Chapter 5 Initiation and Planning Systems Development Projects

Chapter 5

Initiation and Planning Systems Development

Projects

Objectives

Understand Feasibility StudyUnderstand different types of benefits

obtained by using the Information SystemDifferent types of cost incurred on the

developing and maintaining Information System

How to assess Economic Feasibility

Initiation and Planning Systems Development Projects

The first phase of SDLC , is the Planning, during which two activities are performed. The first activity of the Planning phase, Project identification and Selection focuses on the activities during which the need for a new or enhanced system is recognized. This activity identifies the portfolio (group) of projects to be undertaken by the organization.

The project identification and selection is a pre-project step in the life cycle.

Initiation and Planning Systems Development Projects The second step in the planning phase is

Project Initiation and Planning which is used to conduct a more detailed assessment of one particular project selected during the first step i.e. to understand the scope of a proposed project and its feasibility of completion based on the available resources.

In this phase, projects are either accepted for development, rejected or redirected.

Systems Analyst plays a major role in the system development process.

Project Planning

Project Planning, the second activity within Project Initiation & Planning is the process of defining clear, discrete activities and the work needed to complete each activity within a single project.

The objective of the project planning process is the development of a Baseline Project Plan (BPP) and the Statement of Work (SOW)

Project Planning

Describing Project scope, alternatives and feasibility.

Dividing the Project into manageable tasks. Estimating Resources and creating a resource plan. Developing a preliminary schedule. Developing a communication plan Determining project standards and procedures. Identifying and assessing risks Creating a preliminary budget Developing a statement of work. Setting a baseline Project plan.

Accessing Project Feasibility

The feasibility study decides the possibility of developing the proposed system within the budgetary, time and technology constraints.

The feasibility study decides if the proposed system is cost effective from a business point of view i.e. if it can be developed given existing budgetary constraints, and if it can be developed within a given time limit and with the available technology depending on the complexity of the project.

Assessing Project Feasibility

Accessing feasibility is a required activity for all the information Systems projects. It determines whether a development project has a reasonable chance of success.

Feasibility Study requires to evaluate a wide range of factors.

Six Categories Economic Technical Operational Schedule Legal and Contractual Political

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Assessing Economic Feasibility

The purpose for assessing economic feasibility is to identify the financial benefits and costs associated with the development projects.

Economic feasibility consists of two test: Is the anticipated value of the benefits greater than

projected costs of development? Does the organization have adequate cash flow to fund

the project during the development period?

Assessing economic feasibility is also called the Cost – Benefit Analysis


Developing a cost/benefit analysis is a three-step process. Step 1: To estimate the anticipated development and

operational (after system is out into use) cost. Step 2: To estimate the anticipated financial benefits

(Expected annual savings derived from installation of the new system).

Step3 : The cost/benefit analysis step is calculated from the detailed estimates of costs and benefits.

Determine Project Costs

Information Systems can have Tangible Costs Intangible Costs

Tangible Costs : A cost associated with an Information system that can be measured in dollars and with certainty.From an IS development perspective, tangible cost include items such as

Development costOperational cost

Development (One-Time) Costs

One time cost refer to those associated with project initiation and development and the startup of the system.

These costs includes activities such as System Development New hardware and software purchases Salaries and wages of development team Consulting fees User training Site preparation Data or system conversion

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ONE TIME COSTS WORKSHEET

Year 0

1. Development costs $20,0002. New hardware $15,0003. New (purchased) software, if any

a. Packaged application $5,000b. Other

0 4. User training $2,5005. Site preparation 06. Other 0Total one-time costs

$42,500

Recurring Costs

Refers to those costs associated with ongoing evolution and use of the system.

These costs includes activities such as: Application software maintenance Incremental data storage expense New software and hardware releases Consumable supplies and other expenses

(e.g. paper, forms, data centre personnel) Incremental communications.

