Feasibility and Cost/Benefit Analysis

Cost considerations u Cost classifications –Tangible / Intangible –Direct / Indirect –Fixed / Variable –Developmental / Operational

IS Chargeout Methods u IS incurs costs that are directly attributed to developing the system –salaries –hardware –software –supplies u Also indirect costs

IS Chargeback Methods u Chargeback method is technique used to bill end users for indirect costs of running information systems department –No charge (cost center vs. profit center) –Fixed charge –Variable – based on resource usage –Variable – based on volume

No Charge Method u treat IS costs as necessary cost of doing business u IS is a COST CENTER

Fixed Charge Method u IS costs are divided among all other departments, each assessed a fixed monthly charge u IS is now a PROFIT CENTER

Variable charge Method u Based on resource usage –connect time –CPU time u Based on volumes –Number of transactions –number of files –number of records

Benefit Considerations u Positive Benefits –increase revenues, improve services. … u Cost Avoidance Benefits –reduced clerical costs, reduced overtime, … u Must consider both

Cost - Benefit Analysis u Process of comparing anticipated costs of IS to anticipated benefits u Performed throughout SDLC to determine economic feasibility

Payback Analysis u Determine the initial development cost of the system u Estimate annual benefits u Determine annual operating costs u Find the payback period by comparing total development and operating costs to the accumulated value of the benefits produced by the system

Payback Analysis u Plot costs of IS year by year over entire potential life –costs high at beginning (developing) –costs decrease at beginning of system operation, stay relatively constant for a while –costs eventually start to increase -- possibly rapidly (more and more maintenance required)

Payback Analysis u Plot benefits provided by IS against time –No benefit until system is operational –Benefits increase rapidly –Benefits tend to level off

Payback Analysis u Payback period -- amount of time that passes before accumulated benefits equal accumulated costs of developing and operating system u NOTE -- not the point where the cost and benefit curves cross

Payback Analysis - ** u Places emphasis on early costs and benefits, ignoring costs and benefits after payback period u Rarely used to compare projects because later benefits are ignored u Many companies establish minimum payback periods for continued consideration (5 years)

Return on Investment Analysis u ROI = u (total benefits - total costs) total costs

Return on Investment Analysis u Many organizations require minimum ROI (15%) u You can used ROI for ranking projects u However, only an average rate u and ignores time value of money

Present Value Analysis u PV of a future dollar is the amount of money that, when invested today at some specified interest rate, would grow to exactly one dollar at that point in the future

Present Value Analysis u PV = 1 / ( 1 + I) n u Rule of 72 u Net Present Value

Present Value Analysis u Any project with positive net present value is economically feasible

PROJECT MANAGEMENT u Ongoing process of directing and coordinating all the steps in development of IS u Effective project management necessary throughout SDLC

Project Management -- Overview u GOAL -- produce IS that is acceptable to end users, in time, and in budget($) u Project Manager –manage project (daily activities) u Project coordinator –handles administrative and procedural responsibilities

Management Functions u Planning u Organizing u Leading u Controlling

Project Planning u Takes place at beginning and end of all SDLC phases

ACTIVITY (Task) u any project-related work requiring use of project resources (personnel, time or money) or any external effort that impacts the project u smallest unit of work over which project manager desires control u ACTIVITIES should be small and manageable

EVENT u Project milestone representing beginning or end of an activity u Concrete and recognizable (to verify that an activity is complete)

PROJECT MANAGER u Defines project activities and events u estimates time and cost to complete each activity u schedules/assigns activities to specific team members u coordinates activities u monitors events u evaluates/reports on progress

PROJECT ESTIMATING u REALISTIC TIME ESTIMATES VERY DIFFICULT u MUST CONSIDER –Size of project –IT Resources –Prior experience –Constraints

TIME ESTIMATES u Person days NOT u Time and people are NOT interchangeable u Quantitative Method u Experience Method u Constraint Method

General Productivity u Programmer does not spend 8 hours / day on project assignments –meetings –training –down time –vacations –maintenance –other projects….

PROJECT SCHEDULING u (Identify activities) u Determine order in which activities will be performed u Set start/end times for activities u assign specific tasks to team members

Scheduling Tools u Gantt Chart u PERT/CPM

Gantt chart u First used in 1917 to control production of war materials u Horizontal bar chart that graphically illustrates a schedule

Gantt chart u Time represented by horizontal axis u Activities listed vertically (in order by start dates) u Length of bar indicates duration of activity u Current date indicated with dotted line or shaded bars

Gantt chart u Useful for tracking and reporting progress u Picture is easily understood u Not great for project control u Do not show project dependencies; can not determine impact on entire project caused by an activity that is behind schedule

PERT/CPM u Program Evaluation Review Technique u Critical Path Method u Developed by Navy Special Projects Office in 1950’s to control submarine missile program

PERT/CPM u Project activities and events are graphically presented as network of vectors and nodes u Activity -- Vector (line with single arrowhead) connects one node to another u Event -- Node (usually circles) u Vector similar to bar on Gantt, ---- length of vector does not indicate length of activity

PERT/CPM u Activities can be scheduled serially or parallel u Dummy Activity (dashed vector) –indicates dependency, no time is required u Activity duration

PERT/CPM u Earliest completion time (ECT) –calculated from beginning to end u Latest completion time (LCT) –calculated from end to beginning (after entire project has identified ECT)

PERT/CPM u Slack time –amount of time by which an event can be late without delaying the project –difference between LCT and ECT u Critical Path –Complete path through a PERT/CPM network where ECT equals LCT

Gantt Chart vs. PERT/CPM u PERT shows dependencies –much more helpful for project scheduling –Useful for monitoring and controlling projects –Critical path identified –Difficult to construct u Gantt –Easier to use for reporting purposes

Gantt vs. PERT/CPM u Used in combination with each other u neither address resource leveling –process that manager used to ensure that no team members are either underutilized or overscheduled

Project monitoring and control u Traditional management functions of directing and controlling u structured walk through u Peer review

Project Management u Project reporting –Project status meetings –Project status reports u Project management software –allows manager to iterate between schedules, estimates and resource assignments u Change Control –Project coordinator responsibility

Software Change Control u Process of managing and controlling requested changes to system requirements document after requirements have be accepted and frozen

Software Change Control u Complete change request form u Project coordinator makes initial determination u If you are to proceed, analyze the impact of requested changed (project manager or analyst) u Determine disposition of requested change

Why Projects fail??? u When does programmer inform project manager that he is behind schedule? u When does project manager inform corporate management that the project is behind schedule?