FEASIBILITY

ANALYSIS AND
THE SYSTEM
PROPOSAL
Feasibility Analysis and the System Proposal

Identify feasibility checkpoints in the systems life cycle.

Identify alternative system solutions.
Define and describe four types of feasibility and their
respective criteria.
Perform various cost-benefit analyses using time-
adjusted costs and benefits.
Write suitable system proposal reports for different
audiences.
Plan for a formal presentation to system owners and
users.
Feasibility Analysis
Feasibility is the measure of how beneficial or practical
the development of an information system will be to an
organization.

Feasibility analysis is the process by which feasibility is

measured.

Creeping Commitment approach to feasibility proposes

that feasibility should be measured throughout the life
cycle.
Content of a Feasibility Study
 The present organizational system - Stakeholders, users,
policies, functions, objectives
 Problems with the present system - inconsistencies,
inadequacies in functionality, performance,…
 Goals and other requirements for the new system - Which
problem(s) need to be solved? What would the stakeholders
like to achieve?
 Constraints - including nonfunctional requirements on the
system (preliminary pass)
 Possible alternatives - “Sticking with the current system” is
always an alternative.
 Advantages and disadvantages of the alternatives
Four Tests For Feasibility
Operational feasibility is a measure of how well the
solution will work in the organization. It is also a
measure of how people feel about the system/project.
Technical feasibility is a measure of the practicality of
a specific technical solution and the availability of
technical resources and expertise.
Schedule feasibility is a measure of how reasonable
the project timetable is.
Economic feasibility is a measure of the cost-
effectiveness of a project or solution.
 Economic Feasibility: Cost-Benefit Analysis

Purpose - answer questions such as:

o Is the project justified (I.e. will benefits outweigh
costs)?
o What is the minimal cost to attain a certain system?
o How soon will the benefits accrue?
o Which alternative offers the best return on
investment?
Difficulties
o benefits and costs can both be intangible, hidden
and/or hard to estimate
o ranking multi-criteria alternatives
Benefits vs Costs

Costs:
 Development costs: are one time costs that will not recur
after the project has been completed.
 Operating costs: are costs that tend to recur throughout the
lifetime of the system. Such costs can be classified as:
 Fixed costs — occur at regular intervals but at relatively fixed rates.
 Variable costs — occur in proportion to some usage factor.

Benefits:
 Tangible benefits: are those that can be easily quantified.
 Intangible benefits: are those benefits believed to be
difficult or impossible to quantify.
 Analysing Costs vs Benefits
Identify costs and benefits
Tangible and intangible, one-time and recurring

Assign values to costs and benefits

 Determine Cash Flow

Project the costs and benefits over time, e.g. 3-5 years

Calculate Net Present Value for all future costs/benefits -

determines future costs/benefits of the project in terms of
today's dollar values
A dollar earned today is worth more than a potential
dollar earned next year
 Do cost/benefit analysis
Three Popular Techniques to Assess
Economic Feasibility
Payback Analysis
Return On Investment
Net Present Value

The Time Value of Money is a concept that should be

applied to each technique. The time value of money
recognizes that a dollar today is worth more than a dollar
one year from now.
Payback Analysis
Payback analysis is a simple and popular method for
determining if and when an investment will pay for
itself.

Payback period is the period of time that will lapse

before accrued benefits overtake accrued and continuing
costs.
Present Value Formula
PVn = 1/(1 + i)n

Where n is the number of years and i is the discount rate.

Cost Benefit Analysis: Example
Return-on-Investment Analysis (ROI)
Return-on-Investment compares the lifetime
profitability of alternative solutions or projects.