Telephone expensesConnectivity expenses

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RECURRING COSTS WORKSHEET

Year 1 through 5

1. Incremental data storage

2. Required:20 MB x $50 $1,000

3. Incremental communication $2,000

4. New software or hardware leases 0

5. Supplies $500

6. Other 0

TOTAL RECURRING COSTS$28,500

Fixed and Variable Costs

Both one-time and recurring cost can consists of items that are Fixed or variable

Fixed costs refer to costs that are billed or incurred at a regular interval and usually at a fixed rate (e.g. a facility lease payment).

Variable costs refer to items that vary in relation to usage (e.g. long distance phone charge)

Determine Project Costs (Contd.)

Intangible Costs A cost associated with an information system that cannot be measured in terms of dollars or with certainty.

Intangible costs can include • Loss of customer goodwill• Loss of employee morale• Operational inefficiency

Even though Intangible costs do not enter into the calculations, they should be considered while deciding whether to work on the project or not.

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Determining Project Benefits: An information system can provide benefits to an organization which usually come from two major sources: Decreased costs Increased revenues

Cost savings or decrease in expenses come from increased efficiency in company operations.e.g. a new or renovated IS can automate monotonous jobs, reduce errors, provide innovative services to customers and suppliers and improve organizational efficiency, speed , flexibility and morale.

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Benefits can be viewed as Tangible Intangible

Tangible BenefitsTangible Benefits refers to associated benefits that can be quantified i.e. can be measured easily in dollars and with certainty

Tangible Benefits

Reducing staff by automating manual functions or increase efficiency

Maintaining constant staff with increasing volumes of work

Reducing paperwork cost by implementing electronic data interchange and other automation.

Decreasing operating expenses such as shipping charges

Reducing error rates through automated editing or validation

Achieving quicker processing and turnaround of documents or transactions

Reducing bad accounts or bad credits losses

TANGIBLE BENEFITS WORKSHEETBenefits/Cost Saving Amount Comments

Increased efficiency in mail order department

$125,000.00 5 people @$25,000

Increased efficiency in phone order department

$25,000.00 1 person @25,000

Increased efficiency in warehousing/shipping

$87,000.00

Increased earnings due to web presence

$152,000.00 Increasing at 50%/year

Other savings (inventory, supplies)

$889,000.00

Total Annual Benefits $889,000.00

TANGIBLE BENEFITS WORKSHEET

1. Cost reduction or avoidance $ 4,500

2. Error reduction $ 2,500

3. Increased flexibility $ 7,500

4. Increased speed of activity $10,500

5. Improved in management

planning or Control $25,000

Total tangible benefits $50,000

Year 1 through 5

Assessing Economic Feasibility Intangible Benefits

refer to those items that cannot be quantified i.e.cannot be easily measured in dollars or with certainty. The Intangible benefits are to be described in the BPP.

Intangible benefits may have direct organizational benefits such as

Improvement in employee morale Increased levels of services Increased customer satisfaction More timely information Faster decision making Reduction of waste creation or resource consumption Positive impact on society Improved work process that can improve employee morale

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Intangible Benefits

Intangible benefits do not enter into the calculations, they should be considered and be also the deciding the factor on whether the project proceeds or not.

Cost Benefit Analysis

Time value of money (TVM)The process of comparing present cash outlays

(cash spent) to future expected returns is known as Time Value of Money (TVM)

The phrase time value of money refers to the fact that a dollar in hand today is worth more than a dollar promised at some time in the future.

One reason for this is that we could earn interest while we waited; so a dollar today would grow to more than a dollar later.

Time value of money (TVM)

The development of an information system has both one-time and recurring costs

Benefits from system development will likely occur sometime in the future but not from year 1.

Since many projects may be competing for the same investment dollars, all costs and benefits must be viewed in relation to their present value in that year when comparing investment options.

Time value of money (TVM)

The rate at which money can be borrowed or invested is called the cost of capital and is called the discount rate for TVM calculations.

The discount factor is like an interest rate, except it is used to bring future values back to current values.

