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CSCI380-Week 5-Lecture 2-Feasibility Analysis

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23 views14 pages

CSCI380-Week 5-Lecture 2-Feasibility Analysis

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12110159
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Chapter 4

Feasibility Analysis

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Feasibility Analysis

Feasibility – the measure of how beneficial or


practical an information system will be to an
organization.

Feasibility analysis – the process by which


feasibility is measured.

Creeping Commitment – an approach to


feasibility that proposes that feasibility should be
measured throughout the life cycle.
4-2
Feasibility Checkpoints

• Systems Analysis — Scope Definition

• Systems Analysis — Problem Analysis

• Systems Design — Decision Analysis

4-3
Four Tests For Feasibility
Operational feasibility – a measure of how well a solution
will work or be accepted in an organization.
Usability analysis – a test of the system’s user
interfaces.
Technical feasibility – a measure of the practicality of a
technical solution and the availability of technical
resources and expertise.
Schedule feasibility – a measure of how reasonable the
project timetable is.
Economic feasibility - a measure of the cost-
effectiveness of a project or solution.
4-4
Cost-Benefit Analysis
Techniques
Costs:
• Development costs are one time costs that will not recur after
the project has been completed.
• Operating costs are costs that tend to recur throughout the
lifetime of the system. Such costs can be classified as:
• Fixed costs — occur at regular intervals but at relatively
fixed rates.
• Variable costs — occur in proportion to some usage
factor.
Benefits:
• Tangible benefits are those that can be easily quantified.
• Intangible benefits are those benefits believed to be difficult
4-5 or impossible to quantify.
Costs for a Proposed Systems
Solution

4-6
Three Popular Techniques to
Assess Economic Feasibility

• Net Present Value

• Payback Analysis

• Return On Investment

The Time Value of Money is a concept that


should be applied to each technique. The time
value of money recognizes that a dollar today is
worth more than a dollar one year from now.

4-7
Net Present Value (NPV)
Analysis
Net Present Value (NPV) – an analysis
technique that compares the annual
discounted costs and benefits of alternative
solutions.

4-8
Present Value Formula

Present Value – the current value of a


dollar at any time in the future.

Discount rate (factor) – a percentage similar to


interest rates that you earn on your savings.

In most cases the discount rate for a business is the


opportunity cost of being able to invest money in other projects
or investments

4-9
Cost and Benefits Formulas

4-10
Example

4-11
Payback Analysis

Payback analysis – a technique for


determining if and when an investment will
pay for itself.

Payback period – the period of time that


will lapse before accrued benefits overtake
accrued and continuing costs.

4-12
Payback Analysis for a Project

4-13
Return-on-Investment Analysis
(ROI)
Return-on-Investment (ROA) analysis – a technique that
compares the lifetime profitability of alternative solutions.

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.

Lifetime ROI = (estimated lifetime benefits –


estimated lifetime costs) / estimated lifetime costs

Annual ROI = lifetime ROI / lifetime of the system


4-14

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