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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