The t years from now when r is the discount rate the present value of money (Y)

PVn = Y x 1 (1 + r) t

The Time Value of Money

The present value of $1500 after one year, two years, three years is calculated as:

PV1= 1500 x [1 /(1 + 0.I)1]

PV1 = 1500 x .9091

PV1= 1363.65

PV2 = 1500 x [1/(1+0.1)2]

PV2 = 1500 x .8264 = 1239

PV3 = 1500 x [1 /(1 + 0.1 )3]= 1500 x .7513 = 1126.95


If a person has to make three payments of $1500 each at the end of a year, the total amount after three year is $1500 + $1500 + $1500 = $4500

To calculate the net present value of the three $1500 , payments simply add the present values calculated above

NPV= PV1+PV2+PV3 NPV = 1363.5 + 1239.60 + 1126.5 NPV = 3730.20 In other words, the person could make a lump sum

payment of $3730.20 in the beginning or $1500 at the beginning of each year.


Economic Analysis: Create a worksheet reflecting the present

values of all benefits and costs. The life of many information systems does not

exceed five years. Therefore the cost benefits analysis calculations are to be made using five year time horizon.

The management has set their cost of capital to be 12 % i.e. discount rate is 12 %

Commonly Used Cost Benefits Analysis

Net Present ValueReturn On InvestmentPay Back Period ( Break Even Analysis)


Overall NPV is calculated as:Overall NPV= NPV of all BENEFITS -NPV of all

COSTs

Over all Return on Investment (ROI) is calculated as :

Overall ROI = Overall NPV/NPV of all COSTS

ROI is calculated as percentage

The more the ROI, the better.

Break Even Analysis The objective of break-even analysis is to

discover at what point benefits equal costs i.e. when break down occurs.

The NPV of the yearly cash flows are determined by subtracting both the one time costs and the present values of the yearly recurring costs from the present value of the yearly benefits.

The overall NPV of the cash flow reflects the total cash flows for all the preceding years.

The break down occurs between year 2 and 3. Since year 3 is the first year in which overall NPV cash flow is non negative.

Break Even Analysis

Break Even Ratio = (Yearly NPV Cash Flow-Overall NPV Cash flow)/ Yearly

NPV Cash flow

Break Even Ratio =

(15,304-9138)/15304 = .404

Break Even Analysis

Cost Benefit Analysis

Assessing Technical Feasibility

The purpose of assessing technical feasibility is to gain an understanding of the organization’s ability to construct the proposed system.

The analysis includes assessment of the development group’s understanding of the possible target hardware, software and operating environments to be used as well as system size, complexity and the group’s experience with similar systems.


All projects have risks, understanding the sources and types of technical risks proves to be valuable tool when a project is assessed.

All risks need to be managed in order to be minimized, therefore potential risks should be identified as early as possible in a project.


If the risks are not assessed or managed, it can result to the following outcomes : Failure to attain benefits from the project Inaccurate project cost estimates Inaccurate project duration estimates Failure to achieve adequate system performance levels Failure to adequately integrate the new system with

existing hardware, software or organizational procedures.


The amount of technical risk associated with a given project is dependent on four primary factors. Project size Project structure The development group’s experience with

the application and technology area. The user’s experience with development

projects and application area.

Rules for technical risk assessment

Larger projects are riskier than small projects. A system in which the requirements are easily

obtained and highly structured will be less risky than one in which requirements are messy, ill structured, ill defined or subject to the judgment of an individual.

The development of a system employing commonly used or standard technology will be less risky than one employing novel or non standard technology.

Rules for technical risk assessmentA project is less risky when the user group

is familiar with the systems development process and application area than if unfamiliar. Successful IS projects require active

involvement and cooperation between the user and development groups. Users familiar with the application area and the systems development process can influence the success of the project.

Low structured

High structured

High familiarity with technology or Application Area

Large Project

(1)

Low risk

(2)

Very Low risk

Small Project

(3)

Very low risk

(4)

Very low risk

Low familiarity with technology or Application Area

Large Project

(5)

Very High risk

(6)

Medium risk

Small Project

(7)

High risk

(6)

Medium-low risk

Operational Feasibility It is the process of assessing the degree to

which the proposed system solves the business problems or takes advantage of business opportunities.

