing Project Feasibility
 Economic
 Technical
 Operational
 Scheduling
 Legal and contractual
 Political

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 Assessing Project Feasibility (Cont.)

FIGURE 2
System Service Request for Customer Tracking System (Pine Valley Furniture) 11
 Cont.….
 Economic feasibility:
 a process of identifying the financial benefits and costs
associated with a development project
 Often referred to as a cost-benefit analysis
 Project is reviewed after each SDLC phase in order to decide
whether to continue, redirect, or kill a project

 Cost
 Tangible or intangible

 Benefit
 Tangible or intangible

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 Determining Project Benefits
 Tangible benefits
 refer to items that can be measured in dollars and with certainty.
 Examples include:
 reduced personnel expenses

 lower transaction costs, or

 higher profit margins.

 Most tangible benefits will fit within the following categories:

 Cost reduction and avoidance

 Error reduction

 Increased flexibility

 Increased speed of activity

 Improvement of management planning and control

 Opening new markets and increasing sales opportunities

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Cont. …

Figure 3
Tangible benefits for Customer Tracking System (Pine Valley Furniture)

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 Cont. …
 Intangible benefits
 are benefits derived from the creation of an information system that
cannot be easily measured in dollars or with certainty.
 May have direct organizational benefits, such as the improvement of
employee morale
 May have broader societal implications, such as the reduction of
waste creation or resource consumption

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 Determining Project Costs
 Tangible cost:
 a cost associated with an information system that can be
measured in dollars and with certainty
 IS development tangible costs include:
 Hardware costs
 Labor costs, or
 Operational costs, including employee training and building renovations.

 Intangible cost:
 a cost associated with an information system that cannot be
easily measured in terms of dollars or with certainty
 Intangible costs can include:
 Loss of customer goodwill,
 Employee morale, or
 Operational inefficiency
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 Cont. . .
 One-time cost:
 a cost associated with project start-up and development
or system start-up
 These costs encompass activities such as:
 Systems development,
 New hardware and software purchases,
 User training, Site preparation, and Data or system conversion.

Figure 4
One-time costs for Customer
Tracking System (Pine
Valley Furniture)

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 Cont. . .
 Recurring cost:
 a cost resulting from the ongoing evolution and use of a
system
 Examples of these costs include:
 Application software maintenance
 Incremental data storage expenses
 Incremental communications
 New software and hardware leases, and
 Supplies and other expenses (i.e., paper, forms, data center
personnel).

Figure 5
Recurring costs for
Customer Tracking
System (Pine Valley
Furniture)
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 Cont.…
 Both one-time and recurring costs can consist of items that
are fixed or variable in nature.

 Fixed costs are billed or incurred at a regular interval and

usually at a fixed rate.
 Example: facility lease payment

 Variable costs are items that vary in relation to usage.

 Example: long-distance charges

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 Possible Information Systems Cots
 Procurement
 Consulting, equipment, site preparation, capital, management time

 Start-up
 Operating systems, communications installation, personnel hiring,
organizational disruption

 Project-related
 Application software, software modification, personnel overhead,
training, data analysis, documentation

 Operating
 System maintenance, rental, asset depreciation, operation and
planning
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Cont.…

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 The Time Value of Money
 Time value of money (TVM):
 the concept that money available today is worth more than the same
amount tomorrow

 Discount rate:
 the rate of return used to compute the present value of future cash
flows (the cost of capital)

 Present value:
 the current value of a future cash flow

 Net Present Value (NPV)

 Use discount rate to determine present value of cash outlays and
receipts 22
 The Time Value of Money
 Return on Investment (ROI)
 Ratio of cash receipts to cash outlays

 Break-Even Analysis (BEA)

 Amount of time required for cumulative cash flow to equal initial and
ongoing investment

 Net Present Value

 PVn = present value of Y dollars n years from now based on a
discount rate of i.
 NPV = sum of PVs across years.
 Calculates time value of money

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 The Time Value of Money
 Break-even analysis:
 a type of cost-benefit analysis to identify at what point (if ever)
benefits equal costs

Figure 7
Break-even analysis for
Customer Tracking System
(Pine Valley Furniture)

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 Assessing Technical Feasibility

 Technical feasibility:
 a process of assessing the development organization’s ability to
construct a proposed system

 The potential consequences of not assessing and managing

risks can include:
 Failure to attain expected benefits from the project
 Inaccurate project cost estimates.
 Inaccurate project duration estimates.
 Failure to achieve adequate system performance levels.
 Failure to adequately integrate the new system with existing
hardware, software, or organizational procedures.

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 Project Risk Factors
 Project size
 Team size, organizational departments, project duration,
programming effort

 Project structure
 New vs. renovated system, resulting organizational changes,
management commitment, user perceptions

 Development group
 Familiarity with platform, software, development method, application
area, development of similar systems

 User group
 Familiarity with IS development process, application area, use of
similar systems
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 Assessing Technical Feasibility (Cont.)
 Four general rules emerged as technical risk assessments:
 Larger projects are riskier than smaller projects.

 A system in which the requirements are easily obtained and highly

structured will be less risky than one in which requirements are
messy, ill structured, ill defined, or subject to the judgment of an
individual.

 The development of a system employing commonly used or standard

technology will be less risky than one employing novel or nonstandard
technology.

 A project is less risky when the user group is familiar with the systems
development process and application area than if unfamiliar.

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 Cont. . .

FIGURE 8
Effects of degree of project structure, project size, and familiarity with
application area on project implementation risk (Source: Based on 7th Applegate,
Austin, and McFarlan. 2007; Tech Republic, 2005.)
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 Assessing Other Feasibility Concerns
 Operational
 Does the proposed system solve problems or take advantage of
opportunities?

 Scheduling
 Can the project time frame and completion dates meet organizational
deadlines?

 Legal and Contractual

 What are the legal and contractual ramifications of the proposed
system development project?

 Political
 How do key stakeholders view the proposed system?

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 Building the Baseline Project Plan

 A Baseline Project Plan (BPP)

 a document intended primarily to guide the development team.
 Sections:
 Introduction
 System description section
 outlines possible alternative solutions.

 Feasibility assessment section

 outlines issues related to project costs and benefits,
technical difficulties, and other such concerns.

 Management issues
 section outlines a number of managerial concerns related
to the project.
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Cont. . .
 Project Scope statement is part of the BPP introduction.
 Sections:
 Problem statement
 Project objectives
 Project description
 Business benefits
 Deliverables
 Expected duration

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 Factors in Determining Scope
 Organizational units affected by new system
 Current systems that will interact with or change because of new
system
 People who are affected by new system
 Range of potential system capabilities

FIGURE 11
Context-level data flow
diagram showing
project scope for
Purchasing Fulfillment
System (Pine Valley
Furniture)

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Reviewing the Baseline Project Plan
 Structured Walkthroughs:
 a peer-group review of any product created during the
system development process
 Roles: coordinator, presenter, user, secretary,
standard-bearer, maintenance oracle
 Can be applied to BPP, system specifications, logical
and physical designs, program code, test procedures,
manuals and documentation

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Summary
 In this chapter you learned how to:
 Describe steps involved in project initiation and planning.
 Explain the need for and contents of Statement of Work and
Baseline Project Plan.
 List and describe methods for assessing project feasibility.
 Describe tangible vs. intangible costs and benefits, and one-
time vs. recurring costs and benefits.
 Perform cost-benefit analysis, and understand time value of
money, present value, discount rate, return on investment,
and break-even analysis.
 Describe rules for evaluating technical risk of systems
development projects.
 Describe activities and roles of structured walkthroughs.
 ?
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