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

• 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 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

• 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

• 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.