Lecture 8 Chap13

8/3/2019 Lecture 8 Chap13

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Preparing the System Proposal

Systems Proposal

In order to prepare the systems proposalanalysts must use a systematic approach toidentify hardware and software needs

Ascertaining hardware and software needs

Identifying and forecasting costs and benefits Comparing costs and benefits

Choosing the most appropriate alternative


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Steps to Ascertain Hardware and Software Needs

Inventory computer hardware currently available Estimate current and projected workload for the

system

Evaluate the performance of hardware and

software using some predetermined criteria Choose the vendor according to the evaluation

Obtain hardware and software from the vendor


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Hardware Inventory Check

Type of equipment: model no.,manufacturer

Status of equipment operation

Estimated age of equipment

Physical location of equipment

Department or person responsible for

equipment


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Criteria for Evaluating Hardware

Time required for average transactions(including time for input and output)

Total volume capacity of the system Idle time of the central processing unit

Size of memory provided


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People that Evaluate Hardware

Management

Users

Systems analysts



Three Options for Obtaining ComputerEquipment

Buying

Leasing Rental



Buying

Advantages Disadvantages

Cheaper than leasingor renting over thelong run

Initial cost is high

Ability to changesystem

Risk of obsolescence

Provides taxadvantages ofaccelerateddepreciation

Risk of being stuck ifchoice is wrong

Full control Full responsibility



Leasing


No capital is tied up Company doesnt ownthe system when lease

expiresNo financing isrequired

Usually a heavy penaltyfor terminating thelease

Leases are lower than

rental payments

Leases are more

expensive than buying



Renting


No capital is tied up

No financing is required

Company doesnt own

the computer

Easy to change systems

Maintenance andinsurance are usuallyincluded

Cost is very highbecause vendor assumes

the risk (most expensiveoption)



Evaluation of Vendor Support for Hardware

Hardware support full line of hardware, quality products, warranty

Software support

complete software needs, custom programming, warranty

Installation and training support commitment to schedule, in-house training, technical

assistance

Maintenance support

routine maintenance procedures, specified response timein emergencies, equipment loan while repair is being done



Guideline for Evaluating Software

Performance effectivenessperform all required anddesired tasks, well-designed display screens, adequatecapacity

Performance efficiencyfast response time, efficientinput, output, storage of data and backup

Ease of usesatisfactory user interface, help menu,ReadMe files, flexible interface, adequate feedback,good error recovery

Flexibilityoptions for input and output, usable withother software

Quality of documentationgood organization, adequateonline tutorial, Web site with FAQ

Manufacturer supporttech support hot line,newsletter/email, downloadable product updates



Costs and BenefitsAnalysis

Systems analysts should take tangiblecosts, intangible costs, tangible benefits,and intangible benefits into considerationto identify cost and benefits of aprospective system



Tangible Costs

Tangible costs are those that can beaccurately projected by systems analystsand the business' accounting personnel

Examples: Cost of equipment

Cost of resources

Cost of systems analysts' time



Intangible Costs

Intangible costs are those that aredifficult to estimate, and may not beknown

Examples: Cost of losing a competitive edge

Declining company image



Tangible Benefits

Tangible benefits are advantagesmeasurable in dollars that accrue to theorganization through use of theinformation system

Examples:

Increase in the speed of processing

Access to information on a more timely basis



Intangible Benefits

Intangible benefits are advantages fromuse of the information system that aredifficult to measure

Examples: Improved effectiveness of decision-making

processes

Maintaining a good business image



Selecting the Best Alternative

To select the best alternative, analystsshould compare costs and benefits of theprospective alternatives using

Break-even analysis

Payback

Cash-flow analysis

Present value method



Break-Even Analysis

Break-even analysis is the point at whichthe cost of the current system and theproposed system intersect

Break-even analysis is useful when abusiness is growing and volume is a keyvariable in costs


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Break-Even Analysis


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Payback Period(PBP)

Payback determines the number of years ofoperation that the system needs to pay backthe cost of investing in it

Payback is determined in one of two ways: By increasing revenues

By increasing savings If the PBP of a project is 6 years and the

project can exist 3 years in the fast technologychange situationit should be rejected.


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How to determinePBP

PAY BACK PERIOD (PBP)Investment: $ 20,000

Amount Recovered in 2002: $ 7,312Remaining Investment to be recovered: $12,668Amount Recovered in 2003: $ 7,768Remaining Investment to be recovered: $ 4,920

Part of 2004 Needed : 4,920/7352= 0.67(Assuming that Amount Recovered in 2004 is $7352)

PBP = 1 + 1 + 0.67 = 2.67 YEARS


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Payback Period


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Three Drawbacks of the Payback Method

It is strictly a short-term approach toinvestment and replacement decision

It does not consider the importance of howrepayments are timed

It does not consider total returns from theproposed systems project that may go wellbeyond the payback year


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Cash-Flow Analysis

Cash-flow analysis is used to examinethe direction, size, and pattern of cashflow associated with the proposedinformation system

Determines when a company willbegin to make profit

Determine when cash outlays and

revenues will made up for initialinvestment


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Cash-Flow Analysis


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Present Value Method

Assess all the economic outlays andrevenues of the information system overits economic life and to compare coststoday with future costs and today'sbenefits with future benefits

Use present value when the paybackperiod is long, or when the cost ofborrowing money is high


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Present Value Method

Without considering present value

Considering present value


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Guidelines for Selecting the Best Alternative

Use break-even analysis if the project needs to bejustified in terms of cost, not benefits or if benefitsdo not substantially improve with the proposedsystem.

Use payback when the improved tangible benefitsform a convincing argument for the proposedsystem.

Use cash-flow analysis when the project isexpensive relative to the size of the company.

Use present value when the payback period islong.

Lecture 8 Chap13

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Transcript of Lecture 8 Chap13