Feasibility Study: Economic feasibility Technical feasibility Operational feasibility Organizational feasibility Legal feasibility Schedule feasibility Feasibility Analysis: “Once is not enough” (Creeping Commitment approach)

Feasibility Study Economic feasibility Technical feasibility cost-benefit analysis Technical feasibility ability to construct system - risks greater returns from riskier projects - manage risks fail to attain benefits, cost/ time overruns inadequate system performance levels unable to integrate with existing hardware, software

Technical risk larger projects are riskier project team size, project duration, number of organizational units involved, programming effort structured and easily obtainable requirements less risky use of standard technology less risky than novel or non standard technology development team familiarity with hardware, software development environment, OS; application area; systems of similar scope less risk when user group is familiar with system development process and application area

Operational feasibility likelihood of project attaining desired objectives how new system will affect organizational structures and processes, how it fits into current day-to-day operations Organizational/political feasibility how key stakeholders in organization view system system can affect distribution of information, thus power

Schedule feasibility Legal feasibility likelihood that timeframes can be met and that this is adequate to meet organization’s needs resource availability to enable schedule Legal feasibility copyrights, anti-trust laws (systems that share data across organizations), financial reporting requirements, contractual obligations, software ownership, outsourcing arrangements, etc.

Work Project steps Estimating Completed Accuracy 2% Project proposal 80% with Feasibility User Requirements System Definition 15% Feasibility Study 40% Preliminary Design 30% Feasibility Study 20% Detailed Design Program Design 60% Feasibility Study 10% Program and Test Implementation Plan 80% Feasibility Study 10% System Test Installation Training Acceptance /ChangeOver

Economic Feasibility: System Costs: Development Costs IS Personnel, consultants hardware, software procurement data conversion documentation, user trg Computer room, etc Production Costs operation and maintenance manpower, software / hardware upgrading,supplies System Benefits: Tangible reduced operating costs, transaction costs errors

Cost Benefit Analysis: Increased transaction throughput Intangible improved customer relations better decision making, etc Cost Benefit Analysis: Payback Point: Development Costs (Years to payback) Benefits per year Sensitivity Factors Possible variation in cost/benefit estimates 1.1 Cost can be higher by 10% Effect of Inflation

Time Value of Money Profitability Index Present Value (PV) = amt * 1 / (1 +c) ^ n n : # of periods in time c : Cost of Money ( discount rate ) Profitability Index Earnings per dollar invested (Present value of total cash flow) (value of initial investment ) Yearly cash flow = (Projected Annual Benefits) (Projected Annual Production Cost)

Calculation of Profitability Index (in last example): Year1 Year 2 Year 3 Year 4 Year 5 PV of Yearly 40,918 38,632 36,480 34,428 32,480 cash flow (eg. 63,818-22,900 = 40, 918) Total PV yearly Cash Flow = 18,938 PI = Total PV of Yearly Cash Flow/Total Development Cost = 182,938/107,250 = 1.71

Example of Cost Benefit analysis for Tri-County Insurance Note that this example does not consider sensitivity factors or inflation. The discount rate used for calculations is 8%. Calculations in this example are done a little differently than in the earlier example – Present values are calculated for the cash-flows here, whereas in the last example the PVs were calculated for the costs and benefits separately.