Slide 1 PROJECT INITIATION Feasibility Analysis Chapter 3
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PROJECT INITIATION
Feasibility Analysis
Chapter 3
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Key Ideas
Projects initiated to create business value from using information technology.Business needs:
Lower cost/Increase revenueImprove customer serviceUse latest/emerging technologies…
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Key Ideas
The project sponsor is a key personRecognize business needUnderstand business valueAdoption of new ITWant system to succeed
The approval committee reviews proposals from various groups and units Approve/decline/suspend projects
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IDENTIFYING BUSINESS VALUE
Business value
Tangible value can be quantified and measured easily, e.g.
2% reduction in operating costs5% increase in sales
Intangible value – system provides important but hard-to-measure benefits, e.g.
improved customer servicebetter competitive position
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System Request
Describes business reasons for building a system – the business valueProject sponsor prepares the documentApproval committee reviews and judges the system request
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System Request
Lists key elements of the projectProject nameProject sponsorBusiness needFunctionalityExpected valueSpecial issues or constraints
System Request Form
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Sample System Request
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Your Turn
If you were building a web-based system for course enrollment --
What would be the functionality?What would be the expected value?What special issues or constraints would you foresee?
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FEASIBILITY ANALYSIS
Key Ideas
Feasibility analysis is used to aid in the decision of whether or not to proceed with the IS project.Also identifies project risksCan be revised throughout SDLC
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Feasibility Analysis
Detailing Expected Costs and Benefits
Technical feasibilityEconomic feasibilityOrganizational feasibility
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Technical Feasibility:Can We Build It?
Familiarity with applicationKnowledge of business domain
Familiarity with technologyExtension of existing firm technologies
Project sizeNumber of people, time, and features
CompatibilityEase of integrating the system with the company’s existing technology
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Economic FeasibilityShould We Build It?
Perform cost benefit analysisIdentify costs and benefitsAssign valuesCalculate cash flow and ROI
Development costsAnnual operational costsAnnual benefitsIntangible costs and benefit
Economic Feasibility Steps
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Example Cost &Benefits
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Assign Values
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Expected Value
Costs Benefits
Tangible
Intangible
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Cash Flow Method for Cost Benefit Analysis
Cost-Benefit Analysis
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Net Present Value (NPV)
NPV used to measure present value of future cash flow
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Net Present Value Calculation
(1 + interest rate)n
Some amount of money
NET PRESENT VALUE EQUALS
Divided by
Where “n” equals the number of periods
Return on Investment (ROI)
Measures money received in return for money investedHigh ROI is desirable when benefits exceed costsCan be determined per year, or for entire project completion period
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Total (benefits - costs)
Return on Investment Calculation
Total costs
RETURN ON INVESTMENT EQUALS
Divided by
Break-Even point
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Length of time when returns will match amount investedGreater time -> Greater risksEasier to picture graphically – plot cumulative present value of benefits and costs for each year
Break-Even Graph
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Formulas
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Organizational FeasibilityIf we build it, will they come?
Will the users accept the system?Will it be incorporated in the organization?Check Strategic Alignment – fit between project and business strategy?
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Organizational FeasibilityIf we build it, will they come?
Perform Stakeholder AnalysisStakeholder – any person, group, or organization that can affect or will be affected by the systemStakeholder analysis considers
Project champion(s)Organizational managementSystem users
Stakeholders
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SummaryProject initiation involves creating and assessing goals and expectations for a new system
Identifying the business value of the new project is a key to successThe system request describes an overview of the proposed system.The feasibility study is concerned with ensuring that technical, economic, and organizational benefits outweigh costs and risks
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Expanding the Domain
For an excellent source of information on IT management see:www.cio.com