The ROI for a solution or project is a percentage rate that

measures the relationship between the amount the
business gets back from an investment and the amount
invested.
ROI Formulas

Lifetime ROI = (estimated lifetime benefits –

estimated lifetime costs) / estimated lifetime
costs
For our example
ROI = (795,440 - 488,692) / 488,692 = 63%,
or ROI = 306,748 / 488,692 = 63%

Annual ROI = lifetime ROI / lifetime of the system

Net Present Value (NPV) Analysis
Computing the Payback Period

 Can compute the break-even point:

When does lifetime benefits overtake lifetime costs?
Determine the fraction of a year when payback actually
occurs:

| beginningYear amount |
endYear amount + | beginningYear amount |

For our last example, 51,611 / (70,501 + 51,611) = 0.42

Therefore, the payback period is approx 3.4 years
Feasibility Analysis Matrix
Feasibility Analysis Matrix is intended to
complement the candidate systems matrix with an
analysis and ranking of the candidate systems.

Candidate 1 Name Candidate 2 Name Candidate 3 Name

Description
Operational
Feasibility
Technical
Feasibility
Schedule
Feasibility
Economic
Feasibility
Ranking
 Sample Feasibility Analysis Matrix
Feasibility Criteria Wt. Candidate 1 Candidate 2 Candidate 3
Operational Feasibility 30% Only supports Member Fully supports user required Same as candidate 2.
Services requirements and functionality.
Functionality. A description of to what current business processes
degree the candidate would benefit the would have to be modified to
organization and how well the system take advantage of software
would work. functionality.
Political. A description of how well
received this solution would be from
both user management, user, and
organization perspective. Score: 60 Score: 100 Score: 100
Technical Feaasibility 30% Current production release of Although current technical Although current technical
Platinum Plus package is staff has only Powerbuilder staff is comfortable with
Technology. An assessment of the version 1.0 and has only been experience, the senior analysts Powerbuilder, management is
maturity, availability (or ability to on the market for 6 weeks. who saw the MS Visual Basic concerned with recent
acquire), and desirability of the Maturity of product is a risk demonstration and presentation acquisition of Powerbuilder by
computer technology needed to support and company charges an have agreed the transition will Sybase Inc.
this candidate. additional monthly fee for be simple and finding MS SQL Server is a current
technical support. experienced VB programmers company standard and
Expertise. An assessment of the will be easier than finding competes with SYBASE in the
technical expertise needed to develop, Required to hire or train C++ Powerbuilder programmers and client/server DBMS market.
operate, and maintain the candidate expertise to perform at a much cheaper cost. Because of this we have no
system. modifications for integration MS Visual Basic is a mature guarantee future versions of
requirements. technology based on version Powerbuilder will “play well”
number. with out current SQL Server.
Score: 50 Score: 95 Score: 60
Economic Feasibility 30%
Cost to develop: Approximately $350,000. Approximately $418,040. Approximately $400.000.
Payback period (discounted): Approximately 4.5 years. Approximately 3.5 years. Approximately 3.3 years.
Net present value: Approximately $210,000. Approximately $306,748. Approximately $325,500.
Detailed calculations: See Attachment A. See Attachment A. See Attachment A.
Score: 60 Score: 85 Score: 90
Schedule Feasibility 10% Less than 3 months. 9-12 months. 9-12 months.
An assessment of how long the solution
will take to design and implement. Score: 95 Score: 80 Score: 85
Ranking 100% 60.5 92 85
System Proposal – formal presentations
Formal presentations are special meetings used to sell
new ideas and gain approval for new systems. They may
also be used for any of these purposes:
Sell new system
Sell new ideas
Head off criticism
Address concerns
Verify conclusions
Clarify facts
Report progress
Exercise

 Perform a financial analysis for a project using the format

provided on slide 12. Assume the projected costs and
benefits for this project are spread over four years as
follows: Estimated costs are $100,000 in Year 1 and
$25,000 each year in Years 2, 3, and 4. Estimated benefits
are $0 in Year 1 and $80,000 each year in Years 2, 3, and
4. Using an 8% discount rate, calculate and clearly
display the NPV, ROI, and year in which payback occurs.
In addition, write a paragraph explaining whether you
would recommend investing in this project based on your
financial analysis.