The business opportunities are outlined in the systems service request or project identification study.

It is related to examining the likelihood that the project will attain its desired objectives.

Operational Feasibility

For a project motivated from ISP, operational feasibility includes justifying the project on the basis of being consistent with the IS plan.

Operational feasibility also includes an analysis of how the proposed system will affect organizational structures and procedures.

Schedule feasibility It relates to project duration. The purpose of assessing schedule feasibility is

to gain an understanding of the likelihood that all potential time frames and completion dates schedules for all the activities within a project can be met and that meeting these dates will be sufficient for dealing with the needs of the organization. e.g. a system may have to be operational by a government-imposed

deadline, by a particular point in the business cycle(such as beginning of

the season when new products are introduced) or at least by the time a competitor is expected to introduce a

similar system.

Legal and Contractual feasibility The process of understanding of any potential

legal and contractual ramifications (consequences) due to the construction of the system is known as legal and contractual feasibility.

Possible considerations include Copyrights or non disclosure infringements. Labour laws Antitrust legislation, limiting the creation of systems to share data

with other organizations. Foreign trade regulations, limiting the access to employee data

by foreign corporations Financial reporting standards. Current contractual obligations

Legal and Contractual feasibility

Contractual obligations may involve Ownership of software used in joint ventures License agreements for use of hardware or

software Nondisclosure agreements with partners Elements of a labor agreement

Political feasibility

It is the process of evaluating how key stakeholders within the organization view the proposed system.

Since an information system may affect the distribution of information within the organization, and thus the distribution of power, the construction of an IS can have political ramifications.

Those stakeholders not supporting the project may take steps to block, disrupt or change the intended focus of the project.

Building the Baseline Project Plan

All the information collected during project initiation and planning is collected and organized into a document called the Baseline Project Plan.

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Four Sections Introduction System Description Feasibility Assessment Management Issues

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Introduction Brief overview ( summary) of the entire document,

specifying the project’s scope, feasibility, justification, resource requirement and schedules. A brief statement of the problem, the environment in which the system is to be implemented, and constraints that affect the project are provided.

Recommended course of action for the project Project scope defined

Units affected Who inside and outside the organization would be involved Interaction with other systems Range of system capabilities

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System Description A brief description of possible alternative

solutions A description of the selected solution

Feasibility Assessment Provides an economic justification for the

system using cost-benefit analysis. A discussion of relevant technical risk factors

and an overall rating of the project.

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An analysis of how the proposed system solves the business problems and takes advantage of business opportunities.

A description of any legal or contractual risks related to the project.

A description of how key stakeholders within the organization view the proposed system.

A description of potential time frame and completion date scenario using various resource allocation schemes.


Management Issues A description of the team member roles and

reporting relationships. A description of the communication procedures

to be followed by management, team members and the customer.

A description of how deliverables will be evaluated and accepted by the customer

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Reviewing the Baseline Project Plan

Objectives Assure conformity to organizational

standards Ensure all parties understand and agree

with the information contained in the Baseline Project Plan.

A common method of reviewing the BPP is called a structured walkthrough.

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Reviewing the Baseline Project PlanWalkthrough

Peer group review of any product created during the systems development process.

Widely used by the professional development organization.

ParticipantsCoordinator- This person plans the meeting

and facilitates a smooth meeting process.Presenter – This person describes the work

product to the group.

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Reviewing the Baseline Project Plan

User- This person ( or group) makes sure that the work product meets the needs of the project’s customers.

Secretary- This person takes notes and records decisions or recommendations made by the group.

Standards Bearer – The role of this person is to ensure that the work product adheres to organizational technical standards.

Maintenance Oracle – This person reviews the work product in terms of future maintenance activities.

Documents

Chapter 5 Initiation and Planning Systems Development Projects