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

2. 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

3. 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

4. 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

5. 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.

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

7. 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

8. 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

9. 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)

12. Calculation of Profitability Index (in last example):
Year1 Year Year Year Year 5
PV of Yearly 40,918 38, , , ,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

13. 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.