Feasibility Study: Economic feasibility Technical feasibility Operational feasibility Organizational feasibility Legal feasibility Schedule feasibility Feasibility

bility Analysis: Once is not enough (Creeping Commitment approach)

Feasibility Study
Economic 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
likelihood that timeframes can be met and that this is adequate to meet organizations 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 Completed
2%

Project steps
Project proposal with Feasibility User Requirements System Definition Feasibility Study Preliminary Design Feasibility Study Detailed Design Program Design Feasibility Study Program and Test Implementation Plan Feasibility Study

Estimating Accuracy
s 80%

15% 30%

s 40%
s 20%

60%

s 10%

80%

s 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

 Increased transaction throughput

Intangible
improved customer relations better decision making, etc

Cost Benefit Analysis:

Payback Point: (Years to payback) Sensitivity Factors
Possible variation in cost/benefit estimates 1.1 Cost can be higher by 10%

Development Costs Benefits per year

Effect of Inflation

 Time Value of Money

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 40,918 38,632 36,480 Year 4 34,428 Year 5 32,480

PV of Yearly 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 TriCounty 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.